California is known for new employment laws that then trickle out to the east coast, the northwest, and eventually nationwide.  Think back to the mandate for sexual harassment prevention training and the roll-out of paid family leave in 2004, and the state-wide statutory sick leave mandate in 2015.

Yet, with new laws also come new court challenges, and several trend-setting California laws are totally or partially on hold pending further court proceedings.  Here are some notable examples:

Prohibition on Mandatory Arbitration (AB51)

As reported here, enforcement of AB51 has been blocked by a Temporary Restraining Order (now extended), with another hearing set for January 31st.  Employers hiring before month-end must decide whether to modify current arbitration agreements to make them voluntary, or to wait and see what happens on the 31st and thereafter (and risk that current arbitration agreements that include opt-out provisions or are mandatory do not meet AB51’s standard if upheld).

Assault on Independent Contractor Agreements (AB5)

As reported here, there are at least three current challenges to AB5 by specific industries.  First, independent owner operators won in a state case which held that AB5 should not render them employees, given federal laws governing interstate commerce; that ruling will be appealed.  And other truck drivers are fighting for a Temporary Restraining Order in federal court.  Second, freelance writers, editors, still photographers, and visual journalists filed a lawsuit to address the limited scope exemption in AB5 (35 submissions per client per year) arguing it is arbitrary and unconstitutional (the TRO in that case was denied, and the hearing on the injunction is set for March).  And third, on-demand companies have also filed a lawsuit arguing that the law is poorly drafted, has too many exemptions, and does not accomplish the intended goal of protecting workers (including the two individual named plaintiffs that chose to work as independent service providers and don’t want to be employees).

Challenge to Law Mandating Women on California Boards of Directors (SB 826)

In September 2018, the California Legislature passed SB 826 which set forth requirements for California based public companies to have a least one female director on their Board by the end of 2019 or face a fine of $100,000.  Requirements increase by the end of 2021 based on Board size.  A male shareholder of a Delaware corporation headquartered in California with an all-male Board filed a lawsuit challenging the “quota law” as unconstitutional.

Bold laws invite court challenges, and time will tell how it all shakes out once the lawsuits work their way through the system.  In the meantime, employers must balance the risks of non-compliance with the possible rewards of litigation victories invalidating all or parts of these laws.  Stay tuned to our fabulous blog to find out what happens next.

We’ve noted before that AB 51 – the California legislature’s latest attempt to attack workplace arbitration – has significant legal flaws. On December 30, 2019, US District Judge Kimberly Mueller granted a temporary restraining order to prevent the legislation from taking effect on January 1, 2020. Judge Mueller ruled that the employer groups bringing the litigation have shown a likelihood of irreparable injury if relief is not granted and that a restraining order is in the public interest. Specifically, they showed that there are serious questions as to whether the law is enforceable and that allowing it to take effect will be unduly disruptive. In addition, the court ruled that the harm to the state of restraining the statute from taking effect until these issues can be more fully addressed is minimal.

A further hearing is scheduled for January 10, 2020.  You can read the order here.

What does this mean for employers? There are obviously pros and cons of mandatory workplace arbitration programs (as we’ve discussed). But if you have such a program, now is not the time to scrap it. 

For an update as of January 13, 2020, read this.

Wondering what to get the little ones for the holidays? How about an up-to-date guide to California’s unique employment laws. Imagine the looks on the little ones’ faces when they see that you’ve gotten a concise, plain-language summary of California’s unique requirements for determining independent contractor status, meal and rest periods, the Fair Pay Act, paychecks and wage statements, the various leaves of absence, and so much more.

Is this something kids ask for? Not usually. But when they see their playmates embroiled in costly litigation because they didn’t know what California requires for timekeeping records, they’ll be glad that you were looking out for them. Get your copy here.

Happy Holidays!

The Bar Association of San Francisco is presenting a seminar: 2019 Disability Employment Law Updates. It will take place on January 16, 2020, from noon to 1:15, at the BASF Conference Center, 301 Battery St., 3rd Floor, San Francisco, CA 94111.

