Search results for: Expense reimbursement

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. 

Expense reimbursement may seem like a small issue in comparison with the other areas of liability facing California employers, but the exposure for not appropriately reimbursing employees can be substantial. In Gattuso v. Harte-Hanks Shoppers, Inc., the California Supreme Court clarified the parameters of mileage reimbursement under California law, as well as the three different methods available for employers to reimburse employees for their mileage reimbursement.  This Friday’s Five post discusses five issues employers need to know about automobile and mileage reimbursement under California law.

1. Mileage reimbursement based on IRS mileage rate is presumed to reimburse employee for all actual expenses

The IRS publishes standard mileage rates each year (and sometimes adjusts these rates during the year). The 2019 IRS mileage rate is as follows:

  • 58 cents per mile for business miles driven, up 3.5 cents from 2018
  • 20 cents per mile driven for medical or moving purposes, up 2 cents from 2018; and
  • 14 cents per mile driven in service of charitable organizations

2. Mileage reimbursement rates do not necessarily have to be set at the IRS rate, but use caution

The California Supreme Court held that the reimbursement rate can be negotiated by parties as long as it fully reimburses the employee, and the amount does not have to be set at the IRS mileage rate. The Court also warned that employee cannot waive the right to be fully reimbursed for their actual expenses:

We agree that, as with other terms and conditions of employment, a mileage rate for automobile expense reimbursement may be a subject of negotiation and agreement between employer and employee. Under section 2804, however, any agreement made by the employee is null and void insofar as it waives the employee’s rights to full expense reimbursement under [Labor Code] section 2802.

Gattuso, at 479.

3. Employees who challenge a mileage reimbursement amount set by the employer bear the burden in establishing their actual costs

If the employee challenges a predetermined amount set by the employer and agreed to by the employee, but then challenges the amount set later on, the employee bears the burden to show how the “amount that the employer has paid is less than the actual expenses that the employee has necessarily incurred for work-required automobile use (as calculated using the actual expense method), the employer must make up the difference.” Gattuso, at 479.

4. There are different methods employers can use to reimburse mileage

The Count in Gattuso explained that there are three different methods employers may use to reimburse employees mileage:

Actual expense method

In examining the different methods of reimbursement, the Supreme Court held that the actual expense method is the most accurate, but it is also the most burdensome for both the employer and the employee. Gattuso, at 478. Under the actual expense method, the parties calculate the automobile expenses that the employee actually and necessarily incurred and then the employer separately pays the employee that amount. The actual expenses of using an employee’s personal automobile for business purposes include: fuel, maintenance, repairs, insurance, registration, and depreciation.

Mileage reimbursement method

The Court recognized that employers may simplify calculating the amount owed to an employee by paying an amount based on a “total mileage driven.” Gattuso, at 479.

Under the mileage reimbursement method, the employee only needs to keep a record of the number of miles driven for job duties. The employer then multiplies the miles driven by a predetermined amount that approximates the per-mile cost of owning and operating an automobile. The Court recognized that the mileage rate agreed to between the employer and employee is “merely an approximation of actual expenses” and is less accurate than the actual expense method. It is important to note that while this amount can be negotiated, the employee still is unable to waive their right to reimbursement of their actual costs as mentioned above.

Lump sum payment method

Under the lump sum method, the employee need not submit any information to the employer about work-required miles driven or automobile expenses incurred. The employer merely pays an agreed fixed amount for automobile expense reimbursement. Gattuso, at 480. This type of lump sum payment is often labeled as a per diem, car allowance, or gas stipend.

In Gattuso, the Court made it clear that employers paying a lump sum amount have the extra burden of separately identifying and documenting the amounts that represent payment for labor performed and the amounts that represent reimbursement for business expenses.

5. Don’t forget about other expenses incurred in the “course and scope” of working

In addition to mileage, employers may also have to reimburse employees for other costs they incurred in driving their personal cars for business under Labor Code section 2802. In making the determination about whether an employee’s actions are in the “course and scope” of their job, courts examine whether the expense being sought by the employee is “not so unusual or startling that it would seem unfair to include loss or expense among other costs of the employer’s business.” Employers need to be mindful about reimbursing employees for cell phone use, printing and office supplies (if employee is required to maintain a home office or use personal printer for work), and other work-related expenses.

