Tag Archives: employment

California Case Clarifies Independent Contractor Classification Criteria

7766Now that I’ve used every word that begins with “C” in the title, here’s the post:

On July 11, 2013, a California appellate court, in Beaumont-Jacques v. Farmers Group Ins., affirmed summary judgment in favor of an insurance company on the question whether a District Manager was properly classified as an independent contractor and not an employee. In so holding, the court provided clarification on the proper analysis for determining this important issue.

Why is this important?

California employers that misclassify workers as independent contractors face potential liability, which can include compensatory damages, stiff penalties and attorney’s fees.

What happened in the Beaumont-Jacques case?

A former District Manager, Erin Beaumont-Jacques, sued Farmers Insurance on various theories all of which hinged on a determination that she was a Farmers Insurance employee. In support of her position, Ms. Beaumont-Jacques pointed out that: (1) she was bound by a contract to only represent Farmers in recruiting and training sales agents; (2) she could train such agents only to sell Farmers’ insurance products; (3) the applicable contract required her to “conform” to Farmers’ “normal business practices” and “goals and objectives”; and (4) Farmers enjoyed the option to terminate her contract without cause.

In affirming the trial court’s granting of a motion for summary judgment brought by Farmers, the California Court of Appeal for the Second Appellate District clarified that, even where other factors may suggest an employment relationship, it was sufficient for independent contractor classification that Ms. Beaumont-Jacques “exercised meaningful discretion with reference to her efforts” undertaken on behalf of Farmers. Specifically, the Court said: “While [Farmers] . . . had input over the quality and direction of [her] . . . efforts, they did not have sufficient ‘control over the details’ with respect to those efforts” to render the relationship one of employment rather an independent contractor.

What is the takeaway?

The paramount consideration in determining whether a worker can be properly classified as an independent contractor under California law is whether the worker maintains the right to control the means by which she accomplishes her duties.

Recent Mixed-Motive Case Is A Mixed Bag For California Employers

1184335059_0505In February, the California Supreme Court issued an important decision applying the mixed-motive defense to employment discrimination cases brought under California’s Fair Employment and Housing Act (FEHA). First, a brief bit of background: according to the mixed-motive defense, available in federal employment discrimination claims brought under Title VII, if an employer had both discriminatory and nondiscriminatory reasons for firing an employee, the employer should not be liable if the nondiscriminatory reason alone was sufficient to warrant termination of the employee.

In Harris v. City of Santa Monica, a bus driver was terminated for performance-related reasons shortly after she notified her supervisor that she was pregnant. She sued the City alleging the termination was an instance of pregnancy discrimination. At trial, the City asked the court to instruct the jury that, if the City proves it would have reached the same decision to terminate the driver even without a discriminatory motive, then it could not be held liable. The court refused this instruction and instead instructed the jury that if the bus driver proved her pregnancy was “a motivating factor/reason for the discharge” then the City was liable. The jury found the plaintiff’s pregnancy was a motivating factor and awarded her $177,905 in damages and $401,187 in attorney’s fees.

The City appealed and the Court of Appeal determined that the proposed mixed-motive instruction should have been given. It reversed and remanded. Harris sought, and the California Supreme Court granted, review of the Court of Appeal decision.

The Supreme Court held that the instruction should have required the plaintiff to establish, not just that discrimination was a motivating factor or reason, but that it was “a substantial motivating factor/reason” for the termination.* If the plaintiff makes this showing, the employer then has the opportunity to limit its exposure by proving by a preponderance of the evidence that it would have made the same decision for nondiscriminatory reasons, such as job performance. If the jury finds in favor of the employer on this issue, the plaintiff may not recover compensatory damages, back pay or reinstatement, though she may still seek and recover injunctive and declaratory relief. Additionally, she may stll be entitled to recover her attorney’s fees in prosecuting the lawsuit under FEHA.

At first blush, Harris would seem to be a positive development for California employers–and it is. The problem is that employment discrimination suits tend to be attorney-fee driven, with the result that lawyers will file and aggressively pursue marginal liability cases with the hope of striking it big with an attorney fee award. Consider the trial result in Harris, in which the attorney fees sought were over twice the damages award. The practical impact is that the employer is punished (though an attorney fee award) even when it otherwise succeeds in its mixed-motive defense.

*Emphasis added.

Pay Your Employees Sales Commissions? If So, Read This!

lklklklklAn important change to California Labor Code 2751 takes effect January 1, 2013. That’s next week!

The change requires California employers who pay their employees sales commissions (regardless whether commissions are all or just part of the worker’s compensation) to enter into a written employment agreement. The law previously only required an agreement for out-of-state employers with no permanent and fixed place of business in California. Note that simply setting forth compensation terms in an employee handbook or written commission policy will not satisfy this obligation.

