Department of Labor Narrows Independent Contractor Classification

On July 15, 2015, the U.S. Department of Labor (DOL) issued guidance aimed at curbing the misclassification of employees as independent contractors pursuant to the Fair Labor Standards Act (FLSA).  Specifically, the DOL defined “independent contractor” narrowly enough for many previously classified as independent contractors to now be classified as employees. 

In narrowing the definition of independent contractor, this new guidance focuses on the “economic realities” test, which looks at whether workers are economically dependent on the employer or in business for themselves, rather than the “control test,” which focuses on the degree to which a business controls an individual’s work.

According to the DOL, employers should look to the following six factors in conducting an economic realities test: (1) the extent to which the work performed is an integral part of the employer’s business; (2) the worker’s opportunity for profit or loss depending on his/her managerial skill; (3) the extent of the relative investments of the employer and the worker; (4) whether the work performed requires special skills and initiative; (5) the permanency of the relationship; and (6) the degree of control exercised or retained by the employer.  The DOL further noted that each factor should be examined and analyzed in relation to one another, and no single factor is determinative.  Specifically, the DOL stated the “control” factor should not be given undue weight.

Equal Employment Opportunity Commission Holds Sexual Orientation Discrimination is Sex Discrimination

In a July 16, 2015 decision, the Equal Employment Opportunity Commission (EEOC) clarified that all complaints of sexual orientation discrimination are sex discrimination claims under Title VII of the Civil Rights Act of 1964, at least for claims against the federal government. 

The case involved a supervisory air traffic control specialist with the Department of Transportation’s air traffic control tower at Miami International Airport.  The employee claimed he was discriminated against and not selected for a permanent management position because he was gay.  His supervisor, who was involved in the selection process, had allegedly made several negative comments about the employee’s sexual orientation.

The EEOC held sexual orientation discrimination claims are sex discrimination under Title VII because they: (1) rely on sex-based considerations or take gender into account when there is a challenged employment action; (2) are associational discrimination on the basis of sex; and (3) necessarily involve discrimination based on gender stereotypes.    According to the EEOC, the fact that sexual orientation is not mentioned in Title VII is irrelevant, as is the fact that legislators did not intend for Title VII to protect individuals on the basis of sexual orientation.  Therefore, the EEOC held the employee had stated a claim for discrimination on the basis of sex.

Note:  If courts apply this decision to the private sector, it could have a big impact in states that do not have provisions prohibiting discrimination based on sexual orientation.

Truck Drivers Determined to be Employees Where Employer Controlled Manner and Means of Work

Garcia v. Seacon Logix, Inc. (2015) __ Cal.App.4th __

In determining whether an individual is an “employee” or an “independent contractor,” the primary test is “whether the person to whom service is rendered has the right to control the manner and means of accomplishing the result desired.” 

In this case, truckers transported cargo for a logistics company from the Port of Long Beach and Port of Los Angeles to warehouses or other facilities.  Prior to 2008, these truckers owned their own trucks, and it was undisputed they were correctly classified as independent contractors.  But after 2008, the ports implemented a clean air program, prohibiting the use of older, high-emission trucks.  Companies began to purchase trucks that were compliant with the clean air rules, and then lease them back to the drivers.

Three truck drivers sought reimbursement under California Labor Code section 2802 for insurance and lease payments that were deducted from their paychecks.  The trucking company argued the drivers remained independent contractors.  The trial court held, and the appellate court affirmed, that these drivers were employees, not independent contractors.  The court reasoned that (1) the drivers were obligated to lease their trucks from the trucking company (not from anywhere else), (2) if they did not comply with the company’s requirements, they would lose their trucks; (3) the drivers were required to arrive at work at specified times and required to call if they were going to be late or absent; (4) delivery assignments and routes were tightly controlled, meaning the drivers had no choice of assignment, and their progress was strictly monitored; and (5) the drivers were not permitted to work for another company.  Finally, the court noted that a significant factor suggesting these drivers were employees, was that the trucking company could terminate their employment without cause, and without notice.      

Wage & Hour Class Action Can Toll Individual Class Members’ Later Actions

Falk v. Children’s Hospital (2015) __ Cal.App.2d __

Employee Falk’s putative class action?filed more than six years after her employment ended?was the third of four class actions filed against the employer for various alleged wage and hour violations.  Before class certification was decided, the employer moved for summary judgment on the ground that the statute of limitations applicable to employee was not tolled by the two previous class actions, Palazzolo or Mays.  The trial court agreed and granted summary judgment for employer.   

The appellate court affirmed in part and reversed in part, finding that tolling applied to some of employee’s claims, but not to others.  The appellate court applied the reasoning of American Pipe & Construction Co. v. Utah (1974) 414 U.S. 538, which held that, under certain circumstances, the filing of a class action tolls a limitations period for class members who file subsequent actions. 

