Saturday, February 28, 2015

California Supreme Court: On-Site Guards’ On-Call and Sleep Time Must Be Compensated



Does your employer require on-call hours, to remain on your employer’s premises or to stay so close to your workplace that you cannot effectively use the time for personal purposes? Your time spent on call (including your sleep time, if you are on call overnight) may be counted as hours worked, and thus must be compensated, based on a recent California Supreme Court’s decision, Mendiola v. CPS Security Solutions, Inc., 60 Cal. 4th 833 (2015).

CPS Security Solutions, Inc. (“CPS”) employs on-call guards to provide security at construction sites. These on-call guards have different job obligations on weekdays and weekends. On weekdays, they work 16-hour shifts, with 8 hours on duty (patrolling the work sites) and 8 hours on call, whereas on weekends, they work 24-hour shifts, with 16 hours on duty and 8 hours on call. CPS signed an on-call agreement with each guard, and based on this agreement, CPS requires these guards to reside in the trailers CPS provides while they were on duty. These guards can keep personal items in the trailers, but children, pets, and alcohol are not allowed. Adult visitors are permitted only when CPS’s clients give approval. When these on-call guards want to leave the work site while on call, they have to notify a dispatcher, wait for a reliever, and remain on-site, even in the case of personal emergency, if no reliever is available. When they are relieved, they still have to stay within a 30-minute radius of the facility and accessible by a pager or phone. Based on the on-call agreement, these guards receive no compensation for their on-call time unless: (1) they are required to conduct an investigation while on call, or (2) they wait for (or have been denied) a reliever. CPS may deduct 8 hours of “sleep time” from their 24-hour shifts.

The trial judge, in response to these guards’ class action lawsuit claiming CPS violated Industrial Welfare Commission (IWC) Wage Order No. 4 and Labor Code statutes, concluded that CPS must pay for these on-call hours. The Court of Appeal agreed with the trial court in part and held that these guards were entitled to compensation for their on-call hours. However, the Court of Appeal disagreed with the trial court about the issue of “sleep time” and held that CPS may deduct 8 hours of sleep time from these guards’ 24-hour shifts.

The California Supreme Court partially agreed with the Court of Appeal’s holding and concluded that CPS must pay for these on-call hours. First, the Supreme Court agreed that CPS exercises substantial control over these guards during on-call hours. Examples of CPS’s substantial control include requiring these guards to “reside” in their trailers as a condition of employment while on call and to stay no more than 30 minutes away from their work sites even when they are relieved. Second, the fact that these guards can engage in such limited personal activities as sleeping, showering, eating, reading, watching TV and browsing the Internet while on call does not eliminate CPS’s control over them, because they are still required to remain at the workplace. Third, given that CPS’s business model is based on the idea that it provides construction sites with an active security presence during the morning and evening hours, these guards “mere presence” on the work sites while on call is integral to CPS’s business and primarily for the benefit of CPS.

In terms of the “sleep time” issue, the California Supreme Court disagreed with the Court of Appeal and held that sleep time may not be excluded from the guards’ 24-hour shifts because Wage Order 4 does not permit the exclusion of sleep time from compensable hours.

The California Supreme Court built upon its decision in Morillion v. Royal Packing Co. (2000) 22 Cal. 4th 575, 582, that “an employee who is subject to an employer's control does not have to be working during that time to be compensated.” The Court confirmed the factors California courts consider in determining the extent of an employer’s control during on-call time, including: “(1) whether there is an on-premises living requirement; (2) whether there are excessive geographical restrictions on employee’s movements; (3) whether the frequency of calls is unduly restrictive; (4) whether a fixed time limit for response is unduly restrictive; (5) whether the on-call employee can easily trade on-call responsibilities; (6) whether use of a pager can ease restrictions, and (7) whether the employee actually engages in personal activities during call-in time.” Mendiola, 60 Cal.4th at 841. In addition, whether the on-call waiting time is spent primarily for the benefit of the employer and its business may be another determinative factor. 
The nature of certain jobs requires employees to be “on call” or “on standby,” ready to respond promptly to instant business needs. With the rapid advancement of technology, more on-call jobs, relying on communication through electronic devices, have also been created. If your employer: (1) requires you to remain on the workplace or to stay close to the workplace while on call, and (2) imposes so many restrictions during on-call time that may indicate a substantial extent of control over you, then you may be spending your on-call waiting time primarily for the benefit of your employer. You may be entitled to be compensated for the entirety of your on-call time, including any sleep time.

