California 2020: Employee v. Independent Contractors, Wage and Hour, Arbitration, Discrimination and more

Areas of Law:  This newsletter touches on several intertwined areas of business and employment law that are impacted by California’s new laws:  (1)  Employee v. Independent Contractor plus Wage and Hour; (2) Arbitration; (3) Discrimination and (4) Other areas. 

Why it Matters?:  In our opinion, any business — whether it has 5, 50, 500 or 5,000 employees — should pay close attention to all of these changes as any one can be the trigger for significant financial liability.  If your business needs help addressing these issues, please contact our firm. 

1.   Independent Contractor v. Employee (Dynamex and Borello) 
AB5 codified the Dynamex ruling from the California Supreme Court, which applied the ABC test (see our August 2, 2018 update, “The ABCs of Independent Contractors“) to determine whether a worker is an independent contractor.  In summary, to be an independent contractor the worker must (a) be “free from control and direction”; (b) “perform work outside the usual course of the hiring entity business” and (c) “customarily engaged in an independently established trade.”  Under this ABC test, we believe it is very difficult for a business to establish that a worker is an independent contractor.  There is some minor flexibility for businesses hiring licensed professionals or receiving professional services as these relationships are analyzed under another test (Borello). 

Our business has always used a lot of Independent Contractors, what could go wrong?  
Well, everything.   Lawyers often use the phrase a “parade of horribles”, and that would be appropriate here.  A single alleged independent contractor could (a) file a complaint for workers compensation, (b) file an unemployment insurance claim; (c) file a labor claim for overtime, or (d) hire an attorney to file a “wage and hour” claim (including pay stub compliance, meal break violations, rest break violations and failure to pay overtime).  If a wage and hour claim is filed, the damages escalate quickly including statutory penalties and attorney’s fees…and there is no insurance.

Wage and hour claims are frequently filed as class actions.Likewise, there could be an EDD audit.  In a “misclassification” based action, the Company’s only defense will be that the worker is an independent contractor, which was always hard to establish, and just became much more difficult.  Bottom line, in most situations, the Company will lose the independent contractor battle in our opinion.  If you are a business owner with a history of hiring a lot of independent contractors, we recommend that you consult with law firm to see what can be done to lessen your exposure.  There may be lawful steps you can take before a lawsuit is filed.  If you would like us to confidentially review your situation, please contact our firm. 

2.   Changes to Arbitration:  Immediately challenged 
AB51 banned mandatory arbitration agreements and prohibits employers from requiring applicants or existing employees to waive any right, forum or procedure for any employer violations of FEHA, the Labor Code or other statutes governing employment as a condition of employment, continued employment or the receipt of employment related benefits.   The bill also prohibits an employer from threatening, retaliating or discriminating against, or terminating any applicant for employment or any employee because of the refusal to consent to the waiver of any right, forum, or procedure for a violation of specific statutes governing employment.  SB707 also requires that in an employment or consumer arbitration where the drafting party is required to pay for arbitration and fails to do so within 30 days after the due day, the drafting party will waive arbitration and face drastic monetary and non-monetary sanctions.  

AB51 has been challenged in federal court, and the court issued a 10 day temporary restraining order (TRO).  Stay tuned.

3.   Changes to Discrimination law: Lactation Rooms, Hair Styles, Training and Time.
There are a number of important changes.  SB142 requires a lactation room or location that includes prescribed features with close proximity to a refrigerator and sink.  SB188 adds “hairstyles: to the list of potential basis for race discrimination.   AB9 extends the time to file a discrimination complaint with FEHA from 1 to 3 years.  SB788 extends the time to comply with sexual harassment training for employers with 5 or more employees.  For help here, contact our firm. 

4.  Other updates. 
California also passed the following employment related laws, which we will just list in summary form here:

AB749 prohibits No Rehire clauses in settlement agreements
AB673 and SB 688 provide additional remedies for failure to pay wages
SB83 increases the maximum wages replacement under California paid family leave
AB35 strengthens law protecting employees from toxic materials
AB203 requires Valley Fever awareness training is expected to be working near substantial dust disturbance
AB1223 requires private employers with 15 or more employees to provide leave of absence with pay for organ donation
AB1554 requires new notice requirements for Flexible Spending Accounts (FSA)
AB1804-1805 address the law regarding occupational injuries 
IRS New W4

If you have a concern that touches on one of these other areas, please contact our firm.

Key Takeaways: What Should a California Business Owner Do?  
If you own a business in California with a substantial pool of employees, you might be feeling overwhelmed with all these changes, the associated risks and the potential financial exposure.  What should you do?  Our recommendations:

1.    Get an attorney involved on your side.  If you don’t have a general counsel or employment attorney, or your attorney is not experienced with these issues, contact our firm. 

2.    Review your independent contractor / wage and hour exposure.  We have helped several clients address these issues.  Work with an attorney immediately (i.e. don’t wait until the lawsuit is filed), and if you receive an EDD audit have your CPA work with your attorney. 

3.    Improve your payroll systems and processes.  You may need to redesign your compensation plans, and processes to get into compliance and minimize future risks.

4.    Revise your handbooks.  If you don’t have a handbook, get one.  We offer a flat rate for our California 2020 handbook, and a reduced rate for annual updates, with reduced rates for multi-company engagements.  Contact us for information. 


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