California Supreme Court Declines to Hear Appeal in Case Upholding Janitors' Rights

A group of displaced janitors just won a major victory. This month the California Supreme Court declined to hear an appeal in SEIU-USWW v. Preferred Building Services, Inc., leaving in place an appellate court decision that affirms the rights of janitorial workers under the Displaced Janitor Opportunity Act (“DJOA”).

The DJOA is an essential law that ensures that janitorial workers have the job security they deserve. If a building owner or manager terminates their contract with a contractor providing janitorial services, any successor contractor hired within 30-days must retain many of the janitorial workers employed when the contract ends for a sixty-day transition period. If the janitorial workers continue to perform well, the new contractor must then keep them on permanently. This law is a vital piece of legislation that helps janitorial workers have stable and fair working conditions.

In SEIU-USWW, a group of janitors sued the contractor who replaced their employer (also a contracting agency) for failing to retain them as employees. The plaintiffs’ employer had tried to avoid their obligations under the DJOA by effectively terminating all of the janitors they employed three days before the official end of their contract with the building. The defendant then argued that since there were no janitors employed at the time that the contract ended, the next contractor did not have to retain any of the original janitorial staff. 

The court did not buy these evasive arguments. The appellate court affirmed the trial court’s decision that the original contractor's contract ended the last day that the janitors provided services, regardless of the date specified in their agreement with the building owner. The appellate court then upheld the summary judgment in favor of the plaintiff janitors. The defendant contractor appealed, but the California Supreme Court declined to hear the appeal, instead choosing to leave this victory for janitorial workers undisturbed. 

Now that the appeal has been denied, the appellate court’s ruling is final. This appellate court’s decision, and the California Supreme Court’s decision not to hear an appeal on the case, should serve as a reminder to employers that they can’t get away with end-runs around worker protections. For employers that try to get around their statutory obligations, workers’ advocates are ready to fight back, empowered by strong statutory protections.

If you are a janitorial worker and have been terminated or forced to resign after a change in contractors, please contact Bryan Schwartz Law. 

Employees Win Victory in California Supreme Court Ruling on Meal and Rest Break Compensation

California law provides non-exempt employees with meal and rest periods. If an employer does not provide compliant meal or rest periods, employees are entitled to “one additional hour of pay at the employee’s regular rate of compensation.” (Cal. Lab. Code Section 226.7(c).) But are forms of pay such as incentives or commissions included in this calculus, or is it limited to hourly pay? In a victory for employees, the California Supreme Court decided earlier this month that other non-discretionary pay must be included in calculating an employee’s regular rate.

The case was filed by Jessica Ferra, a former bartender at the Loews Hollywood Hotel. Ferra claimed Loews had underpaid her and a class of similarly-situated employees for non-compliant meal and rest breaks because she and the other class members’ incentive payments were excluded from the calculation of missed breaks premiums. These payments were part of the pay Ferra expected and Loews promised, so Ferra contended that they should be factored into the formula for the “regular rate of compensation” used to calculate missed break premiums. In Ferra v. Loews Hollywood Hotel, LLC (2021) No. S259172 , the California Supreme Court agreed. 

 

“Regular rate of compensation” versus “regular rate of pay”

The decision came down to whether the “regular rate of compensation” for meal and rest break premiums is calculated the same way as is the “regular rate of pay” for overtime purposes. Loews contended that the calculations were different because the legal phrases were different, arguing that when the legislature uses different terms, it intends their meaning to differ. The court was not persuaded, noting that “compensation” and “pay” are synonyms. Regardless, the key phrase was “regular rate,” which applies to the calculations for both overtime and meal and rest break premiums. The court reasoned that the “regular rate” calculation follows that of the federal Fair Labor Standards Act (“FLSA”), looking to California case law and legislative history. Therefore, the “regular rate of pay” under California law must follow the same method of calculation as the “regular rate” in the FLSA, both for overtime calculations and for meal and rest break premium calculations. The court further opined that even if “compensation” and “pay” had different meanings in a relevant way, compensation covers a broader range of employment benefits than pay, such as wages, commissions, medical benefits, and other benefits.

Retroactive application

Sweetening the victory for employees, the Court determined that its decision applies retroactively to violations that came before the July 15 decision. The Court reasoned that its ruling rested on statutory interpretation, which merely clarifies a statute’s meaning, rather than setting forth new law. The Court rejected Loews’s misguided argument that this decision would put employers on the hook for millions of dollars, pointing out that “it is not clear why we should favor the interest of employers in avoiding ‘millions’ in liability over the interest of employees in obtaining the ‘millions’ owed to them under the law.” Consequently, employees may have a legal claim for non-compliant meal and rest break premiums, even if they were denied compensation before Ferra was decided.  

If you believe you have been wrongly denied meal or rest breaks or premiums paid at the correct rate of pay, please contact Bryan Schwartz Law here.

California Supreme Court Expands Number of Workers Classified as Employees Rather Than Independent Contractors

The 2020 presidential election successfully ousted an administration and political movement that has sought to undermine workplace protections, and reaffirmed democracy and the rule of law.

But it also saw the overwhelming passage of Proposition 22 in California after gig employers spent a jaw-dropping $200,000,000+

(the most in California history) to write its own law, much to the dismay of worker advocates and to the detriment of gig economy workers. Proposition 22 exempts app-based rideshare and delivery com
panies from their responsibilities under landmark worker protection law A.B. 5 and the Supreme Court of California’s decision in Dynamex Operations W. v. Superior Court (2018) 4 Cal.5th 903, which classify drivers as employees.

Good news for workers came early in 2021: the California Supreme Court has determined that the Dynamex decision applies retroactively to cases that arose before Dynamex was decided in 2018. The decision is Vazquez v. Jan-Pro Financing International, Inc.

Dynamex established the “ABC test,” a three-part legal test that makes it more difficult for businesses to ignore worker protections by classifying them as independent contractors. Under the ABC Test, a business can classify a worker as an independent contractor only if the employer can show all three parts:

A)      The person is free from the control and direction of the hiring entity in connection with the performance of the work;

B)      The person performs work that is outside the usual course of the hiring entity’s business; and

C)      The person is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.

