A decision earlier this month by a California Court of Appeal in Dynamex v. Superior Court greatly (and unnecessarily) complicates the determination of whether an employee is an independent contractor or an employee, and in some instances makes it extremely difficult for an employer to defeat class certification of an independent contractor misclassification claim.
The plaintiff in the case was a delivery driver for Dynamex, a nationwide courier and delivery service. Dynamex used to classify its drivers as employees, but in 2004 Dynamex converted its drivers to independent contractor status. One driver thanked Dynamex with a lawsuit alleging that the reclassification to independent contractor status violated California law. The plaintiff, who sought to represent a class of about 1,800 Dynamex drivers, alleged that due to their improper independent contractor classification, they were unlawfully denied overtime compensation and expense reimbursement. The trial court ultimately certified a class. Dynamex later sought to have the class decertified, arguing that the trial court applied the wrong legal standard for determining whether common issues predominated on liability. The trial court applied the definitions of “employ” and “employer” found in the applicable IWC wage order (Wage Order No. 9, applicable to the transportation industry). That wage order defines “employ” as “to engage, suffer, or permit to work,” and defines “employer” as any person “who directly or indirectly, or through an agent or any other person, employs or exercises control over the wages, hours, or working conditions of any person.” Applying these definitions, the trial court concluded that determining whether the drivers were “employees” (as opposed to independent contractors) within the meaning of the wage order could be determined based on common proof and would not require numerous individualized inquiries. As such, the trial court concluded that class certification was proper.
Dynamex sought to have the court of appeal decertify the class, arguing that the trial court applied the wrong test for determining whether a worker is an employee or an independent contractor. Dynamex argued that the multi-factor test set forth by the California Supreme Court in S.G. Borello & Sons v. Dep’t of Indus. Relations, 48 Cal.3d 341 (1989), applied and that under this test, liability could not be established based on common proof, but instead would require individualized inquiries concerning the degree of control Dynamex exercised over any individual driver, along with other individualized inquiries relevant to the Borello factors.
The court of appeal agreed with Dynamex – well, sort of. With highly questionable reasoning, the court essentially held that the test for independent contractor vs. employee status varies, depending on what wage and hour violation is being alleged. Thus, if a worker is alleging that the employer violated a provision of an applicable wage order, then the wage order definitions of “employer” and “employ” apply to determine whether the worker is an employee. However, if the worker is alleging wage and hour violations that are not based on violation of a wage order but rather on some other provision of law (e.g. a Labor Code requirement that is not also set forth in the wage order), then Borello’s multi-factor common law test for employee/independent contractor status applies. Thus, the court looked at the claims alleged by the drivers against Dynamex and held that to the extent the claims were based on violations of the wage order (e.g. the overtime claim), the trial court had properly applied the definitions of “employ” and “employer” set forth in the wage order to grant class certification. However, the court held that to the extent the drivers’ other claims did not fall under the wage order, the trial court would need to reconsider whether class certification was appropriate based on application of the Borello test. More specifically, the court explained that the wage order expressly covers expense reimbursement of certain types of expenses (e.g. tools, uniforms), but may not cover all of the types of expenses for which the driver class was seeking reimbursement (e.g. rental or purchase of personal vehicles). On remand, the trial court will have to consider which of the expense claims are for expenses covered by the wage order and which are not, and for claims that fall outside the wage order the trial court will have to re-assess the propriety of class certification using the multi-factor Borello test.
The Dynamex decision is a bad one for employers defending class claims for independent contractor misclassification for two important reasons. First, as a practical matter, application of the wage order definitions of “employ” and “employer” makes it virtually impossible for an employer to prevail in establishing that a worker is an independent contractor because all workers are "engaged" and "permitted to work" which makes the hiring entity an "employer" under the wage order, as interpreted by the Dynamex court. Second, the Dynamex decision makes it much easier for a class to be certified in an independent contractor misclassification case because the wage order definitions of "employ" and "employer" are much more susceptible to common proof than the Borello factors. For these reasons, the decision magnifies the risk of classifying workers as independent contractors in California. In this author’s opinion, the Dynamex decision is questionable because it relies predominantly on caselaw applying the wage order definitions to determine whether an third party could be held liable for wage and hour violations as a “joint employer.” Joint employer analysis has nothing to do with independent contractor classification analysis. It seems likely that this issue will end up before the California Supreme Court. In the meantime, however, California employers should tread cautiously and carefully in classifying workers as independent contractors because the court decision trend in this area has been largely unfavorable for employers -- with several recently publicized cases finding employers liable for misclassification of workers as independent contractors and now the Dynamex court holding that an "employee" includes any worker "engaged" or "suffered or permitted" to work.
