Payroll Company Not Liable Under Third Party Beneficiary Doctrine

On February 7, 2019, the California Supreme Court determined that an employee cannot sue a payroll company for breach of contract under the third party beneficiary doctrine, and that it is inappropriate to impose a tort duty of care upon a payroll company with regards to the obligations owed to an employee under the applicable labor statutes and wage orders.

After filing a civil complaint against her former employer alleging causes of action for wrongful termination, breach of contract, violations of the Labor Code and related claims, the plaintiff filed several amended complaints that included causes of action against her employer’s independent payroll service provider (“ADP”) based on the payroll company’s alleged status as a joint employer. The trial court subsequently sustained ADP’s demurrer to all causes of action directed against it, without leave to amend. While the Court of Appeal agreed with prior appellate decisions that a payroll company cannot properly be considered an employer of the hiring business’ employee that may be liable under the Labor Code for failure to pay wages (see Futrell v. Payday California, Inc. (2010) 190 Cal.App.4th 1419), it nonetheless held that the employee could maintain causes of action for unpaid wages against the payroll company for breach of the payroll company’s contract with the employer under the third party beneficiary doctrine, as well as negligence and negligent misrepresentation. The Supreme Court disagreed and dismissed the plaintiff’s causes of action against the payroll company without leave to amend.

First, the Court concluded that the plaintiff should not be viewed as a third party beneficiary of the contract between her employer and ADP because, even if the plaintiff was likely to benefit from the contract (which was not clearly alleged in the amended complaint): (i) the motivating purpose behind the contract was to provide a benefit to the employer, not the third party plaintiff, and (ii) permitting employees to name the payroll company as an additional defendant in wage and hour lawsuits would not be consistent with the objectives of the contract and the reasonable expectations of contracting parties. Accordingly, the third party beneficiary doctrine was inapplicable and the employee could not maintain an action against the payroll company for an alleged breach of the contract between the employer and ADP with regard to the payment of wages. Second, the Court decided that it is neither necessary nor appropriate to impose upon a payroll company a tort duty of care with regard to the obligations owed to an employee under the applicable labor statutes and wage orders, and consequently that the negligence and negligent misrepresentation causes of action lack merit.

New TSCA Labelling Requirements for Composite Wood Products to go into Effect March 22, 2019

Employees can sue for unsafe work environment. At Jackson Lewis, we pride ourselves in providing advice to employers on how to prevent or minimize workplace related claims. Employers are obligated to warn consumers and employees of any risks involved with exposure to products or space exhibiting certain levels of chemicals. This article addresses the new TSCA rules that employers should look into to protect themselves from notice of violations and claims, not only from consumers, but from their own employees who might be exposed to chemicals.

On December 12, 2016, a final rule to implement the Formaldehyde Standards for Composite Wood Products Act, which added Title VI to the Toxic Substances Control Act (“TSCA”) was published in the Federal Register. The purpose of TSCA Title VI is to reduce exposure to formaldehyde emissions from certain wood products produced domestically or imported into the United States. The EPA worked with the California Air Resources Board (“CARB”) to help ensure the final national rule was consistent with California’s already existing requirements, including labelling requirements, for similar composite wood products, i.e. hardwood plywood, particleboard, and medium density fiberboard.

Included in TSCA Title VI were new labelling requirements for fabricators of finished goods that contain composite word products. These labelling requirements have a two-stage implementation. First, beginning on June 1, 2018, composite wood products sold, supplied, offered for sale, manufactured, or imported in the United States are required to be labeled as CARB ATCM Phase II or TSCA Title VI compliant. The practical impact of this first stage was minimal, in that products only needed to be labelled consistent with already existing California CARB labelling requirements in order to comply with TSCA Title VI.

However, on March 22, 2019, the second stage comes into effect. Beginning on this date, composite wood products must be labeled as TSCA Title VI compliant, and just having a label indicating California CARB II compliance is no longer sufficient.

