Posts belonging to Category Government & Regulation

Recent Amendments to PAGA’s Cure Provisions Should Have Limited Impact

Many employers and defense attorneys are heralding recent amendments to Labor Code §§ 2699, 2699.3, and 2699.5 (collectively referred to as the Private Attorneys General Act of 2004, or “PAGA”)—precipitated by Assembly Bill (“AB”) 1506, Chapter 445 (available here)—as a key shift in wage statement litigation in California. However, their sentiments are premature and overstate the effect of this amendment, which will likely be minimal.

California Labor Code section 226(a) provides that employees’ wage statements must include nine specific pieces of information that allow employees to determine if they are being paid correctly. “The purpose of the wage statement requirement is to provide transparency as to the calculation of wages. A complying wage statement accurately reports . . . the information necessary for an employee to verify if he or she is being properly paid in accordance with the law.” Division of Labor Standards Enforcement (“DLSE”) Opn. Letter No. 2006.07.06 (July 6, 2006). The nine items include “the inclusive dates of the period for which the employee is paid,” (Labor Code § 226(a)(6)), and “the name and address of the legal entity that is the employer . . .” (Labor Code § 226(a)(8)). Labor Code section 226(e) allows employees to obtain damages for failing to correctly state the required items on wage statements. Specifically, an employee can collect the greater of (1) all actual damages or (2) $50 for the initial pay period in which the violation occurred and $100 for each subsequent violation for an aggregate penalty not to exceed $4,000. These remedies remain unchanged by the amendment.

Employees may also recover civil penalties on behalf of the state of California for these violations under PAGA. Under PAGA, employers are given 33 days to cure certain violations of the Labor Code before a civil action may be commenced. Previously, employers did not have the right to cure wage statement violations. AB 1506 will amend PAGA’s cure provision to allow employers to cure certain types of wage statement violations. However, the expanded cure provisions will not apply to all wage statement violations, but only those based on either missing or inaccurate inclusive dates of the pay period or the name and address of the employer. Although theoretically available, it may well prove extremely difficult for an employer to utilize the cure provision in practice. This is especially so because these two violations “shall only be considered cured upon a showing that the employer has provided a fully compliant, itemized wage statement to each aggrieved employee for each pay period for the three-year period prior to the date of the written notice sent pursuant to paragraph (1) of subdivision (c) of Section 2699.3.” In other words, the employer must provide proof that, within 33 days, it located and provided fully compliant wage statements to all employees who had received violative wage statements over the prior three years.

The amendment also likely has no retroactive effect, and therefore will not help any employer currently involved with PAGA litigation based on wage statement violations. Neither the amendment nor the legislative history provides for retroactive application, strongly supporting the notion that the amendments do not have any retroactive application. See Myers v. Philip Morris Companies, Inc., 28 Cal. 4th 828, 841 (2002) (quoting INS v. St. Cyr, 533 U.S. 289, 320-321, n.45 (2001)) (“[A] statute that is ambiguous with respect to retroactive application is construed . . . to be unambiguously prospective.”).

In short, the fact that the “cure” provision would be extremely difficult to perform in the limited time provided, and the fact that AB 1506 has no retroactive effect, means that the recent PAGA amendment should not affect the status quo regarding PAGA litigation.

Authored by: 
Arnab Banerjee, Associate

Uber Driver is an Employee, California Labor Commission Rules

In a decision that could have reverberating effects in the so-called “sharing economy,” the California Labor Commission recently ruled that a driver for Uber Technologies, Inc. is an employee and not an independent contractor.

Hearing Officer Stephanie Barrett’s decision, issued on June 3, 2015, ordered Uber to reimburse Barbara Ann Berwick more than $4,000 (including interest) for mileage and other expenses incurred during her stint as an Uber driver last year. Rejecting Uber’s argument that the company is “nothing more than a neutral technological platform, designed simply to enable drivers and passengers to transact the business of transportation,” the Commissioner held that Uber is “involved in every aspect of the operation” and exercises significant control over drivers. See Order, Decision or Award of the Labor Commissioner, Berwick v. Uber Technologies, Inc., Case No. 11-46739 (June 3, 2015) (available here). The ruling was made public after Uber filed an appeal to the Labor Commissioner’s order in the San Francisco County Superior Court (available here).

Applying the 11-factor test enumerated by the California Supreme Court in S. G. Borello & Sons, Inc. v. Dept. of Industrial Relations, 48 Cal. 3d 341 (1989), the Commissioner found that Uber retained “all necessary control over the operation as a whole,” which was an overriding factor that established the existence of an employee-employer relationship. See Order at 8. The Commissioner also emphasized that the work done by drivers was “an integral part of the regular business” of Uber and that “[w]ithout drivers such as [Berwick], [Uber’s] business would not exist.” Id.

