Has California Just Enacted the "Comparable Worth" Doctrine?

California and federal law both currently require equal pay for "equal work." 

On October 6, Gov. Jerry Brown signed into law the "California Fair Pay Act," which changes the requirement to include equal pay for "substantially similar work."   This key phrase is not defined except to note that it should be "viewed as a composite of skill, effort and responsibility" and should generally involve work performed under "substantially similar working conditions."  

As there is no definitive weight assigned to any of these "composite" factors, judges and juries will be entering uncharted territory in considering whether any two positions are "substantially similar."  For example, does a VP of Human Resources utilize "a composite of skill, effort and responsibility" that is "substantially similar" to a VP of Finance?  Who knows.  

If two positions are found to be "substantially similar," however, under the Fair Pay Act it is the employer's burden to prove that 100% of any pay difference is based upon seniority, merit, production, or a "bona fide factor other than sex, such as education, training, or experience."

Courts may interpret the Fair Pay Act as merely extending the Equal Pay Act.  Or it may be interpreted as a wide-ranging implementation of the "comparable worth" movement of the 1980's.  

In the meantime, however, employers and workers will need to look at the compensation levels attached to various position in a whole new light -- i.e., not as not merely what the "market will bear," but what can be justified to a court or jury.     



Advertising that "Tip is Included" May Require Payment to Employees -- O'Conner v. Uber Technologies

Increases in minimum wages and other compensation laws have led many service-based businesses to dispense with tipping as a way to reduce the bottom line cost to their customers.  For example, as the New York Times recently reported "an expanding number of restaurateurs are experimenting with no-tipping policies as a way to manage rising labor costs."

If not implemented properly, however, attempting to eliminate tips may trigger liability to employees under California law. 

It is well-settled for example that employers may simply implement a “no tipping” policy.   An employer may also implement a “mandatory service charge” which it need not directly share with employees.  

However, under Labor Code § 351, to the extent any “tip” is included as part of a transaction, it is the sole property of the employee. Thus, if an employer advertises to customers that a “tip is included” in the price of a service it implies that the employer is adding a tip to the price and passing it along to the employee. If the employer doesn’t actually pay such an additional amount to the employee it may be liable for converting this advertised “tip.”

Indeed, this theory was recently endorsed in O’Conner v. Uber Technologies, 2015 WL 5138097 (N.D. Cal. 2015), in which the district court granted class certification to such a claim for tip conversion.

Plaintiffs have cited extensive evidence that Uber has consistently and uniformly advertised to customers that a tip is included in the cost of its fares (i.e., evidence that Uber “takes or receives” a gratuity). See, e.g., Docket No. 277, Ex. 12 (November 2011: “When the ride is over, Uber will automatically charge your credit card on file. No cash is necessary. Please thank your driver, but tip is already included.”) (emphasis added); Ex. 16 (November 2011: “All Uber fares include the tip ....”) (emphasis added); Ex. 13 (May 2012: “There’s no need to hand your driver any payment, and the tip is included.”) (emphasis added); Ex. 14 (January 2013: “With UberBlack, SUV, and UBERx there is no need to tip. With Uber TAXI we’ll automatically add 20% gratuity for the driver.”) (emphasis added); Ex. 15 (April 2015: “payment is automatically charged to a credit card on file, with tip included ”) (emphasis added). Uber does not even contest this fact in its papers.

Moreover, Uber has stipulated for the purposes of this litigation that, despite its representations that a “tip is included,” a “tip has never been part of the calculation of fares for either UberBlack or UberX in California.” See Docket No. 313–16 (emphasis added). That is, Uber essentially admits that despite making allegedly consistent and uniform representations to customers that a tip was included in all of its fares, Uber never actually calculated such a tip, and clearly never segregated and remitted any tip amount to drivers. Or, put differently, Uber has stipulated that it kept the entire amount of any tip that might be “included” in its fares. These facts, if proven at trial, will likely establish Uber’s uniform and classwide liability for violating California’s Tips Law. 

The bottom line is that a "tip" is, by definition, an amount paid by the customer and received by the server.  Thus, while employers are free to adopt no tipping policies they cannot falsely claim to customers that a "tip" has been "included" in the cost of the service when no additional amount is actually paid to the employee. 



Department of Labor Issues Aggressive Memo Going After "Misclassified" Independent Contractors -- Administrator's Interpretation No. 2015-1

On July 15, 2015, the Wage and Hour Division of the federal Department of Labor issued an "Administrator's Interpretation" that takes a very aggressive stance against the use of independent contractor status in the workplace.  The interpretation is significant as courts are directed to give deference to the DOL's interpretation of the law to the extent it is generally consistent with the FLSA and its implementing regulations.