In order to be compliant with the new TSCA Title VI labelling requirements, fabricators of finished goods that contain composite wood products must label every finished good they produce, or every box or bundle containing finished goods.

Finished goods that comply with TSCA Title VI and are labeled as TSCA Title VI compliant will be accepted as being compliant with California CARB’s standards, because the TSCA Title VI and CARB standards are identical. However, CARB recommends labeling panels and finished goods offered for sale in California as being compliant with both sets of regulations, because retailers and consumers are familiar with the CARB Phase II label already.

In order for a label to be both California CARB II and federal TSCA Title VI Compliant as of March 22, 2019, it is recommended that both the finished good and/or its box is labelled as follows:

  1. The label may be applied as a stamp, tag, or sticker;
  2. The label must include, in legible English text:
    1. Fabricator’s name;
    2. The date the finished good was produced (in month/year format);
    3. A statement that the finished goods are TSCA Title VI compliant, i.e. “TSCA Title VI Compliant” or similar;
    4. A marking to denote that the finished goods are CARB Phase II Compliant, i.e. “California 93120 Phase 2 Compliant for Formaldehyde” or similar;
    5. If all of the composite wood product used in the finished good was made with no-added formaldehyde-based resins, or ultra low-emitting formaldehyde resins it shall be labelled as such, e.g. “Produced with all NAF-based products” or “Produced with all ULEF-based products.”

The regulations specify the minimum information required for a label, but do not specify the format, color, size, or font for the label. These choices are left to the fabricator of finished goods to allow flexibility to meet the needs of individual companies. The required information may be on a separate label or incorporated into other existing labels. Individual companies may include any additional information they deem necessary. The label should be in a location that is easily accessible.

Importers, distributors, and retailers must leave intact labels on finished goods, including component parts sold separately to end users. However, they do not have any additional labelling requirements, as long as they have not modified the finished goods.

If you have any questions regarding these new requirements, please contact Leila Nourani and Zoe E. Tremayne, who have expertise in this area.

Disability Discrimination and Reasonable Accommodation under California’s Fair Employment and Housing Act (FEHA) [1]

If your business has five or more employees, your business is one of the millions in California that has a duty to provide reasonable accommodations for its employees with known disabilities.

A duty to provide reasonable accommodation arises when the employer knows of the employee’s disability. While the employer undoubtedly becomes aware of the disability when the employee directly informs the employer, the duty is also triggered if the employer learns of the disability from someone else or by observation.

Once the employer knows of the disability, the employer must enter into the “interactive process” with the employee to determine an appropriate accommodation. While the term “interactive process” may sound like it’s riddled with formalities, but it is actually quite informal and simple to accomplish. Engaging in the “interactive process” is basically an informal discussion with the employee (or his/her representative) in which the employer makes an effort to identify a reasonable accommodation that will allow that employee to continue to perform the essential function of the job he/she was hired to perform. This can be as simple as a brief, morning check-in, but must be done and should be memorialized in writing.

As part of this discussion, and if the disability is not obvious, the employer may ask for supporting medical documentation. However, this does not entitle the employer to a free-for-all of the employee’s medical records, and the employee must still be afforded his/her right to privacy. This means that if the employee chooses to remain private about his/her medical condition, managers and supervisors who need to know of the disability to meet the employee’s work restrictions, should be the only individuals privy to the employee’s disability. Any information and records obtained as part of the interactive process, should be maintained separate from the employee’s personnel file and kept confidential.

However, before the interactive process takes place, it is important for the employer to have a firm grasp on what constitutes the essential functions of the employee’s job. Once that is determined and within a reasonable time of the employer learning of the employee’s disability, the employer and employee can engage in a meaningful dialogue about how the employee’s disability can be reasonably accommodated to allow him/her to continue to perform his/her job – the keyword here being “reasonably”.

