auto-deduction-risk-assessment-memo.docx

1017-00004 · Entities. Aurelius Global Media Group · Case Assessment & Strategy

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CALDERWOOD & HARKNESS LLP Attorneys at Law 777 South Figueroa Street, Suite 4200 Los Angeles, California 90017 Telephone: (213) 555-8400 Facsimile: (213) 555-8401

CONFIDENTIAL — ATTORNEY-CLIENT PRIVILEGED / ATTORNEY WORK PRODUCT This memorandum is protected by the attorney-client privilege and the work product doctrine. It is intended solely for the use of the addressee in connection with pending and anticipated litigation. Do not forward, copy, or distribute without the express written authorization of Calderwood & Harkness LLP.

MEMORANDUM

TO: Gregory Tanaka, Vice President, Legal & Compliance, AMA Productions Inc.

FROM: Devon Archer, Calderwood & Harkness LLP

DATE: November 22, 2022

RE: Auto-Deduction Policy — Risk Assessment

Matter No.: 1017-00004

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I. Issue Presented

AMA Productions Inc. ("AMA") utilizes the "TimeTrack Pro" electronic timekeeping system, developed and administered by NovaPay Solutions Inc. ("NovaPay"), across its California production operations. A core feature of the TimeTrack Pro system is an automatic meal-period deduction function (the "auto-deduction"), which automatically deducts thirty (30) minutes from an employee's recorded hours for any shift of six (6) hours or more, on the assumption that the employee took a compliant, duty-free meal period during that shift. The auto-deduction operates without any affirmative input from the employee at the time of the deduction; the system presumes compliance unless the employee takes an affirmative step to report otherwise.

This memorandum assesses the legal risks associated with AMA's implementation of this auto-deduction practice across its seven (7) California production facilities, with particular attention to the configuration and deployment of the system's ancillary "Missed Meal Attestation" feature, the adequacy of employee training and notice, the threshold at which the deduction triggers, and the interplay of these factors with prevailing California wage-and-hour law.

This assessment is rendered in the context of Fuentes v. AMA Productions Inc., Los Angeles Superior Court Case No. 22STCV38214, a putative class action and representative action under the Private Attorneys General Act ("PAGA") filed on November 1, 2022. In Fuentes, three named plaintiffs — Marisol Fuentes, Yesenia Padilla, and Derek Halloran — allege, among other claims, that AMA's auto-deduction practice systematically deprived non-exempt, hourly employees of meal period compensation in violation of California Labor Code sections 226.7 and 512, and applicable provisions of IWC Wage Order 12 (the Motion Picture Industry order). The auto-deduction is the core factual predicate for Plaintiffs' meal period claims, which constitute the single largest component of alleged damages in the complaint.

As detailed below, our preliminary analysis indicates that the auto-deduction practice, as implemented, presents high litigation risk for AMA. This memorandum sets forth our findings, the governing legal framework, our risk assessment, our preliminary estimate of exposure, and our recommendations for immediate corrective action and litigation strategy.

II. Background — System Implementation

A. Transition to NovaPay Solutions and TimeTrack Pro

Prior to January 1, 2019, AMA utilized a manual time-sheet system for tracking the hours worked by its non-exempt, hourly employees at its California production facilities. Under that system, employees recorded their start times, end times, and meal period times on paper time sheets, which were then reviewed and approved by supervisors and submitted to AMA's payroll department for processing. The manual system, while operationally cumbersome, did not employ an automatic deduction mechanism; meal period deductions were recorded by the employees themselves and reviewed by supervisors.

Effective January 1, 2019, AMA transitioned to NovaPay Solutions Inc. ("NovaPay"), located at 2200 Powell Street, Suite 600, Emeryville, California 94608, as its payroll processor and timekeeping system provider. NovaPay's "TimeTrack Pro" platform is an electronic punch-in/punch-out system installed at terminal kiosks at each of AMA's California facilities. Employees use the system to clock in at the beginning of their shifts, clock out at the end of their shifts, and — where the relevant features are activated — to record meal period attestations. The transition to TimeTrack Pro was intended to modernize AMA's timekeeping, reduce administrative burden, and improve payroll accuracy.

The key custodian for TimeTrack Pro electronically stored information ("ESI") at NovaPay is Marcus Yee, Director of Client Data Services. Mr. Yee's team manages system configuration, data storage, and client reporting for TimeTrack Pro. As discussed in Section VII.D below, obtaining comprehensive configuration and usage records from NovaPay through Mr. Yee will be a critical component of both our litigation defense and our internal compliance review.

AMA's California-based non-exempt, hourly employee population totals approximately 2,400 individuals, out of a total United States workforce of approximately 3,200 employees. These 2,400 non-exempt employees are spread across AMA's seven (7) California production facilities and are assigned to fourteen (14) distinct production show units. All of AMA's California production operations are governed by IWC Wage Order 12 (the Motion Picture Industry order), which carries specific requirements regarding meal and rest periods that are, in certain respects, distinct from the general wage orders applicable to other industries.

B. Auto-Deduction Configuration

The auto-deduction feature within TimeTrack Pro was configured as follows at the time of system rollout and, based on information provided by AMA and NovaPay to date, has not been modified since initial implementation:

1. Trigger Threshold: The auto-deduction is configured to deduct thirty (30) minutes from an employee's recorded hours for any shift of six (6) hours or more. The deduction is applied automatically by the system without any affirmative action by the employee or supervisor. It is important to note — and this constitutes an independent compliance issue analyzed in detail in Section V.D below — that this six-hour threshold does not align with the applicable legal requirement. Under IWC Wage Order 12 and California Labor Code section 512, a meal period must be provided for any shift exceeding five (5) hours, not six hours. The one-hour discrepancy means that employees working shifts of between five and six hours were neither receiving an auto-deduction nor being prompted by the system to take a meal period, and were potentially not receiving meal period premium pay if their meal periods were missed.

2. Timing of Deduction: The auto-deduction is applied at the sixth hour of the shift. Specifically, when an employee's cumulative shift time reaches six hours and zero minutes (6.0 hours), the system automatically deducts 0.5 hours (30 minutes) from the employee's total recorded hours for that shift. The deduction is applied to the back end of the payroll calculation and is reflected in the employee's pay stub as a reduction in compensable hours.

3. Second Meal Period: The auto-deduction feature does NOT apply a second automatic deduction for shifts exceeding ten (10) hours. Under California Labor Code section 512(a) and Wage Order 12, a second meal period must be provided for shifts exceeding ten hours (unless waived in accordance with the statute). AMA's TimeTrack Pro system contains no automated mechanism for tracking, prompting, or deducting for second meal periods. Instead, employees working shifts exceeding ten hours were expected to manually adjust their time entries to reflect second meal periods taken. Based on our preliminary review, there is no evidence that employees were trained on this manual adjustment process, and we are not aware of any system-level prompts or reminders that alerted employees or supervisors to the second-meal-period requirement on long shifts.

The absence of a second-meal-period auto-deduction is relevant to the overall risk assessment because it indicates a fundamental gap in the system's design: the TimeTrack Pro implementation addressed only the first meal period (and did so at the wrong threshold), leaving the second meal period entirely to manual processes that were not documented or enforced.

C. Missed Meal Attestation Feature

TimeTrack Pro includes a "Missed Meal Attestation" feature, which is a software function available at the time-clock terminal kiosk. The attestation feature, when activated, allows an employee to report a missed or shortened meal period by clicking or selecting an option on the time-clock terminal screen. The feature is designed to function as follows:

• When an employee selects the "Missed Meal Attestation" option on the time-clock terminal, the system overrides the auto-deduction for that shift: the thirty (30) minutes that would otherwise have been deducted are added back to the employee's recorded hours.

• In addition, the attestation automatically triggers a one-hour meal period premium payment in accordance with California Labor Code section 226.7, which requires employers to pay an additional hour of pay at the employee's regular rate of compensation for each workday on which a compliant meal period is not provided.

• The attestation is made at the time-clock level — i.e., the employee interacts with the same terminal used for clocking in and out — and the attestation data flows automatically into NovaPay's payroll processing pipeline, where it is applied to the employee's pay for the relevant pay period without the need for manual intervention by payroll staff.

The Missed Meal Attestation feature, if properly deployed and communicated to employees, is intended to serve as the safeguard that makes the auto-deduction practice defensible: it provides employees with a mechanism to report exceptions to the system's default assumption that a compliant meal period was taken. As discussed in Section III below, however, the feature was not consistently activated across AMA's facilities, was not the subject of any documented training or employee communication, and was used at remarkably low rates even where it was available.

III. Key Findings — Inconsistent System Configuration and Usage

Our preliminary review of information provided by AMA — principally through interviews with Lorraine Okafor, Senior Vice President of Human Resources, and Karen Fong, Payroll Manager — and from NovaPay Solutions has revealed several significant findings regarding the implementation of the TimeTrack Pro auto-deduction system and the Missed Meal Attestation feature. These findings are summarized below and form the factual foundation for the legal analysis and risk assessment that follows.

A. Missed Meal Attestation Feature — Not Activated at Three of Seven Facilities

The most significant finding of our preliminary review is that the Missed Meal Attestation feature was not activated at three of AMA's seven California production facilities. The activation status of the feature, correlated with the facility's rollout timing, is as follows:

A clear pattern emerges from this data: the Missed Meal Attestation feature was activated at the four facilities that transitioned to TimeTrack Pro during the first wave of implementation in January 2019 (Facilities 1, 3, 5, and 6), and was not activated at the three facilities that transitioned during the second wave of implementation in March 2019 (Facilities 2, 4, and 7). We have not yet been able to determine the reason for this discrepancy. Ms. Fong has indicated that she believed the attestation feature was activated at all facilities, and Ms. Okafor was unaware of the feature's existence prior to our inquiry. Neither has been able to identify the individual or individuals responsible for the system configuration decisions made during the second-wave rollout. NovaPay's records, which we expect to obtain through formal discovery, may shed light on this question.

The practical consequence of this configuration failure is stark: at Facilities 2, 4, and 7, approximately 850 non-exempt, hourly employees had no electronic mechanism whatsoever for reporting missed or shortened meal periods. These employees' only recourse, if they missed a meal period or had their meal period shortened or interrupted, was to manually report the missed meal to their supervisor or to payroll — a process that is inherently less reliable, more susceptible to suppression (whether intentional or inadvertent), and significantly harder to document. There is no evidence that AMA established any formal protocol for such manual reporting at these facilities, and no evidence that supervisors at these facilities were trained on how to handle or escalate such reports.

The significance of this finding for the Fuentes litigation cannot be overstated. Named plaintiff Marisol Fuentes worked at Facility 2 (Studio City — Unscripted), and named plaintiff Yesenia Padilla worked at Facility 4 (Burbank — Live Events). Both facilities lacked the attestation feature. Both named plaintiffs are therefore in a strong position to testify — and, more importantly, to argue on behalf of a putative class — that they had no meaningful mechanism for reporting missed meal periods, and that the auto-deduction system operated at their facilities without the safeguard that AMA may seek to rely upon in its defense.

B. Low Usage Rates Even Where Feature Was Activated

Even at the four facilities where the Missed Meal Attestation feature was activated and available to employees, the usage rates were notably and consistently low. Based on data provided by Karen Fong and preliminary information from NovaPay, the attestation usage rates at each activated facility are as follows:

For purposes of this analysis, "eligible shifts" refers to shifts of six (6) hours or more — i.e., shifts for which the auto-deduction was applied. The usage rates shown above represent the percentage of such eligible shifts on which an employee affirmatively used the attestation feature to report a missed or shortened meal period.