If the business cannot prove all three of these parts, the worker is an employee. Unlike independent contractors, employees are guaranteed protections like sick leave, minimum wage, overtime pay, reimbursement for their expenses, health insurance, and the right to organize. Gig employers such as Uber, Lyft, Doordash, and Postmates hoped to avoid these legal obligations  to their workers by bankrolling Proposition 22—which is why its passage was such a stinging defeat for gig workers.

A three-judge panel of the Ninth Circuit Court of Appeals had already held that the ABC test applies retroactively in May 2019, but that did not end the debate. On rehearing, the Ninth Circuit decided to ask the California Supreme Court what it thought and withdrew its opinion. In a victory for workers, the California Supreme Court unanimously held on January 14, 2021, that the Dynamex decision should apply retroactively to cases arising before it was decided.

Judicial decisions like Dynamex usually apply retroactively, but the defendant here argued that Dynamex should be an exception because the ABC test was, in their view, a new rule. As such, according to the defendant, it would not be fair to apply Dynamex retroactively. The court disagreed, opining that decisions prior to Dynamex had put hiring entities on notice that the previous state of the law regarding independent contractor status was not firmly settled. To the contrary, the court stated that “fairness and policy considerations underlying our decision in Dynamex favor retroactive application,” because workers’ protections enable “them to provide at least minimally for themselves and their families and to accord them a modicum of dignity and self-respect.” If Dynamex were not applied retroactively, the court feared that many workers would be denied the intended protections of California law.

Though this is a victory, it is a limited one. Statutes of limitations already restrict the number of workers who may assert their rights as employees improperly misclassified as independent contractors. However, Proposition 22 does not apply retroactively, meaning that gig workers have a window in which to exercise their legal rights in light of this decision.

If you have wrongly classified as an independent contractor instead of an employee, contact Bryan Schwartz Law.

New Decade, New Worker Protections: AB-5, Dynamex, and Independent Contractor vs. Employee Status in 2020

Struggles over newly-in-force AB-5 are already well under way.

AB (California State Assembly Bill) 5 is a newly-enacted California law codifying the landmark California Supreme Court case Dynamex Operations W. v. Superior Court (2018) 4 Cal.5th 903, under which many California workers are considered employees, who better benefit from California legal protections, rather than independent contractors. Bryan Schwartz Law has written about Dynamex here and here, and about AB-5 here. To recap, Dynamex established the “ABC” test for determining whether a worker is an employee or an independent contractor, with a presumption that a worker is an employee, and with the burden on companies to demonstrate that workers are independent contractors. Id. at 957. To meet this burden, the putative employer must show that the worker: (a) is free from the control and direction of the hiring entity, (b) performs work outside the usual scope of the entity’s business, and (c) is engaged in an independently established trade, occupation, or business. Id. at 964. Failing to demonstrate any one of these elements is sufficient to show an employee-employer relationship. Id. at 964. AB-5 codified this test for most workers in California.

The business community has mounted a campaign to weaken or eliminate this expansive protection for California workers. For instance, gig economy giants Uber, Lyft, and DoorDash have spent millions of dollars introducing a ballot measure to exempt them from AB-5 and permit them to continue exploiting their drivers. Uber has also changed its operations in California to try and satisfy AB-5, sending a letter to riders explaining their changes and threatening that AB-5 could hurt riders. Uber has also argued that it is a technology company instead of a transportation company (which does not even pass the laugh test), to try to help Uber satisfy the “B” prong of the test.

The trucking industry has also fought AB-5. On New Year’s Eve, federal judge Roger Benitez issued a temporary restraining order temporarily preventing enforcement of AB-5 “as to any motor carrier operating in California,” in the case California Trucking Association v. Becerra, 3:18-cv-02458-BEN-NLM. The temporary restraining order opined that there was a significant likelihood that AB-5’s applicability to truck drivers would be preempted (and thereby unenforceable) by the Federal Aviation Administration Authorization Act of 1994 (“FAAAA” or “F-Quad-A”), which has language that applies to “any motor carrier.”

Los Angeles County Superior Court judge William Highberger went further in an order issued earlier this month in California v. CAL Cartage Transportation Express LLC, BC689320. The Los Angeles City Attorney’s Office filed the case on January 1, 2018, before Dynamex had been decided, and alleged that the company defendants had misclassified their truck drivers as independent contractors when they should have been classified as employees. Following Dynamex and AB-5, the Los Angeles City Attorney argued that the stronger “ABC” test should apply, while the defendant companies maintained that the previous multi-factor independent contractor test set forth in S.G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal.3d 341, should apply instead. The judge sided with the defendant companies, opining that AB-5 was in fact preempted by the FAAAA, under the premise that “Prong B of the ABC test . . . prohibits motor carriers from using independent contractors to provide transportation services.”

The issue is far from decided. Judge Highberger’s decision is surely going to be challenged on appeal, and hundreds of truck drivers have filed labor complaints to enforce their rights under AB-5, signaling further litigation. There also remains the question of whether Dynamex’s ABC test applies retroactively to disputes arising before Dynamex was handed down. Last fall, the 9th Circuit Court of Appeals certified this question to the California Supreme Court in Vazquez v. Pan-Pro Franchising International, Inc. The California Supreme Court is also reviewing a state appeals court case, Gonzales v. San Gabriel Transit, Inc., which held Dynamex to apply retroactively. The struggle over the worker protections of Dynamex and AB-5 goes on.

If you believe you are being treated as an independent contractor when you should be treated as an employee, contact Bryan Schwartz Law.

Giving Thanks for Worker Protections—California Supreme Court and California Legislature Limit Arbitration Agreements in Employment

The California Supreme Court handed down a decision earlier this year that adds to the growing body of law surrounding mandatory arbitration agreements and delivering a victory for employees. The case is Oto, L.L.C. v. Kho (2019) 8 Cal.5th 111. This decision, plus the California Legislature’s recent legislation in AB-51, limit the extent to which employers can attempt to force their employees into binding arbitration.