On September 22, after a court trial before the Honorable Gerrit W. Wood of the Superior Court of Sacramento County, the court, in an unpublished opinion, found that a class of newspaper carriers working for the Sacramento Bee from 2005 through 2009 were improperly classified as independent contractors. Utilizing the standards articulated by the California Supreme Court in S.G. Borello & Sons, Inc. v. Dept. of Ind. Relations, 48 Cal. 3d 341 (1989,) and more recently in Ayala v. Antelope Valley Newspapers, Inc., 59 Cal. 4th 522 (2014), Judge Wood held that the Bee’s parent company, McClatchy, maintained such control over the means in which the newspapers were delivered that it could not properly classify the carriers as independent contractors. The individual class action plaintiffs are now demanding that McClatchy reimburse them all of their mileage expenses in accordance with section 2802 of the California Labor Code, which requires that employees be reimbursed all reasonable expenses incurred in the course of their employment. It remains to be seen if McClatchy will appeal the decision.
Although this decision is not a precedential one, it is important nonetheless as it illustrates the increased focus and scrutiny by plaintiffs’ attorneys and certain government agencies on individuals who are working as independent contractors. California businesses who utilize independent contractors are cautioned to carefully review the circumstances of these workers to make sure that they can make a strong legal argument, under both federal and California law, that the classification is an accurate one. The consequences for misclassification can be broad and include such items as tax liability, liability for unpaid workers’ compensation premiums, liability for stock options and benefits and other entitlements that similarly situated employees receive but independent contractors do not, and liability for unreimbursed expenses.
On the last day to sign or veto bills this legislative session, California’s Governor signed into law two bills clearly aimed at attacking and limiting arbitration and arbitration agreements in California. The first, AB 2617, prohibits mandatory, pre-dispute arbitration agreements in contracts for the provision of goods or services, to the extent an individual is required to waive the right to bring a civil action for violation of civil rights relating to hate crimes or political activity. The statute does not expressly state that it applies to employment arbitration agreements and is instead specifically tied to the Ralph Civil Rights Act (Civil Code section 51.7), which prohibits violence or threat of violence against a person because of a person’s protected characteristics (e.g. political affiliation, sex, race, color, religion, marital status, etc.), and the Bane Civil Rights Act (Civil Code section 52.1), which prohibits interference by intimidation or coercion with a person’s constitutional or statutory rights. The new law prohibits a person or business entity from requiring an individual to waive the rights provided by these statutes, including the right to pursue a civil action for a violation of these statutes. The new law applies to contracts entered into, modified, renewed or extended on or after January 1, 2015. Any person seeking to enforce an arbitration provision waiving the right to bring a civil action under these statutes will bear the burden of proving that the waiver was entered into knowingly and voluntarily and not as a condition of the contract or of providing or receiving the goods or services.
Although the new law is tied specifically to hate crime statutes, there is some potential for the law to impact arbitration agreements in the employment arena. In some instances, courts have held that certain types of employment discrimination and harassment claims may also constitute hate crimes within the meaning of Civil Code sections 51.7 and 52.1. These statutes are very broadly and poorly worded, leaving some room for differing interpretations by courts. The new law may also be held to apply to arbitration provisions in independent contractor agreements.
While the scope of the new law and its impact is far from clear, it does seem clear that the new law is contrary to the Federal Arbitration Act and would be deemed preempted as to agreements governed by the FAA. There almost certainly will be many legal challenges to the legality of this new law.
