Labor and Employment Law Update

Presented By: Palmer Kazanjian Wohl Hodson LLP

December 10th, 2015

Independent Contractor Classification

Implications of an Activist NLRB for Employees and Employers

California’s New Sick Leave Law

Use of Smartphones, Remote PC Access and its impact on Overtime

Labor Code Issues

Agenda for Today

Independent Contractor

or Employee?

Growing Focus On Employee Misclassification• U.S Department of Labor continues to

work with the IRS and other federal and state agencies to eliminate misclassification.

• In the fiscal year of 2014, WHD

investigations resulted in more than $79 million in back wages or more than 109,000 workers.

• A.B 1897: Passed in 2014, extending liability to client employers who obtain workers from third party labor contractors.

• DOL issued an interpretive memo (Administrator’s Memorandum 2015-No. 1) earlier this year stating that “most workers are employees under FLSA’s broad definition of employment.”

Independent contractor

Employee

Independent Contractor Classification Criteria

11-Factor IRS Test looks at the degree of control employer has over worker’s independence:• Behavioral Control • Financial Control• Type of Relationship

EDD Test: Basic test looks to whether the employer has the right to control and direct manner and means by which work is preformed.

Economic Realities Test: 1. Extent to which work performed is an integral part of employer’s business.

2. Whether the worker’s managerial skills affect opportunity for profit and loss.3. Relative investment by worker and employer. 4. Worker’s skill and initiative.5. Permanency of worker’s relationship with the employer. 6.Nature and degree of control by employer.

Independent Contractor Classification Criteria

• The CA Supreme Court applied the Economic Realities Test, finding that the growers were not employees because they had control only over result and not over the means by

which desired result was accomplished.

• Existence of written agreement purporting to establish independent contractor status is not determinative.

• Court discouraged rigid application of common law control test to determine employment relationship and listed other factors such as belief by parties that there is an employer-employee relationship, method of payment used, and whether the worker’s business is distinct from the principal.

S.G Borello & Sons v. Department of Industrial Relations (1989)

Garcia v. Seacon Logix, inc (2015) The Court of Appeal affirmed holding that the truck drivers employed by Seacon had been misclassified as independent contractors, reasoning that Seacon, in providing the trucks and tools (instrumentalities), controlled the manner and means by which the drivers carried out their work.

Alexander v. FedEx Ground Package System, Inc. (2014) The Ninth Circuit ruled earlier last year that FedEx had misclassified its drivers as independent contractors, which led to a $228 million dollar settlement. Similar suits against FedEx are pending in other states.

Shepard v. Lowe’s HIW, Inc. (2014) A class of home improvement independent contractors claimed that the company has misclassified them as independent contractors. Federal court approved settlement for $6,500,000.

Recent Independent Contractor Cases

Pending Uber Case Could Significantly AffectTechnology-Driven Sharing Economy

Uber v. Berwick (2015) California labor commission ruled that under California Law, Uber driver Ann Berwick is an employee and not an independent contractor.

U.S. District Judge Edward Chen granted class-action status to lawsuit filed by 3 Uber drivers who claim to have been misclassified as independent contractors. This enables all drivers who worked between 2009-2014 to join the class action.

A ruling that Uber drivers are employees would require Uber to provide, among other expenses, back pay for each employee and also provide Uber drivers with employment benefits—a tremendous cost to Uber.

A decision in favor of “employee” classification would have a major effect on other ridesharing companies such as Lyft, Airbnb and other start-ups.

Implications of an Activist NLRB for Employers and Employees

The NLRB Continues to Pursue an Activist Agenda

• December 2007: Three members’ terms expired, leaving the Board with only two members.

• December 28, 2007: The two remaining members agreed to delegate their authority to a three-person panel. Only two members remained, Board concluded that was a quorum for the three-person panel.

• June 2010: Supreme Court ruled in New Process Steel, L. P. v. NLRB that the two-member Board had no authority to issue decisions, invalidating the rulings made by 2 members.

• 2013: Senate approved all five of Obama’s nominees, bringing the board to 5 members for the first time since 2007.

• 2014-Present: Board made several decisions favoring unions and disfavoring employers.

