In a policy committee hearing last week, a legislator argued that employers need not worry about litigation, liability, or financial settlements, if they just follow the law.
If only it was that easy in California.
Example No. 1 – Dynamex Operations West, Inc. v. Superior Court of Los Angeles. For over thirty years the standard for determining whether an individual was an employee versus an independent contractor was the “Borello factors,” which was approximately 10 factors that focused on the amount of control the hiring entity exerted over the individual. On April 30, 2018, the Supreme Court issued the decision in Dynamex and changed the test for independent contractor status to the “ABC” analysis, where control is no longer the main consideration. And, it is uncertain as to whether this change just applies prospectively. There are several pending cases, in which the court is having to determine whether the Dynamex ABC test should apply retroactively. Meaning, four years ago (statute of limitation for a misclassification claim), employers should have known the ABC test was the standard to utilize, even though it was never in any statute, regulation, or case law. Ummm, okay?
Example No. 2 – Gonzalez v. Downtown LA Motors – Up until this decision, it was widely accepted in California that similar to federal law, a “piece rate” payment system, where employees are paid a set amount based upon the task performed, was legal as long as at the end of each pay period, the compensation earned was at least minimum wage for all hours worked. A decision by the Second District Court of Appeal completely upended this long-held practice and stated that an employee must earn at least minimum wage for “non-productive” time, meaning the employee had to earn an hourly wage for time on the clock when the employee is not performing the task for which the piece rate is paid. Similar to Dynamex, the Court essentially stated the opinion was an interpretation of existing law, meaning its the practice and standard employers should have been applying the entire time, except nobody was because this had never been the interpretation before. The retroactive liability on this decision was so significant, that the Legislature had to intervene and pass legislation AB 1513 (Williams) to reduce the penalties and litigation employers were exposed to give the retroactive application.
In recognition of this repeated challenge for employers of having rules of engagement changed and then applied retroactively, Governor Brown proposed in his 2016 budget, to authorize California’s Labor Agency to unilaterally implement amnesty programs for employers, to reduce the financial hardship on employers when there has been a significant change in the interpretation of the law that retroactively creates liability. This budget proposal ultimately failed, given opposition from several special interests, including trial attorneys who benefit from these changes that create more litigation.
In addition to these changes in law, there is always the challenge employers face of nuisance value lawsuits. Basically, these are lawsuits where the plaintiff’s attorney and client decide to file a claim against an employer that may not have merit, on the hope and gamble that the employer will ultimately settle the case for a nominal or nuisance value just to get rid of the litigation.
So yes, employers do face significant uncertainty with regard to the interpretation and application of the law, and even when trying to comply or actually complying with the law, California provides an environment where they can still be sued and exposed to huge financial penalties. Until that dynamic is resolved, the notion that if employers just follow the law they have nothing to worry about, falls flat.