Businesses are constantly challenged by the ever-evolving landscape of labor and employment law, with new legislation and judicial developments occurring almost daily fueling a seemingly never-ending stream of litigation. For companies operating in multiple states, complying with this patchwork of federal, state, and local laws and developments can be daunting. Knowing these issues are a top concern for management and in-house counsel, Morrison Foerster keeps pace with this rapidly evolving landscape. MoFo ELC equips our clients with the most up-to-date and relevant information on employment and labor law issues covering key judicial, litigation and legislative developments, their implications for employers, and strategies to ensure compliance and avoid lawsuits.<h2>ABOUT MORRISON FOERSTER</h2>Morrison Foerster is a leading global law firm that transforms complexity into advantage for its clients. Our clients include some of the largest financial institutions, banks, consulting and accounting firms, and Fortune 100, technology, and life sciences companies. Highlighting the firm’s commitment to client service, leadership in market-changing deals and impact litigation, and values-based culture, Morrison Foerster has been repeatedly recognized as one of the top 10 firms on The American Lawyer’s A-List. Year after year, the firm receives significant recognition from Chambers and The Legal 500 across their various guides, including Global, USA, Asia‑Pacific, Europe, UK, Latin America, and FinTech Legal. Our lawyers passionately care about delivering legal excellence while living our values. Morrison Foerster has a long-standing commitment to creating a culture that respects and celebrates differences, while providing an inclusive environment. The firm has achieved Mansfield Certification Plus since 2018 as a result of successfully reaching at least 30 percent women, communities of color, and LGBTQ+ lawyer representation in a notable number of current leadership roles and committees. The firm also has a long history of commitment to the community and society through providing pro bono legal services, including litigating for civil rights and civil liberties, improving public education and fostering the wellbeing of children, advocating for veterans, promoting international human rights, enforcing the right to asylum, and safeguarding the environment.

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Andrew Turnbull represents companies on a broad range of labor and employment litigation and counseling matters. He has successfully defended clients in complex employment litigation before federal and state courts and administrative agencies. A primary focus of his practice involves helping companies navigate the unique employment issues that arise when doing business with the federal government, including advising on all aspects of OFCCP compliance, creating and implementing affirmative action plans, defending OFCCP audits and onsite investigations, conducting mock pay equity audits, drafting and developing business ethics policies and programs, and complying with the Service Contract Act, E-Verify, and the Drug Free Workplace Act.

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The U.S. Supreme Court’s decision in Viking River Cruises v. Moriana, 142 S. Ct. 1906 (2022), in June 2022 delivered a victory for California employers facing claims brought pursuant to the Labor Code Private Attorneys General Act of 2004 (PAGA), as we <a href="https://www.mofo.com/resources/insights/220617-viking-river-paga-claim-arbitration">previously reported</a>. Since then, the California state and federal courts have seen an influx of motions to compel arbitration of individual PAGA claims and to dismiss (or in the alternative stay) the non-individual PAGA claims.The first aspect of the Viking River decision – that individual PAGA claims can be compelled to arbitration – has been consistently followed by lower courts. And, despite various creative arguments by plaintiffs trying to distinguish Viking River’s holding from the specific facts and agreements in their cases, the vast majority of courts have granted motions to compel arbitration of individual PAGA claims.<a href="#_ftn1" id="_ftnref1">[1]</a> However, the second aspect of the Viking River decision – that the remaining non-individual PAGA claims should be dismissed because they now lack a PAGA plaintiff to pursue them – has been met with mixed results.Over the past nine months, many federal courts have followed the guidance from Viking River and have dismissed the non-individual PAGA claims after compelling the individual PAGA claims to arbitration.<a href="#_ftn2" id="_ftnref2">[2]</a> Likewise, some state courts have also followed suit, dismissing the non-individual PAGA claims.<a href="#_ftn3" id="_ftnref3">[3]</a>Most state courts, however, are staying, rather than dismissing, the non-individual PAGA claims after compelling the individual PAGA claims to arbitration. The stay is usually granted for one of two reasons (with some courts citing both reasons as grounds for a stay): (1) stay the non-individual PAGA claims pending arbitration of the individual PAGA claims; or (2) stay the non-individual PAGA claims pending the California Supreme Court’s anticipated decision in Adolph v. Uber Technologies, Inc., No. S274671 (Cal. Aug. 2022).<a href="#_ftn4" id="_ftnref4">[4]</a>For those courts that stay the non-individual PAGA claims pending arbitration of the individual PAGA claim, the purpose of the stay is to allow the arbitrator to decide if the plaintiff can prove any Labor Code violations.<a href="#_ftn5" id="_ftnref5">[5]</a> In other words, the arbitrator is tasked with determining if the plaintiff is an “aggrieved employee,” defined in the PAGA statute as “any person who was employed by the alleged violator and against whom one or more of the alleged violations was committed.”<a href="#_ftn6" id="_ftnref6">[6]</a> If the arbitrator finds for the employer, then the plaintiff would lack standing to pursue the non-individual PAGA claims because only “aggrieved employees” have standing to bring PAGA claims.<a href="#_ftn7" id="_ftnref7">[7]</a> This very issue was recently addressed by the California Court of Appeal in Rocha v. U-Haul Co. of California, 88 Cal. App. 5th 65, 76 (2023). Specifically, the Rocha court concluded that the arbitrator’s finding that the plaintiffs “did not suffer a section 1102.5 violation as alleged in the operative complaint precludes them from qualifying as ‘aggrieved employees’ based on that same alleged violation.” Rocha’s holding provides further support to courts for staying the non-individual PAGA claims pending the arbitration of a plaintiff’s individual PAGA claims.And for those courts that stay the non-individual PAGA claims pending the decision in Adolph, the expectation is that Adolph will shed light on PAGA standing.<a href="#_ftn8" id="_ftnref8">[8]</a> But, while Adolph is expected to address the issue raised in Viking River head-on (i.e. whether non-individual PAGA claims should be dismissed for lack of standing once the individual PAGA claims are compelled to arbitration), it may not address the issue of whether trial courts should stay the remaining non-individual PAGA claims pending arbitration of the individual PAGA claims. Only time will tell. In the interim before Adolph is heard and decided, we can expect to continue to see many state courts staying the non-individual PAGA claims when individual PAGA claims have been compelled to arbitration. And, while Adolph may give some clarity as to how courts should move forward, it may also leave some questions unanswered or create new questions, as seems to be the trend with the continuously developing case law surrounding PAGA over the past two decades.We’ll continue to keep a close eye and report on this developing trend.<a href="#_ftnref1" id="_ftn1">[1]</a> Courts have generally found the arbitration agreements to be enforceable, even without an explicit severability provision in the arbitration agreement.See, e.g., Valencia v. Bruce’s Prime Ribs & Spirits, Los Angeles Superior Court, Case No. 22STCV26952 (order dated Feb. 6, 2023) (finding that the agreement “impliedly allows the severance of unenforceable portions of the agreement”).<a href="#_ftnref2" id="_ftn2">[2]</a>See, e.g., Rainey v. A Place for Rover, Inc., No. 2:22-CV-01810-RGK-E, 2022 WL 16942840 (C.D. Cal. Sept. 1, 2022); Radcliff v. San Diego Gas & Elec. Co., No. 20-CV-1555-H-MSB, 2022 WL 4229305 (S.D. Cal. Sept. 12, 2022); Garcia v. LQ Mgmt., LLC, No. 2:20-CV-06306-FLA-JC (C.D. Cal. Sept. 12, 2022); Johnson v. Lowe’s Home Centers, No. 221CV00087TLNJDP, 2022 WL 4387796 (E.D. Cal. Sept. 22, 2022); Callahan v. Paychex N. Am. Inc., Case No. 21-CV-05670-CRB, 2022 WL 11902205 (N.D. Cal. Oct. 20, 2022)).<a href="#_ftnref3" id="_ftn3">[3]</a>See, e.g., Acosta v. Mad Engine Holdings LLC, San Diego Superior Court, Case No. 37-2022-000000095-CU-OE-CTL (order dated July 29, 2022); Jackson v. Wash Multifamily Laundry Systems, LLC, Los Angeles Superior Court, Case No. 22TRCV00039 (order dated Sept. 22, 2022); Huff v. Interior Specialists, Inc., San Diego Superior Court, Case No. 37-2021-00016138-CU-OE-CTL (order dated Oct. 21, 2022); Gutierrez v. Panera, LLC, Los Angeles Superior Court, Case No. 22TRCV00424 (order dated Jan. 10, 2023).Recently, however, some California Courts of Appeal have weighed in on this issue, finding that a dismissal of non-individual PAGA claims when the individual PAGA claims are compelled to arbitration is improper.See, e.g., Piplack v. In-N-Out Burgers, 88 Cal. App. 5th 1281 (2023) (holding that “plaintiffs retain standing to pursue representative PAGA claims in court even if their individual PAGA claims are compelled to arbitration,” but not addressing whether the representative claims should be stayed pending arbitration of the individual PAGA claims).<a href="#_ftnref4" id="_ftn4">[4]</a> As <a href="https://elc.mofo.com/topics/california-supreme-court-poised-to-address-the-issue-of-paga-standing-post-viking-river" target="_blank">previously reported</a>, the high court is set to address the question of whether an employee who has been compelled to arbitrate individual claims maintains statutory standing to pursue “PAGA claims arising out of events involving other employees.” In other words, Adolph is expected to address the second aspect of Viking River described above (although it is possible the high court will address more than that). The matter has been fully briefed, along with several amicus curiae briefs. Oral argument is expected to be set within the next few months.<a href="#_ftnref5" id="_ftn5">[5]</a>See, e.g., Gozzi v. Acadia, Los Angeles Superior Court, Case No. 19STCV39861 (order dated July 13, 2022); Adams v. Pacific Villa, Inc., Los Angeles Superior Court, Case No. 20STCV37260 (order dated July 27, 2022); Mendoza v. Laguna Cookie Company, Orange County Superior Court, Case No. 19-1107762 (order dated Aug. 12, 2022); Garcia v. St. Paul’s Episcopal Home, Inc., San Diego Superior Court, Case No. 37-2022-22641 (order dated Jan. 27, 2023).<a href="#_ftnref6">[6]</a> Cal. Lab. Code, § 2698 et seq.<a href="#_ftnref7" id="_ftn7">[7]</a> For example, in Hailey v. Specialty Restaurants Corp., Orange County Superior Court, Case No. 30-2022-01255938 (order dated Sept. 30, 2022), the court reasoned: “[T]he arbitrator may decide that Plaintiff hasn’t suffered any of the Labor Code violations complained of, meaning Plaintiff lacks PAGA standing regardless of what happens in Adolph. For these reasons, the proper course is to deny the request to dismiss the claims without prejudice to that request being renewed upon conclusion of Plaintiff’s individual arbitration.”<a href="#_ftnref8" id="_ftn8">[8]</a>See, e.g., Flores v. Amwest, Inc., Los Angeles Superior Court, Case No. 21STCV16066 (order dated Oct. 4, 2022); Kunsman v. Patriot Environmental Services, Sacramento County Superior Court, Case No. 34-2021-310042 (order dated Oct. 25, 2022); Castro v. Clay Lacy Aviation, Inc., Los Angeles Superior Court, Case No. 21VECV00304 (order dated Nov. 17, 2022); Mendoza v. Streamline Finishes, Inc., Orange County Superior Court, Case No. 30-2021-01207462-CU-OE-CXC (order dated Dec. 1, 2022); Lopez v. P.R. Perneky Management Corp., Los Angeles Superior Court, Case No. 22AHCV00578 (order datedFeb. 2, 2023) (staying the representative PAGA claims, finding it “reasonable to expect further judicial clarification on the standing issue”).

