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Given the growth of the “gig economy” in recent years, a growing number of companies are relying less on employees and more on independent contractors. While hiring independent contractors affords companies and individuals greater flexibility, it also opens the door to potential abuses by employers.

Employees Versus Independent Contractors

Historically, most companies hired employees to perform all the necessary tasks related to the business. However, hiring an employee is expensive for a company because it must pay payroll taxes and often feels competitive pressure to provide employees with certain benefits, such as health and dental insurance. Moreover, employees are entitled to receive a minimum wage, and certain employees must be paid overtime wages. Employees are also covered by workers’ compensation insurance.

Independent contractors, on the other hand, are much less expensive for businesses to use. For example, a business can use independent contractors only when needed without worrying about paying for their benefits. While the use of independent contractors used to only be common in certain industries, that’s changed in recent years.

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Although arbitration agreements mean that a case must be resolved through arbitration, not all agreements are enforceable. If a party does not have a real opportunity to negotiate the terms of the contract or a contract heavily favors one party, these may be indications that the agreement is unconscionable and thus, unenforceable. A California court recently found that an arbitration agreement signed between an employer and an employee was unconscionable based on those circumstances. In that case, the plaintiff submitted an electronic application for employment with a property management company. The plaintiff electronically signed an agreement that was required as a precondition to employment. In the agreement, it stated that the plaintiff and the property management company agreed to settle all “claims, disputes, and controversies” related to the plaintiff’s application for employment, employment, and cessation of employment with the company exclusively through final and binding arbitration.

The plaintiff obtained employment at the company and later filed a claim against the company, alleging that he was not compensated for overtime work or certain business expenses and that he was not provided with accurate wage statements. He also alleged that he injured his back at work, took leave, and once he was able to return to work, he never heard back from the company. The company argued that the suit was required to be resolved through arbitration based on the language of the agreement. The plaintiff argued in part that the agreement was unconscionable and could not be enforced.

Unconscionability Under California Law

The Court of Appeals of California recently issued an opinion addressing several employment claims, including whether a union may be responsible for aiding and abetting discrimination. The plaintiff in this matter filed a wrongful termination case against his employer, a janitorial services company, and the union that represents the employer. The relevant issue on appeal is whether the trial court erred in denying the plaintiff’s leave to amend to claim that the Union aided and abetted the employer’s violation.

In 2012, the employer hired the plaintiff to work as an “additional services” employee to provide janitorial services at a location. About a year later, the employer-provided written confirmation that the plaintiff was a “permanent employee.” In 2014, the plaintiff took leave under the California Family Rights Act (CFRA) to care for his terminally ill wife. A day after returning to work, his supervisor informed him that he was terminated because another employee had filled the position. Shortly after his termination, the plaintiff filed a discrimination and retaliation charge against his employer and the Union.

In response, the employer argued that they unintentionally and erroneously issued the plaintiff a “permanent employee” letter. Further, they explained that another employee was next in line to obtain the position according to their seniority scheme. The Union argued that their actions were not motivated by discrimination but solely their responsibility to enforce their seniority hiring protocols.

California’s anti-SLAPP statute refers to the Strategic Lawsuits Against Public Participation. Lawmakers designed the statute to protect those who wish to speak out about public policy issues against more powerful corporate entities. In California, the term primarily refers to lawsuits stemming from discouraging speech about significant issues or public participation in governmental proceedings.

While the statute provides many benefits, it also has significant implications for California employees wishing to pursue employment discrimination or retaliation against their employers. Anti-SLAPP statutes permit defendant employers to present a motion to strike causes of action that stems from “any act of that person in furtherance of the person’s right of petition or free speech under the United States Constitution or the California Constitution; in connection with a public issue.”

Following a California Supreme Court case, the Court held that the anti-SLAPP statutes do not include an exception for retaliation or discrimination claims. As such, a plaintiff’s allegations against an employer’s motives will not protect the claim from preliminary screening for merit.