If you have any concerns about your on-call, standby, or sleep time, contact Bryan Schwartz Law for more information.

Tuesday, January 20, 2015

U.S. Supreme Court Denies Certiorari Review of Iskanian, Preserving Tool for Enforcing California Wage Laws

Today, the Supreme Court denied CLS Transportation Los Angeles v. Iskanian ("Iskanian"), declining to consider overturning a California Supreme Court decision holding that “representative actions” under the Labor Code’s Private Attorneys General Act (“PAGA”) cannot be barred by arbitration agreements. The denial of review leaves in place a potent tool for employees to step in on behalf of the state to enforce their wage rights.

We previously blogged about the California Supreme Court’s "Iskanian" decision in detail here. The decision ruled in favor of the employees, holding that their right to bring a representative PAGA action was not preempted by the Federal Arbitration Act. Monetary recoveries by plaintiffs in PAGA actions are split between the employees and the State. In holding that employees cannot waive the right to bring PAGA actions, the California Supreme Court reasoned that PAGA is an enforcement mechanism designed by the Legislature to carry out the State’s interest in assuring compliance with state wage laws, not merely a matter of contract between private parties.

In seeking certiorari from the U.S. Supreme Court, the employer argued that the right to bring representative PAGA actions should be treated like the right to bring class actions – a right that may be waived in arbitration agreements under the U.S. Supreme Court’s decision in AT& T Mobility v. Concepcion, 131 S. Ct. 1740 (see our blog post on Concepcion here).

By declining to accept the case for review, the U.S. Supreme Court did not disturb California’s effort to allow its wage laws to be enforceable via representative actions brought by employees.

Wednesday, January 7, 2015

Who is Liable for Wage Violations in California? The Growing Joint Employer Standard


While most employees can answer the question, “Who do you work for?” the question of who is a liable employer under California wage laws hasn’t been so simple. However, if recent trends continue, finding the answer will be easier.

Determining who may be accountable for wage violations affects workers across many sectors of the economy, and many businesses and their leaders. Consider these examples:

A large company considers its drivers independent contractors. The company has policies governing the drivers' uniforms, their vehicles, the way they are dispatched, and reserves the right to terminate the drivers’ contracts at any time. Are the drivers properly classified as independent contractors? Assume each driver is instead a “franchisee,” and employs drivers himself. Are workers for particular franchisees also employees of the large company that is the ultimate franchisor?

A large corporation has many subsidiaries and takes a “shared services” approach, providing human resources, payroll and other key employment-related functions for its subsidiaries. Yet, the corporation takes the position that workers at each subsidiary can only collect (or litigate against, or certify a class) as to the particular subsidiary where each worker spends her days. Is the large corporation also potentially susceptible for wage claims in its subsidiaries, or a company-wide class action that affects all of its subsidiaries?

A big business uses small (potentially insolvent) janitorial services labor contractors to staff its cleaning jobs, and these personnel are receiving less than the minimum wage. To what extent is the big business on the hook for the actions of its labor subcontractors?

A closely held restaurant employs 50 people. It is incorporated, with the sole owner as its lone officer and director. The owner has ultimate authority over hiring and firing workers and — though he has some subordinate managers — has made policy statements from time to time. Can the owner be held personally liable for wage violations under California or federal wage laws as a joint employer?

This year, California’s courts and legislature have helped get closer to answers regarding many of these questions.

Employers: tread carefully

The Borello decision defined an independent contractor. S. G. Borello & Sons Inc. v Dept. of Industrial Relations, 48 Cal. 3d 341 (1989). In response to abuses of the designation, the state Legislature recently added civil and criminal sanctions for willful misclassification — 2011’s Senate Bill 459, which added Labor Code Sections 226.8 and 2753. California’s Employment Development Department has been taking a hard line against independent contractor designations where employers have not paid unemployment insurance or other taxes.

In Ayala v. Antelope Valley Newspapers Inc., 59 Cal. 4th 522 (2014), the state Supreme Court made it easier to certify California class actions based upon independent contractor misclassification. The Supreme Court held that the trial court erred in denying certification of a class of delivery workers who sued a daily newspaper which had classified them as independent contractors. The trial court found too many individual inquiries were necessary into the way different newspaper delivery workers operated.