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Cruising Down a Post-Viking River: A Look at Litigation Trends in the Nine Months Since the U.S. Supreme Court’s Decision in Viking River

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The U.S. Supreme Court’s decision in Viking River Cruises v. Moriana, 142 S. Ct. 1906 (2022), in June 2022 delivered a victory for California employers facing claims brought pursuant to the Labor Code Private Attorneys General Act of 2004 (PAGA), as we previously reported.

Cruising Down a Post-Viking River: A Look at Litigation Trends in the Nine Months Since the U.S. Supreme Court’s Decision in Viking River

As we <a href="https://www.mofo.com/resources/insights/220617-viking-river-paga-claim-arbitration" target="_self">previously reported</a>, the United States Supreme Court in Viking River Cruises, Inc. v. Moriana, (2022) 142 S. Ct. 1906, delivered a victory for California employers. The high court held that employers can compel arbitration of a plaintiff’s individual claim under the Private Attorneys General Act of 2004 (PAGA), and with the individual PAGA claim compelled to arbitration, the remaining non-individual PAGA representative claims must be dismissed for lack of standing.A few weeks ago, the California Supreme Court agreed to review an appellate ruling about PAGA standing in light of Viking River. The high court is set to address the question in Adolph v. Uber Technologies, Inc. (S274671, Cal. Aug. 2022) of whether an employee who has been compelled to arbitrate claims under PAGA that are “premised on Labor Code violations actually sustained” by the employee maintains statutory standing to pursue “PAGA claims arising out of events involving other employees” in court or in any other forum agreed to by the parties. <div>Last week, the Court granted review to hear two more cases on the issue: Wing v. Chico Healthcare & Wellness Centre (S274939, Cal. Aug. 2022) and Sanchez v. MC Painting (S274780, Cal. Aug. 2022).</div>We will continue to follow the latest developments in this area.

California Supreme Court Poised to Address the Issue of PAGA Standing Post-Viking River

California Supreme Court Poised to Address the Issue of PAGA Standing Post-Viking River

As we previously reported, the United States Supreme Court in Viking River Cruises, Inc. v. Moriana, (2022) 142 S. Ct. 1906, delivered a victory for California employers. 

The United States Supreme Court’s decision in Viking River Cruises, Inc. v. Moriana, 142 S. Ct. 1906 (2022), is welcome news for California employers.  In short, employers can compel “individual” claims under the Labor Code Private Attorneys General Act of 2004 (PAGA) to arbitration.  With the “individual” PAGA claims compelled to arbitration, a court must dismiss the “non-individual” PAGA claims for lack of standing.To learn more, read our <a href="https://www.mofo.com/resources/insights/220617-viking-river-paga-claim-arbitration" target="_self">client alert</a>.

