ABC Standard for Determining Employment Relationship Does Not Apply to Labor Code Claims

The San Diego division of the Fourth District Court of Appeal has ruled that the ABC test for employment established by the Supreme Court's Dynamex decision is limited to claims under California's wage orders. In Garcia v. Border Transportation Group, LLC, Case No. D072521 (10/22/2018), the Court ruled that a plaintiff's claims for (1) failure to pay overtime under Labor Code section 510, (2) waiting time penalties under Labor Code section 203, (3) Unfair Competition Law claims based on those violations, and (4) wrongful termination in violation of public policy were governed by the factors established in the Borello decision.

Garcia was a driver for a cab company that owned 30 of the 45 permits issued by the City of Calexico for taxicab service. To drive a taxicab, a person had to obtain a City driver's permit, which could only be used while employed by an identified cab company. To work for a different cab company, the driver would have to obtain an updated permit. He sued the cab company for a number of wage and hour violations, some under California Wage Order No. 9, some under the Labor Code, some under the Unfair Competition Law, and one for wrongful termination in violation of public policy. The trial court granted summary judgment for the cab company, based on the Borello standard, in  a decision handed down before the Supreme Court issued its Dynamex decision on 4/30/2018.

In Borello, the Supreme Court had explained that the principal test for determining whether an employment relationship existed was whether the recipient of the worker's services "has the right to control the manner and means of accomplishing the result desired." It also identified the following "secondary indicia" of an employment relationship: "(a) whether the one performing services is engaged in a distinct occupation or business; (b) the kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of the principal or by a specialist without supervision; (c) the skill required in the particular occupation; (d) whether the principal or the worker supplies the instrumentalities, tools, and the place of work for the person doing the work; (e) the length of time for which the services are to be performed; (f) the method of payment, whether by the time or by the job; (g) whether or not the work is a part of the regular business of the principal; and (h) whether or not the parties believe they are creating the relationship of employer-employee."

In Dynamex, the Supreme Court ruled that a more expansive definition was more appropriate for wage claims brought under one of the wage orders. It adopted the "ABC test," used in many other jurisdictions to decide whether an employment relationship existed. That test presumes that a worker is an employee, unless the person who engaged the worker's services establishes all of the following: "(A) that the worker is free from the control and direction of the hirer in connection with the performance of the work, both under the contract for the performance of such work and in fact; (B) that the worker performs work that is outside the usual course of the hiring entity's business; and (C) that the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity."

The Court of Appeal ruled that the ABC test should not be applied outside the wage order context. That is where the language on which the Supreme Court relied in adopting the test appears. Further, the wage orders warrant a broader definition, because they were intended to regulate very basic working conditions that should be extended to the widest class of workers. Application of the ABC test to the facts before the Court compelled reversal of summary adjudication of the wage orders claims. Although Borello applied to the other claims, the Court of Appeal did not decide whether there was a triable issue under that standard, because Garcia's brief did not adequately raise the issue.

Tip Rules Under the FLSA

The Fair Labor Standards Act permits an employer to take a credit against its minimum wage obligation for tips that its employees receive. Recent statutory, regulatory and case law developments make it advisable to review the rules. (Caution: State rules may impose stricter limits than the FLSA does. See Tipping and the Wage and Hour Rules, which contains a discussion of California law.)

Section 3(m) of the FLSA (29 U.S.C. section 203) permits an employer to take a tip credit toward its minimum wage obligation for tipped employees equal to the difference between $2.13 and the federal minimum wage (currently $7.25). That provision raises the following questions:

Who is a "tipped employee?" A tipped employee means any employee engaged in an occupation in which he or she customarily and regularly receives more than $30 a month in tips.

Do tips belong to the employer or the employee? Although the employer may take a credit, the tips belong by law to the employee. An employer may not keep tips received by its employees for any purposes, including allowing managers or supervisors to keep any portion of an employee's tips.

May an employer require tipped employees to participate in a tip pool? Yes, if the employer does not take a tip credit, and pays its tipped employees a cash wage that equals or exceeds the minimum wage. Those who take a tip credit may not require tip pooling.

Who may the employer require to be included in a tip pool? Those employers who pay the full federal minimum wage without a tip credit may require tipped employees to share their tips with employees who are not customarily and regularly tipped, such as cooks and dishwashers. (This is a change from the prior rule under a DOL regulation that prohibited those who did not take a tip credit from requiring tips to be shared with untipped employees. The change resulted from Congressional action earlier this year.) However, as mentioned above, managers and supervisors may not participate in tip pools.

