California's Fourth Appellate District, Division One (San Diego/Riverside), recently upheld a "production" payment plan that guarantees at least the minimum wage for all hours worked (including non-productive time and rest breaks) but provides that automotive technicians can be paid a higher "hourly rate" based on their production, very similar to the now common "Hourly plus Production Bonus" pay plans. In other words, the payment plan paid by the hour, but the hourly rate to be paid each pay period varied based directly on the individual employee's production. Very similar to an hourly plus production bonus plan, but where the effective bonus was divided by the hours worked and paid on an "hourly" basis.
New California Employment Laws in Response to #MeToo Movement.
By: Kyle D. Kring
Last weekend, California Governor Jerry Brown signed many significant pieces of legislation related to the recent #MeToo movement. The majority of the laws will take effect on January 1, 2019 and will undoubtedly have a large impact on employees and employers alike. The #MeToo movement, which spread virally in the Fall of 2017, is aimed at combatting sexual harassment and sexual assault. Its effects have had an immense influence on the employment sector, leading to a push for increased employment legislation.
Employees and employers should be aware of the bills Governor Brown signed and those he vetoed, as they are sure to have a profound impact on the employment sector. The major bills are discussed below, with a brief summary of each.
California Supreme Court adopts ABC Test and makes it more difficult to classify workers as Independent Contractors
By: Kyle D. Kring
On April 30, 2018, the California Supreme Court in Dynamex Operations West, Inc. v. Superior Court, made it much more difficult for businesses to properly and legally classify workers as independent contractors as opposed to employees. In a significant and long-awaited ruling, contained in an 82-page opinion, California's highest court clarified the test to determine whether a worker is an employee or an independent contractor for purposes of claims under the California Industrial Wage Orders which regulate the wages, hours, and working conditions (such as required meal and rest breaks) of California workers. Industry experts have estimated that classifying workers as employees, instead of as independent contractors, can increase costs by 20-30 percent. The greatest impact of this new test will be on those companies that hire "independent" contractors to perform work that would generally be considered a core part of the company's business.
The Supreme Court adopted a simpler to apply, but more difficult to establish "ABC Test" to determine whether an individual is an employee or independent contractor. The ABC Test is currently used in Massachusetts and New Jersey. The Court essentially scrapped the existing test for determining employee status, which was used to assess the amount of control the employer had over the worker. That test looked at 10 factors that had varying degrees of importance.
U.S. Supreme Court Affirms Enforcement of Class Action Arbitration Waivers in Employment Agreements
By: Kyle D. Kring and Kerri N. Polizzi
In a long-awaited decision in Epic Systems Corp. v. Lewis (2018) 584 U.S. ____, the United States Supreme Court held that employer's can enforce arbitration agreements requiring individual arbitration of employment claims. The Court determined that such agreements violate neither the National Labor Relations Act ("NRLA") nor the savings clause of the Federal Arbitration Act ("FAA").
Congress enacted the FAA to explicitly address and combat judicial hostility to arbitration. As such, the law provides that arbitration agreements "shall be valid, irrevocable, and enforceable."
Impact of Recent California Supreme Court Case on Piece-Rate or Hourly-Plus-Production Pay
On March 5, 2018, the California Supreme Court issued its decision in Alvarado v. Dart Container Corp. of California, 2018 WL 1146645. The Court's discussion of the proper means of calculating an employee's "regular rate of pay" has raised questions among employers regarding the decision's effect on the regular rate of pay used in piece-rate or hourly-plus production bonus structures. This article provides a brief summary of the Alvarado case, discusses its limited holdings, and analyzes the impact, if any, it has on piece-rate or hourly-plus-production pay structures.
In short, the case has no present impact on either piece-rate or hourly-plus-production compensation structures. Instead, the Court went out of its way to exclude these non-hourly payments from its holding, which was limited to flat-sum bonuses alone.
