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I’ll be posting some short clips of a recent presentation I conducted on complying with California’s paid sick leave law.  In this first video, I discuss some general rules California employers need to consider to comply with the July 1, 2015 deadline to offer paid sick leave to employees.  Topics include:

  • how to calculate pay rates for employees with fluctuating pay
  • impact of services charges on the employee’s regular rate of pay
  • the 90 day waiting period before employees can use the paid leave
  • required notices employers must use
  • key deadlines to comply with the law

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You may recall from your college business law class of the “American rule” regarding attorney’s fees: generally in the United States each side is responsible to their own attorney’s fees, and unlike other countries, the loser does not have to pay the other party’s attorney’s fees. Employers can basically ignore this general rule in employment litigation under California law. I debated about writing this article because once a lawsuit is filed, employers don’t have any control over what claims and damages the plaintiff will assert, so why would employers need to understand when they have exposure to a current or former employee’s attorney’s fees in litigation? However, employers need to understand the underlying liability of potential claims, the motivations behind those claims, and the major part of many employment law claims can be attorney’s fees. And as shown below, the California legislature has used the award of attorney’s fees to shift the risk in many actions against employers, and it is a concept that employers need to understand to address liability and litigation strategies. Here are five California employment related statutes that can expose employers to a plaintiff’s attorney’s fees:

1. Minimum wage/unpaid overtime claims. Labor Code section 1194, provides attorneys fees for plaintiffs who recover damages for minimum wage or overtime violations:

Notwithstanding any agreement to work for a lesser wage, any employee receiving less than the legal minimum wage or the legal overtime compensation applicable to the employee is entitled to recover in a civil action … reasonable attorney’s fees, and costs of suit.

2. Unsuccessful appeal of Labor Commissioner Claim. In order to discourage appeals from Labor Commissioner rulings, California Labor Code section 98.2(c) requires the court “shall” awards costs and reasonably attorney’s fees to the other party. This section permits the employee to obtain fees on an unsuccessful appeal by the employer, or to the employer who prevails on an unsuccessful appeal by employee. The catch for employers however, is that Labor Code section 98.2(c) provides that the employee is “successful” and therefore entitled to attorney’s fees “if the court awards an amount greater than zero.” Yes, even if the employee receives $1, they are successful in the appeal, and are entitled to their attorney’s fees. Therefore, employers have a huge disincentive in appealing Labor Commissioner rulings.

3. Expense reimbursement claims Labor Code section 2802 provides that employers must pay for and reimburse employees for “all necessary expenditures or losses incurred by the employee in direct consequence” of the employee’s job. Therefore, items like mileage reimbursement, even personal cell phone expenses, or other out-of-pocket expenditures employees make while performing their job must be reimbursed by the employer. Labor Code section 2802(c) provides that the employee is entitled to “attorney’s fees incurred by the employee enforcing the rights granted by this section.”

4. Private Attorney General Act (PAGA) claims Plaintiff’s counsel bringing a PAGA claim can seeks attorney’s fees under this statute as well. See Labor Code section 2699(g). Plaintiffs’ attorneys also claims fees under California Code of Civil Procedure section 1021.5, which permits them to recover fees if the case “resulted in the enforcement of an important right affecting the public interest” if certain requirements are satisfied.

5. California’s Fair Employment and Housing Act (FEHA) The Fair Employment and Housing Act (FEHA) prohibits harassment and discrimination in employment based on protected categories and/or retaliation for protesting illegal discrimination related to one of these categories. “In civil actions brought under [FEHA], the court, in its discretion, may award to the prevailing party . . . reasonable attorney’s fees and costs, including expert witness fees.” (Gov. Code, § 12965, subd. (b).) Under FEHA, the fee shifting provision goes both ways, to the plaintiff but also potentially the employer. Courts have discretion to award the defendant employer attorney’s fees and costs as the prevailing party in cases where plaintiff’s claim is deemed unreasonable, frivolous, meritless or vexatious. As a California court recently explained:

Despite its discretionary language, however, the statute applies only if the plaintiff’s lawsuit is deemed unreasonable, frivolous, meritless, or vexatious. . . . ‘ “[M]eritless” is to be understood as meaning groundless or without foundation, rather than simply that the plaintiff has ultimately lost his case . . . .’

Robert v. Stanford University, 224 Cal.App4th 67 (2014).

