In Kim v. Reins International California, Inc. 18 Cal.App.5th 1052 (2017), the California Court of Appeal for the Second Appellate District held an employee-plaintiff that settled and dismissed his individual claims was no longer an “aggrieved employee” for purposes of standing to bring a claim for civil penalties under the Private Attorneys General Act (“PAGA”).

Under PAGA, an “aggrieved employee” may bring a representative action on behalf of him or herself and other “aggrieved employees” for civil penalties for various violations of the California Labor Code. (Cal. Labor Code §§ 2698, et seq.)  PAGA cases have become increasingly favored by plaintiffs’ attorneys for a number of reasons, including the fact that PAGA-claims cannot be compelled into arbitration.

On January 7, 2020, three years after the Court of Appeal’s ruling, the California Supreme Court heard oral argument in the case to determine whether an employee-plaintiff bringing an action under PAGA loses standing to pursue PAGA claims by dismissing his or her individual claims against the employer.

Counsel for the employee argued that the appellate ruling caused the plaintiff-employee and the State of California (which deputized him to prosecute PAGA claims) to be at odds.  He argued the plaintiff-employee would be faced with potentially choosing against his own settlement to protect the representative action.  In the underlying case, Plaintiff Kim was served with an offer to compromise to resolve his individual claims pursuant to Code of Civil Procedure § 998.  If Kim had not accepted the offer to compromise and failed to obtain a larger judgment on his individual claims pursuant to Section 998, Kim may not have been permitted to recover court costs as the prevailing party and may have had to pay Reins International’s costs.

The Justices seemed concerned that the argument to overturn the Court of Appeal meant that an employee who brought a PAGA claim and later wanted to abandon the claim would be unable to do so without judicial intervention.

However, the Justices seemed even more skeptical of Reins International’s position.  Justice Liu stated that it seemed employers could “pick off” employees until no PAGA claims remained.  In response, counsel for Reins International argued that enforcement actions by the State could still proceed, to which the Chief Justice retorted, “we all know that doesn’t work.”

The California Supreme Court could decide to restructure PAGA claims to be more like class actions by allowing for the substitution of a new plaintiff when the named employee-plaintiff is no longer an “aggrieved employee,” an option offered by the employee’s counsel.

We will continue to monitor the Kim v. Reins International California, Inc. case for the issuance of the California Supreme Court’s opinion.

The California Trucking Association (“Association”) challenges Assembly Bill 5 (“AB 5”) by arguing the Federal Aviation Administration Authorization Act (“FAAAA”) of 1994 preempts state laws “relating to a price, route or service of any motor carrier”. After the California Supreme Court decided Dynamex Operations West, Inc. v. Superior Court (“Dynamex”) in 2018, Governor Newsom signed into law, California State Assembly Bill 5, which clarified the Dynamex independent contractor test and codified the test into law.  As a result, truckers, and the positions of numerous industries historically classified as independent contractors which are not listed as exemptions, must re-classify from independent contractors to employees.

As California rang in the new year, the Association had a win, although temporary. While U.S. District Judge Roger Benitez considers imposing a permanent injunction, he granted a temporary restraining order preventing application and enforcement of AB 5 to truck drivers until he rules on the Association’s request for a preliminary injunction.

Judge Benitez’s order states that a required element of AB 5 is likely preempted by the FAAAA. This means that the court found that current federal law likely prevents at least a part of the state law, AB 5, from applying to truckers.  The order also states that granting the temporary restraining order is in the public interest. AB 5 will not apply to truckers while the temporary restraining order remains effective.

On January 13, Judge Benitez will consider the Association’s request for a preliminary injunction.  If the Association prevails by obtaining the preliminary injunction, truckers can continue to operate as independent contractors. Meanwhile, other groups affected by AB 5, including rideshare companies and freelance journalists, pursue their own court battles against the law which can disrupt numerous industries.

Jackson Lewis will continue to monitor the application of AB 5 and the legal developments regarding its implementation. Contact a Jackson Lewis attorney if you have questions about independent contractors, AB 5, and related cases.

The State of California has been temporarily enjoined from enforcing Assembly Bill 51’s prohibition on mandatory employment arbitration agreements. Chamber of Commerce of the United States, et al. v. Becerra, et al., No. 2:19-cv-2456 (E.D. Cal. Dec. 30, 2019). Enforcement of Assembly Bill 51 is enjoined until the court can decide the pending motion for a preliminary injunction, which is set for a hearing on January 10, 2020.The court ruled that the U.S. Chamber of Commerce and other business organizations have shown that there are serious questions regarding whether California’s law is preempted by the Federal Arbitration Act (FAA); that if enforced, California’s law could cause disruption to employment contracts, particularly in light of the potential for the imposition of criminal penalties on employers; and that the State of California will not be harmed by a temporary injunction on the enforcement of Assembly Bill 51.