Viking River Is Victorious in Compelling Individual PAGA Claim to Arbitration

The United States Supreme Court’s decision in Viking River Cruises, Inc. v. Moriana, 142 S. Ct. 1906 (2022), is welcome news for California employers.  In short, e

Viking River Is Victorious in Compelling Individual PAGA Claim to Arbitration

Tritia Murata and Eric Akira Tate have been named to Law360's 2022 Editorial Advisory Board. These boards provide feedback on Law360's coverage and expert insight on how best to shape future coverage.Tritia Murata was named to Law360’s 2022 Employment Authority Wage & Hour Editorial Board. Tritia is co-chair of the MoFo’s Global Employment + Labor Group, litigating complex cases involving claims related to alleged wage and hour violations, trade secret misappropriations, employee and customer raiding, and unfair competition.Eric Akira Tate was named to Law360’s 2022 Employment Authority Discrimination Editorial Board. Eric is co-chair of MoFo’s Global Employment + Labor Group, representing technology and other companies in bet-the-company trade secrets and employee mobility cases.Read more about the seven MoFo partners that have been selected for <a href="https://www.mofo.com/resources/news/220401-seven-mofo-partners-editorial-boards.html?utm_medium=social&utm_source=LinkedIn-Gaggle">Law360 Editorial Boards for 2022</a>.

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Eric Akira Tate co-chairs the firm’s Global Employment and Labor Group. He represents technology and other companies in bet-the-company trade secrets and employee mobility cases.

Eric Akira Tate

Eric Tate chairs the firm’s Global Employment and Labor Group. He has represented technology and other companies in the biggest and most highly-publicized trade secrets and employee mobility cases across multiple industries. Eric also represents companies in whistleblower, wage and hour, and other employment litigation.

Eric Tate

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TRITIA MURATA AND ERIC AKIRA TATE NAMED TO LAW360'S 2022 EDITORIAL ADVISORY BOARD

Erin Bosman and Arturo Gonzalez Named to Law360's 2021 Editorial Advisory Board

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Tritia Murata and Eric Akira Tate have been named to Law360's 2022 Editorial Advisory Board. These boards provide feedback on Law360's coverage and expert insig

TRITIA MURATA AND ERIC AKIRA TATE NAMED TO LAW360'S 2022 EDITORIAL ADVISORY BOARD

In recent years, more consumers, merchants, and financial institutions have accepted cryptocurrency as a form of payment for everyday products and services. Last November, mayors of two major U.S. cities signaled what may be the next phase of cryptocurrency’s melding into the mundane, when they announced they would accept paychecks in cryptocurrency. On Twitter, Mayor Francis Suarez of Miami said he would accept his next paycheck in Bitcoin, to which Mayor Eric Adams of New York responded that he would accept his first three paychecks in Bitcoin. Just as the Mayors are trying to project their cities’ images as leaders in the technology and the crypto-wave, employers are considering paying employees’ wages or other compensation in cryptocurrency in order to position themselves as forward-thinking companies that embrace change and the new. Relatedly, employees may want to be paid in cryptocurrency because of its potential to grow in value. Some experts predict that Bitcoin’s price will continue to grow to $100,000, and therefore some employees may want a portion of their salary to be paid in this dynamic form as a way to structure part of their income as a long-term investment as soon as it’s paid.Read our <a href="https://www.mofo.com/resources/insights/220407-paying-employees-cryptocurrency-lawful.html?utm_source=publication&utm_medium=email">client alert</a>.

Paying Employees in Cryptocurrency: Is That Lawful?

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Paying Employees in Cryptocurrency: Is That Lawful?

Paying Employees in Cryptocurrency: Is That Lawful? 

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In recent years, more consumers, merchants, and financial institutions have accepted cryptocurrency as a form of payment for everyday products and services. Las

