In Vazquez v. Jan-Pro Franchising Int’l, Inc., the Ninth Circuit revived a decade old wage and hour class action and simultaneously dealt a blow to many employers utilizing independent contractors by holding that California Supreme Court’s “ABC test,” as set forth in Dynamex Operations West, Inc. v. Superior Court of Los Angeles, applies retroactively. We previously covered the prospective impact of Dynamex when the decision was announced just over a year ago.

In Dynamex, the California Supreme Court established a presumption that a worker is an employee unless the employer can show (a) the “worker is free from the control and direction of the hirer in connection with the performance of the work” under the contract and in fact; (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.

However, following the Dynamex decision, there remained an unsettled question as to whether Dynamex would only apply prospectively, or retroactively as well. The Dynamex Court previously denied an amicus petition by the California Employment Law Council, without comment, to modify the Dynamex opinion so that the ABC test would only apply prospectively. Today’s Ninth Circuit decision resolved any such ambiguity by holding the ABC test applies retroactively, potentially creating significant retroactive liability that even the most proactive post-Dynamex employer will not be able to avoid.

In its ruling, the Ninth Circuit stated that California has a well-established tradition that judicial pronouncements have a retroactive effect, with the exception being where the judicial decision “changes a settled rule on which the parties…have relied.” In holding the Dynamex decision applies retroactively, the Ninth Circuit held that Dynamex’s ABC test was a “logical extension” and “clarification” of existing law regarding the proper classification of contractors and that its holding was “faithful to the fundamental purpose of California’s wage orders.” The Ninth Circuit also pointed to the Dynamex Court’s decision to deny the amicus petition as strongly suggesting that the usual retroactive application should apply, rather than the exception.

It should be noted that even though there is a trend at the federal level in providing more latitude for employers to classify workers as independent contractors (i.e. the recent U.S. Department of Labor opinion letter finding that service providers in the “gig economy” were independent contractors under the Fair Labor Standards Act (“FLSA”) and not employees as we covered in a post earlier this week), Vazquez serves as a reminder that complying with the federal standard will not absolve companies of potential liability under state law.

Employers waiting with bated breath as to whether Dynamex’s ABC test would apply retroactively now at least have an answer, although certainly not one they were hoping for.

 

 

On May 21 at 1:00 p.m. eastern, the Employment and Executive Compensation Groups of Hogan Lovells will host a one-hour webinar to discuss pay equity laws and compliance issues. A hot-button issue, pay equity is regularly in the news and atop legislative and regulatory agendas in the employment sphere at federal, state and local levels.

Many well-intentioned employers have for some time been conscious of pay equity and are striving to achieve it. However, the issue’s increasing visibility and a recent flurry of legislation have created an aura of uncertainty in the law.

Our webinar – geared toward in-house counsel and human resources personnel but open to anyone – will address the state of pay equity laws and tips for compliance.

Specific topics will include:

  • Recent and potential future legal developments;
  • Application of pay equity laws beyond gender;
  • Ambiguities in the law likely to be litigated;
  • Responding to internal complaints;
  • The potential role of pay equity compliance audits; and
  • The role of the compensation committee.

We hope you will join us.

Click here to RSVP

In a lengthy April 29, 2019 Opinion Letter, the U.S. Department of Labor (“DOL”) examined the relationship between a virtual marketplace company (“VMC”) and its service providers.  Applying a six-factor test derived from U.S. Supreme Court precedent, the DOL opined that the service providers were independent contractors under the Fair Labor Standards Act (“FLSA”)—not employees.

According to the Opinion Letter, the VMC is an online/application-based “referral service that connects service providers to end-market consumers to provide a wide variety of services.”  Among other pertinent facts, the service providers (i) self-certify their experience and qualifications; (ii) are not required to interview or undergo training; (iii) can communicate directly with customers regarding scope, price or time for the project; (iv) can arrange for repeat business directly with the customer; (v) can use other VMCs (including competitors) to connect with customers; (vi) determine the tools, equipment and materials needed for their services; (vii) can hire their own personnel for the work; (viii) can accept as many or as few projects as they wish; and (ix) will only have their relationship with the VMC severed if they commit a material breach, including but not limited to inappropriate behavior, fraud or receiving an aggregate consumer rating below a certain minimum threshold.

