Developments in Wage and Hour Law-2014

[Each year, I participate in an employment/wage and hour law update put on by the Alameda County Bar Association Labor and Employment Committee.  This year, I am going to summarize some of the topics that I discussed (or wanted to discuss) in a series of blog posts.  This is the first of those posts.  I am also planning to cover the following topics in the weeks to come:  Class Actions; PAGA Claims; and Arbitration.]

A number of important cases have come down in the year since our last employment/wage and hour law update in September 2013.   Workers scored significant victories in a number of areas, including cases involving whether “independent contractors” are actually employees for the purposes of wage and hour law; federal preemption of meal and rest breaks for truck drivers; the inside sales exemption; and reimbursement for expenses related to cell phones.  However, the news was not all bad for employers, as courts continued to express skepticism toward off the clock cases and mileage reimbursement cases.  Finally, the California Supreme Court has agreed to address several critical issues pertaining to seating cases.  Until then, those cases are probably on hold.

Independent Contractor Cases

California courts issued several important decisions pertaining to whether or not workers are independent contractors or employees for the purpose of wage and hour laws.  In Ayala v. Antelope Valley Newspapers, Inc. (2014) 59 Cal.4th 522, the California Supreme Court addressed the issue of how courts should handle class actions alleging that independent contractors are actually employees.  Ayala involved a proposed class of newspaper carriers who were classified as independent contractors.  The trial court denied class certification for two reasons:  (1) the defendant demonstrated that there were variations in the level of control that the newspaper had actually exercised with respect to individual carriers, and (2) that the level of control that the newspaper had exercised had not been pervasive.

The court of appeal reversed, and the California Supreme Court agreed.  As set forth in S.G. Borello & Sons v. Dept. of Industrial Relations (1989) 48 Cal.3d 341, the primary consideration in independent contractor cases is “the degree of a hirer’s right to control how the end result is achieved.”  When considering whether or not to certify a case as a class action in such cases, the proper question is whether the employer’s right of control was sufficiently uniform to permit classwide assessment.  The Court emphasized that the proper question in these cases “is not how much control a hirer exercises, but how much control the hirer retains the right to exercise.”  Id., at 533 (emphasis in original).  Therefore variations in how much control a defendant actually exercised were not fatal to class certification.

In determining whether a defendant had a right to control the details of the work, the Court noted that one significant question was whether or not there was a standard form contract.  The Court also noted that trial courts should look to the nature of the work, and whether it required the right to control or not.

With regard to the secondary Borello factors, the Court noted that it was important to identify whether each particular factor would require individual inquiries.  Furthermore, the secondary factors are not uniformly significant:  The trial court must weight each factor according to its importance in a particular case.

Ayala therefore provides a critical road map in class actions alleging that workers have been improperly classified as independent contractors.  Anyone interested in bringing a class action alleging that employees have been misclassified as independent contractors should study that case carefully.

The Court of Appeals for the Ninth Circuit also waded into the independent contractor arena, issuing a pair of important decision regarding delivery truck drivers.  In Alexander v. FedEx Ground Packages Sys., Inc. (9th Cir.2014) 2014 WL 4211107, the court reversed an order granting summary judgment to FedEx, and granted summary judgment for the plaintiffs.  The court addressed the Borello factors, and concluded that this case was not a close call.  Significantly, the court rejected FedEx’s argument that its drivers were independent contractors because of their “entrepreneurial opportunities.”  Those alleged opportunities included the fact that drivers could have multiple routes, and hire other drivers to work for them and drive those routes.  The court held that such opportunities were not enough to transform the drivers into independent contractors.

The court reached a similar holding in Ruiz v. Affinity Logistics, Corp. (9th Cir.2014) 754 F.3d 1093.  In that case, the court also found that the fact that drivers were permitted to hire other drivers to work for them was not enough to render them independent contractors.

Federal Preemption of California Meal and Rest Break Laws

California courts also addressed the important question of whether California’s meal and rest break laws are preempted by the Federal Aviation Administration Authorization Act of 1994, or “FAAAA.”  The FAAAA applies to motor carriers, including truck drivers.  Several lower courts had held that meal and rest break laws were preempted by the FAAAA.

However, both the California Supreme Court and the Court of Appeals for the Ninth Circuit rejected this argument and held that the FAAAA does not preempt such laws.  See Dilts v. Penske Logistics, LLC (9th Cir.2014) 2014 WL 4401243 and People ex rel. Harris v. Pac Anchor Transportation, Inc. (2014) 59 Cal.4th 772.  Each of these cases held that meal breaks and rest breaks are not significantly related to “rates, routes, or services.”  Instead, the relation of such breaks to rates, routes or services was only tenuous, remote, and peripheral.

The plaintiffs in Dilts were helped by an amicus brief from the Department of Transportation.  That brief pointed out that enforcing meal breaks and rest breaks for drivers would not have any significant effect on prices, routes, or services.

Inside Sales Exemption

In Peabody v. Time Warner Cable, Inc. (2014) 59 Cal.4^th 662, the California Supreme Court addressed the inside salesperson exemption.  To meet that exemption, employees must meet two requirements:  (1) they must earn more than one and half times the minimum wage; (2) they must earn at least half of their wages from commission.

This framework raises the following question:  what about employees who, because of their commission structure, earn one and half times the minimum wage during some of their pay periods, but not all?  In other words, under California law are employers permitted to average pay across pay periods in order to meet the requirements of the exemption?  Under federal law, the answer to this question is yes.