With the New Year rapidly approaching, employers should prepare for the flurry of new California employment legislation. The recent legislation presents new compliance challenges and requirements for California employers, including obligations related to the ongoing pandemic, reinforcing or expanding leave protections, wage and hour compliance risks, and much more. We discuss some of the most notable developments below. Employers should review their policies and procedures in light of these developments.<h4>COVID-19</h4>AB 685 imposes new COVID-19-related notification and reporting obligations and authorizes Cal/OSHA to shut down operations that place workers at risk of exposure.Effective January 1, 2021, AB 685 requires employers that receive a “notice of potential exposure” (which may come from a variety of sources, as discussed below) to COVID-19 to take the following actions within one business day of the notice:<ol><li> Provide written notice to all employees, and the employers of subcontracted employees, who were at the same worksite as a “qualifying individual” within the “infectious period” that they may have been potentially exposed to COVID-19. If the employees are unionized, written notice must also be provided to the exclusive representative of the employees. The “infectious period” is currently at or around 10 days, depending on whether the individual actually develops symptoms. The State Department of Public Health will be responsible for determining the length of the “infectious period.”<a href="file:///C:/Users/btk1/AppData/Roaming/OpenText/DM/Temp/SAN_FRANCISCO-%234379514-v7-ELC_re__California_Legislation.docx#_ftn1">[1]</a></li><li>Provide all employees who may have been exposed (and their exclusive representative, if any,) with information regarding COVID-19-related benefits to which the employees may be entitled under applicable federal, state, or local laws, including, but not limited to, workers’ compensation, COVID-19-related leave, company sick leave, state-mandated leave, supplemental sick leave, or negotiated leave provisions, as well as anti-retaliation and anti-discrimination protections.</li><li> Notify all employees, and the employers of subcontracted employees (and their exclusive representative, if any) of the disinfection and safety plan that the employer plans to implement and complete, which must be consistent with the guidelines of the federal Centers for Disease Control.</li></ol>A “qualifying individual” includes someone who has a positive test for COVID-19, is diagnosed with COVID-19 by a licensed health care provider, is ordered to isolate for COVID-19 by a public health official, or dies due to COVID-19, as determined by a public health department. The “notice of potential exposure” may come from a variety of sources, including a public health official or licensed medical practitioner, a qualifying individual’s representative or emergency contact, the employer’s own testing protocol, or a subcontracted employer.AB 685 also requires employers with a COVID-19 “outbreak” within its premises to notify, within 48 hours, the local public health agency of the names, number, occupation, and worksite of the employees who meet the definition of a “qualifying individual” under AB 685. The term “outbreak” is to be defined by the State Department of Public Health, which currently defines “outbreak” as “at least three COVID-19 cases among workers at the same worksite within a 14-day period.”AB 685 also provides that employers should not disclose employees’ “medical information unless otherwise required by law” or “retaliate against a worker for disclosing a positive COVID-19 test or diagnosis or order to quarantine or isolate.”From January 1, 2021, until January 1, 2023, AB 685 authorizes Cal/OSHA to shut down an entire worksite or a specific worksite area that exposes employees to an imminent hazard related to COVID-19. An imminent hazard is defined as any condition or practice that poses a hazard to employees, which could reasonably be expected to cause death or physical harm immediately or before the imminence of such hazard can be eliminated through Cal/OSHA’s enforcement process. Any shutdown order must not “materially interrupt the performance of critical governmental functions essential to ensuring public health and safety functions or the delivery of electrical power or water.” From January 1, 2021, until January 1, 2023, Cal/OSHA can also issue citations to employers for serious violations related to COVID-19 without providing 15-day advance notice. AB 1867 provides supplemental COVID-19 paid sick leave to employees.Effective September 19, 2020, AB 1867 provides supplemental paid sick leave until the later of December 31, 2020, or the expiration of any federal extension of the Emergency Paid Sick Leave Act. AB 1867 applies to private employers with more than 500 or more employees and certain employers who employ health care providers or emergency responders or operate a food facility. It requires these employers to provide supplemental COVID-19 paid sick leave to employees who are unable to work due to: (1) COVID-19-related federal, state, or local quarantine or isolation orders; (2) self-quarantine or isolation order by health care provider due to COVID-19-related concerns; or (3) their employer barring them from the worksite due to health concerns related to COVID-19.AB 1867 provides 80 hours of supplemental COVID-19 paid sick leave to an employee whom the employer considers “full time” or has worked or was scheduled to work, on average, at least 40 hours per week in the two weeks preceding the date the employee took COVID-19 supplemental paid sick leave. If the employee is not “full-time,” the employee’s supplemental paid sick leave is based on his or her normal schedule over the prior two weeks. The employer is not required to pay more than $511 per day or more than $5,110 in the aggregate to an employee for COVID-19 supplemental paid sick leave.SB 1159 makes injury from COVID-19 presumptively compensable under workers’ compensation law.For an employee who tested positive or was diagnosed with COVID-19 within 14 days after a day that the employee worked at a worksite at the employer’s direction, SB 1159 provides a rebuttal presumption that the employee’s COVID-19-related illness is an occupational injury that is eligible for workers’ compensation benefits. SB 1159 is effective through January 1, 2023.<h4>Protected Leave</h4>SB 1383 significantly expands California Family Rights Act rights for employees of small businesses.The California Family Rights Act (“CFRA”) authorizes eligible employees to take up to 12 weeks of unpaid, job-protected family and medical leave in a 12-month period. Currently, the CFRA applies to private employers with 50 or more employees within 75 miles of the employer’s worksite. Effective January 1, 2021, SB 1383 expands the CFRA to employers with five or more employees and eliminates the 75 mile requirement.SB 1383 also expands the types of leave that can be used under CFRA. CFRA currently allows employees to take leave to care for a “family member” who has a serious health condition. “Family member” is currently defined as a minor child, a spouse, or a parent. SB 1383 expands the definition to include adult children, siblings, grandparents, grandchildren, and domestic partners. SB 1383 additionally eliminates the CFRA restriction that allows an employer employing both parents of a child to limit CFRA leave to a total of 12 weeks for both parents due to bonding with a newborn child, adopting a child, or foster care placement. Moreover, SB 1383 eliminates the “key employee” exemption, allowing an employer to deny reinstatement to an employee who takes CFRA leave if the employee is among the highest paid 10% of the employer’s employees and the denial is necessary to prevent “substantial and grievous economic injury” to the employer.<ul><li>AB 2017 amends section 233 of the California Labor Code by providing employees with the “sole discretion” to designate the type of paid sick leave used. Currently, employers must permit an employee to use half of the employee’s sick leave entitlement to attend to the illness of a family member. Effective January 1, 2021, AB 2017 will prevent employers from incorrectly designating an employee’s sick leave as kin care and unintentionally depleting the number of hours an employee has to take leave when caring for a family member.</li></ul><ul><li>AB 2992 expands protections under sections 230 and 230.1 of the California Labor Code. Currently, those laws require employers to provide protected leave for employees who are victims of domestic violence, sexual assault, or stalking. Starting January 1, 2021, AB 2992 will expand the protected leave to employees who are victims “of a crime that caused physical injury or that caused mental injury and a threat of physical injury.”