Are Ride Share Services Employers?

Recent news reports about class action lawsuits against Uber and Lyft provide an opportunity for revisiting the standards that courts and enforcement agencies use to determine whether an employment relationship exists between the provider of labor and the recipient of the benefits of the labor. Uber is the subject of a lawsuit entitled O'Conner v. Uber Technologies, Inc., currently pending in the United States District Court for the Northern District of California, where it is being heard by Judge Vince Chhabria, under Case No. 13-CV-03826-EMC. The Lyft case is in the same district, where it is being heard by Judge Edward Chen -- Cotter v. Lyft, Inc., under Case No. 13-CV-04065-VC.

In both cases, the judges denied summary judgment motions by the defendants, on the grounds that there were triable issues as to whether the companies were employers of their drivers, The question to be decided at trial in each case is whether the drivers are independent contractors or employees entitled to the protections of the wage and hour laws. The answer turns on the amount of control that each company exercises over the manner and means by which the drivers provide services.

Under the venerable case of S.G. Borello & Sons, Inc. v. Dep’t of Indus., 48 Cal. 3d 341 (1989), California law (which applies in both cases) presumes that anyone who provides services to another is an employee. The burden is on the presumptive employer to show otherwise by analyzing the following factors: (1) the right to control the work, (2) the alleged employee's opportunity for profit or loss depending on his managerial skill, (3) the alleged employee's investment in equipment or materials required for his task, or his employment of helpers, (4) whether the service rendered requires a special skill, (5) the degree of permanence of the working relationship, and (6) whether the service rendered is an integral part of the alleged employer's business. For a practical, question and answer approach to applying the California standard, see the Employment Development Department's Employment Determination Guide.

The federal standard under the Fair Labor Standards Act is similar. For example, in Bonnette v. California Health & Welfare Agency, 704 F.2d 1465, 1470 (9th Cir. 1983), the Ninth Circuit stated that the determination must be based on the economic realities of the situation, including whether the alleged employer (1) had the power to hire and fire the employees, (2) supervised and controlled employee work schedules or conditions of employment, (3) determined the rate and method of payment, and (4) maintained employment records.

Cases involving taxi drivers may provide some guidance as to how the Uber and Lyft cases will ultimately turn out. In Yellow Cab Cooperative v. Workers' Compensation Appeals Bd., 226 Cal.App,3d 1288 (1991), the California Court of Appeal ruled that a cab driver was an employee of Yellow Cab for purposes of workers compensation. Although the driver provided services under a written lease with Yellow Cab and was responsible for his own expenses, Yellow Cab exercised substantial control over the manner and means by which the driver provided the services. It marketed the service and had dispatchers who directed the drivers to calls. It instructed drivers on matters of behavior toward the public, personal appearance, and keeping their cabs clean. The company could require drivers to return to the yard. It barred them from working for other companies.

By contrast, in Yellow Taxi Co. v. NLRB, 721 F.2d 366 (D.C. Cir. 1983), a federal court of appeals ruled that taxis drivers were not employees under the National Labor Relations Act. There the company's written lease provided that the driver paid a fixed rental, regardless of his or her earnings on a particular day, and retained all the fares collected without having to account to the company in any way. That created a "strong inference" that the company did not control the manner and means of providing services.

Note that the Fair Labor Standards Act exempts drivers for "an employer engaged in the business of operating taxicabs" from the overtime rules (although not from the minimum wage requirement). See 29 U.S.C. section 213(b)(17).

For news reports on the denial of summary judgment motions in the Uber and Lyft lawsuits, see Juries To Decide Landmark Cases Against Uber and Lyft in Forbes, Judges back drivers in lawsuits against Uber, others in The Boston Globe, Judges Rule Lawsuits Over Lyft, Uber Drivers Should Proceed in The Wall Street Journal, and Uber and Lyft drivers' class-action lawsuits will go to jury trials in The Los Angeles Times.

What Is A "No Poaching" Claim?