Also in an effort to decrease the attractiveness of arbitration as a forum for dispute resolution, Governor Brown signed into law AB 802, which requires major arbitration providers such as JAMS and AAA to publish at least quarterly on their websites (beginning in January 2015) detailed information concerning arbitrations they have handled, including (1) the name of any non-consumer party involved in the arbitration (i.e. the name of the employer), (2) the nature of the dispute (e.g. employment), (3) where the non-consumer party is an employer, whether the employer was the initiating or responding party, (4) the annual wage (in a range) earned by the involved employee, (5) the amount of the claim, which party prevailed, and the amount of any award, including attorneys’ fees, (6) whether the employee was represented by an attorney and, if so, the name of the attorney and the law firm, (7) the name of the arbitrator and the amount of the arbitrator’s fees, and (8) the total number of times the employer previously has been a party in arbitration or mediation before the dispute resolution provider. This new law has the obvious (and likely intended) effect of destroying the usual benefit of privacy that arbitration and mediation provide.
We will keep you posted as to further developments in this area.
Yesterday, California’s Governor signed AB 1897 into law, notwithstanding tremendous opposition from business and trade groups. Under AB 1897, which takes effect January 1, 2015, a client employer will share civil legal responsibility and civil liability for all workers supplied by a labor contractor for the payment of wages and the failure to obtain valid workers’ compensation coverage. A “client employer” means a business entity that obtains or is provided workers to perform labor within its usual course of business from a labor contractor. However, it does not include business entities with a workforce of less than 25 workers (including those hired directly by the client employer and those provided by a labor contractor) or businesses with five or fewer workers supplied by a labor contractor at any given time.
The new law makes the client employer jointly liable with the labor contractor for civil liability relating to the payment of wages and/or failure to provide workers’ compensation coverage. However, the statute expressly permits client employers to include indemnification provisions in their service contracts and to enforce those provisions as a remedy against the labor contractor for liability created by acts of the labor contractor. Labor contractors may also contractually agree to indemnity provisions in their favor for acts on the part of the client employer that lead to liability. The statute sets forth one exception to the ability of the parties to shift liabilities by contract – a client employer may not shift to the labor contractor any legal duties or liabilities under Cal-OSHA.
Under the new law, a worker or his representative must notify the client employer of violations at least 30 days prior to filing a civil action against the client employer. Of course, the new law also prohibits client employers or labor contractors from taking adverse action against a worker for providing notifications of violations or filing a claim or civil action.
Looks like Christmas came early for the plaintiffs' bar, which will now have more potential pockets to pick in wage and hour actions filed against California employers.
Since 2005, California has required employers with 50 or more employees to conduct sexual harassment training of supervisors within 6 months of assuming a supervisory position and biennially thereafter. Last week, Governor Brown signed AB 2053 into law, expanding the mandated content of this training to include training on prevention of “abusive conduct.” The statute defines "abusive conduct” as conduct of an employer or employee in the workplace, with malice, that a reasonable person would find hostile, offensive, and unrelated to an employer’s legitimate business interests. The statute further provides that abusive conduct may include repeated infliction of verbal abuse, such as the use of derogatory remarks, insults, and epithets, verbal or physical conduct that a reasonable person would find threatening, intimidating, or humiliating, or the gratuitous sabotage or undermining of a person’s work performance. However, “a single act shall not constitute abusive conduct, unless especially severe and egregious.”
The new law does not further specify the content of the training on prevention of abusive conduct, nor does it mandate that any specific amount of time be allotted to this topic within the 2-hour sexual harassment training. The new law takes effect January 1, 2015. Employers covered by California’s training requirement should review and revise their training materials to ensure that prevention of abusive conduct is covered.
To be clear, this new training requirement does not create a private right of action by an employee against the employer to seek damages for workplace bullying. It is a training requirement only. That said, if an employee is “bullied” because of a characteristic protected under California’s Fair Employment and Housing Act (e.g. race, gender, religion, disability, age), the employee could bring a claim for harassment or discrimination under that law. Additionally, even if bullying is not directed at an employee because of a protected characteristic, it is still possible for a bullied employee to pursue a claim for intentional infliction of emotional distress. For these reasons, employers (regardless of whether they are covered by the new training requirement) may wish to include language in their employee handbooks making it a violation of company policy for employees to engage in workplace bullying/abusive conduct toward other employees. Employers should also take workplace complaints of abusive conduct/bullying seriously by conducting prompt investigations and taking appropriate remedial action.
