Rhea v. Gen. Atomics

• Decision Date: 21 July 2014
• Docket Number: D064517
• Citation: 174 Cal.Rptr.3d 862,227 Cal.App.4th 1560
• Court: California Court of Appeals Court of Appeals
• Parties: Lori RHEA, Plaintiff and Appellant, v. GENERAL ATOMICS, Defendant and Respondent.

227 Cal.App.4th 1560

174 Cal.Rptr.3d 862

Lori RHEA, Plaintiff and Appellant,

v.GENERAL ATOMICS, Defendant and Respondent.

D064517

Court of Appeal, Fourth District, Division 1, California.

Filed July 21, 2014

See 3 Witkin, Summary of Cal. Law (10th ed. 2005) Agency and Employment, § 418.

APPEAL from a judgment of the Superior Court of San Diego County, Richard E.L. Strauss, Judge. Affirmed. (Super. Ct. No. 37–2012–00090447–CU–OE–CTL)

Cohelan Khoury & Singer, Michael D. Singer, J. Jason Hill, San Diego; Locker Folberg, Miles E. Locker, San Francisco; Stephen Danz & Associates and Stephen Danz, Los Angeles, for Plaintiff and Appellant.

Paul Hastings, Paul W. Cane, Jr., San Francisco, Mary C. Dollarhide and Haley M. Morrison, San Diego, for Defendant and Respondent.

IRION, J.

This appeals presents a challenge to General Atomics' employment practice of requiring exempt employees to use their annual leave hours when they are absent from work for portions of a day. Although Conley v. Pacific Gas & Electric Co. (2005) 131 Cal.App.4th 260, 263, 31 Cal.Rptr.3d 719 (Conley ) established that California law does not prohibit an employer “from following the established federal policy permitting employers to deduct from exempt employees' vacation leave, when available, on account of partial-day absences,” appellant Lori Rhea contends that Conley was wrongly decided, or in the alternative, that even under Conley, General Atomics is not permitted to deduct from an exempt employee's leave bank when the employee is absent for less than four hours.

We conclude that Rhea's contentions are without merit, and accordingly we affirm the trial court's judgment in favor of General Atomics.

IFACTUAL AND PROCEDURAL BACKGROUND

A. General Atomics' Annual Leave Policies for Exempt Employees

Rhea is employed at General Atomics in a salaried position that qualifies her as an exempt employee for the purposes of overtime pay under the federal and California wage and hour laws. (Lab.Code, § 515, subd. (a); 28 U.S.C. §§ 201–219.) ¹

Exempt employees at General Atomics are paid a salary and accrue comprehensive annual leave (Annual Leave) which can be used by employees to take paid time off for any reason, including vacation, sickness, medical appointments, family obligations and leisure pursuits. An exempt employee's salary at General Atomics does not fluctuate based on the number of hours worked by the employee during a pay period, and General Atomics does not pay overtime to exempt employees.

The amount of Annual Leave accrued by an employee depends on the employee's length of service at the company, ranging from 15 days per year for an employee with less than one year service, to 32 days per year for an employee with 19 years or more of service. General Atomics specifies a maximum amount of Annual Leave balance that an employee may carry over to the next year, depending on length of service. When an exempt employee reaches the maximum accrual amount during a calendar year, the employee continues to accrue Annual Leave past the maximum through the end of the calendar year, but any Annual Leave hours in excess of the maximum at the end of the year are automatically cashed out and included in the employee's January paycheck.

General Atomics requires that exempt employees use their Annual Leave hours when they are absent from work for partial days or full days. Over the course of the time period relevant to this lawsuit (January 2008 to the present), ² General Atomics had two different policies about the length of time that an employee could be absent during a day before a deduction from Annual Leave was required. Between January 3, 2009, and February 4, 2011, employees were required to use Annual Leave only if a partial-day absence was four hours or more. At all other times, General Atomics' policy has been to deduct from Annual Leave for partial-day absences of any length.

Although General Atomics has no written policy directing employees to record partial-day absences in any particular minimum increment, it is possible for an employee to record a partial-day absence in small increments, with some employees recording absences of as little as one-tenth of an hour. However, the majority of employees record partial-day absences in greater increments, with 98.8 percent of exempt employees in California from February 3, 2010, to August 20, 2012, recording partial-day absences of an hour or more.³

Whether absent for a full or partial day, employees continue to receive their full salary and continue to accrue Annual Leave during the period of absence. Further, even if absent for a full or partial day during a particular week, an employee is not required to use Annual Leave for an absence in any week in which the employee works a total of more than 40 hours.⁴

General Atomics' policy allows an exempt employee to use Annual Leave hours that have not yet accrued, up to 7.9 hours, with the deficit being made up by a deduction of Annual Leave hours when they accrue. When an exempt employee terminates employment at General Atomics with a negative Annual Leave balance, General Atomics does not reduce the amount of salary in the employee's final paycheck to offset the negative balance.