Here’s the fine print:

  • Again, the agreement must be in writing.
  • It must explain how the commission will be computed and paid.
  • It must explain how a commission is earned and any conditions required for the commission to be earned.
  • The employee must be given a signed copy of the written agreement and employers must obtain a signed acknowledgement from the employee confirming receipt. This signed acknowledgement should be kept in the employee’s personnel file.
  • Employers who wish to terminate or change the commission policy, should do so by a written amendment or new written agreement that supersedes the earlier agreement (again, with a signed acknowledgement of receipt).
  • This agreement is not required for short-term productivity bonuses.
  • This law does not apply to independent contractors.

Happy New Year employers!

California’s FEHA Will Explicitly Cover Religious Dress And Grooming Practices

trfredSome employers struggle with reasonable accommodation of an employee’s religious preferences. Effective January 1, 2013, the California Fair Employment and Housing Act (FEHA) definition of “religious creed” will be amended to explicitly include “religious dress practice” and “religious grooming practice.” “Religious dress practice” includes the wearing or carrying of religious clothing, head or face coverings, jewelry, artifacts, and any other item that is part of the observance by an individual of his or her religious creed, while “religious grooming practice” includes all forms of head, facial and body hair that are part of the observance by an individual of his or her religious creed. The terms “religious dress” and “grooming practices” are to be broadly construed.

I hold the (perhaps naive) belief that, when most employers violate prohibitions against religious discrimination, it’s often by accident. So I try to provide examples.  The HR Gazette provides these:

“‘[R]eligious dress’ means virtually any piece of clothing or accessory that signifies or expresses a religious creed or belief.  The most common examples are a hijab (the headscarf worn by Muslim women), the dastar (the turban worn by Sikh males) or a yarmulke (the skullcap worn by Jewish males).  Religious dress could also include jewelry such as a Christian cross, Star of David, or an Ankh.”

“[A]n employer would be required to accommodate an employee’s religious belief by allowing him to wear a beard or long hair in the workplace.  Some religions require men and women to shave their head.”

Here are a couple of ripped-from-the-headlines cases to further illustrate:

1. A certain “preppy” store refused to hire a woman when she appeared for an interview wearing a headscarf, which she wore for religious reasons as a devout Muslim. The employer argued that it had a strict “Look” policy in order to insure a unified “preppy” brand image. The jury awarded the woman $20,000.

2. A fast food chain was sued after terminated a devout Nazirite due to his failure to cut his hair. Nazirites do not cut their hair as a sign of devotion to God. The employee had worked for six years without cutting his hair (in fact, he had not cut his hair since he was 15 years old) before the company tried to enforce its grooming policy that required him to cut his hair. The chain entered into a consent decree whereby it settled the case and agreed to pay the employee $27,000, and also to adopt a formal religious accommodation policy.

Employers subject to FEHA must reasonably accommodate an individual’s religious creed. The amendments provide that an action that segregates or hides an individual, either from other employees or the public, because of that individual’s religious dress or grooming practices is not a reasonable accommodation of an employee’s religious dress or grooming practices.

You Cannot Force A California Employee To Disclose Her Facebook Password, Unless . . .

A new California law restricts an employer’s right to seek access to existing or prospective employees’ social media accounts.

The law, Chapter 2.5 of Part 3 of Division 2 of the Labor Code (commencing with Section 980),  defines “social media” for purposes of the new law to mean “an electronic service or account, or electronic content, including, but not limited to, videos, still photographs, blogs, video blogs, podcasts, instant and text messages, email, online services or accounts, or Internet Web site profiles or locations.”

Under the new law, employers cannot request existing or prospective employees to disclose either a username or password, to access a personal social media account in the presence of the employer, or to divulge any personal social media.  It is also unlawful to retaliate against an employee or applicant for refusing such a request. 

Important exceptions to the law are (1) where divulging social media is “reasonably believed” to be relevent to an investigation of an employee’s violation of law or allegations of employee misconduct; and (2) if done for the purpose of accessing an employer-issued electronic device.

At What Point Should A Young Company Think About Hiring Employment Counsel?

I have a friend who is a BSD in the venture capital world.  I reached out to him a while back because I had read that one of the companies his firm was funding was about to undergo a significant expansion.  I asked my friend if he wouldn’t mind introducing me to the company’s general counsel, so I could get my foot in the door in helping the company establish a solid platform for management of employment issues which were bound to arise, given their imminent hiring.

To my surprise, my friend rebuffed me.  “To tell you the truth,” he said, “it’s really not something that’s on their radar at this point.”  I let it pass–there might have been a variety of reasons he didn’t want to make the introduction.  But, suppose he was telling me the truth, that he thought the general counsel of this emerging tech start-up really didn’t need to be thinking about who to use to prevent and, if necessary, deal with employee “issues.”