In particular the memo notes that: "The FLSA’s definition of employ as 'to suffer or permit to work' and the later-developed 'economic realities' test provide a broader scope of employment than the common law control test." Thus,

In order to make the determination whether a worker is an employee or an independent contractor under the FLSA, courts use the multi-factorial “economic realities” test, which focuses on whether the worker is economically dependent on the employer or in business for him or herself.  A worker who is economically dependent on an employer is suffered or permitted to work by the employer. Thus, applying the economic realities test in view of the expansive definition of “employ” under the Act, most workers are employees under the FLSA.

In applying the economic realities factors, courts have described independent contractors as those workers with economic independence who are operating a business of their own. On the other hand, workers who are economically dependent on the employer, regardless of skill level, are employees covered by the FLSA.

The memo goes on to opines that:

The “control” factor, for example, should not be given undue weight. The factors should be considered in totality to determine whether a worker is economically dependent on the employer, and thus an employee. The factors should not be applied as a checklist, but rather the outcome must be determined by a qualitative rather than a quantitative analysis.The application of the economic realities factors is guided by the overarching principle that the FLSA should be liberally construed to provide broad coverage for workers, as evidenced by the Act’s defining “employ” as “to suffer or permit to work.”

The DOL thus seems to advocate an alternative test under which an entity is liable for the wages of any worker whose compensation ultimately derives from doing work for that entity.  

One potential flaw in the Administrator's legal analysis however is that it selectively relies on tests applicable to different issues.  For example, an employee of one company may simultaneously be a "joint employee" of another company based on the "economic realities" of the relationship between the two companies.  Likewise, a company is said to have "suffered or permitted" unrecorded work by one of its current employees if it "knew or should have known" that the work was performed.   In both cases, however, there is no dispute that the worker was an "employee" to begin with.

It thus remains to be seen if courts will accept the DOL's invitation to apply the "economic realities" and "suffer or permit" formulas as the new litmus test for independent contractor status as well.    

Class Certification Is Proper Where Employer Never Paid Meal Period Premiums -- Safeway, Inc. v. Superior Court (Esparza)

The Labor Code and Wage Orders impose two separate obligations on employers: (a) to provide uninterrupted, 30-minute off-duty meal periods at specified time intervals; and (b) to pay one hour of compensation as a "premium wage" for each time that the employee was effectively prevented from actually taking such a compliant break. 

In the aftermath of Brinker v. Superior Court, courts have found that evaluating whether an employer has implemented an affirmative policy that fully complies with the first duty is well suited to a class-wide determination of liability.  But what if the employer has a perfect policy on paper but never actually pays any premium compensation under the policy? 

In Safeway Inc. v. Superior Court (Esparza), the court explained that such a uniform record of non-payment warrants class certification, at least where it is statistically implausible that such premium payments were never earned by class members.   

In granting class certification, the trial court stated: “[Real parties] prove[] that[] before June 17, 2007, Safeway did not pay meal break premiums. . . . Safeway does not contest this fact. Safeway had thousands or tens of thousands of workers, but for years it never paid statutory meal break premiums. Why? One explanation is human perfection: Safeway never, ever erred.” This explanation is possible. But human perfection is rare. Another explanation is deep, system-wide error: that Safeway was unaware of, or for some other reason[,] violated[] its duty to pay statutory premiums when required. [¶] This situation presents the central and predominating common issue: did Safeway’s system-wide failure to pay appropriate meal break premiums make it liable to the class during this period. This dominant common issue makes certification proper . . . .

The Safeway Court went on to explain that under this theory of liability -- i.e., a uniform practice of never paying appropriate meal premium pay -- it would not be necessary for the class to prove each instance of a meal break violation, to prove that "all or virtually all" of the class were owed compensation, or to prove the precise amount of premium pay owed.  

Rather, the class could use statistical analysis of time records and other data to establish that "on a system-wide basis, petitioners denied the class members the benefits of the the compensation guarantee [of] . . . section 226.7."  In particular, the "time punch data and records identified by [Plaintiff's expert] are capable of raising a rebuttable presumption that a significant portion of the missed, shortened and delayed meal breaks reflected meal break violations under section 226.7."

