Employers are still reeling from last week’s decision in Dynamex Operations West, Inc. v. Superior Court, in which the California Supreme Court said that employers (and even a state agency that protects workers) were using the wrong standard to distinguish employees and independent contractors under the state’s Wage Orders. A month before that, in Alvarado v. Dart Container Corporation of Californiathe same court announced a more employee-friendly way of calculating overtime for employees who receive bonuses.

These cases share two things. First, they put big smiles on the faces of lawyers who file wage and hour class actions. Second, both cases premised their decisions in part on California’s goal of protecting workers. In Dynamex, the court relied on the “general principle that wage orders are the type of remedial legislation that must be liberally construed in a manner that serves its remedial purposes.” The court in Alvarado noted that one of the “overarching interpretive principles” to guide its analysis was that “the state’s labor laws are to be liberally construed in favor of worker protection.” No mention was made of the fact that California workers have more far-reaching protections than workers in any other state.

While Dynamex and Alvarado provide examples from the last 45 days, the courts have been interpreting employee protections liberally for many decades. During that time, workers’ rights keep expanding further and further. I am certainly not suggesting that workers should not be protected from unscrupulous employers. But does anyone pay attention to the principle that employers who make every effort to follow the law shouldn’t be subjected to potentially ruinous litigation exposure each time the courts reinterpret the law in a new direction?

Determining whether a California worker is an independent contractor or an employee has always been difficult. Judges deciding the issue have complained that the test used by California courts “provides nothing remotely close to a clear answer.” Then there was the nail salon that was told by one state agency that its workers were employees and by another that they were independent contractors. So there’s no question that the law in this area has been messy.

On Monday, it got considerably messier. That’s when the California Supreme Court issued its decision in Dynamex Operations West, Inc. v. Superior Court. For years — even decades — judges, government agencies, and lawyers have interpreted the law to say that the key to distinguishing between employees and independent contractors was whether the company had the right to control the manner and means by which the worker accomplished the desired result. So if drivers for a gig-economy car service decided what days to work, when to start work on a particular day, where to work, what to wear, when to take breaks and for how long, and when to quit for the day, there was an excellent chance that they’d be considered independent contractors,

Under the California Wage Orders, which guarantee employees a minimum wage, maximum hours, overtime compensation, meal and rest breaks, and more, that is no longer the case. Now, according to the California Supreme Court, companies must meet a three-prong test to establish independent contractor status (“the ABC test”).

  • A) The company must not be able to control or direct what the worker does, either by contract or in actual practice. This is similar to the test used in the past.
  • B) The worker must perform tasks outside of the hiring entity’s usual course of business. So if you’re a driver for a ride service, a delivery person for a delivery service, or a seamstress for a clothing company, you can’t be an independent contractor no matter how little control the company has over you.
  • C) The worker must be engaged in an independently established trade, occupation, or business. It’s not enough that the company doesn’t prohibit the worker from having his own business or working for others. Instead, the court will look at factors such as whether the business is incorporated or licensed, whether it’s advertised, and whether it offers services to the public or other potential customers.

It is the employers burden to satisfy all three prongs to establish that the worker is an independent contractor. If it fails to establish one, the worker is entitled to be treated as an employee under the Wage Orders. (The Wage Orders themselves are not particularly helpful in this regard. For example, they circularly define “employee” as ” any person employed by an employer.”)

The Court spent 80+ pages explaining its rationale. Nowhere in that lengthy analysis was any recognition of the upheaval this opinion will cause. Millions of workers in the state that were considered independent contractors will now be deemed employees. This will require employers who have done everything they could to follow the law as it was then understood to reevaluate the nature of the relationship with many of their workers and either modify the relationship or provide them the pay and treatment required by the Wage Orders. They also face litigation, including potential class actions, from workers complaining that they were misclassified. And since this case only addresses the wage order definition, they need to apply different standards (which can lead to different conclusions) in deciding how to characterize workers for purposes such as workers compensation and payroll taxes. As I said, a messy situation just got messier.

It happens more often than you think.  An employee in good standing is “outed” as being listed on a sex offender registry.  His/her coworkers are up in arms.  Now what?  Can he/she be fired?

Given California’s relatively new “ban the box” law, employers are limited in how they can use criminal history in employment decisions.  For current employees, once a conviction is uncovered, you can’t automatically fire someone for it.  Rather, employers must make an individualized assessment to determine if the conviction has a direct and adverse relationship with the actual job.  To do so, employers must consider:

  • The nature and gravity of the offense or conduct;
  • The time that has passed since the offense or conduct and the completion of the sentence; and
  • The nature of the job held or sought.

