Recently I published a list of common exemptions under California law. This list of exemptions did not delve into the details of each exemption in detail, so I will be returning to a few of the exemptions to add more explanation about each exempt classification. I’m currently reading Paul Graham’s Hackers and Painters, Big Ideas From the Computer Age. Therefore, this post turns to the computer professional exemption. In order for any computer professional to be properly classified as exempt from overtime pay under California law, employers should know the following five requirements:

1) The employee is primarily engaged in work that is intellectual or creative and that requires the exercise of discretion of independent judgment, and the employee is primarily engaged in duties that consist of one or more of the following: a. The application of systems analysis techniques and procedures, including consulting with users, to determine hardware, software or system functional specifications. b. The design, development, documentation, analysis, creation, testing, or modification of computer systems or programs, including prototypes, based on and related to, user or system design specifications. c. The documentation, testing, creation, or modification of computer programs related to the design of software or hardware for computer operating systems.

2) The employee must perform the high-level work set forth in item #1 more than 50% of their work time. “Primarily engaged” means that more than 50% of the employee’s work time to be spent on those types of duties.

3) The employee is highly skilled and is proficient in the theoretical and practical application of highly specialized information to computer systems analysis, programming, and software engineering. A job title is not determinative of whether or not the position is exempt or not, and like every other exempt classification a determination must be made only on the types of duties the employee is supposed to be performing.

4) The employee is paid a wage that meets a certain minimum level that is adjusted each year. For 2015, the amount is set at $41.27 per hour or an annual salary of not less than $85,981.40 for full time employment, and not paid less than $7,165.12 per month. Therefore, in order to prove this exemption, an employer must maintain time and pay records to prove it has paid an employee at the level required by the law.

5) The exemption does not apply to certain types of computer workers. The computer professional exemption does not apply to individuals if any of the following apply:

  1. Trainees or entry-level employees. The employee is a trainee or employee in an entry-level position who is learning to become proficient in the theoretical and practical application of highly specialized information to computer systems analysis programming, and software engineering.
  2. Cannot work independently. The employee is in a computer-related occupation but has not attained the level of skill and expertise necessary to work independently and without close supervision.
  3. Work consists of repairing computer hardware. The employee is engaged in the operation of computers or in the manufacture, repair, or maintenance of computer hardware and related equipment.
  4. Work is not computer systems analysis or programming. The employee is an engineer, drafter, machinist, or other professional whose work is highly dependent upon or facilitated by the use of computers and computer software programs and who is skilled in computer-aided design software, including CAD/CAM, but who is not in a computer systems analysis or programming occupation.
  5. Work consists of developing user manuals. The employee is a writer engaged in writing material, including box labels, product descriptions, documentation, promotional material, setup and installation instructions, and other similar written information, either for print or for on screen media or who writes or provides content material intended to be read by customers, subscribers, or visitors to computer-related media such as the World Wide Web or CD-ROMs.
  6. Work consists of developing special effects. The employee is engaged in creating imagery for effects used in the motion picture, television, or theatrical industry.

Photo courtesy of Andrew Hart

Uber and Lyft have been sued in separate class action lawsuits in California by drivers challenging

Picture via Mic V

the two companies’ classification of the drivers as independent contractors. The plaintiffs in the two cases argue that the drivers should be classified and paid as employees, which triggers many additional Labor Code provisions for the drivers than if they are classified as independent contractors.

The cases are good reminders to California employers, and start-ups especially, about how difficult the analysis can be in some cases. For example, in early March 2015, the judge denied Uber’s motion for summary judgment on the issue (the opinion is embedded below). Employers should take the following five lessons from this pending litigation:

1. The independent contractor analysis is becoming extremely difficult to apply in technology companies or “sharing economy” companies.
Part of the difficulty arises from the fact that the test to determine whether a worker is properly classified was developed before these new business models existed, and as the judge noted in the Uber case, “many of the factors in that test appear outmoded in this context.” With this ambiguity in the existing law, employers should approach with caution.

2. The burden is on the employer to prove that the workers are properly classified as independent contractors.
If the putative employee establishes a prima facie case (i.e., shows they provided services to the putative employer), the burden then shifts to the employer to prove, if it can, that the “presumed employee was an independent contractor.” Narayan v. EGL, Inc., 616 F.3d 895, 900 (9th Cir. 2010). Employers need to be ready to rebut this burden of proof.

