Independent contractors, meal periods, and PAGA.
The first quarter of 2021 yielded some key rulings from the California appellate courts on independent contractor classification, meal-period rounding, and arbitration of claims under the California Private Attorneys General Act, confirming some longstanding trends in California employment law.
ABC Test applies retroactively
In January, the California Supreme Court ruled in Vazquez v. Jan-Pro Franchising International, Inc., that the “ABC Test” for the independent contractor classification applies retroactively.
As you probably know, the 2018 landmark Dynamex decision established that workers are presumed to be employees, as opposed to independent contractors, unless the hiring entity can meet all three elements of the “ABC Test,” which are as follows:
- 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 and in fact;
- The worker performs work that is outside the usual course of the hiring entity’s business; and
- The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.
Litigants have been battling over whether the ABC Test applies to claims that predate the Dynamex decision. Although the U.S. Court of Appeals for the Ninth Circuit ruled in May 2019 that Dynamex applied retroactively, it withdrew that decision in August 2019 and certified the question to the California Supreme Court.
Now, in Vazquez, the California Supreme Court has answered that question with a resounding yes.
Practically speaking, Vazquez will not have impact for long because pre-Dynamex claims will soon expire under the applicable statutes of limitation. However, the Vazquez ruling will have significant short-term implications for existing litigation.
No “rounding” of meal period time punches, burdens of proof
In a decision issued in February, the California Supreme Court addressed two key issues regarding meal periods: (1) whether time punches for meal periods can be rounded, and (2) the burdens of proof that apply in meal break cases. The Court’s decision is Donohue v. AMN Services, LLC.
First, the Court held that employers cannot engage in the practice of rounding time punches for meal periods, explaining that California’s Labor Code establishes precise timing obligations for meal periods, which “cannot be reconciled with a policy that counts those minutes as negligible rounding errors.” The Court illustrated the impact of rounding as follows:
Consider, for example, an employee who is provided with a 21-minute lunch from 12:04 p.m. to 12:25 p.m. Under [the employer’s] timekeeping system, which rounded time punches to the nearest 10-minute increment, the lunch would have been recorded as a 30-minute lunch from 12:00 p.m. to 12:30 p.m. In that scenario, an employee would have lost nine of the 30 minutes—almost a third of the time—to which he or she was entitled, and [the timekeeping system] would not have flagged the lunch as a meal period violation. Small rounding errors can amount to a significant infringement on an employee’s right to a 30-minute meal period.
In rejecting meal period rounding policies, the California Supreme Court continued a trend that began with Troester v. Starbucks, which did away with the federal de minimis doctrine for unpaid wage claims under the California Labor Code. Although the Donohue Court declined to address rounding outside the context of meal periods, it will be no surprise if rounding as a general practice is one day prohibited.
Evidentiary burdens for proving and defending meal-period claims
In 2012, the California Supreme Court in Brinker Restaurant Corp. v. Superior Court held that an employer is “not obligated to police meal breaks and ensure no work thereafter is performed.” Instead, an employer can meet its obligation to provide meal breaks when it “relieves its employees of all duty, relinquishes control over their activities and permits them a reasonable opportunity to take an uninterrupted 30-minute break” and is “not liable if an employee chooses to take a short or delayed meal period or no meal period at all.”
In addition to abolishing the rounding of meal-period time punches, the Donohue Court confirmed the evidentiary burdens of proof that apply in meal period cases: if a plaintiff can point to time records that show a missed, late, or short meal break, the burden shifts to the employer to rebut the presumption of liability by presenting evidence that (1) a meal period premium was paid, or (2) the employee was provided with a compliant meal period, but voluntarily chose to work.
The Donohue decision also discusses the evidence actually presented by the parties to the case and is worth reading for the guidance it provides. Of note, the employer in Donohue required its employees to certify biweekly, “I was provided the opportunity to take all meal breaks to which I was entitled, or, if not, I have reported on this timesheet that I was not provided the opportunity to take all such meal breaks.” The Court called into question the utility of these certifications where employees would not have known about potentially non-compliant meal periods because the employer’s records were inaccurate.
PAGA claims may not be arbitrated, no matter how characterized
Finally, we turn our attention to the “wild west” of employment litigation – the California Private Attorneys General Act, better known as “PAGA.”
As a general proposition, PAGA claims are not subject to arbitration.
In March, the California Court of Appeal in Contreras v. Superior Court reiterated that the Federal Arbitration Act does not apply to PAGA claims, that PAGA claims cannot be arbitrated unless the state consents, and that a plaintiff in a PAGA action may not be compelled to arbitrate whether he or she is an “aggrieved employee” under the Act. In fact, we are already seeing the ripple effects of Contreras — on April 21, the Court of Appeal rejected similar arguments in Gregg v. Uber Technologies, Inc.
At least the courts’ position about PAGA arbitrability is somewhat predictable.
Tips for employers
We encourage employers who have California employees to revisit the applicability of Dynamex to their businesses. Businesses who use “independent contractors” should ensure that the classifications meet the strict requirements of the ABC Test. Employers should also review their meal period policies and practices. In addition to eliminating rounding, they should review their recordkeeping as it pertains to meal periods so that they can do as much as possible to bolster the evidentiary value of their records. Employers should also review their arbitration agreements in light of the courts’ consistent resistance to the arbitrability of PAGA claims.