Sharing of Corporate Payroll and HR Functions May Result in "Joint Employment" -- Castaneda v. The Ensign Group, Inc.

Publicly traded corporations have increasingly adopted a structure in which a main corporate entity acts as a central "holding company" which conducts its operations through a series of wholly owned entities. The Corporation internally designates its workers as being "employed" by these entities.  As often as not, however, the employees have never heard of the specific entity that allegedly employs them.  Moreover, the employment policies and payroll functions for these operating entities typically emanate from a central corporate HR department and a "shared services" entity.  

In Castaneda v. The Ensign Group, Inc., the California Appellate Court held that this structure of common ownership and shared services is likely to create a "joint employment" relationship for purposes of wage and hour liability.  

An entity that controls the business enterprise may be an employer even if it did not directly hire, fire or supervise the employees.  Multiple entities may be employers where they control different aspects of the employment relationship. This occurs, for example, when one entity (such as a temporary employment agency) hires and pays a worker, and another entity supervises the work.

* * * 

Here Ensign has more than a contractual relationship with Cabrillo. Ensign owns Cabrillo. It purchased it in 2009 and it owns all of its stock. A trier of fact could infer this evidence refutes Ensign's claims of lack of control and responsibility.

(Internal citations and punctuation omitted).  Moreover, the court noted that the corporate parent could be found to be a joint employment based on evidence that its various subsidiaries shared "centralized information technology, human resources, accounting, payroll, legal, risk management, educational and other key services."  (Emphasis in original).

Thus, while it may make eminent business sense for related entities to share common HR, accounting and payroll functions, these shared functions are also likely to result in shared responsibility for wage and hour obligations.   

 

Statistical Sampling and Representative Testimony are Acceptable Ways to Determine Liability -- Jimenez v. Allstate

 In Jimenez v. Allstate, the Ninth Circuit upheld the certification of a class of claims adjusters who alleged that their employer "knew or should have known" that they commonly worked unrecorded overtime beyond their normally scheduled hours.  

In particular, the Plaintiffs' theory of recovery was that the employer had an "unofficial policy of discouraging reporting of such overtime," that it "fail[ed] to reduce class members' workload" after reclassifying the position as overtime-eligible, and "treat[ed] their pay as salaries for which overtime was an 'exception.'”  The Court explained that this was a proper basis for certification as "Proving at trial whether such informal or unofficial policies existed will drive the resolution of" liability.

Perhaps more significantly, the Court held that a lower court may avoid a defendant's due process objections by establishing liability through class-wide "statistics and sampling" while bifurcating potential defenses to individual damages.  

Since Dukes and Comcast were issued, circuit courts including this one have consistently held that statistical sampling and representative testimony are acceptable ways to determine liability so long as the use of these techniques is not expanded into the realm of damages.

* * * 

In crafting the class certification order in this case, the district court was careful to preserve All-state's opportunity to raise any individualized defense it might have at the damages phase of the proceedings. It rejected the plaintiffs' motion to use representative testimony and sampling at the damages phase, and bifurcated the proceedings. This split preserved both Allstate's due process right to present individualized defenses to damages claims and the plaintiffs' ability to pursue class certification on liability issues based on the common questions of whether Allstate's practices or informal policies violated California labor law.

Unfortunately, the Jimenez Court did not detail the specific proposed statistical method that the lower court found to be a sufficient liability model.  However, it does seem to stand for the proposition that DukesComcast and Duran are to be narrowly interpreted as rejecting certification only based on the particular flaws in the statistical models used by the Plaintiffs in those cases.     

 

 

 

 

Mandatory Paid Sick Leave Required Under Healthy Workplaces, Healthy Families Act of 2014

Under the newly signed Healthy Workplaces, Healthy Families Act of 2014, California employers will be required to provide paid sick leave to all employees.  The statute includes a quite detailed scheme with which employers will need to begin complying on July 1, 2015.

Duty to Provide Paid Leave

  • Eligible employees must work 30 days or more during the year, and may begin using accrued sick time after 90 days of employment
  • Paid sick leave accrues at the rate of one hour per every 30 hours worked for hourly-non-exempt employees.  Salaried-exempt employees will generally accrue paid sick time based on an assumed 40-hour workweek.  
  • Employers however may limit the amount of accrued sick leave to 3 days/24 hours per year (or the amount accrued by an employee working 720 or more hours).
  • Accrued but unused sick time carries over from year-to-year, but may be capped at 6 days.
  • Accrued but unused sick time need not be paid out at termination of employment, but must be reinstated if the employee is rehired within 12 months.