These low usage rates are susceptible to two competing interpretations, and the relative persuasiveness of each interpretation will be a central issue in the litigation:

• Interpretation Favorable to AMA: The low usage rates reflect the fact that employees at these facilities generally received compliant meal periods during the vast majority of their shifts. Because employees were, in fact, taking their full thirty-minute duty-free breaks, there was no reason for them to use the attestation feature with any frequency. Under this interpretation, the auto-deduction was accurately reflecting the reality of the workplace, and the low usage rates are a sign that the system was working as intended.

• Interpretation Unfavorable to AMA: The low usage rates reflect the fact that employees were largely unaware of the attestation feature's existence, were discouraged from using it (whether explicitly or through cultural expectations in the production environment), or had become accustomed over time to not reporting missed meals because they perceived the process as futile or feared retaliation. Under this interpretation, the low usage rates do not reflect actual compliance with meal period requirements, but rather a failure of the system to capture the true extent of meal period violations. This interpretation is significantly strengthened by the absence of any documented training or communication regarding the attestation feature, as discussed in Section III.C below.

It bears particular emphasis that named plaintiff Derek Halloran worked at Facility 5 (Hollywood — Scripted Development), where the attestation feature was activated but the usage rate was only 1.8% — the lowest of any activated facility. In initial interviews conducted by Plaintiffs' counsel, Mr. Halloran has indicated that he was unaware of the attestation feature and did not know that the time-clock terminal offered any mechanism for reporting missed meal periods. If Mr. Halloran's testimony is representative of the broader employee experience at Facility 5, it lends significant support to the unfavorable interpretation of the low usage rates and undermines AMA's ability to rely on the attestation feature as an adequate safeguard.

C. Absence of Training and Notice Regarding the Attestation Feature

Our preliminary document review — encompassing AMA's employee handbook, onboarding materials, training records, internal communications, and facility-posted notices provided by Ms. Okafor and Ms. Fong — has not identified any formal training materials or written notices specifically informing employees of the existence or operation of the Missed Meal Attestation feature in TimeTrack Pro.

The relevant provisions of AMA's Employee Handbook (most recently revised March 2021, at pages 47–49, under the heading "Meal and Rest Periods") state that employees "are entitled to a 30-minute uninterrupted meal period for shifts exceeding five hours" and that employees "should notify their supervisor if they are unable to take a meal period for any reason." The handbook further states that AMA "will pay meal period premium pay in accordance with applicable law for any missed meal period."

However, the handbook does not reference the TimeTrack Pro attestation feature, the time-clock button or option for reporting missed meals, or the electronic process by which an employee could trigger the auto-deduction override and meal period premium payment. The handbook's instruction to "notify their supervisor" is entirely disconnected from the electronic attestation process that, at least at the four activated facilities, was the system-level mechanism designed to handle missed meal reports.

Our review has uncovered no evidence of the following:

• Onboarding training materials that addressed the attestation feature or demonstrated its use to newly hired employees;

• Stand-alone training sessions or workshops for existing employees on the use of the TimeTrack Pro system's meal period features;

• Email communications, memoranda, or other written notices to employees regarding the attestation feature;

• Posted notices at time-clock terminal kiosks or in break areas informing employees of the attestation option;

• Documentation of any supervisor training on the attestation feature or on the supervisor's role in ensuring employees were aware of it.

When asked about training and communication efforts, Karen Fong (Payroll Manager) indicated that "managers were expected to familiarize employees with the time clock system during onboarding" and that she believed supervisors had been verbally informed about the attestation feature. However, Ms. Fong was unable to identify any documented protocol, curriculum, checklist, or training record supporting this assertion. There is no written evidence that any supervisor at any AMA facility was formally trained on the attestation feature or instructed to communicate its existence to employees.

The absence of documented training and notice is a critical gap. Under the governing legal standard, the adequacy of an auto-deduction system depends on the employer's ability to demonstrate that employees had a meaningful and well-communicated mechanism for reporting exceptions. An attestation feature that exists in the software but is unknown to the employees it is intended to serve cannot fulfill this function.

D. 6-Hour vs. 5-Hour Threshold Discrepancy

As noted in Section II.B above, the auto-deduction in TimeTrack Pro is configured to trigger at six (6) hours, rather than at five (5) hours as required by IWC Wage Order 12 and California Labor Code section 512. This one-hour discrepancy has the following practical consequences:

• Employees working shifts of between five and six hours were not receiving the auto-deduction. In one sense, this means that no erroneous deduction was being applied to those shifts. However, the absence of any system-level treatment of these shifts means that the TimeTrack Pro system was not prompting or requiring employees to take meal periods on these shorter shifts, and was not flagging them for supervisory review.

• Employees working shifts of between five and six hours who missed their meal periods were potentially not receiving the one-hour meal period premium pay required by California Labor Code section 226.7. Because the system did not recognize these shifts as triggering the meal period requirement, there was no mechanism — automated or otherwise — for identifying missed meal periods on these shifts and ensuring that premium pay was issued.

• The threshold discrepancy is an independent compliance issue that creates additional exposure for AMA. Even if all other aspects of the auto-deduction system were properly implemented, the misconfigured threshold would constitute a separate violation of Wage Order 12 and section 512 for every shift in the five-to-six-hour range on which a meal period was required but not provided or tracked.

The scope of this exposure will depend on the number of shifts in the five-to-six-hour range worked by AMA's non-exempt employees during the class period. This information is contained in the TimeTrack Pro data and will be part of the expert analysis recommended in Section VII.E below.

IV. Legal Analysis — California Law on Auto-Deduction Practices

A. Employer's Obligation Under *Brinker*

The foundational California Supreme Court decision on employer meal period obligations is Brinker Restaurant Corp. v. Superior Court (2012) 53 Cal.4th 1004. In Brinker, the Court held that an employer's obligation under California law is to "provide" meal and rest periods — that is, to make them available to employees and to relieve employees of all duty during the meal period — but not to "ensure" that employees actually take them. Id. at 1040. An employer satisfies its obligation by establishing a meal period policy, communicating it to employees, and making meal periods available; the employer is not required to police the workforce to confirm that each employee affirmatively ceases work and eats.

This framework has significant implications for auto-deduction practices. An auto-deduction system is not per se unlawful under California law. An employer may lawfully utilize an auto-deduction as a payroll processing convenience, provided that:

(a) The employer has a compliant meal period policy that provides employees with the opportunity to take duty-free meal periods in accordance with applicable law;

(b) The employer provides a reliable, well-communicated mechanism by which employees can report exceptions — i.e., instances in which they did not receive a compliant meal period — so that the auto-deduction can be overridden and appropriate premium pay can be issued; and

The critical question for the Fuentes litigation, therefore, is not whether AMA's use of an auto-deduction is inherently impermissible, but rather whether AMA's implementation of the auto-deduction — including the inconsistent activation of the attestation feature, the absence of training and notice, and the misconfigured threshold — was adequate to satisfy the Brinker standard. Based on the findings set forth in Section III, we believe AMA will face substantial difficulty in demonstrating that its implementation met this standard.

B. *Donohue* and Systematic Underpayment

In Donohue v. AMN Services, LLC (2021) 11 Cal.5th 58, the California Supreme Court addressed the lawfulness of rounding policies in the meal period context. Although Donohue dealt specifically with the practice of rounding time entries to the nearest predetermined increment, rather than with auto-deduction practices directly, the Court's reasoning articulates a principle of broad applicability: an employer's timekeeping practices must not systematically favor the employer at the expense of employees. The Court held that where a rounding policy, as applied, resulted in employees being undercompensated on the whole — even if individual instances of rounding sometimes favored the employee — the practice was impermissible. Id. at 73–75.

The principle from Donohue — that a timekeeping methodology must not systematically disadvantage employees — applies by analogy to auto-deduction practices with considerable force. An auto-deduction system that deducts thirty minutes from an employee's recorded hours regardless of whether the employee actually received a compliant, duty-free break — and that does so without providing a reliable, well-communicated mechanism for reporting exceptions — systematically favors the employer. The deduction always runs in one direction: it reduces the employee's compensable hours. The only counterbalance is the employee's ability to report that the deduction should not have been applied. When that counterbalance is absent, unavailable, or unknown to employees, the system operates as a one-way ratchet that systematically reduces employee compensation.

Plaintiffs in Fuentes will almost certainly invoke Donohue to argue that AMA's auto-deduction, as implemented, constituted a systematically employer-favorable timekeeping practice. The inconsistent attestation feature activation — which left employees at three facilities without any electronic mechanism for correcting erroneous deductions — will be particularly potent evidence in support of this argument. Even at the four facilities where the feature was available, the low usage rates and absence of training will be cited as evidence that the counterbalance was illusory.

C. Judicial Hostility to Auto-Deduction Without Adequate Safeguards

California courts have repeatedly expressed skepticism toward — and, in many cases, outright hostility to — auto-deduction policies that operate without a reliable, well-communicated mechanism for employees to report missed or shortened meal periods. While the legal standard does not categorically prohibit auto-deduction, the practical reality is that courts and juries tend to view auto-deduction with suspicion, particularly in industries where work pressures and cultural expectations may discourage employees from asserting their meal period rights.

Several recurring themes in the case law are relevant to AMA's situation:

• Informal reporting is insufficient. Where an employer's only mechanism for employees to report missed meals is to "tell your supervisor" or to "contact payroll," courts have found the auto-deduction practice to be inadequate. Informal, verbal reporting is inherently less reliable than an electronic system, more susceptible to suppression or loss, and significantly harder to verify or audit. The fact that AMA's Employee Handbook instructs employees to "notify their supervisor" — without referencing the TimeTrack Pro attestation feature — places AMA squarely within this disfavored category, particularly at the three facilities where the electronic attestation was not available.

• The mechanism must be communicated. Even where a formal exception-reporting mechanism exists, it must be effectively communicated to employees. A feature that is available in the software but unknown to the workforce cannot serve as an adequate safeguard. The absence of any documented training or notice regarding the attestation feature at AMA is a significant vulnerability on this point.

• Inconsistency undermines the defense. Where an employer's compliance practices vary across facilities, departments, or time periods, courts are less likely to credit the employer's assertion that it provided a uniform, adequate mechanism for meal period compliance. The facility-by-facility disparity in attestation feature activation at AMA — with the feature available at some facilities and absent at others — undermines any argument that AMA maintained a consistent, company-wide safeguard against auto-deduction errors.

Taken together, these principles indicate that AMA's auto-deduction implementation is highly vulnerable to challenge under current California law. The combination of inconsistent feature activation, absent training, low usage, and informal reporting alternatives at the non-activated facilities places AMA's practice in the category of auto-deduction implementations that California courts have found insufficient.

V. Risk Assessment

Overall Rating: HIGH RISK

The auto-deduction practice, as implemented at AMA, presents significant litigation risk. We assess this risk as HIGH based on the cumulative effect of the factors identified below. Each factor independently contributes to AMA's exposure; taken together, they create a compounding risk profile that will be difficult to mitigate through litigation alone.

A. Inconsistent Attestation Feature Activation

This is the single most significant vulnerability in AMA's position. At Facilities 2, 4, and 7 — the Studio City, Burbank, and El Segundo locations — employees had no electronic mechanism to report missed meal periods during the entire period from the March 2019 rollout to the present. This means that for approximately forty-four (44) months, an estimated 850 non-exempt employees at these three facilities were subject to an auto-deduction system that presumed meal period compliance while affording them no system-level means of correcting that presumption when it was incorrect.

This creates a facility-by-facility disparity that poses several distinct problems for AMA's defense:

• It undermines AMA's defense that employees had a meaningful opportunity to report missed meals. At nearly half of AMA's California facilities, the electronic attestation mechanism simply did not exist. AMA cannot argue that it provided employees with a reliable mechanism for reporting exceptions when that mechanism was not available to a substantial portion of its workforce.

