California Law

Employee or Independent Contractor? California’s New "ABC" Test

The decision whether to classify a worker as an employee or an independent contractor can have a significant impact on both the worker and the business. As an employee, a worker is entitled to the protections of the labor laws, including payment of minimum wage and overtime, meal and rest breaks, paid sick leave, and other workplace protections. An employer is also responsible for paying an employee’s federal Social Security and payroll taxes, employment taxes, unemployment insurance taxes, and providing worker’s compensation insurance. On the other hand, independent contractors obtain none of these numerous labor law benefits, and the business does not bear any of these costs or responsibilities.

Although in some circumstances classification as an independent contractor may be advantageous to workers as well as to businesses, many unscrupulous employers misuse the independent contractor label to circumvent the labor laws and to obtain an unfair competitive advantage over competitors who properly classify similar workers as employees.  The result is that many California workers have been denied proper compensation and the labor law protections to which they were entitled.

California’s New “ABC” Test for Independent Contractors

In a recent decision Dynamex Operations West, Inc. v. Superior Court (SC S222732 4/30/18), the California Supreme Court cracked down on the misclassification of workers as independent contractors and created a new “ABC” test to determine when a worker should be properly classified as an employee. Under this test, a worker is properly considered an independent contractor only if the employer establishes: (A) that the worker is free from the control and direction of the employer in connection with the performance of the work; (B) that the worker performs work that is outside the usual course of the employer’s business; and (C) that the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the employer.

Misuse of the independent contractor label may subject an employer to significant liability for unpaid wages, overtime, missed meal and rest breaks, and other Labor Code violations.

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Los Angeles Mandates Minimum Wage Increase and Paid Sick Leave

Los Angeles Mandates Minimum Wage Increase and Paid Sick Leave

New Minimum Wage Ordinances in the City of Los Angeles have increased the minimum wage for employees who work for an employer within the City limits for a minimum of two hours during any particular week. The new ordinances also require employers to provide employees with paid sick leave.

Under the new ordinances, which first went into effect on July 1, 2016, the minimum wage rate will continue to rise over the next five years until reaching $15/hour for all employees working in the City of Los Angeles by the year 2021. The applicable minimum wage rates and annual increases depend on the number of people employed by a particular employer as detailed in the following Minimum Wage Chart:

Increase Date Employers with 25 or fewer Employees Employers with 26 or more Employees
7/1/2016 $10.00 $10.50
7/1/2017 $10.50 $12.00
7/1/2018 $12.00 $13.25
7/1/2019 $13.25 $14.25
7/1/2020 $14.25 $15.00
7/1/2021 $15.00 $15.00

 

In addition to the minimum wage increase, under the new ordinances, employees who work in the City of Los Angeles for the same employer for 30 days or more within a year, will now be entitled to 48 hours of paid sick each year based on the following guidelines:

  • Employees will be entitled to take up to 48 hours of sick leave in each year of employment, calendar year, or 12-month period.
  • Employers must provide sick leave either: 1) by providing the entire 48 hours to an employee at the beginning of each year of employment, calendar year, or 12-month period; or 2) by providing the employee one hour of sick leave per every 30 hours worked.
  • Paid sick leave shall accrue on the first day of employment or July 1, 2016, whichever is later.
  • An employee may use paid sick leave beginning on the 90th day of employment or July 1, 2016, whichever is later.
  • Accrued unused paid sick leave shall carry over to the following year of employment and may be capped at 72 hours. An employer may set a higher cap or no cap at all.
  • If an employer has a paid leave or paid time off policy or provides payment for compensated time off, that is equal to or no less than 48 hours, no additional time is required.
  • An employer shall provide paid sick leave upon the oral or written request of an employee for themselves, a family member or for any individual related by affinity whose close association with the employee is the equivalent of a family relationship. An employee may also be required to provide reasonable documentation of an absence from work for which paid sick leave is or will be used.
  • An employer is not required to provide compensation to an employee for accrued or unused sick days upon termination, resignation, retirement, or other separation from employment.
  • If an employee separates from an employer and is rehired by the employer within one year from the date of separation, previously accrued and unused paid sick time shall be reinstated.

Employer Requirements

Under the new minimum wage ordinances, employers are required to do the following:

  • Pay hourly minimum wage for hours worked by employees within the City of Los Angeles.
  • Post the Office of Wage Standards Wage Notices in a conspicuous place at any workplaces or job sites in multiple languages, including any language spoken by at least five percent (5%) of the employees at the workplace or job site.
  • Keep payroll records for a period of four (4) years.
  • Provide employees with the employer’s name, address, and telephone number in writing at the time of hire.
  • Employers are prohibited from retaliating against any employee exercising rights under the Minimum Wage and Wage Enforcement Division Ordinances.

Remedies

Employees who are denied the required minimum wage increases or paid sick leave are entitled to the following, among other, remedies:

  • Payment of wages unlawfully withheld;
  • Payment of Sick Time Benefits unlawfully withheld; and/or
  • An additional penalty of up to $120 to the Employee and up to $50 to the City for each day that either violation occurred or continued.
  • In cases of retaliation, the employee may be entitled to reinstatement, as well as triple the wages, sick time and penalties owed.
  • An employee may also file a lawsuit in civil court.

