As California reopens on June 15, 2021, employers must be careful to comply with numerous federal, state, and local (county and city) regulations.  Businesses not only have to comply with the state’s reopening guidelines if they serve the public (such as retail, restaurants, and theaters), but they must also comply with Cal/OSHA’s regulations that govern employees.  Here are five resources California employers can use to help in navigating the multitude of regulations they face during the reopening of the state:

1. California’s regulations regarding masks effective June 15, 2021

The state’s guidance of face coverings: https://covid19.ca.gov/masks-and-ppe/#Face-coverings-Guidance

2. Cal/OSHA Emergency Temporary Standards (ETS)

Cal/OSHA’s ETS applies to most employers in California and sets various requirements on employers regarding COVID-19.  Late on June 9, 2021, Cal/OSHA’s Standards Board withdrew proposed revisions to the ETS that were approved on June 3, 2021 and were expected to take effect by June 15, 2021, in connection with California’s reopening and lifting of the restrictions under the “Blueprint for a Safer Economy.”

Cal/OSHA’s website and explanation of the status of the revised ETS is here.

To learn more about Cal/OSHA’s revisions to the ETS and what the withdrawal of the revised ETS on June 9, 2021 means for California employers, see our prior post here.  For additional information about the original ETS implemented in November 2020 that are still applicable to California employers (as of June 11, 2021) is here.

3. California Department of Public Health memo dated May 21, 2021, “Beyond the Blueprint for Industry and Business Sectors – Effective June 15”

The Department of Public Health’s May 21, 2021 memo sets forth the revised restrictions for California as it reopens on June 15, 2021.  The memo addresses vaccine verification/negative testing requirements, capacity limitations, physical distancing, masks, and travel advisories.  The memo can be viewed here.

4. California Department of Public Health memo dated June 9, 2021, “Guidance for the Use of Face Coverings”

 The Department of Public Health’s June 9, 2021 memo sets forth guidance for the use of face covering s for the general public and businesses as the state reopens on June 15, 2021.  The memo can be found here.

5. Local County and City Regulations

Employers need to ensure compliance with local county and city requirements as well.  For example, on June 10, Los Angeles County had a virtual town hall discussing the county’s plan for reopening.  A recording of the town hall can be viewed here:

Los Angeles County will be issuing written guidelines within the next few days.

Late on June 9, 2021, Cal/OSHA’s Standards Board withdrew the revisions to its COVID-19 prevention emergency temporary standards (“ETS”) that were approved on June 3, 2021 and were expected to take effect by June 15, 2021, in connection with California’s reopening and lifting of the restrictions under the “Blueprint for a Safer Economy.”  We wrote about the revisions to the ETS approved on June 3 here.

The Board said this vote to withdraw the revised ETS was made during a “meeting to consider the latest guidance regarding masking from the Centers for Disease Control (CDC) and California Department of Public Health (CDPH).”  In an email sent by the Department of Industrial Relations, they explained:

Those revised emergency standards were expected to go into effect no later than June 15 pending approval by the [Office of Administrative Law] OAL within 10 calendar days after the Standards Board rulemaking package submission. At today’s meeting, the Standards Board voted unanimously to withdraw the revisions approved on June 3 that are currently at OAL for review but have not yet become effective. Cal/OSHA will review the new mask guidance and bring any recommended revisions to the board. The Board could consider new revisions at a future meeting, perhaps as early as the regular meeting on June 17. In the meantime, the protections adopted in November of 2020 will remain in effect.

California employers are looking to Cal/OSHA for guidance on how the state’s reopening on June 15 will impact employers’ obligations.  While California lifts the “Blueprint for a Safer Economy” on June 15, employers are still subject to Cal/OSHA’s COVID-19 Prevention Emergency Temporary Standards.  The revisions to the ETS were an attempt to bring the workplace requirements for social distancing and face masks closer to the reopening standards for California residents on June 15.  However, with this June 9th announcement that Cal/OSHA is withdrawing the revised ETS, California employers must still continue to comply with the original ETS issued in November of 2020.  Therefore, even though California is “reopening” on June 15, 2021, California employers will have no relief from their current obligations under the original ETS, and still must continue to comply with those requirements.  For more information about what the original ETS require of California employers, see our prior post here.

