On February 4, 2019, the California Court of Appeal, Second District issued a 2-1 decision in Ward v. Tilly’s, Inc. in which it held employees must be given “reporting time pay” under Wage Order No. 7-2001 when an employer requires its employees to call in two hours before a potential shift to learn whether the employee is needed for work and the employee is told not to come into work that day.  This decision strays from most employers’ general understanding that “reporting time pay” covers only the situation where the employee physically comes into work but is sent home early (usually for lack of work).  Nevertheless, as the only published California appellate decision addressing this specific issue, California employers are bound by Ward and should revise their reporting policies accordingly to avoid liability.

Factual Background and Trial Court Proceedings

In Ward, the Plaintiff alleged that California-based retail store chain, Tilly’s, required its employees to call their stores two hours before the start of an on-call shift to determine whether they were needed to work the potential shift.  Tilly’s allegedly informed its employees to “consider an on-call shift a definite thing until they are actually told they do not need to come in,” but did not include on-call shifts as part of the employee’s “scheduled day’s work” when it calculated wages unless the employee was actually required to work the on-call shift.  Tilly’s did not consider an employee to have “reported to work” merely because the employee called into work as instructed under the alleged on-call policy.

A Tilly’s employee, Skylar Ward, challenged this alleged policy and filed a putative class action complaint which alleged the Industrial Welfare Commission’s (“IWC”) Wage Order 7—which regulates wages, hours, and working conditions in the mercantile industry—mandates that non-exempt retail employees be paid “reporting time pay” if either “an employee is required to report for work and does report, but is not put to work or is furnished less than half said employee’s usual or scheduled day’s work” or “an employee is required to report for work a second time in any one workday and is furnished less than two (2) hours of work on the second reporting.”  Cal. Code Regs., tit. 8, § 11070, subd. (5).  As Wage Order 7 applied to Tilly’s alleged on-call system—Plaintiff alleged Tilly’s employees were due reporting time pay for on-call shifts, and that Tilly’s alleged failure to properly compensate employees for those shifts resulted in violations of Wage Order 7, Labor Code sections 200-203, 226, and 226.3, and Business and Professions Code section 17200.

Tilly’s demurred to Plaintiff’s complaint and asserted Plaintiff was not entitled to reporting time pay as a matter of law. Tilly’s argued the alleged practice of requiring employees to call in to ask whether their employer needs them to come in for a shift does not constitute “reporting to work” within the meaning of Wage Order 7 since an employee reports to work under the wage order only when he or she physically appears at the workplace.  The trial court agreed and sustained Tilly’s demurrer without leave to amend. Plaintiff appealed.

The Court of Appeal Held Employees Are Owed Reporting Time Pay Under Tilly’s On-Call System

On appeal, Plaintiff argued the trial court erred as a matter of law by sustaining Tilly’s demurrer because Wage Order 7 is triggered by any manner of reporting, whether in person, telephonic, or otherwise.  In opposition, Tilly’s argued “report for work” under Wage Order 7 requires an employee’s physical presence at the workplace at the start of a scheduled shift.

The Court of Appeal framed its analysis by acknowledging the dispute turns on the meaning of “report for work” as that undefined phrase is used in Wage Order 7.  Since Wage Order 7 does not define “report for work,” the court resorted to an interpretive analysis of the phrase’s meaning.  The court first assessed the dictionary definition of “report” and found some definitions of the term implicate a spatial element, such as “to go to a place or a person and say that you are there” (Cambridge Dict. https://www.dictionary.cambridge.org/us/dictionary/english/report> [as of Feb. 4, 2019]) while other definitions focus on the reporter’s intent instead of his or her location, such as “to present oneself as ordered” (Random House Webster’s College Dict. (1992), p. 1142, col. 2).  Consequently, the court concluded the definitions of “report” do not conclusively establish whether the phrase “report for work” requires the employee’s presence at a particular time and place or whether it is satisfied by the employee presenting himself or herself in whatever manner the employer has directed, such as by telephone under Tilly’s system.