Under Assembly Bill 51, employers are prohibited from requiring employees to sign new mandatory arbitration agreements concerning disputes arising under the California Fair Employment and Housing Act (FEHA) or California Labor Code. AB 51 applies only to contracts executed, modified, or extended on or after January 1, 2020. Recently enacted Labor Code section 432.6 bars mandatory employment arbitration agreements starting January 1, 2020. (For more on AB 51, see our article, New California Law Attacks Mandatory Arbitration Again … But Is It More Bark Than Bite?)

The U.S. Chamber of Commerce and other business organizations filed suit in federal court against the State of California to have Assembly Bill 51 declared preempted by the FAA. (See our article, California Bar on Mandatory Arbitration Agreements in Employment Challenged, Injunction Sought.) The lawsuit also seeks a declaration that Assembly Bill 51’s express FAA carve out provision, which protects mandatory employment arbitration agreements otherwise enforceable under the FAA, applies to both enforcement and formation of arbitration agreements.

Please contact a Jackson Lewis attorney with any questions about this case.

As 2019 comes to a close, here is a look ahead to some of the legislation going into effect on January 1, 2020, that affects employers in California.

Independent Contractors

Assembly Bill 5 codifies and clarifies the California Supreme Court’s 2018 Dynamex Operations West, Inc. v. Superior Court of Los Angeles County, 4 Cal. 5th 903. In Dynamex, the Court adopted the “ABC Test” for determining whether an individual should be classified as an independent contractor. Under the ABC Test, to establish that an individual is, in fact, an independent contractor, an employer must prove that the person: (A) is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact; (B) performs work that is outside the usual course of the hiring entity’s business; and (C) is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.

Arbitration Agreements

Assembly Bill 51 makes it unlawful for any person to require a job applicant or employee to waive California Fair Employment & Housing Act (FEHA) or Labor Code-based rights as a condition of new or ongoing employment or receiving any employment-related benefit — that is, if the Federal Arbitration Act (FAA) does not apply. Employers are prohibited from threatening, retaliating, discriminating against, or terminating any job applicant or employee because of their refusal to consent to the waiver of any FEHA or Labor Code-based rights. Moreover, under Senate Bill 707, companies that fail to pay required arbitration fees within 30 days after the due date are in material breach of their arbitration agreements.

Protective Hairstyles

Senate Bill 188 introduced the CROWN Act (Creating a Respectful and Open Workspace for Natural Hair), which clarifies the definition of race for the workplace and educational institutions to include hair texture and protective hairstyles. It also defines protective hairstyles.

Lactation Accommodations

Senate Bill 142 expands on existing California Labor Code requirements for employee lactation accommodations and adopts significant new consequences to employers for non-compliance. The law requires the following features for private lactation spaces: they be safe, clean, and free of hazardous materials; contain a surface to place a breast pump and personal items; contain a place to sit and have access to electricity or alternative devices (e.g., extension cords or charging stations) needed to operate a breast pump. SB 142 also requires employers to provide access to a sink with running water and a refrigerator (or cooler) to store milk, in close proximity to the employee’s workspace. Furthermore, employers must develop and implement a lactation policy that includes a statement concerning an employee’s right to request lactation accommodation.

Organ Donation

Assembly Bill 1223 extends the amount of leave an organ donor may take. In addition to paid leave already required under California law, private employers must provide a maximum of an additional 30 business days of unpaid leave.

Minimum Wage Increases

California’s stair-step minimum wage regulation raises the minimum wage again on January 1, 2020. For employers with up to 25 employees, the statewide minimum wage will increase to $12.00 per hour; employers with 26+ employees must pay at least $13.00 per hour.

This raise also affects the minimum salary requirements for exempt employees. For employers with up to 25 employees, the minimum salary requirement will increase to $49,920; for employers with 26+ employees, the minimum salary requirement will increase to $54,080.

Applicable local minimum wage ordinances may exceed the minimum wage statewide. Employers must comply with the higher rate.

For more information on these regulations and other changes to California employment law in the new year, check out https://www.californiaworkplacelawblog.com or contact a Jackson Lewis attorney to discuss your company’s compliance.

Beginning January 1, 2020, agreements to settle employment disputes may no longer contain “no rehire” provisions, as California passes additional legislation spurred on by the #MeToo movement.  California joins Vermont and Oregon as the first states to prohibit “no rehire” provisions in employment settlement agreements.

“No rehire” provisions typically state that a former employee will not be rehired by the employer or its parent, subsidiary, or affiliate companies as part of an agreement to settle employment-related disputes.  Additionally, these provisions may state that the refusal to rehire cannot be evidence of discrimination or retaliation.  While once common, such provisions are now prohibited in California by Assembly Bill 749, which will go into effect as California Code of Civil Procedure § 1002.5.

