Wage and Hour

Big Win for the Healthcare Industry on Meal Break Waivers as the California Supreme Court Resolves an Apparent Conflict in the Labor Code and IWC Wage Order

On December 10, the California Supreme Court issued an impactful decision for the healthcare industry. In Gerard v. Orange Coast Memorial Medical Center, the unanimous Court endorsed the Hospitals’ meal break policy, over which the parties had battled for more than a decade.

The policy permitted employees who worked shifts longer than 10 hours to voluntarily waive one of their two meal breaks, even if their shifts lasted more than 12 hours. The Plaintiffs alleged the meal period waivers they signed were illegal because under the California Labor Code, waivers were not permissible for shifts greater than 12 hours.

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(Tip) Credit Where (Tip) Credit Is Due: DOL Reverses Course on Treatment of Tipped Employees

On November 8, 2018, the Department of Labor published an Opinion Letter (FLSA2018-27) reissuing its January 16, 2009 guidance (Opinion Letter FLSA2009-23) and reversing the agency’s Obama-era position on the 20% tip credit rule. The letter marks another significant shift in Department of Labor policy, and among the first major changes in federal tip credit policy over the last decade. READ MORE

California Appellate Court Rejects ABC Test for Non-Wage-Order Claims

Some positive news for those employers that retain independent contractors. On October 22, 2018, the California Court of Appeal for the Fourth Appellate District, held that the Dynamex “ABC” test (which we previously discussed here) to determine whether an independent contractor is an employee, only applies to wage order claims. But the case is a mixed bag and is a reminder that post-Dynamex, hiring parties bear a heavier burden to overcome the presumption that all workers are employees.

The case is Jesus Cuitlahuac Garcia v. Border Transportation Group, LLC, et al., involving plaintiff Jesus Garcia (“Garcia”), a taxi driver, who brought a wage and hour lawsuit against Border Transportation Group (“BTG”), with whom he drove taxi for several years. The trial court granted summary judgment for BTG, applying the decades-old multifactor S.G. Borello & Sons, Inc. v. Department of Industrial Relations, 48 Cal. 3d 341 (1989) test and finding Garcia was an independent contractor, not an employee entitled to wage order protection. The trial court’s reasoning included that Garcia controlled the means and manner of his work and “could and did market his business in his own name.”

Garcia appealed, during which time the California Supreme Court decided Dynamex, adopting the “ABC” test to determine whether a worker is an employee. Under this test, a hired individual is presumed an employee and the burden lays entirely on the hiring party to rebut that presumption by showing:

  • that the worker is free from the control and direction of the hirer in connection with the performance of the work, both under the contract for the performance of such work and in fact;
  • that the worker performs work that is outside the usual course of the hiring entity’s business;
  • that the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity.

Turning first to Garcia’s wage order claims, the court focused on the “C” prong and found that BTG failed to carry its burden to show Garcia actually “provided services for other entities ‘independently’ of his relationship with BTG.” The court rejected BTGs reliance on Sebago v. Bos. Cab Dispatch, Inc., which focused the inquiry on whether the worker is permitted to establish an independent business operation. The court noted that Dynamex requires an “existing, not potential showing of independent business operation.” The court reversed summary judgment on the wage order claims.

But in positive news for hiring parties, turning next to Garcia’s non-wage-order claims, the court held the ABC test did not apply, and upheld summary adjudication as to those claims.[1] The court explained that the Supreme Court did not reject the more flexible, multifactor Borello test in all instances, and that Borello applies when a cause of action is predicated solely on the Labor Code, while the ABC test is properly limited to wage-order claims. The court reasoned that the Supreme Court “recognized that different standards could apply to different statutory claims…” and emphasized that “primacy of statutory purpose” should resolve “the employee or independent contractor question.” The court found “no reason to apply the ABC test categorically to every working relationship, particularly when Borello…remains the standard for worker’s compensation.” And because the parties did not identify a “a basis to apply Dynamex to [the] non-wage-order claims,” the court concluded that Borello “furnished the proper standard as to those claims” without analyzing their primary statutory purposes.

Orrick will continue to track interpretations of the Dynamex case as they are published. For the latest employment law updates, subscribe to the Orrick Employment Law and Litigation Blog.

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[1] Garcia’s non-wage-order claims included wrongful termination in violation of public policy, failure to pay overtime, and waiting time penalties.

