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 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.
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.
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.
AB 2337 – Employment protections for victims of domestic violence, sexual assault, or stalking
AB 2337 requires that employers with 25 or more employees to provide specific information in writing to new employees upon hire and to other employees upon request of their rights to take leave under Labor Code Section 230.1 (relating to victims of domestic violence, sexual assault, or stalking). This Bill also requires that, on or before July 1, 2017, the Labor Commissioner develops a form that employers may elect to use to comply with these provisions and to post it on the Labor Commissioner’s website. Employers are not required to comply with the notice of rights requirement until the Labor Commissioner posts such form.
The California Legislature enacted a number of new bills that become effective in 2016. Below is a summary of this upcoming year’s most significant legal developments.
Wage and Hour
California’s minimum wage increases to $10 per hour, effective January 1, 2016. Many cities also have local minimum wage ordinances that exceed the state minimum.
AB 1513 provides that employers must pay piece-rate employees for rest and recovery periods and all other periods of “nonproductive” time in addition to their piece-rate compensation. Specifically, the bill would require that employers compensate rest and recovery periods and “other nonproductive time” as follows:
- Compensate employees for rest and recovery periods at a regular hourly rate that is no less than the higher of either the applicable minimum wage or an “average hourly rate.” The “average hourly rate” is calculated as follows: [(total workweek compensation) – (rest/recovery compensation + overtime premium compensation)] ÷ [(total workweek hours worked) – (rest/recovery periods)].
- Compensate employees for all “other nonproductive time” at an hourly rate that is no less than the applicable minimum wage.
This law also requires that the following additional categories of information appear on a piece-rate employee’s itemized wage statement: (i) the total hours of compensable rest and recovery periods, the rate of compensation paid for those periods, and the gross wages paid for those periods during the pay period.
SB 588 authorizes the Labor Commissioner to file a lien on real estate, or a levy on an employer’s property, or impose a stop order on an employer’s business, as a means to remedy nonpayment of wages. The law allows for personal liability for individuals who violate certain Labor Code provisions while acting on behalf of employers.. A bond of up to $150,000 may be required of an employer who does not promptly pay a judgment for unpaid wages.
AB 970 allows the Labor Commissioner to investigate and enforce local overtime and minimum wage laws and issue citations and penalties where employers fail to reimburse employees for employer-required expenses.
California Fair Pay Act
The California Fair Pay Act (CFPA), SB 358, seeks to remedy gender-based wage differentials. Governor Brown has referred to the new law as “the strongest equal pay law in the nation.” The old California law required that employees complaining of wage differentials compare to employees that perform the “same” job, with the “same” skill, effort and responsibility. The new law requires employees to show others performing only “substantially similar work, when viewed as a composite of skill, effort, and responsibility, and performed under similar working conditions”. The comparators need not even work in the “same establishment.” Further, employers now bear the burden of proof on these claims and must “affirmatively demonstrate” that a disparity is based entirely on one or more valid factors other than sex.
The law also targets “pay secrecy,” by allowing employees to disclose, discuss and inquire about their own and other employees’ wages, and to aid other employees in exercising their rights under the CFPA. There is now a private right of action for retaliation or discharge in violation of the CFPA, with available relief including reinstatement, reimbursement for lost wages and benefits, and injunctive relief.
Private Attorneys General Act (PAGA) and the Opportunity to Cure
AB 1506 provides some relief to employers. It amends the Private Attorneys General Act of 2004 (PAGA) to allow employers a limited right to cure wage statement violations, which involve failure to provide itemized wage statements containing 1) pay period dates and 2) the name and address of the legal entity, before individuals can bring civil suits for such alleged violations. However, employers are only permitted to cure such violations once within each 12-month period.
Discrimination, Retaliation and Whistleblower Protections
AB 1509 amends Labor Code sections 98.6, 1102.5, 2810.3 and 6310, expanding whistleblower and anti-retaliation protections to family members of whistleblowers. The law now protects an employee who is a family member of a person who engaged in, or is perceived to have engaged in, legally protected conduct. The law also expands joint employer liability, expanding the definition of employer to include “client employers” (i.e. companies who contract for labor).
