• The Future of Independent Contractors

  • Dog Days of Summer Employment Law Update

    Recent court opinions and bills passed by the State are requiring employers to update certain employment practices. Below are the major changes from this summer that affect your business.

    Rejection of the De Minimis Rule

    Federal law permits employers to disregard insubstantial or insignificant periods of time beyond the scheduled working hours under the De Minimis Rule. Examples of this include an employee clocking out and then turning on a security system alarm and locking doors. Setting the alarm and locking doors are done at the employer’s instruction and benefit, but are done after clocking out. The Federal De Minimis Rule states that this time does not need to be tracked and paid.

    In Troester v. Starbucks, Starbucks employees sued for not being paid for time spent performing closing procedures after clocking out at night. The plaintiffs claimed that even though the Federal De Minimis Rule permits employers to disregard insubstantial and insignificant time, no such equivalent California State law exists. Starbucks argued that Starbucks could rely on the Federal De Minimis Rule in not tracking and paying time spent performing closing procedures. The California Supreme Court held in favor of the plaintiffs and stated that the De Minimis Rule does not exist in any California law, regulation, or Wage Order, and that the time spent on closing procedures must be tracked and paid.

    This decision sets a difficult precedent for California employers for at least two reasons. First, employers who relied on the Federal De Minimis Rule must now change employment practices so that all insubstantial and insignificant time spent working off the clock is tracked and paid. Second, employers must now be conscious of other practices that rely on Federal law protections that do not exist under California State law.

    No Re-Hire Provisions Violate State Law

    Settlement agreements between employers and employees often contain a “no re-hire” provision that states that the employee is not eligible to be re-hired by the employer or any of its affiliates. The Ninth Circuit Court of Appeals held in Golden v. California Emergency Physicians Medical Group, et al., that “no re-hire” provisions in settlement agreements between an employer and an employee violate Business and Professions Code 16600 and are unenforceable. Employers should have their form Severance and Release Agreements and Settlement Agreements reviewed to ensure that “no re-hire” provisions are removed.

    AB 2282 – Salary History Ban (Effective January 1, 2019)

    Beginning on January 1st of this year, a new California State law went into effect that prohibits employers from inquiring into an applicant’s salary history and requires employers to provide an applicant, upon reasonable request, the pay scale for a position the applicant is applying for. If your company has not revised its applications or had them reviewed for compliance with this new law, we recommend doing so now.

    AB 2282 was recently passed for the purpose of defining “pay scale”, “reasonable request”, and “applicant”, and clarifying that employers may ask applicants about salary expectations. “Pay scale” will now mean a salary or hourly wage, but does not include other forms of compensation such as bonus or long-term compensation. “Reasonable request” will mean after an applicant has completed an initial interview. “Applicant” will mean an individual who is seeking employment and is not currently employed with that employer. The law does not specifically state what the penalty is for improperly inquiring into an applicant’s prior salary history, so the default PAGA penalties would apply.

    AB 2282 also amends the Fair Pay Act, which prohibits employers from having pay differentials for employees of different genders or race performing substantially the same work. Previously, prior salary history could be considered in certain circumstances to justify a pay differential. AB 2282 will prohibit employers from using prior salary history entirely to justify a pay differential. An employee who improperly receives less than the wage the employee is entitled to may recover the difference in wages multiplied by 2.

    We recommend that all employers contact us to review their employee arbitration agreements and discuss the value of including a class action waiver. Please contact Kurtis Urien at Kurtis@mrjclaw.com for assistance with employee arbitration agreements

    Recent court opinions and bills passed by the State are requiring employers to update certain employment practices. Below are the major changes from this summer that affect your business.

    Rejection of the De Minimis Rule

    Federal law permits employers to disregard insubstantial or insignificant periods of time beyond the scheduled working hours under the De Minimis Rule. Examples of this include an employee clocking out and then turning on a security system alarm and locking doors. Setting the alarm and locking doors are done at the employer’s instruction and benefit, but are done after clocking out. The Federal De Minimis Rule states that this time does not need to be tracked and paid.

    In Troester v. Starbucks, Starbucks employees sued for not being paid for time spent performing closing procedures after clocking out at night. The plaintiffs claimed that even though the Federal De Minimis Rule permits employers to disregard insubstantial and insignificant time, no such equivalent California State law exists. Starbucks argued that Starbucks could rely on the Federal De Minimis Rule in not tracking and paying time spent performing closing procedures. The California Supreme Court held in favor of the plaintiffs and stated that the De Minimis Rule does not exist in any California law, regulation, or Wage Order, and that the time spent on closing procedures must be tracked and paid.

    This decision sets a difficult precedent for California employers for at least two reasons. First, employers who relied on the Federal De Minimis Rule must now change employment practices so that all insubstantial and insignificant time spent working off the clock is tracked and paid. Second, employers must now be conscious of other practices that rely on Federal law protections that do not exist under California State law.