Some employee lawyers have invoked antitrust laws to target large employers who allegedly have agreed not to solicit, or "poach," employees from their competitors. The  term got public attention in 2011, when a class action lawsuit filed against a number of tech companies, including Adobe, Google, Intel and Apple, alleged that they agreed not to solicit each other's employees. In re High-Tech Employee Antitrust Litigation, Case No. 11-CV-02509-LHK (N.D. Cal.) When she denied summary judgment in March 2014, U.S. District Lucy Koh cited evidence of bilateral written agreements with nearly identical terms, and strict enforcement to find that there was sufficient evidence of collusion to create a triable issue. On August 8, 2014, Judge Koh denied approval of a proposed settlement that would have paid class members an average of $3,750 each. The case is set for trial on April 9, 2015.

On September 8, 2014, a class action complaint was filed on behalf of employees of visual effects and animation companies, alleging that Dreamworks, Pixar, Lucasfilm and Sony (among others) had conspired to suppress employee wages through use of no-solicitation agreements. Nitsch v. DreamWorks Animation SKG, Inc., Case No. 3:14-cv-04062-VC (N.D. Cal.).

In May 2014, the U.S. Department of Justice settled a no poaching case against eBay for having agreed with Intuit not to solicit each other's employees. It had reached similar settlements with several of the companies that are the targets of the class action lawsuit pending before Judge Koh in 2010.

Who Is The (An) Employer?

Questions may arise about which of multiple actors is responsible for various aspects of an employment relationship. When a temporary agency provide a worker to one of its clients, can the client be sued for not providing a meal period? Is the agency or the client responsible for compliance with the family leave statutes? If an outside contractor supplies employees to provide document services at its client's work site, who is liable for any workplace harassment claims? Can a payroll service be held liable to its client's employees for failure to pay wages in accordance with the California Labor Code? The last was the subject of the Court of Appeal's recent decision in Aleksick v. 7-Eleven, Inc., Case No. D059236 (May 8, 2012). It provides a good jumping off point for a discussion of the legal principles that determine who a particular worker's employer is.

Kimberly Aleksick worked for a 7-Eleven franchise owned by Michael Tucker. His franchise agreement with 7-Eleven to use a payroll service operated by 7-Eleven. Aleksick brought a class action against 7-Eleven claiming that its practice of converting minutes to hundredths of an hour sometimes shorted employees a few seconds worth of pay. The dispositive question was whether 7-Eleven could be considered Aleksick's employer by operation of the payroll service.

Common Law

Determining whether a worker is an employee is an issue in many areas of law. At common law, the issue arises with respect to responsibility for the worker's torts. If an organization hires an independent contractor to carry out a task, and the independent contractor is negligent, the organization is not liable. Foster v. County of San Luis Obispo, 14 Cal. App. 4th 668, 17 Cal. Rptr.2d 730 (1993) (county not liable for legal malpractice of independent lawyer retained to represent indigent defendant). But, the organization is liable under the doctrine of respondeat superior for negligence of its employees. Barner v. Leeds, 24 Cal. 4th 676, 13 P.3d 704, 102 Cal. Rptr. 2d 97 (2000) (county is liable for malpractice of deputy public defender whom it employs).

The common law standard looks to the degree of control that the putative employer has over the manner and means by which the worker carries out his or her task. The California Employment Development Department published the Employment Determination Guide, which explains the standard in question and answer format, and provides concrete examples.

Wage and Hour

Federal and state law impose minimum wage, overtime and other wage and hour requirements on employers. Those who meet the common law definition of employer must comply with those regulations. However, the laws contain their own definitions that may be more encompassing.

The California wage orders refer to the common law standard but defines employ to include  "to exercise control over the wages, hours or working conditions" or "to suffer or permit to work." (The California wage orders are available from the Industrial Welfare Commission website.) The suffer or permit to work language is derived from child labor legislation designed to prevent companies that controlled a work site from disclaiming responsibility for minors who might be working there although not under the direct control of the company. The exercising control standard allows the law to reach through straw men and sham arrangements to get at the true employer, and to apply to situations where multiple entities control different aspects of the employment relationship. The California Supreme Court explained the standards in Martinez v. Combs, 49 Cal.4th 35, 109 Cal. Rptr. 3d 514, 231 P.3d 259 (2010).

In the Aleksick case referred to at the outset the Court of Appeal determined that the payroll service did not meet any of the definitions of employer under California law.