Still confused and have questions about what this means for California employers?  Join us for a webinar tomorrow (6/10) at 10 a.m. for a discussion of what this all means for California employers. Click here to register for the webinar.

 

California employers have many obligations under the Labor Code to create and maintain time records.  However, the Labor Code does not address many specific issues about time keeping systems and employers moving to electronic records.  While employers have not yet started to use the blockchain to record employee’s time and report pay information to employees, there are questions about how employers should be maintaining electronic records.  This Friday’s Five covers five key obligations employers should consider for electronic time keeping systems and employee pay stubs under California law:

1.  Are employers required to use a particular type of timekeeping system?

California law does not require the use of any electronic type of timekeeping system or time clocks.  Employers may elect to use paper and pen in recording an employee’s time.  As explained below, the records should be “indelible,” meaning that the time entries cannot be erased, removed, or changed.  However, even with just a handful of employees, many employers find it more efficient to use an electronic timekeeping system.  Moving towards an electronic time keeping system can reduce mistakes in the recording and calculation of time worked, make it easier to track changes, and could make a review of the time entries easier should there ever be a challenge by the employee about their pay.  Most timekeeping software today will also help monitor meal break compliance and will automatically flag any violations for a manager’s review.

2.  Can time records be kept electronically?

 California Wage Orders require that employers maintain the employees time records “in the English language and in ink or other indelible form.”

The Division of Labor Standards Enforcement (“DLSE”) issued an Opinion Letter on July 20, 1995 stating that “storage of records by electronic means meets the requirements of California law if the records are (1) retrievable in the State of California, and (2) may be printed in an indelible format upon request of either the employee or the Division.”

However, the DLSE issued another Opinion Letter on November 10, 1998 advising employers that the electronic time record data could be maintained outside of the State of California “as long as a hard copy of the records was maintained at a central location within California.”  As these two Opinion Letters contradict each other, employers could also look to the Wage Orders.  The Wage Orders require that time records “shall be kept on file by the employer for at least three years at the place of employment or at a central location within the State of California.”  Therefore, employers should consider maintaining a copy of employee time records, either electronically or on paper, within the State of California.

3.  Electronic Pay Stubs

Similar language is also found in Labor Code section 226 pertaining to the information required to be provided to employees on pay stubs:

The deductions made from payments of wages shall be recorded in ink or other indelible form, properly dated, showing the month, day, and year, and a copy of the statement or a record of the deductions shall be kept on file by the employer for at least three years at the place of employment or at a central location within the State of California.

On July 6, 2006, the DLSE issued an Opinion Letter permitting employers to issue electronic pay stubs to employees if certain requirements were met.  The DLSE stated:

The Division in recent years has sought to harmonize the “detachable part of the check” provision and the “accurate itemized statement in writing” provision of Labor Code section 226(a) by allowing for electronic wage statements so long as each employee retains the right to elect to receive a written paper stub or record and that those who are provided with electronic wage statements retain the ability to easily access the information and convert the electronic statements into hard copies at no expense to the employee.

The DLSE approves electronic wage statements if the employer incorporates the following features:

  1. An employee may elect to receive paper wage statements at any time;
  2. The wage statements will contain all information required under Labor Code section 226(a) and will be available on a secure website no later than pay day;
  3. Access to the website will be controlled by unique employee identification numbers and confidential personal identification numbers (PINs).  The website will be protected by a firewall and is expected to be available at all times, with the exception of downtime caused by system errors or maintenance requirements;
  4. Employees will be able to access their records through their own personal computers or by company-provided computers.  Computer terminals will be available to all employees for accessing these records at work.
  5. Employees will be able to print copies of their electronic wage statements at work on printers that are in close proximity to the computer or computer terminal.  There will be no charge to the employee for accessing their records or printing them out.  Employees may also access their records over the Internet and save it electronically and/or print it on their own printer.
  6. Wage statements will be maintained electronically for at least three years and will continue to be available to active employees for that entire time.  Former employees will be provided paper copies at no charge upon request.

This same analysis would likely apply to the time records employers are required to maintain under California law.  However, employers need to approach this issue with advice from counsel, as there are no clear court decisions that have approved of the DLSE’s position.