3. The primary factor of the analysis is the control over the worker.
The “most significant consideration” is the putative employer’s “right to control work details.” S.G. Borello & Sons, Inc. v. Dep’t of Indus. Relations (Borello), 48 Cal. 3d 341, 350 (1989). The Supreme Court has further emphasized that the pertinent question is “not how much control a hirer exercises, but how much control the hirer retains the right to exercise.” Ayala v Antelope Valley Newspapers Inc., 59 Cal. 4th 522, 533 (2014). In addition, it does not matter if the worker agreed that he was an independent contractor, the determination is made based on the factors of the test.

4. The secondary part of the analysis is an evaluation of 13 factors.
In Borello, the California Supreme Court set out the secondary indications relevant to the analysis of whether a worker is an independent contractor or employee:

  1. whether the one performing services is engaged in a distinct occupation or business;
  2. the kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of the principal or by a specialist without supervision;
  3. the skill required in the particular occupation;
  4. whether the principal or the worker supplies the instrumentalities, tools, and the place of work for the person doing the work;
  5. the length of time for which the services are to be performed;
  6. the method of payment, whether by the time or by the job;
  7. whether or not the work is a part of the regular business of the principal; and
  8. whether or not the parties believe they are creating the relationship of employer-employee.

As the court in Uber noted, the Borello case also “approvingly cited” five additional factors:

  1. the alleged employee’s opportunity for profit or loss depending on his managerial skill;
  2. the alleged employee’s investment in equipment or materials required for his task, or his employment of helpers;
  3. whether the service rendered requires a special skill;
  4. the degree of permanence of the working relationship; and
  5. whether the service rendered is an integral part of the alleged employer’s business.

5. The analysis usually does not turn on one factor.
As the court noted in Uber’s case:

…rarely does any one factor dictate the determination of whether a relationship is one of employment or independent contract. Here, numerous factors point in opposing directions. As to many, there are disputed facts, including those pertaining to Uber’s level of control over the “manner and means” of Plaintiffs’ performance.

While the Uber and Lyft cases are relatively in the early stages of litigation and the Plaintiffs still have to move for class certification, the cases are a good reminder of the difficulties surrounding the classification of independent contractors and how important to conduct this analysis of independent contractors early on in the relationship. For start-ups without the financial backing that Uber and Lyft have, just the initiation of this type of litigation would severely injure the company’s chances of success due to the monetary and time resources that litigation sucks up, in addition to having to shift focus on the primary business goals, and large potential liability if the workers were misclassified.

O'Connor v Uber Technologies – Order Denying Uber's Motion for Summary Judgment

Colin Cochran brought a putative class action against his employers, Schwan’s Home Service, on behalf of 1,500 customer service managers who were not reimbursed for expenses pertaining to the work-related use of their personal cell phones. He alleged causes of action for violation of Labor Code section 2802; unfair business practices under Business and Professions Code section 17200 et seq.; declaratory relief; and statutory penalties under Labor Code section 2699, the Private Attorneys General Act of 2004.

The trial court denied class certification on the grounds that there would be too many individualized questions about each employee’s cell phone expenses incurred for work purpose. In Cochran v. Schwan’s Home Service, the appellate court reversed trial court’s denial of class certification. Below are five lessons employers should learn from this ruling.

1. Employers have an obligation to reimburse business expenses incurred by employees.

Labor Code section 2802, subdivision (a) requires: "[a]n employer shall indemnify his or her employee for all necessary expenditures or losses incurred by the employee in direct consequence of the discharge of his or her duties, or of his or her obedience to the directions of the employer…." This Labor Code section requires employers to reimburse employees for all out-of-pocket expenses the employee incurs (and not just cell phone usage) during the performance of their job.

2. Expenses must be necessary in order to require employer reimbursement.

"In calculating the reimbursement amount due under section 2802, the employer may consider not only the actual expenses that the employee incurred, but also whether each of those expenses was `necessary,’ which in turn depends on the reasonableness of the employee’s choices. [Citation.]"

