New California Law Makes Companies Liable for Wage Violations of Contractors

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.

California Expands Mandated Sexual Harassment Training to Include Workplace Bullying

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. 

California Employers Must Provide Paid Sick Leave Starting Next Year

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.      

Employment-Related Bills Pending Signature By California Governor

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.

Federal District Court in California Rules That Iskanian Is Wrong and That PAGA Representative Action Waivers Are Enforceable

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.

New Case Highlights Duty to Reimburse Employees for Using Personal Cell Phones for Work Purposes

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.

Attempt to Fix Noel Canning Issues: NLRB Ratifies Decisions Made Without Quorum – Including Appointment of Regional Director in Los Angeles

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. 

For more information about this NLRB development, please click here and here.

Like Our Blog? Nominate CDF For ABA Journal’s Blawg 100 Amici List

The ABA Journal accepts nominations for its annual “ABA Journal’s Blawg 100 Amici” list which recognizes the best legal blogs.  We take pride in delivering our readers content that is both relevant and timely as it pertains to California labor and employment law.  Through our blog, CDF strives to provide the latest news and legal updates for California employers to help them stay in compliance with California employment laws and avoid costly litigation.  If you enjoy reading our California Labor and Employment Blog, and find our content to be useful, we hope you will take a few minutes to nominate CDF's blog as one of the 100 best legal blogs.  The nomination form - available here – will only take a few minutes of your time to complete, but the recognition will leave a lasting impression for CDF – and the attorneys who contribute to our blog.

We know that there are many great legal blogs out there, and we hope that you will recognize ours as one of the greats.  We would appreciate your consideration in recognizing the hard work, dedication and targeted advice we populate our blog with by completing this brief form.

ABA editors make the final decisions about what’s included on the Blawg 100 list, but we hope they’ll be impressed with what our readers have to say about us.  Thank you in advance for your nomination and support of CDF!

California Supreme Court Narrows Commissioned Salesperson Exemption

Last week the California Supreme Court continued its trend of issuing employee-friendly decisions, this time in a case involving the commissioned salesperson exemption.  In Peabody v. Time Warner Cable, the plaintiff was a commissioned salesperson who sold advertising spots for Time Warner Cable.  She was classified as exempt from overtime under California's commissioned salesperson exemption, which applies to a sales employee whose earnings exceed at least one and one-half times the minimum wage if more than half of those earnings represent commissions.  Time Warner paid plaintiff her regular wages on a biweekly basis, but only paid her commission wages once per month.  Thus, at least one paycheck per month was comprised only of base hourly pay and did not reflect earnings exceeding more than one and one-half times the minimum wage.  However, the monthly commission check, which represented commissions earned for a monthly period (not just for a bi-weekly period), brought the employee's wages for the month to more than one and one-half times the minimum wage.

Plaintiff sued, arguing that she was not properly paid overtime wages for hours worked in excess of eight per day or forty per week.  The trial court granted summary judgment for Time Warner, agreeing with Time Warner that it properly paid plaintiff under the commissioned salesperson exemption and that plaintiff was not entitled to additional overtime compensation.  Plaintiff appealed to the Ninth Circuit, which certified a question to the California Supreme Court concerning whether an employer could properly allocate commission wages over the pay periods in which they were "earned," or whether the commission wages could only be attributed to the pay period in which they were actually paid.  The California Supreme Court said the latter.

In so holding, the California Supreme Court reasoned that California overtime exemptions are narrowly construed and must be interpreted in favor of the employee and against the employer.  The Court's holding certainly accomplishes that.  The Court acknowledged that California law permits commission wages to be paid less frequently than regular wages and that monthly, or even less frequent, payment of commission wages is permissible (given that commission wages often are not "earned" until certain conditions are satisifed and are not calculable with the same frequency as the regular payroll schedule).  However, the Court reasoned that just because California law allows less frequent payment of commission wages that aren't "earned" every pay period does not mean that an employer can use a monthly or less frequent schedule to pay commission wages that are earned.  The Court reasoned that California law requires that all wages earned for work performed generally be paid no less frequently than twice per month.  Time Warner was arguing that it could allocate commission wages to the pay periods in which they were "earned," but the Court said that permitting this would be tantamount to authorizing monthly pay periods for wages earned.  Because monthly pay periods are not authorized by the California Labor Code, the Court held that Time Warner had not properly paid the plaintiff and she did not qualify for the commissioned salesperson exemption.