Using Paid Sick Leave

  • "An employee may determine how much paid sick leave he or she needs to use"
  • However, the employer may require the leave be used in minimum increments of up to two hours
  • The employee should shall provide "reasonable advance notice" if the need for the leave is forseeable.

Taking Sick Leave as a Protected Status

  •  An employer can take no adverse action against an imployee including "deny[ing] an employee the right to use accrued sick days" for the protected conduct of, inter alia, "using accrued sick days," "attempting to exercise the right to use accrued sick days," or for reporting or opposing alleged violations of the sick leave law.
  • Any adverse employment action within 30 days of reporting or opposing an alleged violation creates "a rebutable presumption of unlawful retaliation.   

Duty to Record and Report Accrued Paid Leave

  • The amount of available paid sick leave or PTO must be included on employee pay statements.
  •  The right to paid sick leave must be included in the employer's Labor Rights' poster and the disclosures of employment terms to new employees required by Labor Code section 2810.5.

Enforcement and Remedies

  • "The Labor Commissioner shall enforce this article." (However, a private enforcement action would also presumably be authorized under PAGA as well).
  • Remedies include reinstatement, back pay, and payment of withheld sick days
  • A penalty under which the dollar amount of withheld sick days shall be the greater of treble damages or $250 per day up to an aggregate amount of $4,000  

 

Employees Entitled to Compensation for Business Use of Personal Cell Phones Regardless of Plan Terms -- Cochran v. Schwan's Home Services, Inc.

California law requires that employers must reimburse workers for all "necessary expenditures" incurred in performing their jobs.  But what if the employee has already purchased an item for his own personal use and can continue using it for his employment at no extra cost.  Does the employer still have to pay for the benefit of using the employee's property?   

The Second District Court of Appeal held in Cochran v. Schwan's Home Services, Inc., that -- at least in the context of cell phone usage -- the answer is "yes."

In Cochran a group of employees claimed that they were owed reimbursement for business-related calls made on their personal cell phones.  In opposing class certification, the employer argued that “many people now have unlimited data plans for which they do not actually incur an additional expense when they use their cell phone."  As a result, the employer claimed that "determin[ing] whether an expense was incurred . . . will require an examination of each class member's cell phone plan.”  The appellate court rejected this argument.  

Instead, the court explained:

If an employee is required to make work-related calls on a personal cell phone, then he or she is incurring an expense for purposes of section 2802. It does not matter whether the phone bill is paid for by a third person, or at all. In other words, it is no concern to the employer that the employee may pass on the expense to a family member or friend, or to a carrier that has to then write off a loss. It is irrelevant whether the employee changed plans to accommodate worked-related cell phone usage. Also, the details of the employee's cell phone plan do not factor into the liability analysis. 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. Damages, of course, raise issues that are more complicated.

Thus,

We hold that when employees must use their personal cell phones for work-related calls, Labor Code section 2802 requires the employer to reimburse them. Whether the employees have cell phone plans with unlimited minutes or limited minutes, the reimbursement owed is a reasonable percentage of their cell phone bills.

The exact calculation of reimbursement amounts was left to the trial court on remand.  But the ruling suggests that dividing the total plan cost by the proportion of minutes devoted to business use would be a proper rate of reimbursement.   

Of course, the logic of Cochran could be applied to any personal items that an employee may use for both personal and work purposes -- for example, tools, car insurance, computers, Internet access, or even a home office.  Cochran thus strongly suggests that employers may have a duty to reimburse the "reasonable percentage" of such costs which corresponds to the proportion of their use for work.    

 

 

Employees Entitled to Compensation for Business Use of Personal Cell Phones Regardless of Plan Terms -- Cochran v. Schwan's Home Services, Inc.

California law requires that employers must reimburse workers for all "necessary expenditures" incurred in performing their jobs.  But what if the employee has already purchased an item for his own personal use and can continue using it for his employment at no extra cost.  Does the employer still have to pay for the benefit of using the employee's property?   