</li></ul><h4>Independent Contractors</h4>AB 2257 and AB 323 exempt more California workers from the ABC test under AB 5. As we <a href="https://elc.mofo.com/topics/California-Issues-A-New-Round-Of-Employment-Laws.html">reported</a>, AB 5 codified the expansive ABC test under the California Supreme Court’s Dynamex decision for purposes of determining whether a worker was misclassified as an independent contractor. AB 5 exempted numerous occupations from the ABC test.After challenges from various industries and professions, the California legislature passed AB 2257 and AB 323 to expand the number of exemptions under AB 5. For example, AB 2257 creates a new “single-engagement” business-to-business exemption from the ABC test for a “stand-alone non-recurring event in a single location, or a series of events in the same location no more than once a week” (e.g., an indie music band performing at a non-recurring event). Additional requirements must still be met for this exemption to apply, including that neither party is subject to the control and direction of the other, each party has the ability to negotiate its own rates, each party maintains its own business location, and each party provides its own tools, vehicles, and equipment to perform services under the parties’ contract.AB 2257 also creates new entertainment industry exemptions from the ABC test, including: (1) recording artists; (2) songwriters, lyricists, composers, and proofers; (3) managers of recording artists; (4) record producers and directors; (5) musical engineers and mixers engaged in the creation of sound recordings; (6) musicians engaged in the creation of sound records; (7) vocalists; (8) photographers working on recording photo shoots, album covers, and other items for press and publicity purposes; (9) independent radio promoters; and (10) any other individual “engaged to render any creative, production, marketing, or independent music publicist services related primarily to the creation, marketing, promotion, or distribution of sound recordings or musical compositions.” Musicians and vocalists who are not royalty-based participants in the work created during any specific engagement will be considered employees. Additional exemptions include, but are not limited to, licensed landscape architects, specialized performers teaching master classes, registered professional foresters, real estate appraisers and home inspectors, and feedback aggregators. Referral agencies for a non-exhaustive list of occupations such as caddies, photographers, and interpreters were also exempted from AB 5.AB 323, dubbed the “Save Local Journalism Act,” provides for a one-year extension until January 1, 2022, of the exemption of newspaper distributors and publishers from the ABC test.In addition, California voters recently approved an additional exemption to AB 5, Proposition 22, a California ballot that provides for classification of drivers who offer their services through app-based platforms as independent contractors.  Adoption of Proposition 22 shows that it is indeed possible, albeit expensive, for industry and professional groups to make their case for AB 5 exemption directly to voters.<h4>EEO Reporting</h4>SB 973 requires California private employers with 100 or more employees to submit pay data for its workforce to the Department of Fair Employment and Housing (“DFEH”) on an annual basis. The first submission deadline is March 31, 2021. The pay data must include information about the number of employees by race, ethnicity, and sex in the following categories: (1) executive or senior level officials and managers; (2) first or mid-level officials and managers; (3) professionals; (4) technicians; (5) sales workers; (6) administrative support workers; (7) craft workers; (8) operatives; (9) laborers and helpers; and (10) service workers. Employers must also provide previous year W-2 earnings and hours worked for all employees in a searchable and sortable format.<h4>DLSE Complaints and Whistleblowers</h4>Starting January 1, 2021, AB 1947 expands the statute of limitations from six months to one year to bring a complaint with the Division of Labor Standards Enforcement (“DFEH”) for any employee who believes that he or she was discharged or otherwise discriminated against in violation of any law enforced by the Labor Commissioner. AB 1947 also amends Labor Code section 1102.5, which provides whistleblower protections, to allow a court to award reasonable attorney’s fees to a prevailing plaintiff.<h4>No-Rehire Clauses in Settlement Agreements</h4>We <a href="https://elc.mofo.com/topics/California-Issues-A-New-Round-Of-Employment-Laws.html">reported</a> last year that AB 749 prohibited no-rehire provisions in settlement agreements with employees who filed a claim against an employer in court, before an administrative agency, in an alternative dispute resolution forum, or through the employer’s internal complaint process. One notable exception to AB 749 was where the employer had made a good faith determination that the employee engaged in sexual harassment or assault or “if there is a legitimate non‑discriminatory or non-retaliatory reason for terminating the employment relationship or refusing to rehire the person.” AB 2143, effective January 1, 2021, expands the no-rehire clause prohibition exception to include good-faith determination that the employee engaged in criminal conduct. AB 2143 was also amended to require employees to make “good faith” complaints to qualify for the no-rehire clause protection.<h4>Corporate Board Composition</h4>AB 979 requires publicly held companies whose principal executive office is located in California to have a minimum of one director from an underrepresented community by the end of 2021. For companies with more than four but fewer than nine directors, AB 979 requires a minimum of two directors from underrepresented communities by the close of 2022. For companies with nine or more directors, AB 979 requires a minimum of three directors from underrepresented communities by the end of 2022. “Director from an underrepresented community” is defined as an “individual who self-identifies as Black, African American, Hispanic, Latino, Asian, Pacific Islander, Native American, Native Hawaiian, or Alaska Native, or who self-identifies as gay, lesbian, bisexual, or transgender.” A company is subject to a fine of $100,000 for a first violation of AB 979 and $300,000 for a second or subsequent violation. Similar to SB 826, which contains similar provisions for companies to have a minimum number of female directors, AB 979 may be subject to various legal challenges.<h4>Wage and Hour Enforcement</h4>AB 3075 requires a company, when filing the company’s statement of information with the California Secretary of State, to include information about whether any officer, director, member, or manager of the company has an outstanding final judgment issued by the DFEH or a court of law, for which no appeal is pending, for the violation of any wage order or provision of the Labor Code.AB 3075 also lowers the bar for an employee to establish successor liability for “any wages, damages, and penalties owed to any of the judgment debtor’s former workforce.” Under AB 3075, successorship may be established if any of the following criteria are established: (1) company uses substantially the same facilities or substantially the same workforce to offer substantially the same services as the judgment debtor; (2) company has substantially the same owners or managers that control the labor relations as the judgment debtor; (3) company employs as a managing agent any person who directly controlled the wages, hours, or working conditions of the affected workforce of the judgment debtor; or (4) company operates a business in the same industry and the business has an owner, partner, officer, or director who is an immediate family member of any owner, partner, officer, or director of the judgment debtor. While legislative history suggests that AB 3075 was introduced to prevent businesses from closing their operations and starting new ones to avoid liability for payments to employees, AB 3075’s language appears to go beyond this narrow scenario and potentially apply, for example, to a third-party company engaged in an asset purchase. <a href="file:///C:/Users/btk1/AppData/Roaming/OpenText/DM/Temp/SAN_FRANCISCO-%234379514-v7-ELC_re__California_Legislation.docx#_ftnref1">[1]</a> See the State Department of Public Health’s website for the latest guidance on this topic: <a href="https://www.cdph.ca.gov/Programs/CID/DCDC/Pages/COVID-19/Employer-Guidance-on-AB-685-Definitions.aspx">https://www.cdph.ca.gov/Programs/CID/DCDC/Pages/COVID-19/Employer-Guidance-on-AB-685-Definitions.aspx</a>.