Citing U.S. Supreme Court precedent dating back to 1947 (e.g., Rutherford Food Corp. v. McComb, 331 U.S. 722 (1947)), the DOL viewed these facts through a six-factor rubric that holistically assesses the “worker’s degree of independent organization and operation”:

  1. The nature and degree of the VMC’s control;
  2. The permanency of the service provider’s relationship with the VMC;
  3. The amount of the service provider’s investment in facilities, equipment or helpers;
  4. The amount of skill, initiative, judgment or foresight required for the services;
  5. The service provider’s opportunities for profit or loss; and
  6. The extent of integration of the service provider’s services into the VMC’s business.

Noting that the weight assigned to each factor is fact-dependent and that other factors may also be relevant, the DOL found all six factors weighing in favor of independent contractor status.  While the Opinion Letter technically is limited to the facts supplied by the VMC who sought it, it nonetheless signals DOL enforcement priorities and presents a roadmap for other companies who contend that their workers are not employees, but economically independent contractors.

This Opinion Letter is consistent with a shift in policy from the prior administration to the current that began in June 2017, when Secretary of Labor Alexander Acosta withdrew Obama-era DOL guidance that was widely perceived as increasing the chances that courts would rule that gig economy companies employ their workers.  The Opinion Letter comes during a flashpoint for the status of gig economy workers, with a number of significant cases currently on appeal.  The Ninth Circuit and the Third Circuit, for instance, are each currently reviewing district court decisions that Grubhub and UberBLACK drivers, respectively, are properly classified as independent contractors.  See Lawson v. Grubhub, Inc., No. 18-15386 (9th Cir.); Razak v. Uber, No. 2018-01944 (3d Cir.).

Employers in Minnesota should be aware of a key difference between federal and Minnesota employment law. In McBee v. Team Industries, Inc., the Minnesota Supreme Court held that, unlike the federal Americans with Disabilities Act (ADA), the Minnesota Human Rights Act (MHRA) does not require employers to engage in an interactive process before deciding whether to accommodate an employee who claims to have a disability.

The interactive process is a duty that the ADA places on employers and employees alike. In order to discharge this duty, both employer and employee must engage in a good faith back-and-forth in order to determine whether there is a reasonable accommodation that the employer can grant a disabled employee to allow that employee to keep working.

In McBee, the Minnesota Supreme Court held that no such obligation extended to employers under the MHRA. The plaintiff in McBee worked as a machine operator in the defendant’s plant. This job required the plaintiff to regularly move and lift objects that weighed thirty-pounds or more. After sustaining an injury to her spine, the plaintiff’s doctor placed a ten-pound lifting restriction on the plaintiff. The day after informing the defendant of this restriction, the plaintiff met with human resources to discuss possible accommodations and—when none were found—the plaintiff was terminated. The plaintiff brought suit and, on appeal before the Minnesota Supreme Court, she argued that the MHRA required employers to engage in an interactive process and that the defendant failed to meet that requirement. The Minnesota Supreme Court rejected this argument, noting that the MHRA had no such requirement and was not similar enough to the ADA for an analogy between the two laws to be relevant.

The scope of the MHRA and the ADA are similar—but not coextensive—and this decision is particularly significant for employers covered only by the state law. The McBee decision does not impact the duties of employers under federal law, which still requires an interactive process. That being said, while the two statutes have a similar scope, their coverage is not coextensive. For example, the ADA only applies to employers with fifteen employees or more, whereas the MHRA extends to all employers. For those employers covered only by the state law, the McBee decision represents a wholesale change in their duties, not just their potential liabilities.

Following up on our prior posts here and here, after over a month of delays, a federal district court judge has ruled that employers with at least 100 employees (“covered employers”) must submit EEO-1 survey data on employees’ pay and hours worked in 2018 by September 30, 2019.

Judge Tanya Chutkan of the U.S. District Court for the District of Columbia also ruled that covered employers must turn over two years of pay data to the EEOC.  All covered employers will have to submit pay data for 2018 by the September 30, 2019 deadline, and the EEOC has the option to require the submission of 2017 pay data by the September 30 deadline or the submission of 2019 pay data during the 2020 reporting period.  The EEOC must decide by May 3.

As such, the schedule for covered employers to submit their EEO-1 Reports is as follows:

Component 1 (demographic data):  Covered employers must report Component 1 of their EEO-1 Reports by May 31, 2019.  Component 1 includes the number of individuals employed by job category, sex, race, and ethnicity.

Component 2 (pay data):  Covered employees must report Component 2 of their EEO-1 Reports by September 30, 2019.  Component 2 of the EEO-1 Report requires covered employers to report the total number of full-time and part-time employees by demographic categories in each of 12 pay bands listed for each EEO-1 job category based on W-2 earnings. Covered employers must also report the number of hours worked by all of the employees accounted for in each of the 12 pay bands.