 

Expense reimbursement may seem like a small issue in comparison with the other areas of liability facing California employers, but the Old Carexposure for not appropriately reimbursing employees can be substantial. In Gattuso v. Harte-Hanks Shoppers, Inc., the California Supreme Court clarified the parameters of mileage reimbursement under California law, as well as the three different methods available for employers to reimburse employees for their mileage reimbursement.  This Friday’s Five post discusses five issues employers need to know about automobile and mileage reimbursement under California law.

1. Mileage reimbursement based on IRS mileage rate is presumed to reimburse employee for all actual expenses

The IRS publishes standard mileage rates each year (and sometimes adjusts these rates during the year). The 2017 IRS mileage rate is as follows:

  • 53.5 cents per mile for business miles driven, down from 54 cents for 2016
  • 17 cents per mile driven for medical or moving purposes, down from 19 cents for 2016
  • 14 cents per mile driven in service of charitable organizations

If the employee challenges the amount reimbursed, the employee bears the burden to show how the “amount that the employer has paid is less than the actual expenses that the employee has necessarily incurred for work-required automobile use (as calculated using the actual expense method), the employer must make up the difference.” Gattuso, at 479.

The California Supreme Court also held that the reimbursement rate can be negotiated by parties as long as it fully reimburses the employee, and the amount does not have to be set at the IRS mileage rate. The Court also warned that employee cannot waive the right to be fully reimbursed for their actual expenses:

We agree that, as with other terms and conditions of employment, a mileage rate for automobile expense reimbursement may be a subject of negotiation and agreement between employer and employee. Under section 2804, however, any agreement made by the employee is null and void insofar as it waives the employee’s rights to full expense reimbursement under [Labor Code] section 2802.

Gattuso, at 479.

2. Actual expense method of reimbursement

In examining the different methods of reimbursement, the Supreme Court held that the actual expense method is the most accurate, but it is also the most burdensome for both the employer and the employee. Gattuso, at 478. Under the actual expense method, the parties calculate the automobile expenses that the employee actually and necessarily incurred and then the employer separately pays the employee that amount. The actual expenses of using an employee’s personal automobile for business purposes include: fuel, maintenance, repairs, insurance, registration, and depreciation.

3. Mileage reimbursement method

The Court recognized that employers may simplify calculating the amount owed to an employee by paying an amount based on a “total mileage driven.” Gattuso, at 479.

Under the mileage reimbursement method, the employee only needs to keep a record of the number of miles driven for job duties. The employer then multiplies the miles driven by a predetermined amount that approximates the per-mile cost of owning and operating an automobile. The Court recognized that the mileage rate agreed to between the employer and employee is “merely an approximation of actual expenses” and is less accurate than the actual expense method. It is important to note that while this amount can be negotiated, the employee still is unable to waive their right to reimbursement of their actual costs as mentioned above.

4. Lump sum payment method

Under the lump sum method, the employee need not submit any information to the employer about work-required miles driven or automobile expenses incurred. The employer merely pays an agreed fixed amount for automobile expense reimbursement. Gattuso, at 480. This type of lump sum payment is often labeled as a per diem, car allowance, or gas stipend.

In Gattuso, the Court made it clear that employers paying a lump sum amount have the extra burden of separately identifying and documenting the amounts that represent payment for labor performed and the amounts that represent reimbursement for business expenses.

5. Don’t forget about other expenses incurred in the “course and scope” of working

In addition to mileage, employers may also have to reimburse employees for other costs they incurred in driving their personal cars for business. In making the determination about whether an employee’s actions are in the “course and scope” of their job, courts examine whether the expense being sought by the employee is “not so unusual or startling that it would seem unfair to include loss or expense among other costs of the employer’s business.” Employers need to be mindful about reimbursing employees for cell phone use, printing and office supplies (if employee is required to maintain a home office or use personal printer for work), and other work related expenses.

Expense reimbursement may seem like a small issue in comparison with the other areas of liability facing California employers, but the exposure for not appropriately reimbursing employees can be substantial. In Gattuso v. Harte-Hanks Shoppers, Inc., the California Supreme Court clarified the parameters of mileage reimbursement under California law, as well as the three different methods available for employers to reimburse employees for their mileage reimbursement.  This post discusses five issues employers need to know about automobile and mileage reimbursement under California law.

