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Court of Appeal holds a) Vacation benefits may be paid at a rate lower than the employee regular rate of pay during employment; b) Truck drivers are exempt from overtime under the federal motor carrier exemption, even if they mostly drive intrastate

Bell v. H.F. Cox, Inc. (2012) — Cal.Rptr.3d —-, 2012 WL 3846827

Background: Plaintiff, Oscar Bell and other truck drivers filed a class action complaint against H.F. Cox, Inc. (Cox) alleging Cox’ failure to pay overtime and failure to pay vacation benefits, among other claims. Cox’s vacation benefits policy provided that eligible employees earned one or more weeks of paid vacation annually, depending on their length of employment. The policy provided, however, that drivers would be paid only $500 per week (increased in 2005 to $650 per week) during their vacation and that employees would receive no payment for vacation benefits upon the termination of their employment.

Court History: Cox filed a motion for summary judgment. The trial court granted the motion and found the vacation benefits claims (for both the current and terminated employees) to be preempted by Employee Retirement Income Security Act (ERISA). Plaintiffs appealed.

Pertinent Issues addressed: The Court of Appeal affirmed and reversed in part making the following relevant findings:

a.  Trial Court erred in granting Cox’s motion as to failure to pay vacation benefits due upon termination of employment. Court of Appeal noted, “ERISA preempts an action under state law for failure to pay vacation benefits only if the employer maintains a separate account for payment of vacation benefits and does not pay its employees vacation benefits from its general assets.” Court of Appeal found triable issue of facts existed as to whether Cox’s vacation benefits plan was funded from general assets or from a separate trust. Accordingly, the issue was remanded to the trial.

b.  Trial court properly granted Cox’s motion for summary adjudication as to failure to pay promised vacation benefits to current employees. Court of Appeal noted that the relevant Labor Code section 227.3 by its express terms, applies only to the situation where an employee is terminated without having taken off his or her vested vacation time” and not during employment. Hence, an employer may chose to pay vacation benefits at a rate lower than employee’s regular rate of pay during employment.

c.   Plaintiffs were exempt from overtime under the federal motor carrier exemption, even if they mostly drive intrastate. Court of Appeal relying primarily on the United States Supreme Court decision in Morris v. McComb (1947) 332 U.S. 422, 68 S.Ct. 131 (Morris) noted that, “Even drivers who do not transport goods in interstate commerce are subject to the jurisdiction of the Secretary of Transportation if, as part of their regular duties, they reasonably could be expected to be called on to make interstate runs.” Court of Appeal also cited Morris’ ruling that, “although interstate hauls constituted only 3.65 percent of the carrier’s trips and many of its drivers performed no interstate hauls, the motor carrier exemption applied to all of the carrier’s drivers.”

Pointers:

  • The Court reaffirms the exemption of drivers from overtime under the federal motor carrier exemption.
  • Please note that even though the Court pointed that vacation benefits may be paid at a rate lower than the employee regular rate of pay during employment, it did not clearly decide on the issue of whether an employee whose employment is terminated can be paid the vacation benefits at a rate lower than his regular rate of pay?