Apple employees sued the employer claiming they are owed unpaid wages for time spent undergoing a search prior to leaving the Apple retail stores.  The issue presented to the California Supreme Court: Is time spent on the employer’s premises waiting for, and undergoing, required exit searches of packages, bags, or personal technology devices voluntarily brought to work purely for personal convenience by employees compensable as “hours worked” within the meaning of Wage Order 7?  In Frlekin v. Apple, Inc., the California Supreme Court held that this time is considered hours worked and needs to be paid by Apple.

The case reached the California Supreme Court at the request of the United State Court of Appeals for the Ninth Circuit, which was reviewing the issue after the district court held that the searches were not compensable.

1. Apple’s policy and Plaintiff’s Complaint

Apple’s mandatory bag search policy states:

Employee Package and Bag Searches

All personal packages and bags must be checked by a manager or security before leaving the store.

General Overview

All employees, including managers and Market Support employees, are subject to personal package and bag searches.  Personal technology must be verified against your Personal Technology Card (see section in this document) during all bag searches.

Failure to comply with this policy may lead to disciplinary action, up to and including termination.

Do

Find a manager or member of the security team (where applicable) to search your bags and packages before leaving the store.

Do Not

Do not leave the store prior to having your personal package or ba[g] searched by a member of management or the security team (where applicable).

Do not have personal packages shipped to the store. In the event that a personal package is in the store, for any reason, a member of management or security (where applicable) must search that package prior to it leaving the store premises.

The employees are required to clock out before submitting to an exit search pursuant to the bag search policy.  There were varying estimates about the amount of time it took employees to go through the screening process.  The employees estimated it lasted from five to 20 minutes, and on busy days the employees estimated they had to wait up to 45 minutes.

The Plaintiffs’ complaint alleges that Apple failed to pay minimum and overtime wages under California law for time spent waiting for and undergoing these exit searches.

2. Definition of “hours worked” under California law

Wage Order 7 requires employers to pay their employees a minimum wage for all “hours worked” (Cal. Code Regs., tit. 8, § 11070, subd. 4(B)), defined as “the time during which an employee is subject to the control of an employer, and includes all the time the employee is suffered or permitted to work, whether or not required to do so” (id., § 11070, subd. 2(G)).

The Court explained that hours worked is determined by these two factors: (1) subject to the control of the employer or (2) if an employee is “suffered or permitted” to work.  Under the first control-factor, the employee does not have to be working during the time for it to be compensable.  Under the second “suffered or permitted” factor, the employee does not have to be under the control of the employer, but if the employer has or should have knowledge of the employee’s work, then it is compensable.

The Court’s decision was interpreting California law, which, as established in the decision provides a more employee friendly definition of what time qualifies as compensable work.  Illustrative of this, the Plaintiffs in the action dismissed all non-California law claims following the United States Supreme Court’s decision in Integrity Staffing Solutions, Inc. v. Busk (2014) 574 U.S. 27, which held that time spent undergoing mandatory security screenings was not compensable under the FLSA.

3. Apple “controlled” the employees during the exit screening

Apple argued that it did not have control over the employees, because it was the employees who made the decision to bring items to work that were subject to search under its policy.

The Court disagreed with Apple, holding that the employees were under the employer’s control while “awaiting, and during, the exit searches.”  The Court explained that Apple controlled employees during this time because:

  • the employees were subject to discipline if they did not follow the search policy,
  • the employees were confined to the premises during the search,
  • the policy required employees to perform certain tasks during the search (such as find a manager or security personnel to perform the search, opening the bag, etc.…).

The Court explained:

It is to be expected that many Apple employees feel they have little genuine choice as a practical matter concerning whether to bring a bag or other receptacle containing such items to work.  Moreover, given that Apple requires its employees to wear Apple-branded apparel while working but directs them to remove or cover up such attire while outside the Apple store, it is reasonable to assume that some employees will carry their work uniform or a change of clothes in a bag in order to comply with Apple’s compulsory dress code policy.  Apple’s proposed rule conditioning compensability on whether an employee can theoretically avoid bringing a bag, purse, or iPhone to work does not offer a workable standard, and certainly not an employee-protective one.  (See Dynamex, supra, 4 Cal.5th at p. 952 [the wage orders are intended to accord workers “a modicum of dignity and self-respect”].)

