California Employment Law Update

Put it in Writing: Los Angeles Imposes New Requirements on Employers of Independent Contractors

As readers may know, the Los Angeles Freelance Worker Protections Ordinance took effect on July 1, 2023.  The new law imposes additional requirements on businesses in the City of Los Angeles who have contracts with freelance workers.  Perhaps most notably, for any contract between a hiring entity and a freelance worker valued at $600 or more, the contract must be in writing and include:

  • the name, mailing address, phone number, and email address of both the hiring entity and the freelance worker;
  • an itemization of all services to be provided by the freelance worker, the value of the services to be provided pursuant to the contract, and the rate and method of compensation; and
  • the date by which the hiring entity must pay the contracted compensation or the manner by which such date will be determined.

The ordinance defines a “freelance worker” as a natural person or an entity hired or engaged as a bona fide independent contractor to perform services for a “hiring entity” in exchange for compensation.  A “hiring entity” is an entity regularly engaged in business or commercial activity, including owning or operating a trade or business, a non-profit business, or an entity that represents itself as engaging in any trade or business.

The ordinance also creates a new gap-filler provision regarding timing of payment and imposes new recordkeeping requirements on hiring entities and freelance workers alike.  If the written contract does not provide a due date, or if there is no written contract, a freelance worker must be fully paid no later than 30 calendar days after services are rendered.  Additionally, freelance workers and hiring entities must each retain written records related to this ordinance for no less than four years, including contracts, payment records, and any other written or electronic records to demonstrate compliance with the ordinance.

Despite the ordinance’s broad reach, some enumerated parties are excluded from coverage.  Notably, the ordinance does not apply to entities that hire app-based transportation and delivery drivers to provide prearranged services.  Additionally, the ordinance excludes any freelance worker that: (1) is already required by law to have a written agreement to provide services in exchange for compensation; (2) is already an employee of the hiring entity; (3) agrees to perform services for the hiring entity at no pay; or (4) has employees other than the one individual natural person who is the sole legal and beneficial owner.

The ordinance prohibits employers from retaliating against any freelance workers for exercising rights under the new law or for opposing any practice banned by the ordinance.  The ordinance also imposes additional damages and remedies, including attorney’s fees and costs.

Employers who hire independent contractors should examine their related policies and practices carefully and consult with counsel.

Organizations May Sue Employers Based On Time Spent Opposing Unfair Competition

Under the unfair competition law (UCL), Cal. Bus. & Prof. Code § 17200 et seq., a plaintiff may bring a cause of action for any “unlawful, unfair or fraudulent business act or practice.” Generally, a UCL claim will be brought as a violation of rules set out in other laws or may be brought for any practice that is “unfair” even if not statutorily prescribed.

As a prerequisite to bringing a UCL claim, a plaintiff must have standing. This inquiry often turns on whether the plaintiff suffered an “injury in fact,” i.e., whether the plaintiff suffered “loss of money or property” as a result of the unfair competition at issue.  In a recent opinion, the California Supreme Court held that an organization may have standing to pursue a UCL claim if the organization diverted its resources to combat the alleged unfair competition.  California Med. Ass’n v. Aetna Health of California Inc., 2023 WL 4553703 (Cal. July 17, 2023).

This expansion of UCL standing could have significant implications for employers—potentially opening up a new group of plaintiffs who may obtain standing to challenge employer practices through their own actions.  For instance, while the Court previously held in Amalgamated Transit that unions were precluded from bringing a UCL claim on the basis of associational standing, a union might be able to obtain standing by diverting their resources to combat allegedly “unfair” employer actions.

Fortunately for employers, the Court limited their opinion in several ways:

  • First, the opinion is limited to organizational standing. The court expressly did not expand associational or individual (including class) standing based on a diversion of resources theory. Amalgamated Transit thus remains good law.  Moreover, the Court acknowledged a line of federal district court cases holding that individuals do not have standing on the basis that they diverted resources to combat unfair competition; nevertheless, the Court declined to weigh in on individual standing.
  • Second, the Court rejected the argument that a diversion of resources that is made during or in preparation for litigation could establish standing. Instead, the defendant’s actions must have threatened the organization’s mission and caused the organization to divert resources to address the threat outside of litigation.
  • Third, the Court also excluded organizations that were created to manufacture standing and organizations whose sole mission is to deter unfair competition. In either of these cases, there is no diversion of resources.