Cochran at 1144.  What is necessary or not could vary from case to case. Apparently, in this case, the employer had a clear policy requiring the service representatives to use their personal cell phones, so there was no need for the court to conduct any analysis about whether the putative class members’ use of their personal cell phones was a necessary expense.

3. Employers must always reimburse employee for expense of cell phone use even though the employee did not pay additional cell phone fees for using their cell phone for work purposes.

This is the essential holding of the Cochran case. The court explains:

The threshold question in this case is this: Does an employer always have to reimburse an employee for the reasonable expense of the mandatory use of a personal cell phone, or is the reimbursement obligation limited to the situation in which the employee incurred an extra expense that he or she would not have otherwise incurred absent the job? The answer is that reimbursement is always required.

Cochran at 1144.  The employer argued that the case could not be certified as a class action because there are too many individualized questions surrounding each employee’s cell phone plan, and if the employee actually incurred any more expenses as a result of using their cell phone for work. Many people now have unlimited data plans, and if so, the employee would not incurred any additional expenses when using the phone for work.

The court explained that any time a cell phone is required for work, the employer must reimburse the employee. The court stated that to hold otherwise would provide a “windfall” to the employer.

4. The court held that the details about each employee’s cell phone plan do not determine liability.

Not only does our interpretation prevent employers from passing on operating expenses, it also prevents them from digging into the private lives of their employees to unearth how they handle their finances vis-a-vis family, friends and creditors. To show liability under section 2802, an employee need only show that he or she was required to use a personal cell phone to make work-related calls, and he or she was not reimbursed.

Cochran at 1145.

5. The court did not explain how to calculate a reasonable reimbursement for employee’s cell phone use when the employee has an unlimited data plan.

The court passed in explaining how an employer and employee would go about figuring out the amount of reimbursement for personal cell phone use given the different data plans available for cell phones. The court stated that section 2802 requires that the employer should pay some “reasonable percentage” of the employees’ cell phone plans when the cell phone is required for work. Cochran at 1144.

This ambiguity is a blessing and a curse for employers. It is a blessing in that it leaves many options available to employers and employees to structure a reasonable reimbursement plan, but it is a curse because the ambiguity could still lead to future challenges to the agreed upon reimbursement plan. 

Let me start with the lawyer’s disclaimer up-front: this Friday’s Five list has no scientific or statistical backing whatsoever, I generated it based on the cases I’ve been litigating in 2014. My experience may be (and probably is) skewed a bit, but nevertheless California employers should pay attention to the following areas of potential litigation.

1. Meal and rest break litigation.

Meal and rest break class action litigation is still very prevalent in California. While employers are becoming more sophisticated in ensuring compliance with their obligations, the litigation has turned to more nuanced issues, such as the employer’s failure to record meal breaks or provide a full 30 minutes for the meal break. Meal and rest break policies and procedures should always been under review by employers to ensure compliance.

2. Rounding policies.

There have been a number of cases I’ve litigated this year involving time rounding policies. It is important for employers to simply no use the default settings provided by their time keeping software, but instead ensure that the rounding complies with California law.
The Division of Labor Standards Enforcement (DLSE) provides the following guidance for California employers in regard to time rounding:

…the federal regulations allow rounding of hours to five minute segments. There has been practice in industry for many years to follow this practice, recording the employees’ starting time and stopping time to the nearest 5 minute s, or to the nearest one-tenth or quarter of an hour. Presumably, this arrangement averages out so that the employees are fully compensated for all the time they actually work. For enforcement purposes this practice of computing working time will be accepted by DLSE, provided that it is used in such a manner that it will not result, over a period of time, in failure to compensate the employees properly for all the time they have actually worked. (See also, 29 CFR § 785.4 8(b))

3. Private Attorneys General Act claims.

In 2014, the California Supreme Court held that class action waivers in arbitration agreements are enforceable. Click here to read more about the holding, Iskanian v. CLS Transportation Los Angeles, LLC. This holding provided a tool for employers to reduce their class action liability by entering into arbitration agreements with their employees. However, Plaintiffs continually challenge class action waivers on numerous grounds, and it is critical employers’ arbitration agreements are properly drafted and up-to-date. In addition, while courts will uphold class action waivers, the California Supreme Court held that employee may still bring representative actions under the Private Attorneys General Act (PAGA). PAGA claims are limited to specific penalties under the law, and have a much shorter one year statute of limitations compared to potentially a four year statute of limitations for most class actions. Given that the California Supreme Court found that the arbitration agreements could not have employees waive their rights to bring “representative actions” under PAGA, the PAGA claims are more prevalent and being litigated harder by both plaintiffs and defendants.