• August 2014 – Browning-Ferris decision re: new test for joint employers.• December 15, 2014 – New union election rules• March 18, 2015 – Issued a report concerning employer rules

NLRB Issued New Union Election Rules -Notable Changes

• New posting requirements• Electronic filing and transmission of election petitions/other

documents• Employers must provide additional contact information (personal

telephone numbers and email addresses) to the extent possible• The non-petitioning party is required to respond to the petition

before the pre-election hearing opens. • Pre-election hearing: Only issues necessary to determine

whether an election should be conducted.Post-Election: The regional director may defer all other issues to the post-election stage

Employee Handbook Guidelines

1. If it explicitly restricts activities protected by Section 7 per se invalid.

2. If the rule does not explicitly restrict activity protected by Section 7, the violation is dependent upon a showing of one of the following: • Employees would reasonably construe the

language to prohibit Section 7 activity; • It was promulgated in response to union

activity; or • It has been applied to restrict the exercise

of section 7 rights.

Don’t chill my Section 7 rights!

Examples of Handbook Violations• Preventing employees from discussing the terms and conditions of

employment.• Restricting disclosure of “employee” or “personnel” information

without clarification. • Prohibiting criticism of the employer, Company, or management• Rules that a reasonable employee would construe as forbidding

protected strike actions and walkouts are unlawful. • Prohibiting disclosure of the contents of the Company’s handbook • Prohibiting distribution of electronic literature in “work areas”• For more examples refer to handout.

Joint-Employer Liability – Browning Ferris

• Two or more entities are joint employers of a single workforce if• They are both employers within the meaning of the

common law; and • They share or codetermine those matters governing the

essential terms and conditions of employment. • Looks to factors such as control over salary and

working conditions • Direct control is not required

Section 7 & 8(a)(1) Violations • D.R Horton (2012) The decision held that arbitration agreements

signed as a condition of employment and preclude workers from bringing joint, class, or collective claims over working conditions are unlawful

• Fifth Circuit, Second Circuit, and Eighth Circuit Courts have rejected NLRB holding that arbitration agreements barring class or collective claims are in violation of federal labor law

• Murphy Oil USA (2015) reaffirmed D.R Horton ruling that arbitration agreement barring workers from pursuing class actions are unlawful

• Amex Card Services Company (2015)-applied Murphy and held that arbitration agreement was unenforceable, affirming D.R Horton

Section 7 & 8(a)(1) Violations • There is a split between the Board and Federal Courts on the

issue of whether requiring an employee to waive the right to assert a class action is in violation of the NLRA.

• Issue has yet to be settled by the U.S. Supreme Court Reducing Liability

Employers subject to the NLRB who condition employment on signing of arbitration agreement should:

(1) Consider whether the arbitration agreement should include waiver of class action suits

(2) Understand that opt-out provisions do not necessarily reduce liability

New Paid Sick Leave Law(A.B. 304; Cal. Lab. Code § 245-249)

Eligibility

• Employee who, on or after July 1, 2015, works in California for 30 or more days within one year from beginning employment. Employee can use leave beginning on the 90th day of employment. • Includes: Part-time and temporary employees• Does NOT Include: Employees covered by qualifying collective

bargaining agreements, In-Home Supportive Services providers, and certain employees of air carriers.

Usage

• Paid at current rate of pay (special calculation for commission or piece rate employees). **See handout for examples**

• Accrued leave must carry over to the following year or 12-month period, but the employer may cap total leave at 48 hours (or 6 days).

• Employee may begin using accrued sick leave on the 90th calendar day of employment

• Employee may use paid sick leave for: • Themselves or a family member for the diagnosis, care or

treatment of an existing health condition or preventive care • Specified purposes for an employee who is a victim of domestic

violence, sexual assault, or stalking• Employer may limit use at 24 hours or 3 days per year. Employee

needs to be notified prior to implementation

Accrual & Alternatives

• Accrual Method: Leave accrues at the rate one hour per every 30 hours worked. • An employee who works 40 hours/week will accrue 1.33 hours

per week.• Frontload Method: Employer may frontload leave instead of using

accrual method. • Employer must give 24 hours or 3 days at the beginning of the

calendar year, anniversary date, or 12-month period used. • Employer is not required to track accrual, but must still comply

with the notice requirement by displaying usage on wage statement or other complying written document.

• Under this method, employer is not required to provide for carry over of sick leave.

