Labor Commissioner Files Multi-Million Dollar Lawsuit Against Real Estate Brokerage For Alleged Wage And Hour Violations

In a press release issued today, the California Department of Industrial Relations announced that Labor Commissioner Julie Su, filed in the Alameda County Superior Court a lawsuit seeking damages and penalties in excess of $17 Million against ZipRealty for alleged wage and hour violations. Click here to download and read a copy of the lawsuit. 

The lawsuit Ms. Su filed in the Alameda County Superior Court falls on the heels of  an action in Kern County Superior Court. In that case, Zip Realty filed an appeal of a Labor Commissioner administrative award of $75,000 based on wage claims filed by four former Zip Realty agents. On appeal, the court quadrupled the $75,000 administrative award and awarded the four agents over $330,000 for alleged damages and interest. As part of that proceeding, Zip Realty argued it was not required to pay its real estate agents minimum wages or overtime wages because the agents were outside salespersons.  The court rejected that defense because the court ruled the agents did not qualify for the outside salespersons exemption because the court found the agents spent less than 50% of their working time working outside the office.

These developments provide two important takeaways for California employers:

First, we think federal and state agencies charged with enforcement of federal and state employment laws have taken a more aggressive enforcement posture.  

Second, the developments serve as a reminder that the requirements of the exemptions for minimum wage, overtime, meal period, and rest period requirements generally applicable to non-exempt employees must be strictly complied with in order for the employer to rely on the exemption. For example, under California law, outside salespersons qualify for the exemption if the outside salespersons is at least 18 years old and "customarily and regularly works more than half the working time away from the employer's place of business selling tangible or intangible items or obtaining orders or contracts for products, services or use of facilities." Under federal law, outside salespersons qualify for the exemption if the employee's primary duty is making sales (as defined in the Fair Labor Standards Act) or obtaining orders or contracts for services for which the consideration will be paid by the client or customer and if the employees is "customarily and regularly engaged away from the employer's place or places of business in performing such primary duty."

Improperly classifying an employee as exempt when the requirements for the exemption are not met can create substantial exposure for the employer.  For example, under California law, if an employee is improperly classified as exempt, the employer can be exposed to claims for unpaid premium pay (i.e., overtime pay) if the employee worked more than 8 hours in a day or more than 40 hours in a workweek, to claims for the employer's failure to provide required meal periods or failure to authorize and permit required rest periods, and to claims for non-compliant wage statement penalties, among other things. This can occur when the employer, because the employee is classified as exempt, does not pay the employee for all hours worked, does not record all hours worked, does not provide or record meal periods, does not authorize and permit rest periods, and does not include on the employee's wage statements all of the information an employer is required to provide on wage statements issued to non-exempt employees. Currently, such claims are predominantly brought as class actions, which raises the stakes even higher.

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