 

The Supreme Court ruled on Wednesday that a court cannot force class arbitration unless both the employer and the employee clearly agreed to class arbitration.

In Lamps Plus, Inc. v. Varela, Frank Varela found out his employer Lamps Plus had been hacked and his tax information stolen, resulting in a fraudulent tax return filed in his name.  Varela sued his employer in California federal district court for poor data practices.  He brought a class action lawsuit for himself and the 1,300 other employees affected by the hack.

Lamps Plus moved to compel the case to individual, instead of class, arbitration in light of an arbitration clause in the employment agreement.  The district court agreed to send Varela’s case to arbitration, but rejected Lamps Plus’s request to dismiss his class claim.  Lamps Plus appealed the district court’s decision to authorize class arbitration and the Ninth Circuit affirmed.  Applying California contract law, the Ninth Circuit reasoned that since the contract was ambiguous and Lamps Plus had drafted the clause, any ambiguities should be construed against Lamps Plus and allowed the case to proceed as a class arbitration.

The Supreme Court reversed the Ninth Circuit.  The Court followed its previous Federal Arbitration Act (FAA) decisions in emphasizing that arbitration can only proceed where the parties have agreed to arbitration.  The Court pointed to arbitration’s procedural advantages as a reason to infer actual consent by the parties, but in cases involving class arbitration, the procedural advantages typical of arbitration disappear in the class setting and create the potential for “procedural morass” instead.  For this reason, the Court has looked for clear agreement in class arbitration cases.

For instance, in Stolt-Nielsen in 2010, the Court held that a court could not interpret silence on class arbitration to allow class treatment of individual claims.  Similarly, in cases like Concepcion in 2011 and Epic Systems in 2018, the Court repeated that arbitration only has power through consent and, therefore, parties could both agree to arbitrate claims and to waive class arbitrations without violating any state or federal laws. Here, the Court placed similar emphasis on actual consent and since the Court could not identify a clear agreement to allow class arbitration, it held that such ambiguity, much like silence, did not show a clear agreement to allow class arbitration.

This decision is a big win for employers seeking to avoid class arbitrations and sent a clear message that silence or ambiguity is not the same as consent and consent is needed before a class arbitration can proceed.

Following months of speculation, the Supreme Court announced today that it would decide whether the prohibition in Title VII against discrimination “because of sex” encompasses discrimination against gay and transgender workers.

The Supreme Court agreed to hear two cases, one from the Second Circuit and another from the Eleventh Circuit, that reached opposing conclusions on whether gay workers are protected by Title VII.  In Altitude Express Inc. v. Zarda, No. 17-1623, a case brought by a skydiving instructor who was fired after disclosing his sexual orientation at work, the Second Circuit Court of Appeals concluded en banc that sexual orientation discrimination is motivated at least in part by sex and therefore unlawful.   The Eleventh Circuit ruled in Bostock v. Clayton County, Georgia, No. 17-1618, which was brought by a man who was discharged after it became known that he participated in a gay recreational softball league, that firing an employee based on sexual orientation is not prohibited by Title VII.   Altitude Express and Bostock illustrate a broader conflict in the federal courts and agencies.  For example, both the Seventh Circuit and the EEOC have also ruled that discrimination based on sexual orientation is a form of sex discrimination prohibited by Title VII, and lower courts throughout the country are split on the question.  Altitude Express and Bostock have been consolidated by the Supreme Court.

In another case, the Supreme Court announced that it will decide whether Title VII prohibits discrimination against transgender people.  In R.G. & G.R. Harris Funeral Homes v. Equal Employment Opportunity Commission, No. 18-107, a transitioning transgender woman was fired after she announced that she would start wearing women’s clothes at work.  The Sixth Circuit held in favor of the employee, ruling that “Discrimination ‘because of sex’ inherently includes discrimination against employees because of a change in their sex.”

These cases are likely to generate a lot of commentary in the coming months.  They will be heard and decided during the next term.

Lawmakers in Colorado are in the process of evaluating House Bill 1267, which would reclassify wage theft from a misdemeanor to a felony if the amount at issue exceeds $2,000.00. Under existing Colorado law, an employer may be guilty of wage theft if it willfully refuses to pay a wage claim or falsely denies the amount or validity of a wage claim, with the intent to annoy, harass, oppress, hinder, or defraud the employee. House Bill 1267 redefines wage theft as theft—meaning that wage theft would be subject to the same penalties set forth in Colorado’s theft statute. The bill also removes the existing exemption from criminal penalties applicable to an employer that is unable to pay wages due to Chapter 7 bankruptcy or other court action resulting in the employer having limited control over its assets.