The Court also disregarded Apple’s argument that the employees had a choice in whether to bring their smartphone to work:

Given the importance of smartphones in modern society, plaintiffs have little true choice in deciding whether to bring their own smartphones to work (and we may safely assume that many Apple employees own Apple products, such as an iPhone).

4. Level of control over employees determines if it is compensable time

The Court relied upon its prior holding in Morillion v. Royal Packing Co. that “[t]he level of the employer’s control over its employees, rather than the mere fact that the employer requires the employees’ activity, is determinative” concerning whether an activity is compensable under the “hours worked” control clause.  The Court explained that whether an activity is required by the employer will still be a factor in making a determination of whether the employee is under the employer’s control.

The Court further explained that in in deciding if certain activities performed on the job site need to be compensated as time worked, other factors must be reviewed as well.  Factors such as the location of the activity, the degree of employer’s control, if the activity benefits the employer or employee, and if the activity is enforced through discipline must be given consideration in addition to whether the activity is required by the employer.

5. The holding applies retroactively

The Court held that its ruling in this case applies retroactively.  The Court disagreed with Apple that the holding did not change an established rule which Apple relied upon.  As such, even if employers modify their current policies to address this holding, there could still be potential liability for past claims.  As such, it is recommended that employers in California review policies that may be impacted by the Frlekin case.

Are there are any “predictive scheduling” requirements under California law?  Can California employers change schedules for employees without notice?  These are some of the questions I’ve dealt with lately about scheduling requirements in California.  This Friday’s Five reviews five issues California employers should understand about regulations pertaining to setting and changing schedules under California law:

1. There are no predictive scheduling requirements in California

While not a law in California, other states and local cities have passed scheduling mandates that require employers to set schedules for employees well in advance, and if the employer changes the schedules within a certain time frame, the employer must pay a penalty for the change.  There has been proposed legislation in California for predictive scheduling requirements, but as of 2020, none of these bills have passed.  For example, in 2016, California’s legislature drafted SB 878 that proposed to require retail establishments, grocery stores, and restaurants to set employees schedules 28 days in advance, and impose penalties on the employer if the schedule is modified by the employer.  This law, and others proposed since 2016 have not become law.  Nearly every year the California legislature debates some type of predictive scheduling requirement.  With that said, California law still sets certain limits regarding scheduling employees as explained below.

2. Reporting time pay

California law requires an employer to pay “reporting time pay” under the applicable Wage Order.  This requires that when an employee is required to report for work and does report, but is not put to work or is furnished less than half said employee’s usual or scheduled day’s work, the employee shall be paid for half the usual or scheduled day’s work, but in no event for less than two (2) hours nor more than four (4) hours, at the employee’s regular rate of pay, which cannot not be less than the minimum wage.

In addition, if an employee is required to report to work a second time in any one workday and is furnished less than two hours of work on the second reporting, he or she must be paid for two hours at his or her regular rate of pay.

Employers must remember, when an employee is scheduled to work, the minimum two-hour pay requirement applies only if the employee is furnished work for less than half the scheduled time.

3. Reporting time pay: meetings and calls into work

There has been significant litigation over reporting time pay that is owed when employees are called in for meetings.  If an employee is called in on a day in which he is not scheduled, the employee is entitled to at least two hours of pay, and potentially up to four hours if the employee normally works 8 hours or more per day. See Price v. Starbucks.

However, if the employer schedules the employee to come into work for two hours or less, and the employee works at least one half of the scheduled shift, the employer is only required to pay for the actual time worked and no reporting time is owed.  See my prior post on Aleman v. AirTouch for a more detailed discussion.

The court in Ward v. Tilly’s, Inc. was presented the issue of what does “report for work” mean?  The phrase is used in Wage Order 7 to trigger reporting time pay obligations, and is not defined in the Wage Orders.  In Ward, the plaintiff was required to contact the employer two hours before the start of her on-call shifts to determine if she was required to come into work for that shift.  Plaintiff argued that being required to call her employer two hours before a potential shift to see if she was required to work that day should be considered reporting to work, which triggers the employer’s obligation to pay reporting time pay.  Given these facts, the court agreed with the employee, and held that requiring employees to call into work two hours prior to their scheduled shift to see if they were needed at work trigger reporting time pay.

