"Changing Times--
AB60 has reinstated daily overtime for nonexempt employees. Many firms with alternative workweek schedules will be affected"
by Richard S. Rosenberg

When the California Industrial Welfare Commission scuttled the state's daily overtime requirement nearly two years ago for a large segment of the workforce (including law firms), Democratic candidate Gray Davis, made restoration of daily overtime a major priority. Fulfilling his campaign promise on July 20^th, Governor Davis signed into law "The Eight-Hour-Day Restoration and Workplace Flexibility Act of 1999" (AB 60). The Act reinstates the requirement to pay overtime premiums on a daily basis after eight hours work in a single day and makes several other sweeping changes to California's wage-hour laws. Among other things, AB 60 nullifies many existing alternative workweek arrangements, dramatically increases the salary threshold required for overtime exemptions, and adds new record keeping requirements and increased penalties. AB 60 goes into effect on January 1, 2000.

AB 60 changes the rules on: (1) which of the firm's employees are entitled to overtime pay; (2) when overtime pay must be paid; (3) whether compensatory time off may be given in lieu of daily overtime; and (4) how the firm determines the applicable rate of pay when the employee is paid a salary. For law firms, compliance with the new overtime pay rules is mandatory unless the employee in question is "exempt" from the requirements.

Who's Covered? Law firm pay practices are regulated by both state and federal law. There are important differences between the federal and California laws. When the two laws conflict, the firm must follow the rule which is more generous to the employee. With the passage of AB 60, this will most often be California law. Out of state firms must follow California's pay practices for those employees resident in the state.

The federal wage-hour statute is the Fair Labor Standards Act ("FLSA"), 29 U.S.C. ? 201-219. The U.S. Department of Labor ("DOL") enforces the FLSA and has issued comprehensive regulations detailing an employer's obligations. 20 C.F.R. ?400, et. seq. California law on the subject is found in the Labor Code and regulations promulgated by the Industrial Welfare Commission (referred to as "Wage Orders"). California law empowers the State's Labor Commissioner to investigate and enforce the state's pay practices laws and collect unpaid wages from recalcitrant employers. Law firms are covered by Wage Order Number 4, which has been codified in Title 8 of the California Code of Regulations and is printed in a poster format which must be conspicuously posted at the firm. AB 60 codifies the daily overtime premium in Labor Code ? 510 and divests the authority of the more politicized IWC to change these rules in the future.

When is overtime paid? State and federal law requires law firms to compensate every "non-exempt" employee for all hours worked in excess of 40 hours in any work week at the rate of one and one-half times the employee's "regular rate" of pay. 29 U.S.C. ? 207(a)(1); Wage Order 4, Section 3(A). If the employee in question is salaried, the overtime pay rate is determined by dividing the salary by no more than 40 hours. Labor Code ? 515 as amended by AB 60; Skyline Homes, 120 Cal.App.3d 663 (1981).

Under AB 60, firms also will be required to pay daily overtime for hours worked over eight in a day and for the first eight hours on the seventh consecutive work day in the workweek. The new law also reinstates the state's doubletime pay requirement for all hours worked in excess of twelve in a day or after eight hours on the seventh consecutive day.

When the IWC eliminated the daily overtime rules in 1998, many firms adopted alternative work schedules consisting of longer days (sometimes up to 12 hours in a day) to accommodate work flow and employee convenience. The new law makes all of these new alternative workweek schedules "null and void" unless the firm followed the paperwork and voting regulations in place prior to the IWC's 1998 amendments. These regulations called for specified written notice, a two-thirds vote of affected employees in a secret ballot election, and notice to the Labor Commissioner of the alternative schedule. The new Labor Code ? 511(a) allows a law firm to adopt an alternative workweek schedule if the schedule does not call for more than forty hours in a week or 10 hours in a day. Two-thirds of the employees must approve the plan pursuant to a secret ballot election and notice of the new schedule must be given to the Labor Commissioner's office. The new Labor Code section also requires the firm to "make a reasonable effort" to allow employees who do not wish to work the alternative schedule to work an eight hour shift. Notably, there is no similar accommodation requirement for employees hired after an alternative schedule is in place.

"Comp Time". AB 60 changes the rules for comp time, i.e., when the firm allows employees to take time off without a reduction in pay in exchange for working an equivalent number of hours at some other time. AB 60 added ? 513 to the Labor Code to permit compensatory time off in lieu of daily overtime only under: (1) the make up time and the lost time must be in the same work week; (2) the time off is due to personal obligations of the employee; and (3) the request is entirely voluntary. The hours "made up" will not count for daily overtime purposes so long as working the extra hours does not cause the employee to work in excess of 11 hours in a single work day. Firms are prohibited from initiating the request for comp time. To assure the voluntariness of the request, AB 60 requires an employee to put each request for comp time in writing and prohibits the firm from soliciting or encouraging an employee to do so.

