Wake-Up Call on Inside Salespersons

California Supreme Court Narrows Eligibility

for the Commissioned Salesperson Exemption

Phone orders section in T. C. Beirne's deparment store, 1952

Phone orders section in T. C. Beirne’s department store, 1952

California employers may qualify commissioned inside salespersons as exempt from overtime if they earn at least 1.5 times the state minimum wage for each hour worked with more than fifty percent of that total from commissions.  Some employers have considered an employee eligible if he or she met these requirements on average over several pay periods.  However, the California Supreme Court has recently ruled that the calculation must be made – and qualification determined – on what is earned and paid during each pay period.  Peabody v. Time Warner Cable, Inc. (July 14, 2014).  This may significantly lower the number of employers claiming this exemption for their workers.

Time Warner Cable classified its account executive Susan Peabody as an exempt commissioned inside salesperson.  For her sales of TV advertising, Time Warner paid Peabody regular wages on a biweekly basis (calculated per hour on a presumed 40 hour week).  The company also paid her monthly on commissions earned.  This meant that Peabody received at least one check per month for hourly pay only and at less than 1.5 times the minimum wage for all hours worked.

On Peabody’s lawsuit for unpaid overtime (including the claim that she usually worked 45 hours weekly), Time Warner argued the exemption applied by averaging her compensation over a month or more, i.e., that it should be permitted to apply portions of the monthly commission payments back to earlier pay periods where Peabody had originally received lower than the minimums required to qualify.

The California Supreme Court disagreed, unanimously ruling: “[A]n employer satisfies the minimum earnings prong of the commissioned employee exemption only in those pay periods in which it actually pays the required minimum earnings. An employer may not satisfy the prong by reassigning wages from a different pay period.”  Peabody v. Time Warner Cable, Inc.

The Court explained: “Making employees actually pay the required minimum amount of wages in each pay period mitigates the burden imposed by exempting employees from receiving overtime.  The purpose would be defeated if an employer could simply pay the minimum wage for all work performed, including excess labor, and then reassign commission wages paid weeks or months later in order to satisfy the exemption’s minimum earnings prong.” Peabody v. Time Warner Cable, Inc.

Two important lessons arise from the decision:

• Qualification for California’s inside sales exemption requires employee receipt of at least 1.5x minimum wage for every hour worked in the pay period.  With the July 1, 2014 increase of minimum wage to $9.00/hour, the minimum qualifying rate is thus currently $13.50 per hour; and

• To qualify a worker for the exemption, an employer may not attribute commissions paid in one period to other pay periods.

For more information, contact one of our attorneys, Timothy Bowles, Cindy Bamforth or Helena Kobrin.

Federal Agency Weighs in on Pregnancy Discrimination

EEOC Publishes Controversial Enforcement Guidelines

baby on a scale

On July 14, 2014, the U.S. Equal Employment Opportunity Commission (EEOC) published its first “guidance” on pregnancy discrimination since 1983.  EEOC enforcement guidances are the agency’s interpretations of law.  This set offers EEOC views on what constitutes unlawful pregnancy-based discrimination under the federal Civil Rights Act of 1964 (“Title VII”), as amended by the Pregnancy Discrimination Act of 1978 (PDA). The guidance also covers how the Americans with Disabilities Act (ADA) — as amended in 2008 to broaden the definition of disability — applies to pregnancy-related impairments.  These guidelines include covered employer obligations to provide pregnant employees equal access to employment benefits, such as leave, light duty, and health coverage.

The EEOC also published a “Fact Sheet for Small Business” for covered employers (essentially those with 15 or more persons on payroll), explaining when and how PDA and ADA requirements apply.

EEOC commissioner Victoria Lipnic has criticized the updated guidance for directing employers to modify job requirements for pregnant and lactating workers experiencing no complications and thus not disabled under the ADA.  Ms. Lipnic contends the guidance embraces “the novel position that under the language of the PDA, [any] pregnant worker is, as a practical matter, entitled to ‘reasonable accommodation’…. No federal Court of Appeals has adopted this position; indeed, those which have addressed the question have rejected it.”

Ms. Lipnic also questioned the timing of the EEOC’s publication: “The most significant questions addressed in the Pregnancy Guidance are pending before … the U.S. Supreme Court for review and decision.  See Young v. United Parcel Services, Inc…. (U.S. July 1, 2014)…. the credibility of the Commission is done no favor by issuing any guidance on these points while these critical questions are pending – particularly if the Court adopts a position which directly contravenes that taken in the Guidance….”

