WSGR ALERT

California Supreme Court Rejects Employer Argument that It Need Not Pay for De Minimis Amounts of Time Worked by Employees

August 1, 2018

Once again, California's Supreme Court has underscored that California employment law can differ from federal law in significant, and typically more employee friendly, ways. In Douglas Troester v. Starbucks Corporation,1 a class action wage and hour lawsuit brought by a California employee, the Court rejected the application of the de minimis doctrine that federal courts have long applied in wage cases under the Fair Labor Standards Act (FLSA). The doctrine serves to excuse employers from having to pay wages to employees for "small amounts of otherwise compensable time upon a showing that the bits of time are administratively difficult to record." After Starbucks, California employers must pay employees for all time worked, even when amounts may be deemed de minimis.

Background

Douglas Troester brought the class action on behalf of himself and a class of non-managerial California Starbucks employees who performed store closing tasks. The Starbucks computer software that employees used to record their time required Troester to clock out before engaging in various store closing procedures, such as transmitting daily sales, profit and loss, and store inventory data to the Starbucks corporate headquarters. Troester said he typically engaged in 4 to 10 minutes of off-the-clock work each day, for which Starbucks did not pay him.

During Troester's 17 months of employment, such unpaid time totaled approximately 12 hours and 50 minutes, which at the then-applicable minimum wage, added up to $102.67. A federal district court granted summary judgment in favor of Starbucks, finding that the de minimis doctrine applied and that such incidental time would be difficult to capture. On appeal, the Ninth Circuit found that while the de minimis doctrine was well established under the federal FLSA, California's Supreme Court had not addressed whether the rule applied to wage claims under California law, so it asked the California Supreme Court to address the question.

The Court's Decision

The Supreme Court ruled that California's Industrial Welfare Commission (IWC) wage orders and the California Labor Code have not adopted the de minimis doctrine, and made clear that under California law an employer must pay employees for all hours that they are "suffered or permitted to work," and that such time includes "the time during which the employer knew or should have known that the employee was working on its behalf." As a result, the Court found the federal de minimis doctrine to be less protective of employees than California law, and that "[t]he relevant statutes and wage order do not allow employers to require employees to routinely work for minutes off-the-clock without compensation."

In rejecting Starbucks' argument that the de minimis doctrine should apply as a matter of state law, the Court emphasized that the California statutes and regulations are indeed "concerned with 'small things.'" For instance, California requires that non-exempt employees be provided two daily 10-minute rest breaks, and courts have "scrupulously guarded against encroachments on this 10-minute period." To make its point, the Court noted that the amount at issue for Troester ($102.67) represented an amount "enough to pay a utility bill, buy a week of groceries, or cover a month of bus fares," and that "what Starbucks calls 'de minimis' is not de minimis at all to many ordinary people who work for hourly wages." The Court also reasoned that as a result of the modern availability of class action lawsuits, "small individual recoveries worthy of neither the plaintiff's nor the court's time can be aggregated to vindicate an important public policy," and that modern technological capabilities should enable employers to overcome the administrative difficulties in accounting for such minimal amounts of time. Moreover, the Court made clear that "employers are in a better position than employees to devise alternatives that would permit the tracking of small amounts of regularly occurring work time" (perhaps, for example, "a fair rounding policy") and that it "decline[d] to adopt a rule that would require the employee to bear the entire burden of any difficulty in recording regularly occurring work time."

Significantly, the Court left the door ajar for the possibility that the de minimis principle could apply to wage and hour claims in California "that are so irregular or brief in duration that it would not be reasonable to require employers to compensate employees for the time spent on them." Regrettably, whether such circumstances exist in a particular employment situation will likely need to be determined through additional, and expensive, wage and hour litigation.

What Does Starbucks Mean for California Employers?

As it did in another recent worker classification ruling,2 in Starbucks the Supreme Court has once again reminded California employers (including employers based out of state who have employees in California) that California's wage and hour laws can be different, and that employers that fail to take account for such differences do so at their peril.

Following Starbucks, California employers must review time keeping policies and practices applicable to their non-exempt employees to ensure that the employer is paying each non-exempt employee for all time worked and that there is no uncompensated "off-the-clock work" (even seemingly incidental and trivial amounts of time). If employees are engaging in work tasks before they have clocked in or after they have clocked out, employers should take steps to account for such time and compensate employees accordingly.3 The liability that employers face for unpaid work may include not only employees' back wages (which could include past overtime, if such additional time worked triggered overtime obligations), but other associated penalties, such as penalties for violations of requirements regarding employee pay stubs and waiting time penalties for late payment of an employee's full final wages.

Starbucks should also serve to remind California employers that when it comes to full compliance with California's exacting wage and hour laws, "small things" may indeed have significant consequences. This is especially so in light of the California Private Attorneys General Act (PAGA), which provides a unique mechanism for employees to bring claims against employers for violations of the Labor Code on behalf of themselves, other similarly "aggrieved" employees, and the State of California, without having to go through the more rigorous procedural steps of a traditional class action. As a result of PAGA, even the most technical and unintentional violations of California employment laws may expose employers to expensive litigation and costly settlements or judgments. Employers should therefore reexamine their wage and hour practices and policies to ensure full compliance with California law.

Wilson Sonsini Goodrich & Rosati closely follows developments in California employment law, including wage and hour law. For more information, please contact Rico Rosales, Marina Tsatalis, Jason Storck, Rebecca Stuart, or any member of the firm's employment and trade secrets litigation practices.


1 Case No. S234969, 2018 Cal. LEXIS 5312 (Cal. July 26, 2018).
2 See "California Supreme Court Makes Classifying Workers as Independent Contractors More Difficult," WSGR alert, May 8, 2018, https://www.wsgr.com/WSGR/Display.aspx?SectionName=publications/PDFSearch/wsgralert-dynamex.htm.
3 A recent California decision, AHMC Healthcare, Inc. v. Superior Court of Los Angeles County, 24 Cal. App. 5th 1014 (2018), offers support for employers to round employee hours to the nearest five minutes, one-tenth of an hour, or one-quarter of an hour, as long as the rounding policy is neutral on its face and in application. After Starbucks, such practices will be subjected to greater scrutiny and may ultimately prove problematic.