• It provides Plaintiffs with a strong and easily articulated argument that the auto-deduction operated without adequate safeguards at a systemic level. The inconsistency is not a matter of individual supervisor error or isolated non-compliance; it is a structural, system-level failure that persisted across multiple facilities for years.

• It aligns directly with two of the three named plaintiffs' work locations. Marisol Fuentes worked at Facility 2 (Studio City — Unscripted), and Yesenia Padilla worked at Facility 4 (Burbank — Live Events). Both will be able to testify from personal experience that they had no electronic means of reporting missed meal periods, lending their claims an immediacy and concreteness that will resonate with both the court and a potential jury.

• It raises troubling questions about AMA's intent and diligence. Whether the non-activation was the result of deliberate cost-saving, negligent oversight, or a miscommunication with NovaPay during the second-wave rollout, the practical effect is the same: AMA operated an auto-deduction system at three facilities without the safeguard that its own vendor had designed to accompany it. Plaintiffs will argue that AMA either knowingly chose not to activate the feature or failed to exercise reasonable diligence in ensuring that its timekeeping system was properly configured — either of which supports their claims.

B. Low Usage Rates Even Where Feature Was Active

The attestation usage rates of 1.8% to 4.1% across the four activated facilities are strikingly low. While these rates are not dispositive — it is theoretically possible that employees at these facilities received compliant meal periods on approximately 96% to 98% of their shifts — the rates are low enough to raise significant questions about employee awareness of and access to the attestation feature.

Plaintiffs will argue that these low usage rates demonstrate one or more of the following: (i) that the attestation feature was unknown to employees because AMA failed to train them on its existence; (ii) that employees were culturally discouraged from using the feature because production environments create implicit pressure to forego breaks and avoid disrupting workflow; or (iii) that the feature was difficult to locate or use on the time-clock terminal, making it functionally inaccessible even to employees who were nominally aware of it.

The strength of Plaintiffs' argument on this point is significantly enhanced by the absence of training materials (discussed in Section V.C below) and by Derek Halloran's reported testimony that he was unaware of the feature despite working at an activated facility. If Plaintiffs can present class-wide evidence — through surveys, declarations, or testimony — that a substantial proportion of employees at the activated facilities were similarly unaware of the feature, the low usage rates will become a powerful piece of circumstantial evidence supporting class-wide liability.

Combined with the absence of any training or communication regarding the attestation feature, the low usage rates support Plaintiffs' overarching narrative: that the auto-deduction was implemented as a payroll processing convenience and cost-saving measure, without adequate attention to employee protections or compliance with California's meal period requirements.

C. Absence of Training and Communication

The absence of formal training materials, written notices, or documented onboarding instructions regarding the Missed Meal Attestation feature is a critical gap in AMA's compliance posture. As discussed in Section IV.C above, California courts consistently require that an employer not only have a mechanism for employees to report exceptions to an auto-deduction, but also that the employer effectively communicate the existence and operation of that mechanism to employees. An attestation feature that exists in the software but is unknown to the employees it serves is, from a legal standpoint, no better than having no feature at all.

The Employee Handbook's reference to notifying supervisors about missed meal periods, without any reference to the TimeTrack Pro attestation option, creates an additional problem: it suggests that AMA's own internal communication about meal period reporting was disconnected from the electronic system that was supposed to handle such reports. An employee who read the handbook and followed its instructions would contact a supervisor, not use the time-clock terminal. An employee who used the time-clock terminal (if aware of the feature) would bypass the supervisor notification process. The two systems were not integrated, and neither was adequately documented or communicated.

The reliance on an informal expectation that "managers were expected to familiarize employees with the time clock system during onboarding," without any documented protocol, training curriculum, or verification process, is unlikely to satisfy a court that AMA took reasonable steps to ensure employee awareness of the attestation feature. This is particularly true given that there is no evidence that the managers themselves received formal training on the feature or were evaluated on their performance in communicating it to employees.

D. 6-Hour vs. 5-Hour Threshold

The misconfigured trigger threshold constitutes an independent compliance issue that creates additional exposure for AMA. Under IWC Wage Order 12 and California Labor Code section 512, a first meal period must be provided for any shift exceeding five (5) hours. AMA's system was configured to apply the auto-deduction — and, by implication, to treat the meal period as a relevant compliance issue — only for shifts of six (6) hours or more.

This discrepancy means that for shifts between five and six hours, the TimeTrack Pro system was entirely silent on meal periods: no deduction was applied, no prompt was issued, and no tracking occurred. Employees working these shifts who missed their meal periods would have had no system-level mechanism for reporting the violation and no system-level trigger for premium pay. The exposure on these shifts is incremental to — and independent of — the exposure created by the auto-deduction issues on longer shifts, and it affects the potential damages calculation by expanding the universe of shifts on which AMA may have failed to comply with meal period requirements.

The number of affected shifts will need to be determined through expert analysis of the TimeTrack Pro data. However, given that AMA operates fourteen production show units with varying schedules, it is likely that a non-trivial number of shifts fell in the five-to-six-hour range during the class period.

E. Entertainment Industry Culture

The entertainment and motion picture industry is characterized by extended work days that frequently span twelve to sixteen hours on production days, particularly for field-based and live events productions. This industry context is relevant to the risk assessment for several reasons.

First, even where AMA maintains compliant written policies regarding meal periods, the practical reality of production shoots creates significant pressure — both explicit and implicit — for employees to forego or shorten their meal breaks. Stopping production for a full thirty-minute duty-free meal period may disrupt filming schedules, waste expensive location time, require holding talent and crew, or delay completion of time-sensitive production milestones. In this environment, there is a well-documented cultural expectation that employees — particularly below-the-line production workers — will work through meals or take abbreviated breaks.

Second, AMA operates fourteen (14) distinct production show units across its seven (7) facilities, with significant variation in scheduling intensity, production formats, and physical work environments. Some show units operate on predictable studio schedules with fixed start and end times, while others — particularly field-based shows such as "Summit Challenge," coordinated from Facility 4 in Burbank, and AMA's live events productions — operate in dynamic, location-dependent environments where meal period scheduling is inherently more challenging. This variation across show units complicates AMA's ability to demonstrate uniform compliance and may support Plaintiffs' argument that a centralized, automated safeguard (such as the attestation feature) was particularly necessary precisely because of the variability in production conditions.

Third, the entertainment industry has been the subject of extensive wage-and-hour litigation in California, and courts are familiar with the practical challenges that production environments pose for meal period compliance. While this familiarity may work in AMA's favor in some respects — courts may recognize that not every missed meal period is attributable to employer malfeasance — it also means that courts will apply heightened scrutiny to the adequacy of AMA's compliance mechanisms and will be skeptical of arguments that employees freely chose to forego their meals without any systemic pressure to do so.

VI. Exposure Estimate — Auto-Deduction-Related Claims

Based on our preliminary analysis of the available information, we provide the following exposure estimate for the auto-deduction-related claims in Fuentes v. AMA Productions Inc.:

Estimated Class Size: Approximately 1,850 non-exempt, hourly employees during the class period (November 1, 2018 to the present, representing a four-year statute of limitations for the Labor Code claims and a one-year PAGA period). This figure is based on AMA's current non-exempt California headcount of approximately 2,400, adjusted for turnover and the shorter PAGA period.

Plaintiffs' Claimed Damages: Plaintiffs' complaint and PAGA notice assert aggregate damages of $38.6 million. We understand that Plaintiffs intend to support this figure through an expert damages report prepared by Dr. Howard Rennick of Pinnacle Economic Consulting Group LLC. As of the date of this memorandum, the Rennick report has not yet been produced, but it is expected to accompany Plaintiffs' class certification motion.

PAGA Penalties Claimed: Plaintiffs' PAGA notice claims $12.2 million in civil penalties under Labor Code section 2699. PAGA penalties are calculated at $100 per employee per pay period for an initial violation and $200 per employee per pay period for each subsequent violation, with 75% of the penalty payable to the Labor and Workforce Development Agency and 25% to the aggrieved employees.

Assessment of Plaintiffs' Figures: We believe Plaintiffs' aggregate damages claim of $38.6 million is substantially inflated and assumes a violation rate approaching 100% — i.e., that virtually every auto-deducted shift resulted in a meal period violation. While AMA's systemic vulnerabilities are significant, it is unlikely that the actual violation rate approaches this figure. Expert analysis of the TimeTrack Pro data will be necessary to determine the actual violation rate and to develop a defensible damages estimate.

Defense Preliminary Exposure Estimate:

• Meal Period Claims (Auto-Deduction): $4 million to $8 million. This range reflects our preliminary assessment of realistic exposure on the meal period claims attributable to the auto-deduction practice, depending on the actual violation rate as determined by expert analysis of the TimeTrack Pro data. The low end of the range assumes a violation rate in the range of 15–20% (i.e., that approximately 15–20% of auto-deducted shifts involved an actual meal period violation for which premium pay was not issued), while the high end assumes a violation rate in the range of 30–40%.

• PAGA Penalties: $500,000 to $1.5 million. PAGA penalties are subject to substantial judicial discretion and reduction under Labor Code section 2699(e)(2), which permits the court to award a lesser amount if the full penalty would be "unjust, arbitrary and oppressive, or confiscatory." Courts routinely exercise this discretion to reduce PAGA penalties, particularly where the employer demonstrates good faith corrective action. The realistic range we estimate reflects this judicial discretion and assumes that AMA implements the corrective actions recommended in Section VII below.

Key Caveat: These estimates are preliminary and are based on limited information. The actual exposure will depend on factors that cannot be fully assessed until we have access to the complete TimeTrack Pro data set (including punch-in/punch-out records, attestation records, and system configuration logs), the results of our expert analysis, and the development of the factual record through discovery. We will update these estimates as the case progresses.

The auto-deduction-related meal period claim is the single largest driver of exposure in the Fuentes case. While the complaint also includes rest period, overtime, and derivative claims, the auto-deduction issue underlies the most significant component of alleged damages and will likely be the focal point of both class certification proceedings and settlement discussions.

VII. Recommendations

Based on the foregoing analysis, we recommend the following immediate and medium-term actions.

A. Immediate Corrective Action — Attestation Feature Activation

AMA should activate the Missed Meal Attestation feature at Facilities 2, 4, and 7 (Studio City, Burbank, and El Segundo) immediately. This is the single most urgent corrective action available to AMA and should be prioritized accordingly.

Implementation of this activation should be coordinated with NovaPay Solutions through Marcus Yee (Director of Client Data Services). Based on our understanding of the TimeTrack Pro system architecture, the attestation feature is already present in the software at these facilities and requires only activation in the system configuration settings — it does not require a new software deployment or hardware installation. We recommend that AMA request expedited activation from NovaPay and confirm activation in writing, with documentation of the date and time of activation at each facility.

We acknowledge that taking corrective action during pending litigation is a strategic decision with both risks and benefits:

• Risk: Plaintiffs may cite the activation of the feature at Facilities 2, 4, and 7 as evidence that AMA recognized a problem with its prior configuration and that the non-activation was a deliberate or negligent failure that AMA is now belatedly correcting. Plaintiffs may argue that the activation constitutes a "subsequent remedial measure" and, while California Evidence Code section 1151 generally prohibits the admission of subsequent remedial measures to prove negligence or culpable conduct, this evidentiary protection is not absolute and may not apply in all contexts (including, potentially, PAGA penalty proceedings where the court's assessment of the employer's good faith is directly at issue).