An accommodation is reasonable when changes are made so that the employee with disabilities can perform the essential functions of the job, unless the employer can demonstrate that granting an accommodation creates and undue hardship to the business operation. In such a scenario, the accommodation would be considered unreasonable, and the employer would not be required to accommodate the employee.

An “undue hardship” is defined as an action requiring “significant difficulty or expense”. (California Gov’t Code section 12926 (u).) While the determination of what constitutes an “undue hardship” is extremely fact-specific, the courts will use the following factors to determine whether an undue hardship exists:

  1. The nature and cost of the accommodation needed, taking into consideration the availability of tax credits and deductions and/or outside funding;
  2. The overall financial resources of the facilities involved in providing the reasonable accommodations, the number of persons employed at the facility and that effect of the accommodation on expenses and resources or on the operations of the facility, including the impact on other employees’ ability to perform their duties and the facility’s ability to conduct business;
  3. The overall resources of the covered entity, the overall size of the business with respect to the number of employee, and the number, type, and location of the covered entity’s facilities;
  4. The type of operations of the employer entity, including the composition, structure and functions of its workforce; and
  5. The geographic separateness, administrative or fiscal relationship of the facility or facilities involved. (California Gov’t Code section 12926 (u).)

As mentioned, whether an accommodation is reasonable, and whether it creates an undue hardship on the employer, is fact-specific. Therefore, it requires an individualized analysis, which considers factors like, the employee’s disability, the cost of the accommodation, and the employer’s ability to pay for it. This kind of an analysis can be done internally, but is much better suited for experienced employment counsel.

If this is a situation your business has come across or is currently dealing with, or if you prefer a proactive approach, and have additional questions, please contact the author of this blog or your favorite Jackson Lewis attorney.

[1] It is important to note that the duty to reasonably accommodate arises under FEHA and under the Americans with Disabilities Act (ADA) and that FEHA protections against disability discrimination are independent of those the ADA provides. The FEHA provides broader protection than the ADA in certain important areas, including the employer’s duty to accommodate.

Fishing for a Lawsuit: Tips and Tricks for Personnel Files and Pre-Litigation Records Requests

If you have ever received a pre-litigation records request, then you may already know that such a request tends to be a harbinger of a lawsuit on the horizon. Plaintiff’s lawyers regularly use Labor Code provisions to obtain pay and personnel records, before a lawsuit has been filed. While employees (or their representative) are undoubtedly entitled to receive these records, this “try before you buy” approach allows Plaintiff’s attorneys to assess the strength of their client’s claims, and, less obvious, allows Plaintiff’s attorneys to scour employers’ records for additional, company-wide violations. For employers who include more than they should in their employees’ personnel files, this could prove to be a costly mistake that could have been easily avoided.

Labor Code section 1198.5, which governs the production of an employee’s personnel file pre-litigation, does not identify which documents should be in a personnel file. Consequently, well-meaning employers often include more items than necessary. These items include, but are not limited to, investigation reports, medical documents, and worker’s compensation documents.

However, the most common, and most problematic item included in a personnel file, is a copy of the employer’s entire employee handbook. The issue here is that, while the employee may have signed an acknowledgement of receipt/review of the handbook (which can be included in his/her personnel file), the handbook itself may contain incorrect or outdated recitations of the law. The effect? Savvy Plaintiff’s attorneys take these incorrect or outdated policies and use them as the basis for a class action or Private Attorneys General Act (PAGA) representative action, predicated on an on-paper, company-wide misapplication of the law. (See Brinker v. Superior Court (2012) 53 Cal. 4th 1004.) And just like that, the employer faces a class action lawsuit when the employee’s file may not have indicated labor code violations had the file contained only the necessary documents.

