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.

Nut again! Ag Overtime Bill is Reintroduced

Q:     I thought the ag overtime bill failed?  Why am I hearing about it again?

A:     On April 28, 2016, we posted a blog entitled “Lettuce Get Back to Work” discussing AB 2757 that would change the way agricultural workers are paid overtime.  Currently, agricultural employees are paid overtime after 10 hours instead of 8 hours (which is the standard for most other industries).  In addition, there is currently no daily double time after 12 hours for agricultural workers, which is also standard for other industries.  The argument has always been that the seasonal nature of agriculture makes excluding it from other standard industry rules reasonable.   Many individuals oppose the bill for economic reasons as well. Specifically, opponents argue that this new overtime requirement will drive agriculture out of the state and will lead to greater plantings of less labor-intensive crops, thus hurting the very people an increase in overtime was intended to help.  On the flip side, proponents argue that what is fair for other industries is also fair for agriculture – particularly in light of the difficult nature of farm work.  Nonetheless, on June 2, 2016 the arguments against changing the overtime requirements for agriculture workers failed, but by a very slim margin.

On August 22, 2016, AB 1066, a bill almost identical to AB 2757, passed in the senate, thus setting up another tight vote in the assembly.  AB 1066 allows for the overtime requirements to be phased in over a period of four years, starting on January 1, 2019, meaning that the bill will be in full effect on January 1, 2022.  Unlike its predecessor bill, AB 1066 further provides that employers who employ 25 or fewer employees have an additional three years to phase in the new overtime requirements – thereby not making them mandatory until 2025.

Agricultural employers should note, however, that if the bill is passed, they cannot simply opt out of these overtime requirements by using farm labor contractors.  This is due to section 2810.3 of California’s Labor Code, which imposes liability on a business for a labor contractor’s failure to comply with Labor Code provisions addressing wages and hours (e.g. overtime).

ALERT: Important news for farmers and others that pay, or previously paid, piece-rate – Notice to DIR is now required by July 28, 2016

Q:     What is going on with the lawsuit regarding piece-rate pay?

A:     We have previously discussed the new piece-rate legislation (AB 1513) in an earlier blog. No doubt, many employers (particularly those that have traditionally paid piece rate such as agricultural employers) view this legislation as a piece of what is found on many livestock farms across the Valley.  In short, the AB 1513 legislation resolved a dispute as to whether an employer was required to specifically pay for rest breaks where the employees were being paid piece-rate.  Prior to the legislation, there was a theory that an employer could pay an employee entirely by “piece-rate” so long as at the end of the day (or pay period) the employee made more than the minimum wage once the employer divided the compensation by the number of hours worked.  AB 1513 put that theory to rest and determined that employers must specifically pay for rest breaks and other non-productive time (such as heat breaks) even if the ultimate pay far exceeded minimum wage.

Because the previous “piece-rate” compensation was a fairly accepted and common pay practice, AB 1513 attempted to provide a mechanism for employers that did not specifically pay for rest breaks to avoid uncertainty and extensive liability.  Accordingly, AB 1513 stated that employers could file with the Department of Industrial Relations (“DIR”) and enter an agreement to provide back payments.  If the employer provided notice and made the specified payments, they would then have an affirmative defense against any employee that subsequently filed a claim for a failure to properly pay for non-productive time.  The original date for employers to provide notice to the DIR indicating that the employer was going to make the back payments was July 1, 2016.  The Nisei Farmer league filed a case in Fresno County Superior Court challenging the implementation of the law.  As a result there was a temporary restraining order staying the enforcement of the new law, and thus, staying the requirement to provide notice to the DIR.  On July 25, 2016, the court denied the preliminary injunction further staying enforcement of the new law. The date for employers to provide notice to the DIR is now July 28, 2016.

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.


Working Overtime to Keep Up with the New Rules for Overtime

Q:        ALERT:  Is there a new law regarding who must be paid overtime?

A:        Sort of – it is actually not a law, but rather a new regulation promulgated by the Department of Labor (“DOL”) without congressional action.  The new rule amends the existing regulation that sets forth who is entitled to overtime pursuant to the Fair Labor Standards Act (“FLSA”).

