Assembly bill 60, which will return overtime after eight hours of work in a day to employees in California, was signed by Governor Davis on July 20, 1999. The provisions of the bill will not take effect until January 1, 2000, but employers must start planning to comply with the provisions of the bill at this time. Employers must also pay particular attention to the review of overtime exemptions and other provisions of the State's Wage Orders which the Industrial Welfare Commission ("IWC") is mandated to undertake under the bill. The possible delay between the date on which the bill will take effect and the date on which the IWC completes its review may require successive revisions of compensation programs by employers.

Background

The State of California has traditionally regulated the minimum wage, overtime and related wage payment obligations of private sector employers through Wage Orders of the Industrial Welfare Commission. In recent years, the IWC has issued 15 comprehensive Wage Orders and a minimum wage order. The fifteen comprehensive wage orders apply to different industries or residual groups of employees. For example, Wage Order 1 applies to manufacturers, Wage Order 4 applies to most occupations, such as office occupations, which are not covered by other Wage Orders, Wage Order 5 applies to the public housekeeping industry, Wage Order 7 applies to the mercantile industry, Wage Order 9 applies to the transportation industry and Wage Order 10 applies to the amusement and recreation industry. The last two digits of a Wage Order reflect the year in which the Wage Order was last revised.

Assembly bill 60 responds to the elimination of daily overtime from some Wage Orders and the loosening of the alternative schedule provisions in other Wage Orders. Since 1980, all of the Wage Orders except those for agriculture and private households had required that overtime be paid after eight hours of work in a day. The Wage Orders also allowed employees to work an alternative schedule of up to four, ten-hour days per week without the payment of overtime if a certain procedure was followed to implement the schedule.

Over the years the obligation to pay overtime had been slightly relaxed. In 1989 and 1990, Wage Orders 1, 4, 5, 9 and 10 were amended to allow alternative work schedules that provided more flexibility than the conventional schedule of four, ten-hour days per week. In 1998, Wage Orders 1, 4, 5, 7 and 9 were then amended to eliminate daily overtime and only to provide for overtime after forty hours of work in a week. Other changes in exemptions and work rules were also made.

Assembly bill 60 directs the Industrial Welfare Commission to issue Wage Orders in accordance with the provisions of the bill. One of the most significant changes in the final version of the bill was the delegation of responsibility to the IWC to review exemptions and set standards. This change may have been intended to avoid further debate on the bill in the Legislature, where opposition had been growing to some of the provisions of the bill. The changes which are required by the bill are set out below.

Basic Overtime Pay Obligations

Overtime pay will be required after eight hours of work in a day, forty hours of work in a week and for the first eight hours of work on a seventh day of work in a single workweek. Double time compensation will be required after twelve hours of work in a day and for all hours of work in excess of eight on a seventh day of work in a week. No overtime pay will be due an employee whose hours do not exceed thirty in a week and do not exceed six in any day of the week.

Assembly bill 60 not only mandates that the IWC revise the Wage Orders to restore daily overtime to employees who previously received such compensation, the bill also contains a very general obligation to pay overtime to employees after eight hours of work in a day. As a result, claims for daily overtime may be raised by employees who are engaged in activities which have not been regulated by the IWC in the past, such as construction, mining, logging, drilling and public sector employment. The last section of the bill, which declares that the bill will have no fiscal impact on public entities, strongly suggests that the bill is not intended to affect the compensation of public employees.

Make-up time will be permitted for work missed due to the personal obligations of an employee. A separate written request will be required to be made for each use of make-up time. An employee who makes up missed time in the same workweek will not need to be paid overtime for the additional hours of work on a given day unless they exceed eleven on that day or total more than forty in a week. An employer cannot solicit or encourage an employee to use make-up time.

Alternative Work Schedules

Alternative work schedules will be permitted so long as the schedules do not exceed ten hours of work in a day and forty hours of work in a week. An alternative work schedule can be a single schedule or a menu of options from which an employee will be entitled to choose. All alternative schedules will have to be approved by two thirds of the affected employees in a secret ballot election. Employers will have to make a reasonable effort to accommodate employees who were eligible to vote in such an election and who cannot work the alternative schedule. Employers will have the option of accommodating employees who are hired after the election and who cannot work the alternative schedule. An effort will need to be made to accommodate employees who cannot work an alternative schedule due to their religious beliefs. No employee's rate of compensation can be affected by the adoption, rejection or nullification of an alternative schedule. The results of an election concerning an alternative schedule will need to be reported to the Labor Commissioner within thirty days of the election.