4.  Items time records must report (be careful, it is more than just start and stop times)

The Wage Orders require that California employers keep “[t]ime records showing when the employee begins and ends each work period. Meal periods, split shift intervals and total daily hours worked shall also be recorded. Meal periods during which operations cease and authorized rest periods need not be recorded.”  IWC Wage Order 5-2001(7)(a)(3).

Additionally, Labor Code section 1174 requires employers to keep time records showing the hours worked daily and the wages paid, number of piece-rate units earned by, and the applicable piece rate paid.

5. Records must be maintained “in California”

These records must be maintained in the state or at the “plants or establishments at which employees are employed.”  The records must be kept for at least three years.  Labor Code section 1174(d).

The Wage Orders likewise require that employers keep records “at the place of employment or at a central location within the State of California.” As mentioned above, if employers have electronic records, a copy of the electronic data should be maintained within the state just as a precaution.

Employers should also note that the statute of limitations for many wage and hour class actions in California can extend back to four years under Business and Professions Code section 17200; and, therefore should consider keeping wage statements and other documentation required to defend against claims going back the previous four years.  Finally, employers need to ensure that the data being saved is the actual time records of the employees, and can be reproduced in format that is accurate and easy to read, should the records ever be requested or needed to defend litigation.

On June 3, 2021, the Cal/OSHA Standards Board met again to vote on new proposed revisions to the Cal/OSHA Emergency Temporary Standards (ETS). As we discussed here, the Standards Board did not vote on the revisions on May 20, as originally planned. A draft of the new proposed revisions was posted on May 28 and can be found here.  The revised ETS are effective June 15, 2021.

The June 3rd vote, however, was not as straightforward as anticipated. The meeting took almost all day and included hours of public comment. Initially, the Standards Board voted 4-3 to reject the May 28 revisions. This initial rejection was followed by a second vote just minutes later, which adopted the changes discussed below.

What changes were made to the ETS?

The new ETS starts by defining the term “fully-vaccinated.” Being fully-vaccinated means that employees are able to provide documentation showing that they have “received, at least 14 days prior, either the second dose in a two-dose COVID-19 vaccine series or a single dose COVID-19 vaccine.”

Face Coverings

Fully vaccinated employees, either when alone in a room or in a room in which all other are also vaccinated and not experiencing symptoms, are no longer required to wear face coverings.  A “face covering” means “a surgical mask, a medical procedure mask, a respirator worn voluntarily, or a tightly woven fabric or non-woven material of at least two layers.”

Physical Distancing

Also, the physical distancing requirement no longer applies at locations where all employees are fully vaccinated. Further, when outdoors, these individuals will no longer be required to keep six feet of distance from other unmasked employees. Fully vaccinated individuals are allowed to be outdoors without masks provided they are not experiencing COVID-19 symptoms. However, it is important to keep in mind that physical distancing will still be required until July 31, 2021 and fully vaccinated employees must still wear face coverings while indoors in the presence of individuals who have not been fully vaccinated.

Should a fully vaccinated person come in close contact with a COVID-19 case, employers are no longer required to exclude the vaccinated individual from the workplace, as long as he/she is not experiencing COVID-19 symptoms and was fully vaccinated prior to coming into contact with the infected individual. However, a fully vaccinated employee who tests positive for COVID-19 will still be required to stay out of the workplace for 10 days after the test whether experiencing symptoms or not.

Employer COVID-19 Testing Requirement

Employers are also now required to provide free COVID-19 testing during working hours to all unvaccinated symptomatic employees. This testing obligation does not apply to fully vaccinated employees

Other than guidelines regarding vaccinated employees, the new ETS addresses notice and testing requirements and the proper use of respirators.

Written Prevention Programs

In line with prior versions of the ETS, employers must still maintain written COVID-19 Prevention Programs. This written notice must include the employer’s plan for disinfecting the workplace and, information regarding the employer’s COVID-19 policies, and relay “the fact that the vaccination is effective at preventing COVID-19, protecting against both transmission and serious illness or death.” Although employers are still required to inform employees of close contact with a positive individual within one business day, this obligation is now triggered when the employer “knew or should have known of a COVID-19 case.”