DHS Rule Will Permit Remote I-9 Authorizations on a Permanent Basis

The United States Department of Homeland Security (“DHS”) has issued a final rule that will permit certain employers to remotely verify I-9 employment authorization documents on a permanent basis beginning August 1, 2023.

Historically, employers, or their “authorized representatives,” were required to review I-9 authorization documents in-person with the employee physically present. However, during the COVID-19 pandemic, DHS temporarily permitted employers operating remotely to engage in remote examination of documents, which flexibility is scheduled to end on July 31, 2023.

Under the new rule, to make use of remote authorization (which the rule refers to as the “alternative procedure”), employers must:

  • Be enrolled, and participate in good standing in E-Verify;
  • Use remote authorization for all employees at a site, or for all remote employees (but not for in-person or hybrid employees) so long as the employer does not adopt such a practice for a discriminatory purpose or treat employees differently based on a protected characteristic;
  • Retain copies of all the documents presented by the employee to establish their identity during the alternative procedures; and
  • Complete required E-Verify trainings on fraud awareness and anti-discrimination.

Further, the rule states that within three (3) business days of an employee’s first day of employment, an employer using the alternative procedure must:

  • Examine copies of Form I-9 documents or an acceptable receipt to ensure that the documentation presented reasonably appears to be genuine;
  • Conduct a live video interaction with the individual presenting the document(s) to ensure that the documentation reasonably appears to be genuine and related to the individual. The employee must first transmit a copy of the documents to the employer and then present the same documents during the live video interaction;
  • Indicate on the Form I-9, by completing the corresponding box, that an alternative procedure was used to examine the documentation to complete the form, or for reverification, as applicable;
  • Retain, consistent with applicable regulations, a clear and legible copy of the documentation; and
  • In the event of a Form I-9 audit or investigation by a relevant federal government official, make available the clear and legible copies of the identity and employment authorization documentation presented by the employee for document examination in connection with the employment eligibility verification process.

The new rule will apply on a prospective basis to employees hired after the option takes effect on August 1.  A new edition of Form I-9 also will be made available beginning on August 1 for use beginning on that date.

Employers who used remote document examination procedures under the flexibilities provided due to the COVID-19 pandemic and are now subject to the requirement to conduct in-person physical examinations of such documents by August 30, 2023 may use the alternative procedure to satisfy this re-examination requirement, provided that they:

  • Were enrolled in E-Verify at the time of the remote examination while using COVID flexibilities;
  • Created an E-Verify case for the employee (except for reverification, for which no E-Verify case needs to be opened), and;
  • Performed the remote inspection between March 20, 2020 and July 31, 2023.

Employers making use of this accommodation under the final rule must also add “alternative procedure” with the date of the live video interaction (discussed above) to the employee’s I-9 form. As noted above, the accommodation does not apply to employers who were not enrolled in E-Verify – or did not create an E-Verify case for the employee(s) in question if required – at the time the remote verification was initially conducted.

SCOTUS Provides Further Support For Staying PAGA Court Actions Pending Arbitration

With Adolph v. Uber Technologies, Inc. in the books, it is now clear that Private Attorneys General Act (PAGA) plaintiffs do not lose standing to pursue representative claims in court when their individual PAGA claims are sent to arbitration.  In Adolph’s wake, disputes may arise regarding whether the representative court action should be stayed pending the individual arbitration.  Adolph strongly suggested a stay is appropriate in that circumstance.