1. Mileage reimbursement based on IRS mileage rate is presumed to reimburse employee for all actual expenses

The IRS publishes standard mileage rates each year (and sometimes adjusts these rates during the year). The 2014 mileage rate is published on the IRS mileage rate here.

If the employee challenges the amount reimbursed, the employee bears the burden to show how the “amount that the employer has paid is less than the actual expenses that the employee has necessarily incurred for work-required automobile use (as calculated using the actual expense method), the employer must make up the difference.” Gattuso, at 479.

The California Supreme Court also held that the reimbursement rate can be negotiated by parties as long as it fully reimburses the employee, and the amount does not have to be set at the IRS mileage rate. The Court also warned that employee cannot waive the right to be fully reimbursed for their actual expenses:

We agree that, as with other terms and conditions of employment, a mileage rate for automobile expense reimbursement may be a subject of negotiation and agreement between employer and employee. Under section 2804, however, any agreement made by the employee is null and void insofar as it waives the employee’s rights to full expense reimbursement under section 2802.

Gattuso, at 479.

2. Reimbursement Method: Actual Expense Method

In examining the different methods of reimbursement, the Supreme Court held that the actual expense method is the most accurate, but it is also the most burdensome for both the employer and the employee. Gattuso, at 478. Under the actual expense method, the parties calculate the automobile expenses that the employee actually and necessarily incurred and then the employer separately pays the employee that amount. The actual expenses of using an employee’s personal automobile for business purposes include: fuel, maintenance, repairs, insurance, registration, and depreciation.

3. Reimbursement Method: Mileage Reimbursement Method

The Court recognized that employers may simplify calculating the amount owed to an employee by paying an amount based on a “total mileage driven." Gattuso, at 479.

Under the mileage reimbursement method, the employee only needs to keep a record of the number of miles driven for job duties. The employer then multiplies the miles driven by a predetermined amount that approximates the per-mile cost of owning and operating an automobile. The Court recognized that the mileage rate agreed to between the employer and employee is “merely an approximation of actual expenses” and is less accurate than the actual expense method. It is important to note that while this amount can be negotiated, the employee still is unable to waive their right to reimbursement of their actual costs as mentioned above.

4. Reimbursement Method: Lump Sum Payment

Under the lump sum method, the employee need not submit any information to the employer about work-required miles driven or automobile expenses incurred. The employer merely pays an agreed upon fixed amount for automobile expense reimbursement. Gattuso, at 480. This type of lump sum payment is often labeled as a per diem, car allowance, or gas stipend.

In Gattuso, the Court made it clear that employers paying a lump sum amount have the extra burden of separately identifying and documenting the amounts that represent payment for labor performed and the amounts that represent reimbursement for business expenses.

5. All expenses incurred in an employee’s course and scope of their job must be reimbursed by the employer.

In addition to mileage, employers may also have to reimburse employees for other costs they incurred in driving their personal cars for business. In making the determination about whether an employee’s actions are in the “course and scope” of their job, courts examine whether the expense being sought by the employee is “not so unusual or startling that it would seem unfair to include loss or expense among other costs of the employer’s business.” This is a very fact specific determination that employers need to approach with caution.

As we embark on the year 2024, California’s employment law landscape is poised to continue to present an unfriendly environment for employers. This article proffers some predictions for California employment law in 2024, examining potential legislation and emerging legal trends. Here are a few likely scenarios the Golden State might have in store for employers in the upcoming year.

1. Continued increase in PAGA litigation.

I’m not going out on a limb in predicting that PAGA litigation over meal and rest breaks will continue to rise in 2024.  However, I will predict that PAGA claims will start expanding more into other wage and hour allegations, including for claims of expense reimbursement and claims for paid sick leave under California’s Healthy Workplaces, Healthy Families Act of 2014 – especially with the increase of paid sick leave under the Act in 2024.  In March 2023, a California court of appeals held that plaintiffs could bring PAGA claims for alleged violations of California’s paid sick leave requirements in the Healthy Workplaces, Healthy Families Act of 2014.  In Wood v. Kaiser Foundation Hospitals, the court held, “Given the perceived necessity for mandating minimum paid sick leave, coupled with its documented understanding that traditional government institutions would be unable to adequately assure compliance, it seems inconceivable that the Legislature intended to prohibit PAGA actions to enforce the Act.”  As employers continue to place defenses against the traditional meal and rest break claims, it is likely that plaintiffs will be turning to other provisions in the Labor Code, such as the Healthy Workplaces, Healthy Families Act, for alternative PAGA claims. 