Although the federal Fair Labor Standards Act definition of employ includes suffer or permit to work, the United States Supreme Court has adopted an economic reality test that does not necessarily match the more all-encompassing definition under California law. Tony and Susan Alamo Foundation v. Secretary of Labor, 471 U.S. 290 (1985).

Workers Compensation

California's Workers Compensation Act covers persons in the service of an employer under any contract of hire, but not independent contractors. The Act defines an independent contractors as "any person who renders service for a specified recompense for a specified result, under the control of his principal as to the result of his work only and not as to the means by which such result is accomplished. Because of the remedial purposes of the Act, the coverage may sometimes extend beyond those who would be considered employees under the common law test. S.G. Borello & Sons v. DIR, 48 Cal.3d 341, 769 P.2d 399, 256 Cal. Rptr. 543 (1989) ("sharefarmers" engaged to harvest cucumbers were employees of the grower).

Anti-Discrimination Laws

Federal and state laws prohibit employers from harassing, and discriminating and retaliating against their employees based on protected characteristics. Where more than one entity has control over conditions in the workplace, liability may extend beyond the one considered the employer under common law principles. The EEOC has published an Enforcement Guidance on the application of equal employment opportunity laws to contingent workers placed by staffing firms. The following example from the guidance illustrates how the laws apply to one such situation:

Example 9: A temporary employment agency receives a job order for a temporary receptionist. The client requires that the individual assigned to it speak English fluently because a large part of the job entails communication with English-speaking persons who call the client or who come to the client's work place. The agency assigns an Asian American individual who speaks English fluently, but with an accent. The client insists that the agency replace her with someone who can speak unaccented English. The agency complies with that request and sends an individual who speaks English fluently with no accent. The Asian American individual files a charge with the EEOC. The investigator determines that English fluency was necessary for the job. However, he further determines that CP's accent does not interfere with her ability to communicate and that she has effectively performed similar jobs. The investigator properly concludes that both the client and the staffing firm are liable for terminating CP on the basis of her national origin.

FMLA

The federal Family and Medical Leave Act and the California Family Rights Act require employers with 50 or more employees to provide unpaid leave benefits. As with the anti-discrimination laws, questions may arise about which entity is responsible for the benefits and providing a job when the employee is ready to return to work. The Department of Labor has explained the principles in section 825.106 of its regulations.

The need to determine whether an employment relationship exists arises in many other contexts. While some of those may have unique standards, the general standards discussed here are a useful starting point for all such determinations.

Employment Cases on US Supreme Court Docket

The 2008-09 term of the United States Supreme Court will bring decisions in the following cases that involve employment law issues. We will report on the decisions themselves when they are handed down.

Locke v. Karass, Case No. 07-610. Question Presented: "In Ellis v. Railway Clerks, this Court unanimously “determined that the [Railway Labor Act], as informed by the First Amendment, prohibits the use of dissenters’ [union] fees for extraunit litigation.” Lehnert v. Ferris Faculty Ass’n, 500 U.S. 507, 528 (1991) (opinion of Blackmun, J., citing Ellis, 466 U.S. 435, 453 (1984)). In Lehnert, a four-member plurality therefore held “that the Amendment proscribes such assessments in the public sector.” Id. Moreover, Justice Scalia’s separate opinion, concurring in part in the judgment announced by Justice Blackmun, reasoned that “there is good reason to treat [Ellis and the Court’s other statutory cases] as merely reflecting the constitutional rule.” Id. at 555. May a State, nonetheless, consistent with the First and Fourteenth Amendments, condition continued public employment on the payment of agency fees for purposes of financing a monopoly bargaining agent’s affiliates’ litigation outside of a nonunion employee’s bargaining unit? Oral Argument: 10/06/2008. Merits Briefs

A unanimous Court answered "yes" in a decision issued on January 21, 2009. A local may charge for its national's litigation expenses so long as (1) the subject matter of the national litigation bears an appropriate relation to collective bargaining and (2) the arrangement is reciprocal—that is, the local’s payment to the national affiliate is for "services that may ultimately inure to thebenefit of the members of the local union by virtue of their membership in the parent organization."