Employers increasingly require their employees to sign mandatory arbitration agreements. By these agreements, employees waive their right to pursue employment actions against their employers by any means besides binding arbitration. The arbitration process often favors employers and effectively stymies employees’ efforts to vindicate their rights, protecting employers that wish to skirt the law. Employers’ reliance on mandatory arbitration has ballooned following the past decade of U.S. Supreme Court cases whittling away at employees’ right to vindicate their employment grievances in court or through an administrative proceeding. Given that mandatory arbitration agreements are so widespread, Bryan Schwartz Law has blogged about them many times, including here, here, here, here, and here.

One of the ways in which an employee may be able to escape from the requirements of a mandatory arbitration agreement is by arguing that the agreement itself is invalid, using the same legal arguments that could be made as to any contract. Oto v. Kho addressed one of these contract defenses in particular: the doctrine of unconscionability.

A contract might be unconscionable in one of two ways. First, the contract could be procedurally unconscionable. This means that the circumstances in which the contract was formed were so unfair that one of the parties could not have agreed to it based on their own free will.

Second, the contract could be substantively unconscionable. This means that the terms of the contract themselves are so unfair against one party that a court will refuse to enforce the contract.

Both were present in Oto v. Kho, the California Supreme Court ruled. The plaintiff in the case, Ken Kho, worked for One Toyota in Oakland, California, for three years before he was presented with several documents, including a mandatory arbitration agreement, by a low-level employee. Kho, whose first language is Chinese, was forced to sign the agreement immediately without a chance to review the agreement first. Later, Kho filed a complaint with the California Labor Commissioner against One Toyota for unpaid wages. One Toyota moved to compel arbitration on the eve of a hearing before the Labor Commissioner and refused to participate in the proceedings before the Labor Commissioner any further. The proceedings took place without One Toyota, and the Labor Commissioner entered an award for Kho.

The trial court vacated the award but did not compel arbitration. The court of appeal reversed, holding that, despite the apparent procedural unconscionability, the agreement was not substantively unconscionable.

The California Supreme Court disagreed. First, several aspects of the formation of the agreement smacked of procedural unconscionability. The agreement was presented to Kho at his workplace, along with other employment-related documents. No one explained the document or provided a copy in Kho’s native language, but he was required to sign it in order to keep his job. If Kho had insisted on taking the time to review the documents, his pay would have been reduced because he was paid on a piece-rate basis. The agreement was communicated to Kho by a low-level employee, indicating that One Toyota would not entertain any request for explanation. Furthermore, the low-level employee waited for Kho to review and execute the agreement, which created the impression that Kho was expected to do so immediately. One Toyota did not give Kho a copy of the executed agreement.

Moreover, the language of the agreement was rife with complex legalese and convoluted sentences. This dense paragraph was printed on tiny font; the court of appeal characterized it as “visually impenetrable.” The agreement’s deceptive nature was also apparent in how it characterized the responsibility for the costs of arbitration. The agreement set forth that the costs of arbitration would be split between the parties unless controlling case law provided otherwise, without noting that the controlling decision in Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, created an exception to this default rule in employment cases. Taken together, these aspects of the agreement demonstrated that it “did not promote voluntary or informed agreement.”

Second, the agreement was substantively unconscionable. It provided no indication as to how one could bring an action in arbitration, as the agreement required. The process set forth in the mandatory arbitration agreement was as complex and intricate as the process for civil litigation, requiring arbitration to be initiated through the filing of a complaint and setting forth specific motions and discovery procedures. These procedures ran counter to the supposed benefits of arbitration—its purported speed and efficiency. The Court was also concerned that the arbitration agreement all but required claimants to hire legal counsel due to the complexity of its procedures, forcing employees to incur attorneys’ fees, whereas employees bringing wage claims have access to free legal assistance from the Labor Commissioner. Given that Kho’s mandatory arbitration agreement was both procedurally and substantively unconscionable, it was unenforceable.

The California Legislature also made a foray into mandatory arbitration provisions, amending the Fair Employment and Housing Act (“FEHA”) to protect employees against forced arbitration. The amendment, AB-51, makes it an unlawful employment action to require any current or prospective employee to waive the right to pursue their FEHA claims in court or any other forum—in other words, employers cannot require employees to sign mandatory arbitration provisions as a condition of employment. The new legislation, set to take effect on January 1, 2020, also includes a provision prohibiting employers from retaliating against any employee because of their refusal to agree to mandatory arbitration.

If you have an employment dispute against your current or former employer, contact Bryan Schwartz Law.

No Question of Timing – Dynamex Applies Retroactively, Ninth Circuit Court of Appeals Says

It makes a big difference whether a worker is an employee or an independent contractor. Employees benefit from the protections of labor, employment, and other valuable statutory protections that do not cover independent contractors.

The breadth of “employee” status has been clarified under developing California law. Last year, the California Supreme Court decided the landmark case Dynamex Operations W. v. Superior Court (2018) 4 Cal.5th 903, about which Bryan Schwartz Law has written previously. This case established the “ABC” test for determining whether a worker is an employee or an independent contractor, with a presumption that a worker is an employee, i.e., with the burden on putative employers to demonstrate that workers are independent contractors. Id. at 957. To meet this burden, the putative employer must show (a) that the worker is free from the control and direction of the hiring entity, (b) the worker performs work outside the usual scope of the entity’s business, and (c) the worker is engaged in an independently established trade, occupation, or business. Id. at 964. Failing to demonstrate any one of these elements is sufficient to show an employee-employer relationship. Id. at 964.

But does the Dynamex test apply retroactively to cases arising before it was decided? It does, according to the decision in Vazquez v. Jan-Pro Franchising International, Inc., which the Ninth Circuit Court of Appeals issued on May 2, 2019. Workers for international janitorial giant Jan-Pro filed this case in 2008, alleging Jan-Pro implements a business model to misclassify workers as independent contractors and escape the company’s minimum wage and overtime responsibilities. Jan-Pro contracts with franchises of “master owners,” which in turn contracts with “unit franchisees.” Master owners themselves do not clean but instead engage in various managerial or administrative duties; unit franchisees clean. The plaintiffs, janitorial workers at unit franchisees, alleged they were misclassified as independent contractors.