• Benefit: Activating the feature demonstrates good faith, halts the ongoing accrual of additional violations at these three facilities, and positions AMA favorably for several important purposes: (i) settlement discussions, in which AMA's willingness to take prompt corrective action will be viewed positively; (ii) the PAGA penalty reduction argument under Labor Code section 2699(e)(2), which permits the court to consider the employer's remedial efforts in determining the appropriate penalty amount; and (iii) any future compliance audit or regulatory inquiry.

Our recommendation is to proceed with activation. The benefits of corrective action outweigh the litigation risks, particularly given that the non-activation of the feature at these three facilities will be fully discoverable regardless of whether AMA activates the feature now. The fact of the non-activation is already known to AMA, will be contained in the TimeTrack Pro configuration records, and will be produced in discovery. AMA gains nothing by leaving the feature deactivated while the litigation proceeds; doing so merely increases the total exposure by allowing additional violations to accrue.

B. Immediate Corrective Action — Threshold Correction

AMA should correct the auto-deduction trigger threshold from six (6) hours to five (5) hours to comply with IWC Wage Order 12 and California Labor Code section 512. This correction should be implemented concurrently with the attestation feature activation described above and should be coordinated with NovaPay Solutions for system reconfiguration across all seven facilities.

As with the attestation feature activation, the threshold correction should be documented in writing, with confirmation of the date and time of the reconfiguration at each facility. The reconfigured threshold should be tested to confirm proper operation before being deployed in the production environment.

C. Employee Notice and Training

AMA should promptly undertake a comprehensive employee communication and training initiative regarding the Missed Meal Attestation feature and employees' meal period rights generally. We recommend the following specific steps:

1. Written Notice to All Non-Exempt Employees. AMA should distribute a written notice — in both English and Spanish, given the demographics of the workforce — to all non-exempt, hourly employees at all seven California facilities. The notice should clearly explain: (a) the employee's right to a thirty-minute duty-free meal period for shifts exceeding five hours and a second meal period for shifts exceeding ten hours; (b) the existence and operation of the Missed Meal Attestation feature on the TimeTrack Pro time-clock terminal; (c) step-by-step instructions for using the attestation feature; and (d) the consequence of using the feature (i.e., that the auto-deduction will be reversed and one hour of premium pay will be issued). The notice should be distributed via individual hard copy to each employee, posted at each time-clock terminal kiosk, posted in break areas and common areas, and made available electronically through any employee portal or communication platform.

2. Supervisor Training. AMA should conduct mandatory training sessions for all supervisors with responsibility for non-exempt employees, including unit production managers ("UPMs"), line producers, department heads, and other supervisory personnel across the fourteen show units. The training should cover: (a) the supervisor's obligation to ensure that employees are aware of the attestation feature; (b) the supervisor's obligation to provide compliant meal periods; (c) the process for handling reports of missed meals (whether through the electronic attestation system or through direct communication with the supervisor); and (d) the prohibition on discouraging employees from using the attestation feature or from taking meal periods.

3. Documentation. All training sessions — both employee notice distribution and supervisor training — should be documented with sign-in sheets, and all training records should be retained in AMA's human resources files. Documentation of training will be important for AMA's defense in the current litigation and for any future compliance disputes.

D. Document Preservation

AMA must ensure that all TimeTrack Pro configuration records, including historical activation and deactivation logs for the Missed Meal Attestation feature at each facility, are preserved under the litigation hold issued on November 2, 2022 (Document Preservation Notice No. 3). We understand that the litigation hold has been distributed to AMA personnel with custodial responsibility for relevant records; however, given that the TimeTrack Pro data is maintained by NovaPay Solutions as a third-party service provider, additional steps are necessary to ensure preservation of the following categories of records:

• System configuration settings (both current and historical), including all settings related to the auto-deduction feature, the attestation feature, the trigger threshold, and the second-meal-period treatment;

• Attestation activation and deactivation logs by facility, with dates, showing when the attestation feature was activated or deactivated at each of the seven facilities;

• Attestation usage records at the employee level, showing each attestation filed, the date and time of the attestation, the employee who filed it, and the facility at which it was filed;

• Punch-in/punch-out records at the employee level for all shifts during the class period, which will be essential for the expert analysis of actual meal period practices;

• Any internal NovaPay communications regarding the decision to activate or not activate the attestation feature at specific AMA facilities during the first- and second-wave rollouts; and

• Any AMA internal communications regarding the same decisions, including emails, memoranda, meeting notes, or other documents reflecting discussions about the TimeTrack Pro configuration at any facility.

These records are critical to both AMA's defense and to the resolution of the factual questions at the heart of the case. We are preparing a third-party subpoena to NovaPay Solutions for production of these records. The subpoena is expected to be issued in February 2023, following the completion of the meet-and-confer process with NovaPay's counsel. In the interim, we recommend that AMA send a written preservation request directly to Marcus Yee at NovaPay, requesting that NovaPay preserve all records related to AMA's TimeTrack Pro account, including historical configuration data, for the period from January 1, 2019 to the present.

E. Expert Analysis

We recommend the retention of two experts to support AMA's defense in the Fuentes litigation:

1. Economics/Damages Expert. We plan to retain Dr. Catherine Lindstrom of Hargrove Analytics Inc. (515 S. Figueroa Street, Suite 1100, Los Angeles, CA 90071) to analyze the actual impact of the auto-deduction practice on employee compensation. The key analytical question is: to what extent did the auto-deduction result in underpayment? Answering this question requires comparing auto-deducted meal periods with actual punch data — i.e., time-clock entries showing when employees actually stopped and resumed work during their shifts — and with attestation records showing when employees reported missed meals. This analysis will allow us to determine the actual violation rate and to develop a defensible damages estimate that can be used to challenge Plaintiffs' inflated damages figures and, if necessary, to inform settlement discussions.

2. Industrial/Organizational Expert. We separately recommend retaining Dr. Rajesh Makhija of Workforce Dynamics Consulting LLC (444 Castro Street, Suite 800, Mountain View, CA 94041) to analyze the variability in meal and rest break practices across AMA's fourteen show units and seven facilities. Dr. Makhija's analysis will focus on whether the experiences of the named plaintiffs and their work environments are representative of the putative class as a whole, or whether the significant variation across show units, production formats, and facilities defeats the predominance and typicality requirements for class certification under California Code of Civil Procedure section 382. This expert will be critical for AMA's class certification defense, particularly given the diversity of AMA's production operations (ranging from studio-based post-production to field-based unscripted and live events programming).

We will prepare formal engagement letters for both experts and will circulate them for AMA's review and approval.

F. Consider Transition Away from Auto-Deduction

As a longer-term recommendation, we advise AMA to evaluate transitioning from the auto-deduction model to an affirmative meal-period acknowledgment system. Under an affirmative acknowledgment model, employees would affirmatively confirm — via a time-clock input at the end of each meal period — that they received a compliant, thirty-minute, duty-free meal period. If the employee did not receive a compliant meal period, the employee would select an alternative option indicating that the meal period was missed, shortened, or interrupted, which would trigger the meal period premium payment.

This approach fundamentally shifts the compliance framework. Under the current auto-deduction model, the system assumes compliance and requires the employee to take affirmative action to report an exception. Under an affirmative acknowledgment model, the system requires the employee to confirm compliance, and no assumption is made in the absence of employee input. This shift eliminates the Plaintiff-favorable inference inherent in auto-deduction — the argument that the system is designed to benefit the employer by presuming compliance and making it difficult for employees to challenge that presumption — and replaces it with a system in which the employee's own affirmative confirmation provides the employer with a contemporaneous record of meal period compliance.

Affirmative acknowledgment systems are widely recognized as more defensible under current California law and are increasingly adopted by employers in industries — including the entertainment industry — that face elevated meal period litigation risk. While the transition will require investment in system reconfiguration, employee training, and workflow adjustment, it will significantly reduce AMA's long-term exposure to meal period class actions and PAGA claims.

This transition should be discussed with AMA senior management, including Jonathan Mercer (President) and Lorraine Okafor (Senior Vice President of Human Resources), as a medium-term compliance improvement. We recommend targeting implementation within the next six to nine months, separate from and in addition to the immediate corrective actions described above.

VIII. Conclusion

The auto-deduction practice as implemented across AMA's seven California production facilities presents HIGH litigation risk. This assessment is driven primarily by four interrelated factors:

1. The inconsistent activation of the Missed Meal Attestation feature, which left employees at three of seven facilities without any electronic mechanism for reporting missed meal periods for a period of nearly four years;

2. The absence of any documented employee training, written notice, or formal communication regarding the attestation feature, even at the facilities where the feature was activated;

3. The strikingly low usage rates (1.8%–4.1%) at the activated facilities, which — in the context of the training gap — support the inference that employees were unaware of or unable to use the feature; and

4. The misconfigured trigger threshold (6 hours rather than 5 hours), which constitutes an independent compliance violation and expands the universe of potentially affected shifts.

These vulnerabilities are compounded by the practical realities of the entertainment production environment, in which cultural expectations and production pressures create inherent challenges for meal period compliance.

We recommend that AMA take the following immediate steps:

• Activate the Missed Meal Attestation feature at Facilities 2, 4, and 7;

• Correct the auto-deduction trigger threshold from 6 hours to 5 hours at all seven facilities;

• Distribute written notice and conduct training regarding the attestation feature for all non-exempt employees and supervisors;

• Ensure comprehensive document preservation, including TimeTrack Pro configuration and usage records from NovaPay Solutions; and

• Retain economic and industrial/organizational experts to support AMA's defense.

In the medium term, AMA should evaluate transitioning away from the auto-deduction model to an affirmative meal-period acknowledgment system, which is more defensible under current California law and better aligned with the realities of AMA's production operations.

The auto-deduction issue is the single most significant exposure driver in the Fuentes class action and PAGA representative action. It will be central to both the class certification proceedings and any settlement discussions. We are available to discuss this memorandum and our recommendations at your earliest convenience.

This memorandum is based on information available as of November 22, 2022, and is subject to revision as additional facts are developed through discovery and investigation. The legal analysis contained herein is provided for the sole purpose of advising AMA Productions Inc. in connection with pending and anticipated litigation and should not be construed as a comprehensive compliance audit or as legal advice applicable to other matters.