As expected, yesterday Governor Brown signed the paid sick leave bill (AB 1522) into law, making California the second state to mandate that employers provide paid sick leave to their employees (Connecticut was the first). This means that starting in July 2015, California employers generally will have to provide their employees with at least 3 paid sick leave days per year. Our recent post on the bill is available here. California employers who already provide paid sick leave to their employees will want to review their policies against the requirements of the new law to ensure compliance. Employers who currently do not provide paid sick leave will want to review the new law and adopt a compliant sick leave policy.
September 8, 2014
Posted by Cal Labor Law in New Laws & Legislation
The California Legislature has passed the following notable labor and employment bills, which are now awaiting approval or veto by Governor Brown:
AB 1897 – This bill would expand liability for a contractor’s wage and hour violations to make the hirer of the contractor jointly liable for the contractor’s wage and hour violations. The bill applies to businesses that obtain workers from labor contractors but excludes businesses that have less than 25 workers (including those obtained from a labor contractor) as well as businesses that have less than 5 workers supplied by a labor contractor at any given time. The bill excludes certain employee leasing entities and also excludes workers who are exempt from overtime under California laws.
AB 1522 – This bill would mandate that private California employers provide paid sick leave for employees, beginning in July 2015. If the bill is signed into law, most employees will be entitled to one hour of paid sick leave for every 30 hours worked. Employees will be able to use sick leave for their own illness or for preventive care, to care for a sick family member, and/or to recover from certain crimes. Employers will be able to cap annual sick leave use at 3 days (24 hours) per year, however unused, accrued sick leave will roll over from year to year (this rollover can be capped at no less than 6 days (48 hours). Employers will be able to set a minimum increment for use of sick leave, but the minimum increment cannot be greater than 2 hours. Employees will not be entitled to pay for unused sick leave at the time of separation of employment. Employers will be required to provide notice to employees of their accrued sick leave on their itemized wage statements or on a separate document provided at the same time as wages. Employers will also be required to post a paid sick leave poster to be prepared by the Labor Commissioner’s office. The bill also prohibits retaliation against an employee for using sick leave and establishes a rebuttable presumption of such retaliation if adverse action is taken against an employee within 30 days after the employee’s use of sick leave. Employees covered by collective bargaining agreements with paid sick leave provisions and other enumerated criteria will be exempted from the new law. Employers that already have paid sick leave policies that comply with at least the minimum leave rights provided under the bill will not be required to provide additional leave.
In addition to the foregoing, Governor Brown already signed into law AB 2074, which increases employer liability in actions alleging the employer paid the employee less than the minimum wage. Under AB 2074, employees will now be able to recover liquidated damages for violations going back three years (4 years under the Unfair Competition Law).
If there is any positive news for California employers, it is that AB 2416 was not passed by the Legislature. AB 2416 would have provided a procedure for an employee with a wage claim against his or her employer to record a lien against the employer’s real and personal property in the state.
Governor Brown has until September 30 to sign or veto the bills pending before him. Employers who wish to voice opposition should direct comments to the Governor’s office.
Earlier this summer, the California Supreme Court ruled in Iskanian v. CLS that while class action waivers in employment arbitration agreements are enforceable, similar waivers of the right to bring a representative action under PAGA are not enforceable. The Court reasoned that preventing a representative action under PAGA is contrary to California public policy because it undermines the state’s interest in fully penalizing employers who violate labor laws. The Iskanian Court ruled that California’s public policy was not preempted by the Federal Arbitration Act (“FAA”) because the FAA only applies to arbitration of private disputes and a PAGA plaintiff represents the interests of the state, not himself, such that the claim isn’t really a private dispute between an employee and his employer but rather a dispute between the state of California and a private employer. The Court held that the FAA does not apply to disputes between a state agency and a private employer. This reasoning is a stretch in this author’s opinion. At least one (so far) federal district court in California apparently agrees, having chosen not to follow Iskanian. In Fardig v. Hobby Lobby, a wage and hour putative class action, a Central District judge granted the employer’s motion to compel arbitration, rejecting the plaintiffs’ argument that a PAGA representative action waiver in the arbitration agreement was unenforceable. The court held that FAA preemption is an issue of federal law and that federal courts are not bound by the California Supreme Court’s opinion that the FAA does not preempt California public policy with respect to PAGA representative action waivers. The court went on to hold that it disagreed with Iskanian and that a PAGA claim filed by an employee is a dispute between the employee and his employer, not between the state of California and the employer. As such, the district court held that the FAA applied and preempted any California public policy weighing against enforceability of a PAGA representative action waiver. This means that the individual plaintiffs will now have to litigate their individual wage claims in private arbitration and do not have the right to pursue any class or representative PAGA claims in any forum.