The lesson of Safeway is clear: It is not sufficient for an employer to merely implement a policy that effectively provides compliant meal breaks.  The employer must also record the timing and duration of the breaks, and then implement a separate good faith mechanism for determining whether a premium wage is actually due as a result of any missed breaks.  If the employer simply assumes 100% of the time that no wage is due this practice may expose it to class-wide liability.




Retaliation for Filing a Class Action Warranted $6.6 Million Punitive Damages Award -- Marlo v. United Parcel Service

Plaintiff Michael Marlo was a UPS shipping supervisor who claimed that he was owed unpaid overtime wages because UPS had misclassified the position as salaried-exempt.  In fact, he signed on as the named plaintiff in a class action lawsuit.  

And then he got fired.  

The class action apparently sputtered out after the District Court denied class certification.  However, Marlo brought a separate lawsuit alleging that he was wrongfully terminated in retaliation for his involvement in the case.  A jury not only agreed with him but awarded $15.9 million in punitive damages (which was later reduced to $6.6 million).    

Although the Ninth Circuit's opinion upholding this $6.6 Million punitive damage award is unpublished, it nevertheless contains an interesting analysis as to when personnel decisions by individual managers may trigger punitive damages against the corporate employer.     

Further, Robinson viewed part of his role as maintaining a company “culture”—in essence, a company policy—of supervisors acting as “owners” subject to a salary, rather than the overtime pay sought by Marlo. Marlo’s lawsuit, which initially sought $400 million in class-wide damages, threatened to upend that culture. Robinson discussed the potential impact of Marlo’s lawsuit with his senior staff and expressed his displeasure that other supervisors were filing similar lawsuits. He viewed the lawsuit as a “distraction” that had a negative effect on employee morale. The jury could thus reasonably conclude that Robinson’s decision to terminate Marlo was a policymaking decision aimed at protecting the company “culture.”   

In other words, the court seemed to endorse the theory that a self-conscious "corporate culture" is tantamount to a corporate "policy."  And efforts to sustain or protect that culture may therefore amount to "policy making" decisions sufficient to trigger company-wide liability for punitive damages.

Nine Employees May Be Sufficient to Constitute a Class -- Hendershot v. Ready to Roll Transportation, Inc.

To most people the term "class action" invokes an image of hundreds or thousands of people seeking a remedy against a large corporate defendant.   As a result, it never occurs to many small and mid-size businesses (or their workers) that they may be sued in a class action.  

However, in Hendershot v. Ready To Roll Transportation, Inc., the Second District Court of Appeal reminded lower courts that there is no fixed minimum number of employees necessary to constitute a certifiable class.  Rather, the test under California law is merely whether it would otherwise be "impracticable" to individually join all the employees with the same type of claim into the lawsuit.  

The requirement of Code of Civil Procedure Section 382 that there be ‘many’ parties to a class action suit is indefinite and has been construed liberally. No set number is required as a matter of law for the maintenance of a class action. Thus, our Supreme Court has upheld a class representing the 10 beneficiaries of a trust in an action for removal of the trustees. [¶] The ultimate issue in evaluating this factor is whether the class is too large to make joinder practicable. ‘Impracticality’ does not mean ‘impossibility,’ but only the difficulty or inconvenience of joining all members of the class.”

Based on this analysis, the lower court was found to have improperly denied class certification based on its finding that there would ultimately be only nine employees in the proposed class.

Courts have repeatedly recognized that class actions are a generally superior method for enforcing the Labor Code and collecting allegedly unpaid wages.  This is due to a variety of factors, including the economies of scale in pooling claims, avoiding redundant issues of proof, and overcoming the fear of retaliation by current employees.  

The Hendershot opinion is a timely reminder that employers should not jump to the conclusion that they are too small to be the target of a class action.  


Is Political Affiliation the New Black When it Comes to Discrimination?

Most lay people are thoroughly familiar with the usual categories of "protected" characteristics which cannot be considered in denying workplace opportunities -- e.g., race, gender, religion, disability, etc.  Less familiar is California's ban on discrimination based on one's political affiliations or activities.  

According to a new academic study, however, discrimination based on partisan politics is not only already rampant but rapidly increasing.  Dana Milbank of the Washington Post recently summarized the findings as follows: 

It has long been agreed that race is the deepest divide in American society. But that is no longer true, say Shanto Iyengar and Sean Westwood, the academics who led the study. Using a variety of social science methods (for example, having study participants review résumés of people that make both their race and party affiliation clear), they document that “the level of partisan animus in the American public exceeds racial hostility.”