Crawford v. Metro. Gov't of Nashville & Davidson County, Case No. 06-1595. Question Presented: "Does the anti-retaliation provision of section 704(a) of Title VII of the 1964 Civil Rights Act protect a worker from being dismissed because she cooperated with her employer's internal investigation of sexual harassment? Oral Argument: 10/08/2008. Merits Briefs

The Court answered "yes" in a decision issued on January 26, 2009. Justices Alito and Thomas concurred, but wrote separately to emphasize that the Court was not adopting a broad definition of "oppose" that might encompass non-purposive conduct.

AT&T Corp. v. Hulteen, Case No. 07-543. Questions Presented: "Before the passage of the Pregnancy Discrimination Act of 1978 (PDA), it was lawful to award less service credit for pregnancy leaves than for other temporary disability leaves. Gilbert v. Gen. Elec. Co., 429 U.S. 125 (1976). Accordingly, the questions presented are: 1. Whether an employer engages in a current violation of Title VII when, in making post-PDA eligibility determinations for pension and other benefits, the employer fails to restore service credit that female employees lost when they took pregnancy leaves under lawful pre-PDA leave policies. 2. Whether the Ninth Circuit’s finding of a current violation of Title VII in such circumstances gives impermissible retroactive effect to the PDA. Oral Argument: 12/10/2008. Merits Briefs

14 Penn Plaza LLC v. Pyett, Case No. 07-581. Question Presented: " Is an arbitration clause contained in a collective bargaining agreement, freely negotiated by a union and an employer, which clearly and unmistakably waives the union members’ right to a judicial forum for their statutory discrimination claims, enforceable?" Oral Argument: 12/01/2008. Merits Briefs

Resources for Following the Court

United States Supreme Court (official site)
FindLaw US Supreme Court Center
LII Supreme Court Collection
A-Z Merit Briefs for Supreme Court (from ABA)

$14.4 Million To FedEx Drivers Misclassified As Independent Contractors

This past week a referee appointed by the Los Angeles Superior Court recommended that the court award FedEx drivers in California $14.4 million for unreimbursed job-related expenses and accrued interest. This is the latest in a long-running nationwide battle between FedEx and its drivers over how they should be classified for employment law purposes. Other employers should learn from FedEx's experience. For information on this and other cases against FedEx, visit FedEx Drivers Lawsuit.

Last year, the California Court of Appeal had affirmed the trial court ruling that the drivers were employees, and not independent contractors. It explained that the test for determining employee status is "whether the principal has the right to control the manner and means by which the worker accomplishes the work." Even though FedEx's written agreements with its drivers stated that they were independent contractors, "FedEx’s control over every exquisite detail of the drivers’ performance, including the color of their socks and the style of their hair, supports the trial court’s conclusion that the drivers are employees, not independent contractors." The full text of the decision is available here.

Some employers think it is as simple as choosing between IRS Form 1099 reporting, and IRS Form W-2 Reporting. As the IRS explains in its "Independent Contractor or Employee ..." publication, the nature of the relationship, not the form, determines whether or not a person is an employee. Making the wrong choice can lead to serious consequences, such as liability for unreimbursed expenses as in the FedEx case, for overtime obligations, for employee benefits, for workers compensation premiums and penalties, and unpaid taxes.

What should an employer do to avoid difficulties like those encountered by FedEx? Begin with the assumption that any worker who is a regular part of your business is an employee. If you are convinced that the worker may have sufficient independence to qualify as an independent contractor, then conduct a thorough analysis. To assist you in that analysis, the California Employment Development Department publishes the Employment Determination Guide, which contains a thorough explanation of the subject, and a series of yes or no questions that explore the determinative factors.

If you determine after your analysis that the worker is indeed an independent contractor, document the relationship in a written contract. You can find some sample contracts through the Employment Forms page at FindLaw.

Retaliation Claims Lurk in Meritless Discrimination Lawsuits

Two recent verdicts from California Superior Court juries illustrate the risk of retaliation liability that arises in the wake of employee complaints about mistreatment. It is not uncommon for employers to prove that a discrimination, harassment or other employment claim lacks merit, only to be held liable because the complainant suffered adverse employment consequences after complaining. An employee who files a complaint in good faith (even if it turns out to be unfounded) is protected from retaliation.



