California Supreme Court Curbs De Minimis Doctrine For Wage Claims

HIGHLIGHTS:

• In Troester v. Starbucks Corporation, the California Supreme Court on July 26, 2018, resoundingly rejected the de minimis doctrine commonly applied under the federal Fair Labor Standards Act (FLSA) to claims for unpaid wages.
• In addition, the Court announced that California would follow its own rules in deciding claims for unpaid wages arising under the California Labor Code.
• The Troester Court's rejection of the de minimis rule is a wake-up call for California employers to review and update their timekeeping and payroll practices to ensure that employees are paid for all "hours worked" and that there are no policies or practices in place that would yield a different result.

In Troester v. Starbucks Corporation (S234969), the California Supreme Court on July 26, 2018, resoundingly rejected the de minimis doctrine commonly applied under the federal Fair Labor Standards Act (FLSA) to claims for unpaid wages, and announced that California would follow its own rules in deciding claims for unpaid wages arising under the California Labor Code.

Case Background

Troester was decided in response to a formal request by the U.S. Court of Appeals for the Ninth Circuit to answer the question whether the de minimis doctrine applied to claims under Labor Code sections 510 (overtime), 1194 (providing for remedies for failing to pay minimum wage or overtime) and 1197 (minimum wage). The Ninth Circuit had before it a putative class action, which was removed from California state court to federal court by Starbucks. The case involves a nonexempt shift supervisor suing for unpaid wages for time spent on performing store closing procedures after clocking out. These close-out procedures typically involved four to 10 minutes of additional work each day.

Under the FLSA, the Court noted, the de minimis doctrine has been used "to excuse the payment of wages for small amounts of otherwise compensable time upon a showing that the bits of time are administratively difficult to record." The Troester Court held that California's wage and hour statutes and regulations do not adopt the de minimis doctrine. The Court found that nothing in the text or history of the relevant statutes or Industrial Welfare Commission (IWC) wage orders (here, IWC Order No. 5) indicated that California had adopted the doctrine. In reaching its conclusion, the Court again reiterated, following Martinez v. Combs, 49 Cal. 4th 35 (2010), that the Wage Orders "are to be accorded the same dignity as statutes," and that they take "precedence over the common law to the extent they conflict." The Court found that the de minimis doctrine was less protective than the California rule that an employer must pay for "all hours worked." The Court also rejected the Division of Labor Standards Enforcement (DLSE) Manual as providing any authority for a contrary result, finding that the Manual had not been adopted pursuant to California's Administrative Procedures Act.

The Court then decided that under the facts before it – where employees were required to work "off the clock" several minutes per shift – there was no basis for applying "some version" of the de minimis doctrine. Thus, the Court declined to apply as a matter of general application what it recognized was part of the "established background of legal principles" – the rule that the law "cares not for trifles." The Court noted that a class action was a way to aggregate small claims that were not otherwise worth a plaintiff's or court's time but nonetheless could be combined to "vindicate an important public policy." The Court also noted that "technological advances" in time-recording undercuts the rationale for the de minimis doctrine in a wage claim setting. In reaching its decision, the Court did not overrule See's Candy Shops, Inc. v. Superior Court, 210 Cal. App. 4th 889 (2012), in which the appellate court found that a "fair and neutral" rounding policy that compensated employees for all time actually worked could pass muster under California law.

The Court's majority left open for decision a key issue, that is, "whether there are circumstances where compensable time is so minute or irregular that it is unreasonable to expect the time to be recorded." Separate concurring opinions, one by Justice Mariano-Florentino Cuellar and the other by Justice Leondra R. Kruger, shed some light on the guidance the Court may issue in the future if presented with the right set of facts. In his concurring opinion, Justice Cuellar noted, "there is room for a rule of reason to avoid a situation forcing employers to monitor every fraction of every second of employee time." Similarly, Justice Kruger wrote that even California law, "fairly construed, also leaves room for application of a background rule of reason. A sensible application of our law does not encompass claims for negligible periods of time that cannot reasonably be measured or estimated with a fair degree of accuracy." Justice Kruger noted that "a properly limited rule of reason does have a place in California labor law." What seemingly convinced Justice Kruger, as well as the other justices, was the fact that "the claim here involves nontrivial, regularly occurring periods of work, and thus not subject to any properly limited de minimis rule."

Conclusion

The Troester Court's rejection of the de minimis rule is a wake-up call for California employers to review and update their timekeeping and payroll practices to ensure that employees are paid for all "hours worked" and that there are no policies or practices in place that would yield a different result. Although there may still be room for a "rule of reason" under California law, the contours and parameters of such a rule likely will be quite narrow.

Troester comes on the heels of the California Supreme Court's April 30, 2018, decision in Dynamex Operations West, Inc. v. Superior Court (S222732) (see Holland & Knight alert, "California Supreme Court Upends Independent Contractor Test for Wage Claims," May 1, 2018), which materially narrowed individuals who are bona fide independent contractors for purposes of California's wage laws. Dynamex and Troester signal that the legal landscape for California employers remains enormously challenging and that employers must comply with the state's unique requirements for their workforces to avoid costly and time consuming lawsuits. 

Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem. Moreover, the laws of each jurisdiction are different and are constantly changing. If you have specific questions regarding a particular fact situation, we urge you to consult competent legal counsel.