As always, employers should proceed deliberately in assessing how to accommodate workers with pregnancy-related limitations, including under possibly more stringent state laws such as California’s.

For more information, contact one of our attorneys, Timothy Bowles, Cindy Bamforth or Helena Kobrin.

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Will California Employers Have to Cough Up Paid Sick Leave?

Constructive Remedy or a Job-Killer?

An appeal was launched by Rowland Thomas, Woodalls Press for £100, 000 to restore Gobowen Hospital, 1948

The California Assembly passed earlier this year the “Healthy Workplaces, Healthy Families Act of 2014” (Assembly Bill [AB] 1522), sending it over to the Senate for consideration.  If passed into law, the measure would mandate all employers to provide at least three paid sick days per calendar year to all workers who qualify.  There is currently no sick pay requirement under federal or California law. See our article, Don’t get Sick of Sick Pay – An Overview of California Paid Sick Leave.

This is the Legislature’s third attempt to enact such a law (previously in 2008 and 2011).   In its current form, AB 1522 would direct that eligible workers earn (accrue) at least one hour of paid sick leave for every 30 hours worked and may start using such benefits after three months of employment.

The California Labor Federation, AFL-CIO supports AB 1522 contending it will  guarantee “every California worker paid time off to recover from illness, care for a sick family member, or bond with a new baby. AB 1522 also protects workers claiming this benefit from employer retaliation.”  While observing that many employers already voluntarily offer non-accruing sick leave to full-time workers, the California Chamber of Commerce’s objects to the bill for its creating a “huge burden” on employers through required expansion of benefits to temporary, seasonal, and part-time employees.

Connecticut is currently the only state that requires paid sick day benefits. Several cities, including New York, Washington, D.C., Portland, Seattle and San Francisco, mandate such benefits.

“California Wage Theft Recovery Act” Navigating Heavy Legislative Seas

Assembly Bill 2416 Would Permit Employees

to Impose Liens on All Employer Property

for Alleged (but Unproven) Wage Claims

Ship Garthsnaid, ca 1920s

Ship Garthsnaid, ca 1920s

California’s controversial Assembly Bill (AB) 2416, the “Wage Theft Recovery Act” continues to make progress through the Legislature.   Patterned on a unique Wisconsin law, the Act, if passed, would enable an employee to create a lien upon an employer’s real and personal property for the full amount of any unpaid wages, penalties and interest allegedly owed to that employee.   The Assembly passed the bill on May 23, 2014.  It was also recently approved, with various proposed revisions, by the Senate Judiciary and is now under consideration by other committees on that side.

Proponents of the bill cite a 2010 “wage theft” study from UCLA that estimated nearly 656,000 workers in Los Angeles County experience at least one pay-based violation of the law every week, supposedly totaling some $26,200,000 weekly.   Characterizing even inadvertent underpayments of straight or overtime pay as “theft,” the study concludes the shortfall “robs local communities of … spending and ultimately limits economic growth.”  Another 2013 UCLA study concludes that current government lines and procedures are ineffective, with only an estimated 17% of California workers successful in collecting on claims, thus leaving 83% of claimants unpaid.”

AB 2416’s sponsors point to Wisconsin’s reported example.  The above 2013 UCLA study asserts that since implementing a lien procedure for workers alleging  underpayment of wages,  80% of claimants have been paid in part or in full through the collection process.   That UCLA study also notes that only a small number of liens are actually filed in Wisconsin every year (about 3,300), suggesting that merely the prospect of liens provides a deterrent to such wage underpayments there.

The opponents to AB 2416 – including the California Chamber of Commerce and at least 60 other state and local commercial associations – obviously do not condone violation of wage laws.  They assert the proposal goes too far, harming business’s ability to operate (and thus provide jobs) as liens for alleged, but unproven, wages can cripple the ability to finance and thus grow an enterprise.  The opponents also point out that AB 2416 allows wage liens against third party commercial property owners who had no actual control over the employee.  They also claim the new law would place significant burdens on the court system and that there are already sufficient protections in place for failure to pay wages.

With the California Chamber taking the lead and terming it a “job killer,” an earlier version of the proposal, AB 1164, died in the Assembly for lack of support this past January.  Now over to the Senate, AB 2416 obviously has greater momentum.  Its provisions are detailed and of course subject to change as it moves along through committees.  We will be tracking the measure along with advocates on both sides of the debate.

