California Employment Law Alert - June 2018

Caution Tape


Minimum Wage Increases, Blow to the “Gig Economy” and 1099 Workers, and Class Action Waivers

Eanet, PC is pleased to provide you with the following update on some of the significant legal developments over the last six months impacting employers and employees in California:

1. The California Supreme Court Adopts New “ABC” Independent Contractor Test Making It More Difficult to Classify Workers as Independent Contractors

For almost 30 years, California courts and state agencies had applied a multi-factor test described by the California Supreme Court in S. G. Borello & Sons, Inc. v. Dept. of Industrial Relations, 48 Cal. 3d 342 (1989), for determining whether a worker should be classified as an independent contractor pursuant to the California Wage Orders.  The primary consideration under the “Borello” test, was whether the company had the right to control the manner and means by which the worker performed the work. Secondary factors included the skill required in the particular occupation, whether the worker was engaged in a distinct occupation or business, where the work was performed, and whether the business supplied the tools used to perform the work.

In the recent California Supreme Court decision Dynamex Operations v. Superior Court, the Court recently adopted a new three-part test to determine whether a worker is an Independent Contractor or employee pursuant to California’s wage orders.

Under this new test, a worker will be considered an independent contractor only if a business can prove all three of the following factors:

  1. that the worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact; 
  2. that the worker performs work that is outside the usual course of the hiring entity’s business; and
  3. that the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.

Notably, the ruling only applies to wage orders, which set rules on wages, hours and working conditions such as meal and rest breaks. It does not apply to the classification of an individual for tax or workers’ compensation purposes which means a company could classify a worker in different ways for different purposes.
Although it is not yet known how California courts will apply the new “ABC” test when determining whether a worker is properly classified as an independent contractor, unlike the “Borello” test which offered an adaptable multi-factored approach, the “ABC” test will likely make it more difficult for companies to establish a proper classification of independent contractors.
The decision is likely to lead many employers to question whether they should reclassify independent contractors rather than face penalties and liability for misclassification.

2.  U.S. Supreme Court Upholds Enforceability of Class and Collective Action Waivers in Arbitration Agreements  

In a much anticipated decision, the United States Supreme Court held that class and collective action waivers in employment arbitration agreements are enforceable under the Federal Arbitration Act and do not violate the National Labor Relations Act. In pic Systems Corp. v. Lewis (Epic), 584 U.S.______ (2018).  The Court’s decision is a big victory for employers and ends a circuit court split regarding the issue. 

 3.  California Expands National Origin Discrimination Protection     

Although California already has strict rules that prohibit discrimination and harassment based on protected classes, including national origin, California has expanded national origin discrimination protections under the state Fair Employment and Housing Act (FEHA).  The new rule becomes effective on July 1, 2018.

Under FEHA, employers with five or more employees are prohibited from discriminating on the basis of national origin, among other protected classifications. The new rule revises the meaning of “national origin” to include an individual’s or ancestors’ actual or perceived (1) physical, cultural, or linguistic characteristics associated with a national origin group; (2) marriage to persons of a national origin group; (3) tribal affiliation; (4) membership in an organization identified with or seeking to promote the interests of a national origin group; (5) attendance in schools or religious institutions typically used by persons of a national origin group; and (6) name associated with a national origin group.

The regulations also create additional protections for discrimination based on national origin. Specifically, the new rule prohibits:

  • creating language restrictions, such as an English-only rule, unless the restriction results from business necessity, is narrowly tailored, and employees are notified of the details of the restriction.
  • discrimination against an employee for an accent associated with a national origin group, or based on the employee’s English proficiency, unless English proficiency is justified by business necessity.
  • inquires or efforts discover an applicant’s or employee’s immigration status, unless necessary to comply with federal law.
  • harassment based on the individual’s immigration status.
  • assignment to certain geographical areas, facilities, or positions based on national origin.
  • height or weight requirements that may have a disparate impact on the basis of national origin.
  • Retaliation against any employee for opposing discrimination on the basis of national origin, including by filing a complaint.

Companies should keep the new regulation in mind particularly when hiring and reassigning employees as it pertains to both applicants and employees and should continue to train employees on anti-discrimination, retaliation and harassment policies.

4.  Minimum Wage Increases on July 1, 2018

Although California’s state minimum wage remains $10.50 per hour for large employers with 26 or more employees and $10.00 per hour for small employers with 25 or fewer employees, many California cities have their own minimum wage requirements.  Here is a list of most cities that will be raising the minimum wage on July 1, 2018.

Los Angeles City Minimum Wage

  • 25 or fewer employees -$ 12.00
  • 26 or more employees – $ 13.25

Los Angeles County (Unincorporated) Minimum Wage

  • 25 or fewer employees -$ 12.00
  • 26 or more employees – $ 13.25

Malibu Minimum Wage

  • 25 or fewer employees -$ 12.00
  • 26 or more employees – $ 13.25

(Note that all employees count as a full employee, even if temporary). 
Pasadena Minimum Wage 

  • 25 or fewer employees and nonprofits -$ 12.00
  • 26 or more employees – $ 13.25

San Francisco Minimum Wage

  • The minimum wage for all employers will rise from its current wage of $14.00 an hour to $15.00 an hour.

San Leandro Minimum Wage

  • The minimum wage for all employers will rise to $13.00. The law covers all employees who work in city limits at least 2 hours a week and includes both adult and minor workers.

San Mateo Minimum Wage

  • The minimum wage for all employers will rise to $13.50 per hour. 

Santa Monica Minimum Wage

  • 25 or fewer employees -$ 12.00
  • 26 or more employees – $ 13.25

Employers should review employee pay rates to ensure compliance with local and state minimum wage requirements. Have any questions about this alert or need help implementing the changes? Eanet, PC is here to help.  Give us a call at (310) 997-4185 or contact us if you need assistance with any employment law issues.

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