California has joined New York in requiring a new hire wage notification under its Wage Theft Prevention Act, with the California statute effective for all new hires on or after January 1, 2012. To assist employers, the California Division of Labor Standards Enforcement has issued its model form complying with the new law. The DLSE’s model form is available here.
In August, we discussed the California Supreme Court’s ruling addressing the circumstances under which a non-California resident can be covered by that state's employee-friendly Labor Code. Sullivan v. Oracle Corp., 51 Cal. 4th 1191 (2011). Yesterday, the Court of Appeals for the Ninth Circuit adopted the state court’s ruling, rejecting Defendant’s constitutional challenges to that decision. Sullivan v. Oracle Corp., 2011 U.S. App. LEXIS 24625 (9th Cir. Dec. 13, 2011). California-based employers must be mindful of Sullivan's applicability to their non-California employees.
In April, we addressed at length New York’s newly-enacted “Wage Theft Prevention Act.” Now, through Assembly Bill 469, California has adopted a nearly identical law, the California Wage Theft Prevention Act. Effective January 1, 2012, the law increases the penalties available under existing provisions of the California Labor Code, and adds a detailed notice requirement to employees, echoing the requirements recently imposed on employers by N.Y. Labor Law § 195.
Codified as Cal. Labor Code § 2810.5, the California WTPA notice requirement requires private California employers of non-exempt employees not subject to certain collective bargaining agreements to provide each new hire with a notice containing:
(A) The rate or rates of pay and basis thereof, whether paid by the hour, shift, day, week, salary, piece, commission, or otherwise, including any rates for overtime, as applicable.
(B) Allowances, if any, claimed as part of the minimum wage, including meal or lodging allowances.
(C) The regular payday designated by the employer in accordance with the requirements of this code.
(D) The name of the employer, including any “doing business as” names used by the employer.
(E) The physical address of the employer’s main office or principal place of business, and a mailing address, if different.
(F) The telephone number of the employer.
(G) The name, address, and telephone number of the employer’s workers’ compensation insurance carrier.
(H) Any other information the Labor Commissioner deems material and
Id. § 2810.5. (a)(1). Employers also must provide a notice to existing employees within seven days where there are any changes to the above information, unless the change is conveyed through a Cal. Labor Code § 226-compliant wage statement.
One prominent question not addressed by the California statute is whether a mandatory or recommended notice form will issue under the new law’s notice requirement, which provides only that “The Labor Commissioner shall prepare a template that complies with the requirements [of the law].” Of course, interpretation of the notice requirement and all other provisions of the Act within the context of the California Labor Code and California law will become hotly-contested issues for California courts.
With New York Wage Theft Act compliance and issues already providing grounds for litigation, this new California law (along with California’s new written commission plan law and new legislation imposing significant damages for misclassification of individuals as independent contractors) adds yet another layer of compliance and exposure to the already difficult environment for California employers, who should strongly consider developing an action plan over the next 60-days to ensure compliance with the WTPA requirements.
As discussed by our colleagues at the California Workplace Blog, California governor Jerry Brown has signed into law AB 1396, requiring all employers doing business in California to draft written contracts for any agreements with employees that involve commissions as a method of payment for services. California joins New York in the vanguard of making such a writing a requirement. N.Y. Labor Law § 191(1)(c). Of course, such a writing remains a best practice under almost all circumstances.
While states generally are free to enact wage and hour laws providing greater protections than contained in the Fair Labor Standards Act, sometimes such laws run afoul of federal statutes governing particular industries. In a recent decision exemplifying this type of preemption, a judge in the United States District Court of the Southern District of California ruled that the oppressive meal and rest break provisions of the California Labor Code (which will be clarified by the California Supreme Court following oral argument on November 8), conflict with and are preempted by the Federal Aviation Authorization Act of 1994 (FAAA), because the state requirements interfere with interstate commerce. Dilts v. Penske Logistics LLC, 2011 U.S. Dist. LEXIS 122421 (S.D. Cal. Oct. 19, 2011). This is a significant victory for industry employers as class action lawsuits alleging violation of these requirements have been prevalent in California.