Employers: What FINRA’s Cryptocurrency Complaint Signifies For You

Last week, the Financial Industry Regulatory Authority (“FINRA”) filed its first disciplinary action involving cryptocurrencies, conforming with its stated 2018 goal of monitoring and supervising the largely unregulated cryptocurrency market. FINRA’s actions reflect a long-anticipated and increased scrutiny on entities—including employers—dealing with cryptocurrency.

In the September 11 disciplinary complaint, FINRA alleged that a former Massachusetts broker, Timothy Tilton Ayre, committed securities fraud by avoiding registration requirements and selling an unregistered, cannabis-focused cryptocurrency security called HempCoin. Ayre purchased HempCoin in June 2015 and immediately advertised as “the first minable coin backed by marketable securities.” Ayre transformed the cryptocurrency into a security tied to his company, Rocky Mountain Ayre (“RMTN”), valuing each HempCoin as 0.1 shares of RMTN and trading over the counter. Investors mined over 81 million HempCoins through late 2017. However, Ayre failed to register HempCoin with the U.S. Securities and Exchange Commission (“SEC”).

FINRA’s action, coupled with recent joint statements by the Commodity Futures Trading Commission (“CFTC”) and the SEC addressing plans for heightened oversight of virtual currency regulation, reflect potential obstacles entities may face in dealing with cryptocurrency, or blockchain technology more broadly.

Growing start-ups or legacy companies with new industry sectors should be particularly mindful of the novel and transformative legal issues related to these emerging areas. For instance, although blockchain technology is generally expected to make data more secure, employers should continue to monitor their use of this technology for data privacy concerns related to information storage and programs for employment-related decisions. Further, employers should note that cryptocurrency is not currently recognized as legal tender in the United States.

The Federal Labor Standards Act (“FLSA”) mandates “payments of the prescribed wages, including [minimum wage and] overtime compensation, in cash or negotiable instrument payable at par.” 29 CFR § 531.27(a). The phrase “payable at par” allows cryptocurrencies to be a lawful method of payment under the FLSA, but employers should proceed with care if considering whether to use cryptocurrency to pay employee wages, particularly due to challenges with minimum wage and overtime calculations. Indeed, the legal designation for tax purposes is also unsettled: the SEC classifies cryptocurrency as a security; the CFTC says cryptocurrency is a commodity; and since 2014, the IRS has defined cryptocurrency as taxable property.

Given these ambiguities and emerging issues, employers dealing with cryptocurrency and incorporating blockchain technology into their practices should be aware of the potential legal implications and oversight in areas beyond the traditional employment law arena.

Listen Up: The DOL Begins Public Listening Sessions on Its Overtime Rule

This week, the United States Department Labor (“DOL”) is conducting its first listening session on the white collar exemptions under the Fair Labor Standards Act (“FLSA”)—more commonly known as the “overtime rule.” Several additional listening sessions will take place later this month. The sessions are expected to focus on public opinion regarding changing the current minimum salary level for exempt employees from its current level of $455 per week ($23,660 annually). There is no fee to attend a session, but registration is required here.

These sessions are just the latest in the ongoing saga over revisions to the overtime rule that began two years ago in September 2016, when twenty-two states and dozens of business groups challenged the Obama administration’s overtime regulation revisions that were finalized earlier that year. The new rule was set to implement several changes, most notably raising the minimum salary level for exempt employees to $913 per week ($47,476 annually), effective December 1, 2016. Before the new rule could take effect, the Texas federal judge hearing the case issued a nationwide injunction preventing the DOL from implementing and enforcing it, based partially on a holding that the new rule exceeded Congress’s delegation of authority to the DOL. The Obama administration appealed, and after requesting additional time to respond, the Trump administration decided to uphold the position that the DOL had the authority to revise the applicable salary level. However, in July 2017, the DOL also issued a Request for Information (“RFI”) on the overtime rule, asking for the public to submit comments by the end of September. The following month, the district court judge granted the states’ and business groups’ motions for summary judgment, invalidating the regulation. The DOL decided to dismiss its appeal and instead to pursue its own regulatory rulemaking process.

The RFI asked broad ranging questions related not only to the salary level, but to other exemption-related requirements, such as the duties test. It elicited over 140,000 public comments, including from major representative and advocacy organizations such as the United States Chamber of Commerce and Independent Sector (representing the nonprofit sector). The Chamber opposed only an “excessive increase,” suggesting that based on data from the Bureau of Labor Statistics, a more modest increase to a minimum salary of $612 per week ($31,824 annualized) was more appropriate. The Chamber also expressed its opposition to any change to the duties test. The Independent Sector highlighted the heavy financial burden the proposed increase would bring to the already-financially-strained nonprofit/charitable organizations nationwide. It suggested that any change be phased in to permit organizations time to adapt, and also expressed concern that any potential change to the duties test would “significantly impact the operations of charitable organizations,” asking that any change be considered through a formal rulemaking process allowing the public time to comment and review.