The case had a tortured procedural history with over a decade of litigation, dispositive decisions, and appeals in federal and state courts in California, Georgia, and Massachusetts. In the Ninth Circuit, Jan-Pro argued that a judicial ruling in Georgia had already decided the issue, thereby conclusively resolving the Ninth Circuit case as well under the doctrine of res judicata. Regardless, Jan-Pro argued, the Dynamex decision should not apply retroactively to cases arising before it was decided in 2018.

The Ninth Circuit rejected both arguments. The Court disposed of the res judicata arguments on grounds specific to the procedural history of the litigation. In brief, the Court held that the Massachusetts plaintiff was not in privity with the California plaintiffs, nor did he legally represent their interests—the California plaintiffs could not lose their day in court simply because of a similar case involving someone else on the east coast.

Next the Court addressed the important issue at stake for California workers: whether the Dynamex decision applied retroactively. The answer was a resounding “yes.” California’s judicial decisions traditionally apply retroactively, even when overruling past precedent. The Court adhered to this traditional rule, drawing further support from other California courts’ retroactive application of the Dynamex decision and the California Supreme Court’s summary denial of a petition to modify Dynamex to clarify that it was prospective only. Notably, despite its considerable impact on the lives of workers and employment law practice, the Dynamex decision did not create new law but instead hewed close to the fundamental purpose of existing California law. Because the lower court had dismissed the workers’ claims on summary judgment before Dynamex was decided, the Ninth Circuit remanded the case for a decision in light of Dynamex.

If you believe you are misclassified as an independent contractor and should enjoy the same rights as an employee, contact Bryan Schwartz Law.

Bryan Schwartz Law Submits Amicus Curiae Brief on Behalf of California Employment Lawyers Association: the California Supreme Court Should Rule in Lawson v. Z.B. that Employers Cannot Compel any PAGA Claims into Arbitration

When a worker stands in the shoes of the State of California, prosecuting wage violations under the Labor Code Private Attorneys’ General Act (PAGA), that representative plaintiff cannot be forced into arbitration, because the State did not agree to arbitrate. See Iskanian v. CLS Transportation of Los Angeles, LLC, 59 Cal.4th 348 (2014).

In Lawson v. ZB, N.A., 18 Cal. App. 5th 705 (Cal. Ct. App. 4th Dist. Dec. 19, 2017, as modified Dec. 21, 2017), the Court of Appeal rejected the attempt by the defendant Bank to force a PAGA plaintiff into arbitration as to the PAGA penalty requiring restitution of underpaid wages, under Labor Code §558. On March 23, 2018, the California Supreme Court granted review. On August 29, 2018, Bryan Schwartz Law, on behalf of the California Employment Lawyers Association (CELA), submitted an amicus brief supporting affirmance of the Court of Appeal decision.

PAGA civil-enforcement claims invoking Labor Code §558 include both the default civil penalty plus the penalty concerning underpaid wages. Lawson created a split with Esparza v. KS Industries, 13 Cal.App.5th 1228 (5th Dist. Aug. 2, 2017), which held that Labor Code §558(a)’s reference to a penalty including “an amount sufficient to recover underpaid wages” created a “private dispute,” to which the Iskanian rule does not apply.

Bryan Schwartz Law’s brief on CELA’s behalf demonstrates that Lawson was correctly decided, and Esparza was wrong, because all PAGA actions are representative actions, not individual actions. The amicus brief illuminates the breadth of the State’s police power, which cannot be limited by a mandatory, pre-dispute arbitration agreement with an individual worker. The language, legislative history, and purposes of PAGA and Labor Code §558 demonstrate the Legislature’s clear intent to permit PAGA plaintiffs to recover the full measure of relief that would be available to the State in a public enforcement action. Defendant ZB Bank’s contention that PAGA and Labor Code §558 would be preempted by the Federal Arbitration Act (FAA), 9 U.S.C. §§1, et seq., clearly contravenes the Supreme Court’s analysis in Iskanian and McGill v. Citibank, N.A. (2017) 2 Cal. 5th 945. The FAA does not strip the State of its enforcement authority, or strip employees of their non-waivable, substantive state law right to pursue vital workplace protections.

CELA is an organization of approximately 1400 California attorneys whose members primarily represent workers in a wide range of employment cases, including wage and hour actions and PAGA actions. CELA and its members have taken a leading role in protecting the rights of California workers, including by submitting amicus briefs and oral argument in such groundbreaking employment rights cases such as Iskanian, Murphy v. Kenneth Cole Productions, Inc. (2007) 40 Cal.4th 1094, Gentry v. Superior Court (2007) 42 Cal.4th 443, Brinker Restaurant Corp. v. Superior Court (2012) 53 Cal.4th 1004, Ayala v. Antelope Valley Newspapers, Inc. (2014) 59 Cal.4th 522, and Dynamex Operations W. v. Superior Court (2018) 4 Cal.5th 903. Bryan Schwartz Law has been instrumental to CELA’s amicus briefing in a host of key California cases.

The California Supreme Court’s decision in Lawson will have widespread ramifications for California workers. If the State’s PAGA penalty provisions forcing restitution to victims of wage theft can be shunted to individual arbitration, it will deeply undermine PAGA’s goal to strengthen the State’s enforcement power against wage law violators who steal from workers and unfairly compete against law-abiding businesses.

If you are seeking to assert wage claims representing your co-workers and are facing an employer who seeks to force you into individual arbitration, contact Bryan Schwartz Law.

California Supreme Court Delivers Workers a Victory in Troester v. Starbucks Corp.

Though the U.S. Supreme Court’s recent decision in Janus v. AFSCME dealt a major blow to workers, and the nomination of Brett Kavanaugh to the high court might mean more devastation will follow, California has once again claimed its position as a progressive counter to an oppressive federal agenda. The California Supreme Court’s ruling today in Troester v. Starbucks Corp. defends the interests of working people by ensuring greater protection for those who regularly perform small amounts of uncompensated work - which add up to valuable unpaid wages, over time.

The plaintiff, a Starbucks employee named Douglas Troester, has argued Starbucks owes him wages for the time he spent running end-of-day computer software, activating a building alarm, locking the door, and walking coworkers to their cars as required by company policy. All of these duties, alleges Troester, add up to four to ten additional minutes each shift. Over a seventeen-month period, Troester’s unpaid time totaled twelve hours and fifty minutes, adding up to $102.67 at the then-applicable minimum wage of $8 per hour.