4. Split Shifts

A split shift is defined in the California IWC Wage Orders as:

…a work schedule, which is interrupted by non-paid non-working periods established by the employer, other than bona fide rest or meal periods.

See Cal. Code Regs., tit. 8, § 11040, subd. 2(Q). If the employee works two shifts separated by more than a rest or meal period, they are entitled to receive one hour’s of pay at the minimum wage rate in addition to the minimum wage for that work day. See Cal. Code Regs., tit. 8, §11040, subd. 4(C). Any additional amounts over minimum wage paid to the employee can be used to offset the split shift pay due to an employee. For example, say an employee earns $10 per hour. She works 10:00 a.m. to 1:00 p.m., and then again from 3:00 p.m. to 8:00 p.m. This is a total of eight hours worked for the day, and she is entitled to a split shift payment of one hour at $8 (minimum wage). However, because she earned $16 over minimum wage ($2 above minimum wage x 8 hours = $16) for the eight hours of work, this amount can be used to offset the amount owed for the split shift pay. Therefore there is nothing owed to the employee in this example.  I’ve written more about split shifts in this prior post.

5. On-Call Pay

If the employee is under the control of the employer, even if the employees are traveling to a work site or even sleeping, the employer may have to pay them for being on-call.  For example, the California Supreme Court held that security guards who were required to reside in a trailer provided by the employer at construction worksites would still need to be paid for the time they slept while on-call.  In that case, during weekdays the guards were on patrol for eight hours, on call for eight hours, and off duty for eight hours.  On weekends, the guards were on patrol for 16 hours and on call for eight hours.  The Court held that the employer was not permitted to exclude the time guards spent sleeping from the compensable hours worked in 24-hour shifts.  See Mendiola v. CPS Security Solutions, Inc.

Likewise, in Morillion v. Royal Packing Co., the California Supreme Court held that, “we conclude the time agricultural employees are required to spend traveling on their employer’s buses is compensable under Wage Order No. 14-80 because they are ‘subject to the control of an employer’ and do not also have to be ‘suffered or permitted to work’ during this travel period.”  Generally, travel time is considered compensable work hours where the employer requires its employees to meet at a designated place and use the employer’s designated transportation to and from the work site.

Facebook’s $550 million settlement announced this week to resolve a lawsuit alleging it violated Illinois’ Biometric Information Privacy Act (BIPA) is the largest consumer privacy settlement in the United States.  While the case was under Illinois law, California recently joined Illinois and other states in providing consumers (and employees) rights and control over their personal information under the California Consumer Privacy Act (CCPA).  The CCPA, which is effective January 1, 2020, requires employers to comply with requirements about the collection, storage and use of employee information, which includes biometric information.  I also spoke this week at Boston University School of Law’s JOSTL & PILJ Symposium on the implications of biometric laws and litigation facing private entities and the current obligations of California employers in respect to biometric information.  With the Facebook settlement, and the CCPA becoming effective in 2020, here is a brief overview of employee’s privacy interests in biometric information under California law.

1. Facebook’s $550 million settlement is a bellwether of the serious concerns over data collection.

Facebook’s settlement involved Illinois’ law, the BIPA, which is only one of a few states that provides for certain protections of an individual’s data, including biometric data.  Illinois, Texas, Washington state, and most recently California have statues that require some type of notice and voluntary consent before biometric information is collected by a private company.  It is important to note that there is no restriction regarding law enforcement’s collection of biometric data.  I expect this to be the next area of focus, and the government’s potential misuse and abuse of this information far exceeds most threats from a private entity.  With California’s CCPA becoming effective January 1, 2020, it is expected that other states will consider similar consumer data protection laws and it is inevitable that litigation will follow.