2. Industry focused regulations will become more prevalent.

On September 28, 2023, Governor Newsom signed AB 1228 into law, which repealed the FAST Act and implemented new regulations of the fast-food industry in California and will be raising the minimum wage for the fast-food industry to $20 per hour on April 1, 2024.  AB 1228 applies to national fast food chains, which are defined as “limited-service restaurants consisting of more than 60 establishments nationally that share a common brand, or that are characterized by standardized options for decor, marketing, packaging, products, and services, and which are primarily engaged in providing food and beverages for immediate consumption on or off premises where patrons generally order or select items and pay before consuming, with limited or no table service. Just as AB 1228 targets the fast-food industry, I predict that California will continue to see legislation that targets specific industries: because the law does not apply to every employer across the state, the opposition to such legislation is much less.  And, of course, once the law is passed and has gained traction in one industry, it is easier for the legislature to expand the law to other industries. 

3. Local jurisdictions will continue their employment regulations, including increased paid sick leave and minimum wages.

As has been occurring over the last few years, local cities and counties will continue to pass employment laws or increase their local requirements for minimum wage and paid sick leave.  As the UC Berkeley Labor Center reports, before 2012 only five local jurisdictions had minimum wage laws, but now there are 59 cities and counties that do.  I predict that local jurisdictions will start expanding their employment regulations and not only regulate minimum wage and paid sick leave, but many other aspects of the employment relationship. 

4. Increase in criminal actions brought in connection with Labor Code violations.

On September 6, 2023, District Attorney Gascon announced the creation of a new “Labor Justice Unit” (LJU) that will focus on pursuing criminal charges for employment violations.  Gascon said in the press release that the LJU “will bolster our existing fight to end wage theft and labor exploitation by providing a dedicated team of seasoned prosecutors and investigators whose focus will be the enforcement of these laws.”  The State Labor Commissioner, Lilia Garcia-Brower, joined Gascon in the announcement, and stated, “California needs more criminal prosecutions of wage theft to protect workers and honest employers from unfair competition. My office will continue to work closely with the LADA office to hold perpetrators accountable.”

5. Time rounding polices will likely be not permissible.

The California Supreme Court is currently reviewing the issue of whether California employers are permitted to use neutral time-rounding practices to calculate employees’ work time for payroll purposes.  The case is Camp v. Home Depot, and we expect a decision within the next 30 to 60 days.  I’m predicting that the Supreme Court will rule that employers cannot use time rounding any longer in California.  In 2021, the California Supreme Court held in Donohue v. AMN Services LLC, that employers may not use time rounding policies in context of meal periods.  I expect this line of reasoning will be broadened to apply for all timekeeping purposes. 

Employee terminations and resignations must be planned for in advance to avoid common pitfalls for California employers.  This Friday’s Five focuses on critical management and legal considerations during the separation process to minimize potential liability:

1. Documenting the reason for termination

What is the reason for termination? Is there a company policy that was violated? [Note: Is the company policy in writing?  Has it been distributed to the employee?  Is there a signed acknowledgement of the policy in the employee’s file?]  Who was involved in termination decision? Review documentation for termination if “for cause” and ensure this documentation is maintained in the employee’s personnel file.

2. Final pay and accounting

Employers need to prepare the employee’s final paycheck and ensure that any unused accrued vacation time is also included.

Final wages must be paid within certain time limits, including the following:

  1. An employee who is discharged must be paid all of his or her wages, including accrued vacation, immediately at the time of termination.
  2. An employee who gives at least 72 hours prior notice of quitting, and quits on the day given in the notice, must be paid all earned wages, including accrued vacation, at the time of quitting.
  3. An employee who quits without giving 72 hours prior notice must be paid all wages, including accrued vacation, within 72 hours of quitting.
  4. An employee who quits without giving 72-hours’ notice can request their final wage payment be mailed to them. The date of mailing is considered the date of payment for purposes of the requirement to provide payment within 72 hours of the notice of quitting.
  5. Final wage payments for employees who are terminated (or laid off) must be made at the place of termination. For employees who quit without giving 72 hours’ notice and do not request their final wages be mailed to them, is at the office of the employer within the county in which the work was performed.