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Of Counsel

Lloyd W. Aubry, Jr. is a member of our Employment and Labor Group. Lloyd’s practice encompasses all aspects of employment and labor law, including litigation and counseling.

Lloyd Aubry

Lloyd Aubry’s practice encompasses all aspects of employment and labor law, including litigation and counseling. He represents public and private clients in a variety of matters relating to wage and hour law, employment discrimination, wrongful discharge, safety and health issues, and National Labor Relations Act (NLRA) issues. Mr. Aubry represents clients before administrative agencies and in state and federal court. A significant part of his practice involves expert testimony and consulting on issues relating to the Department of Industrial Relations. In this capacity, he has served for both employers and employees.

Andrew co-chairs the firm’s Global Employment and Labor Group. He represents companies on a broad range of labor and employment litigation and counseling matters, successfully defending clients in number complex matters before federal and state courts and administrative agencies.

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Kwan Park’s practice focuses on employment and labor litigation.
Kwan’s entire legal career has focused on representing employers. He seeks to understand each client’s unique business needs and objectives and relentlessly works to achieve them, whether in employment and labor litigation or in addressing novel legal issues.











Kwan Park

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Another Round of New California Employment Laws

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With the New Year rapidly approaching, employers should prepare for the flurry of new California employment legislation. The recent legislation presents new com

Another Round of New California Employment Laws

California’s “reporting time pay” regulations are back in the news after the recent California appellate court decision in Ward v. Tilly’s, Inc. held that employees who worked on-call or “call-in” shifts were entitled to half-shift reporting time pay, even when not required to physically come to the job site.  In light of this new “report for work” interpretation, it is important for companies with California employees to understand the reporting time pay requirements and strategies to avoid costly wage and hour litigation arising from potential violations of these rules.Background: The LawCalifornia reporting time pay obligations arise from California’s idiosyncratic quasi-legislative Industrial Wage Commission (IWC) Wage Orders promulgated in the 1940s which provide in relevant part:Each workday an employee is required to report for work and does report, but is not put to work or is furnished less than half said employee’s usual or scheduled day’s work, the employee shall be paid for half the usual or scheduled day’s work, but in no event for less than two (2) hours nor more than four (4) hours, at the employee’s regular rate of pay, which shall not be less than the minimum wage.(Cal. Code Regs., tit. 8, § 11070, subd. 5(A) [“Wage Order 7”] [emphasis added].)  The Wage Order provides exceptions to the rule where:<ul><li>the reason an employee works less than half of a scheduled shift is due to certain external factors such as physical threats, utility failures, or acts of God, (id. at subd. 5(C).);</li><li>employees who perform “standby” work, so long as the standby work performed is outside of that employee’s regularly scheduled shift. (id. at subd. 5(D).); or </li><li> the employee voluntarily leaves work early.</li></ul>While the Ward case dealt only with California employees subject to Wage Order 7 (covering the mercantile industry), Wage Orders 1 to 16 (out of 18), which taken together govern everything from manufacturing to transportation to “amusement and recreation” to “handling products after harvest,” also contain the same reporting time pay provisions.Application of the Reporting Time Pay RequirementApplication of Section 5 of the Wage Order is fairly straightforward in most cases.  An employee who “reports for work” and is dismissed before the half-way point of her scheduled shift is entitled to payment as though she had worked half of her shift.  Assuming the employee was scheduled for only one shift in a day, the minimum daily amount owed to the employee for an abbreviated shift, including for time worked and reporting time pay, would be two hours (applicable for shifts of 4 hours or less) and the maximum daily amount owed would be four hours (for shifts of eight hours or greater).  Reporting time pay is not counted as hours worked for purposes of determining overtime.So an employee who reported to work for a 7-hour shift, and was dismissed after 2 hours, would be entitled to 1.5 hours of reporting time pay, to bring her daily pay up to 3.5 hours for the day (half of her 7-hour scheduled shift).  If the extra 1.5 hours of reporting pay received by the employee brought her above 40 hours for the workweek (e.g., from 39.5 to 41), these hours would not be counted as overtime hours since they were hours not actually worked.Ward and “Reporting” For WorkAlthough the reporting time pay calculations appear largely clear, Ward “muddied the waters” for determining what it means for an employee to “report for work.”  The case, a putative class action on behalf of employees of the clothing retailer, Tilly’s, involved employees who had both on-call and scheduled shifts.  For their on-call shifts, Tilly’s required employees to call in two-hours prior to the start of their shift to see if they needed to report.  If they were not required to physically report to work, they were not paid for the on-call shift. The divided Ward court held that the telephonic “reporting” required of Tilly’s employees met the regulatory definition of “report for work” thereby triggering the employees’ entitlement to reporting time pay.  The court noted that although telephonic reporting was not a common practice when the Wage Order was issued, telephonic reporting and in-person reporting gave rise to the same concerns about inefficient and abusive scheduling practices that caused inconvenience and expense to workers.  Thus, the court found that the regulation should extend to telephonic reporting practices because the alleged on-call shifts imposed significant limitations on the employees, such as interfering with them making other plans (either professional or personal) for times where they might be required to work.Tilly’s and the Ward dissent argued that the plain meaning of the Wage Order and the legislative intent at the time of its adoption made clear that to “report for work” should only apply to employees who physically traveled to a work site before being dismissed.  Citing to the multi-faceted structure of recent predictive scheduling laws as an example, the dissent challenged the practicability of the majority’s new rule that telephonic reporting should trigger reporting time pay:How are we—an appellate court limited to the narrow record before us—to determine how much notice is enough to avoid a violation of the wage order? What if employees are required to call in eight hours in advance instead of two? How about 12 hours? Twenty-four? Three days? A week? At oral argument, Ward’s counsel seemed to offer a concession that a requirement employees call in 24 hours in advance would be legal. But a concession by one attorney in one case cannot bind all of the plaintiffs’ lawyers across the state who might choose to file similar lawsuits.(Ward at *55.) Strategies for ComplianceIn light of the ruling in Ward, employers who utilize call-in or on-call procedures for their employees in California should review their policies and practices to ensure that they do not conflict with California’s reporting time pay requirements post-Ward.  While it remains unclear how much call-in notice is required to avoid reporting-time pay obligations, after Ward, employers should assume that any same-day call-in or on-call requirement will trigger reporting time pay.  California employers who wish to maintain call-in shifts and avoid reporting time pay obligations should extend the call-in notice period as far in advance of the employee’s shift as practical.  Even so these practices may provoke legal challenges from the plaintiffs’ bar.Ward also presents an opportunity for California employers to assess vulnerabilities in their reporting time pay practices.  Managers and payroll departments should have a clear understanding that the Wage Orders contain very narrow exceptions for not providing reporting time pay.  Employees who are dismissed early due to lack of work, poor performance, or scheduling errors are still entitled to reporting time pay, even if called back to work later the same day.  Similarly, employees called in for meetings on their off days, including for termination, are entitled to reporting time pay of at least two hours. California employers should also consider reviewing their scheduling practices to minimize reporting time pay requirements.  Reporting time pay requirements are only triggered when employees work less than half of their “usual or scheduled day’s work,” and the amount of the pay entitlement is likewise dependent on the length of the scheduled shift (as well as the employee’s regular rate of pay).  If work slowdowns or other conditions regularly cause employees to be dismissed early for reasons not exempt under the Wage Order, companies could utilize shorter shifts for certain employees who are more frequently dismissed to reduce the number of shifts requiring reporting time pay and the amounts of reporting time pay required per shift.  Although each company and business will have unique scheduling needs and practices, it is important to strike the right balance in navigating California reporting time pay issues to minimize legal risk while meeting the operational needs of the business.