The law applies to all settlements reached following the resolution of an employment dispute, even where no lawsuit was filed.  The law states that it applies to instances where an “aggrieved person” has filed a claim in court, before an administrative agency, in an alternative dispute resolution forum, or through the employer’s internal complaint process.

There is a single exception to the prohibition against “no rehire” provisions: a “no rehire” provision may be permitted if the employer has made a good faith determination that the individual engaged in sexual harassment as defined by the Fair Employment and Housing Act, or sexual assault as defined in the California Penal Code.  This exception applies only to the employer and will not permit a broad “no rehire” provision prohibiting the settling individual from obtaining future employment with the settling employer’s parent companies, subsidiaries, affiliates, or contractors.

The law clarifies that it does not require an employer to continue to employ or rehire an individual if there is a legitimate, non-discriminatory or non-retaliatory reason for terminating the employment relationship, or for refusing to rehire the individual.  Where a dispute is raised by a current employee, the employee and employer may agree to end the employment relationship as part of the settlement agreement.

California Code of Civil Procedure § 1002.5 will apply to all settlement agreements entered on or after January 1, 2020, and will not apply retroactively to agreements entered before that date.

California employers should review their standard severance agreements and settlement agreements to ensure they are up to date in the coming year.  For additional guidance on this issue, please contact a Jackson Lewis attorney.

California employers are not alone as they wrestle with AB 51’s January 1, 2020 new law on mandatory arbitration agreements. (For background on AB 51 see our article). On December 6, 2019, the U.S. Chamber of Commerce and other business organizations filed suit against the State of California to have AB 51 declared preempted by the Federal Arbitration Act (FAA). Alternatively, the lawsuit seeks a declaration that AB 51’s express FAA carve out provision, which protects arbitration agreements otherwise valid under the FAA, applies to both enforcement and formation. The case is filed in the Eastern District of California as Chamber of Commerce of the United States v. Becerra, Case No. 2:19-cv-2456 KJM DB.

What happens next? The lawsuit seeks both a preliminary and permanent injunction. The motion for preliminary injunction has already been filed and is set for hearing on January 10, 2020. If the court grants the motion for preliminary injunction, AB 51 will be placed on hold and employers will be spared from its enforcement during the lifetime of the preliminary injunction and until the case can be decided on the merits. Stay tuned here for updates. Jackson Lewis will continue to monitor all developments.

The California Supreme Court announced that it would decide whether its April 30, 2018 landmark Dynamex decision is retroactive. The Supreme Court’s determination will have a significant impact on companies utilizing independent contractors in California.

In Dynamex Operations West, Inc. v. Superior Court of Los Angeles County, the California Supreme Court adopted the “ABC Test” to for evaluating contractor classifications under California law. On June 20, 2018, the California Supreme Court denied a petition for rehearing to address retroactivity. A summary of the ABC Test can be found in our article here. Since the decision, state and federal courts have grappled with the issue, with lower state and federal courts primarily finding that Dynamex should be applied retroactively.

In September 2019, Assembly Bill (AB 5) was  passed codifying the ABC Test and providing exemptions for certain occupations. If an exemption applies, the hiring entity is not home free as it must still satisfy the pre-Dynamex multi-factor test set forth in S.G. Borello & Sons, Inc. v. Department of Industrial Relations, 48 Cal. 3d 341 (1989).

AB 5, which is effective January 1, 2020, explicitly indicates that it is declaratory of existing law and that the exemptions are retroactive. However, it does not address whether Dynamex itself is retroactive. Accordingly, the question facing the California Supreme Court is whether the ABC Test should apply to contractor relationships before April 30, 2018 (and thus before the ABC Test was adopted by the California Supreme Court).

Soon after AB 5 was passed, the Ninth Circuit Court of Appeals certified the question to the California Supreme Court in Vazquez v. Jan-Pro Franchising International, Inc., 939 F.3d 1045 (9th Cir. Sept. 24, 2019). In May, the Ninth Circuit found that the ABC Test should be applied retroactively. The hiring entity asked the court to reconsider the question and on September 26, the court certified the question to California’s high court, which finally decided to hear the issue on November 20.

The court has yet to schedule oral argument. We will continue to monitor the status of the high court’s review as well as all AB 5-related developments.

On July 30, 2019, California Governor Gavin Newsom signed SB 30 into law, changing existing law to permit opposite-sex couples under the age of 62 years old to register as domestic partners. Those who enter into domestic partnerships have the same rights, protections, and benefits as spouses under California law, including the right, if otherwise eligible, to use sick time, take protected leave pursuant to the California Family Rights Act, or receive Paid Family Leave benefits from the State, in order to care for a spouse with a qualifying health issue, among other rights.

