Dynamex Just Blew-Up Everything Employers Knew About Independent Contractors

Q.      I own a small gym and proudly offer the largest variety of work out classes in town. I operate the gym by contracting with individuals experienced in the various classes my gym offers. These instructors select their own class material to teach and set their own class schedules. I previously met with an attorney to ensure that the these instructors were properly classified as independent contractors, and not employees. Can I continue to rely on the opinion that my business model satisfies the California independent contractor standard?

A.      Unfortunately for California business that operate by using independent contractors, the California Supreme Court recently restructured the independent contractor standard, referred to as the “ABC Test” and it is much less flexible than the previous balancing test established in Borello.

On April 30, 2018, the California Supreme Court issued its ruling in Dynamex Operations West, Inc. v. Superior Court, completely overhauling (but not overruling) the independent contractor standard previously set forth in the seminal case of S.G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal. 3d 341.

The Supreme Court ruled that the test for determining the proper classification of an independent contractor requires a hiring entity to establish all of the following factors: A) 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; B) The worker performs work that is outside the usual course of the hiring entity’s business; and, C) 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.

Part A: Free From Control and Direction
This prong looks at the degree of control the company has over the individual. If the individual is subject to the same type of control a business typically exercises over employees, then the individual is not an independent contractor. For example, setting the person’s schedule, dictating the way in which the person performs the work, or the location of the work is performed would . Prior to Dynamex, this was the principal factor considered in the Borello balancing test. Now, it is considered equally as important as prongs B and C of the ABC test.

Part B: Outside the Usual Course of Business
This prong requires the individual to perform a type of work that is outside of the company’s ordinary business, i.e., is the individual performing a service for the company, or would the individual be viewed by others as an employee of the company. This prong is a significant deviation from the Borello standard and as a practical matter will prevent the use of independent contractors for most companies, except where the person’s work has no tangible connection to the hiring entity’s business. The Dynamex case uses the example of a retail store that uses the services of a plumber – the plumber is an independent contractor – versus a clothing manufacturer that uses a work-at-home seamstress, or a bakery that uses cake decorators, both would be an employee under the ABC Test.

Part C: Independent Trade
This prong requires that the individual is engaged in its own independently established business, rather than being a person assigned the independent contractor status by the company. Dynamex held that this requirement could be satisfied by showing the individual markets their own business and such as obtain their own business license, and performing their service for multiple entities.

Notably, the new ABC Test only applies to Industrial Welfare Commission Wage Orders. The California Supreme Court did not make any rulings about whether this test would also apply to other wage and hour laws, such as claims for reimbursement for business expenses, workers’ compensation or unemployment, but the opinion suggests such laws will remain subject to the Borello standard (click here to see our July, 2015 blog post about NFL cheerleaders for a summary of Borello standard/balancing test factors).

In sum, those California businesses using independent contractors should review these relationships to make sure they comply with the new standard, and be sure the answer to all three parts of this new test is “yes.” As always, the employment team at Baker Manock & Jensen would be happy to assist your business with any questions or concerns this new test might bring.

How to Ride the Heat Wave Without a Wipeout

Q:        I just saw the seven day forecast and there is no relief from the heat in sight!  And, I just read an article that stated that there are real impacts for valley farmers.[1]  What can an employer do to keep  employees’ temperatures and  litigation risks down during this heat wave?

A:        Due to the extensive history of heat related deaths during our Central Valley summers, particularly in the agricultural industry, California has enacted strenuous regulations to ensure that employees are kept safe from the heat. Commonly known as the Cal/OSHA Heat Illness Prevention Standard, these regulations apply to all outdoor places of employment, while certain industries, including agriculture, construction, landscaping, oil/gas extraction, and transportation, are subject to additional requirements for “high heat procedures.”  (See 8 Cal. Code of Regs. § 3395.)