But the trial court in Ayala missed the crux of the inquiry: Whether a common law employer-employee relationship exists turns foremost on the degree of a hirer’s right to control how the end result is achieved. Because of the preeminence of the right to control test under Borello, as reinforced by Ayala, common proof —  e.g., what rights are reserved to the employer in the governing contracts — will often answer the independent contractor versus employee inquiry. Courts likely will certify more independent contractor misclassification class actions.

The 9th U.S. Circuit Court of Appeals applied California independent contractor law, applying the “right to control” test, in Ruiz v. Affinity Logistics Corp., 754 F.3d 1093 (9th Cir. 2014) (decided shortly before Ayala), and Alexander v. FedEx Ground Package System Inc., 765 F.3d 981 (9th Cir. 2014) (applying Ayala). The Ruiz decision previews Ayala by focusing on the right to control, rejecting an independent contractor classification scheme. Alexander stands for the proposition that if an employer’s workforce is doing the work of employees, the employer cannot avoid complying with the Labor Code’s employee protections by artful contract language. The concurrence quoted Abraham Lincoln: “If you call a dog’s leg a tail, how many legs does a dog have? …. Four. Calling a dog’s tail a leg does not make it a leg.”

One caveat: Where a business goes one step further than independent contractor classification, and has franchisees, the franchisor’s vicarious liability for a franchisee’s employment practices may be limited to situations where it maintains “a comprehensive and immediate level of ‘day-to-day’ authority over matters such as hiring, firing, direction, supervision, and discipline of the employee.” Patterson v. Domino’s Pizza, 60 Cal. 4th 474, 499 (2014) (in a Fair Employment and Housing Act harassment case).

The growing joint-employer standard

Workers have found it difficult to prove Labor Code Section 2810 liability, regarding contracts for insufficient funds. They rarely have access to evidence showing their employer-subcontractors paying substandard wages entered into contracts which the primary contractors knew contained insufficient funds to cover minimum wages. This year, the Legislature responded, and Gov. Jerry Brown approved Assembly Bill 1897, creating Labor Code Section 2810.3. It makes businesses whose workers are supplied by labor contractors jointly responsible for wage payments.

This year may also have doomed the use of parent/subsidiary and holding company relationships between corporate entities to create a loophole in California’s wage laws. In Castaneda v. Ensign Group Inc., 229 Cal. App. 4th 1015 (review denied Dec. 17, 2014), workers brought suit against a parent company owning a “cluster” or “portfolio” of companies providing nursing care, including the entity where the named plaintiff worked. The parent company argued that because the subsidiary was registered as an independent entity, and hired and paid the plaintiff and set his schedule, only the subsidiary could be held liable for wage violations as the plaintiff’s “employer.” But the Court of Appeal held that a jury could conclude that the parent company was the plaintiff’s joint employer. Building on Martinez v. Combs, 49 Cal. 4th 35 (2010), as well as the Court of Appeal decision in Guerrero v. Superior Court, 213 Cal. App. 4th 912 (2013), the Castaneda court explained that an “entity that controls the business enterprise may be an employer even if it did not ‘directly hire, fire or supervise’ the employees.” Quoting Martinez, Castaneda emphasized: “The basis of liability is the owner’s failure to perform the duty of seeing to it that the prohibited condition does not exist.”

Following Castaneda, individual owners — not just corporate owners — may be liable as joint employers for wage violations, where they fulfill one of the tests outlined by the Martinez v. Combs, Industrial Welfare Commission-inspired framework (“employ” means either: to control wages, hours, and working conditions; to suffer and permit to work (hire and fire); or to engage – under the common law definition). California courts have not yet issued published authority on this specific point — Bain v. Tax Reducers Inc., 161 Cal. Rptr. 3d 535 (2013), was ordered depublished by the state Supreme Court after holding with scanty analysis that an individual owner could not be a joint employer.

In Dynamex Operations West Inc. v. Superior Court, 230 Cal. App. 4th 718 (review filed Nov 24, 2014), the Court of Appeal reiterated the broadly protective joint employer standard under the California Labor Code, invoking Martinez v. Combs and the IWC Wage Orders. “Martinez, in effect, fills the gap between the common law employer-focused approach and the need for a standard attuned to the needs and protection of employees. As the court recognized, the IWC wage orders provide an employee-centric test gauged to mitigate the potential for employee abuse in the workplace.”