Classifying Workers, Employees or Independent Contractors?

New Court Decision on Delivery Drivers

Shows the Issue Requires Detailed Analysis

 

Dugan Brothers, Truck, 1938, Southern Methodist University, Central University Libraries, DeGolyer Library

1938 Southern Methodist University, Central University Libraries, DeGolyer Library

The dividing line between properly classified employees and independently contracted workers can often be about as clear as mud.   The June, 2014 decision from the federal Ninth Circuit Court of Appeals in Ruiz v. Affinity Logistics Corp illustrates the perils of a company’s miscalculation on this issue.

Sears contracted with the Affinity Logistics Corporation to make home deliveries of Sears merchandise to consumers.  As a condition of hiring, Affinity required delivery drivers to work as “independent contractors” through registration of fictitious business names, maintenance of separate business licenses and commercial bank accounts, and one-year, automatically renewed contracts.

Affinity directed these drivers to work five-to-seven days/week and paid them $23 per delivery, usually with eight deliveries per day.   The drivers held no special licenses or training.  Nearly all leased their trucks from Affinity with fees deducted from paychecks.  The trucks bore the Sears’ logos and Affinity’s name and motor carrier number on their doors.  The company required drivers to stock their trucks with supplies required by Affinity’s procedure manual.  The company required drivers to leave the trucks at Affinity’s warehouse at day’s end, leaving their keys in case someone else needed the trucks overnight. The Affinity manual also required specific uniforms and grooming standards for drivers.

The drivers had to attend meetings with company supervisors each day before starting their Affinity-designated sequence of deliveries.  Supervisors also checked the loaded trucks daily for proper tools and other materials.  Affinity also required the drivers to report completed deliveries to Sears by phone as well as to call in their progress to Affinity throughout the day.  The company phoned drivers running late or off course to get back on schedule or on route.  Affinity also conducted “follow-alongs,” supervisors tailing drivers for the first few stops to confirm a given driver was wearing a uniform and using the proper delivery procedure.

Affinity won the first round in court.  Focusing on driver ability to hire helpers and back-up drivers, a federal trial judge in San Diego ruled the drivers were independent contractors.  The Ninth Circuit reversed on appeal, finding the drivers employees under California law.

That Ninth Circuit appeals court relied primarily on the California Supreme Court’s guidance in S. G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal. 3d 341 [256 Cal. Rptr. 543, 769 P.2d 399] that “the right to control work details is the most important or most significant consideration.”  It concluded that Affinity’s right to control the details of the drivers’ work, including their equipment, “every exquisite detail” of their appearance, and the close monitoring and direction of driver movements and production was the most important factor supporting employee status.  The appeals court rejected the trial judge’s emphasis on driver ability to hire helpers, observing that Affinity actually required the drivers to hire the helpers.  Affinity also imposed the same degree of driver control upon any back-up drivers.  The court thus ruled these factors amounted to Affinity’s “absolute overall control.”

As also directed by the Borello decision, the Ninth Circuit found many secondary factors that required the drivers to be classed as employees, including the drivers’ lack of a genuinely distinct business operation; the lack of specialized skill requirements; Affinity’s providing the drivers with trucks and requiring drivers use a specific type mobile phone;  compensation that was essentially by the hour and not by the jobs completed;  drivers’ delivery work was the central aspect of Affinity’s regular business; and the lack of any definite term for the relationship.

This has almost certainly been a very costly learning experience for Affinity.  In addition to paying attorney fees through several rounds of court battle only to eventually lose at the higher court, the suit was brought as a class action, potentially applicable to all Affinity drivers the company had erroneously classified as independent contractors.  Affinity is thus now potentially responsible for paying compensation, penalties and interest for its alleged failure to pay each such driver sick leave, vacation, holiday pay and severance wages and for return to the drivers the fees charged them for workers’ compensation insurance.

The proper classification of workers as employees or independent contractors is a case-by-case undertaking.   If the trial judge and the three appeals court judges could not agree on the proper outcome in the Ruiz case, then a company’s decision on which way to go with classification for any given individual in countless other scenarios can be anything but clear-cut.   See also, our blog article Independent or Employed?.   Thus, skilled legal assistance in evaluating or reevaluating such classifications is good business.  Please contact Tim Bowles, Cindy Bamforth, or Helena Kobrin in our office.