Employees who work in excess of the alternative schedule will have to be paid overtime for all such hours. Double time must be paid to the extent that an employee's hours exceed twelve on a regularly scheduled workday or exceed eight on a day when the employee is not regularly scheduled to work.

The present version of the bill charges the IWC with making rules for the implementation of alternative schedules. Such rules are likely to be similar to the rules which were included in the earlier Wage Orders. In addition to the requirement for a secret ballot election and approval of any schedule by two-thirds of the affected employees, the earlier Wage Orders required:

• The provision of comprehensive written notice to employees regarding the impact of the proposed schedule on wages, hours and working conditions; and
• The conduct of meetings to discuss the impact of the alternative schedule.

The IWC may impose rules which were included in AB 60 and which have now been deleted. Those rules required:

• The mailing of the notice to every employee who cannot attend the meeting;
• The following of specified time periods for providing notice and conducting the election;
• The provision, upon employee request to the Labor Commissioner, of a neutral third party to conduct an election;
• The review, upon employee request to the Labor Commissioner, of the appropriateness of the affected work unit in which an election is conducted;
• The review, upon employee request to the Labor Commissioner, of the appropriateness of the circumstances surrounding the notice, meeting and election; and
• The limitation of an employer's ability to terminate an alternative schedule to a showing of business necessity.

Alternative work schedules implemented pursuant to Wage Orders 1, 4, 5, 7 and 9 will be void as of January 1, 2000. An exception is allowed for schedules which provided for not more than ten hours of work per day and forty hours of work per week if such schedules were approved by two thirds of the affected employees pursuant to a secret ballot vote in accordance with the procedures that were in effect prior to 1998. It appears that the alternative schedules of up to twelve hours per day which were implemented pursuant to Wage Order 10-89 have been accidentally excluded from the provision which makes such schedules void and excluded from the provision which preserves the validity of some such schedules. A special exception for the alternative schedules in the health care industry is discussed below. The IWC is to conduct an analysis of the costs and benefits of alternative schedules and report the results to the Legislature.

A "grandfather" provision may protect other alternative work schedules. Employees who were voluntarily working schedules of not more than ten hours per day as of July 1, 1999 may continue to work such schedules without daily overtime premiums. In order to do so, the employer must approve a written request by the employee to continue to work such a schedule.

Meal Periods

A thirty-minute meal period will be required after five hours of work. If the total hours of work for the day is not more than six hours, the meal period may be waived by the consent of the employee and the employer. A second meal period must be provided after ten hours of work, unless the employee's total hours of work for the day is less than twelve, in which case the second meal period may be waived by the consent of the employee and employer. There is no provision for an "on-duty" meal period. No reference is made in Assembly bill 60 to maintaining the present provisions in the Wage Orders regarding on-duty meal periods.

Overtime Exemptions

The overtime exemptions for executive, administrative and professional employees will require that an employee receive a salary of at least two times the State's minimum wage for a forty-hour week in order to be exempt. At the current minimum wage rate of $5.75 per hour, the resulting minimum salary would be $460 per week or $23,920 per year. The bill confirms that an employee must spend more than one half of his or her time in exempt work in order to be considered overtime exempt. This change will eliminate the additional latitude which had been provided health care employers to classify white-collar employees as overtime exempt. The IWC is affirmatively required to review the duties which make an employee overtime exempt and may issue regulations which clarify such duties.

Employees who are covered by a bona fide collective bargaining agreement which provides premium wage rates for "all" overtime hours of work and which provides a regular rate of not less than thirty percent in excess of the minimum wage are exempt from the State's overtime requirements. In the past, this exemption only required that the collective bargaining agreement provide any overtime premium, instead of the proposed language that premium wage rates be provided for "all" overtime hours.

The Industrial Welfare Commission is given broad authority to establish, revise or eliminate overtime exemptions. The general intent of the Legislature is to limit exemptions and it is expected that the IWC will act accordingly. The IWC is specifically charged with reviewing the overtime exemptions for outside salespersons and pharmacists. An earlier version of the bill only considered salespersons who spent seventy percent of their time away from the employer's premises making sales to be overtime exempt. Registered nurses are confirmed to be non-exempt employees unless they qualify as executive or administrative employees. The previous latitude for classifying registered nurses with advanced degrees, such as nurse practitioners, as overtime exempt professionals appears to have been eliminated.