The Second District Court of Appeal held in Cochran v. Schwan's Home Services, Inc., that -- at least in the context of cell phone usage -- the answer is "yes."

In Cochran a group of employees claimed that they were owed reimbursement for business-related calls made on their personal cell phones.  In opposing class certification, the employer argued that “many people now have unlimited data plans for which they do not actually incur an additional expense when they use their cell phone."  As a result, the employer claimed that "determin[ing] whether an expense was incurred . . . will require an examination of each class member's cell phone plan.”  The appellate court rejected this argument.  

Instead, the court explained:

If an employee is required to make work-related calls on a personal cell phone, then he or she is incurring an expense for purposes of section 2802. It does not matter whether the phone bill is paid for by a third person, or at all. In other words, it is no concern to the employer that the employee may pass on the expense to a family member or friend, or to a carrier that has to then write off a loss. It is irrelevant whether the employee changed plans to accommodate worked-related cell phone usage. Also, the details of the employee's cell phone plan do not factor into the liability analysis. 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. Damages, of course, raise issues that are more complicated.

Thus,

We hold that when employees must use their personal cell phones for work-related calls, Labor Code section 2802 requires the employer to reimburse them. Whether the employees have cell phone plans with unlimited minutes or limited minutes, the reimbursement owed is a reasonable percentage of their cell phone bills.

The exact calculation of reimbursement amounts was left to the trial court on remand.  But the ruling suggests that dividing the total plan cost by the proportion of minutes devoted to business use would be a proper rate of reimbursement.   

Of course, the logic of Cochran could be applied to any personal items that an employee may use for both personal and work purposes -- for example, tools, car insurance, computers, Internet access, or even a home office.  Cochran thus strongly suggests that employers may have a duty to reimburse the "reasonable percentage" of such costs which corresponds to the proportion of their use for work.    

 

 

Delivery Drivers are Employees, Not Contractors -- Ruiz v. Affinity Logistics, Inc.

 In Ruiz v. Affinity Logistics Corp., ("Ruiz II"), the Ninth Circuit determined that a class of delivery drivers had been improperly classified as independent contractors.  The decision reversed the lower court's finding of employee status following a bench trial.  

The Defendant had required that its drivers form their own companies and execute contracts designating their relationship as independent contractors.  Nevertheless, the company still controlled every aspect of the drivers' operation from their rates and routes to the "color of their socks."  Based on this extensive record of control the Ninth Circuit had no trouble concluding that they were not bona fide contractors.  But the court's analysis did address several points that may be of interest in other, closer, fact patterns.

First, the Court emphasized that anytime personal services are provided an employment relationship is presumed.  Thus, while not using the precise terminology, a claim of an independent contractor relationship is effectively an affirmative defense.

Second, the Court rejected the argument that the drivers' ability to hire their own "helpers" took them outside of an employment relationship.  In particular, this fact did not support contractor status as "the drivers did not have an unrestricted right to choose these persons which is an important right that would normally inure to a self-employed contractor."  

A service provider can legitimately be an independent contractor if he has real autonomy and the opportunity to make a profit by exercising his own business judgment and discretion.  But Ruiz II illustrates that courts will generally reject any arrangement that functions merely as de facto employment dressed up with the appearance of independence.   

 

 

'Right to Control' and 'At-Will' Termination Are Keys to Employment vs. Independent Contractor Status -- Ayala v. Antelope Valley Newspapers, Inc.

Courts and agencies have traditionally invoked the familiar "multi-factor" common law test to distinguish between an employee and an independent contractor.  The trend over time, however, has been to focus ever more tightly on the single factor of who has "control" over the individual's work.  

In Ayala v. Antelope Valley Newspaper, Inc., the California Supreme Court has now made clear that the issue is even narrower than "control" -- it is the "right to control."   

As the parties and trial court correctly recognized, control over how a result is achieved lies at the heart of the common law test for employment. . . . Significantly, what matters under the common law is not how much control a hirer exercises, but how much control the hirer retains the right to exercise.

Thus, a company objecting that it has no history of micro-managing its workers may find that this argument carries little weight because, "That a hirer chooses not to wield power does not prove it lacks power." 