As an initial matter, all non-exempt employees are entitled to overtime pursuant to the FLSA – and this new regulation does not change that fact – it only redefines who is eligible to be classified as “exempt”. The former rule provides that an employee can be exempt if he or she earns twice the minimum wage and passes a “duties test.”  The former FLSA regulation adopted the minimum wage in the state where the employee worked to set the salary minimum needed for the exemption.  Accordingly, in California, in order to be exempt pursuant to the FLSA, an employee generally needed to earn at least $41,600.00 per year ($10 (minimum wage) x 40 (hours per week) x 52 (weeks per year) x 2).

California has its own rules pertaining to who is exempt – but, until the new FLSA regulation it always mirrored the FLSA overtime salary threshold. In other words, prior to the new regulation both California and the FLSA utilized a “double the minimum wage” standard.

On May 18, 2016 the DOL raised the salary threshold amount needed to be considered exempt under the FLSA. The FLSA regulation is no longer based on a “double the minimum wage” standard. Pursuant to the new regulation, the minimum salary to be classified as an exempt employee is now $47,476.00 per year.  The new regulation also establishes a mechanism to automatically increase that amount every three years.  The new rule also redefines the  “highly compensated exemption” that had a reduced duties test if the employee made $100,000.00 per year.  The new regulation increases the salary threshold for the “highly compensated” exemption to those making a minimum of $134,004.00 per year.

The new regulation takes effect on December 1, 2016.

There are some interesting aspects of this new Federal regulation that will need to be watched carefully in California. Based on the new regulation, there may now be a difference between those that qualify as exempt under California law and those that are exempt under federal law.  Specifically, those that make between $42,600 and $47,476 could be treated as non-exempt for the purposes of federal law but exempt for the purposes of California law.  This is important because the FLSA only provides overtime for employees who work over 40 hours in a week while in California, non-exempt employees receive overtime for working over 8 hours in a day OR working over 40 hours in a week.  Additionally, pursuant to the FLSA, there is no entitlement to meal and rest breaks while the California Labor Code makes them a requirement for all non-exempt employees.  As such, unless the California rules are amended, or until California overtime rate increases so that “double minimum wage” exceeds the amount cited in the new FLSA regulation, employers could face a situation in which the salary threshold for daily overtime and meal and rest breaks is different than the threshold for weekly overtime.  That said, it is expected that California, and its current legislative makeup, will quickly adapt to provide the most overtime and employee benefits as possible.  And, even if they don’t, with the rising California minimum wage (set to hit $15 in 2022), it will be a short lived discrepancy.  It would also not be surprising if California takes the position that it must follow the more stringent federal regulation even for the purposes of  California overtime even if California does nothing to amend it own regulation.  As such, caution is needed.

With wage and hour lawsuits on a dramatic rise, there is no doubt that this new regulation will create confusion and will increase the pool of plaintiffs eligible to make wage and hour claims. This likely means overtime for plaintiff’s attorneys.  If you have questions related to this new regulation and its effects on your business, you should call your employment attorney.

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.

Lettuce Get Back to Work

Q:     I run a custom farming operation where we often need our employees to work over 8 hours in a day during our busy seasons. Most of our employee’s understand that the short window of harvest means a relatively short season of long hours. However, I heard that a bill was introduced in Sacramento with a strong likelihood of passing which would impose much stricter overtime requirements for farm workers.  Tell me it is not sow![1]

A:     You heard correctly. On April 6, the Assembly Labor & Employment Committee passed AB 2757 which seeks to “phase-in” overtime requirements for agricultural workers over the next four years, beginning in 2017. The impacts of this bill are feared to increase labor costs associated with farming and the agricultural industry. First, AB 2757 would require agricultural employers to pay overtime premium pay (at a rate of 1.5 times an employee’s regular rate of pay) to their employees after 8 hours in any work day, and 40 hours in any work week.[2]  Currently, the operative wage order for farm workers only requires daily overtime if the employees works more than 10 hours.  Second, it would require premium pay at the rate of two times the employee’s regular rate of pay for any work after 12 hours in a day. Currently, there is no double time for farm workers.  Furthermore, AB 2757 will repeal the agricultural exemption from the “one days’ rest in seven” requirement in the Labor Code, requiring agricultural employers to provide employees at least one day off each work week even during peak season.