You’ve set up a successful company and begin hiring employees. To be a successful operator in California, a company’s management needs to be familiar with the critical legal concepts in order to successfully navigate California’s complex employment laws. You never wanted to go to law school, but time to hit the, ahem, books (or the Internet).  Here are a five fundamental legal concepts that every employer should understand:

1. At-will employment. Under California law, it is presumed that all employment is terminable at-will. California Labor Code section 2922 provides: “An employment, having no specified term, may be terminated at the will of either party on notice to the other.” The at-will doctrine means that the employment relationship can be terminated by either party at any time, with or without cause, and with or without advanced notice. There are some major exceptions to this rule, see item #3 below for example, but generally California law recognizes that employers and employees may, at any time, and for any legal reason, terminate the employment relationship.

2. Meal and rest break obligations. Employers cannot employ an employee for a work period of more than five hours per day without providing the employee with a meal period of at least thirty minutes. This break may be waived if the total work period per day of the employee is no more than six hours, with the mutual consent of both the employer and employee. A second meal period of at least thirty minutes is required if an employee works more than ten hours per day, except that if the total hours worked is no more than 12 hours. The second meal period may be waived by mutual consent of the employer and employee only if the first meal period was not waived. Rest periods are based on the total hours worked daily and a full ten minute consecutive break must authorized and permitted for each four hour work period, or major fraction thereof. I’vewritten about these obligations before, and the DLSE’s website provides many details regardingmeal periods and rest breaks.

3. Protected categories. Under the at-will doctrine employers may decide to terminate an employee based on any reason, just as long as it is not an illegal reason. An illegal reason would be one based upon an employee’s protective category, such as their race, gender, national origin, disability, age, or sexual orientation for example. California law even protects employees who are perceived to be in a protected category, associated with someone who is in a protective category, or even a sympathizer of someone in a protected category. In addition, the DLSE provides that the following activities are also protected:

The engaging in or exercising of a right that is protected by law. Some examples of “protected activity” under the Labor Code include: 1. Filing or threatening to file a claim or complaint with the Labor Commissioner. 2. Taking time off from work to serve on a jury or appear as a witness in court. 3. Disclosing or discussing your wages. 4. Using or attempting to use sick leave to attend to the illness of a child, parent, spouse, domestic partner, or child of the domestic partner of the employee. 5. Engaging in political activity of your choice. 6. For complaining about safety or health conditions or practices.

4. The difference between exempt and non-exempt. Employers need to understand which positions are legally entitled to overtime and other protections of the Labor Code, and the position that are “exempt” from these requirements. Here is a list of common exemptions under California law. It is important to note that employers and employees cannot simply make the determination and agree to be exempt on their own (the right to overtime cannot be waived, see non-waivable rights below). The employer has the burden of establishing that the employee meets all of the required elements of a particular exemption in order for the employee to be legally classified as exempt. 5. Understanding that certain Labor Code provisions cannot be waived by employees. Employees cannot waive their rights to certain protections offered by the California Labor Code. For example, employees cannot waive their rights to minimum wage, overtime, expense reimbursements for out of pocket expenses incurred for business purposes, right to participate in PAGA representative actions, and the right to receive non-disputed wages. You can read more about these rights here. So before a decision is made because the employee willingly agrees to the terms, or may even ask for certain employment terms, employers need to be sure that the employee can actually agree to those terms under the law. Photo courtesy of Janet Lindenmuth

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

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

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

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

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

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

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

Photo courtesy of Andrew Hart

1. CEOs and founders need to be involved in the hiring process. This is simply something too important for a company to leave to other people.  Sam Altman, of Y Combinator, wrote:

The vast majority of founders don’t spend nearly enough time hiring. After you figure out your vision and get product-market fit, you should probably be spending between a third and a half of your time hiring. It sounds crazy, and there will always be a ton of other work, but it’s the highest-leverage thing you can do, and great companies always, always have great people. You can’t outsource this—you need to be spending time identifying people, getting potential candidates to want to work at your company, and meeting every person that comes to interview. Keith Rabois believes the CEO/founders should interview every candidate until the company is at least 500 employees.

Founders interviewing employee number 1 to 500 sets to tone for the company in many ways in addition to the value mentioned by Sam. First, meeting all new hires illustrates that the employees are valued. Second, it shows that the founders are approachable and should the employee have any complaints they could discuss the issues with the founders. Granted once the company passes the 50 employee mark, it becomes more difficult to have a personal relationship with everyone in the company, but at least the founders are meeting everyone working at the company. This proves to the employees that they are valued. Usually the company’s open door policy states that if the employee has any complaints, they are free to discuss it with their supervisor, and if appropriate their concerns can be escalated to the founders/CEO. Meeting with employee during the hiring process can give teeth to the open door policy, and promote the practice of speaking with the founders if any employees have concerns about work.

