A recent decision from the California Court of Appeal,  Maldonado v. Epsilon Plastics , tells the story of Epsilon Plastics, Inc. (“Epsilon”), an employer that learned the hard way about the perils a California employer may face when it tries to “go it alone” in implementing and maintaining an Alternative Workweek Schedule (“AWS”). The California Industrial Welfare Commission (“IWC”) wage orders allow an employer to implement an AWS for hourly employees whereby employees may work regular shifts of over eight hours (in the case of manufacturers like Epsilon, up to 10 hours) at their regular payrate before becoming eligible for overtime hours. However, an AWS can only be implemented with the  express consent of at least two-thirds of the affected employees , as determined by a secret-ballot election or via union negotiations (for unionized employees) if certain financial benchmarks are met (Labor Code Section 514). Strict rules and timetables for announcing, holding and reporting the results of the election must be followed.

Failure to adhere to any of these rules may result in a determination — often years later — that the Alternate Work Week Schedule is invalid. For Epsilon, which had inherited an already-existing AWS from a predecessor and then re-implemented it on a number of occasions (guided solely by what its HR administrator could glean from the Internet), the result was a judgment against the company for almost one million dollars, to compensate employees not only for years of unpaid overtime premiums, but also imposing “waiting time penalties” (of up to 30-days’ pay) for employees terminated while the AWS was in place, as well as interest on the unpaid wages, and an award of almost $900,000 in attorneys’ fees.

The fateful mistakes by Epsilon included:

  • Failing to investigate, when it bought the plant (and continued to employ the former employees) from its predecessor, Apple Plastics, whether Apple had properly implemented the AWS;
  • Failing to hold a meeting with affected employees, providing them with a written proposal for the Alternate Work Week Schedule, at least 14 days before the vote. (Managers did not meet with employees until the day of the vote);
  • Failing to expressly explain to employee that if the AWS was not adopted they would earn overtime premiums after eight hours of work;
  • Presenting the AWS to affected employees as a foregone conclusion. (“…[O]ur plant will be moving from an (8) hour shift to a (12) twelve hour shift. …”)
  • Telling an employee (via the plant manager) that if he did not agree with the AWS, he could leave;
  • Telling an employee (via a supervisor) that it does not matter how he votes because the plant is going to implement the AWS regardless of how he votes;
  • Failing to report the results of the election to the Division of Labor Statistics and Research within 30 days after the vote;
  • Requiring employees to begin working under the AWS less than 30 days after the vote; and
  • Allowing a salaried supervisor to participate in the vote.
The largest component of the judgment was about $392,000 in waiting time penalties. Notably, the court rejected the company’s “good faith defense” to those penalties. The company had argued that, under Labor Code §203, waiting time penalties do not apply to the extent that there is a “good faith dispute” as to whether the wages are due, and that Epsilon’s HR Coordinator, Mendoza, had made a good faith attempt to comply with the legal requirements for adopting an Alternate Work Week Schedule. However, the court’s view of Mendoza’s compliance efforts can be gleaned from the way it described those efforts early in the opinion:

“Mendoza was untrained on the AWS adoption procedure. She conducted her own research, by reviewing how a previous Human Resources administrator had handled it, and searching the Department of Labor’s website for direction. She is certain that she had access to counsel if she needed it, but chose not to contact the lawyers, explaining, “I just went by what the – I think it was the Department of Labor asked for. It was pretty simple. Just follow those guidelines, and you know everything was done in good faith.'”
 
To the contrary, the court held that the “good faith dispute” defense is precluded not only when the employer has acted in bad faith, but  also where the employer’s defense is not supported by any evidence or the employer’s defense is unreasonable. After going through a list of flaws in the company’s adoption of the California Work Week Schedule law, the court held that this evidence “constitutes substantial evidence that the plaintiffs had proved a lack of good faith under the statute.”
The take-away from this case is that no employer should assume that an Alternative Workweek Schedule is compliant just because it has been in place for a long time, or that it is not a source of potential liability because it is generally popular with employees. The requirements for proper adoption of an AWS are strict, numerous and not to be approached lightly. Employers should seek guidance from experienced employment counsel to assist in assessing legal compliance of an existing AWS, in determining whether adopting one is worth the risks, and, if so, in properly setting up, conducting an election, and reporting the results.
If you have any questions about these regulations, please contact any member of the Firm.  We can be reached at (818) 508-3700, or online at www.brgslaw.com.