In relevant part, tolling may only apply if the initial class action provided the defendant with sufficient notice of the substantive claims brought against it, as well as the number and generic identities of the potential plaintiffs.  The appellate court determined that even though employee Falk’s complaint was more specific in explaining how the employer violated wage and hour laws than employee Palazollo’s generic allegations, the similarity in evidence and witnesses weighed in favor of tolling.

The appellate court also agreed that tolling based on the Palazollo action would last from the time Palazzolo was filed until the remittitur issued (rather than years earlier, when summary judgment against the individual plaintiff/employee was entered, as employer advocated).  As a result, while employee Falk’s claims that were subject to a one-year statute of limitations were time-barred, her remaining claims subject to a three or four-year limitations period were timely.

Private Attorney General Act Damages Do Not Count Toward CAFA’s Amount in Controversy Requirement

Yocupicio v. PAE Group, LLC (9th Cir. 2015) __ F.3d __

The Class Action Fairness Act (CAFA) provides federal court jurisdiction over certain class actions.  CAFA, outlined in 28 U.S.C. § 1332(d)(1), requires the class to have more than 100 members, the parties to be minimally diverse, and the amount in controversy to exceed $5 million.  In this case, the Ninth Circuit Court of Appeals addressed whether damages stemming from California’s Private Attorneys’ General Act (PAGA) may be used to satisfy CAFA’s jurisdictional amount in controversy requirement. 

The employee brought suit alleging ten causes of action under the California Labor Code, nine of which were brought as class claims, and one under PAGA.  The employer filed a notice of removal in federal court, presenting evidence that the employee’s class claims sought $1.6 million and on the PAGA claim, over $3.4 million in attorneys’ fees.  The district court aggregated the damages sought, and held the employer had satisfied CAFA’s $5 million amount in controversy requirement. 

The Ninth Circuit Court of Appeals reversed, holding that CAFA only applies to class actions, not representative or collective actions.  Thus, CAFA only permits aggregation of claims from individual class members, not claims based on a representative action.  In this case, the employer could not meet the amount in controversy requirement by only aggregating the class claims, so CAFA’s jurisdictional amount in controversy requirement was not satisfied.  Moreover, CAFA’s minimal diversity requirement does not apply to PAGA claims, so the removing party would have to satisfy traditional compete diversity, which it failed to do here.  Finally, since the court did not have original jurisdiction over the class claims, nor the PAGA claim, the employer could not use supplemental jurisdiction to overcome this hurdle. 

Class Certification Is Proper For Purposes of Unfair Competition Law Claim Where Employer Had Practice of Never Paying Premium Wages For Missed Meal Periods When Required

Safeway, Inc. v. Superior Court (2015) __ Cal.App.4th __

Employees asserted putative class claims against their employers for violations of the Labor Code and the Unfair Competition Law (UCL), alleging that the employers had a policy of never paying premium wages for missed meal periods when required prior to June 2007.  The trial court granted class certification for purposes of the UCL claim.  The employers filed a petition for writ of mandate challenging the trial court’s ruling.

The court of appeal denied the writ petition, holding that the employees’ evidence was sufficient to support class certification.  While the court of appeal indicated it was only ruling on the class certification issue, and not whether the employers’ practices did in fact constitute an unfair business practice, the court concluded that the employers’ policy of not paying premium wages for missed, shortened, or delayed meal breaks could support a UCL claim. 

In the court’s view, the employees “demonstrated that the existence of the practice and the fact of damage were matters suitable for class treatment.”  The court found that the evidence submitted by the employees supported the reasonable inference that in the context of a class action, they could establish that the employers engaged in the alleged practice of never paying meal break premium wages, even though a significant number of employees accrued them.  The same facts, the court found, also sufficed to demonstrate the fact of damage.  Under the theory alleged by the employees, they were not required to show that all class members accrued premium wages, but only that on a system-wide basis, the employers denied the class members the statutory benefits provided by Labor Code section 226.7.  

Employees’ Summary Judgment Denial in Underlying Action Precluded Their Subsequent Malicious Prosecution Claim

Parrish v. Latham & Watkins (2015) 238 Cal. App. 4th 81

An employer sued two former employees for several causes of action including misappropriation of trade secrets.  The employees moved for summary judgment on the employer’s complaint.  The trial court denied the motion, concluding the employees failed to satisfy their moving burden and the evidence raised triable issues of fact.  The case proceeded to a bench trial and the trial court found in favor of the former employees.  The former employees were also awarded attorneys’ fees pursuant to the Uniform Trade Secrets Act (the UTSA) based on the trial court’s finding that the employer brought the misappropriation claim in bad faith.  The attorneys’ fees decision was affirmed by the appellate court.

Subsequently, the employees filed a malicious prosecution action against the attorneys who represented the employer in the prior misappropriation lawsuit.  The employer’s attorneys moved to strike the complaint under Code of Civil Procedure section 425.16, the anti-SLAPP statute.  The attorneys argued the denial of employees’ defense motion for summary judgment conclusively established the employer had probable cause for its prior lawsuit.  Thus, the employees could not establish a possibility of prevailing on their malicious prosecution claim.  The trial court granted the motion on the grounds that the employees’ lawsuit was untimely under the one-year limitations period proscribed by Code of Civil Procedure section 340.6.