Dilts concerned the meal and rest statute’s interference with the FAAA provision providing that “a State . . . may not enact or enforce a law, regulation, or other provision having the force and effect of law related to a price, route, or service of any motor carrier . . . or any motor private carrier, broker, or freight forwarder with respect to the transportation of property.” Id. at * 13 quoting 49 U.S.C. § 14501(c)(1). California’s strict meal and rest break laws, which the Court characterized as fairly rigid, force drivers to alter their daily routes while searching out appropriate places to pull off the highway and park their vehicles, preventing them from making some daily deliveries. Allowing California to “insist exactly when and for exactly how long carriers provide meal breaks for their employees would allow other states to do the same, and do so differently,” Judge Janis L. Sammartino observed. Id. at * 27.
Navigating the maze of federal, state and local regulation of wage-hour laws is never easy, particularly in heavily regulated industries such as trucking or aviation. Employers in these industries must monitor the status of the law to determine how best to comply with potentially competing provisions on the state and federal level. This decision points that the first step of any analysis is first to determine a statute or regulation’s enforceability.
California Governor Jerry Brown recently signed the new law regarding “willful” misclassification of independent contractors under the California Labor Code summarized previously. Further details regarding the enactment of this new law are available at the Jackson Lewis California Workplace Law Blog here.
As noted by our colleagues at http://www.californiaworkplacelawblog.com/, California’s highest court has scheduled oral argument in the Brinker Restaurant Corporation litigation, addressing the state’s meal and rest requirement, for November 8, 2011. By rule, the Court must issue its decision within 90 days of oral argument, or, by February 6, 2012. The decision should provide long-awaited clarity on the issue of whether employers must “ensure” meal periods are taken or whether they must only be made “available,” which has spawned years of expensive litigation both prior to and following the Court of Appeal’s 2008 ruling in Brinker Restaurant Corp. v. Superior Court, 165 Cal. App. 4th 25 (Cal. App. 4th Dist. 2008), the California Supreme’s Court’s acceptance of the appeal and consolidation with other Court of Appeal cases.
California, like several other states including Massachusetts and New York, has historically been harsh on employers which abuse the independent contractor designation, classifying individuals who are integrated into their business and function as employees as contractors for the purposes of avoiding tax and wage costs. In fact, Federal Express’ now decade-long battle with courts and agencies over its classification of drivers as independent contractors originates in part from the California state appellate decision in Estrada v. Fedex Ground Package System, Inc., 154 Cal. App. 4th 1 (2007). Now, the California legislature has added a new measure which, barring an unlikely veto, expands misclassification liability further.
Senate Bill 459, passed on September 8, 2011, would make it unlawful for any “person” to willfully misclassify an individual as an independent contractor—not just for a statutory “employer” to do so. This raises the specter of individual liability for misclassifications under the new law. The bill also imposes a penalty of $5,000 to $15,000 for each violation, with escalators to the $10,000 to $25,000 range based on the finding that a given person or company has engaged in a “pattern or practice” of violation. The law also provides that anyone found in violation must post a notice to employees and the public regarding the violation, potentially creating a “ripple effect” for further claims.
Violations of 459 are predicated on “willful misclassification”, which is defined as “avoiding employee status for an individual by voluntarily and knowingly misclassifying that individual as an independent contractor.” This broad language, with the conjunctive requirements of voluntariness and knowledge, will create ambiguities (and of course litigation) in the wake of the law’s passage as to interpretation of this definition.
The difficult and expensive wage-and-hour compliance environment in California is not news. However, this new enactment, once it receives the likely approval of Governor Brown, would expand exposure both in terms of potentially liable parties (i.e., individuals) and the costs of misclassification. Any entity or individual conducting business in the State of California which has not yet analyzed its classification of workers as contractors is well advised to do so now.