This also means the employer must talk to the employee and get his/her side of the story.

For example, if the offense was 20 years ago, and the employee is long-tenured without any formal discipline as to any inappropriate conduct (such as harassment), a termination would not be justified in most workplaces.  However, if the workplace involves children, or law enforcement, or positions that require certain licenses, then that is a different story.

There are other avenues to address the situation, such as lying on an employment application.  An employer with a well-worded employment application, where the conviction was omitted at the time of hire, could justify termination (especially if others have also been terminated for material misrepresentations on the application).  In addition, dishonesty (or lack of candor) in the investigation process once commenced can also justify termination.

While many coworkers might not want to work with known sex offenders, the flipside is that there are over 100,000 registered sex offenders in California.  And the trend in California is to give more rights to those who want to work, not less.  And yes, that applies to sex offenders.

This Tuesday, on April 24, 2018, Emily Yukich and I will be hosting a business and HR boot camp for emerging and growing companies.  This practical presentation will emphasize best practices for partnerships and newly formed corporations, with a focus on hiring, onboarding, performance management and wage and hour advice.

Register here for complimentary breakfast and networking on April 24th from 8:30 a.m until 10:00 a.m. at our Fox Rothschild offices in Century City or contact me via email to dial in by phone.

 

Digital On Air sign, indicating broadcastingOn Fox’s entertainment industry-focused Pay or Play blog, associate Laurie Baddon wrote a post covering recent reports on employment agreements signed by news anchors working at television stations owned by Sinclair Broadcast Group. Laurie breaks down the controversial elements of the agreements, and examines them in the context of California employment law.

To get a better sense of the legal aspects of this national news story, we invite you to read Laurie’s post on Pay or Play.

Over the past few months, I have read blogs and opinion columns about whether alleged sexual harassers have been proclaimed guilty by their employers and the media without due process.  That is, are companies rushing to fire bad actors in the wake of the “me too” movement unfairly?

Some accused harassers are taking a play from Twisted Sister, saying “We’re Not Gonna Take It” and are seeking legal counsel to help.  In the past, lawsuits filed by alleged harassers have been few and far between, but a new case filed against HSBC bank a few weeks ago in New York, plus few threatened lawsuits we have seen, make me wonder if this will be a new trend.

Let’s talk about what due process entails.  The term “due process” is a legal term found in the Fifth Amendment to the U.S. Constitution which states that the government cannot deprive citizens of “life, liberty, or property without due process of law.” As would be expected, dozens of Supreme Court cases clarify the procedural and substantive elements of “due process.”  Notably absent is a due process requirement in the private employment context.

Employers have more flexibility to set parameters for employees than, let’s say, a judge has in a criminal proceeding.  And that makes sense.  But employers can still face liability for an inadequate investigation as discussed by my colleague Jeff Polsky.  Specifically, the standard for investigating harassment claims in California was established in the 1998 case Cotran v. Rollins Hudig Hall International, Inc., 1998 Cal. LEXIS 1 (January 5, 1998).  The court established employers must simply have a “reasonable and good faith belief” supporting any adverse action taken against an employee.  Given that employment lawyers are seeing the number of harassment claims in the workplace rise, employers should also be prepared for increased push back by alleged harassers.  Some of the ways employers can protect themselves, their workplaces, and ensure an adequate investigation and their own version of “due process” are found here.

If you are an employer in California, you are likely well aware of Labor Code § 226 and the many items that our state requires to be on employee paystubs: gross wages, legal name of employer, inclusion dates for the pay period, etc. (Labor Code § 226) Failure to adhere to all of Labor Code § 226’s paystub requirements can result in penalties owed to the employee, and worse still, the possibility of a dreaded PAGA action. It is no surprise then that vigilant employers have kept a close eye on their paystubs to ensure inclusion of all the necessary information.

Businessman handing over paycheck at desk in officeBut what about the paychecks themselves? Often forgotten is Labor Code § 212 which imposes certain requirements on employers who pay employees with traditional paychecks (as opposed to direct deposit). A traditional paycheck must be “payable in cash, on demand, without discount, at some established place of business in the state, the name and address of which must appear on the instrument…” Labor Code § 212(a). The point being that employees must have the opportunity to know where they can cash their paycheck and receive their wages immediately, without paying a fee.

Does this mean an employer must pick out one specific location where an employee can cash their paycheck and then list the location and its address on the check? Lucky for employers and employees, the answer is no. As long as the drawee of the check is a bank, the bank’s address need not appear on the paycheck itself. In other words, if the employer uses a bank with branches in California for its payroll checks, the employer need only list the name of the bank, so long as the check can be cashed immediately without a fee to the employee at any of the bank’s branches.