Click here to read more about PAGA and what do to in response to receiving a Private Attorney Generals Act notice.

4. Required information on pay stubs/itemized wage statements.

Employers are cautioned to rely on their payroll companies for compliant itemized wage statements, as these companies often times do not understand the legal requirements. Ensuring the required information is properly listed on the itemized wage statements is an item that employers should review at least twice a year for compliance.

Labor Code Section 226(a) requires the following information to be listed on employees’ pay stubs:

1. Gross wages earned
2. Total hours worked (not required for salaried exempt employees)
3. The number of piece-rate units earned and any applicable piece rate if the employee is paid on a piece rate basis
4. All deductions (all deductions made on written orders of the employee may be aggregated and shown as one item)
5. Net wages earned
6. The inclusive dates of the period for which the employee is paid
7. The name of the employee and the last four digits of his or her social security number or an employee identification number other than a social security number
8. The name and address of the legal entity that is the employer
9. All applicable hourly rates in effect during the pay period, and the corresponding number of hours worked at each hourly rate by the employee

Here is an example of an itemized wage statement published by the DLSE:

Also, do not forget that with California’s paid sick leave law taking effect July 1, 2015, employers will have additional reporting information regarding employees’ accrued paid sick leave and usage. Employers must show how many days of sick leave an employee has available on the employee’s pay stub or a document issued the same day as a paycheck.

5. Off the clock claims.

Litigation alleging that employees were not paid for all time worked was continuing strong in 2014. This claim arises in various scenarios. The basic claim is that the employee clock out from work and was required to or voluntarily continued to work. This type of claim is usually very difficult to have certified as a class action because the employer’s liability for not paying for off the clock work is whether the employer knew or should have known that the work was being performed and that the employee was not compensated for the work. Anther common scenario given rise to an off the clock claim is when employees have to do some task before or after clocking or out for their work. While the U.S. Supreme Court recently held that security screenings of employees at the end of their shifts to ensure they were not stealing product was not compensable time, employers need to review their practices to avoid these types of situations in their workplace.

My firm is conducting a webinar on Thursday June 19, 2014 at 10:00 a.m. for a mid-year update on emerging employment law issues and the newly enacted LLC statute effecting most California Limited Liability Companies. 

For more information and to register, please complete the form below:

https://docs.google.com/forms/d/1LU6GudLKMnb4yt4qpvQTagUj9OlxJmaR13JQs79urKI/viewform?embedded=true

 

Welcome to Friday’s 5, a series of posts each Friday of lists of five items in various aspect of California employment law. I hope to keep it informative and interesting, and provide a checklist of sorts for California employers to review various practices and policies. Starting off, here is a list of five items not to be overlooked by California employers:

1. Wage Theft Protection Act Notices To Employees.
California’s Wage Theft Protection Act of 2011 has required every employer in California to provide written notices to employees beginning in January 1, 2012. The law is set forth in Labor Code section 2810.5, and requires private employers to provide all new non-exempt employees with a written notice that contains certain basic information about their employment. The law also requires employers to notify employees in writing of any changes to the information in the notice within seven calendar days of any changes, unless the changes are reflected on a timely wage statement that complies with Labor code Section 226. Employers do not need to notify employees of any changes if the change is provided in another writing required by law within seven days of the changes. The California Labor Commissioner has published a sample notice template that complies with the requirements of the law, which can be viewed here [PDF]. This is an easy form to complete for non-exempt employees, and should be a mandatory document in every employer’s new hire packet.