Employers should also review if commissions, bonuses, or expense reimbursement owed to employee.  Obtain all expense reimbursement forms form employee.

Employers with multiple locations need to ensure that the final wages are made available.  The place of the final wage payment for employees who are terminated (or laid off) is the place of termination. The place of final wage payment for employees who quit without giving 72 hours prior notice, and who do not request that their final wages be mailed to them at a designated address, is at the office of the employer within the county in which the work was performed. Labor Code Section 208.

3. Company property and passwords

Obtain all company property from employee and reset passwords.  Also, has employee returned all company provided uniforms?  Have all company keys been returned?  The company should also develop a list of all passwords employee had access to and ensure the passwords are reset.

4. Final notices

Employers need to ensure that all required notices are provided to the employee.  For example, common notices include:

  • Notice to Employee as to Change in Relationship
  • For your Benefit (Form 2320)
  • COBRA and Cal-COBRA Notices from insurance provider
  • Notify insurance provider
  • Health Insurance Premium (HIPP) Notice

5. Retention of employee files

Employers need to take measures to secure and save employee’s file, wage, and time records.  In this regard, employers need to develop policies for the following issues:

  • What is kept in a personnel file?
  • Where is the personnel file maintained? Is it physical or electronic?  Who has access to personnel files?  If stored electronically, are the safety protocols that prevent deletion?  Are the files backed up?
  • How are time records kept? Physical or electronic?  Who has access to them?  How long are they stored for?
  • Retention of pay records: How long are pay records maintained? How easily can this data be pulled for California’s pay data reporting requirements? 

Employee terminations and resignations must be planned for in advance to avoid common pitfalls for California employers.  Last week I wrote about hiring considerations for California employers in 2023, so I thought it would be appropriate to follow that post up with this list of termination considerations.  This Friday’s Five focuses on critical management and legal considerations during the separation process:

1. Documenting the reason for termination

What is the reason for termination? Is there a company policy that was violated? [Note: Is the company policy in writing?  Has it been distributed to the employee?  Is there a signed acknowledgement of the policy in the employee’s file?]  Who was involved in termination decision? Review documentation for termination if “for cause” and ensure this documentation is maintained in personnel file.

2. Final pay and accounting

Employers need to prepare the employee’s final paycheck and ensure that any unused accrued vacation time is also included.

Final wages must be paid within certain time limits, including the following:

  1. An employee who is discharged must be paid all of his or her wages, including accrued vacation, immediately at the time of termination.
  2. An employee who gives at least 72 hours prior notice of quitting, and quits on the day given in the notice, must be paid all earned wages, including accrued vacation, at the time of quitting.
  3. An employee who quits without giving 72 hours prior notice must be paid all wages, including accrued vacation, within 72 hours of quitting.
  4. An employee who quits without giving 72-hours’ notice can request their final wage payment be mailed to them. The date of mailing is considered the date of payment for purposes of the requirement to provide payment within 72 hours of the notice of quitting.
  5. Final wage payments for employees who are terminated (or laid off) must be made at the place of termination. For employees who quit without giving 72 hours’ notice and do not request their final wages be mailed to them, is at the office of the employer within the county in which the work was performed.

Employers should also review if commissions, bonuses, or expense reimbursement owed to employee?  Obtain all expense reimbursement forms form employee.

Employers with multiple locations need to ensure that the final wages are made available.  The place of the final wage payment for employees who are terminated (or laid off) is the place of termination. The place of final wage payment for employees who quit without giving 72 hours prior notice and who do not request that their final wages be mailed to them at a designated address, is at the office of the employer within the county in which the work was performed. Labor Code Section 208.

3. Company property and passwords

Obtain all company property from employee and reset passwords.  Also, has employee returned all company provided uniforms?  Have all company keys been returned?  The company should also develop a list of all passwords employee had access to and ensure the passwords are reset.