2. Try working with the applicant first. I don’t care how many interviews someone has conducted, no one can determine if an applicant will be a good fit in a company over an interview at lunch. No matter how good you believe your interview questions are at finding out the applicant’s true values, work ethic, and knowledge base, anyone with an internet can study-up on how to handle almost any type of interview scenario and look amazing during the interview. How does a company get past this problem? Sam Altman again has some great advice and recommends hiring the applicant as an independent contractor and giving her a day or two of work on a noncritical project. I recommend that companies may take it one step further, and depending on the circumstances, it may even be appropriate to hire the applicant as an employee with the idea that they are to only work on one short project during the nights or weekends. There is nothing in the law that prevents a company from hiring employees for a day or two to see how they would work, that is the idea behind at-will employment.

3. Don’t assume all workers are the same in under the law. Not everyone hired can be classified as independent contractors or exempt employees.  These legal terms have very specific tests that must be met, and failure to properly classify workers could expose the company to large penalties. If everyone in a company is classified as an independent contractor or an exempt employee, more likely than not, there is a problem that needs to be addressed, and the company needs to evaluate its HR function more carefully.

4. Develop an employee handbook. All new hires should be given a handbook that sets out the company’s practices and procedures. Handbooks are not legally required in California, but there are required policies that companies must have depending on their size. A handbook is the perfect way to communicate the required policies to all new hires in a consistent and documented manner.

5. Have a new hire packet. The legal documents required to be provided to a new employee is becoming very detailed. Companies should standardize a new hire packet that meets all legal requirements.

1. What is a class action? To understand what a class action is, it is better to start with the basic individual litigation concept. Normally, parties bring their own disputes to court and litigate the case against the other parties who have been officially designated a parties and served with process and understand that they are parties to the lawsuit. Class actions, on the other hand, are brought against a defendant, but the claims are being asserted on behalf of parties who are not actually in the courtroom or named as individual plaintiffs. In the employment context, the plaintiffs are usually represented by at least one named plaintiff who is bringing claims that he or she has an individual on behalf of any other worker to is similar to the named plaintiff. The named plaintiff has to prove to the court that there is a clear class definition that can be arrived at, and the individuals who meet that definition can be ascertained in some manner. This proof is required to be presented when plaintiff brings their motion for class certification as described below. Class actions were developed for a number of reasons. One is to address the problem of  “negative value claims” as described by the court in Baker v. Microsoft:

In particular, class actions are an important way of resolving so-called “negative value claims”; that is, claims that are legitimate, but cost too much to litigate individually. Thus, denying class certification to claims that can be treated in the aggregate is equivalent to denying those claims on the merits.

In addition, because class actions can resolve claims for many individuals in one case, it can potentially save the parties as well as the courts time and costs when compared to requiring multiple cases for individuals involving the same facts and legal issues.

2. Who can bring a class action in the employment context? Any employee or worker who believes that they have suffered an injury while working for an employer could bring a class action on behalf other workers or employees. The complaint filed by the named plaintiff will set for the allegations that they believe make the case suited to be a class action, but the case will not become a class action until the Plaintiffs file a motion with the court asking for the case to be certified as a class action. There are certain requirements that the Plaintiff must prove to the court in order to have the case certified as a class action, and this determination is usually not made early in litigation. The parties will conduct discovery into the allegations and the issues of the case in order to develop the arguments supporting their position of whether or not the case can be certified as a class action. The determination of class certification has a large impact on the case, as the Court in the Microsoft case described:

As the Supreme Court has recognized, the decision whether or not the class is certified is usually the most important ruling in such a case; once a class is certified, plaintiffs who brought claims of even dubious validity can extract an “in terrorem” settlement from innocent defendants who fear the massive losses they face upon an adverse jury verdict. See, e.g., AT&T Mobility LLC v. Concepcion, 131 S.Ct. 1740, 1752 (2011) (“Faced with even a small chance of a devastating loss, defendants will be pressured into settling questionable claims.”).

3. How many employees does there need to be for a class action? In California, there is no set rule for how many individuals need to be in the putative class in order to meet the requirement of “numerosity.” Under Federal law, generally the numerosity element is met if the number of potential class members exceeds 40 people.