2. Written commission statements signed by both the employee and employer.
As of January 1, 2013, when an employee is paid commissions, the employer must provide a written contract setting forth the method the commissions will be computed and paid. The written agreement must be signed by both the employer and employee. Commission wages are “compensation paid to any person for services rendered in the sale of such employer’s property or services and based proportionately upon the amount or value thereof.” Commissions do not include (1) short-term productivity bonuses, (2) temporary, variable incentive payment that increase, but do not decrease, payment under the written contract, and (3) bonus and profit-sharing plans, unless there has been an offer by the employer to pay a fixed percentage of sales or profits as compensation for work to be performed.

3. Pregnancy disability leave policy in employee handbook.
For employers with five or more employees, it is mandatory that they have a pregnancy disability leave (PDL) policy. Moreover, if the employer has an employee handbook, it is required to include information about pregnancy leave in the handbook. For more information about PDL under California law, the Department of Fair Employment and Housing provides a summary of basic requirements here.

4. Harassment prevention training for supervisors every two years.
Since 2005, California employers with more than 50 employees must provide two hours of sexual harassment prevention training to supervisors and managers within six months of hire or promotion, and every two years after that. Completion of the training should be documented in the supervisor’s personnel file.

5. California employers must pay visiting out-of-state workers according to California overtime rules.
In Sullivan v. Oracle the California Supreme Court has clarified that California’s overtime rules apply to anyone performing work within the state, regardless of their state of residency or how long they may be working in California.

Generally, yes, and surprisingly this is one area that legislation is well ahead of the general adoption of the technical capabilities available in the marketplace. For example, in 1999 the California Legislature enacted the Uniform Electronic Transactions Act (the “UETA”), Civ. Code, §§ 1633.1 et seq., which provides that when a law requires a record to be in writing or requires a signature, an electronic record or signature satisfies the law. The law requires that any contract entered into between two parties may not be denied legal enforceability simply because of the use of an electronic signature. In 2000, the U.S. Congress passed the Electronic Signatures in Global and National Commerce Act (“ESIGN”), 15 U.S.C. § 7001 et seq., which provides for the enforceability of electronic signatures on the federal level. In addition, most states have also passed their version of the UETA. Taken together, these laws provide authority that electronic signatures are legally binding, just as if the contract was signed in the traditional “wet” manner.

The enforceability of electronic signatures in the employment context was confirmed in recently by a California Federal District Court in Chau v. EMC Corp. (2014). In Chau, the plaintiff sued EMC alleging she was discriminated against because of her pregnancy. The company made a motion to compel arbitration. The plaintiff opposed defendant’s motion to compel arbitration on various grounds, but in particular argued that the arbitration agreement was never signed by the plaintiff. The court rejected plaintiff’s argument, and upheld the electronic signature in this case:

Defendants have also established that Chau signed the Key Employee Agreement, including accepting the arbitration provision. [citations omitted] Chau agreed that “an electronic signature by me (checking Yes) is valid as if I had signed the documents referred to below by hand.” See also Cal. Civ.Code § 1633.2(h) (defining “electronic signature” to include a process [i.e. checking Yes] executed by a person with the intent to sign the electronic record). Accordingly, defendants have established that a valid, signed, arbitration agreement exists between plaintiff and defendants. Neither party disputes that the agreement encompasses the issues in this case.

For the electronic signature to be binding, the ESIGN and UETA require that the signer of the agreement must have intended to sign the agreement, and that the parties consented to complete the agreement electronically. However, as the court in EMC recognized, the laws do not require a traditional signature, but rather “an electronic sound, symbol, or process attached to or logically associated with an electronic record and executed or adopted by a person with the intent to sign the electronic record.” Therefore, someone can electronically sign a document by checking a box indicating that they are “signing” the document as was done in the EMC case.

I was interviewed for a news story that aired on KTLA here in Los Angeles about employer’s use of social media in evaluating applicants and employees. I’ve been writing and speaking about this topic for at least five years now, but given the pervasiveness of social media, the topic is only becoming more relevant with the increased use of social media today.

http://launch.newsinc.com/?type=VideoPlayer/Single&widgetId=1&trackingGroup=69016&siteSection=ktla_virtualrealitycheck&videoId=25655497

 Employers need to remember to keep a few items in mind regarding social media and the workplace. California passed a law, Labor Code section 980, effective January 1, 2013 that prohibits employers from “requiring or requesting” employees and applicants to provide their passwords to social media accounts. Can California employers monitor employees’ internet usage under new Labor Code section 980?