4. Final notices

Employers need to ensure that all required notices are provided to the employee.  For example, common notices include:

  • Notice to Employee as to Change in Relationship
  • For your Benefit (Form 2320)
  • COBRA and Cal-COBRA Notices from insurance provider
  • Notify insurance provider
  • Health Insurance Premium (HIPP) Notice

5. Retention of employee files

Employers need to take measures to secure and save employee’s file, wage, and time records.  In this regard, employers need to develop policies for the following issues:

  • What is kept in a personnel file?
  • Where is the personnel file maintained? Is it physical or electronic?  Who has access to personnel files?  If stored electronically, are the safety protocols that prevent deletion?  Are the files backed up?
  • How are time records kept? Physical or electronic?  Who has access to them?  How long are they stored for?
  • Retention of pay records: How long are pay records maintained? How easily can this data be pulled for California’s pay data reporting requirements?  As a reminder, SB 1162 modified these requirements for 2023, and the pay data reports are due by May 10, 2023 for large employers.

A common question posed to me this past week was what types of lawsuits should employers be concerned about once the economy begins to reopen.  I figured that the California economy is slowly reopening, so I should start writing my Friday’s Five lists again – so here are the top five areas of concern I see for California employers post-coronavirus:

1. Leave issues

There are a patchwork of paid leave laws that California employers must be very careful in navigating.  For example, here are a few federal, state and local leave laws that could apply to an employer in Los Angeles:

2. Retaliation claims

Labor Code section 1102.5 protects employees against retaliation for disclosing information, or because an employer believes an employee has disclosed information, to a government or law enforcement agency, to a person with authority over the employee, or to another employee who has the authority to investigate, discover, or correct a violation where an employee reasonably believes that the information discloses a violation of a state or federal statute, or a violation of or noncompliance with a local, state, or federal rule or regulation. The key item to understand here is that the employee only had to have a reasonable belief that the disclosure discloses a violation of federal, state or local law or regulation.

3. OSHA/Cal-OSHA/EEOC/DFEH worksite investigations

Employers must comply with requirements to provide safe work environments:

    • OSHA: https://www.osha.gov/SLTC/covid-19/controlprevention.html
    • Cal-OSHA guidance on requirements to protect workers from coronavirus: https://www.dir.ca.gov/dosh/coronavirus/Health-Care-General-Industry.html

OSHA provided revised guidelines on May 19, 2020 setting forth the following requirements for recording of COVID-19 workplace cases:

OSHA is revising its previous enforcement policy for recording cases of coronavirus. Under OSHA’s recordkeeping requirements, coronavirus is a recordable illness, and employers are responsible for recording cases of the coronavirus, if the case:

Also, remember to have your Injury and Illness Prevention Program (IIPP) in place.

4. Wage and hour issues

The following wage and hour issues could be common types of claims following the recovery from the coronavirus pandemic:

5. Disability discrimination/reasonable accommodations

Fair Employment and Housing Act (FEHA) provides it is unlawful to discriminate against an employee on the basis of “physical disability.” (Gov. Code, § 12940, subd. (a).)  In addition to making it illegal to discriminate on the basis of disability, the FEHA makes it unlawful “to fail to make reasonable accommodation for the known physical . . . disability of an . . . employee.” (§ 12940, subd. (m)(1).)  Finally, the FEHA prohibits an employer from harassing an employee “because of . . . physical disability.” (§ 12940, subd. (j)(1).)  Employers must consider reasonable accommodations for high risk employees, such as for employee with underlying impairments, 65 years old or older, possibly for pregnancy-related impairments.  A reasonable accommodation is not require if employee is simply afraid to return to work, is on unemployment, or who is caring for someone else who is at high risk (but be careful on this issues, as it could trigger other leave laws, such as California’s paid sick leave laws or the FFCRA).

A new decision, Garcia v. Border Transportation Group, LLC, analyzes the California Supreme Court’s decision in Dynamex Operations West, Inc. v. Superior Court, which changed the test for independent contractors under California law.  In Border Transportation, Plaintiff Jesus Cuitalhuac Garcia filed the case against Border Transportation Group, LLC and its owners for wage and hour violations stemming from his classification as an independent contractor.  The trial court agreed with the company’s classification as an independent contractor in granting Border Transportation’s motion for summary judgment.  Plaintiff appealed the ruling granting the motion for summary judgment, and while the appeal was pending, the California Supreme Court issued Dynamex Operations West, Inc. v. Superior Court.