Troester first filed his case in Los Angeles County Superior Court, but Starbucks removed the case to federal court, and the district court granted summary judgment for Starbucks based on the federal “de minimis” doctrine. First set forth in the 1946 U.S. Supreme Court decision, Anderson v. Mt. Clemens Pottery Co., the de minimis doctrine holds that employers need not compensate employees for small amounts of otherwise compensable time if the employer can show tracking that time is administratively difficult. On appeal, the Ninth Circuit recognized that although the de minimis doctrine applied to federal wage and hour law, the California Supreme Court had never addressed whether the doctrine applied to wage claims under California law. The California Supreme Court agreed to the Ninth Circuit’s request to answer specifically whether the doctrine applied to claims for unpaid wages under California Labor Code sections 510, 1194, and 1197. 

In today’s decision, the California Supreme Court first held that, based on a review of the relevant statutes and Industrial Wage Commission (“IWC”) Orders, California had not previously adopted the federal de minimis doctrine. The California Supreme Court, explains the decision, must interpret the Labor Code and IWC Orders liberally to best further their purposes. And, the Court held, California is free to offer greater protection to workers than federal regulations, which the state already has done, regarding, for example, on-call employees’ compensation for sleep and other personal activities (Mendiola v. CPS Security Solutions, Inc., 60 Cal.4th 833 (2015)), the definition of “employ” (Martinez v. Combs, 49 Cal.4th 35 (2010)), and transportation time (Morillion v. Royal Packing Co., 22 Cal.4th 575 (2000)).

Second, the Court held the relevant IWC Order and statute did not permit application of the de minimis doctrine to the particular facts of Troester’s case. For one, the Court explained, the modern availability of class actions undermines the rationale behind the de minimis rule for wage and hour actions. “The very premise” of wage and hour class actions, stated the Court, “is that small individual recoveries worthy of neither the plaintiff’s nor the court’s time can be aggregated to vindicate an important public policy.” The Court also found that the rationale behind the de minimis rule in Anderson is less relevant now because time-keeping technology has advanced far beyond what it was seventy years ago. The problems of recording employee time discussed in Anderson “may be cured or ameliorated by technological advances that enable employees to track and register their work time via smartphones, tablets, or other devices,” explained the Court. Although the Court found the de minimis doctrine did not apply to Troester’s case, it left open the possibility that certain circumstances may exist where compensable time is “so minute or irregular that it is unreasonable to expect the time to be recorded.”

The phrase “de minimis” comes from the longer maxim de minimis non curat lex, meaning “the law does not concern itself with trifles.” In this case, Starbucks argued the additional time Troester worked was insignificant. But while $102.67 may be insignificant to a multinational corporation, Justice Liu defended common sense and the dignity of working people in writing that $102.67 “is enough to pay a utility bill, buy a week of groceries, or cover a month of bus fares. What Starbucks calls ‘de minimis’ is not de minimis at all to many ordinary people who work for hourly wages.” 

The lawsuit now returns to the Ninth Circuit, which will factor in the California Supreme Court’s decision when it rules on Troester’s case. We hope that fairness for working people will prevail, as it did today in our state’s high court.

If you believe your employer has violated wage and hour laws, contact Bryan Schwartz Law.

Read the full opinion here: Troester v. Starbucks Corp., 2018 BL 265635, Cal., S234969, 7/26/18.

Joint Employer Bosses: California Appellate Ruling Reinforces Personal Liability for Perpetrators’ Violations of State Wage Laws

by Rachel Terp and Bryan Schwartz (This article, under a slightly different title, first appeared in the February 2018 edition of Plaintiff Magazine, in substantially similar form)

While grim efforts to narrow joint employer liability under federal employment and labor law have captured national headlines in 2017, [1] the year also ended with a California Court of Appeal decision on individual joint employer liability that reaffirms workers’ robust wage theft protections under California law. 

In Turman v. Superior Court (2017) 17 Cal.App.5th 969,  California’s Fourth District Court of Appeal, Division Three (in Orange County), held that a sole shareholder and president of a closely-held corporation may be personally liable in a lawsuit to recover overtime, meal and rest period premiums, tip compensation, and minimum wages under California law. Turman provides the first published interpretation of California Supreme Court’s marquee decision on the definition of an “employer” in California, Martinez v. Combs (2010) 49 Cal.4th 35, as it applies to personal, rather than corporate, liability. [2]

Federal and state laws have long recognized that more than one defendant may be liable as an employer of the same workforce. [3] Joint employer liability aims to protect workers from those that would exercise control over workers’ labor, but attempt to shirk responsibility for workplace violations by foisting sole liability elsewhere. By holding responsible all persons (individual and corporate) that control working conditions, each is incentivized to comply with labor and employment laws.

The availability of joint employer liability is a practical necessity in many wage and hour cases. When a plaintiff-side wage-and-hour attorney assesses whether to accept a case, after determining the alleged workplace violations are meritorious, the next question the attorney typically asks is, “Who’s the boss?” If no solvent party exists to pay damages and penalties, then obtaining a large verdict in even the most righteous case will not result in payment of the client’s judgment, and will do little to deter bad actors.

All too often in California, workers who bring legal claims for wage theft are unable to collect from the company that employed them [4] - even when one or more individuals responsible for the wage violations could afford to make the workers whole. Plaintiffs may name these individuals as defendants, but individual defendants historically relied on lack of specificity in the state’s jurisprudence to argue that they should not be personally liable. State and federal courts have been reluctant to find individuals personally liable for unpaid wages under California law.