An alarming decision from a California appeals court highlights the importance of reviewing any paperwork related to a potential employment claim. In that case, an employee filed a California employment lawsuit against her employers in April 2019. While the case was pending, in December 2019, the employers allegedly told the employee to sign some paperwork at work. The employee claims that her employers told her that the paperwork related only to “updates to ‘expired’ paperwork.” She also alleged that her employers said that she would be fired, and her paychecks would be withheld if she failed to sign the paperwork. She claimed she was not permitted to consult with her attorney before doing so. She signed the paperwork, which included an arbitration agreement. Her employers then used the agreement to compel arbitration in the lawsuit.

The arbitration agreement stated that the employee agreed to resolves any disputes related to her employment in arbitration. It also included a delegation clause, which stated that the arbitrator would have the exclusive authority to resolve disputes related to the “interpretation, applicability, enforceability or formation of this agreement, including the assumption that this agreement is unenforceable.”

In court, the employee argued that the arbitration agreement was unenforceable due to fraud, duress, and un-conscionability. However, the California court found that it could not rule on the validity of the agreement because of the delegation clause. In 2010, the U.S. Supreme Court held that if a delegation clause is “clear and unmistakable,” a court has to enforce it. This means that unless no agreement between the parties took place, the arbitrator must decide any questions related to the agreement’s validity. The court found that the delegation clause in the agreement clearly and unmistakably assigned the issues of validity of the agreement to the arbitrator.

Recently the Court of Appeals issued a decision in a California employment discrimination case involving several claims, including pregnancy-related and sex discrimination. The plaintiff asserts that her employer, a dental group, terminated her position because she attempted to become pregnant. In response, the defendant argued that the decision did not stem from discrimination. Instead, the defendant contended that the company was undergoing a reorganization; the plaintiff lost her job because her performance scores put her at the bottom of the metric they used to rate employee performance.

Under California law, courts use the federal burden-shifting test for evaluating wrongful discharge lawsuits. In these cases, plaintiffs must show that the employer’s actions were more likely than not based on a prohibited discriminatory criterion. If the plaintiff meets this burden, a presumption of discrimination arises, and the employer must establish a legitimate, nondiscriminatory reason for their action. If the employer meets this burden, the burden shifts back onto the employee to establish “substantial evidence” that the defendant’s nondiscriminatory reason was pre-textual or that the employer acted with animus.

Under this framework, an employee’s evidence is subject to scrutiny, and their subjective belief does not create a genuine issue of material fact. Instead, the proffered evidence must establish a causal link between the employer’s motivation and termination. Moreover, circumstantial evidence of discrimination must be “substantial” and specific.”

Earlier this month, the California Department of Public Health issued an order (the “Order”) directing certain workers who provide services or work in specified facilities to have their first dose of a one-dose regimen or their second dose of a two-dose regimen of the Covid-19 vaccine by September 30, 2021. While the COVID-19 pandemic remains a significant health concern, the mandate is causing many people to question the scope of control California employers have over their workers.

The Order applies to healthcare facilities such as acute care hospitals, nursing facilities, intermediate care facilities, psychiatric hospitals, adult day health care centers, ambulatory surgery centers, chemical dependency recovery hospitals, doctor offices, hospice facilities, and pediatric day health and respite care facilities. Unlike many other California employment laws, the Order applies to all “workers,” not just employees. Workers include paid and unpaid individuals who work in indoor settings where patients receive care or have access to for any reason.

The Order allows limited and narrow exceptions for qualifying medical reasons and religious beliefs. In these cases, the worker may decline the vaccine if they provide written proof from their treating medical doctor, nurse practitioner, or medical professional practicing under a physician’s license. Workers should be aware that the exemption does not require the healthcare provider to indicate the underlying medical condition. However, the statement should indicate the length of time the patient’s inability to receive the vaccine will be or whether the inability is permanent. Workers who receive the exemption must undergo weekly or biweekly testing and wear a mask.