However, in Peabody, the Court held that under California law employees must meet the minimum wage requirement in each pay period.  Otherwise, employees are not exempt for those pay periods in which they are not paid more than one and half times the minimum wage.  This decision exposes employers who are not careful to ensure that their inside sales people receive the requirement wages in each pay period to significant liability.

Business Expenses-Cell Phones

In Cochran v. Schwan’s Home Serv., Inc. (2014) 228 Cal.App.4th 1137, the Second District Court of Appeal addressed the issue of when employees who use their cell phones for work are permitted to recover their expenses under Labor Code S 2802.  The plaintiffs in that case were customer service managers who used their cell phones at work.

The court of appeal held that employers must always reimburse employees who use their cell phones on the job.  Otherwise, those employers will receive a windfall.  Furthermore, the court held that it does not matter whether someone else pays for the employee’s phone.  Finally, the court limited an employer’s ability to inquire into the details of employees’ phone use:

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-à-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.

Id., at 1144-45.

Cochran will have serious ramifications for employers who know or should know that their employees are using personal cell phones for work related purposes.  In addition to the underlying claim for unreimbursed expenses, those employers would also seem to have a valid PAGA claim that would not require them to show how much their actual damages were.

The cases discussed above are all relatively favorable toward workers.  The cases that follow tend to favor employers.

Business Expenses-Mileage Reimbursement

In Ortiz v. CVS Caremark Corp. (N.D.Cal.2014) 2014 WL 1117614, the court addressed mileage reimbursement claims in the wake of Gattuso v. Harte Hanks Shoppers, Inc. (2007) 42 Cal.4th 554.  The Ortiz court rejected the argument that the IRS rate for mileage reimbursement was presumptively reasonable.  The court also held that there was no presumption of unreasonableness if an employer failed to pay the IRS rate.

The court noted that employers could compensate employees for mileage in two different ways:  the actual expense method and the mileage reimbursement method.  Plaintiffs challenging the mileage reimbursement method must show that the mileage reimbursement paid was less than the employees’ actual mileage expenses.  The court found that this inquiry would require highly individualized questions such as the make and vintage of each vehicle used, whether it was financed or leased, and the type of fuel used.  This standard would make it very difficult to certify a class based upon failure to adequately reimburse mileage expenses.

Off the Clock Work

California courts also addressed the requirements of class actions involving off the clock work in several cases.  These cases are consistent with the holding in Brinker Restaurant Corp. v. Superior Court (2013) 53 Cal.4th 1004.  There, the California Supreme Court held that there is a presumption against off the clock work if an employer has a policy prohibiting such work.   A plaintiff may rebut this presumption by showing that he or she worked off the clock.  However, this requirement injects the potential for individual inquiries that may overwhelm commonality for the purposes of class certification.

In Jong v. Kaiser Foundation Health Plan, Inc. (2014) 226 Cal.App.4th 391, the First District Court of Appeal reviewed an off the clock case involving outpatient pharmacy managers (OPMs) at Kaiser.  OPMs had previously been classified as exempt.  During that time, they had worked on average 50 hours per week.  After an earlier class action, Kaiser reclassified the OPMs as nonexempt.

The plaintiffs in Jong then sued, arguing that they were forced to work off the clock because (1) there was a no overtime policy, and (2) OPMs’ job duties had not changed, requiring them to continue to work 50 hours per week.  Kaiser responded that it had an explicit policy that OPMs should be clocked in whenever they were working, and that it had no knowledge-actual or constructive-of any OPMs working off the clock after they were reclassified as nonexempt.

The court of appeal considered and rejected three arguments raised by the plaintiffs.  First, the plaintiffs argued that declarations from the prior class action were sufficient to put Kaiser on notice that OPMs were still working more than 40 hours per week.  The court rejected this argument on the grounds that notice to Kaiser regarding past conduct did not show that OPMs had continued to work more than 40 hours per week after they were reclassified.

Next, the plaintiffs argued that an email from 2010 referring to reports of off the clock work had been sufficient to put Kaiser on notice.  The court rejected this argument, noting that in a later email Kaiser had informed its employees that off the clock work was unacceptable.

Finally, the plaintiffs argued that alarm code data was sufficient to provide notice, because it showed that class members were logging in before their shifts were scheduled to begin.  The court rejected this argument on the grounds that such data did not indicate what class members did between disarming and punching in.

Thus, the Jong court ruled in Kaiser’s favor.  In passing, however, the court noted that evidence of conversations with supervisors regarding off the clock work, while weak, could be enough to establish a triable issue of fact regarding notice.

In Ortiz v. CVS Caremark Corp. (N.D.Cal.2014) 2014 WL 1117614, the court addressed off the clock work in the context of a PAGA claim.  There, the district court granted a motion to strike the plaintiffs’ PAGA claims on the grounds that they were unmanageable.  The court, citing Brinker, the court noted that there was a presumption that employees were not working off the clock if they clocked out.  The court further noted that the plaintiffs’ off the clock claims would require evidence that the employer knew or should have known about each instance of off the clock work.

Seating Cases

In Kilby v. CVS Pharmacy, Inc. (9th Cir.2013) 739 F.3d 1192, the Court of Appeals for the Ninth Circuit certified several critical questions involving seating cases to the California Supreme Court.  These cases turn on language in the applicable wage orders that requires “suitable seating” where the nature of the work reasonably permits it.  The California Supreme Court accepted these questions.  Accordingly, we should have guidance in the future regarding the proper scope of seating cases.