Pursuant to the Heat Illness Prevention Standard, shade is required to be present when the temperature exceeds 80 degrees Fahrenheit. The employer must have one or more areas with shade that can accommodate at least the number of employees on a break at any given time..  These shaded areas must either be open to the air or equipped with ventilation or cooling.  Furthermore the shaded areas must be located as close as practicable to the areas where employees are working.  You must not only allow, but encourage your employees to take “cool-down” breaks, for no less than 5 minutes, as often as needed.  (See 8 Cal. Code of Regs. § 3395 (d).)

When the temperature exceeds 95 degrees, additional procedures are required. (See 8 Cal. Code of Regs. § 3395(e).)  To that end, the employer must ensure that a communication system is set up, such as providing each employee with a cell phone, so that employees at each work site can contact a supervisor when necessary.  The employer must also observe employees for signs of heat illness and remind employees throughout the work shift to drink plenty of water.  One or more employees on each site must be authorized to call for medical services.  Also, the employer must ensure that your employees take a minimum ten minute preventative cool-down rest period every two hours.

Additionally, a new employee must be monitored very closely for the first 14 days of his or her employment, unless he or she has previously worked in similar outdoor conditions at least 10 of the past 30 days for 4 or more hours per day. (See 8 Cal. Code of Regs. § 3395(g).)  All employees must be trained on the risk and symptoms of heat illness, the employer’s procedures for complying with the Heat Illness Prevention Standard, the employer’s procedures for contacting medical services, and the importance of rest and water.  (See 8 Cal. Code of Regs. § 3395(h).)  Furthermore, the employer must have your company’s Heat Illness Prevention Plan available in English and Spanish at an employee’s request.

Lastly, don’t get burned by the new piece rate legislation. Remember, employees that are paid piece rate must be compensated for heat breaks.

As the Central Valley heats up, so does an employer’s risk of liability. Protect yourself with nothing less than 60 SPF, a wide brimmed hat and follow these procedures.  And, as always, contact your employment law attorneys with any questions – don’t let their pasty computer tans fool you – they know how to deal with the heat.

[1] http://abc30.com/weather/high-heat-impacting-valley-farmworkers/1395595/

 

Work Warriors and Medical Inquiries.

Q:     Cleveland Cavalier forward Kevin Love was out for last night’s NBA finals game against the Golden State Warriors. In game 2, Harrison Barnes elbowed Love in the head and then Love appeared to suffer from concussion type symptoms.  Love has indicated that he is “frustrated” by the Cavalier’s decision to keep him out of the game.  As an employer, what can you do if you suspect an employee is prevented from performing based on a medical condition?  Is it legal to ask an employee about a suspected medical condition and seek medical certification that the employee is capable of performing his/her job?

A:     The EEOC’s Enforcement Guidance on Disability-Related Inquiries and Medical Examinations of Employees Under the Americans With Disabilities Act answers this precise question.

 Generally, [an employer may ask] a disability-related inquiry or [require a] medical examination of an employee [. . . so long as it is] “job-related and consistent with business necessity” [and] an employer “has a reasonable belief, based on objective evidence, that: (1) an employee’s ability to perform essential job functions will be impaired by a medical condition; or (2) an employee will pose a direct threat due to a medical condition.”

Sometimes this standard may be met when an employer knows about a particular employee’s medical condition, has observed performance problems, and reasonably can attribute the problems to the medical condition. An employer also may be given reliable information by a credible third party that an employee has a medical condition, or the employer may observe symptoms indicating that an employee may have a medical condition that will impair his/her ability to perform essential job functions or will pose a direct threat. In these situations, it may be job-related and consistent with business necessity for an employer to make disability-related inquiries or require a medical examination.

In Kevin Love’s situation, it is likely playing against the Warriors with concussion like symptoms would pose a direct threat to himself thus making any inquiry into his medical condition reasonable. Then again, the Warriors are a direct threat to anybody they play.  Go Warriors.

Employees search for the pot of gold – how not to get pinched by an employee’s request for information.

Q:        It seems that I do not have the luck of the Irish this St. Patrick’s Day.  I just received a request from a former employee for his entire personnel file and wage statements.  I am concerned that this employee is searching for gold at the end of a rainbow in the form of a lawsuit against my company.  Do I have to provide this employee his personnel file and wage statements?