In a long awaited decision, California’s Supreme Court has ruled that the State’s Labor Code provisions governing overtime pay may apply to non-residents working in California for “a California-based employer.” Sullivan v. Oracle Corp., 51 Cal. 4th 1191 (2011). A detailed analysis of the decision and its potential implications is available here.
California wage-and-hour practitioners and commentators continue to await the California Supreme Court’s ruling regarding the scope of the Labor Code’s “meal and rest” requirements in Brinker Restaurant Corp.
Wage and hour plaintiffs, like all plaintiffs, seek recovery from the largest, most viable defendants. Often, employees who separate from failing businesses seek to broaden the scope of the concept of “employer” within the meaning of wage-hour laws and include as defendants other potentially-liable parties with “deep pockets.” As discussed here, a federal court in Pennsylvania recently rejected call center plaintiffs’ efforts to ensnare Bank of America in their FLSA litigation on a joint employer theory. Now, a federal court in California – applying California state law – has rejected a similar effort to include the (defunct) primary employer’s outside Human Resources and Benefits consultancy as a joint employer. Field v. Am. Mortg. Express Corp., 2011 U.S. Dist. LEXIS 84601 (N.D. Cal. Aug. 2, 2011).
Plaintiff Field was employed by Defendant American Mortgage Express. However, under American Mortgage’s contract with co-defendant Gevity HR, Gevity was responsible for administering all Human Resources functions, including recruitment, the development of workplace resources for recruited employees, and payroll. A Gevity employee served as American Mortgage’s human resources director. Further, the contract between the two parties expressly stated that employees recruited and employed pursuant to this program would be jointly employed by both entities.
Plaintiff Field sued both entities under various California Labor Code provisions. Defendant American Mortgage failed to appear in the case, and defendant Gevity (despite the contractual language) moved for summary judgment as to its employer status. Applying the California Supreme Court’s recent decision in Martinez v. Combs, 49 Cal. 4th 35 (2010), Judge Edward Chen of the Northern District of California rejected Fields claim against Gevity because Field could not establish that: 1) Gevity exercised control over plaintiff’s wages, hours or working conditions; 2) Gevity suffered or permitted Field to work; or, 3) that Gevity engaged plaintiff. The Judge dismissed Gevity’s role as “ministerial,” observing that the material decisions relating to Fields’ employment all were made by American Mortgage executives, and rejected Field’s assertion that he, executive director of American Mortgage’s Western Division Wholesale Lending operations, was required to “consult with or obey” Gevity’s employee with respect to human resources matters.
Fields is a favorable decision for all employers, and for outside human resources consultants and PEOs in particular. Of course, employers must remain vigilant in analyzing the control their organization exerts over sub-contractors, independent contractors and the employees of any other organization.
As we have previously discussed, the FLSA contains an exemption for commissioned employees in the retail or service industry who meet certain parameters: colloquially referred to as the “7(i)” exemption. California has a similar exemption which the California Court of Appeal, Second Appellate District recently applied to a sales consultant, holding that Defendant’s payments qualified as “commissions.” Areso v. Carmax, Inc., 195 Cal. App. 4th 996 (Cal. App. 2d Dist. 2011).
Plaintiff Areso was engaged in selling defendant’s “used vehicles, warranty plans, used vehicle appraisals and vehicle accessories,” and received payments based on the products and services she sold. At issue were two different versions of Carmax’s sales consultant pay plan for California employees. Under both, plaintiff was eligible to receive a fixed amount per sale of a car, and then a percentage of the purchase price of accessories sold. The trial court ruled both of these “per vehicle” pay plans were “a performance-based incentive system and thus, fairly understood to be a commission structure under Labor Code § 204.1.” Id. at 1000.
Areso appealed. The Court of Appeal began its analysis by noting that Wage Order 7-2001 exempts from California Labor Code overtime requirements “any employee whose earnings exceed one and one-half times the minimum wage if more than half of that employee’s compensation represents commissions.” Id. at 1002-3. This exemption mirrors 7(i), but without the requirement that the employee be in a “retail or service” industry. The court observed that the Cal. Labor Code also contains a definition of commission wages, namely “compensation paid to any person for services rendered in the sale of such employer’s property or services and based proportionately upon the amount or value thereof.” Id. citing Labor Code § 204.1 (emphasis in original).