Last week’s announcement on the listening sessions offered our first glimpse into the DOL’s rulemaking process since the RFI period closed last year. Notably, the agenda questions focus exclusively on the salary test—a much narrower set of questions than those posed in the RFI. Listening Session participants are asked to focus on the four following issues: (1) “the appropriate salary level (or range of salary levels) above which the overtime exemptions for bona fide executive, administrative, or professional employees may apply”; (2) “[w]hat benefits and costs to employees and employers might accompany an increased salary level”; (3) “the best methodology to determine an updated salary level”; and (4) whether the DOL should “more regularly update the standard salary level and the total-annual-compensation level for highly compensated employees.” Noticeably absent is any indication that DOL is considering automatic inflationary updating to the salary level test. This reverts back to the position in the Bush DOL that the Department did not have statutory authority to implement automatic updating. In any event, this suggests that the DOL is shying away from changes to the duties test or other more expansive revisions as the formal rulemaking process rarely expands beyond the scope of the informal information gathering. The answer will have to wait until the Notice of Proposed Rulemaking is released, which is expected in January, at the earliest.

California Adopts New Regulations Clarifying National Origin Discrimination

California law has long prohibited harassment and discrimination based on national origin. However, articulating the distinction between race and national origin, and identifying conduct that may constitute national origin discrimination in particular, can be challenging. Concerned that national origin was too “opaque,” the state Fair Employment and Housing Council recently proposed new regulations to explicitly define national origin under California law and provide additional examples of prohibited practices. Following a year-long notice and comment period, these new regulations took effect July 1, 2018. See Cal. Code Regs. tit. 2, §§ 11027.1, 11028. READ MORE

Wait a Minute…California Supreme Court Says Employers Must Pay for De Minimis Off-the-Clock Work

On July 26, 2018, the California Supreme Court found that employers must compensate workers for the time they spend on certain menial tasks after clocking out of their shifts. In a unanimous decision, the Court held that California wage law did not bar a putative class action brought by a former Starbucks employee who routinely spent several minutes on trivial close-out tasks after his shift. READ MORE

California Court Rejects “ABC” Test For Joint Employers

As has been widely reported, last month the California Supreme Court issued a decision in Dynamex Operations West, Inc. v. Superior Court of Los Angeles that rejected the long-standing, multi-factor test to determine whether a worker is an employee. The Dynamex decision established a three-factor “ABC” test that, on its face, places the entire burden of showing that a worker is not an employee squarely upon the hiring party. The ABC test asks whether:

  1. The worker is free from the direction and control of the hirer in connection with the performance of the work, both under the contract for the performance of such work and in fact;
  2. The worker performs work that is outside the usual course of the hiring entity’s business; and
  3. The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity.

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Easy—Or Challenging—as ABC? California Supreme Court Rewrites Independent Contractor Test for Wage Order Claims

On April 30, 2018, the California Supreme Court issued its long-awaited decision in Dynamex Operations West, Inc. v. Superior Court of Los Angeles.  The Court announced a significant departure from the S.G. Borello & Sons, Inc. v. Department of Industrial Relations, 48 Cal. 3d 341 (1989) test, previously used by California courts and state agencies for nearly three decades for determining whether a worker is an independent contractor under the Industrial Welfare Commission (“IWC”) wage orders.  In its place, the Court adopted the so-called “ABC” test for determining whether an individual is considered an employee under the wage orders, which govern many aspects of wages and working conditions in covered industries.  READ MORE

Auto Dealership Sells Supreme Court on Service Advisor OT Exemption

On Monday, the U.S. Supreme Court ruled that service advisers at car dealerships are exempt from the Fair Labor Standards Act (FLSA).  In Encino Motorcars v. Navarro, the majority, Chief Justice John Roberts and Justices Clarence Thomas, Anthony Kennedy, Samuel Alito, and Neil Gorsuch voted to overturn the Ninth Circuit’s ruling on this exemption a second time, deciding that service advisors are “salesm[e]n . . . primarily engaged in . . . servicing automobiles,” and thus are exempt from overtime pay.  READ MORE