On September 12, 2019, the California Supreme Court issued its decision in ZB, N.A. v. Superior Court, which resolved a split of authority regarding whether an employer may compel arbitration of an employee’s Private Attorneys General Act (“PAGA”) claim seeking unpaid wages under Labor Code section 558. In reaching its conclusion, the Court first answered the “more fundamental question” of whether a plaintiff may seek unpaid wages under PAGA: to which the answer is no. Therefore, ZB’s motion to compel arbitration should have been denied. READ MORE
On September 18, 2019, California Governor Gavin Newsom signed into law Assembly Bill 5 (A.B. 5). A.B. 5 relates to whether workers are employees or independent contractors. With this bill the California Legislature codified the ABC test set forth by the California Supreme Court’s decision in Dynamex Operations West, Inc. v. Superior Court of Los Angeles, 4 Cal. 5th 903 (2018) and expanded its applicability. It expands the ABC test for independent contractor vs. employee classification to the California Labor Code and the California Unemployment Insurance Code.
A.B. 5 adds section 2750.3 and amends section 3351 to the California Labor Code and amends sections 605.5 and 621 to the California Unemployment Insurance Code.
Dynamex and the ABC test
For the last 30 years, California courts have addressed independent contractor v. employee classification using the test set forth in S.G. Borello & Sons, Inc. v. Department of Industrial Relations, 48 Cal. 3d 341 (1989). Under the Borello test, determining whether a worker was an employee or an independent contractor hinged on a number of factors and primarily focused on the alleged employer’s control over the manner and means by which the work is performed. On April 30, 2018, the California Supreme Court decided Dynamex, announcing a significant departure from the Borello test. The Dynamex decision adopted the so-called 3-part “ABC” test for determining whether an individual is considered an independent contractor or an employee under the wage orders, which govern many aspects of wages and working conditions in covered industries. Under the new 3-part ABC test, a worker is properly considered an independent contractor to whom a wage order does not apply only where the hirer establishes:
- The worker is free from the control and direction of the hiring entity in connection with the performance of the work;
- The worker performs work that is outside the usual course of the hiring entity’s business; and
- The worker is customarily engaged in an independently established trade, occupation, or business.
For more background information on the Dynamex decision, please see our May 9, 2018 blog post.
A.B. 5 codifies and expands the Dynamex 3-part ABC test, making it apply not only to claims arising out of the wage orders, but also apply to the California Labor Code and Unemployment Insurance Code. The new law also includes a provision that empowers the California Attorney General and city attorneys of cities with populations greater than 750,000 to seek injunctive relief to prevent the continued misclassification of employees as independent contractors. See California Labor Code section 2750.3(j).
In passing the bill, the legislature stated that it intended “to ensure workers who are currently exploited by being misclassified as independent contractors instead of recognized as employees have the basic rights and protections they deserve under the law, including a minimum wage, workers’ compensation if they are injured on the job, unemployment insurance, paid sick leave, and paid family leave.” The legislature further stated that “by codifying the California Supreme Court’s landmark, unanimous Dynamex decision, this act restores these important protections to potentially several million workers who have been denied these basic workplace rights that all employees are entitled to under the law.”
A.B. 5 includes carveout exemptions from the ABC test for various occupations and business relationships (such as lawyers, veterinarians, commercial fishermen, investment advisors, licensed private investigators and specified professional services providers) if the hiring entity can prove the specific requirements for exemption are met. See Cal. Lab. Code section 2750.3 (b)-(h). If the exemption applies, the Borello test governs the worker classification issue.
The application of the ABC test to the California Labor Code and Unemployment Insurance Code takes effect on January 1, 2020, with the applicability to workers’ compensation going into effect on July 1, 2020.
Under A.B. 5, the number of individuals who are considered employees in California for purposes of the wage orders, California Labor Code, and Unemployment Insurance Code will almost certainly increase. Now is the time to review your company’s practices related to independent contractors and talk to counsel for advice. We will continue to monitor any developments and are here to help.
On July 22, 2019, the Ninth Circuit withdrew its recent decision in Vazquez v. Jan-Pro Franchising International, Inc., and ordered that it would certify to the California Supreme Court the question of whether the worker classification test articulated in Dynamex Operations West v. Superior Court applies retroactively. READ MORE
On July 3, 2019, California governor Gavin Newsom signed the Crown Act into law, making California the first state to ban discrimination based on Natural Hair.
We are halfway through 2019, and while many employees prepare for summer vacation, California employers in various cities should brace themselves for an additional round of minimum wage increases on July 1, 2019.
Another raise, already?
As you may recall, on January 1, 2019, California raised the statewide minimum wage rate to $12.00 per hour for employers with 26 or more employees, and $11.00 per hour for employers with 25 or fewer employees. And the California minimum wage is set to increase to $15.00 per hour for all employers by January 2023. READ MORE
The battle between Dynamex and Borello continues. Two competing bills – Assembly Bill 5 (“AB 5”) and Assembly Bill 71 (“AB 71”) – each seek to codify the respective worker classification tests. On May 29, 2019, the California State Assembly overwhelmingly passed AB 5, a bill seeking to codify Dynamex Operations West, Inc. v. Superior Court of Los Angeles, which adopted the three-factor “ABC” test to determine a worker’s classification for wage order claims. Now the bill is headed to the state Senate. Meanwhile, AB 71, a bill seeking to codify S.G. Borello & Sons, Inc. v. Dept. of Industrial Relations, has thus far not enjoyed the same success. READ MORE
In the age of smartphones, virtually everyone has a recording device at his or her fingertips—including employees. This can present challenges in the workplace. For example, smartphones and other technology enable employees to secretly (read: illegally) record business meetings, disciplinary discussions with HR, and interactions with other employees. Not only does this violate privacy rights and trust, it also risks disclosing confidential company or employee information. Fortunately, employers are not without a remedy. California’s privacy laws offer protection against illegal recordings by employees. READ MORE
On May 2, 2019, the Ninth Circuit in Vazquez v. Jan-Pro Franchising Int’l, Inc. held that the California Supreme Court’s 2018 decision in Dynamex Operations West v. Superior Court applied retroactively. Dynamex adopted the “ABC” test for independent contractor classification for claims arising under California’s Wage Orders. For those claims, an employer must show that all three prongs of the ABC test are met to justify independent contractor status. For information on Dynamex’s adoption of the ABC test, read our prior coverage here. READ MORE
In April 2018, an en banc Ninth Circuit held in Rizo v. Yovino that an employer cannot justify a wage differential between male and female employees under the Equal Pay Act by relying on prior salary. Before the Ninth Circuit published its decision, though, Judge Stephen Reinhardt passed away. On February 25th, the U.S. Supreme Court vacated the Ninth Circuit’s decision, reasoning that the appellate court should not have counted Reinhardt’s vote because he passed away before the decision was issued. Instead, the Ninth Circuit should not have released the opinion. READ MORE