Existing Paid Time Off Policies (PTOs)

• Employer may offer more than the minimum required under the Paid Sick Leave law, but not less.

• Must be in writing . • Must be provided for the same usage and same purposes

as outline in the Paid Sick Leave provision.

Notice• An employer is required to display a poster in a

conspicuous area, stating employee’s rights to:• Accrue, request, and use paid sick days;• The amount of sick days provided; • The terms of use of paid sick days; and • Retaliation against employee for requesting sick

leave• An employer must provide notice to individual

employees at the time of hire with paid sick leave information.

• An employer must provide written notice informing the employee of their available paid sick leave on wage statement or other written document

• An employer is required to keep a documented record of hours worked and paid sick days used by employee for a minimum of three years.

• Notice forms are available on the DIR website: http://www.dir.ca.gov/DLSE/resource.html

Penalties for Employer Noncompliance

Possible retaliation damagesEmployee may be entitled to:

• Reinstatement (if terminated) • Lost wages (if suspended or terminated) • Removal of any disciplinary action from personnel file • A civil penalty of up to $10,000 per violation

An employee may file a paid sick leave claim and administrative penalties may be awarded

An employee may recover:• An administrative penalty equal to the paid sick leave x 3 or $250

whichever is greater, but in no case greater than an aggregate penalty of $4,000

• The administrative penalty may also include a sum of $50 per day for each day the violation occurred or continued

6 Steps to Successful ComplianceDisplay poster on paid sick leave where employees can read it easily. Document policy and share with staff.

Provide written notice to individual employee at the time of hire with paid sick leave information.

Provide for accrual of one hour of sick leave for 30 hours of work for each eligible employee to use.

Allow eligible employees to use accrued paid sick leave upon request or notification.

Show how many hours of sick leave an employee has available. This must be on a pay stub or a document issued the same day as a paycheck .

Keep records showing how many hours have been earned and used for three years.

Overtime: Smartphones and Remote PC Access

Overtime: Federal Law v. State LawFederal Law (FLSA)

• FLSA establishes basic wage standards that affect workers in private sector, federal, state and local governments.

• Salaried employees must earn at least $455/week and their primary duty must be executive, professional, or administrative.

• Hourly employees are eligible for overtime if they work >40 hours a week.

California State Law (DLSE)• 17 Industrial Welfare Commission Wage Orders establish wages, hours, and

working conditions in CA. • There is a higher minimum salary threshold for salary employees, and they

must spend >%50 of time performing executive, profession, or administrative duties.

• Hourly employees are eligible for overtime if they work >40 hours a week, >8 hours a day and double time for hours worked in excess of 12 hours in a day or on a 7th consecutive day.

State Law Supersedes Federal Law

Employers should note that CA state law provides more generous protections to employees than FLSA and therefore

supersedes Federal law Pacific Merchant Shipping Ass’n v. Aubry (9th Cir. 1990)

“Hours Worked”: Federal Law v. State Law

Federal Law (FLSA)29 C.F.R. Section 778.223 & Part 785 : The FLSA does not contain an express definition of “hours worked,” but federal regulations state that it includes: (1) all time during which an employee is required to be on duty or to be on employer’s premises and (2) all time during which an employee is “suffered or permitted to work,” whether or not required to do so.

California State Law (DLSE)IWC Wage Orders: Under basic definition set forth by IWC Orders, “hours worked” means time during which an employee is subject to control of any employer and includes any time employee is suffered or permitted to work, whether or not required to do so.

Court decisions based on California’s slightly broader standardState and federal standards are generally consistent but due to California’s slightly broader standard, situations arise where non-compensable time under federal law is compensable under California law, as the following examples illustrate.

DLSE Advice Letter 2008.11.25: “It is the level of the employer’s control over its employees which is determinative, rather than the mere fact that the employer requires the employee’s activity.”

Morillion v. Royal Packing Co. (2000): Court found that level of control displayed by employer made travel time compensable. Employers (1) required employees to use employer vans for travel to job sites and (2) prohibited them from picking up their children, stopping for food, or running personal errands. Definition of “control” used by the court was broader than standard set forth by FLSA.