Existing law within the California Family Code section 297 provided, among other requirements, that a domestic partnership could be entered into between two individuals who were either: (1) members of the same sex; or (2) if members of the opposite sex, at least one of the two individuals were over 62 years old and meet the eligibility criteria for certain federal benefits under the Social Security Act.

Please find the rest of this article on our Disability, Leave & Health Management Blog here.

On October 10, 2019, Governor Gavin Newsom signed AB 673 into law, expanding an employee’s right to collect penalties for an employer’s failure to timely pay wages.

Prior to the enactment of AB 673, Labor Code section 210 provided a penalty that was directly recoverable by the Labor Commissioner or by an employee authorized to bring a claim under California’s Private Attorneys’ General Act (PAGA). A recovery by the Labor Commissioner resulted in the penalties being paid directly to the State Treasury and California’s Labor and Workforce Development Agency (LWDA). A recovery by an employee under PAGA resulted in the employees (and their attorneys) keeping 25 percent of the penalty, with the remaining 75 percent being paid to the LWDA. The penalties are $100 for each initial violation, $200 for each subsequent violation, plus 25 percent of the withheld wages.

Pursuant to AB 673, employees are now authorized to recover these penalties as part of a claim filed with the Labor Commissioner to recover unpaid wages or in civil court complaint filed under PAGA, but not both.  The Labor Commissioner is no longer authorized to collect these penalties in an independent civil action.  While the amounts of the penalties remain the same, AB 673 removes the requirement that the penalties recovered by the Labor Commissioner be paid to the LWDA and State Treasury.

With the signing of AB 673 employers may experience an increase in claims filed with the Labor Commissioner seeking unpaid wages and these statutory penalties.

Jackson Lewis attorneys are available for any questions or concerns an employer may have regarding this new law.

 

A California state appellate court has ruled that the correct rate for paying meal and rest period premiums is one hour of pay at an employee’s base hourly rate, not the regular rate of pay used for calculating overtime wages. This is the first published California case to make this distinction.

Pursuant to § 226.7 of the California Labor Code and the applicable Wage Orders of the Industrial Welfare Commission, an employer that fails to provide an employee a meal or rest period in accordance with a state law shall pay the employee one additional hour of pay at the employee’s “regular rate of compensation” for each workday that the meal or rest period is not provided. In Ferra v. Loews Hollywood Hotel, LLC, it was undisputed that the employer paid meal and rest period premiums at each employee’s base hourly wage (i.e., straight time rate), but the plaintiff argued this practice resulted in an underpayment of break premiums. Specifically, the plaintiff claimed that the “regular rate of compensation” at which break premiums must be paid is the same as the “regular rate of pay” used in Labor Code § 510 for calculating overtime premiums, which includes upward adjustments to the straight time rate reflecting the per-hour value of any non-hourly compensation the employee has earned during the pay period.

Holding that the premium for missed meal and rest periods is one hour at an employee’s base hourly rate, the Second Appellate District Court agreed with the employer that the statutory terms “regular rate of pay” and “regular rate of compensation” are not synonymous. In so ruling, the appellate court reasoned that the legislature could have simply used “regular rate of pay” in both statutes had it intended for the premiums to be calculated the same way, but instead chose to add different qualifiers to establish the proper rates for each premium. Thus, construing the phrases as interchangeable would render meaningless the legislature’s presumably deliberate act to use “of compensation” in one statute and “of pay” in the other. The appellate court further concluded that equating “regular rate of pay” and “regular rate of compensation” would ignore the difference between requiring an employer to pay overtime for the time an employee spends working more than 8 hours a day and/or 40 hours a week, which pays the employee for extra work, and requiring an employer to pay a premium for missed meal and rest hour periods, which compensates an employee for the loss of a benefit. While acknowledging that the Labor Code is to be construed in favor of protecting employees, the appellate court held that requiring employers to compensate employees with a full extra hour at their base hourly rate for working through a 30-minute meal period, or for working through a 10-minute rest break provides a premium that favors the protection of employees.

Importantly, however, the rate at which premiums for missed meal and rest periods should be paid may not be fully settled. Though Ferra is the first published state court decision to distinguish “regular rate of compensation” from “regular rate of pay,” federal district courts in California have been split in their rulings on this issue. Further, as noted in Justice Edmon’s lengthy dissenting opinion in Ferra, the California Division of Labor Standards Enforcement (“DLSE”) has concluded that the two rates are synonymous and that premiums for missed meal and rest breaks should be paid at an employee’s regular rate of pay. Therefore, while Ferra is currently binding authority as to California state courts, employers should be mindful of whether the decision is taken up for review by the California Supreme Court (of if a similar question is certified to the Supreme Court by the Ninth Circuit Court of Appeal).

Jackson Lewis will continue to monitor developments under the law.  Please contact a Jackson Lewis attorney if you have any questions about this case or other employment law issues.