Shoplifting and theft costs U.S. retailers $48.9 billion each year, and 30 percent of all retail theft is committed by employees.[1] These sizable costs sap revenues for businesses, raise prices for consumers, and decrease wages and available jobs for workers. In response, many retailers require exit searches or bag checks of employees when they leave work. In Frlekin v. Apple Inc., the California Supreme Court resolved whether California law requires employers to compensate employees for time spent waiting for, and undergoing, such exit searches.[2]

Apple required store employees to undergo theft-prevention searches of their bags before leaving work.[3] Employees also had to show that any personal Apple technology devices, including iPhones, in their possession belonged to them.[4] These exit searches happened after clocking out and usually took five to twenty minutes (though some employees reported that, on the busiest days, it took up to 45 minutes to find an available supervisor and undergo a search).[5]

A class of retail employees sued Apple in federal court, alleging that Apple had violated a California law—Industrial Welfare Commission Wage Order 7[6]—requiring employers to compensate employees for all “hours worked.”[7] The Ninth Circuit requested the California Supreme Court’s guidance on the state law issue of whether exit searches were compensable under Wage Order 7 as “hours worked.”[8]

A unanimous California Supreme Court held that an employee’s time spent on the employer’s premises waiting for, and undergoing, mandatory exit searches of bags, packages, or personal technology—even those items brought to work purely for personal convenience—is compensable.[9]

The court’s analysis centered on interpreting Wage Order 7, which defines “hours worked” to include “the time during which an employee is subject to the control of an employer.”[10] Applying a “strictly textual analysis,” the court determined that Apple controlled its employees during exit searches in several ways: enforcing compliance with the policy under threat of discipline; confining employees to the premises until completion of the search; and compelling performance of multiple tasks, such as locating a manager, unzipping and opening bags, and removing Apple devices for inspection.[11]

The court rejected Apple’s argument that employees were not subject to Apple’s control since they were not required to bring a bag, package, or Apple device with them to work. Neither the text nor history of Wage Order 7 suggests that only mandatory activities are compensable.[12] Rather, the law requires compensation for “employer-controlled conduct,” which is determined by several factors including “the location of the activity, the degree of the employer’s control, whether the activity primarily benefits the employee or employer, and whether the activity is enforced through disciplinary measures.”[13] According to the court, each factor favored compensating the employees in this case.[14] 

What’s more, the court reasoned that the exit searches were required “as a practical matter.”[15] In ordinary life, most people carry valuables and personal items in a bag, purse, or satchel. Likewise, having a cell phone is one of the “practical necessities of modern life.”[16] Thus, the court explained that, though bringing such items to work was “not ‘required’ in a strict, formal sense, many employees may feel that they have little true choice when it comes to the search policy, especially given that the policy applies day in and day out.”[17]

In the end, the court held that since employees were “subject to Apple’s control while awaiting, and during, Apple’s exit searches,” Wage Order 7 required Apple to compensate those employees for their time.[18]

Importantly, the court declined to limit Frlekin to prospective application. According to the court, the decision did not upset settled law, and neither fairness nor public policy concerns displaced the traditional rule that judicial opinions apply retroactively.[19] This retroactivity could expose many retailers in California to significant lawsuits and liability for using similar anti-theft practices in the past.

Applying the California Supreme Court’s new guidance, the Ninth Circuit held that summary judgment must be granted to the plaintiffs who had indisputably not received wages for the time spent waiting for and during the exit searches.[20] The Ninth Circuit then remanded the case back to the federal district court to determine what remedy to afford to each individual in the class.[21]

Frlekin is especially noteworthy because it makes California the outlier relative to both federal law and the laws of several other states. The United States Supreme Court has held that time spent undergoing similar security screenings was not compensable under the Fair Labor Standards Act.[22] And it appears most other states to consider the same question have nearly identical rules.[23]

 

Note from the Editor:
 
The author, Mr. Rosen, filed an amicus brief in this case. The Federalist Society takes no positions on particular legal and public policy matters. Any expressions of opinion are those of the authors. We do invite responses from our readers. To join the debate, please email us at info@fedsoc.org.

[1] Nat. Retail Fed’n, 2017 National Retail Security Survey (2017), https://cdn.nrf.com/sites/default/files/2018-10/NRSS-Industry-Research-Survey-2017.pdf.

[2] Frlekin v. Apple Inc., 8 Cal. 5th 1038 (2020), reh’g denied (May 13, 2020).

[3] Id. at 1043.

[4] Id.

[5] Id. at 1044.

[6] Cal. Code Regs. tit. 8, § 11070(2)(G).

[7] Frlekin, 8 Cal. 5th at 1042, 1044.

[8] Id. at 1045 (citing Frlekin v. Apple, Inc., 870 F.3d 867, 869 (9th Cir. 2017)).

[9] Id. at 1042.

[10] Id. at 1046-47 (emphasis added).

[11] Id. at 1047.

[12] Id. at 1048-49.

[13] Id. at 1056.

[14] Id.

[15] Id. at 1054.

[16] Id. at 1055 (citation omitted).

[17] Id. at 1054.

[18] Id. at 1056-57.

[19] Id. at 1057.

[20] Frlekin v. Apple, Inc., No. 15-17382, 2020 WL 5225699, at *4 (9th Cir. Sept. 2, 2020).

[21] Id.

[22] Integrity Staffing Solutions, Inc. v. Busk, 135 S. Ct. 513, 515 (2014).

[23] See In re Amazon.com, Inc., Fulfillment Center Fair Labor Standards Act (FLSA) and Wage and Hour Litigation, 261 F. Supp. 3d 789, 793, 796 (W.D. Ky. 2017) (Nevada and Arizona law); UPS Supply Chain Solutions, Inc. v. Hughes, No. 2014-CA-001496-ME, 2018 WL 1980775, at *7 (Ky. Ct. App., Apr. 27, 2018) (Kentucky law); Cinadr v. KBR, Inc., No. 3:11-cv-00010, 2013 WL 12097950, at *7 (S.D. Iowa, Feb. 15, 2013) (Iowa law); Sleiman v. DHL Express, No. 09-0414, 2009 WL 1152187, at *6 (E.D. Pa., Apr. 27, 2009) (Pennsylvania law).