Rutti v. Lojack Corp: Alarm installation techs were required to drive company vans to work from home and back. Lojack set forth rules prohibiting certain activity during drive. Compensation was denied under federal law because activity was not integral to principle activities; however, CA state law awarded compensation, asserting that employee was under the control of the employer.

DLSE’s Broader Standard

“Gray Areas”Waiting Time All waiting time is considered “hours worked” if an employee is on duty(Morillion). If the time during which an employee is relieved of duty is long enough such that employee may effectively use time for his or her own purposes, then it is not compensable (DLSE Enforcement Policies and Interpretations Manual Section 10.73 (1989)Travel Time • Travel time to and from work is generally not compensable; however, it is compensable

where it is related to the employee’s job or where it occurs in addition to regular working hours and is pursuant to employer instructions. • This is an area where stricter state law standard makes a difference; travel time is

compensable if employee is subject to the control of the employer even if not “suffered or permitted to work.”• Ex: employees who are required by employer to meet at designated place and to use

work-provided transportation are entitled to compensation for travel and wait time. On-Call Time Constitutes hours worked and must be compensated where the employee is under the control of the employer. These cases are heavily fact-based.

-Non-compensable: employee is able to use time effectively for own purposes-Compensable: employee’s freedom to use time for his or her own purposes is

sufficiently restricted by employer

Cases On-Call/Standby Time

Madera Police Officers Assn. v. City of Madera The DLSE has adopted the two-prong test for assessing control:(1) whether the restrictions placed on the employee are primarily directed toward the fulfillment of the employer’s requirements and policies, and (2) whether the employee was substantially restricted so as to be unable to attend to private pursuits.

Berry v County of Sonoma (1994) Court considered (1) geographical restrictions, (2) frequency of calls, (3) required response time, (4) employees ability to trade on-call responsibilities, and (5) ability to engage in personal activities during on-call period.

Skidmore v. Swift & Co (1944) Where restrictions do not prevent employee’s activities from taking place, an employee is said to be “waiting to be engaged,” which is not compensable

Modern work practices make it easier for employees to stay connected to work through:

• Smartphones • Remote access to work computers

How is overtime established where unauthorized work time in question includes activities that do not occur in the employer’s presence (checking work e-mail on personal smartphone, accessing work computers from home).

Modern Work Practices and Overtime

Unauthorized Work Time

• In determining whether unauthorized work time is compensable, courts look to whether the employer had a “chance to comply with the law” (Forrester v. Roth’s I.G.A Foodliner, Inc. (1981) )

• Did the employer have knowledge of work performed? • Constructive Knowledge: “Should the employer have known?”• Actual Knowledge (White v. Starbuck (2007)

• Did the employer take reasonable action to prevent unwanted work from being performed?

It is not sufficient that an employer promulgate a rule against working unauthorized overtime; it must also enforce it (Porch v. Materfoods USA, Inc. (2008); Fletcher v. Universal Technical Institute, Inc. (2006) )

• Did the employee deliberately prevent the employer from acquiring knowledge of his or her overtime work? (Forrester v. Roth’s I.G.A Foodliner, Inc. (1981)

Forrester v. Roth’s I.G.A Foodliner, Inc. (1981) This case set out the following factors in determining whether an employer has a chance to comply with the law:(1) the employer had no knowledge that the employee was performing overtime work, (2)there was no indication that the employer should have had such knowledge, and (3) the employee failed to notify the employer or deliberately prevented the employer from acquiring knowledge of overtime work

Reich v. Department of Conservation and Natural Resources (1994): The Eleventh Circuit reversed the trial court decision under the reasoning that the department, through reasonable diligence, could have acquired knowledge of overtime work performed by employees

White v. Baptist Memorial Health Care Corp. (2012)An employee who failed to follow reasonable reporting procedures for reporting missed or interrupted meal periods could not recover damages under FLSA for such work

Scenario #1: Sam, an hourly employee, leaves work at the close of his 8-hour shift. Once home, he watches television in his living room for a couple hours and then decides to check his work email on his smartphone. He spends about an hour sifting through old email. Scenario #2: Sam, an hourly employee, leaves work at the close of his 8-hour shift. Once home, he watches television in his living room for a couple hours and then decides to check his work email on his smartphone. He sees an email that was sent by his boss just before he left work. He spends the rest of his evening drafting a response to the email and sends it.