The Fardig v. Hobby Lobby decision (August 11, 2014, Central District Case No. SACV 14-00561 JVS) is a favorable development for California employers as it demonstrates that there is some continued viability of PAGA representative action waivers in employment arbitration agreements, notwithstanding Iskanian. Employers should also note that the parties is Iskanian have until late September to petition for review of the decision by the United States Supreme Court. If that happens, it is quite possible that the Supreme Court will reverse the PAGA portion of the Iskanian opinion. Even if review is not sought (or is sought but denied), employers facing the issue of enforceability of a PAGA representative action waiver should remove California state court cases to federal court wherever possible.
Last week a California Court of Appeal held that class certification was appropriate in a case alleging that the employer failed to reimburse employees for expenses associated with using their personal cell phones for work calls. At the trial court level, the employer successfully opposed class certification, arguing that liability could not be established on a class wide basis because it required individualized inquiry regarding whether an employee purchased a plan over and above what he normally would have had for purely personal use, and/or whether the employee incurred charges over and above his personal plan. The employer also argued that if someone other than the employee paid the employee’s cell phone bill, the employee would not have standing to pursue a claim for relief and this also created individualized issues. In addition to the individualized issues bearing on liability under Labor Code section 2802, the employer also successfully argued that damages would be highly individualized. The trial court denied class certification based on the predominance of individualized issues.
The Court of Appeal reversed, holding that the trial court abused its discretion in denying class certification. The Court of Appeal held that the trial court relied on the wrong standard for liability for a reimbursement claim under Labor Code section 2802. According to the Court of Appeal, all that is required to prove liability under Labor Code section 2802 is that the employee necessarily incurred expenses in the course of his job duties. The employee does not need to prove that he incurred expenses over and above what he would have incurred absent the job, nor does he have to prove that he actually paid his cell phone bill. The court held that if the rule were otherwise, the employer would receive a windfall by being able to pass on some of its operating expenses to employees. Thus, the court held that to be in compliance with Labor Code section 2802, “the employer must pay some reasonable percentage of the employee’s cell phone bill” if the employee uses a personal cell phone for work purposes. In other words, "reimbursement is always required." The court did not define what a “reasonable percentage” is, but instead held that “the calculation of reimbursement must be left to the parties and the court in each particular case.”
Based on its interpretation of the standard for liability under Labor Code section 2802, the Court of Appeal held that a class should have been certified because liability could be determined on a class wide basis and did not depend on adjudication of numerous individualized issues. The court acknowledged that damages issues were “more complicated” (i.e. individualized) but held that individualized damage issues do not defeat class certification and that the trial court could employ statistical sampling to calculate damages under the standards set forth by the California Supreme Court in Duran v. U.S. Bank.
The case is Cochran v. Schwan Home Service, Inc. and is available here. Employers that have employees using personal cell phones for business calls should review their expense reimbursement policies to ensure that these employees are reasonably compensated for the expense of making business calls on their personal devices.
August 4, 2014
Posted by Cal Labor Law in Union-Management Relations
Late last month, the NLRB in two separate steps, on July 18 and July 30, decided to ratify all administrative, personnel and procurement matters handled by the Board from January 4, through August 5, 2013 and all actions taken by the Regional Directors selected during this time period, including the Regional Director of Region 31 (Los Angeles). This is the period during which the United States Supreme Court held, in NLRB v. Noel Canning, that the NLRB did not have a proper quorum due to improper recess appointments. The NLRB believes that these acts of ratification eliminate any questions concerning the validity of actions undertaken during this period by the Board or by Region 31 (and the other regions where RDs were selected by a Board with less than a quorum). It remains to be seen whether anyone will attempt to challenge this ratification in the courts by arguing that any decisions made during the time period need to be given a de novo review and that ratification is simply not sufficient.