2. Employer’s obligations under the California Consumer Privacy Act.

The CCPA covers employer’s collection of data for applicants and employees.  The CCPA applies to companies doing business in California that meets any of the following thresholds:

  • Annual gross revenues that exceeds $25 million
  • Annually buys, receives, shares, or sells the personal information of more than 50,000 consumers, households, or devices for commercial purposes (alone or in combination); or
  • Derives 50% or more of annual revenues from selling consumers’ personal information

While the threshold seemingly sets a high bar, the second threshold that pertains to businesses that “receive” personal information of more than 50,000 consumers is not difficult to meet if consumers are tracked based on website visits in combination is information gathered from employees and current customers.  The CCPA requires covered businesses to provide certain notices to consumers (which includes employees) about the type of information that is collected and how the business uses the information.  The law also requires the consumer to be able to request a copy of the information collected on them and to request that the data be deleted.

3. The CCPA was amended to extend some, but not all, deadlines for employers to comply with the law.

The CCPA became effective January 1, 2020, but AB 25 delays compliance for employers until January 1, 2021 from all provisions of CCPA except for two provisions.  As of January 1, 2020, businesses must comply with the required to take reasonable measure to protect consumers’ data, and AB 25 does not delay the right for consumers to bring a private civil action for failures to do so.  In addition, AB 25 does not delay the obligation of employers to inform applicants and employees about the types of categories of personal information being collected collected and how that information will be used.

4. The CCPA covers many categories of personal information, including biometric data.

The CCPA defines “personal information” as eleven categories of information.  The law defines personal information as follows:

 “Personal information” means information that identifies, relates to, describes, is capable of being associated with, or could reasonably be linked, directly or indirectly, with a particular consumer or household. Personal information includes, but is not limited to, the following:

(A) Identifiers such as a real name, alias, postal address, unique personal identifier, online identifier Internet Protocol address, email address, account name, social security number, driver’s license number, passport number, or other similar identifiers.

(B) Any categories of personal information described in subdivision (e) of Section 1798.80.

(C) Characteristics of protected classifications under California or federal law.

(D) Commercial information, including records of personal property, products or services purchased, obtained, or considered, or other purchasing or consuming histories or tendencies.

(E) Biometric information.

(F) Internet or other electronic network activity information, including, but not limited to, browsing history, search history, and information regarding a consumer’s interaction with an Internet Web site, application, or advertisement.

(G) Geolocation data.

(H) Audio, electronic, visual, thermal, olfactory, or similar information.

(I) Professional or employment-related information.

(J) Education information, defined as information that is not publicly available personally identifiable information as defined in the Family Educational Rights and Privacy Act (20 U.S.C. section 1232g, 34 C.F.R. Part 99).

(K) Inferences drawn from any of the information identified in this subdivision to create a profile about a consumer reflecting the consumer’s preferences, characteristics, psychological trends, preferences, predispositions, behavior, attitudes, intelligence, abilities, and aptitudes.

The CCPA also makes clear that its provisions apply regardless of how the data is collected, such as online over the Internet, using pen and paper, or even through an algorithm.

5. California Labor Code section 1051 prohibition on employers from sharing biometric information with third parties.

Existing California Labor Code section 1051 prohibits California employers from obtaining fingerprints or photographs from employees and then sharing this information to a third party.  Violation of the section is a misdemeanor.  Therefore, biometric information may be used in the workplace, such as for time clocks, but employers may not share this information with an outside third party under this Labor Code section.

Employers should review if the vendor providing the technology to the company has access to the employee biometric information.  Moreover, employers that obtain this information must be careful to protect the information from inadvertent disclosures to third parties.  Disclosures from being hacked or unintentional inadvertent disclosure by the employer would likely be actionable under Labor Code section 1051 and California’s constitutional right to privacy.  This breach of biometric information would also violate the CCPA.

The California Attorney General enforcement of the CCPA does not start until July 1, 2020.  In the meantime, the Attorney General is seeking public input to develop regulations to clarify how the CCPA will apply to California businesses.  More information about the rulemaking process and announcements of new regulations can be found at the Attorney General’s website here.

These five reminders are a must for documenting employee performance:

1. Get employee feedback during counseling.

Employees are more likely to ultimately accept critical performance reviews if their feedback is heard. This does not mean that the employer must agree with the employee’s feedback, but just that the employer is considering their feedback in the decision-making process and the employee is not being pre-judged. A good example on how obtaining the employee’s feedback avoided a potentially embarrassing situation and harming a relationship with the employee was noted in an article by SHRM (“How to Create Bulletproof Documentation”). The article recalled a situation when a manager wanted to discipline an employee for being late to her new position in the company. But prior to issuing the discipline, the HR manager asked the manager to seek clarification from the employee about why she was late. The manager followed the advice, and it turned out that the employee’s tardiness was a result of employee providing training to the replacement at her prior position in the company.