Federal courts have been similarly “employee-centric” in applying California law — for example, in Carrillo v. Schneider Logistics, a Wal-Mart distribution subcontractor agreed to pay $21 million after Wal-Mart was found potentially liable for Schneider’s wage violations as a joint employer under both California and federal law. 2014 WL 1893956 (C.D. Cal. Jan. 14, 2014).

Going forward, businesses and their leaders, when they control — or have the right to control — wages, hours, and working conditions — or the right to hire and fire workers — should take measures to ensure that workers are being paid in accordance with California law — or face costly consequences.

Bryan Schwartz Law's principal first published this article in the Daily Journal on December 30, 2014, under the title, "2014 gave more clarity on liability for wage violations"

Bryan Schwartz is an Oakland-based attorney representing workers in class, collective, and individual actions in wage/hour, discrimination, whistleblower, and unique federal and public employee claims. He is an Executive Board member for the California Employment Lawyers Association (CELA) and Secretary of the State Bar of California’s Labor & Employment Law Section. He can be contacted at Bryan@BryanSchwartzLaw.com.



Tuesday, December 9, 2014

Integrity Staffing Solutions v. Busk: Why shouldn’t people get paid for their time when it is controlled by the employer?




Today, the Supreme Court overturned a decision from the Court of Appeals for the Ninth Circuit and held that warehouse workers who were required to stay after normal hours on the job to undergo security screenings were not entitled to pay while they wait for and go through the screenings. The decision in Integrity Staffing Solutions v. Busk is available here. The workers – who retrieved products from warehouse shelves and packaged them for shipment to Amazon customers – spent roughly 25 minutes each day to undergo the screenings, which were conducted to prevent employee theft. 


Plaintiffs had argued, and the Ninth Circuit had held, that under the Fair Labor Standards Act of 1938 (FLSA), postshift activities that would ordinarily be classified as noncompensable are nevertheless compensable if the postshift activities are necessary to the principal work and performed for the employer’s benefit.  The Ninth Circuit explained that the screenings were “necessary” to the employee’s primary work, since the warehouse employees were required to undergo the screenings, and waited in security lines many hours a year for the employer’s benefit. 

Overturning the Ninth Circuit, in an opinion by Justice Thomas, the Supreme Court ruled that the security screenings were noncompensable. To support this conclusion, the Court explained that: (1) the warehouse workers were hired to retrieve products from warehouse shelves and package them for shipment, not to undergo security screenings; and (2) the security screenings were not “integral and indispensable” to the employees’ duties, as the employer could have “eliminated the screenings altogether without impairing the employees’ ability to complete their work.” The Court faulted the Ninth Circuit for focusing on whether an “employer required a particular activity” and not on whether an employer is performing work that the employee is “employed to perform.”

It should not matter that the employer could have eliminated the screenings, or that the employees were not hired to undergo security screenings. Apparently, the employer felt that maintenance of the security of the warehouse was an integral and indispensable part of the employees’ jobs – the employer required the workers to undergo a long security check, every single day. The Ninth Circuit had taken a fairer approach, which comports with our basic understanding of what deserves compensation. You should be paid for the time you spend doing whatever the employer requires you to perform, while you are under the employer’s control, and acting for the benefit of the employer. It should not matter whether certain job responsibilities the employer has given you could be altogether eliminated by the employer, because in fact, the required activities prevent you from going home and doing the things you want to be doing.

Employees are not entitled to get paid for their ordinary commute time: they could detour to take a child to school, stop for a drink with a friend after work, pick up dinner or drycleaning – or do whatever might interest them. This time is not under an employer’s control. California’s Labor Code takes the right approach – and California wage claims are unaffected by Integrity Staffing Solutions. As discussed in a previous blog post, under California law, an employer must compensate employees when an employee is “subject to the control of an employer” with no personal freedom to “use the time effectively for their own purposes.” For example, an employer must compensate employees for travel time if the employees are required to travel in a company-provided transportation, or if the employer subjects employees to restrictions during their commute via company vehicles, such as not permitting personal stops, forbidding them from picking up passengers, and forbidding the use of a cell phone except to answer calls from company headquarters.  

