Startups Prefer Employees Over Independent Contractors?

We’ve all heard the stories about how startups tend to prefer to classify their workers as “independent contractors” rather than “employees.”  Uber is a current and classic example of this legally risky phenomenon.

But, according to today’s Business Insider, startups are apparently now second-guessing this strategy.  There’s a budding new trend among startups now to classify their workers as employees rather than independent contractor.  Sure, the employer still faces significant financial and other costs when using employees rather than independent contractors, but there’s a new realization among many startups that it’s better for business to classify their workers as employees.

Many startup company employment lawyers will sleep better tonight!  We have been preaching for years that, in many cases, it’s just too risky to try to squeeze a worker under the independent contractor umbrella.  There’s a strong presumption in California that a worker is an employee.  To rebut this presumption and legally classify someone as an independent contractor, various tests must be met.  It is a complicated and uncertain analysis.  The costs to the company for getting it wrong — especially a small company or a startup — can be crippling.

You can read the Business Insider article here.

 

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Governor Brown Signs AB 987, Making it Illegal to Retaliate Against an Employee Who Requests a Reasonable Acccomodation

On July 16, 2015, Governor Jerry Brown signed AB 987 into law.  This new law makes it an unlawful employment practice for an employer to retaliate or otherwise discriminate against an employee for requesting an accommodation for a disability or religious belief, regardless of whether or not the request was granted.

This new law was intended to overturn a prior Court decision, Rope v. Auto-Chlor Systems of Washington, Inc., 220 Cal. App. 4th 635 (2013), which held that a request for an accommodation, by itself, did not constitute protected activity.

You can read the full text of  AB 987 here.

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Governor Brown Signs AB 202 Making Cheerleaders Employees

On July 15, 2015, California Governor Jerry Brown signed AB 202.  This new law requires California-based minor or major league baseball, basketball, football, ice hockey, or soccer to treat cheerleaders as employees, not independent contractors, when they perform during exhibitions or games.   This means that California cheerleaders are now afforded the full protection of all California employment laws, including protections against discrimination, harassment, and retaliation as well as minimum wage protection, unemployment insurance, and workers’ compensation.

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Governor Brown Signs AB 304 Clarifying New Paid Sick Leave Law

As many of you already know, California has a new paid sick leave that took effect on July 1st of this year.  I previously blogged about this new law, and its requirements for California employers, here.

But the state’s new sick leave law left many questions unanswered.  So, yesterday California Governor Jerry Brown signed a new law, AB 304, that clarifies a few provisions of the new paid sick leave law —

1.  To be eligible under the new law, an employee must work for the same employer within California for at least 30 days;

2.  An employer may provide for employee sick leave accrual on a basis other than 1 hour for every 30 hours worked, so long as the accrual is “on a regular basis” and results in the employee having at least 24 hours of accrued sick leave available by the 120th calendar day of employment;

3.  An employer may limit an employee’s use of paid sick leave to 24 hours or 3 days in each year of employment, or calendar year, or 12-month period;

4.  For purposes of calculating the rate of pay in order to determine wages owed to an non-exempt employee when sick leave is taken, the employer is allowed to use one of two calculation options:

  • Paid sick time shall be calculated in the same manner as the regular rate of pay for the workweek in which the employee uses paid sick time, whether or not the employee actually works overtime in that workweek; or
  • Paid sick time shall be calculated by dividing the employee’s total wages, not including overtime premium pay, by the employee’s total hours worked in the full pay periods of the prior 90 days of employment

5.  For purposes of calculating the rate of pay in order to determine wages owed to an exempt employee when sick leave is taken, the employer shall calculate the rate of pay “in the same manner as the employer calculates wages for other forms of paid leave time.”

6.  Employers who offer unlimited paid sick leave may satisfy the notice requirements to employees by indicating the words “unlimited” on the pay stub (rather than having to show the total hours accrued);

7.  Employers’ record-keeping requirements under the new law do not include maintaining documents showing the purpose for which an employee used paid sick leave.

You can read the full text of AB 304 here.

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Employers Must Withhold Payroll Taxes on Settlements or Judgments Awarding Lost Wages

California employment lawyers have long argued about whether (or not) an employer can pay a settlement to an employee and issue a 1099 to the employee for the settlement amount.

Most employers insist on issuing the settlement check subject to usual payroll tax withholdings, reported on a W-2.  However, in many cases, to maximize the amount of the settlement check, the employees tries to convince the employer to issue the  settlement check without any withholdings and to report the transaction on a 1099.  This back-and-forth often delays and sometimes even prevents the parties from settling their dispute.