Also, employers need to be aware of employee’s privacy rights. Can employers use employee’s posts to social media as basis for employment decisions or would this violate an employee’s right to privacy?

Finally, when a company encourages employees to use social media for work, there are some considerations the employer should take into account regarding the ownership of the social media accounts.

Generally speaking, employers may utilize social networking sites to conduct background checks on employees if:

  1. The employer and/or its agents conduct the background check themselves;
  2. The site is readily accessible to the public;
  3. The employer does not need to create a false alias to access the site;
  4. The employer does not have to provide any false information to gain access to the site; and
  5. The employer does not use the information learned from the site in a discriminatory manner or otherwise prohibited by law.

Generally, employees have a privacy expectation in their personnel files, contact information, and work related information. However, this expectation of privacy is not limitless, especially when the employee publically airs his or her work experiences on social media sites for the public to see. Courts have held that employees can waive this right to privacy once they make disclosures in public for everyone else to read via social media networks.

For example, in a case not in the employment context, a California court reviewed the issue of whether an author who posts an article on myspace.com can state a cause of action for invasion of privacy and for intentional infliction of emotional distress against a person who submits that article to a newspaper for republication. The case, Moreno v. Hanford Sentinel, Inc. involved a college student who had moved away from her home town of Coalinga, California. She wrote “An ode to Coalinga” and posted it on her site on MySpace.com. The ode badmouthed her hometown. Six days after publishing it on MySpace, she took the writing off of the site, but the town’s high school principal submitted the writing to the local newspaper for publication. The newspaper republished the ode in the letters to the editor section and listed Moreno’s full name even though she only used her first name on her MySpace page. The ode must have contained some serious dirt on the city, as it resulted in death threats against Moreno’s family, and eventually forced her family to close a 20 year old business and move out of town.

Moreno sued for invasion of her privacy alleging that her post on MySpace was only supposed to be viewed by a few of her friends, and because she removed the post six days after publishing the article. The court rejected Moreno’s theory that the newspaper’s publication violated her right to privacy because her post to MySpace was made virtually to everyone with an Internet connection. The Court reasoned that, “[Moreno’s] affirmative act made her article available to any person with a computer and thus opened it to the public eye. Under these circumstances, no reasonable person would have had an expectation of privacy regarding the published material. As pointed out by appellants, to be a private fact, the expectation of privacy need not be absolute.” Therefore, the court held that “the fact [Moreno] expected a limited audience does not change the above analysis. By posting the article on myspace.com, [Moreno] opened the article to the public at large. Her potential audience was vast.” The court concluded that Moreno therefore could not asserted a cause of action for invasion of her right to privacy against the newspaper.

Even though this case is not involving employment information, a similar analysis would apply to an employee who posts information on social media about workplace issues. Once the employee places the information about his or her work circumstances on social media, this greatly reduces the employee’s privacy in the subject matter. However, an employer should be cautious, and use common sense in responding to such posts. For example, if an employee posts negative information about the company on social media, it would obviously not give the employer a right to disclose the employee’s health information and documents from the employee’s personnel file. Alternatively, if the employee posts about how bad an employer treated him or her, the employer would have the right to publically set the record straight with facts specific to rebut the allegations made by the employee.

Employers should use common sense in responding publically to an employee’s or former employee’s posts on social media and keep any discussions limited to the facts and issues raised by the employee. Furthermore, employers should approach situations with caution when an employee’s posts on social media are password protected and only friends of the employee can view the post. Hacking or gaining access to social media posts under false pretenses is most likely illegal, and would tilt the analysis back into the employee’s favor that the information was not disclosed to everyone and, therefore, would be considered private. In addition, employers may never retaliate against employees for making complaints via the internet or otherwise, and should be careful in making employment decisions based on employees’ complaints about workplace issues even if made on the Internet.

This will be one of our most attended webinars, and there is still time to sign up. The webinar will cover legal issues facing California employers under the new Labor Code section prohibiting employers from asking applicants and employees for social media passwords, privacy issues when conducting background checks, alternatives to social media policies, and when policies addressing these issues are necessary. It is taking place at 10:00 a.m. PST January 15. Visit our website for registration information.