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.
As states continue to pass legislation focused on the workplace, employers should be mindful that federal agencies are also continuing to regulate the workplace even in the absence of new federal legislation, especially with respect to when disputes arise regarding compensation and working conditions. Section 7 of the National Labor Relations Act (“Act”) arguably protects an employees’, including non-union employees’, rights to engage in concerted activities, including circumstances where an employee’s profane language or sexually- or racially- offensive speech is legally protected. Following criticism from the judiciary, the National Labor Relations Board (“NLRB”) announced this month it is now seeking input on the scope and applicability of this protection. READ MORE
Arbitration agreements are a powerful tool in resolving employment actions. As we noted last year, the U.S. Supreme Court ruled in a landmark case that employers can use class and collective action waivers in mandatory arbitration agreements. The U.S. Supreme Court’s 5-4 decision in Epic Systems Corp. v. Lewis, No. 160285 (U.S. May 21, 2018), was authored by Justice Gorsuch, and settled the longstanding dispute over whether arbitration agreements containing class waivers are enforceable under the Federal Arbitration Act (FAA) despite the provisions of Section 7 of the National Labor Relations Act (the Act).
On August 14, 2019, the National Labor Relations Board (NLRB) issued Cordúa Restaurants, Inc., 368 NLRB No. 43 (2019), in which the NLRB sided with employers on two key arbitration questions following the Epic decision. First, the NLRB found that an employer that is sued in a class or collective action can update its existing mandatory arbitration agreement to include a class or collective action waiver, barring workers from opting in to the pending litigation. What’s more, the NLRB found that employers can warn workers that failure to sign the updated arbitration agreement will result in termination.
Employers can update an existing mandatory arbitration agreement to include a class or collective action waiver, even after workers have opted in to the collective action:
The NLRB first addressed the issue of “whether the Act prohibits employers from promulgating [mandatory arbitration] agreements in response to employees opting in to a collective action.” In Cordúa Restaurants, Inc., Cordúa Restaurants had an existing mandatory arbitration agreement that required employees to waive their “right to file, participate or proceed in class or collective actions (including a Fair Labor Standards Act (‘FLSA’) collective action) in any civil court or arbitration proceeding,” but did not expressly prohibit opting in to collective actions. Seven employees filed a collective action in the United States District Court for the Southern District of Texas alleging violations of the FLSA and the Texas Minimum Wage Act. After thirteen employees opted in to the collective action, Cordúa Restaurants updated their existing mandatory arbitration agreement to expressly require employees to agree not to opt in to collective actions. Although the NLRB, for purposes of the decision, assumed that opting in to a collective action constitutes protected concerted activity under Section 7 of the Act, it still found that promulgating the updated mandatory arbitration agreement in response to the opt-ins did not violate the Act. The Board reasoned that Epic made clear that an agreement requiring that employment-related claims be resolved through individual arbitration, instead of class or collective action, does not restrict Section 7 rights in any way.
Employers can warn workers that failure to sign the updated arbitration agreement will result in termination:
The NLRB next tackled the issue of “whether the Act prohibits employers from threatening to discharge an employee who refuses to sign a mandatory arbitration agreement.” After updating the mandatory arbitration agreement to include the above provision against opting in to collective actions, Cordúa Restaurants needed to distribute and execute these updated agreements. During a pre-shift meeting, an assistant manager distributed the updated agreement to employees and explained that employees would be removed from the schedule if they declined to sign it. After a couple employees objected to signing the updated agreement, the assistant manager stated that he “wouldn’t bite the hand that feeds [him]” and that he would instead “go ahead and sign it.” The NLRB reasoned that because Epic permits employers to condition employment on employees entering into an arbitration agreement that contains a class or collective action waiver, the assistant manager did not unlawfully threaten the employees.
The majority opinion was authored by Chairman John F. Ring, Member Marvin E. Kaplan, and Member William J. Emanuel. Member Lauren McFerran authored a separate dissent, which disagreed with the majority on both issues and found that, “[t]he record here establishes that [Cordúa Restaurants] violated Section 8(a)(1) [of the Act] by imposing the revised arbitration agreement on employees, in response to their protected concerted activity and by threatening employees for protesting the revised agreement.” Member McFerran reasoned that although Epic blessed the use of mandatory arbitration agreements with class or collective action waivers, promulgating a lawful rule or policy in response to protected concerted activity is prohibited under Board law. Lastly, Member McFerran found that the employees exercised their Section 7 rights by protesting the updated agreement and the assistant manager unlawfully threatened them.
In its news release, the NLRB recognized that Cordúa Restaurants, Inc. is its first decision concerning the lawfulness of employer conduct surrounding mandatory arbitration agreements since Epic. It remains to be seen how state or district courts analyze a fact pattern such as this one, but this is a very encouraging development for employers if this is a sign of what’s to come from the NLRB. The decision strengthens employers’ power to effectuate mandatory arbitration agreements—now before and during pending litigation.
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
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
According to a recent decisions of the European Court of Justice (ECJ) (May 14, 2019 – C‑55/18), the Member States of the EU must oblige employers to systematically record the working time of their employees. Only in this way can it be ensured and enforced that the working time rules are observed and that the intended health protection of the employees is guaranteed. 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
The EEOC has been ordered to collect employers’ EEO-1 Component 2 pay data by September 30, 2019. The D.C. District Court issued the order after finding back in March 2019 that Office of Management and Budget (OMB’s) decision to stay the collection of Component 2 pay data lacked the reasoned explanation required by the Administrative Procedure Act. See our prior blog posts here, here, and here about National Women’s Law Center v. Office of Management and Budget, No. 17-cv-2458 (TSC) (D.D.C.). Since then the court has been critical of the EEOC’s compliance with its order, and held a status conference and a hearing in March and April. READ MORE