Today the California Supreme Court issued its decision in Mendiola v. CPS Security Solutions, Inc., addressing the issue of whether security guards working 24-hour shifts have to be paid for all 24 hours or whether 8 hours of sleeping time (during which the security guards are simply on-call) may be uncompensated. The Court held that the entire 24-hour shift was compensable hours worked.
CPS Security Solutions employed security guards to provide services at various construction sites. The guards were designated as “trailer guards” who effectively lived on site in CPS-provided residential trailers. The trailers were equipped to live in, with heating and air-conditioning, kitchens and bathrooms, furniture, etc. The trailer guards were permitted to keep their personal belongings in the trailers and the trailers were equipped with locks. During the week, the security guards were scheduled for 16 hour shifts, 8 hours of which was considered an active patrol shift and the other 8 hours was “on-call” time. On the weekends, the security guards were scheduled for 24 hour shifts, 16 hours of which was active patrol and 8 hours of which (from 9:00 p.m. to 5:00 a.m.) was on-call time. Pursuant to the employer’s on-call agreement signed by the security guards, the security guards were not paid for on-call hours unless they were actually required to perform work during those hours, in which case the security guards were paid for the actual work time. However, if during their on-call hours the security guards did not get at least five hours of uninterrupted (sleep) time, they would be paid for the entire 8-hour on-call shift.
CPS placed certain restrictions on the security guards’ activities during on-call hours. Specifically, the security guards were not permitted to have children, pets, and alcohol were not permitted on the premises, and adult visitors were allowed only with the permission of the CPS client. Additionally, if the guard wanted to leave the job site, he or she could do so only by first notifying dispatch and providing information on where the guard would be and for how long and then was required to wait for a reliever to arrive before actually leaving the job site. Then, the guard had to remain within a 30-minute radius of the job site and be available via pager or radio telephone to respond to any calls and return to the job site as needed. While on the job site during on-call hours, the trailer guards were permitted to use their on-call time to read, watch television, eat, sleep, talk on the phone, and/or engage in myriad other personal activities.
Some of the security guards filed a class action against CPS, alleging CPS violated California law by not paying them for their full on-call hours. CPS defended their pay practice as compliant with California law, arguing that California law does not require payment for on-call time in these circumstances.
The trial court certified a class action and ultimately ruled that the class was entitled to pay for all on-call hours, both during weekdays and on weekends.
Court of Appeal Decision
CPS appealed the trial court’s ruling to the court of appeal. That court agreed with the trial court that the weekday on-call hours were compensable hours worked, but held that the on-call hours on the weekends were properly excluded from compensable hours worked. In holding that the weekday on-call hours had to be compensated, the court applied established California caselaw holding that on-call hours must be compensated if the employee is substantially restricted in the ability to use the time for personal pursuits. In this case, the court held that the trailer guards’ personal activities were substantially restricted because the guards generally were required to remain on-site, were not allowed to have children, pets, or alcohol on the premises, and were also limited in their ability to have adult visitors. Additionally, the guards could not leave the premises unless they were able to secure a relief worker and even then, they had to wait for the relief worked to arrive. Once off premises, the guards had to remain within a 30-minute radius of the job site and carry a pager or telephone and remain available to respond and return to the job site immediately in the event of a page. For all of these reasons, the court held that the on-call time was primarily used for the benefit of the employer and not for the guards. As such, the on-call time had to be compensated.
Although the same restrictions on on-call time that applied to the weekday shifts also applied to the weekend on-call hours, the court reached a different conclusion about whether the weekend on-call time was compensable. This is because the court applied a federal regulation, 29 CFR 785.22, which permits employees who are required to be on duty for 24-hours to enter into agreements to exclude up eight hours of regularly scheduled sleep time from hours worked. This regulation was previously followed and applied by a California Court of Appeal in Seymore v. Metson Marine, 194 Cal.App.4th 361 (2011), where that court held that ship crewmembers lawfully agreed that 8 hours of sleep time during their 24-hour shifts would not be compensated. Based on these authorities, the CPS court held that CPS’ on-call policy of excluding 8 hours of sleep time on the 24-hour weekend shifts was lawful.