Rather, the "right" of control will inevitably flow from the rights set forth in the parties' contract.  It is extremely significant how Ayala formulates the litmus test for determining whether a contract creates a right of control.    

Whether a right of control exists may be measured by asking whether or not, if instructions were given, they would have to be obeyed on pain of at-will discharge for disobedience.

(Internal punctuation omitted).  The Supreme Court has thus essentially laid down a bright-line rule that a contractual power to fire at-will creates a corresponding right to control the performance of the work.

The newspaper delivery workers at issue in Ayala all had contracts providing the company with a "right to terminate the contract without cause on 30 days' notice."  The Court did not quite reach the merits.  However, it did reverse the trial court's denial of class certification on the ground that the contract terms might well negate the independent contractor status of the entire class.  This is a pretty strong indication that at-will termination is considered inconsistent with independent contractor status.

  

Using Statistics and Surveys to Prove Class Claims -- Duran v. U.S. Bank, N.A.

Appellate courts produce a steady stream of opinions discussing the criteria for certifying class actions.  But guidance as to how such cases should be actually proven at trial has been conspicuously lacking.   This dearth of authority has been remedied somewhat by Duran v. U.S. Bank, N.A.,, in which the California Supreme Court finally came face-to-face with "that exceedingly rare beast: a wage and hour class action that proceeded through trial to verdict."  

Performing an autopsy on this "rare beast" allowed the Court to explain where the trial court went wrong and how other courts might avoid the same mistakes in future class action trials.   

How Not to Conduct A Trial of Class Claims

The issue in Duran was whether, and to what extent, U.S. Bank had denied overtime to a class of loan officers by classifying them as exempt "outside sales" employees when they primarily performed non-exempt "inside sales" activities.    

The trial court developed its own trial plan in which it heard evidence from a sample of 21 out of 260 class members.  From this sample testimony, the Court found that all of the class members (both testifying and non-testifying) were misclassified.  It then calculated class-wide damages by assuming that the testifying and non-testifying employees worked the same number of overtime hours per week.

The Supreme Court rejected this method of proof as unfair and contrary to the Defendant's due process rights.  In particular, the verdict had to be reversed because:

  • The selected sample of 21 employees were neither statistically representative nor numerous enough to support the court's findings as to the rest of the class.  
  • The Court violated the Defendant's rights by barring its proffered testimony that other class members did, in fact, meet the duties of the "outside sales" defense.  

How to Conduct A Trial of Class Claims 

The Supreme Court was highly critical of the lower court's trial plan.  But it did not rule that the plaintiffs' claims could not be tried on a class-wide basis.  Rather, it explained that the existence of certain individual issues such as the percentage of time spent on exempt duties, or the number of overtime hours worked, are potentially manageable.  

The Supreme Court then articulated the following elements of a viable plan for resolving these individual issues in the context of a class-wide trial.  

  • Class-wide claims must be supported by proof of a common set of facts, not merely a statistical showing.  
  • Once these “issues common to the class have been tried, and assuming some individual issues remain, each plaintiff must still by some means prove up his or her claim, allowing the defendant an opportunity to contest each individual claim on any ground not resolved in the trial of common issues.”
  • However, if "sufficient common questions exist to support class certification, it may be possible to manage individual issues through the use of surveys and statistical sampling."
  •  "In general, when a trial plan incorporates representative testimony and random sampling, a preliminary assessment should be done to determine the level of variability in the class. If the variability is too great, individual issues are more likely to swamp common ones and render the class action unmanageable."
  • Moreover, "a class action trial management plan must permit the litigation of relevant affirmative defenses, even when these defenses turn on individual questions.”
  • Yet, "No case, to our knowledge, holds that a defendant has a due process right to litigate an affirmative defense as to each individual class member."

Duran does not attempt to dictate what level of statistical certitude -- i.e., the appropriate "confidence interval" or "margin of error" -- will be appropriate in a particular case.  But it does provide useful guidance in determining when and how expert testimony can be used to make reasonably reliable factual determinations for a large group of individuals.         

 

   

Termination of Mozilla CEO Likely Violated California Law

As has been widely reported, Mozilla (the maker of the Firefox search engine) recently forced its CEO, Brendan Eich, to resign because he donated $1,000 in 2008 to support California's Proposition 8, which would have banned same sex marriage.  (The Proposition was approved by a majority of voters but invalidated by a federal district court).