Proponents characterized AB 2757 as “clean-up” legislation righting decades of unfair exclusion of farm workers from the right to 8-hour work days and 40-hour work weeks.[3] The Farm Bureau and a broad coalition of employer groups opposed the bill, arguing that the legislation will actually reduce farm workers’ income as affected employers will elect to have employees work 8 hours per day and avoid overtime premium pay, rather than the current practice of paying workers at their regular rate of pay for as many as 10 hours a day for as many as 6 days a week during busy harvest periods when enough work is available to work those hours.[4]

The farming interests argue the current law was meant to account for the variable nature and seasonality of farming.

AB 2757 passed the committee by a 5-2 party-line vote and was referred to the Assembly Appropriations Committee. Here, at Baker Manock & Jensen we will continue to track the bill as well as others that affect Valley businesses.

[1] http://www.dictionary.com/browse/sow

[2] http://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=201520160AB2757

[3] http://www.leginfo.ca.gov/pub/15-16/bill/asm/ab_04510500/ab_486_cfa_20150411_153203_asm_comm.html

[4] http://www.farmbureauvc.com/new/assets/pdf-forms/friday-review/friday-review-4-8-2016.pdf

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.


ALERT: A Valley business and a cautionary small business tale

It was recently reported that a local Valley restaurant has been ordered to pay employees $150,000 in back wages and penalties.[1]  This is another cautionary tale of how employment related lawsuits and government enforcement can lead to extensive liability and shudder small businesses in struggling areas.  While the newspaper article seems to suggest that simple steps can be taken to avoid liability for wage and hour violations, this is not always the case.  Even attentive and cautious business owners can get sucked into lawsuits or government enforcement actions.  Indeed, back in 2013 an article in the Huffington Post stated that wage and hour lawsuits had risen 432 percent over the last 20 years![2]

The last three years seem to have shown no signs of slowing down – particularly in California – where wage and hour laws are even more employee friendly than Federal laws.  While some employer errors are obvious and easy to correct going forward, others are not.  The number and technical nature of wage and hour laws make it increasingly difficult for employers to maintain compliance. Perhaps what is even more concerning is that a company does not need to commit an extensive amount of violations to have liability reach six (or even) seven figures.  The large nature of these figures stems from the three year statute of limitations attached to most wage violations.  Furthermore, a violation of one statute usually means that an employer violated other statutes, sometimes for the same exact conduct.  Additionally, penalties are often imposed in addition to back pay.  And, once a violation is discovered, the only way to correct it is to pay the employees for every violation and penalty that took place during the previous three years.

A common strategy for Plaintiff’s and former employees is to indicate that they worked off the clock.  This is extremely problematic because even companies that keep very good records are left defending a lawsuit that is “employer said versus employee said.”  While ultimately there may need to be legislative changes to ensure that well meaning employers are not put out of business by wage and hour lawsuits, there are some suggestions that employers are encouraged to take.  These suggestions are not fail safe and will not mean an employer cannot still be sued or brought into a government enforcement action for an alleged violation, but they do put the employer in the best defensive posture when one occurs.