AB 987 prohibits employers from discriminating or retaliating against employees who request an accommodation for a disability or religion, regardless of whether the request was ultimately granted. The act of making the request is considered protected conduct and is actionable as a separate claim from the protected-class status of the employee.
SB 600 expands the protections of the Unruh Civil Rights Act by prohibiting discrimination by business establishments based on citizenship, primary language, or immigration status. While this law doesn’t apply in the employment context, it is applicable in conducting business with customers, vendors, etc.
Leave Law Expansions
SB 579 expands child-related leaves, broadening the reasons employees may take time off from work to: 1) find a school or a licensed child care provider and to enroll or re-enroll a child, and 2) address child care provider or school emergencies. This law applies to employers with 25 or more employees.
Unemployment and Disability Insurance
SB 667, effective July 1, 2016, changes eligibility waiting periods where an individual files a second disability claim for the same or related condition as his or her initial claim. Also, the duration of the “disability benefit period” is extended from 14 days to 60 days.
AB 1245 requires employers with ten or more employees file for unemployment insurance using the e-file system. The requirements take effect January 1, 2017 for employers with 10 or more employees and January 1, 2018 for all remaining employers.
Finally, and importantly, AB 622 expands the definition of an “unlawful employment practice” to prohibit employers from using the E-Verify system at a time or in a manner not required by federal law, or not authorized by a federal agency memorandum of understanding, to check the employment authorization status of an existing employee or an applicant who has not received an offer of employment. In other words, the law prohibits the employer from using E-Verify to initiate inquiries on those current employee hired before registration or before an offer of employment is extended and accepted. The purpose of this law is to prevent discrimination such that the employer cannot pick and choose who to run through E-Verify and prohibiting screening. There is a civil penalty of up to $10,000 for each violation of the provisions of the bill. Note that the actions now prohibited under California law already violate federal law and the memorandum of understanding employers agree to when enrolling in E-Verify.
Many laws and regulations went into effect in 2017 that affect employers in California. Below is a summary of some of the major laws and regulations from 2017 for your review to ensure that your company has complied with those laws and regulations.
New Cal/OSHA Regulation on Workplace Violence Prevention
California Labor Code 6400 requires that every employer furnish to employees a place of employment that is safe and healthful to employees. Every employer is also required to adopt an effective written Injury and Illness Prevention Program (IIPP). Employers should address the potential for violence in the workplace and adopt a program for workplace security. Additionally, health care providers have additional obligations to prevent violence in the workplace under a new health care rule.
DFEF Regulation on Gender Discrimination
The California Department of Fair Employment and Housing adopted a new regulation that created a new protected class for individuals who are gender transitioning. Members of this new protected class cannot be discriminated against, harassed, or retaliated against for their status as gender transitioning. Employers may not ask an employee what their gender is during the application and post job offer periods. If an employee’s personnel file is to include what the employee’s gender is, that information must be provided by the employee voluntarily. The legislature passed a law this past year as well on this subject that is discussed below.
AB 2337 – Employment protections for victims of domestic violence, sexual assault, or stalking
AB 2337 requires that employers with 25 or more employees to provide specific information in writing to new employees upon hire and to other employees upon request of their rights to take leave under Labor Code Section 230.1 (relating to victims of domestic violence, sexual assault, or stalking). The Labor Commissioner’s Office has prepared a notice, as required by AB 2337, which employers must provide employees upon hire and must post with other employment posters. The notice is available at http://www.dir.ca.gov/dlse/Victims_of_Domestic_Violence_Leave_Notice.pdf .
New California Gender Identity and Expression Regulations
The California Department of Fair Employment and Housing recently adopted new rules and regulations regarding gender identity and gender expressions rights for employees that go into effect July 1, 2017. The new rules expand the protections afforded to individuals based on their gender identity and gender expression. California employers are now required to implement the following policies:
“Transitioning” is now a protected class. Employers may not discriminate, harass, or retaliate against an employee on the basis that the employee is Transitioning. Transitioning is defined as, a “process some transgender people go through to begin living as the gender with which they identify, rather than the sex assigned to them at birth. This process may include, but is not limited to, changes in name and pronoun usage, facility usage, participation in employer-sponsored activities (e.g. sports teams, team-building projects, or volunteering), or undergoing hormone therapy, surgeries, or other medical procedures.”