I. Historic Statutory and Regulatory Authorities

California’s wage statutes have provided causes of action for a broad range of wage theft practices, largely without specifying who may be liable. [5] The Industrial Welfare Commission (“IWC”) has been defunded for years, but previously had been delegated authority over wage and hour practices in California, and its Wage Orders (regarding a host of industries) continue to have regulatory force. [6] The Wage Orders provide broad definitions of employer. [7] Each defines “Employer” as “any person . . . who directly or indirectly, or through an agent or any other person, employs or exercises control over the wages, hours, or working conditions of any person.” [8] Under the orders,“Employ” means “to engage, suffer, or permit to work.” [9]

The Unfair Competition Law (“UCL”), Business & Professions Code section 17200, et seq., at section 17201, has expressly included “natural persons” unjustly enriched (e.g., because they stole workers’ wages) among those who are liable for restitution. [10]

The Private Attorneys General Act (PAGA), Labor Code section 2698, et seq., has permitted recovery for civil penalties for wage violations, under Labor Code section 558, with liability extending to “[a]ny employer or other person acting on behalf of an employer.” See Thurman v. Bayshore Transit Mgmt., Inc. (2012) 203 Cal.App.4th 1112, 1148; see also Labor Code § 2699(b) (incorporating Labor Code § 18: “‘Person’ means any person, association, organization, partnership, business trust, limited liability company, or corporation.”). [11]

II. Reynolds Set Forth a Common Law Test

In Reynolds v. Bement (2005) 36 Cal.4th 1075 (later abrogated by Martinez, 49 Cal.4th 35), the Supreme Court considered whether, as a matter of first impression, individuals may be liable under section 1194. Plaintiff brought a class action against parent and subsidiary corporations as well as officers, directors, and shareholders of the companies, alleging all were joint employers. [12] The trial court sustained defendants’ demurrer regarding the individual defendants. The higher courts affirmed.

The California Supreme Court held that while a corporate defendant’s employer status is defined by the IWC wage order, individuals are subject to the common law definition of employer. [13] The Court observed that while the relevant IWC order’s definition of employer controlled, [14] the IWC order did “not expressly impose liability under section 1194 on individual corporate agents.” [15] The Court reasoned that absent a clear statutory directive, a common law definition of employer should apply. [16] Under “common law, corporate agents acting within the scope of their agency are not personally liable for the corporate employer’s failure to pay its employees’ wages.” [17]

Following Reynolds, many state and federal courts applying California law precluded wage relief against owners, officers and directors as a matter of course. [18]

III. Martinez Abrogated Reynolds with a Three Part Test Under the IWC Wage Orders

In Martinez, the Supreme Court abrogated Reynolds, redefining joint employer liability under the Labor Code. The Supreme Court held that the applicable IWC wage order, not the common law, defines the employment relationship. [19] The Court explained the legislature had delegated authority to the IWC over wages, hours, and working conditions. [20] The Court reasoned: “Were we to define employment exclusively according to the common law in civil actions for unpaid wages, we would render the commission’s definitions effectively meaningless.” [21]

Instead, the Supreme Court interpreted the IWC wage orders as incorporating the common law test into the IWC’s three-prong, disjunctive test for joint employment. To “employ” means: “[a] to exercise control over the wages, hours or working conditions, or [b] to suffer or permit to work, or [c] to engage, thereby creating a common law employment relationship." [22]

The Supreme Court in Martinez, concluded: “In sum, we hold that the applicable wage order’s definitions of the employment relationship do apply in actions under [Labor Code] section 1194 [concerning overtime and minimum wage claims]. The opinion in Reynolds [citation], properly holds that the IWC’s definition of ‘employer’ does not impose liability on individual corporate agents acting within the scope of their agency. [Citation.] The opinion should not be read more broadly than that.” [23]

Despite Martinez setting a new course on the definition of “employer” in California wage law, with rare exceptions, [24] courts remained reluctant to find liability against an individual, harkening back to Reynolds [25] - until now.

IV. Turman Clarifies Martinez’s Application to Individual Defendants

The Turman decision finally provides clarity regarding who may be personally liable as an employer.

A. Trial Court Decision

The underlying case, originally filed in 2010, sub. nom. Quiles, et. al. v. Koji’s Japan, Inc. et al. (Orange Cnty. Sup. Ct.) Case No. 30-2010-00425532, was filed on behalf of low-wage restaurant workers at two restaurants. [26] Plaintiffs brought a class action lawsuit alleging wage theft against the closely-held corporation that owned the restaurants. [27] The restaurant’s sole shareholder, president, and director, Mr. Parent, closed the restaurants after the case was filed. [28] Though the restaurant-corporation’s bank accounts were drained of funds, Mr. Parent stipulated to a net-worth of over $10 million. [29] After the closures, the litigation focused on whether workers could recover their unpaid wages from Mr. Parent as a joint employer, or alternatively, from him and his other business entity as the restaurant-corporation’s alter egos. [30]

In 2015, after a bench trial on joint employer and alter ego liability, the trial court ruled that although Mr. Parent had “absolute control” over his restaurant business, and could be personally liable under the FLSA’s “economic reality test,” [31] Mr. Parent could not be a joint employer under California law, based on the Supreme Court’s ruling in Reynolds, which (the trial court held) survived Martinez. [32] The trial court reasoned that Reynolds was binding because it dealt with the application of joint-employer liability for officers, directors, and managers of a closely-held corporation, whereas Martinez dealt with corporate joint-employers. [33]

The trial court expressed concern that if it found Mr. Parent liable by virtue of his control as a sole shareholder and president of the restaurants, then all owners of closely-held corporations would be liable for wage violations. [34]

B. Appellate Decision

On November 7, 2017, the California Court of Appeal ordered the trial court to vacate its ruling on Mr. Parent’s joint employer liability (among other vacated rulings). The Court of Appeal held that a Mr. Parent’s status as a sole shareholder and president of a company cannot insulate him from wage and hour liability, if his actions meet any one of the three definitions of an employer as set out in Martinez. [35] The Court was careful to note that the IWC’s three-part test “incorporates the common law definition definition as one [of the three] alternative” definitions. [36]

The Court’s reasoning demonstrates that the joint employer inquiry for Mr. Parent should be no different than for a parent corporation. In reaching its’ decision, the Court analogized to two recent rulings involving corporate joint employers. See Castaneda v. Ensign Group, Inc. (2014) 229 Cal.App.4th 1015, 1017-1018 (“A corporation with no employees owns a corporation with employees. If the corporation with no employees exercises some control over the corporation with employees, it also may be the employer of the employees of the corporation it owns.”); Guerrero v. Superior Court (2013) 213 Cal.App.4th 912, 950 (“an entity that controls the business enterprise may be an employer even if it did not “directly hire, fire or supervise” the employees.”). [37]