  • Make sure your exempt employees are truly exempt:  Simply paying your employee a salary does not mean they are necessarily exempt from overtime and meal breaks.  In order to be exempt, employees must meet both the salary test and the duties test.  Because the salary test is based on a multiple of minimum wage, employers must continually review their exempt employees salaries to ensure compliance.  Currently, in addition to meeting the duties test, an employee must be paid at least $41,600 per year to be an exempt employee.
  • Ensure employees are encouraged to take meal periods/rest breaks:  Often the allegation in a wage and hour case is that employees did not receive their meal and rest period.  Generally Employees are entitled to a meal period every 5 hours and a rest break for every 4 hours worked (or major fraction thereof).  Make sure an employee’s workload does not prevent them from taking their meal and rest breaks.  If an employee misses a meal period, simply pay the one hour pay penalty in the next pay period.
  • Make it easy for an employee to correct their time:  If there is an error on the time clock (or an employee forgot to clock in), make sure there is an mechanism where an employee can easily make sure their pay accurately reflects the time they actually worked.
  • Pay all compensable time:  This concept is getting trickier all of the time.  The increase in use of technology and mobile devices makes it difficult to ensure no work is conducted after the employee leaves the workplace.  To that end, employees should be informed that they are not to conduct work when they are not clocked in and that if they do conduct work after hours, they make sure and record it the next day.  Employers should be very careful about giving non-exempt employees mobile devices or after hours access to the computer system.
  • Be wary of classifying somebody as an independent contractor: Simply calling an individual an independent contractor does not mean that they are one.  Indeed, an individual performing work is presumed to be an employee.  In order for an individual to be properly classified as an independent contractor he or she must meet an extensive test.
  • Keep accurate time records:  Time records and wage statements will be an employer’s main line of defense in a wage and hour action.  Do not automatically deduct meal periods, and be wary of hand written timesheets that always reflect nice round hours.
  • Have policies which accurately reflect the law and have employees acknowledge the same: An employer’s next best defense, other than keeping accurate pay records, is to have strong policies that inform the employees of their rights.  It is more difficult for an employee to claim that the employer prevented an employee from taking a meal and rest break when the employers policies say the exact opposite.
  • Get an employment law attorney involved early:  Obviously prophylactic measures are better than a defense.  It is better not to have a violation than to defend against a lawsuit.  An attorney or HR professional can help set up your business to prevent violations from occurring in the first place.  But, if an employee does make a claim, an attorney’s early involvement can save an employer a significant amount of funds through early resolution.

[1] http://m.hanfordsentinel.com/selma_enterprise/news/selma-leaders-react-to-wage-violations-case/article_832efea5-80ae-5a69-a174-9cc7fd815d25.html?mobile_touch=true.

[2] http://www.huffingtonpost.com/2013/05/14/wage-and-hour-lawsuits_n_3271978.html.

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.


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!


FACT CHECK: Is it true that “Valley employers no longer have to worry about defending themselves against lawsuits related to errors on wage statements”?

Q.     I saw the headline stating, “Governor signs bill to protect employers from ‘frivolous’ lawsuits.” Is it true that “Valley employers no longer have to worry about defending themselves against lawsuits related to errors on wage statements”?[1]

A.     Not really.  AB 1506 simply amends Labor Code section 2699, otherwise known as the Private Attorney General’s Act or “PAGA”, but does not prevent a plaintiff from suing for the same “frivolous” violations. PAGA allows an employee to stand in the shoes of the Labor and Workforce Development Agency (“LWDA”) to bring an enforcement action on behalf of him or herself and other similarly situated employees based on violations of the California Labor Code.  The PAGA recovery is limited to the penalties that could be recovered by the LWDA and does not include other damages that would otherwise be provided directly to an aggrieved employee.  The employees are able to retain 25%  of the recovered PAGA penalty while the remaining 75% of the PAGA penalty must be remitted to the Labor and Workforce Development Board.  PAGA provides a cure provision for some, but not all, Labor Code violations. In those instances, if an employer can cure the violation within 33 days, the plaintiff is precluded from filing a PAGA lawsuit.  The new law (i.e., AB 1506) simply adds a provision to PAGA that states that certain wage statement violations can be cured.

While this is a positive development, it is not much of win for employers because it only amends PAGA and not the underlying Labor Code statute regarding wage statements. In other words, while a plaintiff may be limited in its use of a PAGA cause of action for errors related to wage statements, there is nothing prohibiting a plaintiff from simply alleging a violation of the statute that creates the wage statement requirements in the first place (i.e., Labor Code section 226).  Indeed, PAGA causes of action are rarely alleged by themselves because they are limited to penalties and even those limited penalties must be shared with the LWDA.

Based on the above, it is clear that a plaintiff does not need PAGA to bring a claim. The underlying statute (i.e., Labor Code 226) still provides an avenue for the same frivolous lawsuits.  Specifically, Labor Code section 226(e) provides:

An employee suffering injury as a result of a knowing and intentional failure by an employer to comply [with wage statement requirements] is entitled to recover the greater of all actual damages or fifty dollars ($50) for the initial pay period in which a violation occurs and one hundred dollars ($100) per employee for each violation in a subsequent pay period, not to exceed an aggregate penalty of four thousand dollars ($4,000), and is entitled to an award of costs and reasonable attorney’s fees.