2. Send confirming emails to avoid misunderstandings and to document conversations.

After having a conversation with an email, it is recommended to follow-up with conversation with a confirming email.  The confirming email provides two benefits: it clearly sets forth what the manager’s criticism and expectation for how the employee must improve, as well as documents the date and what was said during the conversation.  Yes, managers are busy and this is hard to develop as a practice, but keep in mind that the confirming email can be short and to the point.  In addition, if the manager does not have time to send the email that day, while it is best to send the confirming email as soon as possible, it is still better sending the confirming email a couple of days after the conversation.

3. Avoid vague language like “bad attitude” or “failure to get along with other employees.”

One of the hardest issues as a litigator is defending a wrongful termination claim when the documentation provided to the employee contains vague criticisms of the employee’s performance. Managers should avoid at all costs performance reviews that the employee has a “bad attitude.” If litigation ensues, and the company is forced to defend its decision to terminate the employee, vague statements like this do not clearly establish the reasons for the termination. Instead a creative plaintiff’s lawyer can spin this language as evidence to support their allegation that the reason was based on the employee’s complaint, race, gender or age. A good practice is to use concrete examples in the performance review, such as:

  • You were 25 minutes late today.
  • Your conduct towards your coworker was unacceptable today when you informed Mr. Jones that “it was not your job to help him and he should know how to do these tasks by now.” You are expected to assist others in all aspects of their job, and to the extent they need additional help, you need to provide assistance to ensure that the customer’s needs are met.
  • You did not provide adequate customer service last Tuesday when you ignored the customer’s request for help in retrieving a different size three times.

4. Employees do not need to sign written performance warnings.

While it is a good practice to have employees sign performance reviews to avoid any disputes that they were never shown the performance review, it is no legal requirement to have the employee sign the document. Employees often object to signing documents criticizing their performance. There are two potential responses to this objection: 1) have the employee’s acknowledgment clearly state that the employee’s signature is only acknowledging receipt of the document, not agreeing with the content, or 2) if the employee simply refuses to sign, have the manager or a witness sign and date the document with a notation that the document was provided to the employee and he or she refused to sign.

Also, another misconception: there is no legal requirement that employees must be given three warnings prior to being terminated (as long as the company has maintained the employee’s at-will status).

5. Remember that write-ups and documentation do not have to be on any “official” forms.

Managers sometimes feel that they must wait until they can officially document an employee’s performance on the company’s official form. However, managers need to be trained on how to document performance and it must be made clear to them that while the company’s forms are preferred, documentation can be done on many formats, such as: e-mail to oneself or to HR, the manager’s log, any paper available, or even electronically on any other company device. I personally like when managers send emails to themselves documenting conversations with employees. Given the data associated with e-mails, such as time and date created, e-mails are excellent documentation of a manager’s conversation with an employee about performance issues. Managers should also be reminded that they need to document verbal warnings in some manner – if the verbals are not documented, it is as if they never occurred.

At the start of 2020, it is a good time to conduct a California employment law practices audit to ensure that policies are compliant, managers are properly trained, and the company is maintaining the required records for the necessary length of time.  Here are five areas to start with in conducting an audit and a few recommended questions for each topic:

1. Hiring Practices

  • Are applications seeking appropriate information?
    • Ensure compliance with state and local ban the box regulations.
  • Are new hires provided with required policies and notices?
  • Are new hires provided and acknowledge recommended policies?
    • For example: meal period waivers for shifts less than six hours
  • Are hiring managers trained about the correct questions to ask during the interview?
  • Does the company provide new hires (and existing employees) with arbitration agreements with class action waivers?

 2. Records

  • Are employee files maintained confidentially and for at least four years?
  • Are employee time records maintained for at least four years?
  • Are employee schedules maintained for at least four years?
  • Do the managers have set forms for the following:
    • Employee discipline and write-ups
    • Documenting employee tardiness
  • How is the employee documentation provided to Human Resources or the appropriate manager?
  • Who is involved in reviewing disability accommodation requests?
  • How are employee absences documented?