In Cifuentes v. Costco Wholesale Corp, a California court recently weighed in on this issue.  In Cifuentes, the Court determined that employers must withhold payroll taxes from settlement or judgement that involves the payment of “lost wages” — meaning back-pay or front-pay — to the employee.  In reaching this decision, the Cifuentes Court openly questioned the  correctness of a prior 1992 state court opinion, Lisec v. United Airlines, Inc., which reached the opposite conclusion.  After examining the history of wage taxation from 1992 to the present, the Cifuentes Court ruled that Lisec was no longer persuasive or controlling authority.  Now, according to Cifuentes, the modern trend as required by the IRS and current federal laws and regulations was to require the withholding of payroll taxes from all settlements and judgments involving the payment of lost wages.

You can read the Court’s decision in Cifuentes v. Costco Wholesale Corp. here.

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California Court Refuses to Enforce Texas Choice of Law and Forum Selection Clause

California employers sometimes try to avoid the employee-friendly rules embedded in California law by inserting choice of law clauses into employment contracts.  These clauses stipulate that, in the event of a dispute between the employer and employee, the laws of the State of Texas (or some other employer-friendly state) shall govern the dispute.  In addition, employers sometimes go even farther and insert a forum selection clause, which states that, in the event of a dispute, the dispute shall be heard in a particular county or court within that chosen state.

How successful are employers who utilize this strategy?  Well, it depends on the state chosen, how the contract was drafted and negotiated, and the nature of the dispute among other factors.  But, a recent California Court of Appeal decision sheds some light on the analysis and confirms that employers face an uphill battle when utilizing this strategy.

In Verdugo v. Alliantgroup, the plaintiff worked in California for a company headquartered in Texas.  At the time she was hired, the plaintiff signed an employment agreement that included a choice of law clause and a forum selection clause.  Those clauses stated that (1) the “sole venue” for disputes arising out of plaintiff’s employment would be Harris County Texas; and (2) Texas law would apply to the dispute.

In April 2013, plaintiff brought a class action lawsuit alleging the following claims on behalf of all similarly situated past and present employees of Alliantgroup: (1) unpaid overtime wages under Labor Code section 1194;1 (2) failure to provide accurate itemized wage statements under section 226; (3) failure to provide meal breaks under section 226.7; (4) failure to pay all wages due at time of termination under section 203; (5) failure to pay commissions under sections 200 to 204; (6) failure to pay vacation pay under section 227.3; (7) unfair and unlawful business practices under Business and Professions Code section 17200 et seq.; and (8) civil penalties under the Labor Code Private Attorneys General Act of 2004.

The employer-defendant moved to dismiss or stay plaintiff’s California action based on the Texas forum selection clause.  The trial court granted the motion and stayed the plaintiff’s action based on its finding that the forum selection clause was enforceable.  The plaintiff then appealed.

The Court in Verdugo v. Alliantgroup reversed the trial court.  The Court held that the forum selection clause that plaintiff signed was not enforceable, and that plaintiff’s lawsuit therefore could proceed in California.  According to the Court, although forum selection clauses can sometimes be enforceable,  “California courts will refuse to defer to the selected forum if to do so would substantially diminish the rights of California residents in a way that violates our state’s public policy.”

The Verdugo Court noted that all of plaintiff’s claims emanated from provisions of the Labor Code.  These California statutes provided rights to plaintiff which were “unwaivable” and, thus, could not be set aside by private agreement.  Therefore, the burden fell on the defendant-employer to prove that a Texas court applying Texas law would provide the same or greater rights as did the California Labor Code.  At best, the defendant-employer could say only that a Texas Court “would most likely apply California law.”  Moreover, the defendant-employer refused to stipulate that the Texas Court apply California law.

These key facts left the Verdugo Court convinced that plaintiff’s rights would be “substantially diminished” if she were forced to litigate her California Labor Code claims in a Texas court under Texas law.  Accordingly, the Court concluded that the forum selection and choice of law clauses were unenforceable.

You can find the full opinion in Verdugo v. Alliantgroup here.

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Los Angeles Raises Its Minimum Wage to $15/Hour

On Saturday, June 13, 2015, Los Angeles Mayor Eric Garcetti signed into law a measure that would gradually increase the city’s minimum wage to $15/hour.

Under this new law, in July 2016 the minimum wage in Los Angeles will increase to $10.50.  Each year thereafter, the minimum wage in Los Angeles will further increase to $12 (July 2017), $13.25 (July 2018), $14.25 (July 2019) and $15 (July 2020).

Small businesses with fewer than 25 employees and nonprofits are covered by the new law but are allowed to implement increases one year behind this schedule.