The recent U.S. Supreme Court decision in Coinbase, Inc. v. Bielski provides further support for that approach.  Coinbase concerned the circumstance where a party takes an interlocutory appeal from an order denying a motion to compel arbitration, which the Federal Arbitration Act permits as a matter of right.  9 U.S.C. § 16(a).  The Court considered the question of “whether the district court must stay its pre-trial and trial proceedings while the interlocutory appeal is ongoing,” and concluded, “The answer is yes.”  Slip op. at 1.

The similarities between the circumstance in Coinbase and the PAGA situation described above are striking.  A stay pending an appeal of an order denying arbitration is appropriate because if the appellant prevails on appeal, there will be no court action.  Similarly, a stay of non-individual PAGA claims in court pending the arbitration of individual PAGA claims is appropriate because only an “aggrieved employee” has standing to bring a PAGA claim.  Cal. Lab. Code § 2699(a).  Therefore, if the plaintiff loses in arbitration, she has no standing to pursue a court action.

Accordingly, while the Coinbase ruling would not bind courts when a PAGA claim is compelled to arbitration, the reasons underpinning it are compelling and apply equally to PAGA cases:

  • Avoiding unseemly conflicts between tribunals: “[I]t makes no sense for trial to go forward while the court of appeals cogitates on whether there should be one.” Slip op. at 4 (quoting Apostol v. Gallion, 870 F.2d 1335, 1338 (7th Cir. 1989)).  Similarly, it makes no sense for a non-individual PAGA case to proceed while an arbitrator decides the threshold question of whether the plaintiff has standing to bring PAGA claims.
  • Preserving the contracted-for benefits of arbitration: “If the district court could move forward with pre-trial and trial proceedings while the appeal on arbitrability was ongoing, then many of the asserted benefits of arbitration (efficiency, less expense, less intrusive discovery, and the like) would be irretrievably lost—even if the court of appeals later concluded that the case actually had belonged in arbitration all along.” Slip op. at 6.  Similarly, if a defendant were forced to defend non-individual PAGA claims in court, the benefits of arbitration would be lost of the arbitrator decided the plaintiff had no standing to bring PAGA claims.
  • Avoiding “blackmail settlements”: “Absent a stay, parties also could be forced to settle to avoid the district court proceedings (including discovery and trial) that they contracted to avoid through arbitration. That potential for coercion is especially pronounced in class actions, where the possibility of colossal liability can lead to what Judge Friendly called ‘blackmail settlements.’”  Slip op. at 6 (quoting H. Friendly, Federal Jurisdiction: A General View 120 (1973)).  “Blackmail settlements” are equally concerning in PAGA actions, given the potential for statutory penalties of as much as $100 or more per pay period.
  • Preserving scarce judicial resources: “From the Judiciary’s institutional perspective, moreover, allowing a case to proceed simultaneously in the district court and the court of appeals creates the possibility that the district court will waste scarce judicial resources—which could be devoted to other pressing criminal or civil matters—on a dispute that will ultimately head to arbitration in any event,” which “represents the ‘worst possible outcome’ for parties and the courts[.]” Slip op. at 6 (quoting Bradford-Scott Data Corp. v. Physician Computer Network, Inc., 128 F.3d 504, 506 (7th Cir. 1997)).  Similarly, judicial resources are wasted if a trial court proceeds with PAGA claims that the arbitrator ultimately rules lack standing.

Adolph Parts With Viking River, Opening Path for Arbitration-Bound Plaintiffs to Pursue PAGA Claims in Court

On July 17, 2023, approximately one year after the U.S. Supreme Court’s landmark decision in Viking River Cruises, the California Supreme Court issued its highly-anticipated decision in Adolph v. Uber Technologies.  The Court answered the critical question of whether a Private Attorneys General Act (PAGA) plaintiff retains their standing to pursue non-individual claims after their individual claims are compelled to arbitration. As many had predicted it would, the Court held that the answer is yes.