3. Wage and Hour Issues

  • Does the company have its workweeks and paydays established?
  • Are paydays within the applicable time limits after the pay period as required under the law?
  • Are employees provided with compliant itemized wage statements?
  • Are employees provided a writing setting out their accrued paid sick leave each pay period?
  • Are employees properly classified as exempt or nonexempt?
    • For exempt employees, review their duties and salary to ensure they meet the legal requirements to be an exempt employee.
  • Any workers classified as independent contractors, and if so, could they be considered employees under AB 5?
  • Are nonexempt employees properly compensated for all overtime worked?
  • Is off-the-clock work prohibited?
    • Policy in place?
    • Are managers trained about how to recognize off-the-clock work and what disciplinary actions to take if find employees working off-the-clock?
  • Does the company’s time keeping system round employee’s time?
    • If so, is the rounding policy compliant with the law?
  • Are meal and rest period policies set out in handbook and employees routinely reminded of policies?
    • Does the company pay “premium pay” for missed meal and rest breaks? If so, how is this documented on the employee pay stub?
    • Do employees record meal breaks?
    • Are managers trained on how to administer breaks and what actions to take if employees miss meal or rest breaks?
  • Is vacation properly documented and tracked?
  • Are all deductions from the employee’s pay check legally permitted? (use caution, very few deductions are permitted under CA law)
  • Are employees reimbursed for all business expenses, such as uniforms, work equipment, and miles driven for work?

 4.End of Employment Issues

  • Are employees leaving the company provided their final wages, including payment for all accrued and unused vacation time?
  • Does the employer deduct any items from an employee’s final paycheck?
    • If so, are the deductions legally permitted?

5. Anti-harassment, discrimination and retaliation

  • Are supervisors provided with sexual harassment training every two years? (If employer has 50 or more employees, supervisors are legally required to have a two-hour harassment prevention training that complies with AB 1825 and amendments to this law).
  • Are there steps in place to provide nonsupervisory employees with 1 hour sexual harassment prevention training by January 1, 2021 and once every 2 years thereafter? (required for employers with 5 or more employees)
  • Are supervisors and managers discussing the company’s open-door policy to employees at routine meetings with employees? Is this being documented?

Growing companies face the question of when does it become a necessity to have an executive within the company that is dedicated to human resources.  While it varies for each company, in this Friday’s Five, I’ve set forth five considerations that can help growing companies assess their need for a dedicated HR professional.

1. A director of human resources is not legally required.

There is no legal requirement for a company to employ anyone with an human resources background or any certificates involving human resources.  Likewise, there is no legal requirement that whoever takes on the human resources responsibilities in a company have any specific human resource training or certifications.  Now, if the individual is involved in conducting workplace investigations, such as investigating complaints of sexual harassment, that individual’s experience in conducting investigations and how the investigation was conducted would be closely examined and potentially challenged by a plaintiff’s lawyer in any litigation. Therefore, it is recommended that any HR professional that is conducting workplace investigations have experience and training to ensure the investigation can withstand scrutiny from a plaintiff’s attorney during litigation.

2. Number of employees in the company is a primary consideration.

Obviously, with more employees, there are more administrative issues, complaints to handle, and more responsibilities with hiring and on-boarding employees.

Now there is no hard and fast rule that once a company has so many employees the company should have in-house human resources.  There are many considerations and differences for each company that make this a highly individualized determination.  However, once a company approaches 50 employees, the employment issues become complex enough to begin to consider a dedicated in-house director of HR.

3. The complexity of workforce is another consideration.

If the company is involved in manufacturing, there will likely be more of a need for in-house human resources to deal with injuries and workers compensation issues.  Likewise, highly labor-intensive industries will have more of a need for human resources to deal with scheduling, turnover, and the continual hiring needs.

4. A company should be able to timely respond to any complaints and take effective remedial actions.

If the executive who take on human resources duties find themselves unable to timely review and respond to complaints, it is likely time that the company needs to hire a human resources professional.  First, it is a requirement under California law that companies timely and effectively investigate complaints.  Second, timely and effectively investigating and responding to complaints will substantially lower litigation risk and potential liability risks.  If a company is unable to manage this duty among its current executives, it is imperative that a human resources professional with this experience is hired to meet these obligations.