CALDERWOOD & HARKNESS LLP

By: ________

Devon Archer Partner, Employment Litigation Group Direct: (213) 555-8422 dearcher@calderwoodharkness.com

cc: Sarah Whitfield, Senior Associate, Calderwood & Harkness LLP (via secure email) File: Matter No. 1017-00004

Facility	Location	Attestation Feature Status
Facility 1 — West Hollywood HQ & Post-Production	8500 Sunset Blvd., Suite 1400, West Hollywood, CA 90069	ACTIVATED (January 2019 — first wave rollout)
Facility 2 — Studio City (Stages A & B — Unscripted)	4024 Penmark Strategy Partners Avenue, Studio City, CA 91604	NOT ACTIVATED (March 2019 — second wave rollout)
Facility 3 — Sherman Oaks (Digital Content)	15301 Ventura Blvd., Suite 300, Sherman Oaks, CA 91403	ACTIVATED (January 2019 — first wave rollout)
Facility 4 — Burbank (Live Events & Field Production)	3800 W. Alameda Ave., Burbank, CA 91505	NOT ACTIVATED (March 2019 — second wave rollout)
Facility 5 — Hollywood (Scripted Development)	1438 N. Gower Street, Hollywood, CA 90028	ACTIVATED (January 2019 — first wave rollout)
Facility 6 — Santa Monica (E-Commerce Studio)	2120 Colorado Avenue, Santa Monica, CA 90404	ACTIVATED (January 2019 —

