Over the last several years, California courts have issued several rulings dealing with “compensable time” – specifically, when an employer is required to pay its employees for “hours worked.” The latest clarification comes from the highest court in the state in a ruling that surprised many with its broad reach, and expansion of what is deemed to be “compensable time worked”. No one was more surprised than the folks at Apple!
In Frlekin v. Apple, Inc., the California Supreme Court departed from the long-standing rule under federal law that an employee’s time spent waiting for bag checks or security screenings was NOT compensable under the Fair Labor Standards Act (Integrity Staffing Solutions, Inc. v. Busk). In the Integrity decision, the United States Supreme Court determined that security screenings were not a part of employees’ “principal activities” (e.g. Integrity had not hired its employees to undergo security screenings) and thus the time spent going through those screenings was NOT compensable.
However, in distinguishing the long-standing (2014) Integrity decision, the California high court cited to the hours worked provision of the California Wage Orders, and held that: “the level of the employer’s control over its employees, rather than the mere fact that the employer requires the employees’ activity, is determinative concerning whether an activity is compensable.” According to the California court, under the Wage Order definition, compensable “hours worked” include “the time during which an employee is subject to the control of an employer and includes all the time the employee is suffered or permitted to work, whether or not required to do so” [emphasis added].
The facts in Frlekin were not uncommon, especially in retail businesses. Ms. Frlekin worked in an Apple retail store. At the conclusion of every work shift, she and her colleagues were asked to undergo personal property searches pursuant to Apple’s “Employee Package and Bag Search” policy, which was designed to reduce losses based upon employee theft. Before leaving the Apple store after their shifts, employees were required to meet with a manager, who would inspect any purses, handbags or backpacks, and also would confirm the serial number of the employee’s personal Apple devices, before leaving. Employees were required to clock out prior to submitting their personal belongings for a search. Employees estimated that they would have to wait, on average, between 5-20 minutes for a manager to become available for a bag search.
The argument from Ms. Frlekin and the other Apple employees was that Apple failed to pay minimum and overtime wages for the time spent waiting and undergoing bag searches in violation of California law. Apple argued that the searches were only mandated for those employees – whom Apple estimated to be 30% of their retail workforce – who elected to bring a purse, handbag or backpack into the store. As such, Apple argued, the policy was “optional” and did not result in compensable hours worked for the employee.
The Court rejected Apple’s argument and found that the control exercised by Apple when administering its bag-check policy was time “controlled” by the employer, and thus the time spent by employees abiding by that policy should have been compensable.
The Court specifically focused on the employer’s control, rather than the mere fact that the search was or was not required by policy or procedure. The court looked at five factors to determine whether the employee’s time would be compensable:
Fascinatingly, the Supreme Court rejected Apple’s request for this decision to only apply looking forward. Rather, the court determined that Apple misapplied existing California law (the Wage Orders), and, as a result, Apple could not claim “reasonable reliance” on the existing federal law. Consequently, Apple will be held responsible for the claims of unpaid minimum and overtime wages, will be required to pay penalties for the previous underpayments and will be required to pay the Plaintiffs’ attorneys’ fees – all due to their misunderstanding of previously murky rules.
The Supreme Court’s decision in Frlekin stands as a scary reminder for California employers that if you guess wrong at the application of a given rule, substantial liability is ahead. It also serves as a warning that every business in California should be working with competent legal counsel, trained to understand the nuances of California wage and hour laws, before implementing any policies or procedures which effect an employee’s compensable time worked. Finally, if you are not auditing your company’s existing policies and practices to ensure they are fully compliant with the latest changes to California law, significant liability lies ahead!