5. Human resources can play a critical part in managing litigation.

If a company as significant employment lawsuits, a director of human resources can be a critical aspect in the support of outside counsel defending litigation.  An experienced human resources professional can prepare reports, summaries, and even analyze payroll or time records relevant to ligation, which can help save significant amounts of money.  In addition, the director of human resources can convey personnel issues and other critical information to outside attorneys defending the company.  A human resources professional that understands the employees in a company can be a very valuable aspect in preventing and defending litigation.

I wanted to highlight a few issues on these topics that employers can use to start a self-audit that then can be used to save time and money when reviewing with an attorney.  As always, it is important to work with a qualified attorney to ensure compliance.

Five areas to audit regarding the hiring process in California:

1. Are applications seeking appropriate information?

2. Are new hires provided with required policies and notices?

3. Are new hires provided and acknowledge recommended policies?

  • For example: meal period waivers for shifts less than six hours

4. Are hiring managers trained about the correct questions to ask during the interview?

5. Does the company provide new hires (and existing employees) with arbitration agreements?

  • California employers should review with counsel implementing arbitration agreements in their workforce given the U.S. Supreme Court’s ruling in May of 2018 upholding the use of arbitration agreements in the employment context.  As of January 1, 2020, AB 51 prohibits employers from enforcing mandatory arbitration agreements in the workplace.  AB 51 has already been legally challenged on federal preemption grounds, but employers should review agreements to ensure they comply with Federal and California law.

2020 opens with numerous legal challenges to California’s new employment laws taking effect on January 1, 2020.  The new laws targeted by business groups are AB 5, which makes it more difficult for businesses to classify workers as independent contractors, and AB 51, which prohibits employers from requiring mandatory arbitration agreements with employees.  If this week is any indication about how 2020 will unfold on the employment legal front, it will be an interesting year.  Here are five key issues employers should understand about these legal challenges to AB 5 and AB 51:

1. Overview of AB 5 and AB 51

AB 5, which codifies the California Supreme Court’s ABC test for independent contractors as set forth in Dynamex Operations West, Inc. v. Superior Court of Los Angeles (2018), was signed into law by Governor Newsom on September 18, 2019 and will become effective on January 1, 2020. The California Supreme Court ruled in Dynamex that in order for a worker to be properly classified as an independent contractor, the company must establish that the worker meets the ABC test:

  • Part A: Is the worker free from the control and direction of the hiring entity in the performance of the work, both under the contract for the performance of the work and in fact?
  • Part B: Does the worker perform work that is outside the usual course of the hiring entity’s business?
  • Part C: Is the worker customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity?

AB 51, signed by the Governor in October, makes it an unlawful employment practice for an employer to require employees or applicants to “waive any right, forum, or procedure for a violation of” the California Fair Employment and Housing Act (FEHA) or the Labor Code, therefore prohibiting employers from requiring mandatory arbitration agreements from employees.

2. AB 5 challenge by Uber and Postmates

Uber and Postmates filed a lawsuit in the Central District of California challenging AB 5 as “irrational and unconstitutional.”  Uber, Postmates, and two drivers, allege in the lawsuit that AB 5 violates the Equal Protection and Due Process Clauses.  The lawsuit was filed on December 30, 2019.

App-based driving companies have also started the process of obtaining support for an initiative that would create an exemption for rideshare and delivery drivers from AB 5.

3. AB 5 challenge by freelance journalists

The American Society of Journalists and Authors Inc. and National Press Photographers Association have filed suit on behalf of freelance journalists challenging AB 5 arguing it violates the First Amendment.  The suit alleges that because AB 5 only permits freelance journalists to write 35 articles a year for the same publication, and if they write 36 articles or more, they become an employee, it violates the journalists’ First Amendment rights.  The suit also argues that AB 5 is unfair in that it grants exemptions for other professions from the law while targeting freelance journalists.  The lawsuit is American Society of Journalists and Authors Inc. et al. v. Becerra.