Employer’s Obligation to Provide Unvaccinated Employees with Respirators

Beginning July 31, 2021, employers will be required to provide respirators to non-vaccinated employees. Cal/OSHA defines a respirator as a device “approved by the National institute for Occupational Safety and Health (NIOSH) to protect the wearer from particulate matter, such as an N95 filtering facepiece respirator.” Use of these respirators, however, will be voluntary. Providing these to employees relieves employers of their duty to enforce physical distancing.

Exclusion Pay

Employees excluded from the workplace for COVID-19 cases and those who had close contact with COVID-19 cases are entitled to “earnings, wages, seniority, and all other employee rights and benefits” while away from the workplace. Like the prior ETS, employers can still use the employee’s sick leave for to satisfy this requirement as long as it does not run afoul to any applicable laws.

Under the new ETS, however, employers are still required to pay exclusion pay whether or not the excluded employee is able to work. This is a departure from the original version of the ETS, which did not require employers to pay exclusion pay to employees who, for any reason, could not work while away from the workplace.

It is worth noting that exceptions still apply to the employer’s obligation to provide exclusion pay. First, the employee is not entitled to exclusion pay if he/she is receiving disability payments or is covered by worker’s compensation. Additionally, if an employer can show that close contact was not work-related, the employer is not required to provide exclusion pay.

How does the new ETS compare to Governor Newsom’s reopening plan?

Since the proposed revisions were posted on May 28, many have criticized Cal/OSHA’s changes as not going far enough compared to Governor Newsom’s plans that would essentially end mask mandates and social distancing requirements as of June 15, 2021. In fact, the board members who initially voted against the revisions shared the same sentiment.

However, the Standards Board, specifically the board members who initially rejected the vote, acknowledged that the new ETS is at least a step in ultimately easing all pandemic related restrictions. Simply put, something is better than nothing. Cal/OSHA’s rejection of the proposed revisions would be taking significant steps backward as Governor Newsom marches forward with his plans to return Californian’s to pre-pandemic life.

More revisions likely to come.

In response to the criticism, the Board has created a three-person subcommittee to explore further revisions to the ETS.  Subscribe to our blog for future updates on this and other important topics facing California employers as they reopen.

California employers must continue to be ever vigilant about their obligations as we enter into the summer.  Here are five key dates California employers must be aware of during June and July 2021:

1. Cal/OSHA revised COVID-19 Prevention Emergency Temporary Standards likely to take effect on June 15, 2021

Cal/OSHA is proposing revisions to the Emergency Temporary Standards (ETS) to reflect the increase in vaccinations (see our prior post here).  The revisions were scheduled to be voted on May 20, 2021, but given the CDC’s recent guidance permitting vaccinated individuals to not wear masks, the vote was delayed until June 3 in order to permit Cal/OSHA to further revise the regulations.  It is expected the revised ETS, if approved on June 3, will likely become effective on June 15, 2021.  Employers will need to review the revised ETS and ensure compliance by the likely June 15, 2021 deadline.  As discussed below, as California reopens on June 15, 2021, the ETS will still govern California employers, therefore it is important for employers understand the revisions made to the ETS.

2. California reopening on June 15, 2021

Beginning June 15, 2021, California will lift most of its restrictions for indoor and outdoor settings, with vaccine verification and negative testing will only be required for indoor mega events and recommended for outdoor mega events.  California employers will still need to comply with Cal/OSHA’s ETS discussed above.

3. CalSavers June 30, 2021 deadline for employers with more than 50 employees

California employers who do not offer an employer-sponsored retirement plan and have five or more employees must register for CalSavers, which is a California state administered retirement plan.  California employers must register for CalSavers by the following dates:

  • Employers with more than 100 employees: September 30, 2020
  • Employers with more than 50 employees: June 30, 2021
  • Employers with more 5 ore more employees: June 30, 2022

More information about CalSavers is here.