Additionally, employers who violate the provisions of these Minimum Wage Ordinances may be subject to administrative fines for each and every day that a violation occurs.

Resources:

Los Angeles Minimum Wage Ordinance

Los Angeles Office of Wage Standards Ordinance

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Court of Appeals Reinstates NFL's Four-Game Suspension of Tom Brady

Court Reinstates NFL’s Four-Game Suspension of Tom Brady

In overturning the lower court’s decision and reinstating the NFL’s four-game suspension of Tom Brady, the United States Court of Appeals for the Second Circuit, ruled that NFL Commissioner, Roger Goodell, “properly exercised his broad discretion under the collective bargaining agreement” and that his procedural rulings did not deprive Tom Brady of fundamental fairness.

The Court reasoned that “In their collective bargaining agreement, the players and the League mutually decided many years ago that the Commissioner should investigate possible rule violations, should impose appropriate sanctions, and may preside at arbitrations challenging his discipline.”  The Court also noted that “Although this tripartite regime may appear somewhat unorthodox, it is the regime bargained for and agreed upon by the parties, which we can only presume they determined was mutually satisfactory.”

In essence, the Court of Appeals held that since the NFL disciplinary system was something negotiated and agreed-upon by the parties, it is therefore not the court’s place to interfere with the Commissioner’s rulings or the labor arbitration process. The lesson from the Court’s ruling is that if the players are not comfortable with the current arbitration procedure, the issue must be resolved through negotiations and in the collective bargaining agreement rather than through court intervention.

For the full court of appeals opinion click here

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Changes to California Equal Pay Act

California recently passed Senate Bill No. 358, which amends Labor Code Section 1197.5 known as the California Equal Pay Act, to make it easier for an employee to successfully pursue a wage discrimination claim.

According to the California legislature, in 2014 the gender wage gap in California was at 16 cents on the dollar. That means a woman working full-time earned an average of 84 cents to every dollar a man earned. The wage gap extended across almost all occupations and was far worse for minority women. For example, Latina women in California made only 44 cents for every dollar a white male made, which was the biggest gap for Latina women in the U.S. Women working as full-time employees in California lose approximately $33,650,294,544 each year as a result of this wage disparity. The wage gap also contributes to higher statewide poverty rate among women, particularly among minority women and single women with children.

Although California law has prohibited gender-based wage discrimination since 1949, the California Equal Pay Act is rarely used to enforce wage disparity claims due to the difficult in establishing a successful claim. The amendment to the Equal Pay Act is designed to eliminate the gender wage gap in California by making it easier for an employee to establish a successful claim of gender-based wage discrimination.

Changes to the California Equal Pay Act

Under prior law, an employer was prohibited from paying an employee at wage rates less than the rates paid to employees of the opposite sex “in the same establishment for equal work on jobs the performance of which requires equal skill, effort, and responsibility, and which are performed under similar working conditions.”

To ease the requirements for maintaining a successful suit under the Equal Pay Act, the new law prohibits an employer from paying any of its employees at wage rates less than those paid to employees of the opposite sex for “substantially similar work,” when viewed as a composite of skill, effort, and responsibility. There is no longer a requirement that the jobs consist of equal work performed in the same establishment.

In addition, the new law now places the burden of proving an exception to the equal pay requirements squarely on the employer. To establish an exception, an employer must affirmatively demonstrate that a wage differential is based upon one or more specified factors. These factors include a seniority system, a merit system, a system that measures earnings by quantity or quality of production, or a bona fide factor other than sex, such as education, training, or experience. An employer is also required to demonstrate that factors relied upon were applied reasonably and account for the entire wage differential. In other words, the employer must prove that any wage disparity is entirely unrelated to the employee’s gender.

Finally, the new law prohibits an employer from terminating, or in any manner discriminating or retaliating against, any employee for enforcing his or her rights to equal pay. To facilitate enforcement of the new law, an employer cannot prohibit an employee from disclosing the employee’s own wages, discussing the wages of others, inquiring about another employee’s wages, or aiding or encouraging any other employee to exercise his or her rights to equal pay.

An employee who was the victim of wage discrimination in violation of the equal pay laws is entitled to recover twice the wages he or she lost due to the employer’s discrimination, plus interest and attorney’s fees.

Resources:

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FedEx Drivers are Employees Not Independent Contractors

FedEx Drivers are Employees Not Independent Contractors

In a class action lawsuit brought on behalf of approximately 2300 full-time FedEx delivery drivers in California between 2000 and 2007, the Ninth Circuit Court of Appeals ruled that by law the FedEx drivers were employees under California’s right-to-control test.  The Court held that labeling of the drivers as independent contractors in FedEx’s Operating Agreement did not make them so.

The Court explained that the most important factor in determining employee versus independent contractor status is the right-to-control test. The Court held that since FedEx had broad rights to control the manner in which its drivers perform their work under, the right-to-control test strongly favored employee over independent contractor status   On that basis, the Court held the drivers were employees as a matter of law.  

For the Full Court Opinion click here

Employee v. Independent Contractor

 

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