4. AB 5 challenge by the California Trucking Association

On December 24, 2019, the California Trucking Association (CTA) filed a motion for temporary restraining order prohibiting the enforcement of AB 5 against any motor carrier operating in California.  On December 31, 2019, Judge Roger T. Benitez of the U.S. Southern District Court of California granted the temporary restraining order, until the matter is heard on January 13, 2020.  Judge Benitez wrote that the CTA “have shown that AB-5’s Prong B is likely preempted by the [Federal Aviation Administration Authorization Act] because AB-5 effectively mandates that motor carriers treat owner-operators as employees, rather than as the independent contractors that they are.  In other words, because contrary to Prong B, drivers perform work within “the usual course of the [motor carrier] hiring entity’s business,” drivers will never be considered independent contractors under California law.”

5. AB 51 challenged in court by U.S. Chamber of Commerce

As previously written about here, on December 30, 2019, District Judge Kimberly J. Mueller of the Eastern District of California issued a temporary restraining order barring enforcement of AB 51.  The hearing for the preliminary injunction motion is set for January 10, 2020.

Happy New Year!

By Michael Thompson

Just two days before it was slated to take effect, California’s controversial new law on mandatory arbitration agreements is in legal limbo. AB 51, signed by the Governor in October, would make it an unlawful employment practice for an employer to require employees or applicants to “waive any right, forum, or procedure for a violation of” the California Fair Employment and Housing Act (FEHA) or the Labor Code. In other words, employers could no longer force employees to sign arbitration agreements. (Arbitration agreements entered into prior to the New Year are not affected by AB 51.)

But on Monday, December 30, 2019, District Judge Kimberly J. Mueller of the Eastern District of California issued a temporary restraining order barring California’s Attorney General, Labor Commissioner, and other relevant officials from enforcing AB 51. The court found that a collection of business groups led by the U.S. Chamber of Commerce “have raised serious questions regarding whether the challenged statute is preempted by the Federal Arbitration Act as construed by the United States Supreme Court.”

Unless an appellate court intervenes, the TRO will remain in place while Judge Mueller considers a request by the plaintiffs for a preliminary injunction. The court set a January 10, 2020, hearing date on the preliminary injunction motion.

Ultimately, we can expect the parties to continue this fight all the way to the United States Supreme Court. This will be the latest chapter in a years-long tug-of-war over the use of arbitration agreements by employers in California.  Various California courts and legislators have sought to restrict employer efforts to remove employment claims from court to private arbitration. The US Supreme Court, meanwhile, has struck down various restrictions on arbitration agreements as being inconsistent with the favorable view of arbitration expressed by the Federal Arbitration Act.

So what do employers do in the meantime? Can you mandate arbitration agreements until further notice?

Even with California officials currently barred from enforcing AB 51, there is some potential risk to employers if AB 51 ultimately survives this court challenge. This is because AB 51 gives an employee a private right of action against an employer who forces the employee to sign an arbitration agreement or retaliates against the employee for refusing to do so. Employers who wish to implement or maintain mandatory arbitration policies should consult counsel and track developments in this litigation through the district court, the Ninth Circuit, and the US Supreme Court.

Alternatively, voluntary arbitration agreements will remain legal regardless of AB 51’s fate. Because plaintiff attorneys frequently challenge arbitration agreements on various fairness grounds, voluntary arbitration agreements have the added benefit of being easier for employers to enforce in court.

Stay tuned.

This Friday’s five article covers five reminders about the California minimum wage increase and its impact upon exempt employees:

1. As of January 1, 2020, the minimum wage in California increased from $12.00 per hour to $13.00 per hour for employers with 26 or more employees (the increase is from $11.00 per hour to $12.00 per hour for employers with 25 or fewer employees on January 1, 2020).

2. With the increase in the state minimum wage, there is a corresponding raise in the minimum salary required to qualify as exempt under the “white collar” exemptions. 

Therefore, on January 1, 2020, in order to qualify for a white collar exemption, the employee must receive an annual salary of at least $54,080 for large employers and $49,920 for small employers.

3. The salary for exempt employees must be a guaranteed, fixed amount.

4. To qualify as an exempt employee, the employee must perform more than 50% of their time performing exempt duties.

More information about the types of duties that qualify for the white collar exemptions can be read here.

5. Employers bear the burden of proof when establishing that an employee qualifies as an exempt employee.