Are Your Employees Subject to Wage Order 14’s New Overtime Requirements?

Guidance for Determining Whether Your Company is a “Large Employer” Subject to the New Overtime Requirements (and Your Minimum Wage Obligations)

Former Governor Jerry Brown signed AB 1066 into law on September 12, 2016. Among other things, the law gradually phases in an 8-hour day for all agricultural workers. The law makes an important distinction between employers with 26 or more employees (so-called “large employers”), and those with 25 or fewer employees (“small employers”). For large employers, the new overtime requirements—which lower the overtime threshold from the historic 10 hours in a workday to 9.5 hours, or 55 hours in a workweek—began on January 1, 2019. Because small employers do not have to comply with the new overtime requirements until January 1, 2022, many employers (especially those that rely on FLCs for labor) are wondering whether they are considered a large employer under the new law. In particular, we have received many questions concerning whether to count FLC-hired employees, and questions about whether the irrigator exemption (which is also affected by the large versus small employer divide) still exists under Wage Order 14. The following discussion addresses these issues.

Things to Consider When Determining if Your Company is a Large Employer

To date, the Labor Commissioner has not provided any specific guidance on how it will interpret and enforce the changes brought about by AB 1066. However, in December 2016, the Labor Commissioner did offer guidance on SB 3, which began a series of minimum wage increases intended to raise the state minimum wage to $15.00/hour. Similar to AB 1066, SB 3 also distinguished between employers with 26 or more employees and those with 25 or fewer. Under SB 3, large employers were required to begin the new minimum wage phase in on January 1, 2017, while small employers did not have to begin the phase in until January 1, 2018. The Labor Commissioner noted that an employer with 26 or more employees at any time during a pay period should apply the large employer minimum wage to its employees for that pay period. In addition, the Labor Commissioner stated that because employers are required by Labor Code section 2810.5 to provide workers a Notice to Employee upon hire and in advance of changes in the terms of their compensation, before an employer switches to a different minimum wage rate, the employer must notify all affected employees in writing and wait until the next pay period to implement the change.

The Labor Commissioner’s SB 3 guidance, which is available here, would almost certainly be applied to analyze the changes introduced by AB 1066. Therefore, in determining whether your company is a “large employer” for purposes of the new overtime requirements, there are a few things to apply from the Labor Commissioner’s SB 3 guidance:

First, in any pay period where a grower’s direct hire employees and any FLC-hired employees combine to total 26 or more employees, the grower is subject to the new overtime requirements. For example, imagine a grower with 10 direct hires contracts with an FLC to provide 20 workers. The grower’s 10 direct hire employees are aggregated with the 20 FLC-hired employees, and the grower would be considered a large employer subject to the new overtime requirements.

Second, in any pay period where an FLC has a total of 26 or more direct hires, the FLC must abide by the large employer overtime requirements, regardless of where the FLC’s direct hire employees are working. For example, imagine an FLC has 50 direct hires, and Grower A and Grower B have five employees, each. If 40 of the FLC’s employees perform services for Grower A, and 10 perform services for Grower B. The 10 employees performing services for Grower B are still subject to the new requirements because the FLC is a large employer. In other words, even though there are only 15 total employees working for Grower B (five direct hire employees and 10 FLC-hired employees), all of the FLC’s employees are subject to the new overtime requirements because the FLC has 50 employees. The FLC is therefore going to bill the grower at the rate.

A related question is whether Grower B is required to comply with the new overtime requirements as to Grower B’s five direct hire employees? In this situation, Grower B’s five direct hire employees would not be subject to the new overtime requirements because Grower B’s five direct hire employees and the 10 FLC-hired employees do not combine to total 26 or more employees (refer to the discussion under the “first” point). Of course, in this scenario it is important to remember that Grower B would still be required to pay overtime to the 10 FLC-hired employees according to the large employer overtime requirements because the FLC would still be a large employer in and of themselves (remember, the FLC in this example had 50 total employees).

An Important Note Concerning the “Irrigator Exemption”

Beginning on January 1, 2019, the irrigator overtime exemption no longer applies during any pay period where an employer is considered a large employer. On the other hand, if your company is a small employer, then the irrigator exemption continues until January 1, 2022. This is another reason why it is important to properly determine whether your company is a large or small employer under the new law.

Switching Back and Forth Between Large and Small Employer Status

Some growers that operate on the cusp of large employer status have asked whether they can switch between large and small employer status. For example, imagine an employer with 20 direct hire employees adds 10 seasonal employees during a peak season, but then lays the additional employees off. Does the employer return to small employer status once the employer’s total number of employees returns to 25 or less? While the Labor Commissioner’s SB 3 guidance states that the distinction between large and small employers applies to specific pay periods (which indicates that employers could technically switch back and forth upon giving the required Labor Code section 2810.5 Notice of the new hourly rate and overtime compensation, and waiting for the start of the next pay period before implementing such changes), the Labor Commissioner has long taken the position that when the law creates an ambiguity, employers should adopt the policy that provides the greater benefit to employees. We offer this guidance: Once your company has reached the large employer status, the safest course of action is to consider your company a large employer even if you later qualify for small employer status. Unfortunately, the way that this issue will probably get clarified is through litigation. So, by taking this approach, you will avoid the costly situation of being the “test” case that clarifies the new rules. In addition, and as a practical matter, by adopting the higher wage rate year-round once the large employer status is reached, you will avoid having to continually sending out 2810.5 Notices (and relying on FLCs to do the same). In addition, in this era of real or perceived labor shortages, where workers may hunt for the “best deal” they can get for their work on a weekly or periodic basis, offering the higher rate will help you to avoid losing workers.

If you have any questions about AB 1066, or any of the points discussed in this document, please do not hesitate to contact Barsamian & Moody at (559) 248-2360.

The goal of this article is to provide employers with current labor and employment law information. The contents should neither be interpreted as, nor construed as legal advice or opinion. The reader should consult with Barsamian & Moody at (559) 248-2360 for individual responses to questions or concerns regarding any given situation.