Ben Bien-Kahn of Rosen Bien Galvan & Grunfeld LLP will present the plaintiff’s perspective and I’ll present the defense perspective. The program is approved for 1 hour of of MCLE and is sponsored by the Equality Committee on Disability Rights of the Bar Association of San Francisco.

You can register to attend here or print a flyer here. I hope to see you there!

We’ve been blogging about attacks on workplace arbitration for over ten years now. (See, for example, this October 2009 post.) AB 51 represents the latest attempts by plaintiffs’ attorneys to ensure that their clients have continued access to employee-friendly juries, rather than to arbitrators with experience understanding and applying the relevant law. We’ve written about what the law says, the economic motives behind the attacks on arbitration, and about how the law affects employers’ decision whether to implement or continue arbitration programs.

Throughout these discussions, we noted that the bill is of questionable legality. On December 6, 2019, a consortium of employer groups including the US Chamber of Commerce and the California Chamber of Commerce filed suit in the Eastern District of California to block the bill from taking effect. You can read the complaint here. Federal law protects arbitration agreements against attempts by courts and judges to weaken their protections. The suit argues, convincingly I think, that this latest effort contravenes federal law and that the law should be struck down.

We’ll continue to keep you posted as the story develops.

UPDATE: The employer groups bringing the suit have filed for a temporary restraining order.

UPDATE #2: As of December 30, 2019, a federal judge has issued a temporary restraining order blocking the law from taking effect on January 1, 2020.

UPDATE #3: On January 10, 2020, the court further enjoined the measure from taking effect.

If you were hoping that AB-5 (the CA statute codifying the ABC standard into widespread law) would be held invalid, enjoined, or would just fall off a cliff, it is time to face reality.  AB-5 is alive and well, and effective January 1, 2020.  That means any California employer who still relies on independent contractors as part of its workforce should be hustling to address that issue if they haven’t already.

Yes, some gig economy companies are planning a ballot initiative, but that won’t be on the ballot until November 2020.  Update:  On-demand companies also filed a lawsuit to allow workers to remain as independent service providers.

And there is a glimmer of hope for truck drivers, given that motor carriers and individual owner-operator truck drivers filed a motion for preliminary injunction to cease enforcement of AB-5 as to just them, which was temporarily granted on December 30, 2019, and is set for further hearings in USDC, Southern District.

Update:  And freelance writers and journalists also filed a lawsuit just before year end to address the limited exception written into the law capping content submissions to 35 per publisher per year.

But everyone else doing business in California is left with limited options, including:

  • Full compliance which may include:
    • Converting workers to employees
    • Taking steps to ensure that all contractors meet one of the funky enumerated exemptions and have an updated contractor agreement
    • Retaining a reputable staffing company to employ workers (especially for businesses that are not set up to do a proper payroll and handle the myriad of legal requirements necessary for employees
  • Taking the risk of misclassification and hoping your business won’t be a target
    • Note, if you have had any union activity, watch out – you are likely on the target list!
  • One of the first two options, along with a lobbying strategy to try to get your business listed as another exemption

My franchise partner, Tami McKnew, and I have been presenting a series of webinars on AB-5 and its impact on the franchise system.  Notably, there is no exemption in AB-5 for franchisees.  Also notably, many franchisees are women or minority owned, and actually like the freedom to be self-employed.  In fact, 35% of franchise owners are women.  So one of the points Tami and I have been stressing, is that if you are a franchise owner in California, and you’d like to retain that status, then contact your legislators and tell them!  The voices of business owners can hold a lot of weight. Indeed,  Assembly Member Gonzalez, AB-5’s author, appears open to such efforts come January (as she was before the bill passed), but only time will tell if any will be successful.

In the meantime, one thing is for sure.  AB-5 will keep us employment lawyers busy in the coming year.

Attention hospitality employers.  Is that charge you add to a guest check a service charge (typically a set amount added to a guest check in lieu of a tip)?  Or an automatic gratuity (such as a set amount for a party of 8 or more)?  Or a true tip/gratuity (an actual discretionary amount left by the guest for the service employees)?

In California, if it is a tip/gratuity, under California Labor Code Section 351, it belongs to the employees and the employer can’t keep any of it (even for managers working the event or party).  Plus, it is not included in the regular rate for overtime purposes.