4. July 1, 2021 local minimum wage increases across California

Many local county and city minimum wage rates increase across California on July 1, 2021:

July 1, 2021 Local Minimum Wage Increases in California
Local Jurisdiction: Minimum Wage Rate: Source:
Berkeley $16.32/hour https://www.cityofberkeley.info/mwo/
Emeryville $17.13/hour https://www.ci.emeryville.ca.us/1024/Minimum-Wage-Ordinance
Fremont $15.25/hour for employers with 26 or more employees; $15.00/hour for employers with 1 to 25 employees https://www.fremont.gov/3328/Minimum-Wage#:~:text=On%20January%201%2C%202020%2C%20Small,wage%20increases%20for%20Small%20Employers
Los Angeles County (Unincorporated areas) $15.00/hour (for all sizes of employers) https://dcba.lacounty.gov/minimum-wage/
Los Angeles City $15.00/hour (for all sizes of employers) https://wagesla.lacity.org/
Malibu $15.00/hour (for all sizes of employers) https://www.malibucity.org/793/Minimum-Wage
Milpitas $15.65/hour https://www.ci.milpitas.ca.gov/milpitas/departments/minimum-wage/
Pasadena $15.00/hour (for all sizes of employers) https://www.cityofpasadena.net/planning/code-compliance/minimum-wage-ordinance/
San Francisco $16.32/hour https://sfgov.org/olse/minimum-wage-ordinance-mwo
Santa Monica $15.00/hour (for all sizes of employers) https://www.santamonica.gov/minimum-wage

5. EEO-1 submission deadline is July 19, 2021

The EEOC announced that the 2021 and 2020 EEO-1 Component 1 data must be submitted by July 19, 2021.  EEO-1 data must be submitted by employers with 100 or more employees, and certain employers who are federal contractors with 50 or more employees.  Employers must provide “demographic workforce data, including data by race/ethnicity, sex and job categories.”  Employers may begin uploading their data files as of May 26, 2021.

In November of 2020, Cal/OSHA came out with the COVID-19 Emergency Temporary Standards (ETS), which we covered here. The ETS provided guidance to employers in regard to developing workplace safety policies in response to the COVID-19 pandemic and required employers to draft written COVID-19 Prevention Programs. Since then, the ETS has been updated to reflect the changing COVID-19 landscape. For information regarding prior updates to the ETS, see our prior post.

As COVID-19 related deaths hit their lowest points since the start of the pandemic and with approximately 59% of Californians at least partially vaccinated, Cal/OSHA once again proposed a new set of changes to the ETS on May 7, 2021. The proposed revisions can be found here.  At first glance, it seems as though many of the proposed changes were prompted by the need for guidance in light of a an increasingly vaccinated population. Naturally, employers should make sure to monitor any updates to the ETS to ensure compliance as the vaccinated workforce continues to grow and businesses begin to fully reopen.

The Standards Board was scheduled to vote on the proposed changes on May 20, 2021. However, on the eve of the vote, Cal/OSHA’s Deputy Chief Eric Berg asked the Board to postpone its vote on the draft proposal. Berg suggested that any changes to the existing ETS would come into effect on June 15, 2021. To meet this deadline, which coincides with the date that California plans on adopting the CDC’s guidance allowing vaccinated individuals to not wear masks, the Standards Board has scheduled a June 3 meeting to vote on the new changes. The revised proposal must be drafted and posted by May 28, 2021.

Just as employers thought there could not be any additional paid sick leave requirements, the County of Los Angeles passed yet another COVID-19 paid leave requirement for employees obtaining or effected by the vaccine.  This ordinance requires employers to pay up to four hours per injection for COVID-19 vaccine paid leave under certain circumstances.  The ordinance takes effect on May 18, 2021 and applies retroactively to January 1, 2021 and expires on August 31, 2021.

1. Covered Employers

The Los Angeles COVID-19 vaccine paid leave ordinance applies to all employers who have employees working in the unincorporated areas of the County of Los Angeles.

2. Covered Employees

Any employee working in an unincorporated area of the County of Los Angeles is covered by the new ordinance.  To be eligible for this Vaccine Paid Leave, the employee is required to have exhausted all paid leave under the California 2021 COVID-19 Supplemental Paid Sick Leave set forth in Labor Code section 248.2.

3. Amount of Vaccine Paid Leave

Employees are entitled to take paid leave for “receiving each COVID-19 vaccine injection,” time traveling to and from a COVID-19 vaccine appointment, and to recover from symptoms related to receiving a COVID-19 vaccine that prevent the employee from being able to work or telework.  The COVID-19 Vaccine Paid Leave is in addition to paid sick leave required under California’s Healthy Workplaces Healthy Families Act of 2014.

Employees are entitled to up to four hours of paid leave “per injection.”  Therefore, if an employee is required to have two injections, they would be permitted to have up to eight hours of paid leave.