Sessions Sues California Over State Laws Protecting Immigrant Workers (AB 450)
On March 6, 2018, the U.S. Department of Justice (DOJ) filed a complaint against the State of California over three state statutes it claims interfere with its ability to control immigration, thereby allowing California to be a "sanctuary state." The California statutes involved include: (1) Assembly Bill 450 "Immigrant Worker Protection Act," (2) Assembly Bill 103, and (3) Senate Bill 54. The complaint in The United States of America v. The State of California states that "[t]hese provisions are preempted by federal law and impermissibly discriminate against the United States, and therefore violate the Supremacy Clause of the United States Constitution."
McMillin Albany LLC v. Superior Court: California Supreme Court Holds SB 800 is the Exclusive Remedy for Construction Defect Claims in New Residential Construction
By: Kyle D. Kring
On January 18, 2018, the California Supreme Court issued an extremely important ruling for the residential construction industry in McMillin Albany LLC v. Superior Court, No. S229762 (Cal. Jan. 18, 2018). The state high court held that S.B. 800 (commonly known as the "Right to Repair Act") is the exclusive remedy not just for economic loss, but also for property damage, arising from construction defects in original construction, stand-alone homes. In so holding, the Court found that the Legislature clearly and unequivocally intended to reshape the rules governing construction defect actions when it enacted S.B. 800.
S.B. 800 requires parties to engage in an informal process that begins with written notice from the homeowner to the builder of the allegations that the construction falls shorts of the standards required by the Right to Repair Act. The builder then has a right to inspect, test, and cure the alleged defects or to pay the homeowner compensation in lieu of making repairs. If the homeowner goes outside of these procedures in bringing a civil action, the builder can move the court for a stay of that action until the homeowner has complied with these requirements.
New 2018 U.S. Labor Department Guidelines for Unpaid Interns
By: Kyle D. Kring
The U.S. Labor Department's new guidelines for unpaid interns seek to make it easier for employers to use unpaid interns. The guidelines consist of a new "primary beneficiary test" using seven factors to determine whether the intern meets the standard for being unpaid. This standard is much more lenient for employers after the previous six factor test faced a great deal of criticism.
California employers should be aware of the new guidelines. California has yet to develop policy or case law of its own, making the FLSA guidelines applicable in California.
A Shield, Not a Sword: Insurance Carriers' Rights When Intervening on Behalf of a Suspended Corporation
By: Paul T. McBride
On November 7, 2017, Judge David Brown of the Sacramento County Superior Court ruled that an intervenor insurance carrier may not file a cross-complaint in a construction defect lawsuit. While this ruling is not binding precedent, if upheld on appeal it will affect the rights of intervening insurance carriers, and so merits discussion.
Background- Effect of Corporate Suspension
California Revenue & Taxation Code §23301 provides for suspension of a California corporation's "rights, powers, and privileges" for nonpayment of taxes. Once it is suspended, a corporation is prohibited from taking any actions; it can neither prosecute nor defend lawsuits. Gar-Lo, Inc. v. Prudential Sav. & Loan Assn. (1974) 41 Cal.App.3d 242. Since it cannot defend a lawsuit, it is a comparatively simple matter to take a default judgment against a suspended corporation, provided it is properly served. Once a default judgment is entered against a suspended corporation, it may be enforced, i.e. collected, against its insurance carrier, pursuant to California Insurance Code §11580(b)(2), assuming the judgment creditor can prove the damages encompassed by the judgment are covered by the policy of insurance.
Don't Lose Your Lease! (How to Properly Exercise Your Option to Extend)
By: Kenneth W. Chung
If your lease contains an option to extend the lease term and you intend to extend your lease, then you must properly and timely send your written option exercise notice. If your notice is even one day late, then the landlord may reject your request to extend the lease term. In such event, the landlord has the right to evict you from the premises, increase your rent to an amount higher than fair market value, or require other payments or terms as a condition to extending your lease. In order to avoid such potential consequences, the option exercise notice must be properly and timely sent.
Unless you have a form lease, no two leases are identical. Therefore, you should review your lease and option provisions carefully so that you may understand and satisfy all requirements. However, please note that most leases require the option exercise notice to be sent within a certain time period before the lease expiration date. The following is a sample provision:
Tenant may exercise the Option by first giving to Landlord a minimum of 6 months written notice, but not more than 12 months written notice of Tenant's intent to exercise the Option.
