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Paying Californians Little Trickier Under Three High Court Cases

Oct. 30, 2018, 10:26 AM

Three California Supreme Court decisions in the past year have made the state more worker-friendly in wage-and-hour cases.

California is the world’s fifth-largest economy and the most populous U.S. state, with nearly 40 million people. It tends to go above and beyond federal wage law and requirements in other states, but its role in the economy and its size mean what happens in the Golden State is important.

The best-known of the recent California wage-law rulings, involving delivery service operation Dynamex Operations West Inc., makes it harder for a company to classify its workers as independent contractors. The decision was a “bombshell” because of its potential to force many businesses to re-evaluate their worker classifications, according to Richard Reibstein, a partner at Locke Lord LLP in New York who represents employers and senior management in labor and employment cases.

California’s high court adopted a variation of a test known as an “ABC test” that’s been in use in other states for a variety of workplace law purposes. The test presumes a worker is an employee, which brings with it costs such as minimum wage and overtime, unless three conditions are satisfied. Companies have to show (A) the worker has freedom from control over how to perform his or her service, (B) the service is outside the company’s normal variety, and (C) the worker is engaged in an independently established role.

The other cases involve how to count work hours so employees are paid properly for their time on the job, as well as for overtime when they work more than 40 hours in a week. The state high court ruled in March in Alvarado v. Dart Container Corp. that an overtime pay rate under state law should be calculated according to the state manual’s mathematical formula, which is more generous than the U.S. Labor Department’s method for determining the overtime rate under the federal Fair Labor Standards Act.

Four months later, the state justices sided with a Starbucks shift supervisor who said the coffee giant should pay him for the few minutes it took each shift to punch out, initiate a sales data upload, and lock up. That was opposed to guidance in the manual, which says insubstantial amounts of time beyond scheduled work hours that are administratively impractical to record can be disregarded. Bottom line, the justices said: State law requires employers to pay for all work time, no matter how administratively difficult it may be to account for, with narrow exceptions. The case is still on its way to trial.

Abiding by the Manual?

The state Division of Labor Standards Enforcement, under the leadership of the state labor commissioner, develops a manual of its policies and interpretations of the laws it enforces. It mostly focuses on wage-and-hour topics.

The state Supreme Court sometimes defers to the DLSE and sometimes doesn’t, which makes it harder for employers to understand what they’re supposed to do, Erika Frank, executive vice president, legal affairs, and general counsel at the California Chamber of Commerce, told Bloomberg Law.

“Employers have always known that there’s this manual out there,” Frank said. “It’s there to guide employers and employees essentially as to what the labor code says, primarily as far as wage-and-hour.

“Employers are really caught in this tricky situation because they have the commissioner’s office offering guidance, however that guidance doesn’t necessarily have to be followed by the court,” Frank said. “When you talk about a legal sense, it’s not binding authority on the courts, yet we’re starting to see the courts, particularly our Supreme Court, deciding when to give deference to it.”

California Sets Own Course on Pay

The decisions show that California’s employment laws stand apart from comparable federal laws, Benjamin Ebbink, of counsel in Fisher & Phillips LLP’s Sacramento office, told Bloomberg Law.

“California charts its own path on wage-and-hour issues, usually going above and beyond the federal law,” Ebbink said. “A number of cases in recent years have rejected relying on FLSA interpretation, so California employers need to be wary and always look to and anticipate how California law may be interpreted differently.”

That’s different from some other states, which specify that their wage-and-hour laws should apply in the same way that comparable federal law applies.

California’s willingness to develop its employment laws with little regard for federal law interpretations—and the state’s well-known tendency to take worker-friendly approaches—are what make these decisions so appealing to worker-side lawyers.

Rulings Boost Employees, Jobs

“I think the idea is just providing clear rules that everybody can follow,” Jennifer Kramer, an attorney in Los Angeles who is a co-chair of the California Employment Lawyers Association’s wage-and-hour committee, told Bloomberg Law. “That encourages a robust economy in California that spreads the work around as much as possible between workers.”

Shaun Setareh, a Beverly Hills lawyer who represented the Starbucks shift manager, said the precedent his case established would make employee compensation fairer.

“Most courts have been, up until today, rendering rulings that if your employer doesn’t pay you for up to 10 minutes of off-the-clock work, that’s fine and they can nickel-and-dime you all they want,” Setareh told Bloomberg Law the day the decision came out. “Some studies that we looked at said Californians are being underpaid billions of dollars because of this rule.”

A Starbucks spokesperson told Bloomberg Law the company is disappointed by the decision and “will await further disposition of the case” as it moves through the courts.

The case against Starbucks is still proceeding in the trial court and may pick up more plaintiffs if it’s certified as a class action. They could settle, or lose the lawsuit entirely. No matter how the case turns out, the California Supreme Court’s precedent stands.

Dynamex in Crosshairs

The Dynamex ruling in particular has drawn fierce criticism from businesses that use independent contractors. They say the ruling will ruin the way they do business. The Chamber of Commerce is leading an effort to roll back the worker classification test through legislation.

But the ruling has also been targeted by some of the people it would reclassify as employees.

Tina Kerrigan, a registered dietician in San Dimas, is one of them. “The concern is that we will be reclassified as employees,” Kerrigan told Bloomberg Law. “We’re very aware of the benefits of being an independent contractor versus being an employee.”

People tend to think of drivers for Uber Technologies Inc. and other gig economy workers when they talk about independent contractors, but that’s not the whole picture, Kerrigan said. Dieticians like her appreciate the flexibility that comes with contractor status in their work for long-term care or skilled nursing facilities, she said.

California requires workplace protections for employees, such as rest and meal breaks after a few hours of work and overtime for working more than eight hours in a day, that can cut worker pay by increasing a business’s labor costs, she said.

“We’re choosing to do this. We’re not low-skilled people that need protection. We’re college-educated professionals,” Kerrigan said. “People can work multiple facilities or they can work part time if they have a full-time job.”

To contact the reporter on this story: Jon Steingart in Washington at

To contact the editors responsible for this story: Cathleen O'Connor Schoultz at; Martha Mueller Neff at