Americans now discriminate more on the basis of party than on race, gender or any of the other divides we typically think of — and that discrimination extends beyond politics into personal relationships and non-political behaviors. Americans increasingly live in neighborhoods with like-minded partisans, marry fellow partisans and disapprove of their children marrying mates from the other party, and they are more likely to choose partners based on partisanship than physical or personality attributes.

“Unlike race, gender and other social divides where group-related attitudes and behaviors are constrained by social norms, there are no corresponding pressures to temper disapproval of political opponents,” they conclude. “If anything, the rhetoric and actions of political leaders demonstrate that hostility directed at the opposition is acceptable, even appropriate. Partisans therefore feel free to express animus and engage in discriminatory behavior toward opposing partisans.”

My guess is that the only reason political discrimination claims are not being filed is because practically no one is aware that this is, in fact, illegal under California law.  If this study is correct in concluding that animus against members of the "other" party already pervades our society it can only be a matter of time before such discrimination generates its own litigation boomlet.  


Bans on Re-employment In Settlement Agreements May be Unenforceable -- Golden v. California Emergency Physicians Medical Group

Employers prefer to include a "no re-hire" provision in their settlement agreements with former employees.  This provision usually states that the former employee will agree never to re-apply for employment and, if he does, the employer will be entitled to reject his application.  

The rationale for these clauses is that any refusal to hire the plaintiff in the future could be characterized as "retaliation" for having raising protected complaints in the prior lawsuit.  And why would an employer want to settle one lawsuit only to set itself up for another?

But the validity of such "no re-hire" clauses has been cast in doubt by the Ninth Circuit opinion in Golden v. California Emergency Physicians Medical Group.  As the Ninth Circuit explained, the problem with these provisions is that they may be at odds with section 16600 of the California Business and Professions Code, which provides that "every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.”

In reviewing the case law interpreting section 16600, the Ninth Circuit found that California's ban on employment restraints is extremely broad in its scope and extremely "stark" in its prohibition.  As a result, the statute does not merely ban traditional "non-compete" agreements in which an employee is precluded from working for a competitor.  Rather,

[T]he crux of the inquiry under section 16600 is not whether the contract constituted a covenant not to compete, but rather whether it imposes “a restraint of a substantial character” regardless of “the form in which it is cast.

Having articulated this standard, the Court declined to apply it to the specific agreement before it, which involved a settlement agreement by a physician that bound him to never again work for "a large consortium of over 1000 physicians."    Instead, it remanded to the district court with directions to determine if the restraint was "of a substantial character," and therefore void.

It is unclear how this "substantial character" standard may be fleshed out over time.  However, relevant factors would presumably include the market share of the employer, the number of viable alternative employment opportunities in the market, and the employee's degree of specialization.  If the foreclosed employment opportunities, in the context of the specific employee and industry, are "substantial" then any "no re-hire" agreement will be void.   



U.S. Supreme Court Addresses Pregnancy Discrimination Standards -- Young v. United Parcel Service, Inc.

Under the  federal Pregnancy Discrimination Act ("PDA"), 42 U.S.C. Sec. 2000e(k), employers are prohibited from discriminating against female employees  "because of " pregnancy.   Thus, as with other protected categories like gender or race, a pregnant employee may establish her claim by showing that she was treated less favorably than "similarly situated" non-pregnant employees.  

But the standard for establishing illegal discrimination is much less clear under the second part of the PDA, which provides that employers must treat "women affected by pregnancy ... the same for all employment-related purposes ... as other persons not so affected but similar in their ability or inability to work."   

For example, in Young v. United Parcel Service, Inc., the U.S. Supreme Court wrestled with the interpretation of this duty.  The plaintiff had requested "light duty" as an accommodation for her pregnancy-related lifting restriction of 20 lbs.   The employer denied the request however as its policy only allowed light duty for short-term disabilities which were covered by the ADA or which temporarily prevented the employee from driving.     

This naturally raised the question of which group of employees should be considered "similarly situated" to the plaintiff for comparison purposes.  In other words, should she win her case because some non-pregnant employees with the same restrictions received an accommodation that she did not?  Or, should she lose because non-pregnant employees who, like her, did not meet the criteria of the policy, were also denied leave?

The Supreme Court, in the end, rejected both of these theories.  Instead, the Court held that the real question was whether a jury could find that UPS's light duty policy was motivated by an intent to discriminate against pregnancy-related conditions.  Thus, once a plaintiff demonstrates that she was denied an accommodation that others received, it becomes the employer's burden to justify its exclusion of pregnancy as a qualifying criterion under its policy. 