The employee’s regular rate of pay is calculated on the highest average two-week pay during January 1, 2021 to May 18, 2021.  Part-time employees are entitled to the prorated amount of four hours per injection based on their normally scheduled work hours over the two-week period before the injection.  Therefore, an employee who worked 20 hours per week during the two-week period before the injection would be entitled to two hours of COVID-19 Vaccine Paid Leave per injection.

4. Can employers require documentation from the employee?

Employers may require employees to provide written verification of the COVID-19 vaccine to be eligible for the paid leave.

5. Poster and Documentation Requirements

The Los Angeles County Department of Consumer and Business Affairs (“DCBA”) will be developing a poster that employers must post in a conspicuous place regarding the COVID-19 Vaccine Paid Leave.

Employers must keep payroll records to show compliance with this ordinance for four years.  This includes the employee name, address, occupation, dates of employment, rate of pay, and the amount paid.

Arrows of neon and flashing marquees out on Main Street / Chicago, New York, Detroit and it’s all on the same street.”  (Truckin’, the 1970 song by the Grateful Dead.)

Earlier this year, the Ninth Circuit Court of Appeal ruled that California’s meal and rest break rules were unenforceable as to truckers carrying goods in interstate commerce, due to upholding a federal preemption decision by the Federal Motor Carrier Safety Administration (“FMCSA”).  (See, International Brotherhood of Teamsters, Local 2785 v. Federal Motor Carrier Safety Administration No. 18-73488, 2021 WL 139728 (9th Cir. Jan. 15, 2021).)

Now, on the exhaust fumes of that earlier preemption case, on April 28, 2021, the Ninth Circuit, in California Trucking Association v. Bonta, ruled that there is no federal preemption of California’s new independent contractor law, AB-5.

In this recent case, a three-judge panel of the Ninth Circuit Court has examined the Federal Aviation Administration Authorization Act of 1994 (“F4A”), which federal statute preempts any state law “related to a price, route, or service of any motor carrier . . . with respect to the transportation of property.”  49 U.S.C. § 14501(c)(1).  The Court found, in a 2-1 decision, that in 2020, the United States District Court for California, Southern District (San Diego) had abused its discretion when it enjoined the State of California from enforcing AB-5 against motor carriers doing business in California (on the ground that such enforcement was preempted by F4A).  (Our prior article on the District Court’s ruling can be read here.)

In reaching this conclusion, the Ninth Circuit Court determined that AB-5 did not directly nor acutely impact the “prices, routes or services” of a motor carrier, but rather, was simply a “generally applicable law” which did not effectively “bind” motor carriers to specific prices, routes, or services at the consumer level.

“Sometimes the light’s all shining on me / Other times I can barely see.  Lately, it occurs to me / What a long, strange trip it’s been . . . .”

You may recall that AB-5 has been often in the news.  First, AB-5 was codified, at section 2750.3 of the California Labor Code, as a judge-made test for classifying workers as either employees or independent contractors, known as the “ABC test.”  Second, in September 2020, the California legislature revised some of AB-5’s exemptions for certain business service providers and created additional exemptions with Assembly Bill 2257.  Third, in November 2020, California voters passed Proposition 22, which provided that app-based drivers who provide delivery and transportation services in the driver’s own personal vehicle, through a business’s online platform (such as Uber or Lyft), are independent contractors if certain conditions are met.

The ABC test includes three factors, and if the employer fails to establish all three, then the worker “shall be considered an employee rather than an independent contractor.”  Cal. Lab. Code § 2750.3(a)(1) (emphasis added).  The trade associations representing the trucking industry have expressed concerns over factor B, and rightfully so: whether the worker “performs work that is outside the usual course of the hiring entity’s business.” (Id., § 2750.3(a)(1)(B).)

The trial court found that, under factor B, “drivers who may own and operate their own rigs will never be considered independent contractors under California law.”  (Cal. Trucking Ass’n v. Becerra, 433 F. Supp. 3d 1154, 1165 (S.D. Cal. 2020) [with Rob Bonta being substituted in the appeal for his predecessor, Xavier Becerra, as California Attorney General].).

This made the ABC test become also known as an “all or nothing rule.”

