2018 Mid-Year Compliance Roundup

The first half of 2018 has kept employment lawyers on their toes, myself included, with a plethora of noteworthy cases as well as some legislative developments. Since some of the cases have been written about extensively, this article will focus on summarizing the compliance issues to address.

Independent Contractor Classification Test

The California Supreme Court recently set forth a three-part (ABC) test to determine whether an individual is properly classified as an independent contractor versus an employee, in the Dynamex Operations West, Inc. v. Superior Court decision. It held that there is a presumption that an individual is an employee unless the hiring entity can prove that the worker meets the test, for purposes of the applicability of the California Wage Orders. The worker must: (A) be free from the control and direction of the hiring entity regarding how the work is performed; (B) be performing work that is outside the normal course of the hiring entity’s business; and (C) be customarily engaged in an independently established trade, occupation or business. The court concluded that Dynamex’s delivery drivers should have been employees, in part, because its business was to provide delivery services.

The three elements of this test have been part of other multi-factor tests which different government agencies and courts have formulated over the years. Although the ABC test is more streamlined, there will undoubtedly be further cases in this arena, particularly involving the scope of prong “B.” Think Uber and related “gig economy” companies which have contended that their businesses are merely software platforms rather than providers of services that require individuals to carry out (i.e., drivers and delivery people).

Practice Tips & To Do Items

Employers who currently utilize individuals as independent contractors are wise to closely examine whether they will hold up to scrutiny based on the Dynamex ABC test. Companies that contract with vendors to provide workers to perform services would be well served by reviewing such contractual terms in light of Dynamex.

Arbitration Agreements

In another case receiving attention, the United States Supreme Court recently decided the scope of arbitration agreements in Epic Systems v. Lewis. The case was a consolidation of three Circuit Courts of Appeal decisions, each involving employment law class actions in which the respective employers sought to compel arbitration on an individualized basis. In other words, the arbitration agreements in question included waivers of the employees’ ability to bring a class action by forcing the employees to pursue individual claims via arbitration. The high court held these class action waivers were enforceable under the Federal Arbitration Act.

In California, the courts have taken more restrictive approaches to arbitration agreements in the employment context, routinely adding various prerequisites before enforcing them. Further, the California Private Attorneys General Act (PAGA) authorizes individuals to bring class/representative court actions for various Labor Code violations. Whether PAGA claims can be subject to arbitration and/or waivers has not yet been decided.

Practice Tips & To Do Items

Employers who already have arbitration agreements in place will need to consider whether to add class action waiver language and how best to address PAGA claims (for their California employees). If existing arbitration agreements are amended to include class action waivers, a thorough employee communication plan should be crafted taking into account that these clauses are very employer-friendly.

A recent court decision found an arbitration agreement to be void because the employer had never signed it, only the employee had done so. Thus, remember to ensure that the agreements are signed by both parties.

California Overtime/Bonus Calculation & Final Pay Requirements

When nonexempt (overtime-eligible) employees are paid a bonus during a pay period in which they have worked overtime, the employees’ regular hourly rate must be adjusted to reflect the increased compensation. The question resolved by the California Supreme Court, in Alvarado v. Dart Container Corp., was how to make this calculation. It sided with the Labor Commissioner’s long-standing view which was to divide the total compensation for the pay period by the non-overtime hours worked to arrive at the regular hourly rate. That rate would then be used to calculate the overtime premium pay.

California employers should be familiar with the final pay requirements because there are hefty penalties for failing to timely pay a departing employee with all of their wages earned, including any accrued vacation or paid time off. For employer-initiated terminations, the final pay is due on the last day of work whereas for employee-initiated separations, final pay is due on the last day worked if the employee provides 3 day’s advance notice. If the employee provides less notice, then final pay is due within 72 hours. Labor Code Section 203 provides for “waiting time” penalties of a day’s pay for each day that the final pay is late up to 30 total days.