What about employees who perform some duties for which they regularly receive tips, and some for which they do not? The DOL's dual jobs regulation, and an interpretive guidance in Chapter 30 of the Wage and Hour Division's Field Operations Handbook (section 30d00(f)) require employers to pay their tipped employees a cash wage equal to at least the federal minimum wage for duties that they do not regularly receive tips for. The employer may apply a tip credit to time the tipped employee spends on incidental duties that are related to the tipped occupation, up to 20 percent of the total hours worked in the tipped occupation during the workweek. Related duties for a server could include such tasks as filling salt and pepper shakers while the restaurant is open, cleaning and setting tables, making coffee, and occasionally washing dishes. Cleaning bathrooms and washing windows do not constitute related duties.

The Ninth Circuit recently explored the applicable rules in March v. J. Alexander's LLC, Case No. 15-15791 (9th Cir. 9/18/2018).

Former Women's Team Goalkeeper Sues US Soccer for Equal Pay Act Violation

By Ampatent [CC BY-SA 3.0
(https://creativecommons.org/licenses/by-sa/3.0)],
from Wikimedia Commons

Hope Solo, who was a goalkeeper for the US Women's National Team from 2000 to 2016, has sued the United States Soccer Federation, the official governing body for the sport of soccer in the United States. Her complaint, filed on August 24, 2018, in the United States District Court for the Northern District of California, charges that U.S. Soccer violated the Equal Pay Act, and Title VII by paying the members of the women's team less than it pays the members of the men's team. According to the complaint, the members of the women's team perform substantially equal or similar work, when viewed as a composite of skill, effort, and responsibility, and perform under similar working conditions, as the members of the men's team.

Courts applying the Equal Pay Act in the past have recognized that differences in exposure and prestige between men's and women's teams justify pay disparities in coaching jobs. In the most well-known case, the Ninth Circuit affirmed summary judgment for the University of Southern California in a case brought by its women's basketball coach, who was paid substantially less than the men's basketball coach. The court explained that the substantial difference in pay was justified in part by the difference in media attention and revenue generated by the two teams. Stanley v. University of Southern California, 178 F.3d 1069 (9th Cir. 1999). Although some female coaches have succeeded on Equal Pay Act claims (see Perdue v. City University of New York, 13 F.Supp.2d 326 (E.D.N.Y. 1998)), most have not. The EEOC published an enforcement guidance on the subject in 1997, which advised that pay disparities between male and female coaches were of concern.

Solo has a stronger case for equal pay than the women's coaches who lost their cases, because the Women's National Team has performed much better than the Men's National Team, and, at least according to her complaint, has generated substantially more revenue for U.S. Soccer.

Last year, U.S. Soccer entered into a new collective bargaining agreement with the players on the Women's National Team. A complaint alleging discriminatory pay practices that several of the players, including Solo, filed with the EEOC in 2016, remains outstanding. Both the agreement and the EEOC complaint may affect the individual lawsuit that Solo has filed.

The case has been assigned to United States Magistrate Judge Donna M. Ryu. Under the rules of the Northern District, the case will be assigned to an Article III United States District Judge, if the parties do not consent to Judge Ryu's continuing to handle the case.

The Northern District of California seems like an odd venue for the lawsuit. The complaint asserts that Solo is a resident of North Carolina, and that U.S. Soccer is chartered under New York law, with a principal place of business in Chicago. Although the complaint alleges that U.S. Soccer does "substantial business" in the Northern District, it does not explain what that business consists of. However, the federal venue statute (28 U.S.C. section 1391), provides that venue is proper where the defendant resides, or where substantial part of the events or omissions giving rise to the claim occurred. An entity like U.S. Soccer "resides," for purposes of the statute, in any district where it is subject to personal jurisdiction.

How an $80 Mistake Became an $88,410 Mistake

First District Court of Appeal

California's Labor Code is full of technical requirements that can trip up even those employers who are trying to comply with their obligations. And, because of the monetary penalties and attorney's fees that can be assessed for violations of those technical requirements, the consequences may be out of proportion to the seriousness of the wrongdoing. A recent decision from the Court of Appeal for the First Appellate District illustrates the problem.

Labor Code section 202 requires an employer to pay all wages due within 72 hours after the employee gives notice of his or her intention to quit. (If the employer discharges the employee, the wages are immediately, under section 201.) If the employer does not pay the final wages within the deadline imposed by the Labor Code, it is subject to waiting time penalties under section 203, which provides: "If an employer willfully fails to pay ... any wages of an employee who is discharged or who quits, the wages of the employee shall continue as a penalty from the due date thereof at the same rate until paid or until an action therefor is commenced; but the wages shall not continue for more than 30 days."