CALDERWOOD & HARKNESS LLP Attorneys at Law 777 South Figueroa Street, Suite 4200 Los Angeles, California 90017 Telephone: (213) 555-8400 Facsimile: (213) 555-8401
CONFIDENTIAL — ATTORNEY-CLIENT PRIVILEGED / ATTORNEY WORK PRODUCT This memorandum is protected by the attorney-client privilege and the work product doctrine. It is intended solely for the use of the addressee in connection with pending and anticipated litigation. Do not forward, copy, or distribute without the express written authorization of Calderwood & Harkness LLP.
MEMORANDUM
TO: Gregory Tanaka, Vice President, Legal & Compliance, AMA Productions Inc.
FROM: Devon Archer, Calderwood & Harkness LLP
DATE: November 22, 2022
RE: Auto-Deduction Policy — Risk Assessment
Matter No.: 1017-00004
Right-click to update Table of Contents
I. Issue Presented
AMA Productions Inc. ("AMA") utilizes the "TimeTrack Pro" electronic timekeeping system, developed and administered by NovaPay Solutions Inc. ("NovaPay"), across its California production operations. A core feature of the TimeTrack Pro system is an automatic meal-period deduction function (the "auto-deduction"), which automatically deducts thirty (30) minutes from an employee's recorded hours for any shift of six (6) hours or more, on the assumption that the employee took a compliant, duty-free meal period during that shift. The auto-deduction operates without any affirmative input from the employee at the time of the deduction; the system presumes compliance unless the employee takes an affirmative step to report otherwise.
This memorandum assesses the legal risks associated with AMA's implementation of this auto-deduction practice across its seven (7) California production facilities, with particular attention to the configuration and deployment of the system's ancillary "Missed Meal Attestation" feature, the adequacy of employee training and notice, the threshold at which the deduction triggers, and the interplay of these factors with prevailing California wage-and-hour law.
This assessment is rendered in the context of Fuentes v. AMA Productions Inc., Los Angeles Superior Court Case No. 22STCV38214, a putative class action and representative action under the Private Attorneys General Act ("PAGA") filed on November 1, 2022. In Fuentes, three named plaintiffs — Marisol Fuentes, Yesenia Padilla, and Derek Halloran — allege, among other claims, that AMA's auto-deduction practice systematically deprived non-exempt, hourly employees of meal period compensation in violation of California Labor Code sections 226.7 and 512, and applicable provisions of IWC Wage Order 12 (the Motion Picture Industry order). The auto-deduction is the core factual predicate for Plaintiffs' meal period claims, which constitute the single largest component of alleged damages in the complaint.
As detailed below, our preliminary analysis indicates that the auto-deduction practice, as implemented, presents high litigation risk for AMA. This memorandum sets forth our findings, the governing legal framework, our risk assessment, our preliminary estimate of exposure, and our recommendations for immediate corrective action and litigation strategy.
II. Background — System Implementation
A. Transition to NovaPay Solutions and TimeTrack Pro
Prior to January 1, 2019, AMA utilized a manual time-sheet system for tracking the hours worked by its non-exempt, hourly employees at its California production facilities. Under that system, employees recorded their start times, end times, and meal period times on paper time sheets, which were then reviewed and approved by supervisors and submitted to AMA's payroll department for processing. The manual system, while operationally cumbersome, did not employ an automatic deduction mechanism; meal period deductions were recorded by the employees themselves and reviewed by supervisors.
Effective January 1, 2019, AMA transitioned to NovaPay Solutions Inc. ("NovaPay"), located at 2200 Powell Street, Suite 600, Emeryville, California 94608, as its payroll processor and timekeeping system provider. NovaPay's "TimeTrack Pro" platform is an electronic punch-in/punch-out system installed at terminal kiosks at each of AMA's California facilities. Employees use the system to clock in at the beginning of their shifts, clock out at the end of their shifts, and — where the relevant features are activated — to record meal period attestations. The transition to TimeTrack Pro was intended to modernize AMA's timekeeping, reduce administrative burden, and improve payroll accuracy.
The key custodian for TimeTrack Pro electronically stored information ("ESI") at NovaPay is Marcus Yee, Director of Client Data Services. Mr. Yee's team manages system configuration, data storage, and client reporting for TimeTrack Pro. As discussed in Section VII.D below, obtaining comprehensive configuration and usage records from NovaPay through Mr. Yee will be a critical component of both our litigation defense and our internal compliance review.
AMA's California-based non-exempt, hourly employee population totals approximately 2,400 individuals, out of a total United States workforce of approximately 3,200 employees. These 2,400 non-exempt employees are spread across AMA's seven (7) California production facilities and are assigned to fourteen (14) distinct production show units. All of AMA's California production operations are governed by IWC Wage Order 12 (the Motion Picture Industry order), which carries specific requirements regarding meal and rest periods that are, in certain respects, distinct from the general wage orders applicable to other industries.
B. Auto-Deduction Configuration
The auto-deduction feature within TimeTrack Pro was configured as follows at the time of system rollout and, based on information provided by AMA and NovaPay to date, has not been modified since initial implementation:
1. Trigger Threshold: The auto-deduction is configured to deduct thirty (30) minutes from an employee's recorded hours for any shift of six (6) hours or more. The deduction is applied automatically by the system without any affirmative action by the employee or supervisor. It is important to note — and this constitutes an independent compliance issue analyzed in detail in Section V.D below — that this six-hour threshold does not align with the applicable legal requirement. Under IWC Wage Order 12 and California Labor Code section 512, a meal period must be provided for any shift exceeding five (5) hours, not six hours. The one-hour discrepancy means that employees working shifts of between five and six hours were neither receiving an auto-deduction nor being prompted by the system to take a meal period, and were potentially not receiving meal period premium pay if their meal periods were missed.
2. Timing of Deduction: The auto-deduction is applied at the sixth hour of the shift. Specifically, when an employee's cumulative shift time reaches six hours and zero minutes (6.0 hours), the system automatically deducts 0.5 hours (30 minutes) from the employee's total recorded hours for that shift. The deduction is applied to the back end of the payroll calculation and is reflected in the employee's pay stub as a reduction in compensable hours.
3. Second Meal Period: The auto-deduction feature does NOT apply a second automatic deduction for shifts exceeding ten (10) hours. Under California Labor Code section 512(a) and Wage Order 12, a second meal period must be provided for shifts exceeding ten hours (unless waived in accordance with the statute). AMA's TimeTrack Pro system contains no automated mechanism for tracking, prompting, or deducting for second meal periods. Instead, employees working shifts exceeding ten hours were expected to manually adjust their time entries to reflect second meal periods taken. Based on our preliminary review, there is no evidence that employees were trained on this manual adjustment process, and we are not aware of any system-level prompts or reminders that alerted employees or supervisors to the second-meal-period requirement on long shifts.
The absence of a second-meal-period auto-deduction is relevant to the overall risk assessment because it indicates a fundamental gap in the system's design: the TimeTrack Pro implementation addressed only the first meal period (and did so at the wrong threshold), leaving the second meal period entirely to manual processes that were not documented or enforced.
C. Missed Meal Attestation Feature
TimeTrack Pro includes a "Missed Meal Attestation" feature, which is a software function available at the time-clock terminal kiosk. The attestation feature, when activated, allows an employee to report a missed or shortened meal period by clicking or selecting an option on the time-clock terminal screen. The feature is designed to function as follows:
• When an employee selects the "Missed Meal Attestation" option on the time-clock terminal, the system overrides the auto-deduction for that shift: the thirty (30) minutes that would otherwise have been deducted are added back to the employee's recorded hours.
• In addition, the attestation automatically triggers a one-hour meal period premium payment in accordance with California Labor Code section 226.7, which requires employers to pay an additional hour of pay at the employee's regular rate of compensation for each workday on which a compliant meal period is not provided.
• The attestation is made at the time-clock level — i.e., the employee interacts with the same terminal used for clocking in and out — and the attestation data flows automatically into NovaPay's payroll processing pipeline, where it is applied to the employee's pay for the relevant pay period without the need for manual intervention by payroll staff.
The Missed Meal Attestation feature, if properly deployed and communicated to employees, is intended to serve as the safeguard that makes the auto-deduction practice defensible: it provides employees with a mechanism to report exceptions to the system's default assumption that a compliant meal period was taken. As discussed in Section III below, however, the feature was not consistently activated across AMA's facilities, was not the subject of any documented training or employee communication, and was used at remarkably low rates even where it was available.
III. Key Findings — Inconsistent System Configuration and Usage
Our preliminary review of information provided by AMA — principally through interviews with Lorraine Okafor, Senior Vice President of Human Resources, and Karen Fong, Payroll Manager — and from NovaPay Solutions has revealed several significant findings regarding the implementation of the TimeTrack Pro auto-deduction system and the Missed Meal Attestation feature. These findings are summarized below and form the factual foundation for the legal analysis and risk assessment that follows.
A. Missed Meal Attestation Feature — Not Activated at Three of Seven Facilities
The most significant finding of our preliminary review is that the Missed Meal Attestation feature was not activated at three of AMA's seven California production facilities. The activation status of the feature, correlated with the facility's rollout timing, is as follows:
A clear pattern emerges from this data: the Missed Meal Attestation feature was activated at the four facilities that transitioned to TimeTrack Pro during the first wave of implementation in January 2019 (Facilities 1, 3, 5, and 6), and was not activated at the three facilities that transitioned during the second wave of implementation in March 2019 (Facilities 2, 4, and 7). We have not yet been able to determine the reason for this discrepancy. Ms. Fong has indicated that she believed the attestation feature was activated at all facilities, and Ms. Okafor was unaware of the feature's existence prior to our inquiry. Neither has been able to identify the individual or individuals responsible for the system configuration decisions made during the second-wave rollout. NovaPay's records, which we expect to obtain through formal discovery, may shed light on this question.
The practical consequence of this configuration failure is stark: at Facilities 2, 4, and 7, approximately 850 non-exempt, hourly employees had no electronic mechanism whatsoever for reporting missed or shortened meal periods. These employees' only recourse, if they missed a meal period or had their meal period shortened or interrupted, was to manually report the missed meal to their supervisor or to payroll — a process that is inherently less reliable, more susceptible to suppression (whether intentional or inadvertent), and significantly harder to document. There is no evidence that AMA established any formal protocol for such manual reporting at these facilities, and no evidence that supervisors at these facilities were trained on how to handle or escalate such reports.
The significance of this finding for the Fuentes litigation cannot be overstated. Named plaintiff Marisol Fuentes worked at Facility 2 (Studio City — Unscripted), and named plaintiff Yesenia Padilla worked at Facility 4 (Burbank — Live Events). Both facilities lacked the attestation feature. Both named plaintiffs are therefore in a strong position to testify — and, more importantly, to argue on behalf of a putative class — that they had no meaningful mechanism for reporting missed meal periods, and that the auto-deduction system operated at their facilities without the safeguard that AMA may seek to rely upon in its defense.
B. Low Usage Rates Even Where Feature Was Activated
Even at the four facilities where the Missed Meal Attestation feature was activated and available to employees, the usage rates were notably and consistently low. Based on data provided by Karen Fong and preliminary information from NovaPay, the attestation usage rates at each activated facility are as follows:
For purposes of this analysis, "eligible shifts" refers to shifts of six (6) hours or more — i.e., shifts for which the auto-deduction was applied. The usage rates shown above represent the percentage of such eligible shifts on which an employee affirmatively used the attestation feature to report a missed or shortened meal period.
These low usage rates are susceptible to two competing interpretations, and the relative persuasiveness of each interpretation will be a central issue in the litigation:
• Interpretation Favorable to AMA: The low usage rates reflect the fact that employees at these facilities generally received compliant meal periods during the vast majority of their shifts. Because employees were, in fact, taking their full thirty-minute duty-free breaks, there was no reason for them to use the attestation feature with any frequency. Under this interpretation, the auto-deduction was accurately reflecting the reality of the workplace, and the low usage rates are a sign that the system was working as intended.
• Interpretation Unfavorable to AMA: The low usage rates reflect the fact that employees were largely unaware of the attestation feature's existence, were discouraged from using it (whether explicitly or through cultural expectations in the production environment), or had become accustomed over time to not reporting missed meals because they perceived the process as futile or feared retaliation. Under this interpretation, the low usage rates do not reflect actual compliance with meal period requirements, but rather a failure of the system to capture the true extent of meal period violations. This interpretation is significantly strengthened by the absence of any documented training or communication regarding the attestation feature, as discussed in Section III.C below.
It bears particular emphasis that named plaintiff Derek Halloran worked at Facility 5 (Hollywood — Scripted Development), where the attestation feature was activated but the usage rate was only 1.8% — the lowest of any activated facility. In initial interviews conducted by Plaintiffs' counsel, Mr. Halloran has indicated that he was unaware of the attestation feature and did not know that the time-clock terminal offered any mechanism for reporting missed meal periods. If Mr. Halloran's testimony is representative of the broader employee experience at Facility 5, it lends significant support to the unfavorable interpretation of the low usage rates and undermines AMA's ability to rely on the attestation feature as an adequate safeguard.
C. Absence of Training and Notice Regarding the Attestation Feature
Our preliminary document review — encompassing AMA's employee handbook, onboarding materials, training records, internal communications, and facility-posted notices provided by Ms. Okafor and Ms. Fong — has not identified any formal training materials or written notices specifically informing employees of the existence or operation of the Missed Meal Attestation feature in TimeTrack Pro.
The relevant provisions of AMA's Employee Handbook (most recently revised March 2021, at pages 47–49, under the heading "Meal and Rest Periods") state that employees "are entitled to a 30-minute uninterrupted meal period for shifts exceeding five hours" and that employees "should notify their supervisor if they are unable to take a meal period for any reason." The handbook further states that AMA "will pay meal period premium pay in accordance with applicable law for any missed meal period."
However, the handbook does not reference the TimeTrack Pro attestation feature, the time-clock button or option for reporting missed meals, or the electronic process by which an employee could trigger the auto-deduction override and meal period premium payment. The handbook's instruction to "notify their supervisor" is entirely disconnected from the electronic attestation process that, at least at the four activated facilities, was the system-level mechanism designed to handle missed meal reports.
Our review has uncovered no evidence of the following:
• Onboarding training materials that addressed the attestation feature or demonstrated its use to newly hired employees;
• Stand-alone training sessions or workshops for existing employees on the use of the TimeTrack Pro system's meal period features;
• Email communications, memoranda, or other written notices to employees regarding the attestation feature;
• Posted notices at time-clock terminal kiosks or in break areas informing employees of the attestation option;
• Documentation of any supervisor training on the attestation feature or on the supervisor's role in ensuring employees were aware of it.
When asked about training and communication efforts, Karen Fong (Payroll Manager) indicated that "managers were expected to familiarize employees with the time clock system during onboarding" and that she believed supervisors had been verbally informed about the attestation feature. However, Ms. Fong was unable to identify any documented protocol, curriculum, checklist, or training record supporting this assertion. There is no written evidence that any supervisor at any AMA facility was formally trained on the attestation feature or instructed to communicate its existence to employees.
The absence of documented training and notice is a critical gap. Under the governing legal standard, the adequacy of an auto-deduction system depends on the employer's ability to demonstrate that employees had a meaningful and well-communicated mechanism for reporting exceptions. An attestation feature that exists in the software but is unknown to the employees it is intended to serve cannot fulfill this function.
D. 6-Hour vs. 5-Hour Threshold Discrepancy
As noted in Section II.B above, the auto-deduction in TimeTrack Pro is configured to trigger at six (6) hours, rather than at five (5) hours as required by IWC Wage Order 12 and California Labor Code section 512. This one-hour discrepancy has the following practical consequences:
• Employees working shifts of between five and six hours were not receiving the auto-deduction. In one sense, this means that no erroneous deduction was being applied to those shifts. However, the absence of any system-level treatment of these shifts means that the TimeTrack Pro system was not prompting or requiring employees to take meal periods on these shorter shifts, and was not flagging them for supervisory review.
• Employees working shifts of between five and six hours who missed their meal periods were potentially not receiving the one-hour meal period premium pay required by California Labor Code section 226.7. Because the system did not recognize these shifts as triggering the meal period requirement, there was no mechanism — automated or otherwise — for identifying missed meal periods on these shifts and ensuring that premium pay was issued.
• The threshold discrepancy is an independent compliance issue that creates additional exposure for AMA. Even if all other aspects of the auto-deduction system were properly implemented, the misconfigured threshold would constitute a separate violation of Wage Order 12 and section 512 for every shift in the five-to-six-hour range on which a meal period was required but not provided or tracked.
The scope of this exposure will depend on the number of shifts in the five-to-six-hour range worked by AMA's non-exempt employees during the class period. This information is contained in the TimeTrack Pro data and will be part of the expert analysis recommended in Section VII.E below.
IV. Legal Analysis — California Law on Auto-Deduction Practices
A. Employer's Obligation Under *Brinker*
The foundational California Supreme Court decision on employer meal period obligations is Brinker Restaurant Corp. v. Superior Court (2012) 53 Cal.4th 1004. In Brinker, the Court held that an employer's obligation under California law is to "provide" meal and rest periods — that is, to make them available to employees and to relieve employees of all duty during the meal period — but not to "ensure" that employees actually take them. Id. at 1040. An employer satisfies its obligation by establishing a meal period policy, communicating it to employees, and making meal periods available; the employer is not required to police the workforce to confirm that each employee affirmatively ceases work and eats.
This framework has significant implications for auto-deduction practices. An auto-deduction system is not per se unlawful under California law. An employer may lawfully utilize an auto-deduction as a payroll processing convenience, provided that:
(a) The employer has a compliant meal period policy that provides employees with the opportunity to take duty-free meal periods in accordance with applicable law;
(b) The employer provides a reliable, well-communicated mechanism by which employees can report exceptions — i.e., instances in which they did not receive a compliant meal period — so that the auto-deduction can be overridden and appropriate premium pay can be issued; and
(c) The system, taken as a whole, does not operate to systematically undercompensate employees for time worked.
The critical question for the Fuentes litigation, therefore, is not whether AMA's use of an auto-deduction is inherently impermissible, but rather whether AMA's implementation of the auto-deduction — including the inconsistent activation of the attestation feature, the absence of training and notice, and the misconfigured threshold — was adequate to satisfy the Brinker standard. Based on the findings set forth in Section III, we believe AMA will face substantial difficulty in demonstrating that its implementation met this standard.
B. *Donohue* and Systematic Underpayment
In Donohue v. AMN Services, LLC (2021) 11 Cal.5th 58, the California Supreme Court addressed the lawfulness of rounding policies in the meal period context. Although Donohue dealt specifically with the practice of rounding time entries to the nearest predetermined increment, rather than with auto-deduction practices directly, the Court's reasoning articulates a principle of broad applicability: an employer's timekeeping practices must not systematically favor the employer at the expense of employees. The Court held that where a rounding policy, as applied, resulted in employees being undercompensated on the whole — even if individual instances of rounding sometimes favored the employee — the practice was impermissible. Id. at 73–75.
The principle from Donohue — that a timekeeping methodology must not systematically disadvantage employees — applies by analogy to auto-deduction practices with considerable force. An auto-deduction system that deducts thirty minutes from an employee's recorded hours regardless of whether the employee actually received a compliant, duty-free break — and that does so without providing a reliable, well-communicated mechanism for reporting exceptions — systematically favors the employer. The deduction always runs in one direction: it reduces the employee's compensable hours. The only counterbalance is the employee's ability to report that the deduction should not have been applied. When that counterbalance is absent, unavailable, or unknown to employees, the system operates as a one-way ratchet that systematically reduces employee compensation.
Plaintiffs in Fuentes will almost certainly invoke Donohue to argue that AMA's auto-deduction, as implemented, constituted a systematically employer-favorable timekeeping practice. The inconsistent attestation feature activation — which left employees at three facilities without any electronic mechanism for correcting erroneous deductions — will be particularly potent evidence in support of this argument. Even at the four facilities where the feature was available, the low usage rates and absence of training will be cited as evidence that the counterbalance was illusory.
C. Judicial Hostility to Auto-Deduction Without Adequate Safeguards
California courts have repeatedly expressed skepticism toward — and, in many cases, outright hostility to — auto-deduction policies that operate without a reliable, well-communicated mechanism for employees to report missed or shortened meal periods. While the legal standard does not categorically prohibit auto-deduction, the practical reality is that courts and juries tend to view auto-deduction with suspicion, particularly in industries where work pressures and cultural expectations may discourage employees from asserting their meal period rights.
Several recurring themes in the case law are relevant to AMA's situation:
• Informal reporting is insufficient. Where an employer's only mechanism for employees to report missed meals is to "tell your supervisor" or to "contact payroll," courts have found the auto-deduction practice to be inadequate. Informal, verbal reporting is inherently less reliable than an electronic system, more susceptible to suppression or loss, and significantly harder to verify or audit. The fact that AMA's Employee Handbook instructs employees to "notify their supervisor" — without referencing the TimeTrack Pro attestation feature — places AMA squarely within this disfavored category, particularly at the three facilities where the electronic attestation was not available.
• The mechanism must be communicated. Even where a formal exception-reporting mechanism exists, it must be effectively communicated to employees. A feature that is available in the software but unknown to the workforce cannot serve as an adequate safeguard. The absence of any documented training or notice regarding the attestation feature at AMA is a significant vulnerability on this point.
• Inconsistency undermines the defense. Where an employer's compliance practices vary across facilities, departments, or time periods, courts are less likely to credit the employer's assertion that it provided a uniform, adequate mechanism for meal period compliance. The facility-by-facility disparity in attestation feature activation at AMA — with the feature available at some facilities and absent at others — undermines any argument that AMA maintained a consistent, company-wide safeguard against auto-deduction errors.
Taken together, these principles indicate that AMA's auto-deduction implementation is highly vulnerable to challenge under current California law. The combination of inconsistent feature activation, absent training, low usage, and informal reporting alternatives at the non-activated facilities places AMA's practice in the category of auto-deduction implementations that California courts have found insufficient.
V. Risk Assessment
Overall Rating: HIGH RISK
The auto-deduction practice, as implemented at AMA, presents significant litigation risk. We assess this risk as HIGH based on the cumulative effect of the factors identified below. Each factor independently contributes to AMA's exposure; taken together, they create a compounding risk profile that will be difficult to mitigate through litigation alone.
A. Inconsistent Attestation Feature Activation
This is the single most significant vulnerability in AMA's position. At Facilities 2, 4, and 7 — the Studio City, Burbank, and El Segundo locations — employees had no electronic mechanism to report missed meal periods during the entire period from the March 2019 rollout to the present. This means that for approximately forty-four (44) months, an estimated 850 non-exempt employees at these three facilities were subject to an auto-deduction system that presumed meal period compliance while affording them no system-level means of correcting that presumption when it was incorrect.
This creates a facility-by-facility disparity that poses several distinct problems for AMA's defense:
• It undermines AMA's defense that employees had a meaningful opportunity to report missed meals. At nearly half of AMA's California facilities, the electronic attestation mechanism simply did not exist. AMA cannot argue that it provided employees with a reliable mechanism for reporting exceptions when that mechanism was not available to a substantial portion of its workforce.
• It provides Plaintiffs with a strong and easily articulated argument that the auto-deduction operated without adequate safeguards at a systemic level. The inconsistency is not a matter of individual supervisor error or isolated non-compliance; it is a structural, system-level failure that persisted across multiple facilities for years.
• It aligns directly with two of the three named plaintiffs' work locations. Marisol Fuentes worked at Facility 2 (Studio City — Unscripted), and Yesenia Padilla worked at Facility 4 (Burbank — Live Events). Both will be able to testify from personal experience that they had no electronic means of reporting missed meal periods, lending their claims an immediacy and concreteness that will resonate with both the court and a potential jury.
• It raises troubling questions about AMA's intent and diligence. Whether the non-activation was the result of deliberate cost-saving, negligent oversight, or a miscommunication with NovaPay during the second-wave rollout, the practical effect is the same: AMA operated an auto-deduction system at three facilities without the safeguard that its own vendor had designed to accompany it. Plaintiffs will argue that AMA either knowingly chose not to activate the feature or failed to exercise reasonable diligence in ensuring that its timekeeping system was properly configured — either of which supports their claims.
B. Low Usage Rates Even Where Feature Was Active
The attestation usage rates of 1.8% to 4.1% across the four activated facilities are strikingly low. While these rates are not dispositive — it is theoretically possible that employees at these facilities received compliant meal periods on approximately 96% to 98% of their shifts — the rates are low enough to raise significant questions about employee awareness of and access to the attestation feature.
Plaintiffs will argue that these low usage rates demonstrate one or more of the following: (i) that the attestation feature was unknown to employees because AMA failed to train them on its existence; (ii) that employees were culturally discouraged from using the feature because production environments create implicit pressure to forego breaks and avoid disrupting workflow; or (iii) that the feature was difficult to locate or use on the time-clock terminal, making it functionally inaccessible even to employees who were nominally aware of it.
The strength of Plaintiffs' argument on this point is significantly enhanced by the absence of training materials (discussed in Section V.C below) and by Derek Halloran's reported testimony that he was unaware of the feature despite working at an activated facility. If Plaintiffs can present class-wide evidence — through surveys, declarations, or testimony — that a substantial proportion of employees at the activated facilities were similarly unaware of the feature, the low usage rates will become a powerful piece of circumstantial evidence supporting class-wide liability.
Combined with the absence of any training or communication regarding the attestation feature, the low usage rates support Plaintiffs' overarching narrative: that the auto-deduction was implemented as a payroll processing convenience and cost-saving measure, without adequate attention to employee protections or compliance with California's meal period requirements.
C. Absence of Training and Communication
The absence of formal training materials, written notices, or documented onboarding instructions regarding the Missed Meal Attestation feature is a critical gap in AMA's compliance posture. As discussed in Section IV.C above, California courts consistently require that an employer not only have a mechanism for employees to report exceptions to an auto-deduction, but also that the employer effectively communicate the existence and operation of that mechanism to employees. An attestation feature that exists in the software but is unknown to the employees it serves is, from a legal standpoint, no better than having no feature at all.
The Employee Handbook's reference to notifying supervisors about missed meal periods, without any reference to the TimeTrack Pro attestation option, creates an additional problem: it suggests that AMA's own internal communication about meal period reporting was disconnected from the electronic system that was supposed to handle such reports. An employee who read the handbook and followed its instructions would contact a supervisor, not use the time-clock terminal. An employee who used the time-clock terminal (if aware of the feature) would bypass the supervisor notification process. The two systems were not integrated, and neither was adequately documented or communicated.
The reliance on an informal expectation that "managers were expected to familiarize employees with the time clock system during onboarding," without any documented protocol, training curriculum, or verification process, is unlikely to satisfy a court that AMA took reasonable steps to ensure employee awareness of the attestation feature. This is particularly true given that there is no evidence that the managers themselves received formal training on the feature or were evaluated on their performance in communicating it to employees.
D. 6-Hour vs. 5-Hour Threshold
The misconfigured trigger threshold constitutes an independent compliance issue that creates additional exposure for AMA. Under IWC Wage Order 12 and California Labor Code section 512, a first meal period must be provided for any shift exceeding five (5) hours. AMA's system was configured to apply the auto-deduction — and, by implication, to treat the meal period as a relevant compliance issue — only for shifts of six (6) hours or more.
This discrepancy means that for shifts between five and six hours, the TimeTrack Pro system was entirely silent on meal periods: no deduction was applied, no prompt was issued, and no tracking occurred. Employees working these shifts who missed their meal periods would have had no system-level mechanism for reporting the violation and no system-level trigger for premium pay. The exposure on these shifts is incremental to — and independent of — the exposure created by the auto-deduction issues on longer shifts, and it affects the potential damages calculation by expanding the universe of shifts on which AMA may have failed to comply with meal period requirements.
The number of affected shifts will need to be determined through expert analysis of the TimeTrack Pro data. However, given that AMA operates fourteen production show units with varying schedules, it is likely that a non-trivial number of shifts fell in the five-to-six-hour range during the class period.
E. Entertainment Industry Culture
The entertainment and motion picture industry is characterized by extended work days that frequently span twelve to sixteen hours on production days, particularly for field-based and live events productions. This industry context is relevant to the risk assessment for several reasons.
First, even where AMA maintains compliant written policies regarding meal periods, the practical reality of production shoots creates significant pressure — both explicit and implicit — for employees to forego or shorten their meal breaks. Stopping production for a full thirty-minute duty-free meal period may disrupt filming schedules, waste expensive location time, require holding talent and crew, or delay completion of time-sensitive production milestones. In this environment, there is a well-documented cultural expectation that employees — particularly below-the-line production workers — will work through meals or take abbreviated breaks.
Second, AMA operates fourteen (14) distinct production show units across its seven (7) facilities, with significant variation in scheduling intensity, production formats, and physical work environments. Some show units operate on predictable studio schedules with fixed start and end times, while others — particularly field-based shows such as "Summit Challenge," coordinated from Facility 4 in Burbank, and AMA's live events productions — operate in dynamic, location-dependent environments where meal period scheduling is inherently more challenging. This variation across show units complicates AMA's ability to demonstrate uniform compliance and may support Plaintiffs' argument that a centralized, automated safeguard (such as the attestation feature) was particularly necessary precisely because of the variability in production conditions.
Third, the entertainment industry has been the subject of extensive wage-and-hour litigation in California, and courts are familiar with the practical challenges that production environments pose for meal period compliance. While this familiarity may work in AMA's favor in some respects — courts may recognize that not every missed meal period is attributable to employer malfeasance — it also means that courts will apply heightened scrutiny to the adequacy of AMA's compliance mechanisms and will be skeptical of arguments that employees freely chose to forego their meals without any systemic pressure to do so.
VI. Exposure Estimate — Auto-Deduction-Related Claims
Based on our preliminary analysis of the available information, we provide the following exposure estimate for the auto-deduction-related claims in Fuentes v. AMA Productions Inc.:
Estimated Class Size: Approximately 1,850 non-exempt, hourly employees during the class period (November 1, 2018 to the present, representing a four-year statute of limitations for the Labor Code claims and a one-year PAGA period). This figure is based on AMA's current non-exempt California headcount of approximately 2,400, adjusted for turnover and the shorter PAGA period.