California Supreme Court Reversal
Today the California Supreme Court reversed the Court of Appeal’s decision and held that CPS’ policy of not compensating security guards for on-call time on the weekends was unlawful and that there is no “sleeping time” exclusion under the applicable wage order. The Court expressly “disapproved” the Seymore case for its contrary holding (though that holding has been good law for the past 3 years). The Court also rejected the applicability of the federal regulation allowing sleep time to be excluded from compensable hours worked. The Court held that there was no reason to import that federal regulation into the applicable wage order (Wage Order 4) and emphasized that California law has a more expansive definition of “hours worked” than under federal law. California law, unlike federal law, focuses on the extent of employer control over an employee to determine whether the employee’s time must be compensated. As such, the Court held that under Wage Order 4 and California law, the on-call time on the weekends had to be analyzed the same as the on-call time during the weekdays, producing the same result – i.e. because the trailer guards are substantially restricted in their use of the on-call time for personal pursuits, they are under sufficient employer control to make all of the time compensable as hours worked. The fact that the trailer guards were working a 24-hour shift and could sleep part of the time was basically irrelevant.
The Court acknowledged that different wage orders, such as the wage order applicable to ambulance drivers and attendants (Wage Order 9), contain different language than Wage Order 4, and allow for employers to exclude 8 hours of sleep time from compensable hours worked in a 24-hour shift in certain circumstances. However, the Court held that Wage Order 4 contains no such exception and that Wage Order 4 controlled in this case.
Notably, prior to this lawsuit being filed against CPS, CPS actually sought and obtained the California Labor Commissioner’s guidance on the legality of their on-call policy and pay practice, and the Labor Commissioner endorsed the policy as lawful in 1999. A couple of years later, a newly appointed Labor Commissioner reversed the prior Labor Commissioner’s endorsement and opined that CPS’ policy was not lawful. The reversal prompted CPS to file an action in court for declaratory relief to have its policy deemed lawful. Prior to trial, the Labor Commissioner and CPS settled and entered into a Memorandum of Understanding effectively agreeing (again) that CPS’ policy was lawful. In these circumstances, it is obviously outrageous for CPS to retroactively be held liable for back pay. This is particularly true given that prior to today’s “disapproval” of the Seymore case, California courts endorsed the federal regulation allowing sleep time during a 24-hour shift to be excluded from compensable hours. However, the California Supreme Court didn’t see it this way and refused to limit its holding to apply prospectively only. The Court held that the Labor Commissioner’s view was not entitled to deference [of course, other employee-friendly Labor Commissioner interpretations conveniently were somehow entitled to deference] and suggested that the confusion in this area may have stemmed from unclear wording of Wage Orders, defunding of the Industrial Welfare Commission, and inadequate funding of DLSE enforcement. The Court stated that these problems are the province of the Legislature to fix, not the courts. [Apparently, it’s okay for California employers to pay the price for legislative and agency shortcomings in the meantime.]
Employers that have employees working 24-hour shifts should carefully review their pay practices in light of the CPS decision, paying particular attention to the Wage Order specifically applicable to their industry to determine whether there is any lawful basis for excluding sleep time from compensable hours worked. Employers that have employees who are on-call (regardless of whether or not a 24-hour shift contemplating sleep time) should similarly review their pay practices and the level of restrictions placed on employees during on-call time to ensure that employees are being paid properly for on-call time, where necessary.
Continuing its trend of enacting burdensome ordinances requiring employers with employees in San Francisco to comply with specialized wage and hour requirements, the San Francisco Board of Supervisors has now passed two ordinances aimed at providing wage and hour protections for employees of “formula retail establishments.” These ordinances are collectively referred to as the Retail Workers’ Bill of Rights. These ordinances are effective January 4, 2015 but do not become operative until July 3, 2015.
The Retail Workers’ Bill of Rights applies to employers operating a Formula Retail Establishment with 20 or more employees in the city of San Francisco, including corporate officers and executives. A “formula retail establishment” means a business located in San Francisco that falls under the San Francisco Planning Code’s definition of “formula retail use” (section 703.3) except that the business must have at least 20 retail sales establishments located worldwide. Formula retail establishments are commonly referred to as “chain stores” and include, among other things, retail stores, chain restaurants, fast food restaurants, and bars. Professional service establishments such as medical offices and/or salons/gyms are not considered formula retail establishments.