    No Re-Hire Provisions Violate State Law

    Settlement agreements between employers and employees often contain a “no re-hire” provision that states that the employee is not eligible to be re-hired by the employer or any of its affiliates. The Ninth Circuit Court of Appeals held in Golden v. California Emergency Physicians Medical Group, et al., that “no re-hire” provisions in settlement agreements between an employer and an employee violate Business and Professions Code 16600 and are unenforceable. Employers should have their form Severance and Release Agreements and Settlement Agreements reviewed to ensure that “no re-hire” provisions are removed.

    AB 2282 – Salary History Ban (Effective January 1, 2019)

    Beginning on January 1st of this year, a new California State law went into effect that prohibits employers from inquiring into an applicant’s salary history and requires employers to provide an applicant, upon reasonable request, the pay scale for a position the applicant is applying for. If your company has not revised its applications or had them reviewed for compliance with this new law, we recommend doing so now.

    AB 2282 was recently passed for the purpose of defining “pay scale”, “reasonable request”, and “applicant”, and clarifying that employers may ask applicants about salary expectations. “Pay scale” will now mean a salary or hourly wage, but does not include other forms of compensation such as bonus or long-term compensation. “Reasonable request” will mean after an applicant has completed an initial interview. “Applicant” will mean an individual who is seeking employment and is not currently employed with that employer. The law does not specifically state what the penalty is for improperly inquiring into an applicant’s prior salary history, so the default PAGA penalties would apply.

    AB 2282 also amends the Fair Pay Act, which prohibits employers from having pay differentials for employees of different genders or race performing substantially the same work. Previously, prior salary history could be considered in certain circumstances to justify a pay differential. AB 2282 will prohibit employers from using prior salary history entirely to justify a pay differential. An employee who improperly receives less than the wage the employee is entitled to may recover the difference in wages multiplied by 2.

    We recommend that all employers contact us to review their employee arbitration agreements and discuss the value of including a class action waiver. Please contact Kurtis Urien at Kurtis@mrjclaw.com for assistance with employee arbitration agreements

  • Arbitration Class Action Waiver

    The Supreme Court’s opinion is found in Epic Systems Corp. v. Lewis , 584 U.S. ___ (May 21, 2018) No. 16-285. Previously, two federal circuit courts of appeal held that class action waivers in employment arbitration agreements violate an employee’s right to collectively bargain and engage in concerted activities provided by the National Labor Relations Act of 1935. A different federal circuit court of appeal held that class action waivers in employment arbitration agreements are permissible under the United States Arbitration Act of 1925. The Supreme Court agreed to hear the three cases to resolve the conflict in decisions among the federal circuit courts.

    The Supreme Court held that the plain language of the United States Arbitration Act, which states that arbitration agreements must be enforced as written, manifests the intention and instructions from Congress. Justice Gorsuch delivered the opinion of the Court and stated that though the policy may be debatable, the law is clear. Justice Ginsburg dissented and stated that the majority’s opinion would inhibit an employee’s ability to seek redress for small wage claims that are too expensive and burdensome to litigate. Justice Ginsburg called upon Congress to pass legislation that would eliminate or obviate class action waivers in employment arbitration agreements.

    Many California legislators seem to share the same belief as Justice Ginsburg. In October 2015, the California legislature passed AB 465 which would have prohibited arbitration agreements in the employment context. Governor Brown vetoed AB 465 stating that he was not ready to sign a blanket prohibition of arbitration agreements in the employment context and that the legislature should pass targeted legislation aimed to remedying specific issues presented by mandatory arbitration of employment claims.

    On February 16, 2018, Assembly Member Gonzalez-Fletcher introduced AB 3080, which would ban mandatory arbitration agreements in the employment context. Assembly Member Gonzalez-Fletcher has connected her bill to the #MeToo movement and claims that employers use arbitration as a means to silence employees who have been the subjects of sexual harassment and discrimination as well as wage theft and related disputes. AB 3080 is currently being discussed in the Appropriations Committee. Our office is tracking the progress of this bill.

    Even though the Supreme Court has held that employers may have class action waivers in arbitration agreements, an arbitration agreement with a class action waiver must still be an enforceable contract under California law.

    We recommend that all employers contact us to review their employee arbitration agreements and discuss the value of including a class action waiver. Please contact Kurtis Urien at Kurtis@mrjclaw.com for assistance with employee arbitration agreements.

  • The New ABCs of Independent Contractors!

    The California Supreme Court has adopted a new test for determining whether a worker should be classified as an employee or an independent contractor under California law.

