California Employment Law Update

White House “Regulatory Freeze” Memo Dooms DOL Independent Contractor Rule

As expected, the White House issued a memorandum to the heads of all executive departments and agencies within the first few hours after President Biden’s inauguration on January 20, requesting that they halt all non-emergency rulemaking and regulatory activity pending review by the new administration. The memo effectively does away with the U.S. Department of Labor (DOL)’s January 7, 2021 Final Rule on independent contractor classification, which would have reduced the number of primary factors the agency would consider when determining whether a worker is an independent contractor or an employee to two “core factors”—the nature and degree of control over the work and the worker’s opportunity for profit or loss based on initiative and/or investment. Biden has promised to work with Congress to establish a federal standard for independent contractor classification modeled on the “ABC test” for all labor, employment, and tax laws.  The ABC test—used as the basis for several states’ laws, such as California’s AB5 legislation—is the most stringent of various tests used to determine worker status.

Read the full post on Proskauer’s Law and the Workplace blog.

California Updates Its Pay Data Reporting Requirements – Reports are due by March 31, 2021!

UPDATED February 18, 2021: The portal is now open and can be accessed on DFEH’s pay data reporting homepage along with the guide, template, and example.

UPDATED February 3, 2021: The DFEH has released a User Guide, reporting Template, and reporting Example. The portal will be available on February 16, 2021.

SB 973, enacted on September 30, 2020, requires private employers of 100 or more employees (with at least one employee in California) to report pay and demographic data to the Department of Fair Employment and Housing (DFEH) by March 31, 2021 and annually thereafter. The DFEH recently has updated its FAQs to provide more details about the reporting process and has indicated it will further provide a User Guide and reporting Template by February 1, 2021.

The information that eligible employers must report includes two components:

  1. The number of employees by race, ethnicity, and sex in ten different job title categories: (A) Executive or senior level officials and managers, (B) First or mid-level officials and managers, (C) Professionals, (D) Technicians, (E) Sales workers, (F) Administrative support workers, (G) Craft workers, (H) Operatives, (I) Laborers and helpers, and (J) Service workers; and
  2. The number of employees by race, ethnicity and sex, whose annual earnings fall within each of the pay bands used by the U.S. Bureau of Labor Statistics in the Occupational Employment Statistics survey (the current ranges may be found on page 4 here).

Employers must choose the single pay period between October 1 and December 31 of the “Reporting Year” (the prior calendar year) that will serve as their “Snapshot Period.”

Highlights from the updated guidance are as follows:

Required content

  • Employers should report employees’ sex according to three categories: female, male, and non-binary.
  • A temporary services employer must report on the workers that it places on assignment at other companies if those workers are the “employees” of the temporary services employer (that is, on the payroll of the temporary services employer).
  • California’s pay data reporting requirement only applies to employers that file EEO-1 reports.
  • Employers may submit a federal EEO-1 Report to the DFEH to satisfy their obligation only if the EEO-1 Report “contain[s] the same or substantially similar pay data information.” Cal. Gov’t Code § 12999(g). No EEO-1 Report filed with the U.S. Equal Employment Opportunity Commission (EEOC) for Reporting Year 2020 will satisfy this standard since the EEO-1 survey is not currently collecting pay data.

Calculating pay and hours worked

  • Employers should not annualize earnings for employees who did not work the entire Reporting Year.
  • Employers must include paid time off in the hours worked calculation, unlike the federal EEO-1 Component 2 collection from 2017 and 2018 in which the EEOC required employers to exclude time on paid leave when calculating hours worked.
  • When employers create their snapshot and assign employees to a particular pay band, employers should use Form W-2’s Box 5 (Medicare wages and tips) for reporting pay.

Multi-establishment employers

  • A California employer with multiple establishments must report on all of its establishments, including those with fewer than 50 employees.
  • A multiple-establishment employer’s headquarters is a distinct establishment reported in the same manner as other establishments.
  • For the pay data reports due to the DFEH by March 31, 2021, employers should utilize the same establishments that they use for their EEO-1 reports and assign employees to the establishment where the employer reports the employee for EEO-1 purposes.
  • Employers with multiple establishments must report all of their establishment-level data in a single report. They must include their employees assigned to California establishments and/or working within California. Multiple-establishment employers may report non-California employees.
  • If employees telework from a residence in California, but are assigned to an establishment outside of California, an employer’s report must include establishments outside of California if any employee at that establishment is working from California during the Snapshot Period. For an establishment outside of California, the employer has two options: 1) to report only those employees teleworking from California and who are assigned to a single establishment outside of California or 2) to report all employees assigned to that establishment outside of California.

