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Key California Employment Law Cases: October 2019

This month's key California employment law cases involve wage-and-hour discrimination in employment.

Ferra v. Loews Hollywood Hotel, LLC
, 40 Cal. App. 5th 1239, 253 Cal. Rptr. 3d 798 (2019)

Summary:  Term “regular rate of compensation” for calculating meal or rest break premium payments is not synonymous with term “regular rate of pay” for calculating overtime premium payments, as premium for missed meal and rest periods is employee’s base hourly wage.

:  Plaintiff Ferra filed a complaint against defendant Loews Hollywood Hotel, LLC on behalf of herself and three alleged classes of hourly Loews employees.  She alleged that Loews improperly calculated her premium payment when it failed to provide her with statutorily required meal and rest breaks in violation of California Labor Code section 226.7.  Loews paid meal and rest period premiums to hourly employees at their base rate of compensation (i.e., their hourly wage) rather than the employees’ regular rates of pay (i.e., with adjustments to the hourly wage reflecting nonhourly compensation employees earned during pay periods).  On a motion for summary adjudication, the trial court found that meal and rest period premiums under section 226.7 only have to be paid at the employee’s base hourly rate and not the regular rate of pay, as those terms are not synonymous.  

Court's Decision
:  The California Court of Appeal affirmed, finding that “regular rate of compensation” and “regular rate of pay” are not synonymous terms.  The court looked to a basic principle of statutory construction which holds that where different words or phrases are used in the same connection in different parts of a statute, it is presumed the Legislature intended a different meaning.  Turning to the legislative histories of Labor Code sections 510 and 226.7, the court noted the punitive nature of overtime laws (i.e., to punish employers for working employees more than a normal workday ), as compared to the compensatory nature of meal and rest period laws (i.e., to compensate employees who are injured by not being provided a break).  Thus, the two terms must have a different meaning and “regular rate of compensation” just refers to the employee’s base hourly wage.    

Practical Implications:  This case provides a helpful clarification for California employers that they need only pay premiums for missed meal and rest periods at the employee’s base hourly wage.  

Gonzales v. San Gabriel Transit, Inc., 40 Cal. App. 5th 1131, 253 Cal. Rptr. 3d 681 (2019)

Summary:  Dynamex’s ABC test applies retroactively to pending litigation and not only to claims brought under wage orders, but also to Labor Code claims rooted in one or more wage orders or predicated on conduct alleged to have violated a wage order.

Facts:  Plaintiff Gonzales formerly worked as a driver for defendant San Gabriel Transit, Inc., a transportation company which facilitates traditional taxicab passenger service.  In February 2014, plaintiff filed a putative class action alleging that defendant, among other things, misclassified drivers as independent contractors in violation of the California Labor Code and Industrial Welfare Commission Wage Order No. 9-2001.  Plaintiff sought to certify a class defined as all non-employee drivers, or lessees of defendant from February 14, 2010 to the present (the class period) who drove a taxicab or van and paid defendant a weekly vehicle lease.   Alternatively, plaintiff proposed certification of three subclasses. The trial court found that plaintiff had shown the existence of an ascertainable and sufficiently numerous class and that he and counsel were adequate representatives.  However, the court found that plaintiff failed to show that the issue of misclassification as an independent contractor was susceptible to common proof.  The trial court based its ruling largely on distinctions between terms of several written agreements between plaintiff and other drivers in effect during the class period. 

Court's Decision:  The California Court of Appeal reversed and remanded based on the intervening California Supreme Court decision in Dynamex Operations West, Inc. v. Superior Court, 4 Cal. 5th 903, 232 Cal. Rptr. 3d 1 (2018).  In Dynamex, the California Supreme Court adopted the ABC test under which the hiring entity must show all of the following to establish an independent contractor relationship:  (A) that the worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact; and (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.  The court of appeal held that Dynamex applies retroactively and that the ABC test is not only applicable to claims under the wage orders, but also to Labor Code claims rooted in one or more wage orders, or predicated on conduct alleged to have violated a wage order.  It then determined that most of plaintiff’s claims were rooted in wage order protections and requirements, and as such the ABC test must be applied.  The court remanded the case to the trial court for application of the ABC test.

Practical Implications:  California Assembly Bill 5, effective on January 1, 2020, essentially adopts this holding, as it expands the ABC test to the California Labor Code, Unemployment Insurance Code, and wage orders.  The case could have an impact on pending litigation based on the holding that Dynamex has retroactive effect.

Jimenez v. U.S. Continental Marketing, Inc., 41 Cal. App. 5th 189 (2019)

:  Amount of control exercised over temporary employee by worksite-employer is key factor under FEHA for analyzing whether temporary employee is employed by worksite-employer.

:  Plaintiff Jimenez worked for defendant U.S. Continental Marketing, Inc. for five years yet primarily classified her as a temporary employee.  Like plaintiff, other temporary employees were placed with defendant by a temporary staffing agency, Ameritemps.  Temporary employees received their benefits and paychecks from Ameritemps, and tracked and reported their time to Ameritemps.  However, while at the worksite, there was little distinction regarding the control defendant exerted over the entire workforce.  Plaintiff claimed that she had been harassed and retaliated against by a coworker.  Defendant could not corroborate her claims and declined to issue any formal discipline.  Defendant later terminated plaintiff’s services, and Ameritemps terminated her employment shortly thereafter.  Plaintiff sued defendant and her coworker for violations of the California Fair Employment and Housing Act (“FEHA”), and for common law wrongful termination in violation of public policy.  Defendant’s primary defense was that it did not employ plaintiff.  After a trial on the merits, the jury decided that defendant was not plaintiff’s employer and returned a defense verdict.  

Court's Decision
:  The California Court of Appeal reversed the jury’s finding that defendant was not plaintiff’s employer.  While FEHA requires an employment relationship, it need not be direct.  Rather, an employment relationship for purposes of FEHA exists when the employer exerts direction and control over the individual’s work performance.  That direction and control is not mitigated in the temporary-staffing context simply because hiring, payment, benefits, and time-tracking aspects of employment are handled by the temporary-staffing agency.  Here, plaintiff had put forth substantial evidence that defendant directed and controlled her employment (e.g., plaintiff worked in a supervisory role, reported to defendant’s employee, was subject to defendant’s employee handbook, underwent mandatory in-house training, and was subject to defendant’s disciplinary policies).  The jury had insufficient evidence to hold otherwise.  The court remanded the case for a retrial, with instructions that the trial court instruct the jury that defendant was plaintiff’s employer with respect to her FEHA claims.

Practical Implications:  The right to control test to determine employee vs. independent contractor status applies in situations involving potential joint employment, not the ABC test of Dynamex.  Under the right to control test, a worker placed by a temporary agency with another company will often be jointly employed by both.