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Call-in & Collect: California Reporting Time Pay Compliance Strategies

Call-in & Collect: California Reporting Time Pay Compliance Strategies

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California’s “reporting time pay” regulations are back in the news after the recent California appellate court decision in Ward v. Tilly’s, Inc. held that emplo

On July 26, 2018, the California Supreme Court issued another highly anticipated opinion in Troester v. Starbucks Corp., clarifying application of the federal de minimis doctrine, to claims for unpaid wages under California law. Federal courts have long applied the de minimis doctrine to excuse the payment of wages for small amounts of otherwise compensable time upon a showing that the bits of time are administratively difficult to record.The California Supreme Court held that California’s wage and hour statutes and regulations do not adopt the federal de minimis doctrine and that California’s de minimis rule was not applicable in the context of an alleged policy requiring employees to work minutes off the clock routinely. The court left open the question of whether there might be wage claims involving employee activities that were so irregular or brief in duration that it would not be reasonable to require employers to compensate employees for the time spent on such activities.The Federal De Minimis DoctrineThe de minimis doctrine is an application of the maxim de minimis non curat lex, which means, “[t]he law does not concern itself with trifles.” Federal courts have applied the doctrine in some circumstances to excuse the payment of wages for small amounts of otherwise compensable time upon a showing that the bits of time are administratively difficult to record. “When the matter in issue concerns only a few seconds or minutes of work beyond the scheduled working hours, such trifles may be disregarded.” Furthermore, “[i]t is only when an employee is required to give up a substantial measure of his time and effort that compensable working time is involved.” The Ninth Circuit has explained that, in determining whether otherwise compensable time is de minimis under the Fair Labor Standards Act (FLSA), courts should consider: (1) the practical administrative difficulty of recording the additional time; (2) the aggregate amount of compensable time; and (3) the regularity of the additional work. The Ninth Circuit has noted that “[m]ost courts have found daily periods of approximately 10 minutes de minimis even though otherwise compensable.”California’s Division of Labor Standards Enforcement (DLSE), the entity charged with the administration and enforcement of the state’s wage and hour laws, has applied the de minimis doctrine for decades. Specifically, the DLSE has issued opinion letters explicitly adopting the de minimis rule, and concluding that employers are not obligated to pay employees for work time if “it is de minimis.” The “DLSE’s opinion letters, while not controlling upon the courts by reason of their authority, do constitute a body of experience and informed judgment to which courts and litigants may properly resort for guidance.” The de minimis doctrine also appears in the Enforcement Policies and Interpretations Manual published by the DSLE.BackgroundThe plaintiffs in Troester were nonmanagerial California Starbucks employees who performed store closing tasks. In their putative wage and hour class action lawsuit, the plaintiffs alleged that Starbucks failed to compensate them for hours worked and, as a result, violated various provisions of the Labor Code and wage orders. The named plaintiff, Douglas Troester, worked for Starbucks as a shift supervisor. He submitted evidence that, during the alleged class period, Starbucks’ computer software required him to clock out on every closing shift before initiating the software’s “close store procedure,” which transmitted daily sales, profit and loss, and store inventory data to corporate headquarters, on a separate computer terminal in the back office. After completing this task, he activated the alarm, exited the store, and locked the front door. In compliance with Starbucks policy, he then walked his coworkers to their cars. He also occasionally reopened the store to allow employees to retrieve items they left behind, waited with employees for their rides to arrive, or brought in store patio furniture mistakenly left outside. Troester estimated that, on a daily basis, he spent 4-10 minutes performing these closing tasks. He sought payment for 12 hours and 50 minutes of compensable work over a 17-month period, amounting to $102.67 at a wage of $8 per hour.Starbucks moved for summary judgment on the ground that Troester’s uncompensated time was so minimal that Starbucks was not required to compensate him. The district court concluded that the de minimis doctrine applied and granted summary judgment against Troester. Troester appealed, arguing that the district court erroneously applied the standard generally reserved for federal FLSA claims to his state law wage and hour claims. Recognizing that the California Supreme Court had never addressed whether the federal de minimis doctrine applied to wage claims brought under California law, the Ninth Circuit certified this question to the California Supreme Court.California Supreme Court DecisionThe California Supreme Court considered two questions. First, it considered whether California’s wage and hour statutes or regulations adopt the de minimis doctrine found in the FLSA. Second, the Supreme Court considered whether the de minimis principle, which has operated in California in various contexts, applies to wage and hour claims, and to the specific facts of the case.The Supreme Court first concluded that California has not adopted the de minimis doctrine, as there is no indication in the text or history of the relevant California Labor Code statutes or the governing Industrial Welfare Commission (IWC) wage order of such adoption. The applicable wage order defines hours worked as “the time during which an employee is subject to the control of an employer, and includes all the time the employee is suffered or permitted to work, whether or not required to do so[.]” California case law has clarified that the time during which the employee is “suffered or permitted to work” encompasses the time during which the employer knew or should have known that the employee was working on its behalf. The wage order further provides that wages must at least be paid to an employee “for all hours worked.” Similarly, the California Labor Code obligates an employer to pay an employee additional compensation for “[a]ny work” beyond eight hours in any workday or 40 hours in any workweek. Against this backdrop, the Supreme Court concluded that the federal de minimis rule was less protective than the California rule establishing that employees must be compensated for “all hours worked” or “[a]ny work” beyond eight hours a day. Further, the Supreme Court determined that nothing in the language of the wage orders or the Labor Code demonstrated any intent to incorporate the de minimis rule.The Supreme Court then concluded that, although California has a de minimis rule that is a background principle of state law, the rule was not applicable to the specific facts of the case, where Starbucks required Troester to work “off the clock” several minutes per shift.  The Supreme Court determined that applying the de minimis rule would fly in the face of the statutory purpose of the governing wage order and Labor Code statutes, which require liberal construction and demand that employers compensate employees for all hours worked. For example, the Supreme Court observed that the wage orders expressly concern themselves with small amounts of time, as demonstrated by the fact that they demand strict adherence to the requirement to provide most nonexempt employees two daily 10-minute rest breaks. “[T]he strict construction of a law prohibiting any interference with or reduction of a 10-minute rest break is difficult to reconcile with a rule that would regard a few minutes of compensable time per day as a trifle not requiring compensation if too inconvenient to record.” The Court also noted that the IWC regulations have been more expansive than the FLSA in defining the time for which an employee must be compensated, therefore militating against application of the federal de minimis doctrine. The Supreme Court discounted the fact that the DLSE has applied the de minimis rule for decades on the ground that neither the manual nor the opinion letters are binding.Notably, the decision left open the question of whether there might be wage claims involving employee activities that are so irregular or brief in duration that it would not be reasonable to require employers to compensate employees for the time spent on them.  Briefs on behalf of Starbucks invoked various hypothetical scenarios of potential de minimis activity in an attempt to illustrate that abolishing the de minimis rule would lead to undue burdens and absurd results for both employers and employees. For example, if, after an employee clocks out, a customer approaches the employee and asks for the location of a product and the employee spends five seconds pointing the customer in the right direction, should the employer be held liable for not capturing or paying the employee for that time? If, before clocking in to the employer’s computerized timekeeping system, the employee pushes the wrong button and accidentally turns off his or her computer, should the employer be held liable for not paying the employee the two minutes it took to reboot the computer? If an employee reaches to “punch in” or “punch out” with a time card, sneezes, drops the time card, and must first pick it up, must the employer pay the employee for the extra seconds “worked”? The Supreme Court recognized that there are a “wide range of scenarios” in which the de minimis principle may arise, thereby impliedly acknowledging that there may be limited circumstances in which application of the de minimis doctrine is appropriate.  However, the Court expressly declined to “prejudge[] these factual permutations,” and “decide[d] only whether the de minimis rule is applicable to the facts of this case as described by the Ninth Circuit.”In sum, in light of “the wage order’s remedial purpose requiring liberal construction, its directive to compensate employees for all time worked, the evident priority it accorded that mandate notwithstanding customary employment arrangements, and its concern with small amounts of time,” the Supreme Court concluded that the de minimis doctrine had no application under the circumstances of this case.Implications for California EmployersThe Troester ruling reaffirms that employers should diligently track all time spent by nonexempt employees and should ensure that all working time is compensated.  The Court noted that “employers are in a better position than employees to devise alternatives that would permit the tracking of small amounts of regularly occurring worktime,” and proposed several alternative ways to track such time.  Whether any of these alternatives will be suitable for a particular workplace will depend on the circumstances of the workplace.While the Troester opinion may trigger a rise in lawsuits seeking to recover for uncompensated time spent by employees before clocking in or after clocking out, it is important to note that the decision is limited in its application. Specifically, the Supreme Court did not decide “whether there are circumstances where compensable time is so minute or irregular that it is unreasonable to expect the time to be recorded.” Entities that engage nonexempt employees should consult with legal counsel to determine how the Troester opinion will impact their businesses, and how best to implement any steps they may take in response. In particular, employers should consult legal counsel before implementing any of the time-tracking alternatives proposed by the Court.

Troester v. Starbucks Corp. – What Is A Trifle, Anyway?

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Troester v. Starbucks Corp. – What Is A Trifle, Anyway?

Troester v. Starbucks Corp. – What Is A Trifle, Anyway?

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On July 26, 2018, the California Supreme Court issued another highly anticipated opinion in Troester v. Starbucks Corp., clarifying application of the federal d

