CALIFORNIA EMPLOYMENT LAW UPDATE
October 22, 2019
In addition to several key new California laws summarized in our October 16, 2019 E-Alert, recapped below are several cases impacting California employers decided thus far in October.
CLARIFYING MEAL AND REST PERIOD PENALTY CALCULATIONS: On October 9, 2019, a California appellate court, in Ferra v. Loews Hollywood Hotel, LLC, clarified that the phrase “regular rate of compensation,” used in the California Labor Code and Wage Order provisions requiring employers to pay one hour of pay for failure to provide a meal, rest, or recovery period, is not the same as workers’ “regular rate of pay,” used to calculate overtime rates of pay under the California Labor Code and federal law. The “regular rate of compensation” used for additional pay for meal, rest and recovery periods that are not provided is simply the workers’ base hourly wage (i.e., the workers’ straight-time hourly rate), whereas the “regular rate of pay” for overtime purposes includes all compensation received during the workweek, such as base hourly wages, commissions, nondiscretionary bonuses, and incentives. Note: this decision differs from a statement on the California Division of Labor Standards Enforcement’s website. See https://www.dir.ca.gov/dlse/FAQ_MealPeriods.htm.
NINTH CIRCUIT REJECTS FRANCHISOR JOINT EMPLOYER STATUS UNDER CALIFORNIA LAW: In an October 1, 2019 ruling in Salazar v. McDonald’s Corp., the United States Court of Appeals for the Ninth Circuit agreed that McDonald’s Corporation and McDonald’s USA, LLC, the corporation’s franchising arm (collectively, “McDonald’s” for ease of reference), were not joint employers of a franchisee’s employees, and therefore not liable for the franchisee’s alleged wage-and-hour violations. Plaintiffs had urged that McDonald’s was their employer because it exercised direct control over marketing and certain operations at the franchises, including requiring the franchisee to use a specific timekeeping system. The court reasoned that these types of controls are “central to modern franchising and to [McDonald’s’] ability to maintain brand standards,” but are not determinative of whether an entity is a joint employer. Rather, the relevant inquiry is whether McDonald’s retained a right of control over factors such as hiring, firing, direction, wages, hours, working conditions, and other relevant day-to-day aspects of employment. Finding that McDonald’s did not exercise any such control at this franchise, the Ninth Circuit affirmed the district court’s grant of summary judgment to McDonald’s.
CALIFORNIA COURT OF APPEAL EXPANDS DYNAMEX: In an October 8, 2019 decision, a California appellate court, in Gonzales v. San Gabriel Transit, expanded the scope of the California Supreme Court’s 2018 decision in Dynamex Operations West, Inc. v. Superior Court of Los Angeles — which created a presumption in Wage Order-based claims that workers are employees, and places the burden on employers to prove their workers’ classification as independent contractors is proper based on a set of factors outlined in the “ABC test”. The Gonzales Court expanded the “ABC test” to apply to Labor Code claims that enforce the same basic workplace protections as the relevant Wage Orders. This decision is consistent with Assembly Bill 5, signed into law by Governor Newsom on September 18, 2019, that extends the “ABC test” to Labor Code claims. The Gonzales Court also held that the “ABC test” applied retroactively to wage-and-hour litigation pending at the time Dynamex was decided.
For further information about the above cases or recently enacted California legislation, please contact one of our employment attorneys.