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FMG Law Blog Line

Posts Tagged ‘employment’

Dear California Legislature the Constitution Prohibits Ex Post Facto Laws

Posted on: June 10th, 2019

By: David Molinari

If you have practiced law in the State of California for an appreciable period of time you become numb to warnings from out-of-state clients and counsel bemoaning enactments by the state’s legislature that will doom business and cause exodus of industries from the state. We are a resilient people, capable of prospering despite the “well-intentioned” actions of the state’s governing bodies.  However, did the State Assembly really intend to draft a bill that violates California Constitution Article 1, Section 9 prohibiting ex post facto laws with California Assembly Bill 5, adding Labor Code 2750.3?

Assembly Bill 5 seeks to codify the recent California Supreme Court decision of Dynamex Operations West, Inc. v. Superior Court of Los Angeles, 4 Cal.5th 903 (2018.). In the Dynamex case, the State Supreme Court virtually eliminated the status of independent contractor. The California Supreme Court adopted an “ABC” test for determining whether workers are employees under California Wage Order laws. The test requires the hiring entity establish three elements to disprove employment status: (A) That the worker is free from control of the hiring entity in connection with work performance-both under the contract and in fact; (B) That the worker performs work outside the hiring entity’s usual business; and (C) That the worker is customarily engaged in an independent business of the same nature as the work performed.

Under Assembly Bill 5, the legislature seized on the ability to expand the categories of individuals eligible to receive benefits by creating a legislative instrument that would result in additional monies being deposited into the state via continuously appropriated funding from an expanded pool of employers. The Bill seeks to codify the Dynamex decision. But the legislature simply adopted the Supreme Court’s opinion which includes retroactive application. The legislative findings clearly show a financial purpose behind codifying Dynamex: The loss to the state of revenues from companies that use “misclassified” workers to avoid payment of payroll taxes, premiums for workers’ compensation, Social Security, unemployment and disability insurances. The Assembly clearly did not overlook or ignore retroactive application of Dynamex may subject this new pool of employers to criminal penalties they currently are not exposed to suffering. The Assembly in its findings concluded: Assembly Bill 5 “Would expand the definition of a crime.”

The Supreme Court held applying Dynamex retroactively was consistent with due process because the Court was “merely extending” principles previously stated in S.G. Borello & Sons, Inc v. Department of Industrial Relations, 48 Cal.3rd 341 (1989) and represented “no greater surprise than tort decisions that routinely apply retroactively.” The holding has been cited for authority for retroactive application by the 9th Circuit in Vasquez v. Jan-Pro Franchising as well as the State Courts of Appeal including the 4th District, Division 1 in Garcia v. Border Transportation Group, LLC, 28 Cal. App. 5th 558.

Codification of Dynamex threatens to create an ex post facto law that expands exposure to criminal penalties. Thus, it would seem to be in violation of California Constitution, Article 1, Section 9 that the legislature shall not pass ex post facto laws.  For example, the new pool of employers will be immediately subject to prosecution under California Labor Code Section 3700.5. Labor Code Section 3700.5 makes it a crime, punishable by imprisonment in the county jail for up to one year, or by a fine of not less than $10,000.00 or both, for any entity that fails to secure workers’ compensation insurance. A second or subsequent conviction is punishable by imprisonment for up to a year and a fine of not less than $50,000.00.

Article 1, Section 9 has been applied to past employment-related legislation; but only with respect to the Article’s prohibition against laws impairing the obligation of contract. The language of Article 1, Section 9 appears unambiguous and absolute. However, prior challenges have run into judicial interpretation that the Article may not be read literally and the prohibitions of Article 1, Section 9 may not be absolute; at least with respect to the impairment of contracts. The clause “is not to be read with literal exactness like a mathematical formula.” Torrance v. Workers’ Compensation Appeals Board, 32 Cal.3rd 371 (1982).

The guidelines for determining the constitutionality of a statute imposing an ex post facto criminal penalty applies a presumption against retrospective application unless the legislature expresses such specific intent. The legislature’s findings expressly stated Assembly Bill 5 “would expand the definition of a crime.” Is that enough of a legislative expression of intent even though the State Supreme Court only referenced civil “tort decisions” to justify retroactive application? Maybe we shouldn’t be numb to those warnings any longer.

For more information, please contact David Molinari at [email protected].

Hiring Summer Employees? Make Sure Your Business is Covered.

Posted on: June 3rd, 2019

By: Allison Hyatt

Summer is here and many businesses are looking to hire additional employees to cover the influx of business inspired by vacation season. One option is to use a temporary employment staffing agency to cover seasonal employee needs. Staffing agencies usually provide their own worker’s compensation and employment practices liability (EPL) insurance. However, what if an accident occurs and a seasonal employee hired through a staffing agency files a personal injury tort claim against both the business and the agency? Business owners may be surprised to find themselves in a situation where the exclusive remedy of their state’s workers compensation statute may not apply to the claim against the business. The surprise may turn to shock when the claim is further denied by the business’ commercial general liability (CGL) insurer, citing the common exclusion for bodily injury to an employee.

How can businesses avoid this coverage gap? It is important to examine the definition of an “employee” in the CGL policy’s employee exclusion, which may include “leased employees” and “temporary employees.” Depending on your jurisdiction, both leased employees and temporary employees can be deemed employees of just the outside staffing agency or both the staffing agency and the business.  In the dual employment situation, which is usually a factual determination, the business would be covered by its own worker’s compensation insurance. Businesses can increase their coverage by requesting an endorsement to their CGL policy eliminating temporary and leased workers from the employment exclusion, just in case they find themselves in the situation described above.