4. If the employer can prove it did not violate the law, is this a defense to having a class certified? No. As set forth above, usually before the court is asked to determine the merits of plaintiff’s allegations, the court requires the plaintiff to bring a motion for class certification. The motion for class certification only deals with the requirements regarding whether the case should be certified as a class action, and the court is not allowed to make a ruling on class certification based on the merits of the case. Courts have noted, however, that sometimes when conducting this analysis that there will sometimes be overlap with the merits of plaintiff’s underlying claim.

5. If class certification is denied, can another class action be filed on the same claims? It depends on the facts. Court have recently grappled with this issue, and as noted by the court in the Microsoft case, this has been an issue for courts:

Thus, plaintiff’s counsel need not present meritorious claims to achieve victory; they need obtain only a favorable class certification ruling. In light of the minimal costs of filing a class complaint, an obvious strategy suggests itself: keep filing the class action complaint with different named plaintiffs until some judge, somewhere, grants the motion to certify. So long as such a decision is reached while the plaintiffs who have not yet filed are numerous enough to justify class treatment, the plaintiffs will have a certified class that they can use to extract an in terrorem settlement. … If in terrorem settlements are bad, duplicative lawsuits employed to extract such a settlement are worse. It is no surprise, then, that appellate courts have long been trying to solve this problem.

For example, in California the case Alvarez v. May Dept. Stores Co. (2006) 143 Cal.App.4th 1223, held that two cases filed against May Department Stores prior to the Alvarez case precluded the Alvarez case from proceeding as a class action. The court, in applying the collateral estoppel doctrine, found that the two prior cases sought to certify the same class of employees, concerned the same policies, concerned the same time period, and one of the prior cases had the same attorneys and therefore did not allow the third filed class action to proceed. The principle behind the collateral estoppel doctrine is to prevent re-litigation of issues previous argued and resolved in an earlier proceeding. As the court set out, in order for the doctrine to apply, the issues must be identical to an issue that was actually litigated and decided to be final on the merits. Photo courtesy of Phil Roeder

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

Picture via Mic V

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

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

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

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

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

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

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

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

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

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

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

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

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

I just discovered How to Start a Startup, which is a series of videos published by Stanford University on YouTube with some outstanding speakers. The problem is that the class videos are so great, I have a hard time turning them off. Case in point, this week I watched Ben Horowitz’ lecture: How to Manage.  Ben is a rap enthusiast, and venture capitalist in Silicon Valley.  He offers excellent points and perfect examples about how managers have to analyze difficult requests from employees from many different perspectives. Definitely worth devoting the 50 minutes of your time to watch (embedded below). It is by far the best presentation on management I have ever listened to, and I’ve had my share of management classes (by the way, Ben’s book, The Hard Thing About Hard Things is a great read also).

In the lecture, Ben discusses the very difficult situation of addressing an employee’s request for a raise. Ben’s point is that the easy way out of the difficult managerial decision is to simply agree to the raise. This is the easy way out, everyone in the room is happy, the manager is liked by the employee, and the employee is obviously happy.

However, as Ben mentions, this can create other issues across the organization:

However, you knew there was going to be a however, you have to think about it from the point of view of the employee who did not ask for a raise. They may be doing a better job than the employee who did ask for the raise and in their mind they are going, “Ok, so I didn’t ask for a raise and I didn’t get a raise. They asked for a raise and they got a raise. What does that mean?" One, you’re not really evaluating people’s performance. You’re just going, whoever asks, gets. That means I either need to be the guy who asked for the raise, though that’s not how I feel. I do my work and I don’t necessarily want to ask for a raise. Or I just need to quit and go to a company that actually evaluates performance. You can really make the person who doesn’t get the raise feel pretty pissed about it. Don’t think that when someone is walking through your company doing the "Shmoney Dance," that other people aren’t going to notice.

Not familiar with the Shmoney Dance? Click here.

In addition to Ben’s point that CEOs or supervisors responsible to determining pay rates need to have and follow a formal review process for determining raises, it is important to note it would be bad management to ask an employee to keep their pay details confidential because doing so runs afoul of California law.