The Retail Workers’ Bill of Rights imposes five main requirements on employers:
- Advance Notice of Work Schedules and Changes: Prior to the start of employment, an employer shall provide a new employee with a good faith written estimate of the employee’s expected minimum number of scheduled shifts per month, and the days and hours of those shifts (not including on-call shifts). The employee may request a modification in the proposed schedule, which the employer is required to consider (but not required to accept) and respond to prior to the employee’s start of employment. Post-hire, an employer is required to provide employees with at least two weeks’ notice of their work schedules, by doing one of the following at least every 14 days: (1) posting the work schedule in a readily accessible location in the workplace; or (2) electronically transmitting the work schedule to employees. The work schedule must include any on-call shifts. If the employer thereafter changes an employee’s schedule, the employer must give the employee notice of the change, along with “predictability pay” of one hour of pay at the employee’s regular rate for a change with more than 24 hours’ notice but less than 7 days’ notice. If the employer makes a change with less than 24 hours’ notice, the employer must pay the employee 2 hours of pay for each changed shift of four hours or less, and 4 hours of pay for each changed shift that is more than four hours. Predictability pay does not apply to on-call shifts, which are separately addressed below. Predictability pay is not required if the change is necessitated by certain acts beyond the employer’s control (electric outage, etc.) or if (a) another employee previously scheduled to work the shift is unable to work due to illness or use of PTO and did not give the employer at least 7 days’ notice of the absence; (b) another employee previously scheduled to work the shift fails to report to work and/or is fired or sent home as a disciplinary action; (c) the change results only from an employer request to an employee to work overtime; or (d) the employee requests and/or causes the change to his or her own schedule.
- Pay for On-Call Shifts: For each on-call shift that an employee is required to be available but is not called in to work (with less than 24 hours’ notice that the shift has been cancelled or moved to another date or time), the employee must be paid 2 hours of pay (regular hourly rate) for each on-call shift of 4 hours or less, and 4 hours of pay for each on-call shift of more than 4 hours. The same exceptions to the predictability pay requirements also apply to the on-call pay requirements.
- Equal Treatment for Part-Time Employees: Employers are required to provide part-time employees (those working fewer than 35 hours per week) with the same starting hourly wage as that provided to full-time employees (those working 35 or more hours per week) holding comparable positions. However, pay differentials are permissible if based on considerations other than the part-time status of the employee. Employers are also required to provide part-time employees with the same access to paid and unpaid time off offered to full-time employees of the same job classification. However, a part-time employee’s eligibility for paid or unpaid time off may be pro-rated based on the number of hours that the employee works. Employers must also provide part-time employees with the same eligibility for promotions as full-time employees of the same job classification, though the employer may condition promotion on the employee’s availability for full-time work and/or on reasons other than the part-time status of the employee. Finally, the new ordinances require that if an employer has a need for additional workers, before hiring new employees or using contractors or a temporary staffing agency to perform work, the employer must first offer the additional work to existing part-time employees if the existing employees are qualified to do the work and the work is the same or similar type of work the employee already performs. The employer is only required to offer the part-time employee the number of hours required to give the employee 35 hours of work per week.
- Sale of Business: If a covered retail establishment is sold, the successor is required to retain the seller’s non-managerial incumbent employees who have been employed for at least 90 days prior to the sale. The successor employer must retain these incumbent employees for at least 90 days and under the same terms of employment already in place (rate of pay, job classification, and number of work hours). If the successor employer determines that it needs fewer employees than were employed by the prior owner, the successor employer must retain incumbent employees based on seniority and/or the terms of any applicable collective bargaining agreement. During the 90-day retention period, the successor employer may not discharge a retained employee without cause.
- Notice and Recordkeeping: Covered employers will be required to post a notice of employees’ rights under these new ordinances. The San Francisco Office of Labor Standards Enforcement (“OLSE”) will prepare and publish the required posters for employer use. Employers are required to retain pertinent personnel records for three years and these records are subject to inspection by the OLSE.