The Court then analyzed previous California appellate authority addressing other types of incentive compensation, such as a percentage of the hourly rate charged to a customer, and “point” systems based on the items sold, but not tied to the price of those items. The Court observed that “none of the[se] cases interpreting § 204.1 has involved the compensation system which, like Carmax’s, compensate sales people with a uniform payment for each item or service sold and as a result, no cases construed the word ‘amount’ in the statute. This is an issue of first impression, and new facts require new law.” Id. at 1007. Rejecting plaintiff’s contention that in order to be “proportionate”, the percentage of the items sold payable to the commission employee must fluctuate, the Court observed that “paying sales people a uniform fee for each vehicle is proportionate—a one-to-one proportion. The compensation will rise and fall in direct proportion to the number of vehicles sold.” Id. at 1008.
The Carmax decision represents a welcome victory for California employers seeking to apply this overtime exemption. Observes Jackson Lewis Partner JoAnna Brooks, who regularly handles wage and hour litigation in California, “The decision is surprising because it rejects the Division of Labor Standards Enforcement’s traditional guidance that a commission must be a percentage of the actual sales price. Other forms of fixed incentives are typically deemed bonuses or piece rates. Thus, it may be lawful to pay a fixed commission, but calculating a fixed payment based on anticipated “profit” after deducting expenses, such as overhead costs, may still be deemed a bonus. The consequences are significant, because it can result in mis-classification of an inside sales worker.”
Despite this decision, California wage and hour laws remain full of pitfalls for employers. Employers should proceed with caution. As Brooks notes, “Even employers who meet California’s commission exemption must take additional steps to ensure they have a properly drafted commission plan explaining when commissions are earned, the applicable rates paid, calculation of overtime and the impact of separation from employment.”
California employers must continue to stay in the vanguard of wage and hour compliance to avoid costly litigation.
As discussed in detail on Jackson Lewis’ California Workplace Blog, the Ninth Circuit has resuscitated the California Labor Code’s “learned professional” exemption, reversing a decision from the Eastern District of California which held that unlicensed accountants could not qualify as a matter of law. Campbell v. PricewaterhouseCoopers, LLP, 2011 U.S. App. LEXIS 12062 (9th Cir. Feb. 15, 2011).
As analyzed in more detail here, the California Supreme Court recently ruled that the California labor code provision prohibiting employers from taking or sharing in tips left for employees by customers – Cal. Lab. Code § 351 (“Section 351”) – does not provide private litigants with a right to sue their employers directly for alleged misappropriation of tips. Lu v. Hawaiian Gardens Casino, Inc., No. S171442 (Aug. 9, 2010).
In Lu, the defendant casino required card dealers to segregate 15 to 20 percent of their tips, which the casino deposited into a tip pool account for distribution to designated employees who provide services to customers. Employees who received these segregated tips included chip runners, poker tournament coordinators, poker retention coordinators, hosts, customer service representatives, and concierges.
The California Supreme Court took up Lu, after both the trial and first appellate court held that Plaintiff Lu had no private right to sue under Section 351, to settle a conflict with another intermediate appellate court which held that a private right of action existed under Section 351. See Grodensky v. Artichoke Joe’s Casino. The court addressed the limited question of whether Section 351 created a private right of action for employees. Without ruling on the legality of the defendant’s tip pool policy, the Court found no private right of action for employees under Section 351, either explicitly or implicitly. However, the Court observed that employees can still pursue Section 351 relief through the Labor Commissioner, or sue for allegedly misappropriated tips under common law or other statutory theories.
Employers should continue to draft and administer their tip pooling policies carefully, in light of federal and state laws and regulations. This point is underscored by the fact that the FLSA provides a private right of action and 100% liquidated damages plus loss of any taken tip credit for misappropriated gratuities.