The Court of Appeal found that Mr. Parent was not a removed sole shareholder and president who kept his hands off of the Koji’s restaurants’ operations. The Court pointed to trial court findings that Mr. Parent: “‘dominated and controlled’ Koji’s;’” “was the ‘big boss’ to Koji’s employees;” “‘had the ability to control [Koji’s], whether he chose to delegate that authority to managers or not;’” and exerted “‘actual control over the employees of Koji’s” when he “‘hired and fired’” non-exempt managers; instructed his managers to “get rid of” the original named plaintiff after she filed the lawsuit, resulting in her swift termination; and chose to lay off all employees by closing the restaurants. [38]

The Court of Appeal appropriately expressed the flip-side of the trial court’s concern - in light of courts’ duty to enforce the wage laws robustly, and the difficulty workers have collecting against closely-held companies. If Mr. Parent “was immune from [joint employer] liability liability, notwithstanding such activity, because he was simply a corporate agent acting within the scope of his agency,” then “no sole shareholder and officer of a closely-held corporation would ever be liable as a joint employer for wage violations, even if he or she suffered or permitted another to work, controlled wages hours and working conditions, or engaged employees.” [39]

Finally, the Court rejected the trial court’s holding that the FLSA’s “employer” definition is broader than California’s, noting that analysis of joint employer liability under the FLSA and the Labor Code “ordinarily involves the consideration of similar factors.” [40] Indeed, as Martinez made clear, California’s definition of employer is broader than the FLSA’s. [41] The Court observed that the trial court’s ruling that Mr. Parent was a federal joint employer cast serious doubt upon its state joint employer analysis. 

V. California Fair Day’s Pay Act Placed “Other Persons” on the Hook

After extensive negotiations in drafting and intense lobbying by the California Employment Lawyers Association, Wage Justice, and others, on January 1, 2016, the California Fair Day’s Pay Act [42] took effect, which specifies that owners, directors, officers, and managing agents may be liable for violations of overtime and minimum wages (Cal. Lab. Code. §§ 1193.6, 1194), meal and rest breaks (Cal. Lab. Code § 226.7), waiting time penalties (Cal. Lab. Code § 203), itemized wage statements (Cal. Lab. Code § 226), and indemnification (Cal. Lab. Code § 2802) statutes. [43] Labor Code section 558.1, provides that an “employer,” and any “other person acting on behalf of an employer, who violates, or causes to be violated” any of those wage statutes may share liability. [44] “Other person” is defined as “a natural person who is an owner, director, officer, or managing agent.” [45]

Section 558.1 clarified the scope of personal liability for common wage violations occurring after January 1, 2016. [46] It will take time for meaningful case authority on section 558.1 to develop, but thus far, defense counsels’ attempts to dramatically limit its application have failed. [47] Regardless of how section 558.1 jurisprudence develops, employees and advocates may now rely on Turman to hold bad business owners, officers, and directors accountable, applying the three-part Martinez v. Combs test. 

Footnotes

[1] See, e.g., Noam Scheiber, “Labor Board Reverses Ruling That Helped Workers Fight Chains,” NYTimes (Dec. 14, 2017), available at https://nyti.ms/2jTDOIQ; Christine Owens (Op-Ed), “Don’t Let Congress Cheat Workers Out of Basic Rights,” NYTimes (Nov. 8, 2017), available at https://nyti.ms/2hmQDNP.

[2] This article focuses on direct, statutory liability under California wage laws and the Business and Professions Code - not alter ego liability, an equitable doctrine which has always remained an option - albeit, typically an uphill battle for workers to invoke. Generally, alter ego is available to cure an inequitable result - focusing on corporate formalities, overlapping finances, etc. - rather than wages, hours, and working conditions. Turman emphasizes that for alter ego liability to attach, a worker need not show fraud in the inception as to a business entity, but must only show that maintaining the corporate shield would perpetuate an inequitable result. See Turman, 17 Cal.App.5th at 980-981.

[3] See e.g., 29 C.F.R. § 791.2 (regulation defining joint employment under Fair Labor Standards Act (“FLSA”)); Pruitt v. Industrial Acc. Commission of Cal. (1922) 189 Cal. 459, 461 (recognizing joint employer liability in workers’ compensation context).  

[4] A 2013 empirical study by the UCLA Labor Center and the National Employment Law Project examined data from the Labor Commissioner’s wage claim cases between 2008 and 2011 and determined that in 60% of cases where the employer was held liable, the employer was found to be non-active, e.g. having a status of suspended, forfeited, cancelled, or dissolved with the California Franchise Tax Board or the California Secretary of State. Eunice Hyunhye Cho, et al., Nat’l Emp’t Law Project & UCLA Lab. Ctr., Hollow Victories: The Crisis in Collecting Unpaid Wages for California’s Workers (2013) 1, 10-14. The study also found that only 17% of workers who prevailed before the Labor Commissioner ever recovered money from the judgment awarded. Id. at 2, 13-14.

[5] Martinez, 49 Cal.4th at 49 (describing the overtime and minimum wage statute, Labor Code § 1194). There are some wage claims where the “employer” definition is further defined, for example - as to unlawful tip pooling, Labor Code § 350 defines “employer” to include every “person” “irrespective of whether the person is the owner of the business” and a liable employer’s “agent” as one “having the authority to hire or discharge any employee or supervise, direct, or control the acts of employees.”

[6]  Id. at 50, 52; Kilby v. CVS Pharmacy, Inc. (2016) 63 Cal.4th 1, 9 n.3 (“Although the Legislature defunded the IWC in 2014, its wage orders remain in effect.”).

[7] See IWC wage orders Nos. 1-2001 through 16-2001, Cal. Code. Regs., tit. 8, §§ 11010-11160.

[8] Id. at subd. 2(H).

[9] Id. at subd. 2(E).