The Retail Workers’ Bill of Rights provides for administrative investigation and enforcement by the OLSE. Additionally, the City Attorney’s office may file civil actions against non-compliant employers. Retail employers covered by these new ordinances should review them promptly and take action to ensure compliance before the operative date of the ordinances, which is July 3, 2015. The text of the ordinances is available here and here.
Earlier this week, the IRS issued the 2015 optional standard mileage rates used to calculate the costs of operating a vehicle for business, charitable, medical or moving purposes. Beginning on January 1, 2015, the standard mileage rates are as follows:
- 57.5 cents per mile for business miles driven, up from 56 cents in 2014;
- 23 cents per mile driven for medical or moving purposes, down half a cent from 2014; and
- 14 cents per mile driven in service of charitable organizations.
Under California Labor Code section 2802, California employers are required to reimburse employees for reasonable expenses necessarily incurred in the performance of their job duties. This includes expenses associated with the use of their personal vehicles for business purposes. Most employers use the standard mileage rate to satisfy their obligation to reimburse employees for expenses associated with using their personal vehicles for business travel. Although employers are not required to use the IRS optional standard mileage rate, and can instead try to calculate an employee's "actual" expense associated with personal vehicle use (which includes more than just the cost of gas, but also the cost of wear and tear, etc.), the latter method carries risk of being challenged for not providing adequate reimbursement.
Today the U.S. Supreme Court issued its decision in Busk v. Integrity Staffing Solutions, Inc., unanimously holding that time warehouse employees spent waiting to go through security checks and undergoing those checks at the end of their shift was not compensable time. The decision overrules a contrary conclusion that the Ninth Circuit Court of Appeals reached earlier in the case.
The employees at issue in Busk were hourly warehouse employees whose job was to retrieve products off shelves and package them for Amazon customers. Their employer required them to undergo an anti-theft security check at the end of their shifts before allowing them to leave for the day. During this process, employees had to remove items such as belts, keys, and phones from their persons and go through a metal detector. The employees were not compensated for the time they spent waiting in line for the security checks and undergoing the checks, which they alleged took up to 25 minutes each day. The employees filed a class action lawsuit seeking to recover unpaid wages for this time. The trial court dismissed the employees’ claim, holding that the security check time was not compensable time under the Fair Labor Standards Act. The employees appealed to the Ninth Circuit, which reversed the district court’s ruling and held that the employees could proceed with their claim because the security checks were required by the employer and if they actually took as much as 25 minutes per day, that time would not be de minimis but instead would be compensable under the FLSA. The U.S. Supreme Court granted Integrity Staffing Solutions’ petition for review.
In reversing the Ninth Circuit’s decision and holding that the security check time was not compensable, the U.S. Supreme Court held that the claim was governed by the standards set forth in the Portal to Portal Act and the reasons that the Act was initially enacted. The Portal to Portal Act was enacted after several court decisions came out interpreting the FLSA to broadly require payment for preliminary and postliminary activities (including a plaintiffs’ counsel fave – Anderson v. Mt. Clemens Pottery), which in turn resulted in a flood of litigation by employees seeking pay for such activities. In response to these decisions expansively interpreting the FLSA, Congress enacted the Portal to Portal Act to define “work” that is compensable and activities that are not compensable under the FLSA. The Portal to Portal Act thus expressly excludes the following activities from compensable time:
- Time spent walking, riding or traveling to and from the actual place of performance of the principal activity or activities which such employee is employed to perform; and
- Activities which are preliminary to or postliminary to said principal activity or activities which occur either prior to the time on any particular workday at which such employee commences, or subsequent to the time on any particular workday at which he ceases, such principal activity or activities.