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U.S. Supreme Court Clarifies Standard for Proving Religious Discrimination

On June 1, 2015 the U.S. Supreme Court ruled in EEOC v. Abercrombie & Fitch that, for an employee to successfully prove a religious discrimination case, that employee need only prove that his/her need for an accommodation was a “motivating factor” in the employe’s adverse employment decision.  There is no requirement that the employee prove that the employer had knowledge of the employee’s need for an accommodation.

In EEOC v. Abercrombie & Fitch, an applicant appeared for an interview wearing a religious headscarf.  Abercrombie & Fitch had a policy forbidding “caps” from being worn by employees.  During the interview, the applicant did not mention her religion or her headscarf.  Neither did she mention the need for any religious accommodation.  Although the initial interviewer gave the applicant a score that was high enough for hiring, the interviewer noted her concern that the applicant’s headscarf might be a violation of the company’s “Look Policy.”  The interviewer then sought the assistance of her supervisor, who made the ultimate decision not to hire the applicant.

The lower court ruled that the applicant was required to notify Abercrombie & Fitch of her need for a religious accommodation.  Because she did not do that, the applicant’s lawsuit against the company was dismissed.  But the U.S. Supreme Court reversed the lower court’s ruling.  According to the U.S. Supreme Court, an employer cannot make an applicant’s religious practice, confirmed or not, a factor in employment decisions.  The key issue is what motivated the employer to make the decision that it did, not what the employer knew or did not know about an employee’s or applicant’s religion or need for an accommodation.  Accordingly, the applicant was allowed to proceed with her religious discrimination claim against Abercrombie & Fitch.

You can read the Supreme Court’s full decision here.

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CA Supreme Court Clarifies When Defendants Can Get Fees and Costs Awarded in FEHA Actions

On May 4, 2015, the California Supreme Court ruled in Williams v. Chino Valley Independent Fire District that a successful defendant in a FEHA case can get awarded its attorneys’ fees and costs only when “the plaintiff brought or continued litigating the action without an objective basis for believing it had potential merit.”  In other words, it’s not enough for the defendant simply to show that it prevailed at trial on the FEHA claim.  According to the Court, “a prevailing defendant…should not awarded fees and costs unless the Court finds the action was objectively without merit when brought, or the plaintiff continued to litigate it when it became so.”

This ruling should have a dramatic impact on California employees who bring FEHA discrimination, harassment, or retaliation claims.  Now, these employees will no longer have to fear that, if they lose their case, they will face a potentially bankrupting award of fees and costs to their employers.  In addition, employees often faced incentives to settle their cases because of their fear of a potentially large cost award to their employers.  Employers leveraged this fear and often offered to settle plaintiff’s cases in exchange for a “waiver of costs.”  This strategy will likely be less successful for employers in the future because this decision raises the bar for getting those costs awarded.

You can read the Williams v. Chino Valley Independent Fire District opinion here.

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U.S. Supreme Court Rules in Favor of Pregnant Employees

Earlier today, the U.S. Supreme Court ruled in favor of a pregnant woman on her claim that her employer discriminated against her on account of her pregnancy.  The case, entitled Young v. United Parcel Service, Inc., involved a pregnant UPS worker whose doctor recommended that she not life heavy objects while pregnant.  When the employee requested an accommodation, UPS refused it and told the employee she could not work while under a lifting restriction.  This refusal occurred even though UPS routinely granted accommodations to other employees under non-pregnancy related lift restrictions.  The employee therefore brought a disparate treatment discrimination claim in federal court against UPS, claiming that she was being treated differently than other “similarly situated” employees.

The federal District Court granted summary judgment in favor of UPS, holding that the employee could not state a successful disparate treatment claim.  The Fourth Circuit Court of Appeals affirmed the decision, concluding that “UPS has crafted a pregnancy-blind policy that is at least facially a ‘neutral and legitimate business practice,’ and not evidence of UPS’s discriminatory animus toward pregnant workers.”

But the U.S. Supreme Court reversed in a 6-3 vote and held that:

1.  Pregnant workers may bring discrimination claims based on disparate treatment by showing that (a) the employee belongs to a protected class; (b) that she sought an accommodation; (c) that the employer failed or refused to accommodate the employee; and (d) and that the employer did accommodate others “similarly in their ability or inability to work.”

2.  If a pregnant employee makes this prima facie case, then the burden of proof shifts to the employer to offer “legitimate, non-discriminatory reasons” for denying the accommodation.

3.  If the employer offers persuasive “legitimate, non-discriminatory reasons,” then the employee can attempt to show that those reasons are, in fact, a mere pretext for actual discriminatory animus.  If the employee can show that the employer’s policies impose a “significant burden” on pregnant workers, that can give rise to a claim for discrimination, especially when the employer’s “legitimate, non-discriminatory” reasons offered are not strong or persuasive.

