California is infamous for its hostility towards employers. On May 23, the California Supreme Court continued on its unwavering mission to solidify that well-earned reputation by issuing a 45-page decision in Naranjo et al. v. Spectrum Security Services, Inc., a case we have been closely monitoring at Blank Rome.
For context, the failure to pay wages in California triggers not only an award of those unpaid wages, but potentially steep and costly statutory and civil penalties as well, including so-called: (1) “waiting time penalties”—up to 30 days’ wages for former employees; and (2) “wage statement penalties” when the unpaid wages render the employee’s pay stub inaccurate. Wage statement penalties start at $50 for the first violation and rise to $100 for subsequent violations. When claims are brought on a classwide basis, these penalties can become astronomical, as they are all assessed on a per-employee, per-pay-period basis.
If an employer does not provide an employee with a compliant meal or rest period, Labor Code section 226.7(c) requires the employer to “pay the employee one additional hour of pay at the employee’s regular rate of compensation.” In Ferra v. Loews Hollywood Hotel, LLC, the California Supreme Court held that the “additional hour of pay” for meal or rest period violations must encompass all non-discretionary payments, as well as hourly wages. Thus, if an employer pays an employee non-discretionary incentive pay or bonuses, or commissions, those amounts must be included in determining the “hour of pay” the employer owes to the employee for a meal or rest period violation. (Note: The same rule applies to a “recovery” period, which is less common and refers to a cooldown period afforded an employee to prevent heat illness.)
Many employers have initiated practices of monitoring time records for apparent meal period violations and automatically paying an hour of pay accordingly. If the hour of pay was paid at an employee’s base hourly rate that did not include non-discretionary payments, then additional amounts may now be owed to the employee. Also, given the increased cost to an employer of a meal period premium, employers who provide employees flexibility regarding the scheduling of their meal periods may want to reconsider that flexibility and instead insist on strict meal period scheduling and reporting to avoid potential exposure.
California employers are facing a harsh new reality as a result of the state Supreme Court’s recent decision adopting a new test for determining whether a worker can properly be classified as an independent contractor (versus an employee) “for purposes of California wage orders,” which generally impose obligations on employers relating to non-exempt employees’ wages, hours, and working conditions like meal periods and rest breaks.
The underlying claims were brought by two delivery drivers alleging Dynamex, a nationwide same-day courier and delivery service, had improperly classified them and other “similarly situated” drivers as independent contractors. In relevant part, these drivers:
were paid a flat fee or percentage of the delivery fee received from the customer;
were generally free to set their own schedules;
were free to reject or accept jobs assigned by Dynamex;
used their own cell phones and vehicles for work;
were free to choose their own routes;
could perform work for other companies; and
were hired for an indefinite period of time.
Under most tests distinguishing independent contractors from employees, these facts would have weighed toward an independent contractor determination. However, in a densely-academic, 82-page opinion, the Court held that the “suffer or permit to work” definition of “employ” contained in the wage orders should replace the more flexible “right of control” test which has been used in California since 1989. Specifically, the Court adopted the “ABC” test as the proper way to distinguish employees from independent contractors. Continue reading “Independent Contractors in California—Misclassification Is Now “Easy as ABC””