Failure to comply with Labor Code § 212 can result in minor penalties to an individual if they can establish that they were denied the opportunity to immediately obtain their wages. However, a purely facial violation on the check, and nothing more, could potentially result in a much larger PAGA lawsuit.

Although many workplaces find that the vast majority of employees receive their pay through direct deposit, there are still many employees who receive their wages in the form of a traditional paycheck. Accordingly employers should examine their paychecks and ensure the following:

  1. Paychecks should list the name of a national or state bank that has conveniently located branches where employees can cash their paychecks; and
  2. Employers should confirm with the bank used for its paychecks that all employees can cash their paychecks immediately at any of the bank’s locations without a fee (even if the employee does not otherwise bank there).

The Fair Labor Standards Act now permits back-of house employees to participate in mandatory tip pools, provided no tip credit is taken against minimum wage.  The Consolidated Appropriations Act, 2018 budget bill effectively amends the FLSA to clarify two important points: back of house employees MAY participate in certain tip pools however supervisor/manager/owners MAY NOT participate in tip pools.

How does that affect employers doing business in California?

Labor Code section 351 permits mandatory tip pooling for an employee who provides “direct table service” or who is in the “chain of service.”  In 2009, the court in Etheridge v. Reins International California, Inc. (2009) 172 Cal.App.4th 908, 922 held that kitchen staff contribute to the “chain of service” and could receive tips under section 351.

In 2011, the DOL issued a regulation prohibiting back of house employees from participating in tip pools regardless of whether a tip credit was taken.  There was litigation over whether the DOL had authority to issue such a regulation, however the Ninth Circuit in Oregon Restaurant and Lodging Association v. Perez, 816 F.3d 1080 (9th Cir. 2016) held that the DOL acted within the scope of their power, effectively invalidating Etheridge and Cumbie v. Woody Woo, Inc., 596 F.3d 577 (9th Cir. 2010).

Now that the DOL regulations have been reversed by the recently passed budget bill and FLSA amendment, it seems as though the holdings of Etheridge and Woody Woo are back, clearing the way for back of house employee inclusion in tip pools.

But, we are exercising caution before advising clients to change their tip pools.  Still pending is an appeal to the Supreme Court in the Oregon Restaurant and Lodging Association case as well as a still valid DLSE Opinion Letter from September 8, 2005 that does not include kitchen staff as part of the “chain of service.”  Making changes to your California tip pool at this juncture seems premature as we don’t want you to be the test case.

Spring is here! And for those of us in sunny Southern California that means it is music festival season. First up is Coachella and then Stagecoach, with more to follow until October. Days and nights filled with music, food, beer, cocktails, and of course, legal recreational marijuana.

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I recently had a terrific question from an employer who is sending a group of employees to staff a food booth at Coachella, and is providing group accommodations for them all. Can we implement some sort of wavier they asked? Great question, right?

While an employer cannot ask an employee to waive all rights arising from offsite work, an employer certainly can (and should) clarify expectations. Some suggested topics for offsite expectations include:

  • Clarification that all company policies apply to offsite work and time spent in provided accommodations.
  • That means no alcohol or drugs while on duty or while in provided accommodations.
  • Violations of those policies (including harassment policy), will lead to discipline up to and including termination.
  • Managers are responsible for setting the example.
  • What they do off duty still applies (i.e. manager can still harass when not working).
  • Include a number to call or steps to take if someone feels uncomfortable in shared accommodations or witnesses a policy violation.
  • Set up clear protocols for how non-exempt employees should log time worked, including meal and rest breaks and travel time.

Having all employees sign off on expectations before going offsite, and taking steps to address any problems quickly and effectively, should help to limit bad behavior, and hopefully liability, even at Coachella.

I am both proud and excited to be featured in two new training videos for workplace supervisors and human resources representatives handling California-specific and federal wage and hour issues.

Developed and produced by Kantola Productions, “California Wage and Hour Laws: What You Need to Know” is designed to help companies train their supervisors and human resources representatives to become better, more legally compliant managers.  The video consists of modules that break down the complex requirements regarding a variety of wage and hour matters including:

  • Exempt vs. Non-Exempt Employees
  • Employee vs. Independent Contractor
  • Overtime
  • Meal & Rest Breaks
  • Hours Worked

There is also a federal version of the video.

Both videos are available for purchase in several formats:  DVD, online training for up to 25 viewers, or instant streaming for a single user.  To receive a 20% discount, Fox Rothschild clients and their contacts can enter Fox20 in the “catalog code” box when filling out the online purchase form.

Take a look at a clip from the video below.  Enjoy!