Maldonado v. Epsilon Plastics, Inc.

In Maldonado v. Epsilon Plastics, Inc., the California Court of Appeal determined employers have the burden of showing an alternative workweek schedule (AWS) was properly adopted. Therefore, employers should follow the proper procedure in adopting an AWS and document the process.

Facts and Background

Plaintiffs were hourly production employees for Defendant Epsilon. Their claims included wage and hour violations and violation of the unfair competition law.

Epsilon is a plastic bag manufacturer, and its machinery was designed to run 24 hours a day. Thus, Epsilon’s employees worked 12-hour shifts. Employees worked four shifts in one week and three shifts the following week. Because of this work schedule, Epsilon adopted an AWS, where employees were paid their regular pay for the first 10 hours and overtime for the last 2 hours. This AWS was used at the Epsilon plant for four different periods from 1993 to 2013.

The AWS had been in place when Epsilon took over the plant from its previous owner, Apple Plastics. Because the previous owner, and not Epsilon, had adopted the AWS, the issue was whether Apple Plastics properly adopted the AWS. Epsilon introduced two documents concerning Apple’s adoption of the AWS which together indicated the AWS was adopted in May 1993 and Apple employees voted in 1995 and 1996 to keep the AWS. In January 2008, Epsilon employees voted on the AWS again, where a secret ballot was used. However, no evidence indicated that Epsilon held meetings on the AWS before the vote. The AWS was adopted and used until October 2008. Epsilon continued adopting different AWS’s throughout the years, but in each new election failed to follow all the proper procedure to adopt an AWS as described in the applicable wage orders.

At the trial court level, the issue was whether Epsilon owed the plaintiffs overtime for the 9th and 10th hours of work because the AWS was improperly adopted each time it was instituted. The trial court found the AWS was not properly adopted each of the four times it was instituted. Therefore, Epsilon owed the plaintiffs overtime. Epsilon attempted to argue that because the previous owner had properly adopted the AWS in 1993, Epsilon was protected.

On July 26, 2016, the trial court entered judgment in favor of the plaintiffs for $935,297.40.

Before the Court of Appeal, Epsilon challenged the finding of liability and damages only for the 1993 period. Thus, Epsilon argued Apple properly adopted the AWS in 1993 and the plaintiffs presented no evidence that Apple failed to follow proper procedure in instituting the AWS.

The Court of Appeal’s Analysis

Under Labor Code § 511, an AWS may only be adopted if it receives at least a two-thirds vote of the affected employees in a secret ballot. Wage Orders also set forth several other requirements for adopting an AWS. The court noted that the general overtime regulations do not apply to employees working an AWS, so long as the AWS was properly implemented. The Court of Appeal stated an exemption from overtime is an affirmative defense, meaning the employer bears the burden of proving the exemption.

Therefore, the court found it was not Plaintiff’s burden to show that the previous owner did not follow the proper procedure; it was Epsilon’s burden to show that the previous owner did follow the proper procedure.

Regarding the previous owner’s adoption of the AWS in 1993, the court noted there was no evidence that it had followed the proper AWS procedure. The court therefore held Epsilon failed to meet its burden in showing that the previous owner had followed the proper procedure. Accordingly, the court found Epsilon liable for failing to pay the overtime.

Takeaways from the Decision

This case demonstrates that employers must follow the proper AWS procedure and document the process. Because employers have the burden of showing the proper procedure was followed, if an employer follows a procedure but cannot demonstrate it, the employer may be held liable.

The requirements for adopting an AWS depend on the applicable wage order. Therefore, the procedures for adopting an AWS found in the applicable wage orders must be followed with precision in order to avoid overtime liability.

If you have questions about whether your current AWS was properly adopted or want to adopt an AWS, please contact the attorneys at Palmer Kazanjian Wohl Hodson LLP.