In is now unlawful for an employer to condition the availability of fringe benefits upon an employee’s gender identity or gender expression.
Employers must allow their employees to use the restroom or facility that corresponds to the employee’s gender identity or gender expression regardless of the employee’s assigned sex at birth. Single occupancy restrooms must use gender neutral signage for those facilities.
Employers must not require their employees to provide proof of any identity document or proof of any medical treatment or procedure to use facilities designated for a particular gender. Employers may make a reasonable and confidential inquiry of an employee for the sole purpose of ensuring access to comparable, safe, and adequate multi-user restrooms or facilities.
Employers must not impose upon an applicant or employee any physical appearance, grooming, or dress standard which is inconsistent with an individual’s gender identity or expression, unless the employer can establish business necessity.
Name and Identity
Employers must abide by an employee’s request to be identified by a certain name, gender identity, or pronoun. Employers may only insist on using an employee’s legal name or gender if it is otherwise required to meet a legally-mandated obligation.
Employers may not directly or indirectly make inquiries in an employment application that identify an individual on the basis of sex, including gender identity or expression unless the employer establishes a permissible defense (Bona Fide Occupational Qualification, Business Necessity, Job-Relatedness, or Security Regulations). After the employment relationship begins, and employer may only request this information solely on a voluntary basis for recordkeeping purposes. Employers may not discriminate against an employee who fails to designate ‘male’ or ‘female’ on an employment application.
Employers should ensure their policies comply with the new regulations regarding gender identity and expression. The regulations will require amendments to employee handbooks and employment applications and related policies.
AB 1732 – Single user restrooms
AB 1732 requires all single-user toilet facilities in any business establishment, place of public accommodation, or government agency to be identified as all-gender toilet facilities. This Bill would authorize inspectors, building officials, or other local officials responsible for code enforcement to inspect for compliance with these provisions during any inspection.
Lately many businesses and their employees have been victims of scams intended to obtain employees’ personal data and information. With W-2s going out and it being tax season, scammers are trying to hack and obtain employees’ personal information and W-2s to file false tax returns and exploit such information in other serious ways.
A common scam that we are seeing is that a scammer will send an email to someone in the company using a misleading email address and signature block that is as identical as possible to a company officer or owner. The email will ask the employee to reply and send certain personal information and W-2s for the company’s employees. The scam is sometimes successful because the email address and signature block will look like the email address of an officer or owner of the company, but will have one letter or number that is different.
Please be aware of any email requesting employee personal information or W-2s, and please let all employees with access to such information know that such scams are happening right now. Please be sure to check that any email that involves an employee’s personal information is received from and sent to a proper person. In the event of a data breach, the employer must notify its employees of the data breach and may potentially have liability for any losses sustained by employees who are subject to a data breach.
Increase in minimum wage/salary
The statewide California minimum wage will increase to $10.50 per hour on January 1, 2017 for employers with 26 or more employees; the minimum wage for employers with 25 or fewer employees will remain $10.00 per hour. Almost thirty different counties and cities in California have adopted an accelerated schedule for increasing the minimum wage to eventually reaching $15.00 per hour and may have a minimum wage that is higher than the statewide standard. Please contact us if you are unsure whether your municipality has a higher minimum wage than the statewide standard.
The statewide California minimum salary for exempt employees will increase to $43,680 on January 1, 2017 for employers with 26 or more employees as the California minimum salary for exempt employees is directly tied to the minimum wage. The minimum salary for exempt employees will remain at $41,600 for employers with 25 or fewer employees. A municipality with a minimum wage higher than the statewide minimum wage will not affect the minimum salaries for exempt employees. Please contact our office for an analysis of whether your salaried employees are properly classified as exempt.
AB 1066 – Eliminates the overtime exemption for agricultural workers
A previous exemption allowed agricultural farm workers to work up to ten hours in a workday without overtime. AB 1066 has eliminated that exemption and requires all agricultural farm workers be paid overtime for all time worked in excess of eight hours in a workday.
AB 1676 & SB 1063 – Wage discrimination and application to race and ethnicity
Under the Fair Pay Act, which went into effect on January 1, 2016, existing law generally prohibits an employer from paying an employee at wage rates less than the rates paid to employees of the opposite sex in the same establishment for equal work on jobs the performance of which requires equal skill, effort, and responsibility, and which are performed under similar working conditions. SB 1063 expands the requirements of the Fair Pay Act to include employees’ race or ethnicity and not just gender. AB 1676 provides that an employee’s past salary alone cannot justify a disparity in compensation and must be tied to other bona fide factors.