Retaliation Verdicts

In one case, a state correctional officer claimed to have been discriminated against and harassed because of her sexual orientation and disability. She also alleged that her supervisors retaliated against her for complaining about their actions. The jury decided that the supervisors had not engaged in unlawful harassment or discrimination, but awarded the officer $800,000 on the retaliation claim, all for non-economic, that is, emotional distress damages. The court also awarded attorney fees of $442,400 and costs of $60,123. Mootz v. Department of Corrections and Rehabilitation, Case No. 05AS04214 (Sacramento Superior Court 3/27/2008).


In the second case, two sales persons alleged that they had complained to their employer about various wage and hour practices, and were terminated as a result. They recovered a combined verdict of $840,400. Boren v. Global Medical Mobile Diagnostics Inc., Case No. BC356430 (L.A. Superior Court 5/22/2008).



The Law

All employment laws prohibit employers from taking adverse employment action against employees for engaging in protected activity. Protected activity includes complaining about or opposing practices forbidden by the statutes and participating in investigations of prohibited conduct. Adverse employment action includes termination, failure to promote, punitive transfers and other actions that have a material impact on the terms and conditions of employment.



To establish a prima facie case, the employee need only establish that he or she engaged in protected activity and suffered adverse employment action, and that there was a link between the two. To establish the link, it is enough to show that the adverse action followed closely on the heels of the protected activity. Such a showing then places the burden on the employer to establish that it had a legitimate reason for the adverse employment action. If the employer provides evidence of a legitimate reason, the burden shifts to the employee to prove that the given reason was a pretext for retaliation.

A successful plaintiff in a retaliation case may recover any economic loss, damages for the emotional distress from experiencing retaliation, punitive damages (if the retaliation was egregious), and, under most employment statutes, attorneys fees.

What Employers Should Do

To navigate between the Scylla of a large damages award and the Charybdis of not taking action against a poor-performing employee who happens to have complained, employers must adopt good documentation practices. Such practices will prevent corrective measures from boomeranging and exposing the employer to liability.

1. Make sure that each employee's personnel file includes a job description acknowledged by the employee. This will avoid disagreement over job duties if an issue arises about an employee's ability to continue working.

2. Develop a set of written performance expectations for each employee. This will avoid an employee's argument after being subjected to adverse employment action that he or she never understood what was expected.

3. Insist on honest annual performance evaluations. This will avoid an employee's argument that nobody ever told him or her that there were performance issues.

4. Document every communication with an employee about performance or misconduct, no matter how minor. This will avoid a possible argument that it never happened.

Injured, Sick and Disabled Workers

The tangle of laws governing treatment of injured, sick and disabled workers can make it difficult for an employer to make the right choice. If the employer makes the wrong choice, a lawsuit with its attendant costs and exposure to a jury verdict frequently follows.

The Costs of Being Wrong

A second grade teacher fell in her classroom, injuring her knees to the extent she required surgery. She subsequently developed fibromyalgia, a pain syndrome. When she was released to return to work 20 months later to a sedentary position, the school district required her to return as a second grade teacher (not sedentary), even though there were several available sedentary jobs for which she was qualified. A Los Angeles County jury awarded her $1,410,709. Reasonable accommodation includes putting a disabled employee into a vacant position if she is no longer able to perform her regular job. Cortes v. Montebello Unified Sch. Dist., Case No. BC359419 (L.A. Superior Court 5/27/2008).

An LAPD officer returned to work following a 4-year workers compensation leave, but then was told he would not be allowed to work any more because the Workers Compensation Appeals Board had adjudicated him 100 percent permanently disabled. A Los Angeles County jury awarded him $1,571,500. Employers must make every effort to allow their disabled employees to continue to work even if a workers compensation ruling appears to bar a return to work. Cuiellette v. City of Los Angeles, Case No. BC311647 (L.A. Superior Court 9/11/2007).