The employer may then seek to justify its refusal to accommodate the plaintiff by relying on “legitimate, nondiscriminatory” reasons for denying accommodation. That reason normally cannot consist simply of a claim that it is more expensive or less convenient to add pregnant women to the category of those whom the employer accommodates. If the employer offers a “legitimate, nondiscriminatory” reason, the plaintiff may show that it is in fact pretextual. The plaintiff may reach a jury on this issue by providing sufficient evidence that the employer's policies impose a significant burden on pregnant workers, and that the employer's “legitimate, nondiscriminatory” reasons are not sufficiently strong to justify the burden, but rather—when considered along with the burden imposed—give rise to an inference of intentional discrimination. The plaintiff can create a genuine issue of material fact as to whether a significant burden exists by providing evidence that the employer accommodates a large percentage of nonpregnant workers while failing to accommodate a large percentage of pregnant workers.


 The Court has thus seemingly created hybrid test that melds the separate liability theories pertaining to unintentional disparate impact claims and intentional disparate treatment claims.  Thus, the Court has authorized a finding of liability based on a showing that a facially neutral policy of the employer has causes a disparate burden on pregnant women without a sufficiently compelling business justification. 

Under this new standard, employers would be well-advised to explicitly include pregnancy related conditions under their short term disability plans even if doing so is "more expensive or less convenient."  It they fail to do so, they could easily be found liable for intentional discrimination.  


During Rest Breaks Employees Can Be Required to Do "Noun" Work, But Not "Verb" Work -- Augustus v. ABM Security Services, Inc.

In Augustus v. ABM Security Services, Inc., the Second District Court of Appeal was called upon to decide whether time spent "on-call" by security guards (i.e., time spent on premises with a duty to respond to all radio calls) constituted a legitimate "rest period."  

California law requires minimum compensation for all "hours worked."  However, it also requires paid rest periods during which an employee "shall not be required to work."   And just weeks earlier the California Supreme Court held in Mendiola v. CPS Security, Inc., that this exact type of "on-call" time by security guards was compensable "work."  

So one would be excused for thinking the decision in Augustus should be an easy call.  After all, if the same time has already been held to be "work," it can't also be a period of rest which is free from "work."  Right?

Actually, wrong.  

It turns out one can never underestimate the law's ability to find a linguistic distinction -- even if it's a distinction within the same word.  Thus, the Augustus court explained that the crucial distinction for purposes of providing a rest break is whether an employee's required activities are work "as a noun" or work "as a verb." 

The word “work” is used as both a noun and verb in Wage Order No. 4, which defines “Hours worked” as “the time during which an employee is subject to the control of an employer, and includes all the time the employee is suffered or permitted to work, whether or not required to do so.” (Cal. Code Regs., tit. 8, § 11040, subd. 2(K).) In this definition, “work” as a noun means “employment”—time during which an employee is subject to an employer's control. “Work” as a verb means “exertion”—activities an employer may suffer or permit an employee to perform. (See Tennessee Coal, Iron & Railroad Co. v. Muscoda Local No. 123 (1944) 321 U.S. 590, 598, 64 S.Ct. 698, 88 L.Ed. 949 [work is “physical or mental exertion (whether burdensome or not) controlled or required by the employer and pursued necessarily and primarily for the benefit of the employer and his business”].) Section 226.7, which as noted provides that “[a]n employer shall not require an employee to work during a meal or rest or recovery period,” uses “work” as an infinitive verb contraposed with “rest.” It is evident, therefore, that “work” in that section means exertion on an employer's behalf.

As the court explained  "Not all employees at work actually perform work."  Employing this analysis, the court suggested there may be no need to provide distinct rest breaks to security guards as their jobs are "indistinguishable" from one long rest break anyway.  

The Augustus Court's distinction between "noun work" and "verb work" is novel and is based on little more than the court's assertion that "it is evident" that this is what the Legislature must have intended.  Moreover, it may be a problematic distinction to apply in practice as most employees inevitably have short periods during the day when they are not engaged in actual "exertion."  

For example, under Augustus a cashier who waits more than ten minutes before a new customer comes into a store has apparently had a legal rest break whether she knew it or not.  And an employer can apparently provide a legally compliant rest break by merely requiring its employees to stand motionless for 10-minutes.  I am not sure this is really what the Legislature had in mind for a bona fide rest period.