The district court concluded, “there is little question that the State of California has encroached on Congress’ territory by eliminating motor carriers’ choice to use independent contractor drivers, a choice at the very heart of interstate trucking.”  Hence, the injunction was issued in 2020.

“Busted down on Bourbon Street / Set up like a bowling pin / Knocked down, it gets to wearing thin / They just won’t let you be.”

With the injunction no longer in force, the State of California’s anticipated enforcement of AB-5 (and the ABC test) will effectively compel a motor carrier to use employees for most services because, under the ABC test, a driver providing a service within an employer’s usual course of business would never be considered an independent contractor.

Circuit Judge Bennett, in his dissent, found this to be self-evident: “independent-contractor truckers hauling goods for the hiring entity are perforce not performing work outside the usual course of the hiring entity’s business, which is, of course, hauling goods.”  Thus, as the district court correctly found, motor carriers would have to “reclassify all independent-contractor drivers as employee-drivers for all purposes under the California Labor Code, the Industrial Welfare Commission [(IWC)] wage orders, and the Unemployment Insurance Code.”  (Id., at 1166.)

We concur with Judge Bennet’s dissent:  our analysis of the ABC test, as currently codified in section 2775 of the California Labor Code, means that AB-5 will likely eliminate motor carriers’ use of owner-operators (and their personally owned or leased specialized equipment) to accommodate fluctuations in supply and demand, especially given that California’s Industrial Wage Order “(IWC”) No. 4-2001(9)(B) requires employers to supply their employees’ tools and equipment.

“Truckin’ I’m a going home / Whoa, whoa, baby, back where I belong / Back home, sit down and patch my bones / And get back truckin’ on.”

However, two other federal circuits have signaled that “all or nothing” rules, like California’s ABC test, are or should be preempted.

Moreover, the Ninth Circuit previously found that the F4A statute (at issue) did in fact preempt a city-imposed concession agreement that motor carriers should transition to using employees only to operate at the Port of Los Angeles; this was due to a finding that the concession agreement would possibly force motor carriers to change their price, routes or services “in a way that the market would not otherwise dictate.”  (Am. Trucking Ass’ns, Inc. v. City of L.A., 577 F. Supp. 2d 1110, 1117 (C.D. Cal. 2008).)

With such differences in opinions, this latest decision may be appealed to the U.S. Supreme Court.  Unless and until review is granted or a rehearing held before the Ninth Circuit, en banc, however, motor carriers should now be analyzing how best to proceed in California, as its rules are no longer “all on the same street.”

With the increased interest in cryptocurrencies, like Bitcoin and Ethereum, the employment lawyer in me started thinking about whether it would be legal for employers to pay employees in cryptocurrency.  NFL player Sean Culkin was already one-step ahead of me, and last month said he may want his $920,000 salary from the Kansas City Chiefs paid in Bitcoin.  Here are five issues employers should understand about cryptocurrencies and the blockchain, and how it will likely impact the employment setting in the next few years:

1. What is a cryptocurrency and the blockchain?

Cryptocurrencies, such as Ethereum and Bitcoin, are virtual currencies that exits on the blockchain.  A blockchain is a type of database, but by using blockchain technology it is much more secure than a standard database and allows many different people to access and record transactions at the same time.  At the time of publishing this article, Bitcoin and Ethereum are the two largest cryptocurrencies (“crypto”) by market capitalization.  More information about cryptos can be read here.  A very detailed explanation about cryptos and how blockchains work can be read here.

2. Can employers pay wages in forms other than U.S. currency, such as in Bitcoin or Ethereum?

Paying employees in crypto could be used to attract talent or make payments to employees located around the world easier for a multinational company.  But would it be legal?  Under federal law, the Federal Labor Standards Act (“FLSA”) mandates “payments of the prescribed wages, including [minimum wage and] overtime compensation, in cash or negotiable instrument payable at par.” 29 CFR § 531.27(a).  Presumably, one could make the case that a payment to an employee in crypto would be a payment “at par” as long as the conversion rate was equal to the applicable minimum wage rate or other required salary amounts to meet the definition of an exempt employee.  Indeed, the Department of Labor has stated in the past that employers could combine the value of U.S. Dollars and foreign currency “in order to satisfy the minimum salary requirement for the application of the Fair Labor Standards Act (FLSA) executive, administrative, and professional exemption.”  If crypto is accepted as a valid currency, it seems reasonable that crypto should be treated similarly to foreign currencies in this regard.