A city employee took FMLA leave to undergo bypass surgery. Although her cardiologist cleared her to return to work, her employer insisted that she see a city doctor for clearance. She refused to go and was fired. An Orange County jury awarded her $216,575. Employers must strictly follow the rules on medical certification. Cosby v. City of Orange, Case No. 07CC00242 (Orange County Superior Court 2/15/2008).

Applicable Laws

The federal Americans with Disabilities Act and the California Fair Employment and Housing Act prohibit discrimination against disabled employees who are able to perform the essential functions of their jobs with or without accommodation, and require employers to provide reasonable accommodation to disabled employees.

Other laws also provide protection for injured, sick and disabled employees -- the Family and Medical Leave Act, the California Family Rights Act, the pregnancy disability provisions of the Fair Employment and Housing Act and the Workers' Compensation Act.

Our Tips for Handling Injured and Disabled Workers provides an overview of the important principles for all these statutes. An employee's condition may require the employer to apply principles from all, some, one or none of the statutes discussed.

Employers must pay close attention to having an accurate and up-to-date job description for each employee, and to obtaining medical verification for physical and mental conditions that affect employment decisions. Job descriptions must describe the essential functions of each position. Obtaining medical verification will assure that the employer has the necessary information to confirm the effect of the employee's condition on performance of job duties. It will also support the employer's decision if the employee should challenge any adverse actions.

Other Resources

EEOC Disability Discrimination Page

DOL Family & Medical Leave Page

DFEH Publication on Disability Discrimination

DFEH Publication on California Family Rights Act

DFEH Publication on Pregnancy

Division of Workers' Compensation Employer Information

Starbucks To Pay Over $100 Million For Requiring Baristas To Share Tips With Supervisors

The Case

A San Diego Superior Court judge recently determined that Starbucks owes over $100 million for allowing its shift supervisors to participate in tip pools at its restaurants. The practice ran afoul of a California law that makes tips the sole property of the employees who receive them. Starbucks management had reasoned that shift supervisors deserved a share of the tips because they spent time doing the same tasks -- making drinks and serving customers -- as the baristas who were entitled to the tips. But, the court ruled that shift supervisors could not participate because they also directed the work of the baristas. Chou v. Starbucks Corp., Case No. GIC836925 (San Diego Superior Court 3/14/2008).

The judge computed the amount owing by estimating the average hourly tip rate earned by the shift supervisors at $1.71, and multiplying that times the 50,694,674 hours that shift supervisors had worked during the relevant time period. That amounted to $86.7 million. The balance of the award was for accrued interest. The judge also enjoined Starbucks from continuing its practice. Click here to read the judge's decision.

The Rules on Tips

The California statute (Labor Code section 351) declares all tips to be the sole property of the employee or employees to whom they were left.  It is illegal for an employer or its "agent" to collect, take, or receive a tip, or to deduct any amount attributable to tips from wages owed to the employee. "Agent" means every person other than the employer who has authority "to hire or discharge any employee or supervise, direct, or control the acts of employees."

Since tips belong to employees, the employer may not count tip money toward its obligation to pay minimum wage. (This differs from the rule under the federal Fair Labor Standards Act, which allows employers to credit some tip money toward the minimum wage, as explained here.) At the same time, the rule means that tip money is not counted toward the regular rate of pay for computing overtime pay.

Tips include any money left for an employee over and above the actual amount due the business for services rendered or for goods, food, drink, or articles sold or served to the patron. For dancers, the definition is broader, covering any amounts paid directly by a patron to the dancer. For an explanation of the legislative intent behind that provision, see Jameson v. Five Feet Restaurant, Inc., 107 Cal.App.4th 138 (2003) and the 2001.06.22 opinion letter listed under "Resources" below.

A 1990 Court of Appeal decision ruled that employers could require employees to pool their tips without violating the statute. But, requiring tipped employees to share with supervisors who meet the definition of "agent" is not permitted, as Starbucks has now learned, at a cost of $100 million plus. For further information about tip pooling, see Leighton v. Old Heidelberg, Ltd., 219 Cal.App.3d 1062 (1990); the Jameson decision referred to above, and the 2005.09.08 and 1998.12.28-1 opinion letters listed under "Resources" below.

