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Seyfarth Synopsis: Agricultural employers have a hard row to hoe with the latest crop of legislation affecting overtime requirements in California. New requirements under Labor Code section 860 took effect when the rooster crowed on January 1, 2019. This law will phase in overtime pay requirements for agricultural employees covered by Wage Order 14.

Under federal law (the FLSA), “agricultural work” is exempt from the overtime rules, but in California the Industrial Welfare Commission’s Wage Order 14-2001 has entitled agricultural employees to daily overtime for hours worked in excess of ten hours in a day. Although California was thus outstanding in this field, it still did not mandate overtime protections for agricultural employees to the extent that it did for employees generally. Finding that situation udderly unacceptable, the Legislature in 2016 directed the Department of Industrial Relations to update the Wage Order so that agricultural workers will eventually be entitled to earn overtime moo-lah to the same extent as other non-exempt employees.

The phase-in process for the new law, summarized in the chart below, should alleviate some of the acres and pains it will undoubtedly cause. Starting in 2019, employers with 26 or more employees must pay overtime at 1.5 times the regular rate of pay for agricultural employees who work more than 9.5 hours per day or more than 55 hours per week. By January 1, 2022, the overtime triggers for agricultural employees will be on par with other California non-exempt employees, that is, 1.5 times the regular rate for work of more than 8 hours per day or 40 hours per week, and 2 times the regular rate for work of more than 12 hours per day. Employers with fewer than 26 employees have a more gradual phase-in process, which begins on January 1, 2022.

26+ Employees <26 Employees
Date 1.5x Reg. Rate 2x Reg. Rate Date 1.5x Reg. Rate 2x Reg. Rate
1/1/19

>9.5 hrs/day

or

>55 hrs/week

 n/a 1/1/22

>9.5 hrs/day

or

>55 hrs/week

 n/a
1/1/20

>9 hrs/day

Or

>50 hrs/week

 n/a 1/1/23

>9 hrs/day

or

>50 hrs/week

 n/a
1/1/21

>8.5 hrs/day

or

>45 hrs/week

 n/a 1/1/24

>8.5 hrs/day

or

>45 hrs/week

 n/a
1/1/22

>8 hrs/day

or

>40 hrs/week

 >12 hrs/day 1/1/25

>8 hrs/day

or

>40 hrs/week

 >12 hrs/day

The new law does not change the definition of agricultural employees under Wage Order 14-2001, which applies to workers who bring home the bacon by engaging in the following activities:

  • Preparation, care and treatment of farm land, pipeline, or ditches;
  • The sowing and planting of any agricultural (generally, farm) or horticultural (generally, garden, orchard, or nursery) commodity;
  • The care of any agricultural or horticultural commodity;
  • The harvesting of any agricultural or horticultural commodity;
  • The assembly and storage of any agricultural or horticultural commodity;
  • The raising, feeding and management of livestock, fur bearing animals, poultry, fish, mollusks, and insects;
  • The harvesting of fish for commercial sale as defined by Section 45 of the Fish and Game Code;
  • The conservation, improvement or maintenance of such farm and its tools and equipment.

Workplace Solution: Employers of agricultural employees covered by Wage Order 14-2001 should review their pay practices to ensure that they comply with the new law, but need not plow through these issues on their own. Seyfarth Shaw is outstanding in the field when it comes to wage and hour laws, and we are here to help employers navigate this maize until the cows come home.

Seyfarth Synopsis: The California Supreme Court, in Dynamex Operations v. Superior Court, has agreed to address the legal standard for determining whether a worker classified as an independent contractor is really an employee. The Supreme Court’s opinion is expected to be significant for anyone thinking of using independent contractors in California.

The Future of Work: A Surging Demand for Independent Contractors

Recent years have seen tremendous growth in the sharing economy, aka, the “gig economy,” which reflects the technological ability to quickly summon goods or services through a smart phone. While the new economy has grown rapidly, the relevant legal standards have not. Yet business owners continue to invest heavily into business models that have created tens of thousands of flexible jobs for workers classified as independent contractors. In the absence of legislative guidance tailored to the realities of the new economy, California courts and administrative agencies have struggled to apply the law developed during an earlier age.

The new economy is a powerful fact of life. According to Seyfarth’s “Future of Work” Outlook Survey, 45% of respondents expect their company’s demand for independent contractors to grow in the next five years. Companies in the areas of information technology and telecommunications are among those most likely to experience these developments, as opposed to companies in the areas of real estate and consumer staples. (A deeper analysis of our survey’s findings appears here.)