In Viking River Cruises, the U.S. Supreme Court held that a plaintiff may be compelled to submit an “individual” PAGA claim to arbitration—the portion of a PAGA claim seeking penalties for violations committed against the plaintiff—if the agreement is covered by the Federal Arbitration Act. The Court found that once the plaintiff’s individual PAGA claim is compelled to arbitration  and severed from the non-individual PAGA claims, state law deprives the plaintiff of standing to pursue the non-individual claims in court. However, as Justice Sotomayor observed in concurrence, state courts would “have the last word” on the meaning of state law. Since Viking River, the majority of California courts have rejected the Supreme Court’s interpretation of PAGA standing, instead choosing to stay the non-individual PAGA claim when a plaintiff’s individual claim is compelled to arbitration.

In Adolph, the Court analyzed the history and purpose of PAGA in concluding that a PAGA plaintiff does not lose their standing to pursue a non-individual claim when their individual claim is compelled to arbitration. The Court reasoned that denying a PAGA plaintiff standing to pursue the non-individual PAGA claims was inconsistent with PAGA’s purpose because it would undermine the State’s ability to deputize private plaintiffs to enforce the Labor Code, reduce state revenues, and increase state costs of enforcement.

Although the decision is a welcome development for the plaintiffs’ bar, there are also silver linings for employers. In rejecting the defendant’s argument that its holding would lead to duplicative litigation, the Court cited Adolph’s notable concessions that (1) the trial court may stay the court action pending arbitration, and (2) following arbitration, the arbitration award may be confirmed in court, at which point the arbitrator’s findings would bind the parties in the court action. We previously observed that, as a practical matter, this procedure would mean that a complete victory for the employer would end the case: a plaintiff could not lose their individual claim in arbitration and then proceed to litigate the non-individual claims in court as if nothing had happened.

Moreover, in some cases, the arbitration process may advance the employer’s defense of the court action even if the arbitrator ultimately finds the plaintiff was aggrieved. For example, in cases alleging violations in spite of a lawful policy, a PAGA plaintiff might prove liability in arbitration only by resorting to highly individualized evidence, such as disputed testimony about what the plaintiff was instructed by individual managers. If the arbitration of a single alleged Labor Code violation proves burdensome, that could be a powerful demonstration that a trial involving the claims of hundreds or thousands of individuals would be unmanageable.

The future of PAGA litigation depends in large part on how the California Supreme Court will resolve such questions of manageability.  In Estrada v. Royalty Carpet Mills, Inc., the Court is poised to decide whether courts have authority before trial to strike or limit PAGA claims as unmanageable—a question that has split Courts of Appeal.  But even Estrada, which held trial courts have found no such authority, stipulated that courts have inherent authority to limit the presentation of evidence at trial, which could make it difficult as a practical matter to prove an unmanageable claim.

With Adolph in the books, employers facing PAGA claims should carefully consider the potential benefits and drawbacks of arbitration and consult with counsel experienced in the area to ensure their rights are adequately protected.

July 2023 California Employment Law Notes

We invite you to review our newly-posted July 2023 California Employment Law Notes, a comprehensive review of the latest and most significant developments in California employment law. The highlights include:

View PDF

Court of Appeal Clarifies Employers’ Expense Reimbursement Obligations for Pandemic-Related Remote Work

California Labor Code section 2802 (“Section 2802”) requires employers to reimburse employees for “all necessary expenditures or losses” they incur as a “direct consequence of the discharge of … [their] duties, or … [their] obedience to the directions of the employer.”  So, in March 2020, when Governor Newsom issued a broad stay-at-home order requiring all non-essential workers to work remotely (if possible), questions arose about who should pay for any expenses related to this government-required remote work.  And, on July 11, 2023, in Thai v. International Business Machines Corporation, California Court of Appeal Case No. A165390, the California Court of Appeal for the First Appellate District answered this question.  In its published opinion, the Court held that employers are responsible for reimbursing employees’ necessarily-incurred remote work expenses, even when the only reason they are working from home is a government order.