[10] See Troyk v. Farmers Group, Inc. (2009) 171 Cal.App.4th 1305, 1338 (discussing scope of UCL protections); County of Solano v. Vallejo Redevelopment Agency (1999) 75 Cal. App.4th 1262 (citing Rest. of Restitution, § 1: “A person who has been unjustly enriched at the expense of another is required to make restitution to the other.”). Turman is the first case to expressly hold that courts have the obligation to assess whether an individual is liable for wage violations under the UCL standard separately from whether he/she is liable under the Labor Code.

[11] Federal courts enforcing PAGA have held individual owners liable for wage violations for  years. McDonald v. Ricardo’s on the Beach, Inc. (C.D. Cal. Jan. 15, 2013) 2013 WL 153860, at *4; Ontiveros v. Zamora (E.D.Cal. Feb. 20, 2009) 2009 WL 425962, at *6. As with the UCL, Turman expressly held that a Court must consider the PAGA standard separately, in determining an individual’s liability for wage violations.

[12] Reynolds, 36 Cal.4th at 1081.

[13] Id. at 1085-1089.

[14] Martinez, 49 Cal.4th at 63 (citing Reynolds, 36 Cal.4th at 1086).

[15] Reynolds, 36 Cal.4th at 1086 (ital. added).

[16] Id. at 1087-1088. The Reynolds concurrence by Justice Carlos Moreno did acknowledge, “The exploitation of such vulnerable workers by unscrupulous individuals hiding behind the corporate form takes place against a backdrop of diminished public resources for the enforcement of the state's labor laws . . . . [PAGA], in time, may provide workers with a mechanism for recovering unpaid overtime wages [from] corporate officers and agents in some cases. (§ 558, subd. (a)).” Id. at 1094.

[17] Id.

[18] See, e.g., Bradstreet v. Wong (2008) 161 Cal.App.4th 1440, 1449-1455 abrogated by Martinez, 49 Cal.4th 3 (shareholders, officers, managing agents not liable under Reynolds); Jones v. Gregory (2006) 137 Cal.App.4th 798, 800, 803-806, 810 abrogated by Martinez, 49 Cal.4th 35 (sole corporate owner not liable under Reynolds); Martinez v. Antique & Salvage Liquidators (N.D. Cal. Feb. 8, 2011) 2011 WL 500029, at *5 (relying on Reynolds).

[19] Martinez, 49 Cal.4th at 62, 66.

[20] Id. at 59 (citing to Cal. Lab. Code §§ 1173, 1178.5; see Stats. 1913, ch. 324, §§ 3, 5 & 6, pp. 633–635).

[21] Id. at 62.

[22] Id. at 64.

[23] Id. at 66.

[24] See, e.g., Garcia v. Bana (N.D. Cal. Feb 19, 2013, No. C 111-02047 LB) 2013 WL 621793, at **1, 8-9, aff’d (9th Cir. 2015) 597 Fed.Appx. 415 (after a bench trial, the court found individual-owner defendant was a joint employer under California and federal wage laws, where he “had the power to hire and fire [plaintiff], supervised and exercised control over [plaintiff]’s wages, hours, and working conditions, determined the method of payment of Mr. Garcia’s wages, and maintained [the business’s] employment records”).

[25] See, e.g., Bain v. Tax Reducers, Inc. (2013) 161 Cal.Rptr.3d 535, 564-567 (depublished Dec. 11, 2013) (holding that Martinez affirmed Reynolds); Guifu Li v A Perfect Day (N.D. Cal. 2012) 281 F.R.D. 373, 402 n.28 (Martinez notwithstanding, Reynolds “forecloses Plaintiffs’ ability to hold a corporation’s directors, officers, and shareholders personally liable for the corporation’s state law wage and hour violations”).

[26] Turman, 17 Cal.App.5th at 972, 974.

[27] Id. at 974-975.

[28] Id. at 974.

[29] Parent made the stipulation in a related proceeding. The original named plaintiff, Amanda Quiles, obtained a jury verdict that Parent retaliated against her in violation of the federal FLSA for filing the wage and hour class action, saying “get rid of her” after learning of her lawsuit. Though her wage loss was only $3,000 and her emotional distress was just $27,500, the jury awarded $350,000 in punitive damages, based upon Parent’s stipulated $10 million net worth.

[30] See Turman, 17 Cal.App.5th at 974-978.

[31] Id. at 978, 987; Statement of Decision on Trial of Issues of Alter Ego and Joint Employer, Quiles (Apr. 2, 2015) Case No. 30-2010-00425532, at p. 10:22-23.

[32] Id. at 978, 983-984.

[33] Id. at 983-984.

[34] Id. at 986.

[35] Id.

[36] Id. at 985.

[37] Id. at 986.

[38] Id.

[39] Id.at 986-987.

[40] Id. at 987 (citing Martinez, 49 Cal.4th at 59-60).

[41] See Guerrero, 213 Cal.App.4th at 945; Torres v. Air to Ground Servs., Inc. (C.D. Cal. 2014) 300 F.R.D. 386, 394 (citing Martinez for the proposition that “the IWC’s definition of ‘employer’ is designed to afford greater protection to employees than the FLSA’s definition of that term”); Carrillo v. Schneider Logistics Trans-Loading & Distribution, Inc. (C.D. Cal. Jan. 14, 2014) 2014 WL 183956, at *15 n. 5 (California joint employer standard broader than FLSA’s). See also generally Mendiola v. CPS Sec. Solutions, Inc. (2015) 60 Cal. 4th 833, 843 (“Federal regulations provide a level of employee protection that a state may not derogate. Nevertheless, California is free to offer greater protection.”).

[42] Stats. 2015, Ch. 803, Sec. 10. (SB 588), codified as Cal. Lab. Code § 558.1.

[43] Cal. Lab. Code § 558.1 subd. (a).

[44] Id.

[45] Cal. Lab. Code § 558.1 subd. (b).

[46] Cal. Lab. Code § 558.1 subd. (c) (“Nothing in this section shall be not construed to limit the definition of employer under existing law.”).

[47] See, e.g., Carter v. Rasier-CA, LLC (N.D. Cal., Sept. 15, 2017) 2017 WL 4098858, at *5 n.1 (“Defendants’ attempt to limit California’s ‘A Fair Day’s Pay Act’ to enforcement actions by the Labor Commissioner is belied by the language of the provision itself”).