A:        Unfortunately, yes.  Pursuant to Labor Code section 1198.5, an employee has a right to inspect personnel files, and Labor Code section 226 requires employers to provide copies of the information required to be contained on wage statements.  In 2013, the Legislature expanded and clarified these inspection rights.  The law now provides that copies of wage information can be in the form of computer-generated information.  An employer must provide copies of the personnel file upon request. Additionally, an employee may designate a representative to receive the information.

As the employer, you have 30 calendar days from the date you receive the request to provide copies of the personnel file pursuant to Labor Code section 1198.5.  But, you only have 21 days from the date of the request to provide copies of the wage information pursuant to Labor Code section 226.  There is a $750 penalty for non-compliance to each statute.

It is likely that your employee may be seeking some green by making this request.  Often these requests precede a demand letter or civil lawsuit.  This is particularly true if it comes from a former employee.  Therefore, upon receipt of such a request, in writing or orally, make sure you contact your employment attorney as quick as a leprechaun to properly comply with these laws.

Happy St. Patrick’s Day from the BMJ employment law team!

This Legal Update / Bulletin is for educational purposes only as well as to give you general information and a general understanding of the law, not to provide specific legal advice. The hypothetical question is posed to illustrate a point and does not contemplate all potential legal considerations This update should not be used as a substitute for competent legal advice from a licensed professional attorney in your state.

 

 

We made our list. You should check it twice. Here is our BMJ holiday employment checklist.

Q:     The Holidays can be a gift to Plaintiffs’ attorneys and disgruntled employees.  Are there any strategies that an employer should utilize so that this holiday season employers can enjoy the man with a red suit and not a New Year’s lawsuit?

A.     Yes. Here is our BMJ Holiday Employment checklist.  Check it twice.

○The Holiday Party

Just because the employees are offsite (or onsite after hours) does not mean they are not subject to sexual harassment rules and laws.  Parties can cause employees to be merry, but they should not be too merry…or …well…just plain naughty.  To that end, employers should remind employees to keep dress appropriate and their behavior nice.FullSizeRender

Also, employers should think carefully before serving alcohol at their holiday parties.  Not only may it facilitate inappropriate comments (and lawsuits in the new year), it may also lead to other more dangerous situations, like drinking and driving.  To limit exposure, employers who still want to serve alcohol may want to limit employee alcohol intake by issuing drink tickets, employing private bar tenders (who check IDs and refuse to serve people who have had too much), and closing the bar early.  Also, employers should offer rides or reimbursement for Uber or taxis.

Finally, employers should not require (or strongly suggest) that employees attend the party if it is outside working hours.  If it is considered a requirement, then it is compensable time, and an employer will need to pay their employees for attending.

○Holiday Pay

California does not require paid time off for holidays or additional wages for employees who work on holidays.  If an employer does pay a holiday premium and employees work overtime, the premium does not need to be calculated in their overtime rate.  In other words, premium holiday pay is not considered part of the “regular rate” of pay.  Indeed, an employer is allowed to credit the time and one-half premium pay on holidays against the overtime otherwise owed to the employee.  Additionally, small holiday gifts or discretionary holiday bonuses are not  included in the “regular rate.”

Also, please note that if an employer does provide a paid holiday off (e.g., it provides 8 hours of pay and the employees are not required to come to work), this paid holiday off does not count as time worked to determine whether an employee worked more than 40 hours for the purposes of overtime.

○Gift Cards

Some employers like to give gift cards to their employees during the holidays.  These may be deemed taxable income if the gift card can be considered a cash equivalent under Treasury Regulations section 1.132-6(c). The IRS considers a gift card to be a cash equivalent if it provides for the purchase of general merchandise, as opposed to being used to redeem a specified item.

○Volunteering

While this is the time of year we all want to give back, remember that “volunteer work” is only allowed without contemplation of pay for individuals who volunteer for a nonprofit or like organization.  In other words, an employer must be careful if their company is partnering with a charitable organization and their employees seek to donate their time.  If an employer is directly involved in giving, the employer should take care to also give its employees their pay if the employees are providing their time to the charitable cause.  Also, if the employees’ children want to help out (once school is out) you may run into child labor law issues.