These survey responses provide a valuable snapshot, but employers are likely to change their tune based on the regulatory environment and any significant judicial rulings narrowing the use of independent contractors.

One such potential ruling could come in Dynamex Operations West, Inc. v. Superior Court. The California Supreme Court has agreed to review a Court of Appeal decision that stunned employers by expanding the definition of “employee.” That definition of employee arguably could encompass many individuals traditionally retained as independent contractors.

When determining whether workers were independent contractors, many companies previously considered how much control the company exerted over a worker and how much a worker economically depended on the company. This framework provided some consistency.

Taking a turn, the Court of Appeal in Dynamex adopted the Wage Order’s much-broader definition of “employ,” meaning “to engage, suffer or permit to work.” As a result, the Court of Appeal expanded the meaning of the term “employee,” arguably extending it to nearly every labor relationship a company would be likely to have with an individual. The potential ramifications of such a definition upon the future use of independent contractors cannot be overstated. Indeed, the U.S. Chamber of Commerce and California Chamber of Commerce have both warned that a decision to affirm the lower court’s expansive ruling “would effectively eliminate independent contractor status for any use in California.”

Consequences of Misclassification

Making it more difficult to properly classify an independent contractor would only increase the risks of costly litigation. By now, readers should know that misclassifying California employees as contractors has dire consequences, including statutory penalties of $5,000 to $15,000 for each “willful” violation. Failing to properly classify workers can create liability for back wages, penalties, fines, and the assessment of back taxes. Additional exposure can also arise when misclassified workers, who would otherwise be entitled to employee benefits, have not received those benefits. California state agencies in search of employment-tax revenues have increased their enforcement efforts, including audits. In fact, the California Labor and Workforce Development Agency has agreed to jointly investigate independent contractor misclassification with the IRS, reflecting both agencies’ desire to increase enforcement.

California employers with operations in other states should also note that increased misclassification enforcement is not peculiar to the Golden State. In July 2015, the U.S. Department of Labor’s Wage and Hour Division issued its Administrator’s Interpretation, concluding that “most workers are employees under the FLSA” in part due to the “expansive definition of ‘employ’ under the FLSA”; we previously observed this position to be an “unapologetic effort to restrict the use of independent contractors.” Today, it still remains to be seen whether the Trump Administration will redirect federal enforcement priorities away from independent contractor issues. But even if the federal government backs off of these issues, there is no indication that state governments and the ubiquitous plaintiffs’ bar will stop aggressively challenging independent-contractor classifications.

Scrutinize Your Existing Relationships with Independent Contractors

As always, employers should remain vigilant for new legal developments and should consult their employment counsel to scrutinize existing relationships with independent contractors.

Edited by Michael G. Cross.

Counting moneyWe normally write about how California law differs from American law generally. Today, though, we highlight a recent California case that rejected the notion that California law should deviate from analogous federal wage and hour law. That case is Alvarado v. Dart Container Corp. of California. More detailed information appears here.

In Alvarado, the California Court of Appeal ruled that an employer complies with California law when it uses the federal method of calculating the regular rate of pay in determining the overtime premium pay owed on a “flat sum” bonus.

Why are we writing about this? Well, under both California law and federal law, employers must pay overtime premiums based on the regular rate of pay. The regular rate is also important in California because it is the rate at which benefits under the California Paid Sick Leave Act must be paid to non-exempt employees (unless the 90-day lookback method is used). Therefore, knowing how to calculate the regular rate is important to ensure that employers make these payments properly.

Calculating the regular rate includes all items of remuneration paid to non-exempt employees, except for those items that are specifically excludable. The regular rate thus includes almost all payments, including non-discretionary bonuses. Employers, in paying those bonuses, sometimes forget to add overtime premium pay. The employer in Alvarado remembered to make that payment, but used a method of calculating the regular rate that an employee then challenged

The employee was paid a $15 attendance bonus for working weekend shifts. The employer calculated the overtime pay due on this bonus by using the FLSA method of calculating the regular rate of pay. Under the FLSA regulations, an employer may derive the regular rate of pay by simply adding the bonus to the other includable compensation paid and then dividing the sum by the total number of hours worked. The regulations provide an example: an employee works 46 hours in a week, earns $12 an hour, and receives a $46 production bonus for the week.  Under the FLSA formula, the regular rate of pay would be $13 an hour [(46 hours x $12/hour) + $46 bonus] / 46 hours].

California statutes do not specifically address how to calculate the regular rate of pay in computing the overtime pay due on a non-discretionary bonus. Thus, like many employers, the employer in Alvarado used a formula that was consistent with the FLSA formula.