The surge of state wage and hour claims continues in California. Among the numerous California Labor Code provisions which has been the subject of repeated litigation is California Labor Code § 226(a) (“226”), which creates specific requirements concerning the content of employee wage statements. Included among its provisions is a requirement that wage statements indicate the “total hours worked by the employee, except for any employee whose compensation is solely based on a salary and who is exempt from payment of overtime.” Last month, a California appeals court analyzed this statute in the context of a claim brought by a non-exempt co-manager, who claimed that her wage statements violated this 226 requirement. Morgan v. United Retail, 2010 Cal. App. LEXIS 1194 (Cal. App. 2d Dist. June 23, 2010).
As recited by the court, the alleged unlawful wage statement contained the following information:
For employees who did not work any overtime hours during the pay period, their wage statements listed the total regular hours worked by the employee, which equaled the total number of hours worked. For employees who worked overtime hours during the pay period, their wage statements separately listed the total regular hours worked and the total overtime hours worked by the employee. However, the statements did not add the regular and overtime hours together and list the sum of those hours in a separate line.
Plaintiff Morgan’s claim, which had been rejected by the trial court on summary adjudication, was that this failure to combine non-overtime and overtime hours and provide a “separate line” indicating total hours constituted a violation of 226.
The appeals court, after noting that no Court had previously analyzed a wage statement which “separately lists the total number of regular hours and the total number of overtime hours worked by the employee,” reviewed the existing decisions analyzing 226’s “total hours worked” requirement. Observing that the cases finding 226 violations focused on the inaccurate or misleading nature of the wage statements in question (such as wage statements providing an “average” number of hours worked, as opposed to actual hours worked), and citing a recent federal decision dismissing a 226 claim on a similar theory (Rubin v. Wal-Mart Stores, Inc., 599 F.Supp.2d 1176 (N.D.Cal. 2009)), the Court held that the failure to provide a separate line with the total hours did not constitute a violation. The Court rejected plaintiff’s contention that a violation occurred because the information provided was insufficient to calculate proper overtime, observing that the plaintiff and other putative class members were paid by the hour, and not on a “salary, commission, or piece-rate basis.”
Morgan provides some much-needed clarity regarding an employer’s obligations under 226. Inclusion of the “separate line” in wage statements (as Morgan indicates United Retail later did), reduces uncertainty and legal risk.
Wage and hour compliance is a constant struggle due to the need not only to comply with the FLSA but also with all applicable state laws.
In a decision reiterating important independent contractor issues for employers, the Ninth Circuit Court of Appeals last week reversed a lower court decision holding that certain delivery drivers were properly classified as independent contractors under various provisions of the California Labor Code. Narayan v. EGL, Inc., 2010 U.S. App. LEXIS 14279 (9th Cir. July 13, 2010).
At the trial court level, Judge Ronald M. Whyte of the Northern District of California concluded that the drivers, although residents of California providing delivery services in California, were independent contractors under the laws of Texas, the governing law set forth in the drivers’ “Leased Equipment and Independent Contractor Services” agreement with EGL, a nationwide provider of logistics services. In a footnote, the court further held that “[t]he result would be no different if California law governed.”
Reversing the decision, the Ninth Circuit observed that ‘[w]hether the Drivers are entitled to those benefits [under the Cal. Lab. Code] depends on whether they are employees of EGL, which in turn depends on the definition that the otherwise governing law--not the parties--gives to the term ‘employee’” (emphasis added). The Circuit Court held that the parties’ selection of Texas law to “govern” the contract applied only to disputes about interpretation of the contract (i.e, Texas contract law), not the application of employment statutes like the California Labor Code. Simply put, the Circuit Court held that the drivers’ claims under the Cal. Labor Code did not “arise” from the contract (i.e., did not call primarily for interpretation of that contract) – the contract was simply relevant evidence relating to their claims of employee status. Finally, the Court reversed Judge Whyte’s ruling that the drivers were independent contractors (even under California law) because, in the Court’s view, he “did not apply the relevant factors [for IC status] identified by the Supreme Court of California to the facts in this case.”