The plaintiff, Paul Thai (“Thai”), sued IBM on behalf of himself and similarly situated employees, alleging IBM failed to reimburse employees for expenses incurred to perform their regular job duties from home pursuant to Governor Newsom’s stay-at-home order.  Thai argued that, to accomplish his job duties from home, he required internet access, telephone service, a telephone headset, and a computer and accessories, all of which were items IBM provided to its employees in its offices.  IBM argued that the Governor’s order was an intervening cause of the work-from-home expenses, foreclosing the allegation that IBM was the direct cause of the expenses and absolving IBM of liability under Section 2802.  The trial court sustained IBM’s demurrer, concluding the stay-at-home order was an “intervening cause precluding direct causation by IBM,” and entered judgment in IBM’s favor.

On appeal, however, a three-justice panel unanimously reversed the trial court’s ruling.  The Court explained that, per the plain language of Section 2802(a), an employer’s obligation to reimburse work expenses “does not turn on whether the employer’s order was the proximate cause of the expenses.”  Rather, “it turns on whether the expenses were actually due to performance of the employee’s duties.”  Thus, whether employees incurred business expenses while working at home following the government’s stay-at-home order did not change an employer’s reimbursement obligation under Section 2802.

Thai is a reminder that Section 2802 requires employers to reimburse an employee for all necessary expenses that are a direct consequence of the employee’s job duties, regardless of whether the expenses were directly caused by the employer.  Although government-imposed stay-at-home orders are, hopefully, a thing of the past, Thai has potential implications beyond the COVID-19 pandemic (or future pandemics).  And, while the California Supreme Court ultimately may need to clarify the law with respect to employers’ reimbursement obligations under Section 2802, until that happens, employers should consult with skilled employment counsel about their reimbursement obligations.

West Hollywood Wins The Gold Medal For Highest Minimum Wage In The Nation — $19.08!

The so-called “Fight for 15” – those widespread protests for a $15 minimum wage – are so passé now!

As of July 1, 2023, West Hollywood takes the crown for the highest mandated minimum wage in the United States at $19.08.  Why they didn’t just top it off at $20 is anyone’s guess.  (Not to be completely outmatched, several other localities raised their minimum wage as of July 1, too, as we recently reported here.)

Although West Hollywood has now adopted a single, across-the-board minimum wage for those employers who still happen to be doing business within the city limits, the city council previously tinkered with different minimum wages based on employer size (50 or more employees meant a higher minimum wage) and set a still higher minimum wage for hotel employees – based most likely on the assumption it’s harder for a hotel to flee the jurisdiction than some other businesses.  Other localities have set their own employer-size benchmarks or have established different rates for different types of employers (e.g., nonprofit organizations, franchisees) or employees (e.g., on-call employees vs. government-supported employees).

However, West Hollywood has also enacted some limited relief for certain employers.  Businesses are eligible to apply for a one-year waiver if they can demonstrate that complying with the new rate would force the business to “file bankruptcy[,] shutdown, reduce its workforce by more than twenty percent (20%), or curtail its Employees’ total hours by more than thirty percent.”

One West Hollywood restaurant owner reported to the Los Angeles Times since the city began raising the minimum wage this year (first to $17.50 and now to $19.08) his restaurant lost $100,000 just in the first quarter of 2023, and that he has been forced to reduce his staff by one-third from 120 to 80 employees and has cut 1,000 working hours. Another establishment reduced its bar staff from 30 to 22 employees.

We can’t help but think of Mao Zedong, who famously said, “Let a hundred [minimum wage laws] bloom,” as the growing patchwork of such laws continues to expand in scope and complexity with absolutely no consideration of the impact such confusing and conflicting laws might have upon law-abiding employers who are just trying to keep their businesses afloat.  To name just one example, there are parts of Woodbury Avenue in Los Angeles County where businesses on one side of the street are subject to a minimum wage that is three cents higher than on the other side.

Many of the dozens of local governments that have enacted their own very special minimum wage laws have indexing provisions so that the minimum wage rises annually to adjust for inflation.  Other localities have made frequent amendments to their ordinances to account for inflation or make other changes.  Thus, employers must be vigilant to ensure they remain on top of changes to local laws.

Crisis Averted: California Employers Are Not Liable for “Take-Home” COVID Cases.

