Written by Brett Sutton
For California employers, a trilogy of recent judicial decisions has packed a painful wallop. Many employers will have to make substantial changes to longstanding policies and practices.
Here’s a closer look at these cases:
Dynamex Operations West, Inc. v. Superior Court (April 30, 2018)
For almost 30 years, the determination under California wage-and-hour law of whether a hired person must be treated as an employee, rather than an independent contractor, was governed by the California Supreme Court’s decision in S.G. Borello & Sons, Inc. v. Department of Industrial Relations. Under Borello, the main factor in deciding whether someone qualified as an employee was “whether the person to whom service is rendered has the right to control the manner and means of accomplishing the result performed.” To make that determination, the Court considered several factors, including whether the person was engaged in an occupation or business that is distinct from that of the employer, and whether the worker provided his or her own tools.
This year, in Dynamex, the California Supreme Court announced an entirely new test. Under the new standard, known as the “ABC Test,” a person is presumed to be an employee unless the employer can prove all three of the following: (1) the individual is free from the control and direction of the employer in how he or she carries out the assigned tasks; (2) the individual performs a task that is outside the normal scope of the employer’s business; and (3) the individual is customarily engaged in an independent business or trade.
Without a doubt, the second prong of the ABC test will be a death knell to numerous independent contractor relationships throughout the state. Entire industries that historically have relied on independent contractors to do work within the normal scope of their business will be forced to reclassify those workers as employees, and to guarantee them all the protections of California’s strict wage-and-hour laws, including minimum wage, overtime, meal and rest breaks, and mandatory days of rest. If not they can face devastating penalties.
Now more than ever, California employers must be especially careful in using independent contactors. They are now presumed to be employees unless the difficult requirements of the ABC Test are satisfied, and anyone who performs tasks that are part of an employer’s core business is almost certainly an employee for wage-and-hour purposes.
Huff v. Securitas Security Services USA, Inc. (May 23, 2018)
In California, the Private Attorneys General Act of 2004 (“PAGA”) allows “aggrieved employees” to act as representatives of the State and pursue civil penalties for their employer’s violations of California’s wage-and-hour laws. These penalties are extremely costly and typically imposed on a per-employee, per-pay period basis. Until this year, many attorneys and commentators believed an employee could only recover penalties for those violations he or she actually suffered.
In Huff, the California Court of Appeal clarified that an employee who has been affected by any Labor Code violation may pursue penalties under PAGA for every Labor Code violation committed by that employer, including violations that did not personally affect the employee bringing the PAGA claim. The court reasoned that the traditional judicial concept of “standing”—that only a person who actually suffered an injury may sue for that injury—does not apply to representative actions under PAGA.
The immediate result of this decision will be broader assertions of PAGA violations across the board. Any employee seeking penalties under PAGA will now allege every potential violation as opposed to only those he or she experienced personally.
Troester v. Starbucks Corporation (July 26, 2018)
Since 1946, a concept called the “de minimis doctrine” has been applied to employment wage-and-hour cases under federal law. Under the doctrine, alleged working time need not be paid if it is trivially small. Over the years, federal courts have often applied the doctrine to excuse the non-payment of wages for seconds or minutes of otherwise compensable time, where it was shown that such time was administratively difficult to record.
Now, 74 years later, the California Supreme Court has held for the first time that the federal de minimis doctrine generally does not provide a defense under California law for even small amounts of unpaid work time. This means that California employers may be subject to significant liability for even a few minutes of unpaid time here and there, for small tasks that employees might perform “off the clock” each day.
In Troester, the plaintiff worked a period of 17 months for Starbucks, during which he worked off the clock for a total of 12 hours and 50 minutes, resulting in total unpaid wages of $102.67. In response to this situation, the Court stated: “An employer that requires its employees to work minutes off the clock on a regular basis or as a regular feature of the job may not evade the obligation to compensate the employee for that time by invoking the de minimis doctrine.”
There are several useful tips California employers should consider in responding to this important trilogy of cases. First, review all independent contractor relationships with qualified counsel for compliance with the ABC Test. Second, conduct a thorough review of payroll practices and employment policies, including employee handbooks, to ensure compliance with the Labor Code and any applicable Wage Order. Third, use mandatory arbitration agreements with class action waivers to require litigation of employee claims on an individual basis. And fourth, take all measures to guarantee that employees are not working off the clock, including attestation clauses on employee time records, drop-box policies for reporting all unpaid work time, and strong written policies prohibiting off-the-clock work.
Brett Sutton is the owner and managing partner of Sutton Hague Law Corporation, with offices in California (including Fresno) and Nevada. The focus of the firm’s practice is labor and employment law. For more information on the above cases, check out SHLC’s December 2018 webinar entitled “2019 Legal Update for California Employers: What You Need to Do Now.” Visit www.suttonhague.com/events.