While the Appellate Court’s failure to recognize the choice of law clause may not be relevant to most employers, the central holding and vital takeaway is very straightforward: independent contractor status is generally narrowly construed and currently under intense scrutiny. Further some aspects of the relevant analysis vary not only from state to state but from statute to statute. Additionally, and critically, the intent of the parties as reflected by the parties’ agreement is often of little importance to an administrative agency’s or court’s analysis, as Narayan clearly demonstrates.
All employers, and especially those with multi-state operations, must focus on the propriety of their organization’s use of contractors. A more detailed analysis of this issue can be found here.
As every California employer knows, wage and hour class actions in California are never-ending. One basis for many of these class actions has been employers' alleged non-compliance with California meal and rest period requirements. As to meal periods, the two overriding issues have been whether an employer is required to ensure non-exempt employees take their meal period or just offer such an opportunity and whether such meal period must be taken prior to completion of 5 hours of work. This issue has significant financial ramifications to California employers as California law imposes a penalty of 1 hour of wages for each day an employee misses a meal period and for each day an employee misses a rest period. The California Supreme Court is currently reviewing these issues in two consolidated cases and is expected to schedule oral argument in the coming months. Once oral argument before the court occurs and the court hands down its decision within 90 days thereafter as required by California law, we hope there will be some clarity on these issues.
Robert Pattison, Managing Partner of Jackson Lewis' San Francisco office, has prepared a white paper discussing these issues in detail. This white paper, which includes a statutory analysis and a discussion of the shifting positions of the State Labor Commissioner, can be accessed at this link. Most importantly, Jackson Lewis suggests that to ensure compliance pending this decision, California employers continue to ensure that no non-exempt employees works more than 5 hours without taking a meal period.
Subsequent to our post of April 6, the California DLSE issued a lengthy new opinion letter regarding trainees, available here. In it, the Division upholds the uncompensated “intern” status of participants in the Year Up program, a program in which a not-for-profit places 18-24 year olds in underserved communities to develop marketable skills in the information technology arena for 6 month assignments. The Division applied the six factor conjunctive test utilized under federal law in reaching its conclusion:
1) The training, even though it includes actual operation of the facilities of the employer, is similar to that which would be given in a vocational school;
2) The training is for the benefit of the trainee
3) The trainees do not displace regular employees, but work under close observation
4) The employer that provides the training derives no immediate advantage from the activities of the trainees and on occasion his operations may actually be impeded
5) The trainees are not necessarily entitled to a job at the completion of the training period
6) The employer and the trainees understand that the trainees are not entitled to wages for the time spent in training.
See, e.g., Reich v. Parker Fire Protection Dist., 992 F.2d 1023, 1026 (10th Cir. 1993).
The opinion letter departs from the DLSE’s more expansive eleven-factor test, which included the additional factors below, observing that they “do not appear to be based upon any source statute or regulation from which they derive nor are the additional factors identified with specific case law.”
7) Any clinical training is part of an educational curriculum;
8) the trainees or students do not receive employee benefits;
9) the training is general, so as to qualify the trainees or students for work in any similar business, rather than designed specifically for a job with the employer offering the program, i.e. upon completion of the program, the trainees or students must not be fully trained to work specifically for only the employer offering the program;
10) the screening process for the program is not the same as for employment, and does not appear to be for that purpose, but involves only criteria relevant for admission to an independent educational program, and
11) advertisements for the program are couched clearly in terms of education or training, rather than employment, although the employer may indicate that qualified graduates will be considered for employment.
While the DLSE’s willingness to abandon these supplemental factors is an encouraging sign, the difficulty of satisfying the original six-factor test remains. Few internship programs, whether offered through the not-for-profit sector or otherwise, are as fully compliant with the prevailing federal test as that offered by Year Up.
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