Special Industry And Occupational Provisions

Prior to July 1, 2000, the Industrial Welfare Commission will be required to conduct a special review of the wages, hours and working conditions in the ski industry, the commercial fishing industry, the health care industry and for stable employees in the horseracing industry. The review may include a modification of the basic rules regarding overtime and alternative schedules.

A limited number of alternative work schedules implemented by health care employers pursuant to the provisions of Wage Orders 4 or 5 will continue to be valid for a short period of time. Such schedules must provide for workdays of not more than twelve hours and have been approved by two thirds of the affected employees in a secret ballot election which was conducted prior to 1998. Such schedules will be valid until July 1, 2000.

The provisions of the bill will not apply to agricultural employees with the exception of the new penalty provision.

Employees of ski establishments may be paid overtime after 56 hours of work in a week. This provision only applies while skiing activities are taking place and will expire on July 1, 2000 unless subsequently reenacted.

Employees of commercial fishing vessels and passenger fishing vessels will not be subject to the minimum wage or overtime provisions of the Industrial Welfare Commission until July 1, 2000.

Stable employees who are engaged in the care of racehorses will have a relaxed overtime standard until July 1, 2000. Under the relaxed standard, employees must be paid overtime after ten hours of work in a day and 56 hours of work in a week.

Penalties

Any employer or other person acting on the employer's behalf who violates or causes to be violated any provision of the new bill or any provision of a Wage Order shall be subject to a civil penalty. The expansion of the new penalty to individual employer representatives is likely to create unexpected liabilities and concerns among supervisors. Penalties can be imposed as follows:

• For an initial violation, $50 for each pay period for each employee who was underpaid plus the unpaid amount; and
• For any subsequent or willful violation, $100 for each pay period for each employee who was underpaid plus the unpaid amount.

The penalty will be collected through an administrative hearing conducted by the Labor Commissioner. The administrative hearing will be initiated by the issuance of a citation by the Labor Commissioner.

Effective Date

The bill will take effect on January 1, 2000. The Wage Orders which provide for the payment of overtime after forty hours of work in a week will be null and void as of that date. This includes Wage Orders 1-98, 4-98, 5-98, 7-98 and 9-98. If the IWC does not issue new Wage Orders by January 1, 2000, the Wage Orders which have been nullified will be replaced by the corresponding Wage Orders that were in effect prior to 1994. These will be Wage Orders 1-89, 4-89 as amended in 1993, 5-89 as amended in 1993, 7-80 and 9-90.

It is very important to appreciate that Assembly bill 60 will require an employer to look at its wage payment obligations twice in the immediate future. First, an employer must take the steps necessary to be in compliance with AB 60 on January 1, 2000. Second, an employer must be mindful of any further changes which are made to the Wage Orders by the Industrial Welfare Commission. An employer's specific obligations can only be determined after the IWC has acted.

WAGE ORDER	APPLIES TO	WAGE ORDER	APPLIES TO
1-98	Manufacturing Industry all manufacturers including those which make highly processed foods	8-80	Industries Handling Products After Harvest cotton gins, beet mills, dairies which process commodities that were not produced by the employer
2-80	Personal Services Industry salons, spas, gyms, mortuaries	9-98	Transportation Industry trucking companies, shipping companies, railroads, airlines and directly related support facilities such as garages and ship repair yards
3-80	Canning, Freezing and Preserving Industry canneries, frozen food processors, makers of preserves	10-89	Amusement and Recreation Industry amusement parks, race tracks, golf courses
4-98	Professional, Technical, Clerical, Mechanical and Similar Occupations employees who are not covered by any other Wage Order - typically officeemployers such as financial institutions, providers of professional services, telephone companies, utilities, schools which do not provide room and board	11-80	Broadcasting Industry radio and television broadcasters
		12-80	Motion Picture Industry Producers of film and television programs and directly related support activities such as costume rental
5-98	Public Housekeeping Industry restaurants, caterers, hotels, hospitals, schools which provide room and board, custodial services	13-80	Industries Preparing Agricultural Products For Market On The Farm cotton gins, beet mills, dairies and packing plants which are located on the same farm and operated by the same farmer which produced the commodity
6-80	Laundry, Linen Supply, Dry Cleaning and Dyeing Industry laundries, cleaners, linen suppliers	14-80	Agricultural Employees employees who are engaged in the cultivation of crops
7-98	Mercantile Industry wholesalers and retailers	15-86	Private Housekeeping butlers, maids, tutors and the like who are directly employed by private homeowners