However, if it is an automatic gratuity or a service charge, then it is considered a wage in California.  Accordingly, it is taxed, and is included in the regular rate for overtime purposes.  And if your guest facing documents are clear, the House or management can keep part of it, with some important exceptions.

One caveat applies to hotels covered under the LA Hotel Ordinance; for those Hotels (and associated restaurants and banquet facilities), 100% of the service charge must go to the service employees.

Another caveat applies to charges that aren’t clearly defined.  In a recent California case (O’Grady v. Merchant Exchange Productions) the banquet facility added a “service charge” to guest bills, and kept part of it for the House and management.  Allegedly, it was not clear on documents to guests that 100% of the service charge was not going to the employees, and that some went to management.  The attorneys representing the server (and the purported class) argued that the service charge was really a gratuity that should have gone entirely to the employees, and that none of it should have been retained by the House or management (because tips belong to employees in CA).  The Court of Appeal in California allowed a putative class action by servers to go forward on the issue of whether that service charge was actually a misnamed gratuity that was improperly distributed (and kept from employees) in violation of CA law.

As my partner, Jordan Pace, points out in this helpful Alert, the risks for treating the designation of the charge wrong are high.  That’s why all hospitality employers should make sure their categorization of charges is correct, and that all guest facing documents are clear and unambiguous.  Any lack of clarity could make you the next test case in litigation, which is great for us lawyers, but not so great for your business.

How will AB-5 impact franchise relationships in California?  What steps can franchisors take to best protect their interests in California in a post-Dynamex, post AB-5 landscape?  These are some of the questions Tami McKnew and I will be answering in a reprise of a webinar we first presented on October 28, 2019.  Join us on Wednesday, November 20, 2019.  It’s free and you can RSVP here.

The news on AB-5 has been fast and furious in the past couple of months.  First, was the summary of AB-5 and the new ABC standard to determine whether a worker is an independent contractor or employee.  Then were concerns about what the law did not say, and how it could be interpreted including in the franchise context.  Then came a bit of good news when the 9th Circuit ruled that the ABC test did not apply to a franchise employees, and did not create a joint employment relationship with the franchisor.

But there are still many unanswered questions.  Will any other businesses successfully lobby for an exemption to AB-5 before January 1st?  What will happen with the ballot measure set forth by technology companies?  How much of the law will be retroactive, and what exactly does that mean?  And strategically, what should businesses in California do given this legal landscape, especially if some or all of their California work force is comprised of independent contractors?

If you have a franchise in California or are a franchisor and operate in California, or you are just interested in this topic, please join me and Tami to delve into these issues on Wednesday, November 20th at Noon Pacific Time.  We hope to provide some clarity, or at least some viable options to mitigate risk.

The California Consumer Privacy Act (CCPA) takes effect in January, imposing strict new data privacy mandates on many companies with employees in California, whether they are headquartered inside or outside the state’s borders. Is your company among them?

Fox Rothschild’s Privacy & Data Security team has developed a free, easy-to-use online tool — CCPA Scope Adviser — that can help you answer this important question while there is still time to create a compliance plan.

The CCPA is scheduled to take effect in just two months.

Don’t assume you’re outside the scope. CCPA carries significant penalties for noncompliance and includes a private right of action that poses the threat of consumer lawsuits over data breaches.

For a thorough overview of the law, register for our free The Ten Commandments of CCPA  webinar, scheduled for Nov. 11.

Try CCPA Scope Adviser.

Register for our free The Ten Commandments of CCPA webinar.

The #MeToo movement is two years old this month, and what a profound cultural shift it has been.  Workplace conduct that just a few years ago was tolerated, ignored, overlooked, and even condoned, has now been forbidden.  The list of top executives, journalists, celebrities and others whose careers and reputations have been decimated gets longer each week (sometimes it feels like each day, depending on the news cycle).

I reflected on these changing norms in a Daily Journal article for its special #MeToo edition on October 17, 2019.  You can read it here.  The biggest joy of publishing in an old-fashioned newspaper is that you can make a photocopy for your parents (including a retired judge father), who think it is pretty big deal.

Happy reading, and as I say at the end of each sexual harassment prevention training, please behave!