Once a worker submits to his or her employer’s control, foreclosed from doing activities in which he or she might otherwise engage, the time should be compensated. Why shouldn't people get paid to work, if their time is encumbered by their employers?  


Friday, November 14, 2014

California Court of Appeal: Overtime Misclassification Cases Are Best Suited for Class Action, Even Where Employer Raises Exemption Defense Based On Individualized Questions

This week, in a decision synthesizing a line of recent California Supreme Court decisions, including Duran v. U.S. Bank and Ayala v. Antelope Valley Newspapers, Inc., a California Court of Appeal reaffirmed the longstanding principle that “classwide relief remains the preferred method of resolving wage and hour claims, even those in which the facts appear to present difficult issues of proof.” The opinion, Martinez v. Joe’s Crab Shack Holdings, B242807 (Cal. App. 2d Dist. November 10, 2014), 2014 WL 5804110, is available here.

The case was filed on behalf of salaried employees of Joe’s Crab Shack (“JCS”) restaurants, on claims that they had been misclassified as exempt employees and were entitled to unpaid overtime pay. They alleged that they spent the majority of their time performing “utility” functions, filling in where needed as cooks, servers, bussers, hosts, stockers, bartenders, or kitchen staff. As a result, they worked extended time in positions ordinarily occupied by hourly employees, but had received no overtime compensation for those tasks. Defendants contended that these employees served in “executive capacities” and were therefore exempt from overtime requirement.

The trial court initially denied class certification, concluding, “The variability among individual members of the putative class would require adjudication of the affirmative defense of exemption for each class member, a time- and resource-consuming process.” The court relied on (1) plaintiffs’ inability to estimate the number of hours spent on individual exempt and nonexempt tasks; and (2) “individual disputed issues of fact relating to the amount of time spent by individual class members on particular tasks.”

The Court of Appeal reversed, and Supreme Court granted review and deferred further action pending the outcome of Duran v. U.S. Bank. Following the Duran decision in July 2014 (59 Cal.4th 1), the Supreme Court remanded the case to the Court of Appeal for reconsideration.

On reconsideration, the Court of Appeal affirmed its prior reversal of the trial court’s order and clarified several guiding principles for the certification analysis when confronted with the “myriad individual facts” asserted by employers in support of their exemption defense to a wage claim.

First, the court explained that “individual inquires” do not “necessarily overwhelm common issues when a case involves exemptions premised on how employees spend the work day.”  The court provided, “Where standardized job duties or other policies result in employees uniformly spending most of their time on nonexempt work, class treatment may be appropriate even if the case involves an exemption that typically entails fact-specific inquiries.” (quoting Duran, 59 Cal.4th at 31). The proper focus should be on “the policies – formal or informal – in force in the work place,” rather than on “the inevitable variation inherent in tracing the actions of individuals.” (quoting Ayala, 59 Cal.4th at 535). The court concluded that that plaintiffs’ theory of liability – that JCS classified all managerial employees as exempt while the common policies across JCS restaurants dictated that they perform hourly functions – is “by nature a common question eminently suited for class treatment.”   

The court also explained, in examining the employer’s actual policies, that the proper inquiry is on “the employer’s realistic expectations and classification of tasks,” not employees’ retrospective recollection of when they were engaged in exempt or nonexempt tasks. The analysis of employer’s realistic expectations, the court noted, was “likely to prove susceptible of common proof.” In Martinez v. JCS, common proof showed that salaried employees of JCS functioned consistently as utility workers, cross trained in all tasks, who could be assigned to fill in where needed without affecting the labor budget or requiring overtime compensation.  

Finally, the court acknowledged the difficulties presented by potential individual questions and the need to examine how individual employees actually spent their time. For this, the court encouraged use of statistical sampling to identify the realistic demands of the job and to determine whether the typical employee was able to meet those expectations, so long as the method affords an employer an opportunity to prove its affirmative defenses.   

Martinez v. JCS thoroughly rejected the analytic framework which would have created “a requirement that courts assess an employer’s affirmative exemption defense against every class member’s claim before certifying an overtime class action.” It makes crystal clear that the certification rules never envisioned such a requirement. When faced with overtime claims with exemption defenses, the Martinez v. JCS decision now affirms, courts should focus their analysis on the “policies and practices of the employer and the effect those policies and practices have on the putative class,” consider the employer’s realistic expectations of the job, and utilize the analytic tools available in class action suits, such as statistical sampling, even where facts appear to present difficult issues of proof.