So what are those necessary documents? As mentioned, Labor Code section 1198.5 is silent on this question. However, the Department of Labor Standards Enforcement (DLSE) has provided some guidance. According to the DLSE, categories of records that are generally considered to be “personnel records” are those that are used or have been used to determine the employee’s qualifications for promotion, additional compensation, or disciplinary action, including termination. The following are some examples of “personnel records”:

  1. Application for employment
  2. Payroll authorization form
  3. Notices of commendation, warning, discipline, and/or termination
  4. Notices of layoff, leave of absence, and vacation
  5. Notices of wage attachment or garnishment
  6. Education and training notices and records
  7. Performance appraisals/reviews
  8. Attendance records

This list is not exhaustive and employers are encouraged to seek a comprehensive review of the employee’s file by an employment law attorney before providing to the employee or his/her representative by the statutory or agreed upon deadline[i].

The key to avoiding lawsuits is to engage in preventative best practices early, which, in this case, begin when the employee is hired and their personnel file is created.

For questions, additional guidance on preventative best practices, or assistance with your employment matters, contact the author of this blog or your favorite Jackson Lewis attorney.

[i] Records requested pursuant to Labor Code sections 226 (pay records) and 1198.5 (personnel file) must be provided within 21 and 30 days, respectively, or as agreed upon between the employer/employer representative and the employee/employee representative.

Start Planning Your Workplace Sexual Harassment Trainings Early – The Ins and Outs of the Training Requirements Going into Place in 2020

California employment law is changing once again.  By January 1, 2020, an employer having five or more employees will be required to provide at least one hour of sexual harassment training to all of its employees, once every two years. The training will be required to start within six months of the employee’s assumption of a position.


Supervisory employees will be required to undergo two hours of classroom or other effective interactive training regarding sexual harassment.   Supervisory employees are those with authority to hire, fire, assign, transfer, discipline, or reward other employees or who many effectively recommend these actions if exercising that authority requires the use of independent judgment.

All other (Non-supervisory) employees will be required to undergo at least one hour of classroom or other effective interactive training regarding sexual harassment.  These training requirements apply to both permanent and temporary / seasonal employees.


Employers must provide sexual harassment prevention training in a classroom setting, through a live presentation, interactive E-learning, or a live webinar. If employers use E-learning training, the training must provide instructions on how to contact a trainer who can answer questions of trainees within two business days.


The training should include information and practical guidance regarding federal and state provisions on the prohibition against and the prevention of sexual harassment, as well as available remedies. California’s Department of Fair Employment and Housing requires trainings to explain: the legal definition of sexual harassment under state and federal law; examples of conduct which may constitute sexual harassment; resources and remedies available for victims of sexual harassment; strategies to prevent sexual harassment; supervisors’ obligations to report harassment; limited confidentiality of the complaint process; methods in which employers must correct harassing behavior; and what to do if a supervisor is personally accused of harassment. The training must also address “Abusive Conduct” under Government Code section 12950.1(g)(2), and harassment based on gender identity, gender expression, and sexual orientation.


California law limits qualified harassment trainings to three types of individuals: (1) Attorneys who have been members of any state bar for at least two years and whose practice includes employment law under the Fair Employment and Housing Act or Title VII of the federal Civil Rights Act of 1964; (2) Human resource professionals or harassment prevention consultants with at least two years of practical experience in: designing or discrimination training on discrimination, retaliation and sexual harassment prevention and/or investigating, responding to, or advising regarding sexual harassment, discrimination or retaliation; or (3) law school, college, or university instructors with a post-graduate degree or California teaching credential and either 20 hours of instruction about employment law under the FEHA or Title VII.

How We Can Help:

The ins-and-outs of harassment training are extensive and complex. You don’t have to figure it out on your own. Jackson Lewis has five California offices and over one hundred and sixty five California attorneys, with experience in employee training and other “best practices” consulting to a variety of employers, large and small. If you have any questions, please feel free to contact your local Jackson Lewis office.

