California Employment Law Update

November 2019 California Employment Law Notes

We invite you to review our newly-posted November 2019 California Employment Law Notes, a comprehensive review of the latest and most significant developments in California employment law. The highlights include:

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Determination Of Class Certification Motion Should Be Based On Dynamex’s “ABC Test”

Gonzales v. San Gabriel Transit, Inc., 2019 WL 4942213 (Cal. Ct. App. 2019)

Francisco Gonzales filed this putative class action against his former employer, San Gabriel Transit (“SGT”), alleging that he and 550 other drivers were misclassified as independent contractors rather than employees. The trial court denied class certification on the ground that Gonzales had failed to demonstrate the requisite community of interest or typicality among SGT drivers. While Gonzales’ appeal was pending, the California Supreme Court decided Dynamex Ops. W., Inc. v. Superior Court, 4 Cal. 5th 903 (2018) in which it adopted the “ABC Test” for determining employee/independent contractor status. In this opinion, the Court of Appeal reversed the denial of the class certification motion and ordered the trial court to apply the ABC Test to those claims involving enforcement of wage order requirements and the test from S.G. Borello & Sons, Inc. v. Department of Indus. Relations, 48 Cal. 3d 341 (1989) to those claims not involving enforcement of wage order requirements. Cf. Modaraei v. Action Prop. Mgmt., Inc., 40 Cal. App. 5th 632 (2019) (trial court properly denied class certification based upon commonality and class superiority criteria); Supershuttle Int’l, Inc. v. Labor & Workforce Dev. Agency, 2019 WL 4926864 (Cal. Ct. App. 2019) (employer’s declaratory relief action filed against the Labor Commissioner is not subject to dismissal under the anti-SLAPP statute).

Employer’s “Service Charge” May Be A Gratuity Owed To Employees

O’Grady v. Merchant Exchange Prods., Inc., 2019 WL 5617001 (Cal. Ct. App. 2019)

In this putative class action, banquet server and bartender Lauren O’Grady alleged that her employer’s practice of automatically imposing a 21 percent “service charge” to every food and beverage banquet bill constituted a gratuity that had to be fully paid to nonmanagerial service staff employees pursuant to Cal. Lab. Code § 351. The trial court sustained the employer’s demurrer to the complaint on the ground that a service charge can never be a gratuity. The Court of Appeal reversed, observing that the terms “tip,” “gratuity,” and “service charge” are not “interchangeable synonyms” and that “service charge” is a “protean term of no fixed meaning.” Accordingly, the Court held that plaintiffs might be correct that the custom in the hospitality industry is to treat sums designated as “service charges” as gratuities for employees within the mean of Section 351.

Employer Must Have Written Meal Period Agreement, Which Includes A Revocation Clause

Naranjo v. Spectrum Sec. Servs., Inc., 40 Cal. App. 5th 444 (2019)

Spectrum contracts with federal agencies to take temporary custody of federal prisoners and ICE detainees who must travel offsite for medical treatment and other appointments; Spectrum’s officers provide continuous supervision until the individuals are returned to their custodial locations. Spectrum had a policy that required on-duty meal periods for which officers were paid at their regular rate, but it did not have a written agreement with its employees that included an advisement that employees could revoke, in writing, the on-duty meal break policy agreement at any time. The Court of Appeal held that the employees were entitled to premium wages since the employer did not have a written agreement that included an on-duty meal period revocation clause; unpaid premium wages for meal break violations accrue prejudgment interest at the rate of seven percent; unpaid premium wages for meal break violations do not entitle employees to additional remedies for inaccurate wage statements if the statements include the wages earned for on-duty meal breaks but not the unpaid premium wages; absent a violation of Cal. Lab. Code § 226 (wage statements), attorney’s fees under Section 226(e) may not be awarded; and the trial court erred in denying class certification of a rest break class. See also Ferra v. Loews Hollywood Hotel, LLC, 2019 WL 5061494 (Cal. Ct. App. 2019) (meal and rest premiums are to be paid at employees’ hourly base rate of compensation; employer’s neutral rounding policy did not systematically undercompensate employees).

Expense Reimbursement Claims Are Covered By Employment Practices Insurance

Southern Cal. Pizza Co. v. Certain Underwriters at Lloyd’s, London, 40 Cal. App. 5th 140 (2019)

Lloyds of London provided the employer in this case with an employment practices liability insurance (“EPLI”) policy, which contained an exclusion relating to “wage and hour or overtime law(s).” In this insurance coverage dispute, the employer alleged the policy exclusion is narrower in scope than Lloyd’s contended. The trial court sustained the insurer’s demurrer to the complaint, but the Court of Appeal reversed, holding that “we conclude many of the disputed underlying lawsuit claims are potentially subject to coverage.” Specifically, the Court held that claims in the underlying lawsuit involving failure to reimburse delivery drivers for mileage expenses (Cal. Lab. Code §§ 2800 and 2802) fall outside the EPLI policy’s wage-and-hour exclusion, as do the derivative claims for violation of Cal. Bus. & Prof. Code § 17200 and the PAGA.

Live-In Nanny Is Entitled To Unpaid Wages, But Less Than $403,000

Liday v. Sim, 40 Cal. App. 5th 359 (2019)

Lea Liday sued her former employers for unpaid wages incurred from April 2010 until April 2014. Liday worked as the family’s live-in caretaker for their children and was paid a fixed salary of $3,000 per month. The trial court determined that Liday was a “personal attendant” under Wage Order No. 15 and that her salary did not compensate her at the statutory minimum wage for all the hours she had worked. (Before 2014, live-in domestic workers classified as “personal attendants” were exempt from California overtime requirements but were still entitled to be paid at least the minimum wage for all hours worked; since 2014, personal attendants are also entitled to overtime pay for all hours worked in excess of nine hours per day/45 hours per week.) In order to calculate the regular rate Liday was paid, the trial court divided Liday’s average weekly salary by 45 hours ($15.38) and concluded she was owed minimum wages at that rate for the hours she worked in excess of 45. The employers, on the other hand, argued that the trial court should have divided Liday’s salary by the $8 per hour statutory minimum wage to determine how many hours Liday’s salary had covered and then ordered the employers to pay Liday for any uncompensated hours at the rate of $8 per hour, resulting in a reduction of the amount owed from $265,720 to $74,000. The trial court awarded Liday $403,256, including prejudgment interest. The Court of Appeal agreed with the employers and determined that Liday is entitled to an award of only $74,080 in combined restitution and unpaid wages for the relevant period.

Statute Of Limitations Runs From The Date Of Each Allegedly Discriminatory Payment

Carroll v. City & County of San Francisco, 2019 WL 5617019 (Cal. Ct. App. 2019)

Joyce Carroll retired from her job working for the City of San Francisco in 2000 due to rheumatoid arthritis; since that time, Carroll received monthly disability retirement benefit payments. Plaintiff alleged that she became aware in 2017 (17 years after she had retired) that the City provided employees such as herself who were over the age of 40 when they were hired “reduced retirement benefits” by using a standard policy that has a disparate impact on older employees. Carroll filed her complaint with the Department of Fair Employment and Housing (“DFEH”) in 2017. In response to the putative class action lawsuit Carroll filed, the City filed a demurrer, claiming Carroll had failed to timely file an administrative charge with the DFEH. The trial court sustained the demurrer with leave to amend to allow the substitution of a new named representative to properly represent the putative class. In this opinion, the Court of Appeal reversed the trial court and determined that allegedly discriminatory payments made within the limitations period (i.e., in and after 2016) are actionable wrongs under the FEHA.