This leads me to point out five areas of employee compensation or off-work conduct that cannot be regulated by an employer under California law:

  1. Employers cannot prohibit employees from discussing or disclosing their wages, or for refusing to agree not to disclose their wages. Labor Code Sections 232(a) and (b).
  2. Employers cannot require that an employee refrain from disclosing information about the employer’s working conditions, or require an employee to sign an agreement that restricts the employee from discussing their working conditions. Labor Code Section 232.5.
  3. Employers may not refuse to hire, or demote, suspend, or discharge and employee for engaging in lawful conduct occurring during nonworking hours away from the employer’s premises. Labor Code Section 96(k).
  4. Employers cannot adopt any rule preventing an employee from engaging in political activity of the employee’s choice. Labor Code Sections 1101 and 1102.
  5. Employers cannot prevent employees from disclosing information to a government or law enforcement agency when the employee believes the information involves a violation of a state or federal statute or regulation, which would include laws enacted for the protection of corporate shareholders, investors, employees, and the general public. Labor Code Section 1102.5.

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. 

The Ninth Circuit Court of Appeals has asked the California Supreme Court to clarify three questions pertaining to California’s little known, and very rarely litigated, laws regarding a day of rest every seven days. The case is Mendoza v. Nordstrom. The California Supreme Court’s clarification could result in a new-found focus on these laws, and it is worth it for California employers to follow the issues raised in this case. Below are five issues employers ought to pay attention to:

1. Is the requirement to provide one day of rest every seven days based on a rolling seven days or on the workweek?
The first issue the Appellate Court seeks clarification on is California Labor Code section 551. This section states that “[e]very person employed in any occupation of labor is entitled to one day’s rest therefrom in seven.” Section 552 further states that “[n]o employer of labor shall cause his employees to work more than six days in seven.” The issue is whether these Labor Code sections apply to seven consecutive days on a rolling basis or only apply to each workweek. The difference in how the days are counted can have a significant impact. The court provides the following example to illustrate its point:

 

 

Sun.

Mon.

Tues.

Wed.

Thurs.

Fri.

Sat.

Week 1

Off

Work

Work

Work

Work

Work

Work

Week 2

Work

Work

Work

Work

Work

Work

Off

If the workweek begins each Sunday, if the statute is read to apply to consecutive seven days, then the employer in this example has violated sections 551 and 552. Alternatively, if the statute applies to each workweek, then the employer has not violated these provisions. The appellate court could not find any support to both plausible interpretations of these Labor Code sections, and therefore is asking the California Supreme Court to clarify.

2. When is an employer exempt from the seven day rule?
The second issue the Appellate Court seeks clarification on pertains to California Labor Code section 556. The section exempts employers from the day-of-rest requirement “when the total hours [worked by an employee] do not exceed 30 hours in any week or six hours in any one day thereof.” The court provides the following example of hours worked each day: 8-9-5-8-8-8-9. Would this work schedule exempt the employer from providing a day of rest on the seventh day? The court explained that the interpretation of the word “any” in section 556 could easily mean one (as in “Pick any card from the deck.”) or it could mean all (as in “Any child knows the answer to that simple question.”).

3. What does it mean to cause employees to work seven days?
The next question the Appellate Court proposed to the California Supreme Court is for clarification of Labor Code section 552. This section provides that employers may not “cause” its employees to work more than six days in seven. The court asks the Supreme Court to clarify the term “cause.” The court states:
To “cause” can mean to “induce,” so is it enough for an employer to encourage or reward an employee who agrees to work additional consecutive days? In another context, causation is defined in terms of the “natural and probable consequence” of one’s action. Is it enough for an employer to permit employees to trade shifts voluntarily, when a natural and probable consequence may be that an employee works more than the day-of-rest statutes allow?

4. Definition of workday.
While this case did not address the issue of overtime, it is a good reminder to review the definition of workday and workweek under California law.
The DLSE defines workday as:

A workday is a consecutive 24-hour period beginning at the same time each calendar day, but it may begin at any time of day. The beginning of an employee’s workday need not coincide with the beginning of that employee’s shift, and an employer may establish different workdays for different shifts. However, once a workday is established it may be changed only if the change is intended to be permanent and the change is not designed to evade overtime obligations.

5. Definition of workweek.
The DLSE defines the workweek as:

Any seven consecutive days, starting with the same calendar day each week beginning at any hour on any day, so long as it is fixed and regularly occurring. "Workweek" is a fixed and regularly recurring period of 168 hours, seven consecutive 24-hour periods. An employer may establish different workweeks for different employees, but once an employee’s workweek is established, it remains fixed regardless of his or her working schedule. An employee’s workweek may be changed only if the change is intended to be permanent and is not designed to evade the employer’s overtime obligation.

If an employer does not set a designated workweek, the DLSE will presume the employer uses the calendar week, from 12:01 a.m. Sunday to midnight Saturday, with each workday ending at midnight.