Monday, October 20, 2014

New “Sharing Economy” and Delivery Service Apps Raise Interesting New Employment Law Questions



Northern California is the heart of app-based innovation. We are a testing ground for new business models and services that have only recently been made possible by the sudden prevalence of smartphones. Online businesses that are “disrupting” traditional marketplaces have been struggling to comply with (or change, or escape the application of) long-established legal regimes – think of AirBnB and hotel regulations, or Uber and taxi and limousine regulations. The area of employment law will be fertile ground for uncertainty and conflict as new business models come up against employment laws.

Many apps are geared toward making goods or services available whenever and wherever the consumer wants them:  Uber, Lyft, Summon, SideCar, and Flywheel make it easy to request a nearby car to pick you up wherever you happen to be; Sprig and Spoonrocket will deliver a hot meal to your door in a matter of minutes; Instacart will do your grocery shopping and deliver your bags within a one-hour window; and TaskRabbit will send someone to help you do just about anything.

On the other side of the equation – the production side – apps sometimes aim to make it easy for people to provide services for money. The “Taskers” who perform tasks via TaskRabbit can bid on the jobs they want to perform, and TaskRabbit advertises itself as helping enterprising business-people reach customers more easily. According to “UberX” drivers who have driven me around town, they can choose when and where to work, and they simply use their own personal vehicles when performing work for Uber. Prior to the existence of this technology, the barriers to finding someone who wanted to pay you for giving them a ride, washing their windows, packing up their moving boxes, or simply running their errands would have been mostly insurmountable.

How do the apps make money? Some portray themselves as “platforms” that merely bring buyers and sellers together and take a slice of the transaction as a middleman. TaskRabbit charges “a 20% service fee on each task so we can provide 24/7 Member Services support, full insurance on every task and our satisfaction guarantee,” according to their website. Others seem more like traditional delivery services, like the Pizza Huts or Little Caesars of the pre-internet era. And others may not be making any money at all – a common piece of wisdom in NorCal is that it doesn’t matter whether a new app makes money, what matters is how many users it can attract.

In order to gain users, however, an app has to provide a reliable service. If you decide to order an Uber, but you open your app and see that there are no available cars nearby, you’ll use a competitor (or you might even hail a cab!). Likewise, if you decide to test out Sprig or Spoonrocket for dinner (or one of the 5 new liquor delivery apps servicing Los Angeles) but you’re told that the wait-time will be an hour, you might give up on the app altogether. So the app has to be sure there’s a willing fleet of drivers, dinner deliverers, Taskers, or what-have-you to ensure that the promise of near-instant service is kept.

So who are the workers who are providing these services? And how are they getting paid? One predictable dispute is whether certain workers are employees or independent contractors – such cases are pending against Uber and Lyft. See Cotter v. Lyft, Inc., 13-cv-4065-VC (N.D. Cal.); O’Connor v. Uber Technologies, Inc., 13-cv-3826-EMC.

Lawsuits have been filed challenging the manner in which tips, or “delivery charges,” are passed on to the workers. In the Uber case just mentioned, the Court left the door open for a claim that Uber failed to pass along the full gratuity advertised as part of the fare. See O’Connor, 13-cv-3826-EMC, 2014 WL 4382889 (Sept. 4, 2014). First, the Court rejected a couple of theories offered by the Plaintiffs – that there was an “implied in fact” contract for payment of the full gratuity to the drivers, and that Uber was engaged in “tortious interference with prospective economic advantage.” 

However, the Court held that the Plaintiffs could attempt to prove a violation of the California Labor Code section on gratuities (§ 351), which can be enforced by a private plaintiff as the basis for a violation of the Unfair Competition Law.

In another recent tipping case against Domino’s Pizza, which uses an app to allow customers to place orders, a group of pizza delivery drivers brought a proposed class action, arguing that the manner in which Domino’s charges its $2.50 delivery charge per order violates the Massachusetts Tips Act. See Carpaneda v. Domino’s Pizza, Inc., 991 F. Supp. 2d 270 (D. Mass. 2014). In app orders (as well as online orders), the price charged to the customer is displayed as including: (i) the food and beverage price; (ii) a $2.50 delivery charge; and (iii) taxes. The drivers, who receive only $3/hour aside from tips, argued that the $2.50 delivery charge should be passed on to them, given that reasonable customers would assume that the delivery charge was a tip, and would not, therefore, provide any additional tip. The app did include a disclaimer stating that the delivery charge is not a gratuity, but the Court denied Domino’s motion to dismiss the case, ruling that a jury could find that a reasonable customer would assume the delivery charge was a tip.