Exemptions. Every employee in the firm is entitled to overtime premium pay unless it can be established that the employee is "exempt" from these requirements. For law firms, the FLSA and California overtime law provide exemptions for bona fide "executive", "administrative", or "professional" employees. These exemptions focus on the worker's duties and the method and amount of pay.

California law has long provided that to be exempt, the employee must spend a majority of time (i.e., in excess of 50% of a typical work week) engaged in exempt duties. AB 60 reaffirms that if the employee does not meet this time requirement, then the employee cannot be exempt.

Both the federal and state law also require such employees be paid on a salaried basis in order to qualify for an overtime exemption. Hourly paid workers cannot be exempt. AB 60 substantially increases the threshold salary for the overtime exemptions from $1,150 per month to double the state's current minimum wage. As the minimum wage is now $5.75 per hour, the monthly salary required for exempt status is now $1,993.33 ($23,920 annually). This threshold will increase with every increase in the minimum wage.

Professional employees in a law firm setting include the licenced attorneys and possibly computer analysts. Exempt executives are supervisory employees who spend most of their time in direct supervision of two or more full time employees. In a typical law firm setting, there will be executive exemptions for people who truly spend the majority of their day supervising a staff. Watch out, however, for the working supervisor. An individual who spends a majority of the day doing the same work as the people being supervised is not likely to be exempt, regardless of title. Such is often the case with the heads of word processing and office services departments.

Exempt administrative employees are those who are engaged primarily in intellectual work directly related to the formulation of the firm's management policies, where they must customarily and regularly exercise discretion and independent judgement in the performance of their duties. Some examples are advising management on business operations, planning, negotiating contracts on behalf of the firm, preparing non routine business reports or doing special projects related to the management of the firm. Firms with non traditional positions, such as marketing and public relations personnel may find some administrative exemptions there. Human resource directors, personnel managers and benefits managers often meet the administrative exemption.

The Labor Commissioner and DOL long ago have declared that law firms must pay their paralegals overtime. They view the typical paralegal as working under the direction of an attorney, even if unsupervised most of the day. As such, most often they are not afforded the requisite discretion for the exemption. There are no reported California cases on point.

Remedies for non-compliance. Employees denied overtime pay may file an administrative complaint with the DLSE or pursue claims directly in court. An employee can recover the unpaid overtime wages, attorneys fees, and interest. The employee also can obtain waiting time penalties (up to 30 additional days of pay) where the Labor Commissioner finds that the violation was wilful. Labor Code Section 203. An employee claiming a violation of the FLSA can file a complaint with DOL or in court to recover unpaid wages, interest, and attorney's fees if successful. Liquidated damages (in an amount equal to the unpaid wages) can be awarded for violations found to be willful. Moreover, law firms and individuals are subject to civil penalties for violations of both state and federal law. Under AB 60, firms and individuals in management positions can be liable for civil fines ranging from $50 - $100 per employee per pay period. Likewise, under certain circumstances, violation of these overtime laws is a crime under both California and federal law.

Wage-hour violations also can trigger a public policy wrongful termination lawsuit. In Gould v. Maryland Sound Industries, Inc., 31 Cal. App. 4^th 1137 (1995), the plaintiff sued his employer for wrongful termination in violation of public policy, alleging that he was fired to avoid paying accrued commissions and vacation pay, and in retaliation for reporting alleged overtime violations to upper management. The court held that the plaintiff's allegations could support a public policy wrongful termination claim since timely payment of wages is a fundamental public policy. Similarity, in Phillips v. Gemini Moving Specialists, 63 Cal. App. 4^th 563 (1998), an employee sued for wrongful termination alleging he was fired for questioning his employer about certain deductions from his paycheck. The court held that the statutes requiring prompt payment of wages, and limiting when an employer can properly make deductions from wages, are sufficient to support a public policy wrongful termination claim.

The passage of AB 60 will once again focus public attention on the overtime pay issue. With the new millennium on the horizon, law firms will want to take this opportunity to update their pay practices.

* Richard S. Rosenberg is a founding partner, in the Universal City labor and employment law firm of Ballard, Rosenberg & Golper. The firm represents a number of area law firms.