Does it Constitute “Work time?”

Possible Considerations:

• Was Sam was able to effectively use that time for his own purposes?

• To what extent did the Sam’s boss exert control over the Sam? -would failure to conduct such activity have affected his job?-Do prior communications/interactions suggest that Sam’s boss expected/required an immediate response?

• Did Sam’s activity benefit his employer?

Agui v. T-Mobile USA, Inc. (2009)Former T-mobile sales representative claimed that company required them to respond to text messages and work-related emails at all hours using company provided smart devices. The case settled. Rulli v. C.B Richard Ellis Group, Inc (2009)Hourly maintenance employee claimed he was not fairly compensated for time spent on company PDA device. Court granted motion to certify class of similarly situated employees. Jeffrey Allen v. City of Chicago (2015)An employee of Chicago Police Department, demanding overtime pay for work-related time spent on smartphone, has secured class-action status in lawsuit against the city. Case Pending

Cases Involving Smartphone Devices

Labor Code Issues•Minimum Wage Updates•Private Attorney General Act

(PAGA)•Labor Code Section 226

• State-Level AB 10 : min wage is set to increase from $9 to $10 on 1/1/16

Local Minimum Wage increases

Minimum Wage Updates

Passed in 2014 Minimum Wage Effective DateOakland, CA $12.25 In effectBerkeley, CA $12.53 By 2016Richmond, CA $9.60, up to $12.30 By 2017San Francisco, CA $12.25, up to $15.00 By 2018Passed in 2015 Minimum Wage Effective DateEmeryville, CA $16.00 By 2019Los Angeles, CA $15.00 By 2020-2021Sacramento, CA

$10. 50 $11$11.75$12.50

By 2017By 2018By2019By 2020

California’s Fair Pay Act (SB 358)• Signed into law by Governor Brown on October 6, 2015

-Amendment to Cal. Lab. Code § 1197.5

• California has prohibited gender-based wage discrimination since 1949.-However, it was rarely utilized because the previous statutory language made it difficult to establish a successful claim.

• The New legislation eliminated the “same establishment” requirement -Now workers will be allowed to sue under pay discrimination laws if they can prove a worker of the opposite sex is paid more for substantially similar work with no legitimate reason (as defined by statute).

• It also outlaws retaliation for inquiring about other employees' wages, and prohibits retaliating against employees who disclose or discuss their own wages.

AB 1513: Piece-Rate: “Non-productive time” & “Rest and Recovery Periods”

-Signed by Governor Jerry Brown on October 10, 2015, the bill sets forth compensation for “nonproductive time” and rest and recovery periods. -Nonproductive time under this section is to be separately compensated at no less

than min wage rate-Rest and recovery periods are to be compensated at the average hourly piece rate or higher than min wage.

-Second part of bill creates a narrow safe harbor for employers to address their liability under this bill. However, it expressly excludes car dealership employers.

SB 588: Wage Theft -Passed in September, the bill authorizes the Labor Commissioner to provide for a hearing to recover penalties against any employer or person acting on behalf of an employer who violates provisions regulating minimum wages or any order of the IWC.

-20 days after entry of judgement in favor of an employee, the Labor Commissioner is authorized to collect from the charged employer any outstanding amount of the judgment by mailing notice of levy upon his or her credits, money, or property.

-The bill sets forth heavy fines for employers who, within 30 days of final judgement, fail to satisfy final judgement and continue conducting business.

Private Attorney General Act (PAGA)

PAGA is a law that enables private citizens to pursue civil penalties for CA Labor Code violations on behalf of the DLSE. It was enacted in 2004 response to inadequate resources, which made it difficult to ensure Labor Code compliance by employers.

PAGA actions are Representative Actions An employee may bring a PAGA action on behalf of the Labor Commissioner to seek relief for labor Code violations against himself or herself and other current and former employees.

3 types of violations:1. More serious violations (Section 2699.5)2. Health and Safety Violations (Section 6300)3. Other Violations (Violations falling outside first two categories)

Private Attorney General Act (PAGA)California Supreme Court holds that class action waivers are enforceable but PAGA Representative Action Waivers are Unenforceable in Arbitration Agreements

Iskanian v. CLS Trans Los Angeles, LCC (2014): • The CA Supreme Court ruled that class action waivers in arbitration agreements are enforceable. It held that the FAApreempts a state’s refusal to enforce such waiver on grounds of public policy or unconscionability (overturning Gentry v. Superior Court (2007)).

