California labor laws and employees who work both in and out of state

On June 29, the California Supreme Court answered questions of how California labor laws apply to employees who perform work inside and outside of California. In Ward v. United Airlines, Inc., 2020 DJDAR 6547, and Oman v. Delta Airlines, Inc., 2020 DJDAR 6533, our Supreme Court held each wage law must be considered separately and discussed a pragmatic framework for applying Labor Code Sections 204 and 226 only to work periods where the employee works primarily in the state or has his or her home base of operations in California. The court confirmed that California minimum wage laws do not permit "wage borrowing" but declined to address their geographic scope.

In Oman, flight attendants sued their employer Delta Air Lines alleging that Delta violates California law by failing to pay its flight attendants at least the minimum wage for all hours worked. Specifically, plaintiffs argued Delta's policy pays flight attendants pursuant to formulas that compensate them hourly, and fail to compensate for certain hours worked, violating California law obligating payment of no less than the minimum wage for every hour worked. Plaintiffs also alleged Delta fails to pay all wages pursuant to the semimonthly timeframe prescribed by Labor Code Section 204, and to provide wage statements pursuant to Labor Code Section 226. In Ward, pilots and flight attendants sued their employer United Airlines, alleging that United's wage statements fail to provide all the information required by Labor Code Section 226.

On appeals from district court orders granting summary judgment to Delta and United, the 9th U.S. Circuit Court of Appeals asked the California Supreme Court to resolve unsettled questions of California law in both cases. The Supreme Court issued companion opinions addressing the overlapping questions presented.

In Ward, the 9th Circuit asked:

(1) Does the Railway Labor Act exemption in Wage Order No. 9 bar a wage statement claim brought under Section 226 by an employee who is covered by a collective bargaining agreement?

(2) Does Section 226 apply to wage statements provided by an out-of-state employer to an employee who resides in California, but who does not work principally in California or any other state?

In Oman, the 9th Circuit asked:

(1) Do Labor Code Sections 204 and 226 apply to wage payments and wage statements provided by an out-of-state employer to an employee who works in California only episodically?

(2) Does California minimum wage law apply to all work performed in California for an out-of-state employer by an employee who works in California only episodically?

(3) Does the Armenta bar on averaging wages apply to a pay formula that generally awards credit for all hours on duty, but which does not award credit for all hours on duty in situations resulting in higher pay?

Ward, the lead case, held that the Railway Labor Act exception in Wage Order 9 does not bar the plaintiffs from pursuing a wage statement claims under Labor Code Section 226. United argued that the exemption for employees governed by a collective bargaining agreement from the protections of Wage Order 9 should be extended by implication to Labor Code Section 226. The court disagreed, explaining that Section 226 contains no similar exemption despite the Legislature having numerous opportunities to enact one.

The court balanced the need to avoid application of competing state wage laws against leaving California-based employees with no protections. The court recognized the statute's purpose of ensuring that wage statements provide sufficient information for employees to determine whether they had been properly compensated, but instructed that the applicability of each wage law must be separately considered. In rejecting several alternative approaches, including the intended geographic reach of the enactment, the court instead focused on the California employment connections sufficient to trigger coverage.

Ward held that Section 226 applies where the employee's principal place of work is in California. Our Supreme Court instructed the 9th Circuit to first consider whether the employee works the majority of the time in California or in another state. When transportation employees do not perform a majority of their work in any state, the test is satisfied if the employees' base of work operations is California, meaning California serves as the physical location where the worker presents themself to begin work.

Applying Ward's principal place of work test, Oman concluded that Labor Code Sections 226 and 204 do not apply to pay periods in which an employee works only episodically and for less than a day at a time in California unless the employee works primarily in this state during the pay period, or does not work primarily in any state but has his or her base of operations in California. The court essentially held that Section 204, which requires complete payment on a semimonthly basis, is subject to the same applicability test as Section 226.

The court also endorsed the Armenta v. Osmose, Inc. prohibition on borrowing contractually owed compensation that exceeds the minimum wage to offset other uncompensated work, regardless of whether the average compensation for all time worked exceeds the minimum wage. The court declined to address the geographic scope of California's minimum wage laws, as it found Delta's four pay formulas do not violate this no-borrowing rule. The court found no impermissible borrowing where the minimum formula compensated every hour, above minimum wage rate (half flight pay), notwithstanding that other formulas might provide greater compensation while failing to attribute to each and every compensable hour a specific amount equal to or greater than the minimum wage.

Justice Goodwin Liu's concurrence emphasized that employers cannot circumvent the no borrowing rule by inserting a minimum wage floor, which promises to make up the difference if an employee's promised pay averaged over all hours worked falls below the applicable minimum wage.

In establishing the principal place of work test, our Supreme Court ensured that transportation employees based in California receive the protection of California wage laws. 