(B) An employee is deemed to suffer injury for purposes of this subdivision if the employer fails to provide accurate and complete information as required by any one or more of items (1) to (9), inclusive, of subdivision (a) and the employee cannot promptly and easily determine from the wage statement alone one or more of the following:

(i) The amount of the gross wages or net wages paid to the employee during the pay period or any of the other information required to be provided on the itemized wage statement pursuant to items (2) to (4), inclusive, (6), and (9) of subdivision (a).

(ii) Which deductions the employer made from gross wages to determine the net wages paid to the employee during the pay period. Nothing in this subdivision alters the ability of the employer to aggregate deductions consistent with the requirements of item (4) of subdivision (a).

(iii) The name and address of the employer and, if the employer is a farm labor contractor, as defined in subdivision (b) of Section 1682, the name and address of the legal entity that secured the services of the employer during the pay period.

(iv) The name of the employee and only the last four digits of his or her social security number or an employee identification number other than a social security number.

In sum, a plaintiff does not need PAGA to bring the same frivolous wage statement lawsuits as before the new law. Labor Code section 226 can be brought without asserting a PAGA claim.  Moreover, Labor Code section 226 claims can be brought as a class action or in an individual capacity.  These claims also provide for attorneys’ fees to a prevailing plaintiff. While, there is no doubt that PAGA is a real issue for employers and any limitation in its use is a positive development, employers need to realize that the new law does not protect them from frivolous lawsuits.  This new law merely removes one small arrow in the plaintiff’s counsel’s quiver of many.

[1] http://www.thebusinessjournal.com/news/legal/20098-governor-signs-bill-to-protect-employer-from-frivolous-lawsuits

What can you tell me about California’s new Fair Pay Act? Will Gwyneth Paltrow finally be paid as much as Robert Downey, Jr.?

Q:     Well, it’s the time of year when we learn which bills become laws and make it even harder to be an employer in California. I have heard quite a bit about this new Fair Pay Act regarding gender pay equality. What does “substantially similar” mean, and what impact will the newly signed Fair Pay Act have on employers?

A:     Well, we are about to find out…. We have famously heard from actress Gwyneth Paltrow about the “painful” wage gap,[1] and it seems her plight has not fallen on deaf ears. Earlier this week, the Governor signed into law what has been deemed the country’s most stringent law regulating gender-based wage disparities. California’s new Fair Pay Act (“the Act”) now requires that an employee be paid equal to any counterpart of the opposite sex who performs “substantially similar work,” rather than just equal work. This requirement applies even when the employees work at different sites or have different titles.

While the aim of the law is certainly commendable, the standard will be likely difficult to apply. This makes sense because the Act does not define “substantially similar work.” As a result, its meaning and potential impact remains unclear. What we do know is that, in theory, the Act will make it easier for employees to sue their employers if they feel they are undercompensated. It will also be more difficult for employers to prove that wage gaps are not discriminatory. The Act shifts the burden from employees to employer to demonstrate that the wage differential is determined by a system based on seniority, merit, education, experience or other measures of quality. Further, even if the employer succeeds in demonstrating a non-discriminatory reason, the aggrieved employee can argue that business could have been run differently to avoid said pay discrepancy.

Geoffrey DeBoskey, head of Sidley Austin’s Los Angeles labor and employment group, implied that the Act, while drafted with pure intentions, presents a risk of drawn out and costly litigation for employers, and ultimately, leaves it to “judges and juries” to “second-guess business decisions.”[2] In contrast, Cliff Palefsky, a San Francisco plaintiffs’ employment attorney with McGuinn, Hillsman & Palefsky, does not expect the Act to cause substantial increase in litigation. This is because, Palefsky said, most “gender-bias cases involve discriminatory promotion practices, rather than unfair pay.”

Whether the Act will cause new discrimination victims to flood the courthouse, or simply a trickle, is yet to be determined. Unfortunately, until “substantially similar” is clarified by the Legislature or interpreted by the Court, eager Californians will be left to wonder, “[w]ill Jennifer Lawrence get paid like Bradley Cooper?” [3]

In unrelated news, I am currently lobbying Sacramento for the Attorney’s Pay Equalization With Hollywood Movie Actress Gwyneth Paltrow Act – commonly referred to by its acronym as the APEWHMAGPA.