We will continue to monitor the DFEH updates to the pay data reporting process. For further information on the reports due in less than 90 days (i.e., on March 31, 2021), please contact Tony Oncidi or Kate Gold in Proskauer’s Los Angeles office.

The ABCs of Independent Contractor Classification: California Supreme Court Holds Strict Independent Contractor Test Applies Retroactively

On January 14, 2021, the California Supreme Court decided, at the request of the Ninth Circuit, that its decision in Dynamex Operations West, Inc. v. Superior Court, 4 Cal.5th 903 (2018) applies retroactively. Vazquez v. Jan-Pro Franchising International, Inc. (SC S258191 1/14/21). Dynamex adopted the “ABC test” for determining whether a worker is an employee or independent contractor for purposes of the obligations imposed by California’s wage orders. This holding makes it more difficult for a hiring entity to properly classify a worker as an independent contractor. The three-prong test requires the hiring entity to prove that the worker is: (A) free from the control and direction of the hiring entity; (B) performing work outside of the usual course of the hiring entity’s business; and (C) customarily engaged in an independently established trade of the same nature as the work performed.

In 2019, the Ninth Circuit held that the ABC test applied retroactively in the Vazquez case (please see our earlier blog post “Strict Independent Contractor Test Applies Retroactively”). The California high court followed this logic in 2021.

The California Supreme Court reasoned that because Dynamex did not change a settled rule, the ABC test applies retroactively with respect to obligations arising from California’s wage orders. Indeed, the Court relied on its prior opinions in which it noted “that the test for determining whether a worker should be classified as an employee or independent contractor in the wage order context remained an open question.” The Court was further motivated by policy concerns, including that the wage orders provide protection for workers, protect law-abiding businesses from unfair competition by businesses that do not comply, and benefit the public at large, which bears the burden of the ill effects of non-compliance with the wage orders’ minimum standards for working conditions.

In line with the Ninth Circuit decision in Vazquez, the California Supreme Court held that Dynamex applies retroactively to all non-final cases that predate the effective date of the April 30, 2018 Dynamex opinion. This could make businesses potentially liable for lawsuits filed before the rigid ABC test existed and may expand employers’ liability for practices that predate Dynamex. The retroactivity of Dynamex adds another temporal dimension to the existing dilemma created by fundamentally different standards for worker classification on the state and federal levels for businesses with independent contractors in California. A business that classifies its workers appropriately for federal purposes, and that historically classified its workers appropriately for purposes of California state law (as employers understood it prior to the Dynamex opinion), could nevertheless have exposure to liability in the wage and hour context in California.

Notably, however, Dynamex addressed only California’s wage orders, meaning that the holding in Dynamex does not apply to the much broader application of California’s worker classification law known as Assembly Bill 5 (“AB 5”), which did not go into effect until January 1, 2020 and applies only prospectively.

No Reservations! A Beverly Hills Dining Institution Provides a Reminder to Adhere to Health Officer Orders

As recently reported by the Los Angeles Times, People, and a slew of other national and local media outlets, famed Beverly Hills restaurant, La Scala, recently faced significant public backlash after sending out invitations to a Prohibition-themed, indoor New Year’s Eve celebration.  The invitation, which was distributed to select customers, read: “We are considering taking reservations for New Year’s Eve Dinner.  Inside.”  It went on to instruct recipients to “Please keep this discreet, but tell all your friends.”

Although the restaurant’s management has since apologized and the previously-announced fête is not going forward, the public backlash serves as a stark reminder to employers across all industries to carefully monitor state and local health officer orders and applicable industry-specific reopening protocols.  In addition, as businesses are permitted to reopen, they must ensure that they comply with the slew of newly-applicable COVID-19 workplace safety, reporting, and notification requirements, including Cal/OSHA’s Emergency Temporary Standards (previously addressed in this blog, here) and Labor Code section 6409.6, which takes effect on January 1st (which we covered in the blog back in September 2020, here).  Cal/OSHA has been actively enforcing COVID-19 safety requirements, and publishing violations.