Plaintiffs' Claimed Damages: Plaintiffs' complaint and PAGA notice assert aggregate damages of $38.6 million. We understand that Plaintiffs intend to support this figure through an expert damages report prepared by Dr. Howard Rennick of Pinnacle Economic Consulting Group LLC. As of the date of this memorandum, the Rennick report has not yet been produced, but it is expected to accompany Plaintiffs' class certification motion.
PAGA Penalties Claimed: Plaintiffs' PAGA notice claims $12.2 million in civil penalties under Labor Code section 2699. PAGA penalties are calculated at $100 per employee per pay period for an initial violation and $200 per employee per pay period for each subsequent violation, with 75% of the penalty payable to the Labor and Workforce Development Agency and 25% to the aggrieved employees.
Assessment of Plaintiffs' Figures: We believe Plaintiffs' aggregate damages claim of $38.6 million is substantially inflated and assumes a violation rate approaching 100% — i.e., that virtually every auto-deducted shift resulted in a meal period violation. While AMA's systemic vulnerabilities are significant, it is unlikely that the actual violation rate approaches this figure. Expert analysis of the TimeTrack Pro data will be necessary to determine the actual violation rate and to develop a defensible damages estimate.
Defense Preliminary Exposure Estimate:
• Meal Period Claims (Auto-Deduction): $4 million to $8 million. This range reflects our preliminary assessment of realistic exposure on the meal period claims attributable to the auto-deduction practice, depending on the actual violation rate as determined by expert analysis of the TimeTrack Pro data. The low end of the range assumes a violation rate in the range of 15–20% (i.e., that approximately 15–20% of auto-deducted shifts involved an actual meal period violation for which premium pay was not issued), while the high end assumes a violation rate in the range of 30–40%.
• PAGA Penalties: $500,000 to $1.5 million. PAGA penalties are subject to substantial judicial discretion and reduction under Labor Code section 2699(e)(2), which permits the court to award a lesser amount if the full penalty would be "unjust, arbitrary and oppressive, or confiscatory." Courts routinely exercise this discretion to reduce PAGA penalties, particularly where the employer demonstrates good faith corrective action. The realistic range we estimate reflects this judicial discretion and assumes that AMA implements the corrective actions recommended in Section VII below.
Key Caveat: These estimates are preliminary and are based on limited information. The actual exposure will depend on factors that cannot be fully assessed until we have access to the complete TimeTrack Pro data set (including punch-in/punch-out records, attestation records, and system configuration logs), the results of our expert analysis, and the development of the factual record through discovery. We will update these estimates as the case progresses.
The auto-deduction-related meal period claim is the single largest driver of exposure in the Fuentes case. While the complaint also includes rest period, overtime, and derivative claims, the auto-deduction issue underlies the most significant component of alleged damages and will likely be the focal point of both class certification proceedings and settlement discussions.
VII. Recommendations
Based on the foregoing analysis, we recommend the following immediate and medium-term actions.
A. Immediate Corrective Action — Attestation Feature Activation
AMA should activate the Missed Meal Attestation feature at Facilities 2, 4, and 7 (Studio City, Burbank, and El Segundo) immediately. This is the single most urgent corrective action available to AMA and should be prioritized accordingly.
Implementation of this activation should be coordinated with NovaPay Solutions through Marcus Yee (Director of Client Data Services). Based on our understanding of the TimeTrack Pro system architecture, the attestation feature is already present in the software at these facilities and requires only activation in the system configuration settings — it does not require a new software deployment or hardware installation. We recommend that AMA request expedited activation from NovaPay and confirm activation in writing, with documentation of the date and time of activation at each facility.
We acknowledge that taking corrective action during pending litigation is a strategic decision with both risks and benefits:
• Risk: Plaintiffs may cite the activation of the feature at Facilities 2, 4, and 7 as evidence that AMA recognized a problem with its prior configuration and that the non-activation was a deliberate or negligent failure that AMA is now belatedly correcting. Plaintiffs may argue that the activation constitutes a "subsequent remedial measure" and, while California Evidence Code section 1151 generally prohibits the admission of subsequent remedial measures to prove negligence or culpable conduct, this evidentiary protection is not absolute and may not apply in all contexts (including, potentially, PAGA penalty proceedings where the court's assessment of the employer's good faith is directly at issue).
• Benefit: Activating the feature demonstrates good faith, halts the ongoing accrual of additional violations at these three facilities, and positions AMA favorably for several important purposes: (i) settlement discussions, in which AMA's willingness to take prompt corrective action will be viewed positively; (ii) the PAGA penalty reduction argument under Labor Code section 2699(e)(2), which permits the court to consider the employer's remedial efforts in determining the appropriate penalty amount; and (iii) any future compliance audit or regulatory inquiry.
Our recommendation is to proceed with activation. The benefits of corrective action outweigh the litigation risks, particularly given that the non-activation of the feature at these three facilities will be fully discoverable regardless of whether AMA activates the feature now. The fact of the non-activation is already known to AMA, will be contained in the TimeTrack Pro configuration records, and will be produced in discovery. AMA gains nothing by leaving the feature deactivated while the litigation proceeds; doing so merely increases the total exposure by allowing additional violations to accrue.
B. Immediate Corrective Action — Threshold Correction
AMA should correct the auto-deduction trigger threshold from six (6) hours to five (5) hours to comply with IWC Wage Order 12 and California Labor Code section 512. This correction should be implemented concurrently with the attestation feature activation described above and should be coordinated with NovaPay Solutions for system reconfiguration across all seven facilities.
As with the attestation feature activation, the threshold correction should be documented in writing, with confirmation of the date and time of the reconfiguration at each facility. The reconfigured threshold should be tested to confirm proper operation before being deployed in the production environment.
C. Employee Notice and Training
AMA should promptly undertake a comprehensive employee communication and training initiative regarding the Missed Meal Attestation feature and employees' meal period rights generally. We recommend the following specific steps:
1. Written Notice to All Non-Exempt Employees. AMA should distribute a written notice — in both English and Spanish, given the demographics of the workforce — to all non-exempt, hourly employees at all seven California facilities. The notice should clearly explain: (a) the employee's right to a thirty-minute duty-free meal period for shifts exceeding five hours and a second meal period for shifts exceeding ten hours; (b) the existence and operation of the Missed Meal Attestation feature on the TimeTrack Pro time-clock terminal; (c) step-by-step instructions for using the attestation feature; and (d) the consequence of using the feature (i.e., that the auto-deduction will be reversed and one hour of premium pay will be issued). The notice should be distributed via individual hard copy to each employee, posted at each time-clock terminal kiosk, posted in break areas and common areas, and made available electronically through any employee portal or communication platform.
2. Supervisor Training. AMA should conduct mandatory training sessions for all supervisors with responsibility for non-exempt employees, including unit production managers ("UPMs"), line producers, department heads, and other supervisory personnel across the fourteen show units. The training should cover: (a) the supervisor's obligation to ensure that employees are aware of the attestation feature; (b) the supervisor's obligation to provide compliant meal periods; (c) the process for handling reports of missed meals (whether through the electronic attestation system or through direct communication with the supervisor); and (d) the prohibition on discouraging employees from using the attestation feature or from taking meal periods.
3. Documentation. All training sessions — both employee notice distribution and supervisor training — should be documented with sign-in sheets, and all training records should be retained in AMA's human resources files. Documentation of training will be important for AMA's defense in the current litigation and for any future compliance disputes.
D. Document Preservation
AMA must ensure that all TimeTrack Pro configuration records, including historical activation and deactivation logs for the Missed Meal Attestation feature at each facility, are preserved under the litigation hold issued on November 2, 2022 (Document Preservation Notice No. 3). We understand that the litigation hold has been distributed to AMA personnel with custodial responsibility for relevant records; however, given that the TimeTrack Pro data is maintained by NovaPay Solutions as a third-party service provider, additional steps are necessary to ensure preservation of the following categories of records:
• System configuration settings (both current and historical), including all settings related to the auto-deduction feature, the attestation feature, the trigger threshold, and the second-meal-period treatment;
• Attestation activation and deactivation logs by facility, with dates, showing when the attestation feature was activated or deactivated at each of the seven facilities;
• Attestation usage records at the employee level, showing each attestation filed, the date and time of the attestation, the employee who filed it, and the facility at which it was filed;
• Punch-in/punch-out records at the employee level for all shifts during the class period, which will be essential for the expert analysis of actual meal period practices;
• Any internal NovaPay communications regarding the decision to activate or not activate the attestation feature at specific AMA facilities during the first- and second-wave rollouts; and
• Any AMA internal communications regarding the same decisions, including emails, memoranda, meeting notes, or other documents reflecting discussions about the TimeTrack Pro configuration at any facility.
These records are critical to both AMA's defense and to the resolution of the factual questions at the heart of the case. We are preparing a third-party subpoena to NovaPay Solutions for production of these records. The subpoena is expected to be issued in February 2023, following the completion of the meet-and-confer process with NovaPay's counsel. In the interim, we recommend that AMA send a written preservation request directly to Marcus Yee at NovaPay, requesting that NovaPay preserve all records related to AMA's TimeTrack Pro account, including historical configuration data, for the period from January 1, 2019 to the present.
E. Expert Analysis
We recommend the retention of two experts to support AMA's defense in the Fuentes litigation:
1. Economics/Damages Expert. We plan to retain Dr. Catherine Lindstrom of Hargrove Analytics Inc. (515 S. Figueroa Street, Suite 1100, Los Angeles, CA 90071) to analyze the actual impact of the auto-deduction practice on employee compensation. The key analytical question is: to what extent did the auto-deduction result in underpayment? Answering this question requires comparing auto-deducted meal periods with actual punch data — i.e., time-clock entries showing when employees actually stopped and resumed work during their shifts — and with attestation records showing when employees reported missed meals. This analysis will allow us to determine the actual violation rate and to develop a defensible damages estimate that can be used to challenge Plaintiffs' inflated damages figures and, if necessary, to inform settlement discussions.
2. Industrial/Organizational Expert. We separately recommend retaining Dr. Rajesh Makhija of Workforce Dynamics Consulting LLC (444 Castro Street, Suite 800, Mountain View, CA 94041) to analyze the variability in meal and rest break practices across AMA's fourteen show units and seven facilities. Dr. Makhija's analysis will focus on whether the experiences of the named plaintiffs and their work environments are representative of the putative class as a whole, or whether the significant variation across show units, production formats, and facilities defeats the predominance and typicality requirements for class certification under California Code of Civil Procedure section 382. This expert will be critical for AMA's class certification defense, particularly given the diversity of AMA's production operations (ranging from studio-based post-production to field-based unscripted and live events programming).
We will prepare formal engagement letters for both experts and will circulate them for AMA's review and approval.
F. Consider Transition Away from Auto-Deduction
As a longer-term recommendation, we advise AMA to evaluate transitioning from the auto-deduction model to an affirmative meal-period acknowledgment system. Under an affirmative acknowledgment model, employees would affirmatively confirm — via a time-clock input at the end of each meal period — that they received a compliant, thirty-minute, duty-free meal period. If the employee did not receive a compliant meal period, the employee would select an alternative option indicating that the meal period was missed, shortened, or interrupted, which would trigger the meal period premium payment.
This approach fundamentally shifts the compliance framework. Under the current auto-deduction model, the system assumes compliance and requires the employee to take affirmative action to report an exception. Under an affirmative acknowledgment model, the system requires the employee to confirm compliance, and no assumption is made in the absence of employee input. This shift eliminates the Plaintiff-favorable inference inherent in auto-deduction — the argument that the system is designed to benefit the employer by presuming compliance and making it difficult for employees to challenge that presumption — and replaces it with a system in which the employee's own affirmative confirmation provides the employer with a contemporaneous record of meal period compliance.
Affirmative acknowledgment systems are widely recognized as more defensible under current California law and are increasingly adopted by employers in industries — including the entertainment industry — that face elevated meal period litigation risk. While the transition will require investment in system reconfiguration, employee training, and workflow adjustment, it will significantly reduce AMA's long-term exposure to meal period class actions and PAGA claims.
This transition should be discussed with AMA senior management, including Jonathan Mercer (President) and Lorraine Okafor (Senior Vice President of Human Resources), as a medium-term compliance improvement. We recommend targeting implementation within the next six to nine months, separate from and in addition to the immediate corrective actions described above.
VIII. Conclusion
The auto-deduction practice as implemented across AMA's seven California production facilities presents HIGH litigation risk. This assessment is driven primarily by four interrelated factors:
1. The inconsistent activation of the Missed Meal Attestation feature, which left employees at three of seven facilities without any electronic mechanism for reporting missed meal periods for a period of nearly four years;
2. The absence of any documented employee training, written notice, or formal communication regarding the attestation feature, even at the facilities where the feature was activated;
3. The strikingly low usage rates (1.8%–4.1%) at the activated facilities, which — in the context of the training gap — support the inference that employees were unaware of or unable to use the feature; and
4. The misconfigured trigger threshold (6 hours rather than 5 hours), which constitutes an independent compliance violation and expands the universe of potentially affected shifts.
These vulnerabilities are compounded by the practical realities of the entertainment production environment, in which cultural expectations and production pressures create inherent challenges for meal period compliance.
We recommend that AMA take the following immediate steps:
• Activate the Missed Meal Attestation feature at Facilities 2, 4, and 7;
• Correct the auto-deduction trigger threshold from 6 hours to 5 hours at all seven facilities;
• Distribute written notice and conduct training regarding the attestation feature for all non-exempt employees and supervisors;
• Ensure comprehensive document preservation, including TimeTrack Pro configuration and usage records from NovaPay Solutions; and
• Retain economic and industrial/organizational experts to support AMA's defense.
In the medium term, AMA should evaluate transitioning away from the auto-deduction model to an affirmative meal-period acknowledgment system, which is more defensible under current California law and better aligned with the realities of AMA's production operations.
The auto-deduction issue is the single most significant exposure driver in the Fuentes class action and PAGA representative action. It will be central to both the class certification proceedings and any settlement discussions. We are available to discuss this memorandum and our recommendations at your earliest convenience.
This memorandum is based on information available as of November 22, 2022, and is subject to revision as additional facts are developed through discovery and investigation. The legal analysis contained herein is provided for the sole purpose of advising AMA Productions Inc. in connection with pending and anticipated litigation and should not be construed as a comprehensive compliance audit or as legal advice applicable to other matters.
CALDERWOOD & HARKNESS LLP
By: ________
Devon Archer Partner, Employment Litigation Group Direct: (213) 555-8422 dearcher@calderwoodharkness.com
cc: Sarah Whitfield, Senior Associate, Calderwood & Harkness LLP (via secure email) File: Matter No. 1017-00004
Facility | Location | Attestation Feature Status
Facility 1 — West Hollywood HQ & Post-Production | 8500 Sunset Blvd., Suite 1400, West Hollywood, CA 90069 | ACTIVATED (January 2019 — first wave rollout)
Facility 2 — Studio City (Stages A & B — Unscripted) | 4024 Penmark Strategy Partners Avenue, Studio City, CA 91604 | NOT ACTIVATED (March 2019 — second wave rollout)
Facility 3 — Sherman Oaks (Digital Content) | 15301 Ventura Blvd., Suite 300, Sherman Oaks, CA 91403 | ACTIVATED (January 2019 — first wave rollout)
Facility 4 — Burbank (Live Events & Field Production) | 3800 W. Alameda Ave., Burbank, CA 91505 | NOT ACTIVATED (March 2019 — second wave rollout)
Facility 5 — Hollywood (Scripted Development) | 1438 N. Gower Street, Hollywood, CA 90028 | ACTIVATED (January 2019 — first wave rollout)
Facility 6 — Santa Monica (E-Commerce Studio) | 2120 Colorado Avenue, Santa Monica, CA 90404 | ACTIVATED (January 2019 —

MEMORANDUM

CALDERWOOD & HARKNESS LLP

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