[1] http://www.harpersbazaar.com/celebrity/latest/news/a12496/gwenyth-paltrow-pay-gap/

[2] Marisa Kendall. “Employment Lawyers Brace for Fair Pay Act.” The Recorder [San Francisco] 6 Oct. 2015. Web.

[3] Daniel Miller, Meg James, and Amy Kaufman. “With the New Fair Pay Act, Will Jennifer Lawrence Get Paid as Much as Bradley Cooper?” Los Angeles Times. Los Angeles Times, 08 Oct. 2015. Web.

I heard that the new “piece-rate” legislation on the Governer’s desk could cost California employers a lot of money. Is that true??

Q:     What is this about a new law affecting employers regarding “piece-rate,” rest breaks, and other unproductive time? I heard the Governor struck a deal.

A:     The new legislation is AB 1513. And, it potentially requires back payment to all workers that were paid “piece-rate” from July 2012 to December 31, 2015. It is currently on the Governor’s desk awaiting signature, but the Governor is touting the deal as positive.

Until fairly recently, there was a theory that an employer could pay an employee “piece-rate” so long as at the end of the day (or pay period) the employee made more than the minimum wage once the employer divided the compensation by the number of hours worked. However, two recent cases changed that idea.

In Gonzalez v. Downtown LA Motors (April 2, 2013), the court found that automobile service technicians who were paid on a “piece-rate” basis should have been paid their minimum hourly wage for the waiting time between repairs. The court found the employer (a Mercedes dealership) violated the California Labor Code through illegal “pay averaging” and the employer was required to pay a separate hourly rate for any time that the mechanics were not actively engaged in repairs.

Specifically, the court found that “[e]very employer shall pay to each employee, on the established payday for the period involved, not less than the applicable minimum wage for all hours worked in the payroll period, whether the remuneration is measured by time, piece, commission, or otherwise.” The court further noted that the applicable wage order at issue in the case also defined “hours worked” as “the time during which an employee is subject to the control of an employer, and includes all the time the employee is suffered or permitted to work, whether or not required to do so.” In short, the court found the obligation to pay minimum wage attaches to each and every separate hour worked during the payroll period.

The next battle ground was rest breaks.  Since rest breaks are unproductive but compensable time, one would think an employer can average the hour in which a break was taken.   In Bluford v. Safeway Stores Inc., the court said no.  As such, employers that utilize “piece-rate” pay should have an alternative method for paying for each 10 minute rest break.

After Gonzalez and Bluford, the general school of thought was that employers were required to pay a base minimum wage for all hours worked to which some form of “piece-rate” incentive would be added (either to each hour or at the end of the day).  Unfortunately, the only way to determine if an employee is receiving at least minimum wage for each hour is to know what he or she is earning each hour.  Gonzalez forecloses the possibility of a looking back to calculate whether employees are getting paid at least minimum wage.  The employee must earn at least minimum wage for all hours worked and be paid at least a minimum wage rate for his 10 minute rest breaks (or heat rest periods).

Because there is a three year statute of limitations for wage claims, the question then became: what do employers who paid “piece-rate” prior to Gonzalez and Bluford do? The answer: evidently, go to Sacramento and negotiate. On October 1, 2015, David Siders reported in the Fresno Bee that:

The Brown Administration, business and labor officials emerged from dozens of hours of private meetings and conference calls with a plan to resolve a festering dispute over pay for farm workers and other low wage labors. The solution, passed in a bill on the legislature’s final day, reflected a multi-million dollar compromise: In exchange for back payments to thousands of employees for rest periods and other work hours, farmers would receive protection from lawsuits – and potentially far stiffer penalties – for past failure to pay.

According to the language in the statute, the employer is now required to make the back payment in one of two ways: 1) pay the actual sums for each missed rest period together with accrued interest; or 2) pay each employee an amount equal to 4 percent of that employee’s gross earnings in pay periods in which any work was performed on a “piece-rate” basis from July 1, 2012, to December 31, 2015, inclusive, less amounts already paid to the employee, separate from piece-rate compensation. The issue with the first option is how does an employer calculate actual sums, when they did not think they were required to record unproductive time.

Under the AB 1513, there are some limited exceptions, and the amount and timing of the payments can be a little technical. Accordingly, all employers that paid “piece-rate” should contact their employment attorney prior to making any payments under this new legislation.