Since there are very few court opinions interpreting this statute, the recent case of Diaz v. Grill Concepts Services, Inc., is noteworthy. The case involved a restaurant employer that had not complied with the proper prevailing wage rate such that former employees had not been paid their full wages when they separated from the company and sought “waiting time” penalties. The court held that because the employer had willfully failed to pay the full wages, which did not mean that there was a malicious motive, the penalties were required. The court did not have discretion to give the employer a pass.

Practice Tips & To Do Items

Employers need to ensure that the proper hourly rate is used, consistent with the Alvarado decision. Bonus compensation can take different forms, for example, for attendance, for working certain shifts or for meeting production goals. The Labor Commissioner’s Enforcement Manual provides useful examples of calculating the regular hourly rate under different scenarios.

Employers should carefully review the final pay for each departing employee to ensure that the amount is accurate and resolve any disputes quickly (for example, when an employee believes she took less vacation time than your records reflect). As soon as an employer realizes that it has not paid the full wages, it is important to deliver payment quickly to stop the waiting time penalties from continuing to accrue, especially in light of the Diaz decision.

California National Origin Discrimination Update

New regulations regarding national origin discrimination and harassment under the California Fair Employment and Housing Act (FEHA) go into effect on July 1. Here is a link: https://www.dfeh.ca.gov/wp-content/uploads/sites/32/2018/05/FinalTextRegNationalOriginDiscrimination.pdf

The regulations define “national origin” to include an individual’s or ancestors’ actual or perceived physical, cultural, or linguistic characteristics, or an individual’s name associated with a national origin group (which is defined to include ethnic groups, geographic places of origin and countries that are not yet in existence). It also includes marriage to or association with persons of a national origin group or an organization identified with such a group or attendance in schools or religious institutions generally used by such a group. It further includes tribal affiliations.

Discrimination in employment or harassment based on one of these defined terms is unlawful, as well as discrimination based on an applicant’s or employee’s accent unless the employer proves the accent interferes materially with the ability to perform the job. Likewise, discrimination based on English proficiency as well as height and weight restrictions are unlawful unless business necessity is established relative to the job’s requirements. English-only or other language restrictions must be narrowly tailored and justified by business necessity (which must be more than customer or co-worker preference).

The regulations apply to undocumented applicants and employees and prohibit inquiry into immigration status unless required by federal law (which is the case for employees via the Form I-9).

Practice Tips & To Do Items

To state the obvious, treating employees respectfully tends to avoid harassment claims and making employment decisions that are not based on protected characteristics, however they may be defined, tends to avoid discrimination claims. Review your Employee Handbook to determine if the Equal Employment Opportunity policy or any others need to be updated given these regulations. Ensure that any language restrictions in the workplace are appropriate and consistent with the regulations. Train everyone who is involved in interviewing regarding your hiring criteria and questions that must be avoided.

San Francisco Paid Sick Leave Regulatory Update

The City of San Francisco has continued to update its rules regarding the Paid Sick Leave Ordinance. Effective June 7, the latest rules went into effect. Significant clarifications include: 1) employee advance notification requirements of two hours or less for unforeseeable absences are presumptively reasonable (whereas more than two hours notice is unreasonable without compelling justification); and 2) policies requiring a doctor’s note for absences of more than three consecutive work days are reasonable.

Other rules address how employees are counted when the workforce size fluctuates, as well as enforcement procedures and remedies. Here is a link to the rules: https://sfgov.org/olse/sites/default/files/Document/PSLO%20Final%20Rules%2005%2007%202018%20to%20post.pdf

Practice Tips & To Do Items

Review Employee Handbook policies on paid sick leave and attendance pertaining to impacted San Francisco employees to ensure that employee advance notification and doctor’s notes requirements are consistent with the latest rules. If you have employees in multiple locations, consider whether to have different policies or conform policies to comply with San Francisco law.

For more information or assistance with employment law compliance matters, please contact Ms. Topliff at topliff@joblaw.com.

Mary L. Topliff, Esq.

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