The appellate court affirmed the trial court’s decision, but on different grounds.  It determined the two-year limitations period under Code of Civil Procedure section 335.1 applied to the malicious prosecution claim and employees’ claims were timely.  However, the appellate court held an interim ruling on the merits established probable cause in the prior action and precluded the former employees’ malicious prosecution action against their former employer and its attorneys.

Employer Properly Withheld Payroll Taxes from Judgment Payment

Cifuentes v. Costco Wholesale Corp. (2015) 238 Cal. App. 4th 65

An employee filed a wrongful termination complaint alleging contract and tort claims against his employer and tort claims against three managers.  The trial court summarily adjudicated the tort claims in the employer’s and managers’ favor.

The employee prevailed at trial on his breach of contract claim and was awarded $28,125 in “past wage loss” and $273,253 in “future wage loss.”  With costs and interest, the judgment totaled $325,692.07.  When the employer paid the judgment, it withheld $116,150.84 in payroll taxes from the $301,378 attributed to lost wages.  The taxes included Federal Insurance Contributions Act (FICA) contributions, federal and state income taxes and state disability insurance.  The trial court denied the employer's motion for acknowledgment of satisfaction of the judgment, finding the employer improperly withheld federal and state payroll taxes from the award. 

The Court of Appeal reversed holding an award of back or front pay arises from the employer-employee relationship, and therefore qualifies as wages for purposes of tax withholding.  The court further held that an employer who fails to withhold payroll taxes from such an award exposes itself to penalties and personal liability for those taxes.  Thus, the employer properly withheld payroll taxes and fully satisfied the judgment with its payment.

Employment Agreement Designating Texas Forum and Choice of Law Is Contrary to California Public Policy on Employee Compensation

Verdugo v. Alliantgroup, L.P. (2015) __ Cal.App.4th __

Employer filed a motion to stay a wage and hour lawsuit based on a forum selection clause in employee’s employment agreement with employer.  The clause designated Harris County, Texas as the exclusive forum for any dispute arising out of employee’s employment, and also included a provision designating Texas law as governing all disputes.

The trial court granted the motion to stay.  Employee appealed and argued that the trial court erred because enforcing the forum selection clause and related choice-of-law clause violated California’s public policy on employee compensation.  The appellate court agreed and reversed the trial court’s order.

The appellate court explained that although a party opposing a forum selection clause ordinarily bears the burden of showing that enforcement would be unreasonable or unfair, the burden is reversed when the underlying claims are based on statutory rights the Legislature has declared to be unwaivable.  Here, all of employee’s claims were based on alleged violations of Labor Code provisions.  Rights and remedies stemming from Labor Code violations cannot be waived by agreement.  In such instances, the party seeking to enforce the forum selection clause has the burden to show that enforcement would not diminish unwaivable California statutory rights, otherwise a forum selection clause could be used to force a plaintiff to litigate in a forum that may not apply California law.

The appellate court concluded that employer failed to make this showing.  Employer’s argument that a Texas court “most likely” would reject the parties’ choice-of-law provision and apply California law was unsupported by citation to any convincing legal authority.  Moreover, employer could have stipulated to having the Texas courts apply California law, but it failed to do so.

Where an Attorney Serves as a Volunteer Settlement Officer and Receives Confidential Information, the Attorney’s Law Firm May Not Subsequently Agree to Represent an Opposing Party in the Same Action, Regardless of Screening Procedures

Castaneda v. Superior Court (2015) __ Cal.App.4th __

Employee filed a statutory wrongful termination action and related claims against his former employer.  The parties participated in a Civil Referee Assisted Settlement Hearing conducted by a judicial officer and two volunteer attorneys, one of whom was an attorney (Bañuelos) with the Ballard law firm (Ballard).  The case did not settle.  Six months later, a different Ballard attorney substituted in to represent the employer.  Employee’s counsel filed a motion to disqualify Ballard. 

The trial court denied the motion because, even assuming Bañuelos had received confidential information?an issue the court did not resolve?vicarious disqualification of Ballard was unnecessary because of the screening established to prevent Bañuelos from disclosing any confidences.

The appellate court reversed.  The court held when an attorney serves as a settlement officer in a mandatory settlement conference conducted by a judge and two volunteer attorneys, and the attorney receives confidential information from one of the parties to the action, that attorney’s law firm may not subsequently agree to represent an opposing party in the same action?regardless of the efficacy of the screening procedures established by the law firm.  The appellate court reasoned that such a determination is necessary to preserve the public’s trust and confidence in the judicial process.   

The appellate court remanded to the trial court to determine whether Bañuelos was privy to confidential information.  However, the appellate court instructed that if the trial court found that ex parte communications from employee’s counsel were conveyed to Bañuelos, the court should conclusively presume confidences were exchanged and disqualify Ballard.