○ Religion in the Workplace

The California Fair Employment and Housing Act prohibits religious discrimination of any kind.  But, this is tricky because the law does not permit prohibiting all forms of an employee’s religious expression.  As such, employers need to walk a delicate line.  That said, employers should be wary of religious-themed décor and other forms of displays and expressions that discuss religion.

○ Payday falls on a holiday

An Employer’s established payday sometimes falls on a holiday.  The Civil Code defines “holidays” (which includes every Sunday).  If payday falls on a defined holiday, pay may be provided on the next business day following the holiday.

From everybody at the BMJ Employment Law Team – Happy Holidays and a lawsuit free New Year!

 

Lawyer-up! What is an employer’s obligation to provide an attorney to an employee??

Q.     Fresno Unified School District denied legal counsel to a high level administrator who is being investigated by the FBI. [1]  What is an employer’s obligation to provide an attorney to an employee in a situation like this?

A.     Whether an employer must provide a legal defense to an employee facing criminal charges is still an open question.  And, there is one rule for public employees and another for private employees.

California Labor Code section 2802, which applies to private employers, provides that an employer must indemnify its employees “for all necessary expenditures or losses incurred by the employee in direct consequence of the discharge of his or her duties . . . .”  As such, an employer may be required to reimburse an employee for the cost of the defense of a legal matter, so long as the alleged action occurred in the scope and course of the employee’s employment.  (See Grissom v. Vons Cos., Inc. (1991) 1 Cal.App.4th 52, 55.)  The “scope and course of employment” is interpreted broadly and the duty of an employer to indemnify extends even if the employee’s conduct “does not benefit the employer, even though the act is willful or malicious, and even though the act may violate the employer’s direct orders or policies.”  (Jacobus v. Krambo Corp. (2000) 78 Cal.App.4th 1096, 1102.)  Moreover, the employer must indemnify regardless of whether or not the employee is exonerated.  (Id. at 1101.)  In other words, the key question is whether the employee’s wrongful conduct was committed during the performance of her employment – not whether a wrongful act was committed.

The above question is complicated, however, because courts disagree on two critical components that would make it clear whether or not an employer must provide an attorney to an employee in a criminal proceeding.  First, it is unclear whether an employer must provide an attorney (on the front end) or simply reimbursement for the cost of an attorney (on the back end).  In Jacobus, the court found that “[Section 2802] requires the employer not only to pay any judgment entered against the employee for conduct arising out his [or her] employment but also to defend an employee who is sued for such conduct.” (Jacobus v. Krambo Corp., supra, 78 Cal.App.4th at 1100.)  On the other hand, in Grissom, the court notes that “[s]ection 2802 does not say that an employer must ‘defend’ an employee . . . .[but only that] if that expenditure is necessarily in direct consequence of the discharge of the employee’s duties, then the employer must ‘indemnify’ (i.e. reimburse) the employee.” (Grissom v. Vons Cos, Inc., supra, 1 Cal.App.4th at 57-58.)

The second  question is whether or not Section 2802 even applies to criminal proceedings at all or whether it is applicable to only civil actions.  In this regard, a California Court of Appeal, has flatly stated that “[t]here have been no California cases reaching the issue, and it appears to be an open one.” (Los Angeles Police Protective League v. City of Los Angeles (1994) 27 Cal.App.4th 168, 177.)

If it is ultimately determined that an employee’s actions, even if found to be wrong, were done in the course and scope of employment (and not in the employee’s personal capacity) an employer will likely be required to at least indemnify the employee for the cost of an attorney, if not be required to provide counsel.  But, where there is a criminal investigation and it is not a civil matter, it is unclear as to whether an employer is even required to indemnify or defend at all.  What is clear, however, is in the end, if the employee files a claim against an employer  for indemnification and wins, that employee will not only be entitled to be reimbursed for attorneys’ fees in the underlying criminal action, but also in the indemnification lawsuit against the employer.  This makes sense because Section 2802 includes reimbursement for “all reasonable costs, including, but not limited to, attorney’s fees incurred by the employee enforcing the rights granted by this section.” (Lab. Code § 2802(c).)