4.  The plaintiff can create a genuine issue of material fact as to whether a “significant burden” exists merely by showing that “the employer accommodates a large percentage of non-pregnant workers while failing to accommodate a large percentage of pregnant workers.”

Based on these principles, the U.S. Supreme Court concluded that the employee created a triable issue as to “whether UPS provided more favorable treatment to at least some employees whose situation cannot reasonably be distinguished from hers.” Therefore, the U.S. Supreme Court vacated the Fourth Circuit Court of Appeals decision in favor of UPS and sent the case back down for further proceedings.

Justice Breyer delivered the opinion of the Court, which can be found here.

 

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Court Invalidates Wage Order Meal Period Waiver Rules for Healthcare Employees

Wage Orders 4 and 5 have long permitted employees in the “healthcare industry” who work longer than 8 hours in a day to voluntarily waive one of their two meal periods.

However, on February 10, 2015, California’s Fourth Circuit Court of Appeal ruled in Gerard v. Orange Coast Memorial Medical Center that these provisions of Wage Orders 4 and 5 violated California Labor Code §512(a).  That Labor Code statute states that employees may waive their second meal period only then there shift is “no more than 12 hours.”  To the extent that Wage Orders 4 and 5 contained provisions allowing healthcare industry employees to waive their second meal periods for shifts longer than 12 hours, the Gerard court ruled that those provisions in Wage Orders 4 and 5 were void.

As a result of Gerard, employees in the healthcare industry who by waiver (or otherwise) are denied a second meal period for shifts longer than 12 hours may now sue their employers for damages, including “premium pay” under California Labor Code §226.7 equal to one hour of pay for each meal period not provided.

California employers in the healthcare industry should therefore review (and, if necessary, revise) their meal period policies to ensure that employees who work over 12 hours are guaranteed their right to an off-duty meal period of at least 30 minutes.

You can read the Court’s decision in Gerard v. Orange Coast Memorial Medical Center here.

 

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San Francisco’s “Retail Workers Bill of Rights” Becomes Law

On November 25, 2004, San Francisco’s Board of Supervisors unanimously passed a first-in-the-nation “Retail Workers Bill of Rights.”  This new legislation requires “formula retail” employers (chain stores with at least 20 outlets worldwide) who have 20 or more employees in San Francisco to provide the following job protections:

1.  “Good faith” written estimate of work days, shifts, and hours for new employees:  Before a retail employee begins work, his/her formula retail employer must provide the employee with a written “good faith” estimate of the number of shifts, days, and hours the employee can expect to work.

2.  Advance notice of work schedules and scheduling changes:  Formula retail employers must provide employees with at least 2 weeks’ advance notice of their work schedules.  If a formula retail employer changes an employee’s schedule more than 24 hours’ notice but less than 7 days’ notice, then the employer must pay the employee an additional 1 hour of pay.  If the employer changes the schedule within 24 hours or less notice, then the employee is entitled to between 2 and 4 hours of pay, depending on the employee’s regular shift.

3.  Payment for on-call employees:   If a formula retail employee is required to be on-call and available for work, and if that employee is not called in to work, then the employee must be paid between 2 and 4 hours of pay, depending on the duration of the on-call shift, subject to various exceptions.

4.  Equal treatment for part-time employees:  Formula retail employers must treat part-time workers (those working under 35 hours per week) equally to full-time workers in terms of starting hourly wages, access to time off, and eligibility for certain promotions.

5.  Protection of current part-time employees:  Formula retail employers must offer additional, available work shifts and hours to current part-time employees before hiring new employees or using employee staffing agencies.

6.  Employees protected upon sale of the business:  If a formula retail business is sold, the purchaser is required to retain for at least 90 days all of the seller’s non-managerial employees who worked for the seller at least 6 months prior to the sale.

Mayor Ed Lee sided with business leaders and refused to sign this new law.  In fact, the Mayor returned the legislation unsigned to the Board of Supervisors on December 5, 2014.

However, the Mayor’s signature was unnecessary given that the Board of Supervisors passed the legislation on a 10-0 vote.  As a result, the “Retail Workers Bill of Rights” will become effective on January 4, 2015 and legally operative 180 days thereafter.  Accordingly, San Francisco formula retail employes have until July 3, 2015 to become compliant with this new law.  

The San Francisco Office of Labor Standards Enforcement will enforce this new law.  In addition, the San Francisco City Attorney’s Office may file civil actions against offending employers.

You can find the full text of the new laws here and here.

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