CASE LAW UPDATE: California Employees Cannot be Compelled to Arbitrate PAGA Claim Without the Government’s Consent

In a recent case, the California Court of Appeal held, employees could not be compelled to arbitrate their claim under California’s Private Attorney General Act without the government’s consent, despite signing an arbitration agreement. Correia v. NB Baker Electric.

There, plaintiffs Mark Correia and Richard Stow sued their former employer, NB Baker, alleging wage-and-hour violations and seeking civil penalties under the Private Attorney General Act of 2004 (PAGA).  Defendant NB Baker petitioned the Court for arbitration pursuant to the parties’ arbitration agreement, which provided that arbitration would be the exclusive forum for any dispute.  Moreover, the arbitration agreement stipulated no dispute could be brought as a class or representative action.

The trial court granted the arbitration petition on all causes of action except for the PAGA claim, following two prior California decisions. (Iskanian v. CLS Transportation Los Angeles, LLC (2014 59 Cal. App. 4th 48) (holding unenforceable agreements to waive the right to bring PAGA representative actions in any forum) and Tanguilig v. Bloomingdales, Inc. (2016) 4 Cal. App. 5th 665 (holding a PAGA claim cannot be compelled to arbitration without the state’s consent)).

NB Baker appealed, arguing the United States Supreme Court decision Epic Systems Corp v. Lewis (2018), which reaffirmed the broad preemptive scope of the Federal Arbitration Act, preempted Iskanian and Tanguilig.

The Court of Appeal affirmed the trial court’s finding, holding California courts remain bound by Iskanian.  The Court acknowledged the Epic court’s findings, but concluded they were not applicable because Epiq did not specifically address the issues of claims for civil penalties brought on behalf of the government, and the enforceability of an agreement barring a PAGA representative action in any forum.  The Court concluded that a waiver of PAGA representative claims in any forum is unenforceable.

In applying Iskanian, the Court also found that the State is the real party in interest in a PAGA claim.  Therefore, the State must consent to an agreement to effectively waive the right to bring a PAGA claim into court.

The Court acknowledged the seeming inconsistency of its findings with the federal courts, but characterized the federal decisions as “unpersuasive” due to the fact those courts did not fully consider the implications of the “qui tam” nature of a PAGA claim on the enforceability of an employer-employee arbitration agreement.

What does this mean for employers? Under this clarification, California employers cannot avoid PAGA lawsuits in Superior Court through a general pre-dispute agreement.  While an employee may still agree to waive their right to a jury trial and proceed to arbitration on a variety of claims, such an agreement is unenforceable as it relates to PAGA claim.  Of course, the best manner to prevent and/or effectively defend PAGA suits is to ensure proper compliance with all local, state and federal regulations, and maintain ample written record of the same.

Paid Sick Leave Laws May Vary By City

By now, most employers should be aware of the California Healthy Workplaces, Healthy Family Act which went into effect in 2015.  Under California law, all employers (with very few exceptions), must allow employees to use up to 3 days or 24 hours of paid sick leave in a 12-month period.  However, what many employers do not know is that several cities within the State of California have their own paid sick leave requirements, many of them more stringent than those required under the state law.

As of January 2019, the following cities have their own separate paid sick leave laws, some with requirements that differ from state law: Berkeley, Emeryville, Los Angeles (city), Oakland, San Diego, San Francisco, and Santa Monica.[1]  Some of these city-specific laws contain provisions that are different than or conflict with the requirements under California law.  Employers must adopt the provisions which are more favorable to the employee.  For example, under state law, employees can be limited to using 3 days or 24 hours of paid sick leave in a 12-month period.  However, the paid sick leave law in the City of Emeryville does not contain an annual use cap and, as such, employers with employees working in Emeryville cannot limit the number of paid sick leave hours their employees use in a 12-month period.[2]