The term “principal activity or activities” means activities that are an “integral and indispensable” part of the principal activities the employee is hired to perform. Based on these definitions, the Court held that time Integrity Staffing’s employees spent undergoing security checks was non-compensable postliminary work. The Court reasoned that end of shift security checks were not the employees’ principal activity because the employees were not employed to undergo security checks; rather, they were employed to retrieve products in the warehouse and package them for customers. Furthermore, the security checks were not an “integral” or “indispensable” part of the employees’ packaging activities. The security checks were not necessary in order for the employees to perform their packaging duties, and the mere fact that the employer required the screenings does not change the nature of the screenings as being separate from the employees’ principal activities. Indeed, the employer hypothetically could eliminate the security check requirement and this would have no impact on the employees' ability to perform their principal activities, thus demonstrating that the security checks were not an integral or indispensable part of the employees' duties. The Court contrasted this type of activity from different types of preliminary or postliminary activity that would be compensable under the FLSA, such as time an employee spent donning required protective gear needed to perform job duties or removing contaminated clothing at the end of a shift in order to safely leave the worksite. Finally, the Court held that the Ninth Circuit erred in focusing on whether the time was de minimis or not in assessing whether it was compensable under the FLSA. The Court held that the Portal to Portal Act definitions focus on the nature of the activity and its relation to the employees’ principal activities – not on how much time the activity takes the employee to complete.
The Busk v. Integrity Staffing Solutions decision is a great one for employers fighting wage and hour lawsuits based on unpaid preliminary and postliminary activities brought under the FLSA. California employers are cautioned, however, that the Busk decision is based solely on the FLSA/Portal to Portal Act and is not an interpretation of California law. California courts interpreting California’s Labor Code and Wage Orders have applied a much broader definition of compensable work time to include all time that an employee is subject to the control of the employer. Thus, even though an employer may be able to defeat a claim for compensation for preliminary/postliminary work under the FLSA, the result may not be the same under California law. Employers seeking guidance on whether preliminary or postliminary activities performed by California employees are compensable should consult California employment law counsel.
The Busk decision is available in full here.
The action continues on the minimum wage front in December. Earlier today, State Senator Mark Leno introduced a bill to accelerate the proposed increase to California’s statewide minimum wage. Leno has been a strong proponent of an increased statewide minimum wage.
Today was the first day of the California legislative session so it is very difficult to tell what will happen with this bill. However, the bill, as introduced, would raise California’s minimum wage to $11 in 2016 (instead of $10 under current legislation passed in 2013) and $13 in 2017. After 2017, the bill calls for regular minimum wage increases indexed to inflation.
Senator Leno introduced a similar bill last year, but it died in committee. Given the current climate on minimum wage, this year’s version likely has a better chance of ultimate success. We will continue to keep you posted on the progress of this and other employment-related bills as they are introduced and move forward during the legislative session.
In case you were too busy eating Turkey and/or watching football, we wanted to make sure you were aware of two wage and hour developments in California from last week:
Premium Pay for Certain Holidays Being Proposed
First, San Diego Assemblywoman Lorena Gonzalez announced that she is going to introduce a bill that guarantees that all California workers (part-time and full-time) receive double their regular rate of pay if they are required to work on Thanksgiving or Christmas. (Note: In Ohio, state representative Michael Foley already introduced a bill that would require stores in Ohio to pay triple the regular hourly rate for workers who are required to work Thanksgiving). Assuming Gonzalez’ bill does get introduced, we expect it to have substantial support from her fellow lawmakers. This bill would be introduced in next year’s legislative session (2015) and will not affect Christmas this month. Currently, Gonzalez plans to only include Thanksgiving and Christmas as days requiring premium pay. However, it is certainly possible that amendments to expand the scope of the bill are debated and that additional holidays or other dates (Black Friday, Christmas Eve etc.) are considered.
Sacramento Considering Citywide Minimum Wage Ordinance
Second, Sacramento Mayor Kevin Johnson has announced that he will put together a task force shortly after January 1 to consider the issues surrounding raising Sacramento’s minimum wage above the current state level ($9 currently increasing to $10 in 2016). Mayor Johnson claimed that the task force will include representatives from the business community and from organized labor. He announced that he will ask the group to look into a variety of issues surrounding a potential Sacramento minimum wage including whether to do it, the timing of it, and what if any exemptions should be provided. The Mayor has not identified a particular dollar figure for the new minimum wage and that issue will likely also be considered and proposed by the task force. We expect that any minimum wage increase is likely to be supported by the City Council and the citizens of Sacramento.
We will keep you updated on these issues as they develop.
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.
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.
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.