AB 1843 – Juvenile criminal history in employment applications
Ab 1843 prohibits employers from asking applicants to disclose, or from utilizing as a factor in determining any condition of employment, information concerning or related to “an arrest, detention, process, diversion, supervision, adjudication, or court disposition that occurred while the person was subject to the process and jurisdiction of juvenile court law.” Employment applications that inquire as to an applicant’s criminal background must be modified to comply with this new law.
City of Los Angeles – Ban the Box Ordinance
Los Angeles’ new ‘Ban the Box’ ordinance forbids employers from asking job applicants whether the applicant has been convicted of a crime or has been arrested for a crime and is awaiting criminal proceedings. All employment applications used for employers in the City of Los Angeles must be revised to remove language that asks about a criminal history.
AB 2535 – Itemized wage statements clarification
AB 2535 clarifies that Labor Code Section 226 does not require employers to include in itemized wage statements the total number of work hours by an employee properly classified as exempt. Employers must continue to include the total hours worked by non-exempt employees in the itemized wage statements for each pay period.
SB 1001 – Immigration related unfair practices
Employers who are in the process of verifying that workers have the necessary documentation to work in the United States are prohibited from requesting of such workers more documents or different documents than are required under federal law, to refuse to honor documents tendered that on their face reasonably appear to be genuine, to refuse to honor documents or work authorization based upon the specific status or term of status that accompanies the authorization to work, or to reinvestigate or re-verify an incumbent employee’s authorization to work. Under this Bill, which adds Labor Code Section 1019.1, applicants and employees may file a complaint with the Division of Labor Standards Enforcement. Any person who is deemed in violation of this new law is subject to a penalty imposed by the Labor Commissioner of up to $10,000, among other relief available.
SB 1241 – Choice of law and forum in employment agreements
SB 1241 adds Labor Code Section 925 and prohibits employers from requiring California-based employees to enter into agreements (including arbitration agreements) requiring them to: (1) adjudicate claims arising in California in a non-California forum; or (2) litigate their claims under the law of another jurisdiction, unless the employee was represented by counsel. Any provision of a contract that violates this new law is voidable by the employee, any dispute arising thereunder shall be adjudicated in California under California law and the employee is entitled to recover reasonable attorneys’ fees.
AB 2883 – Director and officer exclusions on workers’ compensation policies
AB 2883 changes the definition of employee and the eligibility criteria to elect exclusion from workers’ compensation coverage. Only corporate officers or members of the company’s board of directors who own 15% or more of the company may elect to be excluded from coverage. Each officer or director who owns 15% or more of the company and wishes to be excluded from coverage must sign a new waiver form attesting to his or her eligibility. The requirement that 100% of the company be owned by officers and/or directors has been eliminated. If your officers or directors are currently excluded from coverage, please contact your workers’ compensation carrier, agent, or broker.
AB 2330 – Minimum salary of private teachers
AB 2330 requires private primary and secondary schools to pay exempt teachers no less than the lowest salary offered by any school district anywhere in the State or the equivalent of no less than 70% of the lowest schedule salary offered by the school district or county in which the private elementary or secondary institution is located. Private teachers’ minimum salaries will no longer be tied to the State’s minimum wage.
AB 1311 – Temporary security guard services employees
AB 1311 requires that security guards employed by private patrol operators that are temporary services employers be paid weekly similar to other temporary services employees.
San Jose Initiative
San Jose voters passed an initiative in November that requires employers to offer hours to existing employees before hiring new employees.
U.S. D.O.L. Regulation on minimum overtime for exempt employers
The U.S. Department of Labor has adopted a regulation that sought to increase the federal minimum salary for exempt employees to $47,476 per year. On November 22, 2016, a federal court district judge granted an injunction that stopped this increase from going into effect. Until a final determination or appeal is made next year, employers do not need to comply with this increase. Many employers have, however, already begun to make anticipatory changes based on this increase. For a determination on whether certain changes can be reversed, please contact our office.