If he was telling the truth, I think he was mistaken.  This is particularly true given that the company was domiciled in California, unquestionably the most hostile legal environment in the world for employers. 

Granted, I don’t think selecting employment counsel is on par with raising funds or gaining market share. If the company fails, there won’t be employees to make claims or file lawsuits.   On the other hand, meeting and potentially retaining a legal expert to review the company’s policies, draft or revise a handbook and perhaps conduct some training is neither time-consuming nor rocket science.  It is certainly not expensive.  Particularly if the ounce of prevention establishes, at the company’s early stages, a solid foundation which prevents even one otherwise avoidable employment lawsuit.

I have seen up close organizations that started and grew without a solid, systematic adherence to employment laws.  In each instance, I’ve become involved only after the company has been sued and we are trying to frame a defense.  At that point, the company’s management invariably recognizes its shortcomings and vows to do better going forward.  Unfortunately, this only happens after the company is forced to spend tens of thousands (or more) in settlement and defense costs.

It is not unusual for small employers to look to their “business” counsel for guidance on complying with employment issues.  This is the lawyer that drafted their articles of incorporation or negotiated a lease.  However, it is more common for this to occur only after there has been a claim or suit.  Before that time, my friend is right, it’s literally “not on their radar.” 

I’m partial to the idea of working with a lawyer that concentrates his or her practice on employment defense, rather than a business generalist.  There are lawyers who do nothing but employment advice and counseling, which is who I–a litigator–will look to if I’m confronted with a particularly unusual question.  The problem for the commercial lawyer in advising on employment issues is the rapidly changing nature of employment laws.  An additional problem arises when the claim goes further, and ripens into an administrative complaint with the Equal Employment Opportunity Commission (EEOC), California’s Department of Fair Employment and Housing (DFEH) or similar agency, or if there is a civil lawsuit filed.  While the company’s business lawyer might be a wizard at negotiating a complex lease, he or she might struggle when conducting a deposition, drafting a solid motion for summary judgment or representing the company in front of a jury.

I have all the respect in the world for entrepreneurs.  And I expect there are a thousand and one issues and headaches to successfully navigate without having another lawyer stick his or her nose into how the company runs its business.  But the last survey I saw said that the average verdict or award in employment lawsuits where the employer lost was over $400,000 (and this was a few years ago).  I’d argue that it’s never too early to put retaining an employment lawyer “on the radar.”

The Importance of Being Earnest (When Firing)

Not everyone is cut out to play the boss.  While I suspect there are a few sadists who actually enjoy the act of firing an employee, most people hate delivering bad news and learning you’re now jobless usually ranks near the top of the bad news heap. 

From the point of view of a lawyer who represents employers in lawsuits, however, I view the process of termination to be extremely important.  It can be tempting, when one is forced to deliver the news, to sugarcoat.  Most sugar-coating doesn’t really make anyone feel better.  For example, “you’ll always be part of the family,” or “you’ll thank me someday for this chance at a fresh start,” might have worked for George Clooney in “Up In The Air,” but it’s a pretty stupid thing to say in the real world.

One brand of sugar-coating that can be really dangerous concerns mischaracterizing a termination for poor work performance as something other than what it is.  In particular, suggesting a sub-par employee is being “laid off” creates substantial risk.  If the “redundant” employee is replaced anytime in the near future, it sets the stage for him or her to argue, in a subsequent discrimination lawsuit, that the lack of work was merely a pretext.  That the actual goal was to eliminate the employee on the basis of some protected characteristic (i.e., race, gender, disability, religion).  This kind of evidence plays well at trial: like all of us, jurors love to hear about conspiracies and cover-ups. 

One way for employers to make the act of termination less of a surprise–and therefore less painful for everyone involved–is to make termination the final step in a progressive discipline policy.  Implementing such a policy starts with  a frank discussion with the underperforming employee that is documented by a dated, written record of the discussion.  This type of discussion does not even need to be characterized as discipline, but rather a coaching tool. 

If verbal discussions (documented) do not improve performance, the next step should be a written notice that describes the problem, proposes a solution and is provided to the employee concurrently with the verbal discussion.  The employee should be asked to sign this document, and perhaps there will be a space dedicated for any response the employee might have.  lf the problem persists, the possibility of one or more additional written notices/warnings can be provided, but the message communicated should be that, after a defined number of written notices/warnings, termination will result. 

A progressive, documented discipline policy serves two really important purposes.  For me–your lawyer–it is important evidence if a wrongful termination or other lawsuit results from the employment relationship or termination.  Perhaps more importantly, though, it gives the employee every chance to succeed.

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