On April 30, 2018, the California Supreme Court issued its highly anticipated opinion in Dynamex Operations West, Inc. v. Superior Court, clarifying the standard that applies to determine whether a worker is properly classified as an independent contractor for purposes of the Industrial Welfare Commission (IWC) wage orders. Dynamex rejects application of the multi-factor test set forth in S.G. Borello & Sons, Inc. v. Department of Industrial Relations, and instead adopts a three-part “ABC test” for evaluating whether a worker is an independent contractor or an employee covered by the wage orders. Unless the hiring company establishes all three requirements of the ABC test, the worker is an employee.The first requirement of Dynamex’s ABC test (that the worker must be free from the hiring company’s control and direction in connection with the performance of the work, both under the contract and in fact) aligns with the common law “right to control” standard and is not a novel concept. However, the second requirement (that the worker must perform work that is outside the company’s business) and the third requirement (that the worker must be customarily engaged in an independently established trade, occupation, or business of the same nature as the work being performed for the company) will make it more difficult for businesses to classify workers as independent contractors in California.BackgroundDynamex provides on-demand pick-up and delivery services to individual and business customers.  Before 2004, Dynamex classified its California drivers as employees. In 2004, Dynamex converted its drivers to independent contractors after determining the conversion would be economically advantageous.The plaintiffs were former drivers who had independent contractor agreements with Dynamex to provide delivery services.  In their putative wage and hour class action lawsuit, the plaintiffs alleged Dynamex misclassified its California drivers as independent contractors and violated various provisions of the Labor Code and wage orders as a result.Dynamex obtains its own customers and sets the rates to be charged to customers for deliveries. Generally, Dynamex drivers are expected to wear Dynamex shirts and badges when making deliveries, and they are sometimes required to attach a customer’s decals to their vehicle if making a delivery on behalf of a Dynamex customer. Dynamex drivers are generally free to set their own schedules, but they need to notify Dynamex of the days they intend to work. Drivers are assigned deliveries at Dynamex’s sole discretion.  Drivers must complete all deliveries on the date assigned. Typically, drivers are hired for an indefinite period of time, with Dynamex reserving the right to terminate the agreement without cause, on three days’ notice.Dynamex drivers are permitted to hire other individuals to make deliveries Dynamex assigns. Drivers are also free to make deliveries for other delivery companies or on their own behalf, when not making deliveries for Dynamex. Drivers use their own vehicles to make deliveries. Drivers are generally free to determine the routes they take and the sequence in which they make deliveries, unless a customer requires otherwise. Dynamex negotiates driver compensation on an individual basis, and the amounts and manner in which drivers are paid varies from driver to driver.The trial court certified a modified class of Dynamex drivers who were classified as independent contractors, who used their personally owned or leased vehicles that weigh less than 26,000 pounds (Basic Class C License), and who had timely returned a questionnaire sent by the parties. The class specifically excluded (1) drivers for any pay period in which the driver provided services to Dynamex as either an employee or subcontractor of another person or entity or through the driver’s own employees or subcontractors, and (2) drivers who provided services concurrently for Dynamex and for another delivery company that did not have a relationship with Dynamex or for the driver’s own personal delivery customers.In granting the plaintiffs’ motion for class certification, the trial court noted that the parties disagreed regarding the proper legal standard for determining whether a worker is an employee or an independent contractor for purposes of the wage orders. Dynamex argued for the application of the Borello factors. The plaintiffs argued the trial court should apply the broad definition of “employ” articulated in Martinez v. Combs, a case assessing whether an entity that had a relationship with a primary employer was a joint employer under the wage orders. The trial court agreed with the plaintiffs.Dynamex petitioned to the Court of Appeal for a writ of mandate. The Court of Appeal denied the writ petition in part, concluding that the trial court had properly relied upon the Martinez standard with respect to plaintiffs’ claims that fell within the scope of the applicable wage order. The Court of Appeal also granted the writ petition in part, finding that the Borello standard properly applied to claims falling outside the scope of the wage order. Dynamex petitioned to the California Supreme Court for review.The California Supreme Court’s DecisionThe California Supreme Court granted review to consider whether, in a wage and hour class action involving claims that the plaintiffs were misclassified as independent contractors, a class can be certified based on the IWC definition of “employ” as construed in Martinez, or whether the common law Borello test controls.The 82-page unanimous opinion authored by Chief Justice Tani Cantil-Sakauye meticulously reviews the relevant IWC wage order provisions (which define “employ” as meaning “to engage, suffer, or permit to work”) and decades of history of the key California cases evaluating independent contractor classification, including pre-Borello cases, Borello, Martinez, and Ayala v. Antelope Valley Newspapers, Inc.Dynamex interprets Borello as “call[ing] for application of a statutory purpose standard” rather than embodying the common law test or standard for distinguishing employees and independent contractors in California. The Supreme Court concluded that the statutory purpose of the wage orders was best served by adopting the ABC test, which it considered to be a “simpler, more structured test” for determining whether the “suffer or permit to work” standard has been met. The Court viewed the ABC test as offering the advantages of avoiding uncertainty and unpredictability with respect to the classification of workers, and preventing abuse by entities seeking to evade responsibilities under the wage and hour laws.The ABC test has been applied in other jurisdictions, primarily (though not exclusively) in the unemployment insurance context. Under the ABC test, the worker is presumed to be an employee, and the hiring entity bears the burden to establish that (A) the worker is free from the control and direction of the hirer in connection with the performance of the work, (B) the worker performs work that is outside the usual course of the hiring entity’s business, and (C) the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity. Only where the hiring entity establishes all three of these factors will the worker be an independent contractor, rather than an employee, for purposes of the wage orders.The Supreme Court emphasized that its interpretation of the “suffer and permit to work” standard does not expand the reach of the wage orders to “the type of traditional independent contractor who has never been viewed as an employee of a hiring business and should not be interpreted to do so.” The Court agreed with Dynamex that the trial court’s literal interpretation of the “suffer and permit to work” language of the wage orders was too broad and “could potentially encompass the type of traditional independent contractor — like an independent plumber or electrician — who could not reasonably have been viewed as the hiring business’s employee.”Notwithstanding, the Supreme Court concluded that under the B and C parts of the ABC test, the trial court did not abuse its discretion in determining that there was a well-defined community of interest sufficient to certify a class. Under part B of the test, the Court found common issues of fact and law predominated, because the question of whether the work performed by the delivery drivers was within the scope of Dynamex’s business is “clearly amenable to determination on a class basis” and “Dynamex’s entire business is that of a delivery service.” Under part C, the Court determined that the question of whether the drivers in the certified class were “customarily engaged in an independently established trade, occupation, or business” was an issue that could be resolved on a class basis.  Dynamex had reclassified its drivers from being employees to independent contractors in 2004, and the certified class excluded drivers who performed delivery services for another delivery service or for their own personal customers, and who had employees of their own. The Court suggested that in many cases, factors B and C are easier to determine and should be considered first.Implications for Businesses in CaliforniaThe Dynamex ruling has significant implications for all entities that engage independent contractors in California.Businesses should carefully examine each of their independent contractor relationships and review the language of each of their independent contractor agreements to determine whether the relationships meet the ABC test articulated in Dynamex.  Part A (whether the worker is free from the control and direction of the hiring entity, both under the contract and in fact) aligns with the common law “right to control” standard. Thus, many businesses will want to pay particular attention to parts B (whether the work performed is outside the hiring entity’s business) and C (whether the worker is customarily engaged in an independently established trade, occupation, or business), which had previously been relevant considerations in assessing independent contractor status under Borello, but are now strict requirements under Dynamex.In a footnote, Dynamex states there is “no question” that the “suffer and permit to work” standard is intended to cover joint employer relationships, where an entity has a relationship with a worker’s primary employer, such as larger businesses that contract out some of their operations but retain substantial control over the work. However, Dynamex also makes clear that this does not mean that the larger business is prohibited from entering into subcontractor relationships or from obtaining benefits that may result from outsourcing certain services to a separate entity. So long as it is authorized by contract, the larger business can seek reimbursement for any such liability from the subcontractor. Accordingly, in reviewing their independent contractor agreements, businesses should look closely at indemnification provisions, to ensure they are appropriately protective.While the Dynamex opinion may trigger a rise in wage and hour class actions alleging independent contractor misclassification, it is important to note that the decision is limited in subtle, but important, ways:<ul><li>The ABC test adopted in Dynamex applies only with respect to the IWC wage orders.  The Supreme Court specifically declined to extend its reach to other contexts, including other provisions of the Labor Code that are not dependent on the wage orders, such as Labor Code section 2802.</li></ul><ul><li>Dynamex argued that both the “exercise control over wages, hours or working conditions” and “suffer and permit to work” standards articulated in Martinez are applicable only in determining whether an entity is a joint employer.  Because it found that the “suffer and permit to work” standard applies to determine worker classification and supported the trial court’s certification order, the Supreme Court specifically declined to consider whether the exercise of control over wages, hours, or working conditions applies outside of the joint employer context.</li></ul><ul><li>The certified class in Dynamex contained several key exclusions that significantly narrowed the size and scope of the class and addressed issues that might otherwise have prevented certification.  Even under the ABC test, a plaintiff seeking to certify an overly broad putative class of allegedly misclassified independent contractors might still not be able to establish the community of interest required for class certification, if individualized issues predominate each of the three parts of the test.</li></ul>Entities that engage independent contractors should consult with legal counsel to determine how the standard articulated in Dynamex will impact their business, and how best to implement any steps they may take in response.

Dynamex v. Superior Court: California Supreme Court Clarifies Standard for Independent Contractor Classification Under California Wage Orders

elcblog-april-_2018.jpg

Dynamex v. Superior Court: California Supreme Court Clarifies Standard for Independent Contractor Classification Under California Wage Orders

Dynamex v. Superior Court: California Supreme Court Clarifies Standard for Independent Contractor Classification Under California Wage Orders

elcblog-april- 2018

On April 30, 2018, the California Supreme Court issued its highly anticipated opinion in Dynamex Operations West, Inc. v. Superior Court, clarifying the standar