    The Court’s opinion is found in Dynamex Operations West, Inc. v. Superior Court , (2018) S222732. The employer in this case classified delivery drivers as employees until 2004 when the employer adopted a new policy and contractual arrangement under which all drivers were classified as independent contractors. Soon after, Dynamex’s drivers filed a class action lawsuit for violations of California labor laws. In determining whether the class action lawsuit could proceed, the Court of Appeal applied the definitions of ‘employ’, ‘employee’, and ‘employer’ that are found in the applicable IWC Wage Order and held that the drivers were employees, not independent contractors. Dynamex appealed the Court of Appeal’s decision to the California Supreme Court arguing that the Court of Appeal should have applied the multi-factor test previously adopted by the California Supreme Court and many other jurisdictions and administrative agencies.

    The California Supreme Court instead adopted a new test to determine whether a worker is an employee or independent contractor and held that Dynamex’s drivers were employees. The Court named this new test the “ABC” test. Under the ABC test, a worker is properly considered an independent contractor to whom an IWC Wage Order does not apply only if the hiring entity establishes all of the following:

    (A) that the worker is free from the control and direction of the hirer in connection with the performance of the work, both under the contract for the performance of such work and if fact;

    (B) that the worker performs work that is outside the usual course of the hiring entity’s business; and

    (C) that the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity.

    All three requirements must be satisfied for a worker to be properly classified as an independent contractor. If just one requirement is not satisfied, the worker must be classified as an employee.

    The Court’s new test is a considerable change and requires all companies that engage independent contractors to reevaluate their relationships and classifications. Companies that have built their business based on a model that utilizes independent contractors may need to reevaluate their business model.

    We recommend that all companies that engage independent contractors contact us to discuss worker classifications and compliance with the Court’s new test. Please contact Marla Merhab Robinson at Marla@mrjclaw.com or Kurtis Urien at Kurtis@mrjclaw.com for assistance with classifying workers.

  • Overtime Premium Calculation

    The California Supreme Court recently clarified how overtime premiums must be calculated and paid for employees who receive shift differential pay, flat sum bonuses, or similar incentives for working less attractive shifts or shifts scheduled at night or on weekends.

    The Court’s opinion is found in Hector Alvarado v. Dart Container Corporation of California. The employer in this case paid employees flat sum bonuses for working weekend shifts as an incentive for showing up and working a weekend. These employees often worked overtime during the weekend shifts. The employer calculated and paid overtime premiums based on a federal regulation as California law was silent on the proper calculation method. The DLSE’s Enforcement Manual recommended a formula that differed from the federal regulation, but the employer declined to follow the DLSE’s recommendation as it was not binding law.

    The federal regulation requires employers in this context to divide the employee’s compensation (including the flat sum bonus/shift differential pay) by the total hours worked by the employee to find the employee’s regular rate of pay. The DLSE’s recommendation was to divide the employee’s non-overtime hours worked in the applicable day by the total non-overtime compensation earned by the employee to find the employee’s regular rate of pay.

    The Court held that the DLSE’s method is the appropriate method to calculate and pay overtime in this context as it is more favorable to employees.

    The following is an example to illustrate the proper way to calculate overtime premiums in this context:

    Employee earns $11.00 per hour as base/straight pay.

    Employee earns $50.00 as a flat sum bonus for working a Saturday.

    Employee works 10 hours on a Saturday.

    Employees non-overtime compensation (for 8 hours of work) is $88.00 plus the bonus $50.00, or $133.00.

    $133.00 divided by 8 hours worked is $16.625 (regular rate)

    $16.625 times the overtime premium of 1.5 is $24.94 (overtime rate).

    $24.94 times 2 hours of overtime is $49.88.

    $49.88 of overtime pay plus $133.00 of non-overtime pay is $182.88 for the day.

    Unfortunately, the Court stated that its ruling is to apply retroactively. All employers who have been following the federal regulations and not the DLSE’s method should contact us to discuss how to comply with this opinion.

    Please contact Jessica Crabbe at JCrabbe@mrjclaw.com or Kurtis Urien at Kurtis@mrjclaw.com with questions on the Court’s opinion and how to properly calculate and pay overtime.

  • Ban the Box Update

    Our colleagues at Ethos Human Capital Solutions reached out to the DFEH to obtain guidance on whether obtaining DMV records prior to making an offer is compliant with the law. The issue that was raised was that conducting a check of an applicant’s driving record may reveal criminal history, such as DUI arrest or conviction but criminal hisotry may not be inquired about until after a job offer is made. According to the DFEH legal department, the law is clear that it doesn’t apply to employers who are “required” to conduct background checks . To the extent an employer is required by law to conduct driving record checks – but who do so because, for example insurance carriers won’t cover employees with certain driving records, may do so without following the procedures set forth in AB 1008, even though the driving record may also reveal criminal information. As long as employers are conducting the inquiry for the purpose of checking the driving record and not conviction history, the DFEH doesn’t see that the inquiry would be improper under the law . If someone filed a complaint challenging such an inquiry, there would need to be a fact-specific determination about the purpose of the inquiry similar to the types of determination they routinely make in employment discrimination matters.