Articles from December 2018

California appellate courts are beginning to make sense of Dynamex Operations West, Inc. v. Superior Court, 4 Cal.5th 903 (2018), which promulgated a new “ABC” test for determining whether independent contractors are misclassified for claims arising from wage orders. In one recent case, the Fourth Appellate District examined the C-prong of the ABC test, concluding that the plaintiff-appellant Garcia, a taxi driver, was improperly classified as an independent contractor under the ABC test. See Garcia v. Border Transportation Group, LLC, No. D072521 (4th District, Div. 1, Oct. 22, 2018) (slip op. available here).

The appellate court reversed summary judgment as to the wage order claims only (Garcia’s claims for unpaid wages, minimum wages, meal and rest periods, itemized wage statements, and unfair competition law claims derived from the foregoing). Slip op. at 3, and 22-23. The panel first considered how courts had differentiated employees and independent contractors at common law, turning to the “seminal California decision on this subject”—S.G. Borello & Sons, Inc. v. Department of Industrial Relations, 48 Cal.3d 341 (1989). The state Supreme Court in Borello held that “‘[t]he principal test of an employment relationship is whether the person to whom the service is rendered has the right to control the manner and means of accomplishing the result desired. . . .’” Slip op. at 15 (citing Borello, 48 Cal.3d at 350). Borello also found that the right to discharge at will without cause is strong evidence of an employment relationship and identified several “secondary indicia” that bear on employment status. Slip op. at 15-16.

Turning from the common law “control” test, the appellate court then considered the California Supreme Court’s discussion of “employ” as set forth in Martinez v. Combs, 49 Cal.4th 35, 64 (2010), which found that the wage orders encompass three alternative definitions, the broadest of which is “to suffer, or permit to work.” Slip op. at 18 (citing Cal. Code Regs., tit. 8, § 11090, subd. 2(D); Martinez, at 57–58). The appellate court noted Martinez’s finding that “[a] proprietor who knows that persons are working in his or her business without having been formally hired, or while being paid less than the minimum wage, clearly suffers or permits that work by failing to prevent it, while having the power to do so.” Id. (citing Martinez, at 69).

The appellate court then reaffirmed the California Supreme Court’s adoption of its own three-part ABC test to decide whether a worker is a covered employee or an independent contractor. Slip op. at 19 (citing Dynamex, at 956–957). Unlike a multifactor test, the ABC test “‘allows courts to look beyond labels and evaluate whether workers are truly engaged in a separate business or whether the business is being used by the employer to evade wage, tax, and other obligations.’” Id. (citing Dynamex, at 958 n.26). The ABC test presumes that a worker is an employee unless the hiring entity establishes each of the following:

(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.

Id. (citing Dynamex, 4 Cal.5th at 957).

The appellate court concluded that there was a triable issue as to whether Garcia was an employee since he was “presumed” to be such and since Border Transportation failed to show that Garcia fit the common conception of an independent contractor (Part C)—“an individual who independently has made the decision to go into business for himself or herself” and “generally takes the usual steps to establish and promote his or her independent business—for example, through incorporation, licensure, advertisements, routine offerings to provide services of the independent business to the public or to a number of potential customers, and the like.” Slip op. at 24-25 (citing Dynamex, at 962). As the appellate court explained, the question in part C is not whether the hiring entity prohibited or prevented the employee from engaging in an independently-established business, but whether it established that the employee actually had an existing, not potential, independent business operation. Id. at 26 (citing Dynamex, at 962 n.30).

Here, because the regulations in the plaintiff’s municipality tied each taxi driver’s permit to their employment at a specified taxi company, Garcia would have been required to obtain another permit with any new taxi company he drove for. The panel stated, “there is at best limited evidence he was even capable of providing services to a different taxi company under the regulations.” Slip op. at 27 (emphasis in original). Applying Dynamex’s ABC test, the appeals court reversed and remanded with instructions to enter a new order denying summary adjudication of Garcia’s wage order claims, allowing these claims to live on.

Authored By:
Molly DeSario, Senior Counsel
CAPSTONE LAW APC

In May of 2018, a California appellate court handed down an important decision clarifying employers’ liability for waiting time penalties. In Diaz v. Grill Concepts Services, Inc., No. B280846 (2d District, May 24, 2018) (slip op. available here), the Second Appellate District affirmed a judgment in favor of a certified class of employees, finding that an employer’s failure to investigate a suspected increase in the locally mandated “living wage” rendered its failure to pay that wage willful. Invoking the maxim that “ignorance of the law is no excuse,” Diaz found that an employer’s failure to investigate a change in the local wage scale constituted a “willful” failure to pay, exposing it to waiting time penalties under the California Labor Code. Id. at 10. Diaz also held that courts do not have discretion to relieve the employer from such penalties on equitable grounds. Id. at 18-21.

The California Labor Code “waiting time” provision requires that an employer that fails to pay a former employee any required wages is liable for wage underpayment. If the failure to pay was “willful,” the Labor Code imposes on the employer an additional penalty equal to up to 30 days’ of the employee’s wages. See Cal. Lab. Code §§ 203(a), 1194(a). The “waiting time” penalty punishes employers for forcing the employee to wait for his or her final paycheck. Prior to Diaz, an employer could be assessed waiting time penalties if it was aware it was underpaying wages and intended to do so, satisfying the “willful” requirement of California Labor Code section 203. See Kao v. Holiday, 12 Cal. App. 5th 947, 963 (2017); Barnhill v. Robert Saunders & Co., 125 Cal. App. 3d 1, 7 (1981); Cal. Lab. Code § 203(a).  This meant that employers could avoid penalties if the failure to pay was a result of uncertainty in the law or a mistaken belief, under good faith, that the wages were not owed. See Amaral v. Cintas Corp. No. 2, 163 Cal. App. 4th 1157, 1202 (2008); Road Sprinkler Fitters Local Union No. 669 v. G & G Fire Sprinklers, Inc., 102 Cal. App. 4th 765, 782 (2002).

Diaz, in a ruling consistent with the California state legislature’s longstanding tradition of promoting the health and welfare of its employees, replaced the “knowing and intentional” standard with a negligence standard, finding that Grill Concepts Services was subject to the payment of waiting time penalties merely because its compliance efforts fell short of what a reasonable employer should have done. See slip op. at 10 (imposing upon employers a “duty of inquiry” into relevant legislation to ensure that their wage payment policies and practices are compliant with California law). Diaz also found that the language of section 203 (“the wages of the employee shall continue as a penalty’ for up to 30 days”) precludes trial courts from exercising discretion to waive or reduce waiting time penalties properly owed. Id. at 18 (emphasis in original).

In the wake of Diaz, employers can no longer operate in blissful ignorance of California’s wage payment laws, as they will be exposed to hefty waiting time penalties—with no opportunity for discretionary reduction—for the failure to timely pay wages properly owed.

Authored by:
Ari Basser, Associate
CAPSTONE LAW APC