In Nichiki v. Danko Meredith, APC, Case No. A147733 (August 1, 2018), the employer mailed a handwritten check to its departing employee for her final wages, on November 18 (which was within 72 hours of reading an email from the employee announcing her resignation). In the dollar amount box, the amount was given as "2,880.31," the correct amount. But, the amount was spelled out as "Two thousand eight hundred and 31/100." Because of the discrepancy, the employee was unable to deposit the check. She emailed the employer about the problem on November 26. The employer issued a new check for the correct amount on December 5, 9 days later. After a hearing the Labor Commissioner ruled that the employee should recover waiting time penalties for 17 days, from November 18 to December 5, at a daily rate of $250 per day -- a total of $4,250. The employer appealed the ruling to Superior Court, which upheld the waiting time penalty of $4,250, and awarded $86,160 in attorney's fees under Labor Code section 98.2(c).

The Court of Appeal reduced the waiting time penalties to $2,250, for the nine days from November 26 to December 5. By statute, the words written on a check prevail over numbers, which made the original check $80 short. (See Cal. U. Com. Code, section 3114.) Although that mistake was inadvertent, the delay in paying the correct amount became willful once the employer received notice of the mistake on November 26.

The attorney's fees award under section 98.2 was appropriate. That section provides, that the reviewing court must award reasonable attorney's fees to the opponent of an unsuccessful appellant, whether that is the employer or the employee. However, an employee is deemed to be successful if the court awards an amount greater than zero. Because the result, even after the appeal, was an amount greater than zero, the employee is also entitled to the costs and attorney's fees incurred for the proceedings in the Court of Appeal.

The lesson for employers is that you should cut your losses. Once you determine that there has been a violation of the Labor Code, make the employee whole for the violation immediately.

Federal "De Minimis" Doctrine Does Not Apply to Wage Claims under California Law

In Anderson v. Mt. Clemens Pottery Co., 328 U.S. 680 (1946), the U.S. Supreme Court ruled that insubstantial and insignificant amounts of time spent on preliminary work activities could be ignored in calculating whether an employee had worked more than 40 hours in a workweek. The U.S. Department of Labor adopted a regulation codifying this "de minimis" doctrine, which may be found at 29 C.F.R. § 785.47. It provides that "insubstantial or insignificant periods of time beyond the scheduled working hours, which cannot as a practical administrative matter be precisely recorded for payroll purposes, may be disregarded." When applying that rule, federal courts consider "(1) the practical administrative difficulty of recording the additional time; (2) the aggregate amount of compensable time; and (3) the regularity of the additional work." Using that analysis, most federal courts have found "daily periods of approximately 10 minutes de minimis even though otherwise compensable." Lindow v. United States, 738 F.2d 1057 (9th Cir. 1984).

On an appeal from a federal district court's grant of summary judgment on a state law unpaid wages claim based on the de minimis doctrine, the Ninth Circuit asked the California Supreme Court to determine whether the doctrine should be applied to wage claims under California law. (Rule 8.548 of the California Rules of Court authorizes the Supreme Court to respond to such inquiries.) According to the Ninth Circuit, the evidence in the case established that a Starbucks shift supervisor was required to perform various closing tasks after clocking out. Those tasks consumed 4 to 10 minutes each workday.

In Troester v. Starbucks Corporation, Case No. S234969 (July 26, 2018), the California Supreme Court ruled that California law does not permit application of the de minimis doctrine in the circumstances described by the Ninth Circuit. First, the Court determined that the applicable wage order and the California Labor Code contemplated that employees would be paid for all work performed, and did not incorporate a de minimis exception. In doing so, the Supreme Court expressly rejected the contrary position asserted in opinion letters issued by the California Labor Commissioner's Division of Labor Standards Enforcement.

The Court went on to consider whether it should adopt a de minimis rule for wage claims, based on the legal maxim de minimis non curat lex (the law cares not for trifles), which is codified in California Civil Code section 3533. Although it did not rule out the application of that principle to some wage claims, it declined to apply it to the facts described by the Ninth Circuit.

An employer that requires its employees to work minutes off the clock on a regular basis or as a regular feature of the job may not evade the obligation to compensate the employee for that time by invoking the de minimis doctrine. As the facts here demonstrate, a few extra minutes of work each day can add up. According to the Ninth Circuit, Troester is seeking payment for 12 hours and 50 minutes of compensable work over a 17-month period, which amounts to $102.67 at a wage of $8 per hour. That is enough to pay a utility bill, buy a week of groceries, or cover a month of bus fares. What Starbucks calls “de minimis” is not de minimis at all to many ordinary people who work for hourly wages.