The appellate court, in Garcia v. Border Transportation Group, LLC, held that summary adjudication should not have been granted as to the wage order claims, but was proper as to the non-wage-order claims.  Here are five key take-aways from the Border Transportation decision:

1. Borello factors for distinguishing “employees” from “independent contractors”

Border Transportation filed a motion for summary judgment before the trial court arguing that it did not exercise control over Garcia, who was a taxi driver for the company.  The company also argued that Garcia’s supervisor’s role was limited to collecting payments from plaintiff and other drivers, and never reprimand plaintiff during his employment.

The court set out that the California Supreme Court in Borello “defined a general approach to determine whether a worker is an employee or an independent contractor.”  In Borello, the court explained that the “principal test of an employment relationship is whether the person to whom the service is rendered has the right to control the manner and means of accomplishing the result desired.”  The right to discharge the worker at will, without cause, is strong evidence of an employment relationship.

In addition to the “control” over the workers, Borello also set forth other factors (“secondary indicia”) to review in determining worker’s employment status:

(a) whether the one performing services is engaged in a distinct occupation or business; (b) 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; (c) the skill required in the particular occupation; (d) whether the principal or the worker supplies the instrumentalities, tools, and the place of work for the person doing the work; (e) the length of time for which the services are to be performed; (f) the method of payment, whether by the time or by the job; (g) whether or not the work is a part of the regular business of the principal; and (h) whether or not the parties believe they are creating the relationship of employer-employee.

Borello also makes it clear that the classification used by the parties can be considered, but it is not determinative of how the employee should be classified.

2. “Suffer or permit to work” definition of employment

In Martinez v. Combs, the California Supreme Court reviewed the definitions of “employ” under the IWC Wage Orders and held that there were three alternative definitions of employ.  The broadest definition of employ is to “suffer or permit to work.”  Generally, the court explained that employers who know people are working and not being paid for the work or by not preventing unpaid work from occurring, “clearly suffers or permits that work” and is liable for the wages for these workers.

The court set forth that “the Supreme Court [in Dynamex] explained, the trial court properly applied the ‘suffer or permit to work’ definition of employment in Martinez, instead of the ‘control’ test in Borello, to evaluate class certification for wage order claims.”  However, the Dynamex decision did not address “what standard applies to non-wage-order claims.”

Under the ABC test set forth in Dynamex, a worker is presumed to be an employee, unless the hiring entity establishes each of the following:

(A) that the worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact; and (B) that the worker performs work that is outside the usual course of the hiring entity’s business; and (C) that the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed. (Dynamex, supra, 4 Cal.5th at p. 957.)

3. Wage orders issued by the Industrial Welfare Commission (IWC) set forth requirements for employers that are distinct from the Labor Code.

As the court explained, the IWC developed “constitutionally authorized, quasi-legislative regulations” that “impose obligations relating to the minimum wages, maximum hours, and a limited number of very basic working conditions (such as minimally required meal and rest breaks) of California employees” in various industries.  Employers are required to comply with the requirements set forth in the wage order that applies to their industry (click here for a list of the 17 IWC wage orders).

4.The Dynamex ABC test only applies to wage-order claims, and the Borello test applies to all other claims.

The court in Border Transportation held that “Dynamex applied the ‘suffer or permit to work’ standard contained in the wage order without deciding what standard applied to non-wage-order claims, such as claims for expense reimbursement (such as for fuel or toll road fees) under Labor Code, section 2802.  The court in Border Transportation explained:

[Dynamex] did not reject Borello, which articulated a multifactor test for determining employment status under the Worker’s Compensation Act. Nor did it address the appellate court’s ruling that “insofar as the causes of action in the complaint . . . are not governed by the wage order” and predicated solely on the Labor Code, “the Borello standard is the applicable standard for determining whether a worker is properly considered an employee or an independent contractor.”

The court held that the “suffer or permit to work” and the ABC test was applicable to the wage order claims because the wage orders define “employ” in this language, and the wage orders regulate very basic working conditions and are meant to cover the widest class of workers.