The California Department of Labor Standards Enforcement, meanwhile, has taken a different, peculiarly Californian position: the DLSE has opined that the regular rate must be the sum of all compensation divided by only the regular (non-overtime) hours worked.  Otherwise, the DLSE has reasoned, the regular rate would be diluted in a way that would conflict with a general California public policy discouraging the use of overtime hours.

The Alvarado court, noting the absence of specific statutory guidance on this subject, rejected the DLSE’s position. The Court of Appeal held that the DLSE’s view was not valid and that employers do not violate California law when following the federal standard.

Now, California employers who pay “flat sum bonuses” in the same pay period that they are earned should be able to rely on the FLSA regulations for calculating overtime payments.  It turns out that, in this particular respect, California is not so different after all.

iStock_000034281440_LargeEarlier this week, on Martin Luther King, Jr. Day, many employees got the day off from work. It is, after all, one of the ten annual federal holidays. California state employees get additional holidays: Lincoln Day (February 12), Cesar Chavez Day (March 31), Admission Day (September 9), and Good Friday afternoon. And California considers every Sunday a “holiday” for purposes of transacting official business.

On holidays, many businesses, including manufacturers, distributors, stores, restaurants, gas stations, and movie theaters usually remain open . . . and require workers. These workers may or may not receive extra “holiday pay” for time worked—or not worked—on the holiday. Why is that? For California employers, work holidays can raise a sometimes confusing tangle of questions, such as:

Is holiday time off mandatory? 

In California (except for the arcane “one day’s rest in seven” rule), there is no law requiring private employers to provide any specific days off work. Therefore, the law does not require employers to grant time off for any holidays at all. Of course, many employers either close for the day or permit at least some employees to enjoy the holiday time off, either paid or unpaid. But holiday benefits are granted either under a collective bargaining agreement or an employer policy, and not the law. Under the “one day’s rest in seven” rule, employees are usually not supposed to work more than six days in a row. However, the law recognizes that sometimes seven or more consecutive days of work will be reasonably required. In that case, as long as over the course of a month an employee gets one day’s rest in seven, then properly paid overtime is deemed to be sufficient compensation for the successive days of work.

Is pay required?

There is no California peculiarity here. Like the federal Fair Labor Standards Act, California does not mandate any special premium rate of pay for work performed on holidays. Nor is there any law requiring that non-exempt employees be paid for holidays that are not worked. Exempt employees, who are paid on a salary basis, may enjoy de facto pay for any holiday that falls in a workweek in which they do any work, unless (as rarely happens) the employee chooses not to work for personal reasons, and not because it is a holiday. However, for employee morale purposes, most private employers provide paid time off for specified holidays, at least for full-time employees. And some also provide a premium rate of pay for employees who work holidays. But again (like granting vacation or PTO), the rule is according to employer policy, or a CBA, and is not mandated by California statute.

How does holiday pay affect calculation of overtime? 

Because holiday pay for a day off is not pay for hours worked, it is not included in the regular rate calculation for purposes of overtime worked that week. However, if a non-exempt employee works on a holiday, then those hours may result in overtime being owed. In that case, the time worked on the holiday is included when calculating the premium rate of pay.

What if the regular payday falls on a holiday?

The Labor Commissioner tells us that when a payday falls on a holiday, an employer has the choice to either pay employees in advance, or on the first business day after the occurrence of the holiday.

Is unused holiday pay due when an employee terminates? 

Generally, no. But let’s not forget the fairly common practice of employers granting “floating holidays.” Floating holidays (sometimes called personal days) permit employees, with advance notice, to take off any day they choose, for any reason. In California, if use of the floating holiday is truly unrestricted and does not depend on the occurrence of any other event, then the floating holidays are treated the same as vacation, meaning that any unused floating holiday pay is due upon termination. However, holiday pay that is tied to the occurrence of a specific event (such as the employee’s birthday, or the day after Thanksgiving, or any other future event) is not due upon termination. This is because the right to be paid for the holiday that is tied to the happening of a specific event does not spring into being until the event to which it is tied occurs.

Who determines which employees work on a holiday?

Again, there is no California statutory mandate here. Employers that require workers to work on holidays just have to be fair and non-discriminatory in the way they assign the work. In some workplaces, having to work a holiday is viewed as a negative, while in others (especially if working the holiday involves overtime or employer-granted premium pay), getting to work the holiday is viewed as a positive.

Please reach out to any Seyfarth Shaw California Labor & Employment lawyer with your questions or comments. In next week’s post, we will solicit your input on future topics for discussion in this space. Please let us know your thoughts, and thank you for checking us out.