California Employment Laws include Wage & Hour and Misclassification Updates

Sacramento, CAMany new California employment and labor laws went into effect this January 1, 2020. If you are a California  employer, employee or independent contractor, it’s a good idea to review these new laws that have been passed as they might impact you.  

The Los Angeles Times has called 2020 “a year of reckoning” for California businesses because these new laws are intended to reduce economic inequality and give employees more power in their work.  “California leads the way on labor standards and we’re not going to let employers do end runs around those standards,” said California Labor Secretary Julie Su. We want to support businesses who look at their role in a holistic and humane sense.”

Two main issues, and those that LawyersandSettlements readers have been following, are misclassification and minimum wages.

Contractor or Employee?

Most important is how Assembly Bill 5, the independent contractor bill, will impact California employers and California workers. In a nutshell, AB5 “presumes” that all workers are employees, unless the hiring business can show otherwise. This new statute does not permit an employer to reclassify an individual who was an employee on January 1, 2019, to an independent contractor.

California Employers take note: Companies may be forced to reclassify independent contractors as employees with labor law protections. Failure to reclassify workers where appropriate will expose California employers to significant risk, including the collection of unpaid wages and back taxes, civil penalties, and civil (and potentially class action) litigation.

The bomb has dropped on app-based ride-hailing or food delivery companies such as Uber and Lyft, should this be olmarticle ? Doordash and Instacart,  who now must adhere to the “ABC” test, which states that a business must only contract with independent contractors who can fulfill all three of these conditions:

1. they are free from control and direction of the hiring entity;
2. they perform work outside the usual course of the hiring entity’s business;
3. are customarily engaged in an independently established business of the same nature as that of the work involved.

As well, “bosses could no longer force workers into closed-door arbitration proceedings, a tactic which protects businesses from costly lawsuits,” reported the LA Times.
 

Opposition to AB5

Not everyone is in agreement with Secretary Su. “AB 5 fundamentally disrupts the right of Californians to have independent working relationships with their clients or employers,” said Sen. Mike Morrell (R-Rancho Cucamonga). “By favoring some industries over others, Sacramento Democrats embrace a slide towards socialism.”

But Assemblywoman Lorena Gonzalez (D-San Diego), who authored AB 5 to codify the decision, said she and others “will continue to clarify this law, but rest assured, it won’t be repealed,” adding that she is open to changes in the bill this year, including an exemption for musicians, but not for the” ride-hailing and delivery giants.”

The Southwest California Legislative Council is also opposed to the bill, stating that "many of our members are local entrepreneurs who contract their services out to a variety of businesses, enabling them to benefit from multiple income streams,” according to the National Law Review.

The California Chamber of Commerce, the National Retail Federation and other business groups have filed a legal challenge to AB 51, referred to as the “job killer” bill which was signed into law in October 2019 by California Governor Gavin Newsom. According to CalChamber, the lawsuit, filed in the Eastern District of California, asks for declaratory and injunctive relief from AB 51, which includes criminal penalties for businesses that attempt to use arbitration to resolve a broad range of labor and employment issues.  The complaint argues that AB 51 will result in more litigation, impose significant delays in California’s justice system and increase costs for businesses and workers alike.
 

Minimum Wages, Late (Unpaid) Wages and Incorrect Wages

• The minimum wage for employers with 25 employees or less will increase from $11/hour to $12/hour, and from $12/hour to $13/hour for employers with 26 or more employees. These changes represent the next phase of the scheduled increases in the California minimum wage first implemented in 2016.
• Current employees can seek penalty for late wages. Specifically, AB 673 allows a current employee to recover penalties for late wages by the Labor Commissioner (payable to the affected employee) as a civil penalty or by the employee as a statutory penalty. The penalty is $100 for an initial violation. For subsequent violations or any willful or intentional violations, the penalty is $200 for each failure to pay each employee, plus 25% of the amount unlawfully withheld.
• Restitution for Unpaid Wages: Currently, the California Labor Code penalizes an employer who pays an employee a wage less than the minimum wage. SB 688 provides that if an employer has paid an employee less than the wage set by contract in excess of minimum wage, the Labor Commissioner may issue a citation to the employer to recover restitution of the amounts owed.
• SB 688 also penalizes an employer “who pays or causes [an employee] to be paid a rate of compensation that is less than set by contract.” Contract wages are defined in the bill as “wages based upon an agreement, in excess of the applicable minimum wage, for regular, non-overtime hours”. In other words, SB 688 uses very broad language for which a penalty can apply to any rate of pay for any contract.