Oracle Joins “Texit” – The Growing Exodus From California to Texas

Joining Tesla, Hewlett-Packard and Charles Schwab, Oracle, the world’s largest database management company, has announced that it will move its corporate headquarters from California to Texas.  “We believe these moves best position Oracle for growth and provide our personnel with more flexibility about where and how they work,” the company said in its SEC filing.  In 1977, Larry Ellison co-founded Oracle with Bob Miner and Ed Oates in Santa Clara with just $2,000 in seed money.

In just the past decade, more than 13,000 businesses have left the Golden State for better business climates (they’re increasingly going to Texas).  The reasons most frequently cited for relocating are:  California’s highest-in-the-nation income tax rates, greatest regulatory burden and litigation risk along with the third-highest cost of living (after Hawaii and the District of Columbia).

California Named a Top “Judicial Hellhole” … Again

Consistent with our reporting from the past few years, California is once again listed among the American Tort Reform Foundation’s (ATRF) “Top Judicial Hellholes” in the United States. This year, California finished with a Bronze Medal as just the third most hellish (behind Pennsylvania and New York City), improving on its first place finish in 2019.

The ATRF notes that excessive tort costs in California lead to an estimated increase of $15.1 billion in the cost of doing business in the state and the loss of 242,761 jobs according to The Perryman Group. This amounts to each Californian paying a $594.74 “tort tax.”

Read the full report here.

As COVID-19 Cases Overwhelm the Golden State, Cal/OSHA Imposes More Burdens on Employers

California’s Division of Occupational Safety and Health, better known as “Cal/OSHA,” recently issued new emergency temporary standards to protect workers from COVID-19 (the “Emergency Temporary Standards”), which were approved by the Office of Administrative Law earlier this week.  The Emergency Temporary Standards, which are now in effect, apply to virtually all California employers, employees, and places of employment, with three exceptions:  (1) workplaces where there is only one employee who does not have contact with other people; (2) employees who are working remotely; and (3) employees covered by Cal/OSHA’s Aerosol Transmissible Diseases regulation.

Under the Emergency Temporary Standards, all covered employers must establish, implement, and maintain “an effective, written COVID-19 Prevention Program,” which may either be a standalone document or incorporated into employers’ preexisting Injury and Illness Prevention Programs.  Among other things, the COVID-19 Prevention Program must:

  • Ensure that employees know they must, without fear of reprisal, report COVID-19 symptoms, possible exposures and/or possible COVID-19 hazards in the workplace;
  • Communicate to employees about the employer’s COVID-19 prevention procedures and available testing resources;
  • Identify, evaluate, and correct COVID-19 hazards;
  • Establish physical distancing, face covering protocols, and other controls or equipment to reduce transmission risk;
  • Develop procedures to investigate and respond to COVID-19 cases, including an effective employee screening process;
  • Provide COVID-19 training;
  • Provide testing to employees who are exposed to COVID-19, and in the case of multiple infections or a major outbreak, implement regular workplace testing for employees in the exposed work areas;
  • Require the exclusion of COVID-19 cases and exposed employees from the workplace until they are no longer an infection risk; and
  • Maintain records of COVID-19 cases and report serious illnesses and multiple cases to Cal/OSHA and local health departments, as required.

Paradoxically (given the purported goal of preventing exposure in the workplace and further spread of this deadly virus), and in contrast to guidance from both the EEOC and California Department of Fair Employment and Housing, the Emergency Temporary Standards provide that “[a] negative COVID-19 test shall not be required for an employee to return to work” following infection or exposure.

In addition, the Emergency Temporary Standards direct employers to “continue to maintain … [the] earnings, seniority, and all other employee rights and benefits” of any employee who has to be excluded from work due to actual COVID-19 infection or potential COVID-19 exposure in the workplace, if the employee is “otherwise able and available to work.”  The Emergency Temporary Standards provide that the obligation to maintain earnings and benefits does not apply to any period when an employee is unable to work “for reasons other than protecting persons at the workplace from possible COVID-19 transmission” or if the employer can demonstrate that the COVID-19 exposure is not work related.  Further, employers are permitted to use “employer-provided employee sick leave … and consider benefit payments from public sources in determining how to maintain earnings…, where permitted by law and when not covered by workers’ compensation.”

Given that the Emergency Temporary Standards take effect immediately, employers with any employees in California may wish to contact counsel to assist them in developing a compliant COVID-19 Prevention Program.

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