For more information, please contact Allison Hyatt at [email protected].

Employers Should Consider “Prevailing Party” Language In Arbitration Clauses

Posted on: March 13th, 2019

By: Ken Menendez

Employers seeking to discourage frivolous claims by employees may wish to consider utilizing a “prevailing party” clause as part of their agreement to arbitrate.

Many employers utilize arbitration as a means of avoiding the generally greater cost and uncertainty of litigation in employment cases. Agreements to arbitrate are even more prevalent in employment agreements with highly compensated or professional employees.

One of the advantages of arbitration is the ability of the parties to the agreement to establish the rules governing the arbitration and arbitration award. In addition to procedural and logistical guidelines, the parties to an arbitration agreement may also authorize the arbitrator or arbitrators to award the costs, including attorney’s fees, of the arbitration to the prevailing party in the arbitration.

Such a clause might read as follows:

The arbitrators shall award the costs and expenses of the arbitration, including attorney’s fees, to the prevailing party as determined by the arbitrators in their discretion.

A “prevailing party clause” such as the foregoing may reduce the number of baseless claims against an employer, as potential claimants will have to weigh the risk of paying the employer’s costs in the event that the arbitrators rule that the employer was the prevailing party.

The foregoing arbitration clause requires the award of costs to the prevailing party. The drafters of the clause could, if they wished to do so, also make the award of costs discretionary simply by changing the word “shall” to “may.” It is also important to note that the foregoing clause requires the arbitrators to determine which party is the prevailing party. Because many employment cases contain both claims and counterclaims, placing the responsibility for identifying the prevailing party on the arbitrators eliminates subsequent disputes between the parties regarding which party was the prevailing party.

If you have any questions or would like more information, please contact Ken Menendez at [email protected].

Department of Labor Unveils Its Long-Awaited Proposed Overtime Rule

Posted on: March 11th, 2019

By: Brad Adler

On March 7, 2019, the U.S. Department of Labor (DOL) released its long-awaited proposed rule that would revise the white collar overtime exemption regulations.  In its proposed rule, the DOL proposed raising the minimum annual salary for exempt status from $23,360 to $35,308 (an increase in the weekly rate from $455 to $679).  This is a significantly smaller increase than the increase that had been adopted by the DOL in 2016 ($47,476 per year) while President Obama was in office.  Of course, a court blocked that increase from taking effect.

Like the 2016 final rule, the DOL’s new proposal would allow employers to satisfy up to 10% of the $35,308 minimum salary requirement by the payment of nondiscretionary bonuses, incentives and commissions.  Notably, however, while the 2016 rule required that the bonuses be paid at least quarterly, the new proposal contemplates that they can be paid annually (or more frequently if desired).  Specifically, employers would have one catch-up period at the end of a 52-week period to make up any shortfall in the employee’s salary to bring it up to the required minimum.

As a result of this proposed provision, the employer could pay the employee a guaranteed minimum salary of $611.10 per week (90% of the weekly salary) and, if bonus and incentive compensation do not bring the person up to the minimum salary level by the end of the year, the employer would have one chance to make up the difference.

In addition to increasing the minimum salary, the DOL also proposed increasing the minimum annual compensation to qualify for the FLSA’s “highly compensated employee” exemption, from $100,000 to $147,414 (of which, at least $679 per week must be paid on a guaranteed salary or fee basis).

The public will have 60 days to submit comments on the proposed rule, but the rule ultimately is expected to take effect on January 1, 2020.

If you have any questions or would like more information, please contact Brad Adler at [email protected].

What Are The Ethical Rules For Legal Blogs In California?

Posted on: February 1st, 2019

By: Greg Fayard

If you are a California lawyer and are thinking about starting a blog, keep these points in mind:

  1. Blogging by an attorney may be a communication subject to the requirements and restrictions of the Rules of Professional Conduct and the State Bar Act relating to lawyer advertising if the blog expresses the attorney’s availability for professional employment directly through words of invitation or offer to provide legal services, or implicitly through its description of the type and character of legal services offered by the attorney, detailed descriptions of case results, or both.
  2. A blog that is an integrated part of an attorney’s or law firm’s website will be a communication subject to the rules and statutes regulating attorney advertising to the same extent as the website of which it is a part.
  3. A stand-alone blog by an attorney, even if discussing legal topics within or outside the authoring attorney’s area of practice, is not a communication subject to the requirements and restrictions of the Rules of Professional Conduct and the State Bar Act relating to lawyer advertising unless the blog directly or implicitly expresses the attorney’s availability for professional employment.
  4. A stand-alone blog by an attorney on a non-legal topic is not a communication subject to the rules and statutes regulating attorney advertising and is not subject thereto simply because the blog contains a link to the attorney or law firm’s professional website. However, extensive and/or detailed professional identification information announcing the attorney’s availability for professional employment will itself be a communication subject to the ethical rules and statutes.

See California Rules of Professional Conduct 7.1 and 7.2 and Business and Professions Code sections 6157-6159.2; State Bar of California Standing Committee on Professional Responsibility and Conduct, Formal Opinion Interim No. 12-0006.

If you have any questions or would like more information, please contact Greg Fayard at [email protected].