The termination has generated a hot debate.  Most commentators have framed the issue, however, as how to properly strike a balance between an employee's political free speech and his employer's desire to communicate a particular corporate "culture."  (see e.g., here and here).

What these commentators seem to have overlooked, however, is that the California Labor Code has already resolved this debate.  Under California law it is blatantly illegal to fire an employee because he has donated money to a political campaign.  This rule is clearly set forth in Labor Code sections 1101-1102:

§ 1101. Political activities of employees; prohibition of prevention or control by employer

No employer shall make, adopt, or enforce any rule, regulation, or policy:

(a) Forbidding or preventing employees from engaging or participating in politics or from becoming candidates for public office.

(b) Controlling or directing, or tending to control or direct the political activities or affiliations of employees.

§ 1102. Coercion or influence of political activities of employees

No employer shall coerce or influence or attempt to coerce or influence his employees through or by means of threat of discharge or loss of employment to adopt or follow or refrain from adopting or following any particular course or line of political action or political activity.

Donating money to a political cause is obviously the most core form of political participation.  But employers and employees should also be aware that the California Supreme Court has broadly extended the scope of protected speech and conduct to include all types of advocacy.  Indeed, in Gay Law Students Association v. Pac. Tel. & Tel. Co., the Court specifically held that one's espoused attitudes about homosexuality were a form of protected conduct.

[Plaintiff's] allegations can reasonably be construed as charging that PT&T discriminates in particular against persons who identify themselves as homosexual, who defend homosexuality, or who are identified with activist homosexual organizations. So construed, the allegations charge that PT&T has adopted a “policy . . . tending to control or direct the political activities or affiliations of employees” in violation of section 1101, and has “attempt(ed) to coerce or influence . . . employees . . . to . . . refrain from adopting (a) particular course or line of political . . . activity” in violation of section 1102.

As terminating an employee for "defend[ing] homosexuality" is illegal political discrimination, one would be hard pressed to come up with a principled argument that opposition to same-sex marriage is somehow not also protected.  

Thus, to the extent employers want to follow in Mozilla's footsteps by policing their employees' politics in the interests of "culture," "inclusiveness," or corporate branding, they should be aware that their efforts will violate California law.  

 

 

 

Scholarship Athletes May be "Employees" Under National Labor Relations Act -- Northwestern University and College Athletic Players Association

The National Labor Relations Act ("NLRA") protects the right of "employees" to organize and collectively bargain. In a petition to the National Labor Relations Board the College Athletes Players Association sought a determination that certain student athletes qualified as "employees" who were entitled to organize under the Act. The Board agreed.

The Board found that a "full ride" scholarship amounted to around $61,000 per year in consideration in the form of room, board, tuition, and various expense allowances. In return for this consideration, the scholarship recipient is subjected to a long list of duties, restrictions, and commitments of time and effort. The NLRA applies generally to individuals who meet the common law definition of "employment." This is essentially the same standard of coverage used in most state and federal protective employment legislation -- i.e. "a person who performs services for another under a contract of hire, subject to the other's control or right of control, and in return for payment."  The Board found that the scholarship relationship met this test.  

As the record demonstrates, players receiving scholarships to perform football-related services for the Employer under a contract for hire in return for compensation are subject to the Employer's control and are therefore employees within the meaning of the Act."

The effect of the Northwestern decision is that -- assuming players actually vote to unionize -- colleges will be required to collectively bargain with their players over the terms and conditions of their employment. This would be an odd bargaining relationship. For example, each team is "employed" by a separate college so there would presumably have to be separate bargaining units and elections for each college program. Moreover, given the NCAA's control over most aspects of scholarship and amateur eligibility status it is unclear what would be left to negotiate with the collegiate "employer."

Perhaps more significant in the long run is whether courts may import the same finding that scholarship-athletes are "employees" in the context of other worker protections such as the duty to pay minimum wage, overtime compensation, or to provide workers compensation coverage. However this particular decision plays out it is probably part of a long-run trend that will eventually overthrow the fiction that Division I college football and basketball are "amateur" student activities rather than the multi-billion dollar for-profit business that everyone knows they are.