Resources

Starbucks Decision

California DLSE Tips and Gratuities FAQ

California Labor Code Provisions on Tips

DLSE Opinion Letter 2005.09.08

DLSE Opinion Letter 2001.06.22

DLSE Opinion Letter 1998.12.28-1

Wage and Hour Claims Continue To Plague Employers

Background

Seven years ago the Farmers Insurance case exploded on the scene, heralding an onslaught of multi-million dollar wage and hour verdicts and settlements. A California state court jury awarded a class of claims adjusters $90 million. After appeals, attorney fee litigation and accumulation of interest, Farmers "settled" the case in September 2004 for about $200 million.

One might have expected that widespread coverage of the result would lead employers to reevaluate their wage and hour practices to make sure that they were in compliance. No doubt many have done so, but the continuing stream of hefty verdicts and settlements shows that many employers still are not conforming their practices to the rules.

Recent Verdicts and Settlements

Here are six cases from the first six months of 2008 to illustrate the point:

A federal judge in San Francisco gave preliminary approval to a $7.7 million settlement for information technology support workers at Cadence Design Systems. The class members claimed not to have received overtime because they were misclassified as exempt employees. Higazi v. Cadence Design Systems, Inc., No. C-07-2813-JW (U.S. Dist. Ct. N.D. Cal. 2/27/2008).

A federal judge in Los Angeles awarded $5.2 million to reporters and salespersons for the Chinese Daily News. The reporters had been misclassified as exempt creative professionals. The salespersons were not exempt as commissioned employees. The employer had not paid overtime nor required the employees to take meal periods. Wang v. Chinese Daily News, Inc., No. CV-04-1498-CBM (U.S. Dist. Ct. C.D. Cal. 2/27/2008).

Smart & Final agreed to pay $3.5 million to settle a class action filed in a Los Angeles state court by hourly employees for unpaid overtime, off the clock work, and missed meal periods. The employer must also pay fees and costs of $1,050,000. (Smart & Final had paid $22 million to settle an overtime class action on behalf of other employees in 2005.) Meyer v. Smart & Final, No. BC361174 (L.A. Superior Ct. 5/30/2008).

The Coco's restaurant chain agreed to pay a class of general, assistant and associate managers $1,965,000 to settle overtime claims. The employees claimed that they were improperly classified as exempt. Wilde v. Catalina Restaurant Group Inc., No. BC347513 (L.A. Superior Ct. 3/18/2008).

A Los Angeles jury awarded awarded a recycling center's yard manager $525,475 for unpaid overtime, interest and penalties. He had been classified as non-exempt, although he spent more than half his time performing manual labor. The jury award included amounts for non-wage claims. Yi v. Pomona Valley Recycling Center, No. BC353168 (L.A. Superior Ct. 2/6/2008).

A private arbitrator awarded six dancers at a topless club $687,500 for the club's failure to pay minimum wage, overtime, vacation or benefits. The club claimed that the dancers were independent contractors working under a dancer performance lease. Fuller v. 6630 Lankershim Inc., No. BC357064 (L.A. Superior Ct. 3/10/2008).

What You Should Do

The errors made by the employers in the six cases probably resulted from ignorance of the applicable rules. The errors were basic -- mistakenly classifying workers as independent contractors when they were employees, mistakenly classifying employees as exempt when their job duties made them non-exempt, failure to pay overtime as required by California law, and failure to require employees to take their 30-minute meal periods.

We have distilled the most important rules into a two-page document entitled "10 Tips for Avoiding Wage and Hour Violations," which is available here. For more detailed explanations of the rules, consult the resources listed below. If you want professional help to determine whether your practices are in compliance, contact us for a human resource audit.

Resources

Farmers Court of Appeal Decisions

A091134 (adjudication of non-exempt status) 3/5/2001

A096721 (appeal from jury verdict) 2/9/2004

A110274 (ruling on prejudgment interest) 1/24/2006

A110311 (plan of distribution) 3/15/2006

Fair Labor Standards Act

DOL FLSA Compliance Assistance

DOL Wage and Hour Division

DOL Wage and Hour Regulations

California Law

DLSE Policy and Interpretations Manual

DLSE Opinion Letters

IWC Wage Orders

EDD Employment Determination Guide