Although the Berwick decision is purely administrative, it may have significant implications for Uber’s labor model, which continues to utilize independent contractors as drivers. Given the Commissioner’s findings that Uber is “in business to provide transportation services to passengers,” and that drivers for Uber do “the actual transporting of those passengers,” Order at 8, it appears that Uber’s primary arguments regarding its role as a “mere platform” rather than an employer will not succeed in any future litigation. Such findings will likely have a lasting impact on businesses providing passenger transportation services that use an independent contractor labor model.

The debate over employee classification is likely to escalate as the sharing economy continues to grow exponentially, with the majority of such companies classifying workers as independent contractors—exempt from many wage-and-hour laws and protections—rather than employees. So long as these companies continue to classify workers as independent contractors, they risk facing misclassification claims, a growing trend in class action litigation nationwide.

Authored by: 
Suzy Lee, Associate

Department of Labor Works Overtime to Draft New Exemption Rules

It looks like President Barack Obama would like to add overtime reform to his growing list of second-term accomplishments.  Last week, in response to a March 2014 memorandum issued by the President, the Wage & Hour Division of the U.S. Department of Labor (“DOL”) made public a proposal that would broaden federal overtime pay regulations to include millions of additional workers and make it more difficult for employers to classify employees as exempt under the Fair Labor Standards Act’s “white collar” overtime exemption (29 CFR Part 541).

As the regulations stand now, employees are generally exempt from overtime pay if they perform certain types of work (i.e., executive, administrative, professional, outside sales, and/or IT) and receive a minimum annual salary of $23,660.  Under the proposed rule, this salary floor would more than double in 2016—to $50,440—and be indexed to inflation on an annual basis.  The current salary threshold was last updated in 2004.  

The proposal is expected to be published in the Federal Register this week, which will be followed by a 60-day comment period.  The DOL is specifically seeking input as to whether changes should be made to any of the job duty tests, and suggests the possibility of adopting the California rule (where a worker has to spend at least 50 percent of their time on exempt duties in order to be exempt from overtime) as the new federal standard.  


Studies Reveal That Class Actions Are Still Vital To Consumer Justice

In 2013, the U.S. Chamber of Commerce (which represents some of the largest corporations in the world), published a memo purporting to be “An Empirical Analysis of Class Actions” (available here). The memo, drafted by attorneys at the corporate defense firm Mayer Brown LLP, determined that class actions do not provide a significant benefit to consumers, based on a review of class actions filed in 2009.

However, when the National Association of Consumer Advocates (NACA) and the American Association for Justice (AAJ) reviewed the same cases in a report released last month, they arrived at a very different conclusion (report available here). The NACA/AAJ report found that class actions remain hugely advantageous to consumers in a wide range of cases. Notable benefits to consumers included:

  • Recovery of $25 million for consumers overcharged for propane by Ferrellgas, who allegedly reduced the amount of propane in its tanks without notifying consumers or changing the labels;
  • Recovery of $219 million for investors in Bernie Madoff’s Ponzi scheme who lost their retirement savings; 
  • Relief for thousands of disabled and elderly residents of New York City Housing Authority buildings, who forced the city to repair broken elevators in a timely matter; and 
  • Award of $27.8 million for property owners who suffered damages due to the 2008 spill of coal ash sludge from a burst dike at a coal plant operated by the Tennessee Valley Authority.

The Consumer Financial Protection Bureau (CFPB), created by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, has been charged with studying the impact of pre-dispute arbitration agreements in the context of consumer financial products and services, and is poised to release a report later in 2015 that is expected to show that forced arbitration clauses impact tens of millions of consumers and deny relief to consumers harmed by illegal or abusive practices in the financial services industry.

The CFPB released its preliminary results in December 2013 (available here), which found that a sampling of just eight consumer class actions settled between 2010-2012 yielded $350 million in payments to more than 13 million consumers. See CFPB Arbitration Study Preliminary Results at 104. The study also found that, despite the fact that arbitration clauses with class action waivers are standard in the financial industry, few consumers choose to arbitrate their claims (the American Arbitration Association, or AAA, which administers the vast majority of alternative dispute resolution proceedings for large companies, reported fewer than 300 cases each year between 2010 to 2012). Id. at 13. In that same time frame, the study found 29 instances where the AAA “declined to administer the arbitration because of the company’s failure to pay required fees or deposits” and refused to administer further disputes concerning those companies, denying the opportunity for relief for even those intrepid consumers who chose to go the arbitration route. Id. at 117. Of the 29 cases, 28 were consumer-filed disputes, and 23 were credit card disputes.

Thus, class actions are not only beneficial to consumers, but often are the only way to achieve justice against powerful corporations. In the words of former U.S. Supreme Court Justice William O. Douglas, “The class action is one of the few legal remedies the small claimant has against those who command the status quo.” Eisen v. Carlisle and Jacquelin, 417 U.S. 156, 186 (1974).


Editor’s Note: the CFPB Arbitration Study was released on March 10, 2015 and is available here.