• The court also held that agreement compelling waiver of employee’s right to bring representative PAGA action is contrary to public policy and thus, as a matter of state law, unenforceable.

-Note: The court did not express preference as to whether PAGA claims are to be arbitrated or litigated—just that they cannot be waived in any contract

Private Attorney General Act (PAGA)The U.S Court of Appeals for the Ninth Circuit upheld Iskanian in Sakkab v. Luxottica Retail N. Am. (2015), holding that the waiver of PAGA representative claims in arbitration agreements are unenforceable

• Sakkab’s appellate decision settled the dispute; prior to this case, the courts were split on the issue of PAGA waiver enforceability, with a handful of federal courts ruling that waivers of PAGA claims were enforceable and state courts ruling to the contrary.

• This ruling is binding on all lower federal courts in California.

• Facts: The case originally arose when Sakkab, a former employee of Lenscrafters, filed a putative class action complaint against Luxottica, the owner of Lenscrafters, for (1) unlawful business practices, (2) failure to pay overtime, (3) failure to provide accurate itemized wage statements, (4) failure to pay wages when due. The Plaintiff also added a non-class representative claim for civil penalties under PAGA.

Private Attorney General Act (PAGA) PAGA Representative actions do not fall under the category of “class action”

Arias v. Superior Court (2009) The court held that PAGA claims may be pursued without meeting Rule 23 class certification requirement, arguably facilitating execution of PAGA claims.

Urbino v. Orkin Services( 2014) On appeal, the Ninth Circuit Appellate Court addressed the issue of whether PAGA actions may be removed to federal court, which required a look at whether PAGA claims may be classified as “class actions.” The court found that PAGA claims, unlike “class actions” consist of “employee claims that are not “common and undivided” and thus the penalty amounts could not be aggregated to meet the $75,000 claim requirement for the purposes of diversity jurisdiction.

Thus it was held that federal diversity jurisdiction may not be exercised over PAGA claims (28 U.S.C Section 1332).

What this Means for Employers• Representative PAGA claims are not “class actions” • PAGA claims may not be removed to federal courts based on diversity jurisdiction

Private Attorney General Act (PAGA)• Amendment to CA Labor Code Section 226 threatens to increase the number

of PAGA Suits

Labor Code Section 226 Amendments: Amendment to CA Labor Code Section 226 lowers the standard for proving a wage statement violation by employer: -Showing of “knowing and intentional failure” to comply with code requirement is no longer required. -A showing of a harm is now presumed.

How does this Impact employers? -Wage statement violation class-action suits may prove costly-PAGA claims broaden enforceability of statutory violations-Anticipated increase in wage statement claims due to new sick leave law

Employers should protect themselves by ensuring compliance with 9 statutory wage statement obligations (See handout)

Private Attorney General Act (PAGA)• The legislature responds to increase in section 226 PAGA suits with AB 1506

AB 1506 Urgency Bill signed by governor on October 2, 2015

• Amendment to the California Labor Code Private Attorney General Act.• Provides employers with right to cure Section 226 violations, including

failure to provide employees with wage statements that contain (1) proper pay period dates and (2) employer’s legal name and address.

• Removes Labor Code Section 226 from list of enumerated “serious violations.”

• Enables employers to cure violations by providing aggrieved employees with fully compliant itemized wage statements for each pay period for previous 3 years.

Joint-Employer Liability – AB 1897

• The bill took effect January 1, 2015 and requires employers to share with labor contractors all civil and legal liability for the payment of wages and provision of workers compensation coverage.

• A labor contractor is defined as “an individual or entity that supplies, either with or without a contract, a client employer with workers to perform labor within the client employer’s usual course of business.”

• Advice for Employers: • Employers need to carefully review the contractors who provide workers for their

companies. • While companies cannot contract around the provisions of the new law, companies can

enter into indemnification agreements with the staffing agencies to mitigate some of the risk.

• Companies should audit the staffing agencies they work with to insure they are compliant with the law, and should consider asking for indemnification from the staffing agency should there be any wage and hour violations.

Questions