Typically, for an employee to qualify under a city-specific paid sick leave law, the employee must work in that city for two hours in a calendar week, and meet other requirements as specified by that city’s paid sick leave law.  For example, to qualify under Emeryville’s sick leave law, employees must work in that city for at least two hours in a calendar week and be entitled to minimum wage.  To qualify under San Diego’s sick leave law, employees must work in the city for at least two hours in a calendar week, be entitled to minimum wage or participate in a state Welfare-to-Work program.  Employers who have employees operating in any or all of these cities, may need to modify their paid sick leave or paid time off policies so as to meet the requirements of both the California state law and the law of the cities in which their employees work.  Moreover, employers with employees operating in multiple cities throughout the state may need to administer different policies to employees based on which city the employee works in.


[1] Additionally, hotel workers in the cities of Los Angeles and Long Beach are also subject to paid sick leave provisions that differ from the California law.

[2] The Emeryville law does contain a limit on yearly accrual.

California Bill Would Allow College Athletes to Keep Amateur Status While Securing Marketing Opportunities

The opportunity for college level student-athletes in California to take advantage of potential marketing opportunities while still maintaining their amateur status could soon become a reality.

A report from the National College Players Association and Drexel University Sports Management Program concluded that 82 percent of full-scholarship athletes who live on campus and 90 percent of full-scholarship athletes who live off campus live at or below the federal poverty level. Please find the rest of this article on our Collegiate & Professional Sports Law Blog.

Did You Know California has a State Mandated Retirement Plan?

Frequently Asked Questions About CalSavers


What is CalSavers?


CalSavers is a new California law designed to encourage employees to save for retirement. CalSavers was originally called California Secure Choice and was approved by the State Legislature in 2016.

CalSavers provides employees with a retirement savings program without the administrative complexity, fees, or fiduciary liability of existing options for employers. Most employers with at least five employees, that do not already offer an employer-sponsored retirement plan, will be required to begin offering a retirement plan or provide their employees access to CalSavers. Please find the full article in our Benefits Law Advisor blog here.

Teamsters Challenges Federal Agency Decision on California Break Rules on Interstate Truck Drivers

The International Brotherhood of Teamsters, Local 2785 has filed a petition for review to the Ninth Circuit Court of Appeals on the Federal Motor Carrier Safety Administration’s (FMCSA) determination that California’s meal and rest break rules are preempted as applied to drivers of commercial motor vehicles (CMVs) subject to the FMCSA’s hours-of-service (HOS) regulations. This primarily involves interstate truck drivers and some intrastate drivers who meet certain criteria under the HOS regulations who drive CMVs. The Teamsters are seeking to reverse the Agency’s administrative determination.

On September 24, 2018, the American Trucking Associations (ATA) petitioned the FMCSA to preempt California law requiring employers to provide their drivers meal and rest breaks who operate CMVs subject to the FMCSA’s HOS regulations.

On December 21, 2018, the FMCSA reversed an FMCSA determination from December 2008 where it previously found California’s meal and rest periods were not preempted by federal law. The FMCSA then granted ATA’s petition and held the meal and rest break rules are preempted under 49 U.S.C. 31141 as applied to CMV drivers covered by the FMCSA’s HOS regulations. Docket No. FMCSA-2018-0304.

FMCSA held that federal law provides for preemption of California laws regarding CMV safety that are additional to or more stringent than federal regulations if they: (1) have no safety benefit; (2) are incompatible with federal regulations; or (3) would cause an unreasonable burden on interstate commerce. The FMCSA determined that the meal and rest break rules are laws on CMV safety, they are more stringent than the Agency’s HOS regulations, have no safety benefits that extend beyond those already provided, and are incompatible with the HOS regulations. They cause an unreasonable burden on interstate commerce, the Agency concluded.

The Teamsters responded by filing a petition for review of the FMCSA’s Determination of Preemption. In light of these recent developments, California employers with drivers covered by FMCSA may consider proceeding cautiously until the matter is clarified through the current litigation. If you have any questions, please feel free to contact Jackson Lewis.