Under California law, Labor Code section 200(a) defines wages as “all amounts for labor performed by employees of every description, whether the amount is fixed or ascertained by the standard of time, task, piece, commission basis, or other method of calculation.” There is no specification that wages must only be paid in U.S. Dollars.  California courts have also held that wages are “not only the periodic monetary earnings of the employee but also the other benefits to which he is entitled as a part of his compensation.” Wise v. Southern Pacific Co. (1970).  Wages can include money, room, board, clothing, vacation pay (a form of deferred compensation) and sick pay.

California Labor Code section 212 also prohibits employers from paying employees in “script, coupon, cards, or other thing redeemable, in merchandise or purporting to be payable or redeemable otherwise than in money.”  This section was designed to make it illegal for employers to pay employees with a coupon that was only redeemable at the “company store”, a past practice documented in the song “Sixteen Tons” written by Merle Travis.

A California court explained, “The accepted purpose of Labor Code section 212 is to prevent employers from paying wages by giving orders … payable only in goods, or orders of an indefinite nature not payable on demand, but at some future time, or paychecks which cannot be honored because of the drawee’s insufficient funds.”  Brown v. Superior Court (2011).  However, since cryptocurrency is a form of “money,” and Labor Code section 212 does not specifically require U.S. currency, there is an argument that section 212 does not prohibit payment of wages in cryptocurrency.  As set forth above, “wages” under California Labor Code section 200 can take many forms, not just fiat currency.

Until there is further guidance on this issue under the FLSA and California law, employers who are looking to pay employees in crypto could take a hybrid approach.  The employer could avoid many of these foundational issues by paying the employee minimum wage or the required salary needed to meet an exemption in U.S. Dollars, and then offer the employee additional payment in crypto.  While employers considering this type of hybrid approach would still need to be careful not to run afoul various federal, state, and local regulations, the approach would remove some of the more fundamental issues that the legal system will need time to develop regulations to catch up to the technology.

3. California’s additional restrictions on forms of wages.

Employers considering paying employees in crypto would also need to navigate other areas of the California Labor Code.  For example, Labor Code section 212 California requires that wages must be payable without discount.  Therefore, any transaction fees that an employee must pay to redeem or access the cryptocurrency would violate this provision.  Moreover, Labor Code section 212 requires payments by “order, check, draft, note, memorandum, or other acknowledgement of indebtedness” to show the name and address of an establishment within California where the instrument can be redeemed.  Since crypto is virtual, it is an open question regarding how this requirement would apply to payments made to employees.  It also raises the potential argument that since crypto currency is not “negotiable and payable in cash, on demand…at some established place of business in the state,” it is not a valid form of “money” to make payments to employees.  On the other hand, it could be argued that crypto is redeemable anywhere in California with an internet connection, and an employee can “cash” their crypto into their bank account almost instantaneously.

4. Value fluctuation issues.

With the volatility of cryptocurrency, there could also be potential issues regarding the value of the cryptocurrency in terms of when it is paid to employees.  Given the volatility of crypto, there could be wide valuation fluctuations even from the end of the payroll period to the time that the employee receives the payment.  There would also be potential calculation issues regarding the appropriate conversion rate employers would need to make if an employee was owed past unpaid wages, or premium wages for missed meal or rest breaks.  What if the crypto currency increased in value over 500% since the time it is determined that an employee was owed a premium wage for a missed meal break?  Could the employer pay the employee the value of the crypto at the time the missed meal break occurred, or would the employer need to pay the current increased value of the crypto?

5. Future potential of the blockchain in the employment setting.

Beyond cryptocurrency, the blockchain technology will likely become a part of everyday life and will have many applications in the employment context.  Since a blockchain is like a database that can store private information, the blockchain could be used by employees to prove educational history, work history, and the attainment of certain certifications.  In 2017, Massachusetts Institute of Technology has issued students virtual diplomas recorded on the blockchain, that the students can securely share with whomever they choose.  Likewise, employers could utilize the technology to issue titles, internal certifications, and record dates of employment to create a digital record that employees could chose to share the information with when searching for another job or verifying salary for a loan.