The Court acknowledged that Time Warner's pay system was proper under the federal commissioned salesperson exemption, but declined to find it proper under California law because California law, unlike federal law, requires at least semi-monthly pay periods.

The California Supreme Court's decision makes it much more difficult for employers to satisfy the commissioned salesperson exemption under California law.  Employers that look back and allocate commission wages over the pay periods in which they were "earned" as a means of ensuring that the employee's pay is at least one and one-half times the minimum wage, should revise their practices in light of this decision.

California Supreme Court Eases Path to Class Certification in Independent Contractor Misclassification Cases

Yesterday the California Supreme Court issued its decision in Ayala v. Antelope Valley Newspapers, holding that the trial court erred in denying class certification to a group of newspaper carriers who worked as independent contractors for Antelope Valley Newspapers and later sued the newspaper for wage and hour violations on the basis that they should have been classified as employees.  The Court held that the trial court focused on the wrong legal criteria in denying class certification and that the matter had to be remanded for the trial court to re-assess class certification using proper criteria.  In denying class certification, the trial court held that the issue of whether the carriers were employees or independent contractors could not be decided in one stroke as to the entire class because the evidence showed substantial variation in the degree of control the newspaper exercised over its carriers’ work, and the issue of degree of control is the primary factor in assessing whether a worker is an independent contractor or an employee.

The California Supreme Court held that the trial court erroneously focused on variation in the level of control actually exercised by the newspaper, rather than on whether the newspaper uniformly retained the right to control the carriers’ work.  The Court emphasized that the key issue is whether the hirer has the right to control the work, not whether the hirer actually exercises that right.  The Court explained that evidence of whether the hirer retains the right of control typically is found in the contract between the hirer and the worker.  In this case, the newspaper used largely the same form independent contractor agreement for all of its carriers.  The Court stated that the trial court “afforded only cursory attention” to the parties’ agreement, when it should have focused on the agreement as the starting point for its analysis.  Rather than outright saying that if a hirer uniformly uses the same agreement for all of its workers, the issue of right to control can always be decided on a class wide basis, the Court reserved some room for trial courts to look to the parties’ “course of conduct” (and beyond just the agreement).

“While any written contract is a necessary starting point, [ ] the rights spelled out in a contract may not be conclusive if other evidence demonstrates a practical allocation of rights at odds with the written terms.  In deciding whether claims that hinge on common law employee status are certifiable, then, a court appropriately may consider what control is ‘necessary’ given the nature of the work, whether evidence of the parties’ course of conduct will be required to evaluate whether such control was retained, and whether that course of conduct is susceptible to common proof – i.e. whether evidence of the parties’ conduct indicates similar retained rights vis-à-vis each hiree, or suggests variable rights, such that individual proof would need to be managed.”

The Court directed that on remand, the trial court would need to assess whether the newspaper, notwithstanding the form contract it entered with all carriers, actually had different rights with respect to each that would necessitate mini-trials.  The Court briefly addressed the fact that the test for determining whether a worker is an independent contractor or an employee depends not only on the right of control, but also on numerous secondary factors (method of payment, who supplies the tools and equipment, place of work, etc.).  The Court minimized the significance of the secondary factors and of evidence of individualized variation bearing on those factors, reasoning that variation in one or more secondary factors may not impact class certification if the factor is not a heavy one in the analysis compared to the other factors.

The Court’s decision and reasoning makes class certification more likely in independent contractor misclassification cases is likely to fuel more of this litigation.  This is because many companies use form independent contractor agreements and these agreements often spell out the “right to control” retained by the company.  The full decision is available here.

Editor
Cal Labor Law

Robin E. Largent is a Partner in CDF’s Sacramento office and may be reached at 916.361.0991 or rlargent@cdflaborlaw.com BIO »

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