The services provided by the new apps are amazing, and they may provide a much-needed new source of employment, but vigilance will be necessary to ensure that as apps dizzily expand, they comply with the wage laws that protect workers.



If you have a concern about your work with one of these new services, contact Bryan Schwartz Law for more information.

Wednesday, September 17, 2014

Important New Joint Employer Decision: Corporate Parents Responsible for Employment Violations by Wholly-Owned, Controlled Subsidiaries



Can a parent company avoid liability for unlawful employment policies at its wholly-owned subsidiaries? This week, a California Court of Appeal issued an important decision on that question, holding that a corporate parent could be found liable for its subsidiary’s failure to pay overtime and minimum wages. The opinion, Castaneda v. Ensign Group, Inc., B249119 (Cal. App. 2d Dist. Sept. 15, 2014), is available here.

The case was filed on behalf of a class of certified nursing assistants asserting wage claims. They brought suit against The Ensign Company (“Ensign”), which is a parent company that owns a “cluster” or “portfolio” of companies providing nursing care, including the entity at which the named Plaintiff worked, Cabrillo Rehabilitation and Care Center (“Cabrillo”). Ensign argued that because Cabrillo was registered as an independent entity, and because it allegedly hired and paid Plaintiff and set his schedule, only Cabrillo could be held liable for wage violations as Plaintiff’s “employer.” The lower court agreed, and granted a motion for summary judgment dismissing Ensign from the case. 

The Court of Appeal reversed, ruling that a jury could conclude that Ensign was Plaintiff’s “joint employer” under California law. Building on the Supreme Court’s Martinez v. Combs case, as well as recent Court of Appeal decision Guerrero v. Superior Court (both of which we have blogged about, here, here, and here), the Court explained that an “entity that controls the business enterprise may be an employer even if it did not ‘directly hire, fire or supervise’ the employees” (quoting Guerrero). Quoting Martinez, the Court emphasized:  “The basis of liability is the owner’s failure to perform the duty of seeing to it that the prohibited condition does not exist” (italics added by Castaneda Court). The Court found plenty of evidence that Ensign “controlled” its various affiliates, including Cabrillo, and that Ensign had the power to ensure that its subsidiaries complied with the wage laws.

For example: Ensign was the sole shareholder of Cabrillo, as well as other Ensign subsidiaries that performed corporate functions for Cabrillo; Ensign was involved in recruiting Cabrillo employees; Cabrillo’s management reported up to individuals at other wholly-owned Ensign affiliates; Ensign uses a “services center approach,” in which it performs centralized IT, human resources, legal, risk management, and other key services to its affiliates; there was a flow of corporate officers between Ensign and its affiliates; Ensign required Cabrillo employees to use its forms and templates; Ensign implemented expectations that Cabrillo employees increase revenues, and offered cash bonuses to Cabrillo if it maximized profits; and Ensign controlled the manner in which employees tracked their time (i.e., circumstances closely related to the policy the Plaintiffs sought to challenge as unlawful).

Although Ensign had attempted to create a paper trail stating that “the members of the facility staff [at Cabrillo] are Cabrillo’s ‘own’ employees,” the Court noted that such labels will be ignored when “the evidence of [the entities'] actual conduct establishes that a different relationship exists.” The Court also took into account the fact that Ensign’s logo  was posted at Cabrillo, employees at Cabrillo viewed themselves as Ensign employees and had Ensign email addresses, and Ensign controlled their pension plan and provided an “Ensign Benefits Call Center” for them to contact with questions.

The Court’s decision is the right one:  The facts suggested that the parent had the ability to correct the allegedly unlawful policy in effect at its wholly-owned subsidiary. Dismissing parents simply because they have separately incorporated their facilities would allow them to avoid enforcement of the wage laws by pinning the blame on their individually incorporated affiliates, even when the parent is responsible for the policy or practice being challenged.