By Jamie L. Lopez

Earlier this year, the California Supreme Court issued a ruling that may dramatically change the way employers compensate certain employees for on-call and sleeping time. In doing so, the court went against previous interpretations of California law by the state’s labor commissioner and showed once again the difficulty employers face in implementing seemingly ever-changing wage and hour laws.

The case, Mendiola v. CPS Security Solutions, Inc., 60 Cal. 4th 833 (2015), concerned security guards employed by CPS. During the week, the security guards worked an eight-hour shift, were on-call for the following eight hours, and then off duty for eight hours. On the weekends, the guards worked 24-hour shifts: 16 hours of patrol duty followed by eight hours of on-call time. An on-call guard was required to reside in residential trailers provided by CPS.

During on-call time, security guards could remain in their trailers and use the time for personal activities, including sleeping, but there were restrictions. No children, pets, or alcohol were allowed on-site. They were required to stay on-site unless dispatch could find them a reliever, and once a reliever was found, the guards needed to remain within 30 minutes of the job site and be available by pager/telephone. If no reliever was found, the guards could not leave, even for personal emergencies. CPS did not pay the guards for on-call hours unless they actually performed work during those hours or unless they were waiting for, or had been denied, a reliever. CPS and the guards also entered into an agreement to exclude sleep time from compensable hours during their 24-hour shifts. In 2008, the security guards sued CPS, alleging a failure to compensate them for all on-call hours spent at their worksites.

The California Supreme Court found that the time spent on-call, even sleep time, was considered time worked and that the guards were entitled to compensation for that time under California law. The guards fell under purview of Industrial Welfare Commission Wage Order No. 4, which regulates the wages, hours, and working conditions of professional, technical, clerical, mechanical, and similar occupations (including security guards). The Court found that because CPS exercised such control over the guards during their on-call time, including limiting where they could be, who could visit, and their ability to trade on-call responsibilities, the on-call time was considered time spent working and subject to compensation.

Additionally, the court found that the guards’ sleep time while on-call was compensable time and that CPS’s attempt to exclude the time by agreement was improper. Wage Order No. 9, which governs the transportation industry, has a special exception that allows employers to except sleep time from compensable time by written agreement. However, Wage Order No. 4 does not have the same exception, and the court refused to read the exception into the wage order by inference. In the past, CPS wrote letters to California’s Division of Labor Standards Enforcement (“DLSE”) to ask about the legality of its sleep time policy. The DLSE’s opinion changed over time, but in its most recent interaction with CPS, it approved CPS’s policy of agreeing to exclude sleep time. However, the court found that while DLSE opinions are “entitled to consideration and respect, the agency’s construction of wage orders is not binding on this court, especially when its stance has been vacillating and contradictory.”

In light of Mendiola, California employers should re-examine their on-call policies. As a general rule, employees must be paid for all “hours worked,” meaning time during which an employee is subject to the “control of the employer.” This includes all the time the employee is suffered or permitted to work, whether or not they are actually performing work. If an employee’s on-call time is so restricted that he cannot pursue personal activities or come and go as he pleases, the employer is considered to have direction and control of the employee and the time must be compensated.

An analysis of on-call waiting time is very fact-intensive. California courts will look at whether the time is spent primarily for the benefit of the employer and whether the employee is so substantially restricted that he or she is unable to attend to private pursuits. The factors courts will consider include, but are not limited to whether: (1) there is an on-premises living requirement; (2) there are excessive geographical restrictions on employee’s movements; (3) the frequency of calls is unduly restrictive; (4) a fixed time limit for response is unduly restrictive; (5) the on-call employee can easily trade responsibilities; (6) use of a pager/cell phone can ease restrictions; and (7) the employee actually engages in personal activities during the on-call time. The more restrictive the policy, the more likely it is that a court will find on-call time to be “hours worked.”

An employer can designate a different rate of pay for on-call time. The rate of pay must be set before the work is performed, and the amount of remuneration should not fall below the minimum wage for any hour worked. Where two or more rates of pay are used, the weighted average of those rates is to be used to determine the regular rate of pay for purposes of overtime calculations.

The Mendiola case serves as a reminder to regularly review all employment policies for compliance with the law. As the law is constantly changing, employers ought not to rely on older policies without confirming their continued compliance with federal, state, and local laws. Best practice is to consult an employment attorney familiar with employment laws in the state you are seeking to or doing business.