B. The Litigation in the Trial Court

Rhea filed this lawsuit as a proposed class action on January 10, 2012, on behalf of a proposed class of General Atomics' exempt employees in California subject to Annual Leave deductions for partial-day absences of less than four hours in the four years prior to filing the lawsuit. The complaint alleged causes of action for (1) illegal wage deduction and forfeiture of vested vacation wages in violation of Labor Code section 221 et seq.; (2) failure to pay overtime wages at the required overtime rate in violation of Labor Code sections 510 and 1194; (3) failure to comply with itemized employee wage statement provisions in violation of Labor Code section 226, subdivision (a); and (4) violation of the unfair competition law (Bus. & Prof.Code, § 17200 et seq.).

General Atomics answered the complaint, and the parties agreed to file cross-motions for summary judgment and a stipulation of undisputed facts to obtain a ruling from the trial court on the legality of General Atomics' practice of requiring exempt employees to use Annual Leave for partial-day absences.

After considering the parties' summary judgment briefing and argument, the trial court ruled in favor of General Atomics, concluding that California law did not prohibit General Atomics' policy of requiring exempt employees to use Annual Leave for partial-day absences of any length. Rhea appeals from the judgment.

IIDISCUSSION

A. Legal Standards

Both because we are reviewing a ruling on motions for summary judgment, and because the issue presented to us is purely one of law on undisputed facts, we apply a de novo standard of review. (Biancalana v. T.D. Service Co. (2013) 56 Cal.4th 807, 813, 156 Cal.Rptr.3d 437, 300 P.3d 518 [on “ ‘appeal after a motion for summary judgment has been granted, we review the record de novo’ ”]; Shapiro v. Board of Directors (2005) 134 Cal.App.4th 170, 178, 35 Cal.Rptr.3d 826 [“We apply a de novo standard of review where, as here, our task consists of applying a statute to underlying facts that are not in dispute.”].)

The issue presented requires us to interpret provisions of the Labor Code. “We apply the usual rules of statutory interpretation to the Labor Code, beginning with and focusing on the text as the best indicator of legislative purpose. [Citation.] ‘[I]n light of the remedial nature of the legislative enactments authorizing the regulation of wages, hours and working conditions for the protection and benefit of employees, the statutory provisions are to be liberally construed with an eye to promoting such protection.’ ” (Brinker Restaurant Corp. v. Superior Court (2012) 53 Cal.4th 1004, 1026–1027, 139 Cal.Rptr.3d 315, 273 P.3d 513 (Brinker ).) More specifically, “under California law, exemptions from statutory mandatory overtime provisions are narrowly construed.” (Ramirez v. Yosemite Water Co. (1999) 20 Cal.4th 785, 794, 85 Cal.Rptr.2d 844, 978 P.2d 2 (Ramirez ).)

B. Applicable Law

Both the federal Fair Labor Standards Act (FLSA) (29 U.S.C. §§ 201–219) and California law require that an employer pay overtime wages to employees unless those employees are classified as exempt employees under the applicable law. (Lab.Code, §§ 510, 515; 29 U.S.C. §§ 207, 213.) Although California law on the issue is patterned to some extent on federal law, the FLSA “explicitly permits greater employee protection under state law,” allowing states to regulate overtime wages. (Ramirez, supra, 20 Cal.4th at p. 795, 85 Cal.Rptr.2d 844, 978 P.2d 2.) “The rule is that state law requirements for exemption from overtime pay must be at least as protective of the employee as the corresponding federal standards.” (Negri v. Koning & Associates (2013) 216 Cal.App.4th 392, 398, 156 Cal.Rptr.3d 697 (Negri ), citing Ramirez, at p. 795, 85 Cal.Rptr.2d 844, 978 P.2d 2.)

Both California and federal law provide that employees are exempt only if they (1) perform certain types of work and (2) are paid on a salary basis. (Lab.Code, § 515; 29 U.S.C. § 213; 29 C.F.R. § 541.600 (2013).) ⁵ Here, there is no dispute that under both federal and California law Rhea performs the type of work that qualifies her as an exempt employee. The dispute is whether General Atomics is paying Rhea and its other exempt employees on a salary basis under California law even though it requires them to use Annual Leave for partial-day absences.

Federal regulations define what it means to be paid on a salary basis. Subject to certain exceptions, “[a]n employee will be considered to be paid on a ‘salary basis' within the meaning of these regulations if the employee regularly receives each pay period ... a predetermined amount constituting all or part of the employee's compensation, which amount is not...