Updates for California Employers – August 2018

New Test in California to Determine If Employee or Independent Contractor

In Dynamex Operations West, Inc. v. Superior Court of Los Angeles (April 30, 2018) (Dynamex), the California Supreme Court abandoned the long-standing “right to control” test based on the Court’s 1989 decision in S.G. Borello & Sons, Inc. v. Department of Industrial Relations (Borello).   The Court adopted a new three-factor test known as the “ABC” test for distinguishing between an independent contractor and an employee.

The ABC test presumes a worker is an employee and places the burden on the hiring entity to demonstrate otherwise. To establish that a worker is an independent contractor, a hiring entity must prove all of the following three elements:

•Part A: The worker is free from the hiring entity’s control and direction in connection with his/her performance of the work, both under the contract for performance of the work and in actually performing the work;
•Part B: The worker performs work that is outside the usual course of the hiring entity’s business; and
•Part C: The worker is customarily engaged in an independently established trade, occupation or business of the same nature as the work performed.

If the hiring entity fails to show that the worker satisfies each of the three elements, the worker is treated as an employee, not as an independent contractor.

The U.S. Supreme Court Upholds Class Action Waivers in Employment Arbitration Agreements

In Epic Systems Corp. v. Lewis (May 21, 2018), the U.S. Supreme Court ruled that class action waivers contained in employment arbitration agreements are enforceable under the Federal Arbitration Act (FAA) and do not violate the National Labor Relations Act (NLRA). There had previously been confusion and circuit splits regarding this issue. In 2011, the U.S. Supreme Court upheld the validity and enforceability of individual arbitration agreements for consumers, which led to some employers adopting arbitration agreements with class action waivers. In 2012, however, the National Labor Relations Board (NLRB) ruled that requiring employees to sign arbitration agreements waiving their rights to pursue class and collective actions in all forums violated the NLRA and should not be enforced.

Thus, the U.S. Supreme Court’s recent decision brings resolution to the differing court rulings, putting the issue to rest: Class action waivers in employment arbitration agreements do not violate the NLRA and must be enforced under the FAA.

Notwithstanding the U.S. Supreme Court’s ruling, it is imperative that California employers understand the difference between class actions and Private Attorneys General Act (PAGA) claims. While the Court’s ruling permits employers to enforce arbitration agreements requiring class action waivers, PAGA claims seeking civil penalties are not subject to private arbitration agreements or class actions waivers and may continue to be brought on a representative basis. To make things even more interesting, the California legislature is considering a proposal – AB 3080 (Gonzalez Fletcher; D-San Diego) – that seeks to preclude arbitration agreements as a condition of employment. The bill is expected to be in the hands of the California State Senate Appropriations Committee on August 6, 2018.

Labor Commissioner’s Office Cites Cheesecake Factory, Janitorial Contractors More Than $4.5 Million for Wage Theft Violations

In a recent high-profile case, the California Division of Labor Standards Enforcement (DLSE) found Cheesecake Factory Restaurants, Inc. liable in a $4.57 million wage theft case that underpaid 559 janitorial workers managed by Magic Touch Commercial Cleaning. Americlean Janitorial Services Corp., the Cheesecake Factory’s janitorial contractor that subcontracted the work to Magic Touch Commercial Cleaning, is also liable for the wage theft, which occurred at eight locations in Orange and San Diego counties. The affected workers are due $3.94 million in minimum wages, overtime, liquidated damages, waiting time penalties and meal and rest period premiums.

Investigators found that the janitorial workers began their shifts around midnight and worked until morning without proper meal or rest break periods. After working for eight hours, the Magic Touch workers were not released until Cheesecake Factory kitchen managers conducted walkthroughs to review their work. These walkthroughs would frequently lead to additional tasks that the janitorial workers had to complete before they were released for the day. This resulted in each worker logging up to 10 hours of unpaid overtime each week.

“Joint employers” are held responsible, both separately and jointly, for compliance with various employment laws with respect to employees over whom they share control. Plaintiffs increasingly seek to make more than one employer liable for alleged violations of the law in an effort to increase the potential parties (or “deep pockets”) against whom they can recover.

In the restaurant context, for example, this would involve claims filed by employees of a janitorial contractor alleging that they were not paid properly. Such a lawsuit would be filed against both the janitorial contractor and the restaurant, arguing that the restaurant was also liable as a “joint employer” of the janitorial workers.

Upcoming Employment Cases Coming Before the U.S. Supreme Court

The U.S. Supreme Court has a number of employment related cases that will be adjudicated in its next term.

By way of example: (i) New Prime Inc. v. Oliveira: If two parties do not agree as to whether a dispute needs to be arbitrated, who should resolve that threshold disagreement? (ii) Lamps Plus v. Valera: Does the Federal Arbitration Act (FAA) foreclose a state-law interpretation of an arbitration agreement that would authorize class arbitration based solely on general language that is commonly used in arbitration agreements? (iii) Henry Schein Inc. v. Archer and White Sales Inc.: Do courts have the power under the Federal Arbitration Act (FAA) to refuse to enforce agreements that delegate questions of arbitrability to an arbitrator if the court determines that the claim of arbitrability is “wholly groundless”?

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