The Supreme Court of California recently issued a decision in a California employment case alleging the unlawful refusal to promote, holding that the statute of limitations begins to run when the employee knows or should have known about the employer’s unlawful refusal to promote. In that case, the employee was a customer service representative and dated the executive vice-president of the company. The employee alleged that she refused to have sex with the executive vice-president and ended the relationship. She claims that her employer later denied her several promotions despite being the most qualified candidate, alleging the decision was made because she refused to have sex with the vice-president. The employee filed a claim under the harassment provision of the Fair Employment and Housing Act (FEHA).

The employer claimed that the employee failed to file the claim within one year of the alleged unlawful practice. The employee claimed in part that another woman was promoted in March 2017 and the promotion went into effect on May 1, 2017. The plaintiff filed her administrative complaint in April 2018. The employee argued that she was required to file within one year of May 1, 2017, when the promotion went into effect. On the other hand, the employer argued the failure to promote took place in March 2017.

Statute of Limitations Under FEHA

The California Supreme Court recently issued a decision holding that employers must pay employees according to their “regular rate” rather than according to their straight-time hourly rate. The case applies retroactively and thus applies even to California employment cases that have already been decided and to previous miscalculations.

In the case, Ferra v. Loews Hollywood Hotel, LLC, the plaintiff filed a complaint against her employer, alleging that the employer improperly calculated her payment for non-compliant meal periods and rest periods. Under California law, employers must also provide employees with required meal, rest, and recovery periods. Under section 226.7 of the California Labor Code, if an employer fails to provide an employee with a compliant meal, rest, or recovery period, the employer must pay the employee an additional hour of pay at the employee’s “regular rate of compensation.” Under another section of the Code, California employers are required to provide their employees with overtime pay when employees work more than a certain amount of time. Overtime pay is calculated by multiplying the employee’s “regular rate of pay,” which factors in all wages and other non-discretionary earnings, such as non-discretionary bonuses and incentive compensation.

The Supreme Court’s Decision

California’s Supreme Court recently issued a significant decision concerning California meal periods for employees. In California, in general, employers must give employees with a 30-minute meal period after at least the fifth hour of work and after at least the tenth hour of work. If an employee is not provided a compliant meal period, then the employer must pay the employee an additional hour of pay at the regular rate for each workday during which the meal period was not provided. In practice, many employers round time punches to the nearest quarter of an hour, one-tenth of an hour, or five minutes.

In the case before the Court, the Court considered whether rounding time was permissible in the context of a meal period. In the case of a named plaintiff in the class-action lawsuit, the plaintiff’s employer used a timekeeping system that rounded the time punches to the nearest 10-minute increment. So if an employee clocked out for lunch at 11:02 and clocked in at 11:25, it would be recorded as 11:00 and 11:30. Thus, the employee’s meal period was only 23 minutes, as opposed to the full 30 minutes. An expert estimated that the use of the timekeeping system resulted in a denial of premium wages for short and delayed lunches amounting to over $800,000.

The Court maintained that employers could not round time in the context of meal periods. The court held that time rounding does not comply with the precise time requirements set out in Labor Code section 512 and Wage Order No. 4. The court reasoned that the relatively short length of a 30-minute meal period means that the potential incursion on that period is significant. The court held that the provisions concerning meal periods are intended to prevent even minor infringements on the meal period requirements, and rounding time does not meet that objective. The court held that even if the employer overpaid the members of the class for actual work based on the timekeeping, the issue is whether the rounding policy resulted in the proper payment of premium wages for meal period violations. The court also held that if an employer’s records indicate that no meal period was taken for a shift over five hours, there is a rebuttable presumption that the employee was not relieved of duty and no meal period was provided. Thus, the employer can assert this as a defense, and it is the employer’s burden to plead and prove that assertion.

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