California Labor & Employment Practice Area Overview
By Seyfarth Shaw
The Way We Work Has Changed
The past year has uprooted businesses and the way we work. With a mass shift to working from home, and many employees taking on contract or gig work, new employment issues have been thrust into the spotlight. In particular, issues related to working from home and independent contractor status have been heavily legislated and litigated in California, and this trend will certainly continue.
Working From Home Is The New Normal
With working from home becoming commonplace, and many companies considering making it a permanent feature, employers are faced with a host of new legal issues. For instance:
•Accommodations: Many employees have, or will, request that they be allowed to continue to work remotely indefinitely. Employers will need to carefully determine whether and how to grant these requests, particularly if an employee with a disability or medical condition requests remote work as an accommodation. Employers should consider having comprehensive policies regarding remote work, as well as job descriptions that clearly indicate which positions or functions can be done remotely.
•Performance: Over the past year, employers may have taken a softer approach regarding performance reviews, or strayed from their typical review process. However, performance issues related to remote work should not be ignored, particularly where employers hope to improve performance by bringing people back into the office.
•Expense Reimbursement: California employers must reimburse employees for reasonable and necessary expenses they are required to incur in order to do their job, and this may not be limited to situations in which existing expenses have increased. Depending on the circumstances, it may be appropriate to reimburse all or part of a number of expenses, including those for phones, internet, office supplies and ergonomic office furniture. Employees are also beginning to seek reimbursement for less traditional items, such as portions of their electricity, heating, air conditioning and rent; and litigation regarding these issues has increased exponentially.
•Avoiding Off The Clock Work: Employers should remind employees of their obligation to accurately record all time worked. Employers should evaluate whether they should pay for “startup” time while employees log into computers remotely, or whether it’s appropriate to limit the times of day that phone and email systems are available, particularly where those systems can be tied into timekeeping systems. Recent California cases regarding security checks have made it clear that even small regular amounts of work time should be compensated.
•Meal and Rest Breaks: Employers should review their meal and rest break policies and practices, and remind remote employees of these policies. A recent California Supreme Court case, Donohue v. AMN Services, has made it more difficult for California employers to fend off meal break claims. The Court held that employers cannot round meal period time punches, even if the rounding results in employees being overpaid. The Court also held that time records showing missed, short or late meal periods raise a rebuttable presumption of violations. Employers should ensure that they have procedures that will allow them to demonstrate that breaks were provided, such as attestations.
•Legislation Introduced in 2021: Republican-introduced AB 513 would allow employers to provide remote employees with certain notices electronically, and would expressly allow final paychecks to be mailed on the date of separation. Democrat-introduced AB 55 is an expression of intent of the Legislature to enact future laws designed to ensure rights for telecommuting employees.
Independent Contractor Work Evolves
In addition to the remote work shift, California’s laws around independent contractor work have changed dramatically. California has long had diametrically opposed views regarding such work. As the home of the hottest tech startups and a thriving entertainment industry, California creates a vast amount of contract work. It also has one of the most liberal legislatures, which is intent on protecting worker rights, even where industry, voter and worker groups vociferously oppose these measures. Without companies or workers necessarily being tied to a particular location, and with increasing demand for contract work’s ad hoc services, these issues are at the top of minds for both workers and companies.
Issues with contract work have become particularly evident following the California Supreme Court’s 2018 decision Dynamex Operations West v. Superior Court., which retroactively applied the 'ABC test' to determine whether a worker is legally an employee or independent contractor.
The ABC test presumes all workers are employees, unless a hiring business demonstrates that:
(a) the worker is free from the control and direction of the hirer in connection with the performance of work, both under the contract and in fact; and
(b) the worker performs work that is outside the usual course of the hiring entity's business; and
(c) the worker is customarily engaged in an independently established trade, occupation or business of the same nature as that involved in the work performed.
The Legislature codified the ABC test with AB 5, which took effect in 2020. AB 5’s scope has been litigated, and cleanup legislation amended AB 5 with AB 2257 in the fall 2020. As a result of the amendments, California granted many industry-specific exemptions to the ABC test, prompting continued mass lobbying efforts by additional industries that have historically operated as contract workers, and wish to continue doing so. Well over 60 types of work are now exempt from the ABC test, including event planners, performers, artists, many content creators, lawyers, doctors, insurance agents, real estate agents, hairstylists and others, which are subject to the less stringent common law Borello test as to employment status. AB 2257 also expanded AB 5’s “business to business” exemption, granting increased flexibility for sole proprietors to act as independent contractors.
Although the gig economy did not get an industry exemption from the legislation, it did back a successful direct voter appeal in November 2020 with Proposition 22. Under this Proposition, many gig economy companies can continue to treat drivers as independent contractors, so long as workers are provided with wage and benefits guarantees. Other industries, such as court reporting, drivers, deliverers and journalists, have sued the state to enjoin enforcement of the law. However truckers suffered a recent setback at the 9th Circuit, which found that the FAAA does not preempt enforcement of AB 5 for independent drivers.
Looking ahead, whether a company contracts with individuals or other businesses, employee vs. contractor status remains a high volume area for litigation. Since astronomical penalties can result from claims like unpaid wages, failure to provide breaks and expense reimbursements (to name a few), misclassified workers remains an ongoing risk.
Companies should carefully evaluate their use of contract labor, even if through an intermediate company, where the workers are subject to contract provisions with heavy company control or where the work performed is essential to the company’s business. Companies may want to consider using indemnification clauses in their contracts with other businesses as well as arbitration agreements with class action waivers that apply to third party workers (but beware of making these agreements mandatory, as AB 51’s ban is still being challenged in court). The use of contract labor is likely to come under heavier scrutiny under the new Department of Labor.
As noted above, the “new normal” will usher in new employment law challenges in California for years to come.