The court then turned to the IWC’s legislative intent behind its drafting of Wage Order 7.  Tilly’s argued the court’s interpretation of the IWC’s “report to work” language should be governed by the IWC’s understanding of the phrase at the time of the language’s adoption in the 1940s.  The court acknowledged the IWC’s understanding of “report to work” in the 1940s must have required the employee’s physical presence given the dearth of communicative channels through which the employee could instantly contact their employer at that time.  However, the court noted this interpretation ignores the significant advancements in technology since the 1940s, including the advent of the cell phone.

The court continued its analysis with the underlying notion that the relationship between employees and their employer has changed following the IWC’s adoption of the “report to work” language in Wage Order 7 due to the advent of the cell phone and other technological developments.  Accordingly, the court applied the applicable rule of statutory interpretation requiring the court to ask itself how the IWC would have addressed this question had it anticipated the realities of today’s interconnected world.  Under this standard, the court concluded that, had the IWC addressed the issue, it would have concluded Tilly’s alleged on-call system triggers reporting time pay.  However, the court’s rationale does not depend on technological advancements.  The court first noted Tilly’s alleged on-call system creates the same problem spurred by on-site reporting systems in the 1940s:  the employer is provided with a daily pool of willing employees at its disposal without having to provide a consistent scheduling system on which employees can depend for steady work.  Also, the court emphasized the employee’s uncompensated opportunity-cost under Tilly’s alleged on-call system, including: (1) the employee’s inability to schedule shifts at other jobs, attend classes at school, and commit to social plans; (2) the cost of childcare or elder care which the employee may be committed to even if he or she is not called into work; and (3) the employee’s inability to commit to any other activity incompatible with making a phone call to the employer two hours before his or her potential shift.  Under this policy-driven rationale, the court concluded employees must be compensated with “reporting time pay” under Wage Order 7 when employees are required to call their employers two hours before their shift to determine whether they are needed for work that day.

Note that the court expressly limited its holding to Tilly’s alleged on-call system (i.e., an on-call system giving employees two hours’ notice and disciplining employees for noncompliance) and did not hold that calling in to work qualified as reporting for all purposes.  Thus, it is unclear how Ward will be applied to different on-call systems.

The Dissent

Justice Egerton dissented and reasoned the court’s reliance on the advancements of technology as part of its interpretation of Wage Order 7 is misguided:

Ward argues that even if, by “report for work,” the IWC meant “physical attendance in the 1940s,” we should redefine and expand that term because of “technological innovation.” That “technological innovation,” Ward says, is the cellular telephone. But there has been no technological change pertinent to proper statutory interpretation in this case. Nothing turns on whether a cord or a cell tower connects the phone. The notion that phones were unfamiliar in the 1940s is ahistorical: spend some enjoyable time listening to Glenn Miller’s 1940 hit PEnnsylvania 6-5000. (The Andrews Sisters’ rendition is delightful.) When the Legislature defunded the IWC effective July 1, 2004, cellular or mobile phones had been in use for some time.

Justice Egerton’s dissent principally relied on a district court decision (Casas v. Victoria’s Secret Stores, LLC (C.D. Cal., Dec. 1, 2014, No. CV 14-6412-GW) 2014 WL 12644922, at * 5 [nonpub. opn.]) which held on-call shifts do not trigger reporting time pay under Wage Order 7.  The Casas court reasoned, “The fundamental task in interpreting Wage Orders is ascertaining the drafters’ intent, not drawing up interpretations that promote the Court’s view of good policy.’” Id.  While Justice Egerton acknowledged the hardships an on-call system may impose on employees, she reasoned employers do not have on-call systems simply to “torture employees” as these systems are backed by legitimate business needs.  Hence, Justice Egerton reasoned the balance between the competing needs of employees and their employers is a task for the Legislature, not the court.

Takeaways

Given its 2-1 split decision and strong dissent, Ward is a strong candidate for review by the California Supreme Court.  But, employers should not wait for final word before eliminating (or, if necessary, revising in accordance with Ward) their on-call systems.  Aside from the fact that Ward is enforceable law in the interim, the Supreme Court continues to demonstrate its inclination toward favoring California workers on issues of compensation and benefits in the face of legitimate employment policies.  Moreover, employers should not assume they are in the clear if they are not engaged in the mercantile industry.  While Ward applied Wage Order No. 7, most of the IWC wage orders share the same language regarding reporting time pay.  Thus, the prudent California employer should assume Ward applies to their business.