Last week, the California Supreme Court unanimously ruled that employers are not liable to nonemployees who contract COVID-19 from employee household members that bring the virus home from their workplace, because “[a]n employer does not owe a duty of care under California law to prevent the spread of COVID-19 to employees’ household members.”  Kuciemba v. Victory Woodworks, Inc., No. S274191 (Cal. July 6, 2023), slip op. at 49.

We previously covered the Kuciemba action here, but as a reminder, the Ninth Circuit certified two questions to the California Supreme Court: (1) If an employee contracts COVID-19 at the workplace and brings the virus home to a spouse, does the California Workers’ Compensation Act (Lab. Code, § 3200 et seq.) (the “WCA”) bar the spouse’s negligence claim against the employer, and (2) Does an employer owe a duty of care under California law to prevent the spread of COVID-19 to employees’ household members?

The court answered the first question in the plaintiff’s favor, concluding “take home” COVID-19 claims do not fall under the Workers’ Compensation regime and therefore are not barred by the exclusivity provisions of the WCA.  However, as a practical matter, the court’s ruling on the second question—that employers owe no such duty of care—bars negligence claims for COVID-19 infection by members of an employee’s household.

Public policy concerns drove the court’s analysis.  As it explained:

Imposing on employers a tort duty to each employee’s household members to prevent the spread of this highly transmissible virus would throw open the courthouse doors to a deluge of lawsuits that would be both hard to prove and difficult to cull early in the proceedings. Although it is foreseeable that employees infected at work will carry the virus home and infect their loved ones, the dramatic expansion of liability plaintiffs’ suit envisions has the potential to destroy businesses and curtail, if not outright end, the provision of essential public services. These are the type of ‘policy considerations [that] dictate a cause of action should not be sanctioned no matter how foreseeable the risk.’  Slip op. at 46 (quoting Elden v. Sheldon, 46 Cal. 3d 267, 274 (1988)).

Although the California Supreme Court is a notoriously difficult venue for employers (as we have frequently observed), in Kuciemba, the court took a pragmatic approach to avoiding a catastrophe for employers and the judicial system alike.  Employers of all kinds can breathe a sigh of relief.

If We’ve Said It Once, We’ve Said It 1,000 Times… Pay Those Arbitration Fees Early And Often!

Many California employers and their counsel remain blissfully ignorant of the latest “gotcha” law in California, which can easily derail an otherwise perfectly planned arbitration.  Back in 2019, the California legislature, an implacable foe of arbitration agreements, set a booby trap for unsuspecting employers by requiring the timely payment of arbitration fees and costs on pain of “waiving” the right to arbitrate.  (The same gotcha applies to consumer arbitrations.)

Specifically, Section 1281.98(a)(1) of the Code of Civil Procedure provides that in an employment or consumer arbitration, if the drafting party (i.e., the defendant) does not pay the invoiced costs and fees to the arbitration provider within 30 days of the due date, that party “is in material breach of the arbitration agreement, is in default of the arbitration, and waives its right to compel the employee or consumer to proceed with that arbitration.”  It bears noting that the employee/consumer relying upon this statute to torpedo the arbitration need not plead or prove any form of harm or damage resulting from this so-called “material breach” of the arbitration agreement.

In Cvejic v. Skyview Capital, LLC, yet another appellate court applied this unforgiving statute in an employment case and found that by failing to pay the required fees within 30 days of the due date, the employer was in “material breach of the arbitration agreement” even though the arbitration panel actually set a later payment deadline after being notified of Skyview’s failure to pay.  The court held that the new deadline did not retroactively “cure” Skyview’s material breach and subsequent triggering of Section 1281.98.

This is just the most recent court to so hold, following a similar 2022 decision by a state appellate court on which we previously reported.

While this latest legislative attack on arbitration may someday get struck down by a federal court that is less hostile to arbitration (see, e.g., Chamber of Commerce v. Bonta, the recent opinion from the Ninth Circuit striking down Section 432.6 of the Labor Code), until that happens, employers and their counsel should be vigilant in making timely payment of the arbitration fees and costs as soon as they get the bill!


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