Therefore, the court held that plaintiff’s wage-order claims for unpaid wages, failure to pay minimum wage, failure to provide meal and rest periods, failure to furnish itemized wage statements, and Unfair Competition Law (UCL) are governed by the “suffer or permit to work” standard set forth in Dynamex.  Plaintiff’s remaining claims for overtime (the wage order does not apply to taxicab drivers), wrongful termination and waiting time penalties under Labor Code section 203, are not covered by the wage orders, and therefore are subject to the Borello test.

Therefore, the court found that as to plaintiff’s wage order claims, there is a triable issue of fact as to whether plaintiff was an employee under the ABC test.  The ABC test “presumes a worker hired by an entity is an employee and places the burden on the hirer to establish that the worker is an independent contractor.”

5. Part C of the ABC test under Dynamex requires the company to show an existing independent business operation for independent contractors. 

The court explained that “Dynamex makes clear that the question in part C is not whether [Border Transportation] prohibited or prevented [plaintiff] from engaging in an independently established business.”  Instead, the analysis is if the plaintiff “independently has made the decision to go into business for himself or herself” and “generally takes the usual steps to establish and promote his or her independent business – for example, through incorporation, licensure, advertisements, routine offerings to provide services of the independent business to the public or to a number of potential customers, and the like.”

Defendant relied upon a 2015 Massachusetts Supreme Court case, Sebago v. Boston Cab Dispatch, Inc., to argue that Boston taxi drivers who leased medallions from owners were “customarily engaged in an independently established trade, occupation, profession or business of the same nature as that involved in the service performed.” In rejecting this analogy to the facts in this case, the court held that “Dynamex makes clear that California follows the version of part C that requires an existing, not potential, showing of independent business operation.”  The court held that based on the facts in this case, plaintiff was dependent on the company for his taxi permit, and therefore did not have the ability to independently operate on his own accord.  Indeed, the court noted that defendant “did not establish that [plaintiff] ‘is customarily engaged in an independently established trade, occupation, or business.”

California employers need to routinely need to review their policies and practices to make sure they are complying with intricacies that may arise in their work place.  In law school, attorneys-to-be are taught to “issue spot,” and the unfortunate litigation landscape that faces California employers, business owners and their supervisors must also “issue spot” and make sure the unique aspects of California employment law are being complied with to avoid liability.  This Friday’s Five covers five issues employers should issue spot on a routine basis to help ensure compliance and reduce liability:

1. Reporting time pay

Reporting time pay is triggered when an employee is required to report for work, but is not put to work or is furnished less than half their usual or scheduled day’s work.  If this occurs, the employee needs to 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.

It is important for employers to train managers and supervisors about this requirement, so that they understand the need to pay reporting time pay, or report the instance to HR to ensure the employee receives reporting time pay if they are sent home before one-half of their shift is worked.

2. Split shift pay

A split shift is a work schedule that is interrupted by a non-paid, non-working period established by the employer that is other than a meal or rest break.  So if the employee is required to work a shift, but then asked to report to a second shift over later in the same day, the employer may be obligated to pay a split shift premium.  Again, this issue is one that front-line managers and supervisors need to be trained on to ensure that split shifts are being reported to HR or other appropriate management in the company to ensure any split shift pay obligations are being paid.

3. Expense reimbursement issues

Under Labor Code section 2802, employers need to reimburse employees for any business expenses they incur in the course of completing their work for the employer.  This basic concept sounds easy in principle, but given the technology used in today’s workplaces, there can be many areas that expose employers to liability.  For example, if employees are required to work at home, have access to the internet, print reports, or send and receive faxes, the costs for completing this work should be reimbursed by the employer.  Other areas that are often litigated are cell phone reimbursement, mileage reimbursement, and reimbursement for the costs of uniforms and safety equipment.

4. Off-the-clock claims

Employers can be held liable for unpaid wages if they knew or should have known that employees were working and not being paid for the work.  Employers should establish and regularly communicate a time keeping policy to employees and supervisors.  The policy should set forth that employees always have an open door to complain to their supervisors and other managers or human resources about missed meal and rest breaks, unpaid wages, or unpaid wages.  If employees routinely acknowledge that they understand the time keeping policy and are agreeing to record their time through the employer’s system, this can go a long way in defending any off-the-clock claims.

5. On-Call time

Even though employees are traveling to a work site or even sleeping, if the employee is under the control of the employer, 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.