And, while there is one rule for private employers, there is yet another rule for public employers.  Some courts have assumed that section 2802 applies to public employees.  However, California courts have found that reimbursement of defense costs for public employees is governed exclusively by the Government Claims Act.  The Government Claims Act also provides that the employer has to indemnify similar to the requirement of section 2802, but provides a notable exception where the employee acted with fraud, malice or corruption.  Another exception to an public entity’s requirement to indemnify exists where the public entity is bringing an action against its own employee.  Also, Government Code 995.8 specifically discusses providing a defense in a criminal action.  That Code provision notes that the public entity may provide a defense in a criminal action “if:  a) The criminal action or proceeding is brought on account of an act or omission in the scope of his employment as an employee of the public entity; and b) The public entity determines that such defense would be in the best interests of the public entity and that the employee or former employee acted, or failed to act, in good faith, without actual malice and in the apparent interests of the public entity.”

[1] http://www.fresnobee.com/news/local/education/article42958392.html

When Can I Terminate an At-Will Employee and How Must an Employer Respond to Discovering Potential Sexual Harassment?

Q.     I operate a store called Patriot Racing which sells automotive parts, including tires, to local racers.  We can install the parts, if required.  To the extent that we install any automotive parts on the cars, it is extremely important that it is done according to the manufacturer’s specifications. Otherwise we could be liable if there is an accident.

After a recent race in which a customer of Patriot Racing won, it was discovered that the racer’s tires were underinflated, giving him an advantage on the slick track.  I immediately suspected an employee – let’s call him Tom Drady – who likes to curry favor with local racers.  I asked one of my supervisors to conduct an investigation.

The supervisor talked to other employees, the racer in question, and the race officials.  I cannot definitely prove that Tom Drady deflated the tires but it appears likely based on several text messages between the racer and his crew chief.  The text messages also (allegedly) repeat some sexist remarks that Drady said about one of my female employees.  Drady has denied it all.  Can I terminate Drady even though I cannot prove with 100% certainty that he deflated the tires and the sexist statements were second hand?

A.     You might be able to suspend Tom Drady for a couple of games and take away his superb…. (wait – that is a different question.)  Yes – you can fire an employee even if you can’t absolutely prove misconduct.  Indeed, in California, it is presumed that the employee is at-will.

What does at-will-employment mean? It means you can terminate any employee for any lawful reason or for no reason at all.  See Cal. Labor Code 2922. Here, terminating an employee that is suspected of not following company policy to install parts to the manufacturer’s specifications is not an unlawful reason – therefore, termination is permissible.

And what about your obligation with regard to suspicion of sexual harassment? Once the suspicion of sexual harassment came into play, you may have been required to investigate – which you did.  See Swenson v. Potter (2001) 371 F3d 1184.  The law does not specifically require that investigations be conducted a specific way – the investigation simply must be reasonable.  See Baldwin v. Blue Cross (2007) 480 F3d 1287, 1304.  The law also takes into account that, ultimately, whether to terminate is going to be a judgment call.  If after the termination Drady sues and claims you manufactured the reason and that you were truly motivated to terminate his employment because of his marital status (which is a protected class), you don’t have to show that you came to the correct determination – only that you were motivated by the investigation’s findings and were not motivated by his (super model) marital status.

Employment questions can be tricky and convoluted, so you should consider contacting an attorney prior to any termination. Don’t just assume that you are insulated from a lawsuit because the employee is at-will. That said, many times the risk of a lawsuit can be minimized or eliminated through careful planning.

This Legal Update / Bulletin is for educational purposes only as well as to give you general information and a general understanding of the law, not to provide specific legal advice. The hypothetical question is posed to illustrate a point and does not contemplate all potential legal considerations This update should not be used as a substitute for competent legal advice from a licensed professional attorney in your state.