House Bill 1267 defines an employee as any person performing labor or services for the benefit of an employer; and relevant factors in determining status as an employee include the degree of control the employer may or does exercise over the person and the degree to which the person performs work that is the primary work of the employer. The bill defines an employer as having the same definition under the Fair Labor Standards Act.

House Bill 1267 is responsive to recommendations from the Colorado Human Trafficking Council. The bill has passed its third reading of the Colorado House and has been introduced to the Colorado Senate.

Two California Courts of Appeal came to two different conclusions on motions to compel arbitration on the same day last week (April 10), again demonstrating the care that must be taken in drafting and presenting arbitration agreements to workers.

In Diaz v. Sohnen Enterprises (Second Appellate District Case No. B283077), the company called employees into a meeting, gave them an arbitration agreement, and expressly told them that continuing employment would constitute acceptance even if they refused to sign. The plaintiff kept working but told managers 12 days later that she did not want to sign the agreement. She was again advised by management that continuing to work would constitute acceptance.

A week later, she and her attorney sent a letter rejecting the agreement; she also served her complaint. The Court of Appeal held, nonetheless, that she should be required to go to arbitration. The Court noted that it is settled law that an employee impliedly consents to arbitration by continuing to work after being told that the agreement is a condition of employment.

The Court said that unlike other cases where employers tried to use a general handbook consent or required a signature for consent, Diaz was presented with the agreement and told twice that continuing her employment was acceptance. Her employer “could unilaterally change the terms of Diaz’s employment agreement, as long as it provided Diaz notice of the change.”

On the same day, however, another Court of Appeal refused to enforce an arbitration agreement in another case, finding the agreement was unconscionable. In Subcontracting Concepts (CT), LLC v. De Melo (First Appellate District Case No. A152205), the company sought to compel into arbitration an independent contractor who brought an administrative claim through the Department of Labor.

The Court of Appeal held that arbitration could not be compelled, however, because the take-it-or-leave-it agreement was presented only in English (a language the plaintiff was not fluent in), referred to the American Arbitration Association without specifying or providing the rules, required the plaintiff to share arbitration costs (precluding a relatively inexpensive administrative forum), limited damages to actual monetary damages, and barred Private Attorney General Act (“PAGA”) actions.

The company argued that the agreement should not be reviewed under standards applicable to employment arbitration agreements because the plaintiff was an independent contractor, but the Court disagreed. It noted that the plaintiff brought a misclassification claim and was alleging he was an employee and that the power imbalance between the parties was akin to an employment relationship.

The two holdings, taken together, should serve as a reminder that employers are free to make arbitration agreements a condition of continued employment but should take care to ensure that employees and independent contractors are given clear notice and the terms of the agreement are enforceable under California law.

[The Diaz opinion is available at https://www.courts.ca.gov/opinions/documents/B283077.PDF. The Subcontracting Concepts opinion is available at https://www.courts.ca.gov/opinions/documents/A152205.PDF.]

Although it has been more than a month since a federal district court judge ordered the reinstatement of a controversial EEO-1 pay data reporting rule, it is still unclear when employers will need to comply. Employers subject to EEO-1 reporting requirements—including employers with 100 or more employees and employers with 50 or more employees and a federal contract or subcontracting amounting to at least $50,000—should stay tuned for updates on this matter as they may be required to quickly prepare pay data to submit to the EEOC this year.

As we previously reported, after the judge ordered the immediate reinstatement of the rule in early March, she ordered the Equal Employment Opportunity Commission (“EEOC”) to file a brief explaining how it will implement her order. The EEOC’s brief asserted administrative authority to set a September 30, 2019 deadline for employers to submit EEO-1 pay data. Employee advocacy groups, however, have demanded an earlier date for submissions by May 31, 2019. Employer groups such as the U.S. Chamber of Commerce filed an amicus brief asking for at least eighteen months to gather and submit the required pay data. At this point, it is unclear whether the judge will defer to the EEOC’s September 30 date, or require something else. There is also the possibility that a party could file an appeal, or that administrative action could modify requirements or timing of the rule.

As a reminder, employers are still required to submit their normal EEO-1 reports (not including compensation data) to the EEOC by May 31, 2019.