On September 18, 2019, California Governor Gavin Newsom signed into effect the much-anticipated AB-5 Bill, which imposes heightened standards when assessing whether to classify workers as independent contractors rather than employees. AB-5 will drastically affect California employers with workforces heavily reliant on independent contractors by forcing them to re-classify independent contractors as employees subject to most of the compliance requirements under California law, ranging from withholding laws for taxes and statutory benefits to wage and hour laws. AB-5’s statutory presumption of employee status will increase compliance costs and burdens and potentially force employers to alter their business models, or risk liability for costly misclassification lawsuits.

Before the Dynamex decision discussed below, the standard for determining independent contractor status was based on the degree of control exercised by the company in the relationship with the worker, based on several multi-factor tests. The stronger the principal’s control over the worker or the manner and means of performing the work, the more likely the worker would be classified as an employee. These tests also considered other secondary factors, such as the level of skill required, the details of payment, or the length of time for the services.

AB-5 codifies the California Supreme Court’s 2018 ruling in Dynamex Operations West, Inc. v. Superior Court of Los Angeles (2018) 4 Cal.5th 903, which established a presumption of employee status, for purposes of applying the requirements of the California Wage Orders, and gave employers the burden to prove otherwise under the “ABC” test. Under that test, a worker is presumed to be an employee unless all three of the following conditions are met to properly classify as an independent contractor:

(A) The individual is free from control and direction in connection with the performance of the service, both under his contract for the performance of service and in fact; and

(B) The service is performed outside the usual course of the business of the employer; and

(C) The individual is customarily engaged in an independently established trade, occupation, profession or business of the same nature as that involved in the service performed.

While the “A” and “C” factors are similar to pre-existing tests for independent contractor status, the “B” factor is expected to be particularly challenging.

AB-5 codifies this standard under the Wage Orders, but also extends it, retroactively, to the Labor Code, Unemployment Insurance Code, and Workers’ Compensation Code. AB-5 provides specific exceptions for several categories of occupations and relationships, such as doctors, licensed professionals, commercial fisherman, and estheticians. Gig economy, entertainment, and trucking industry workers are notably omitted as an exception. Importantly, the exempt occupations remain subject to the pre-existing multi-factor tests for independent contractor status, which are also difficult to satisfy.

California employers should assess and implement the appropriate changes to ensure compliance by reclassifying independent contractors to employees where appropriate. The presumption of employee status means that these workers are now presumptively subject to complex wage and hour requirements under California law (such as minimum wage, meal and rest breaks, overtime pay, reimbursement of business expenses, on-call or reporting time pay, and time-keeping and record-keeping); statutory employment benefits such as paid sick leave, disability benefits, unemployment insurance, workers’ compensation and, depending on the number of employees, health insurance benefits under the Affordable Care Act. These are just some of the issues employers are expected to face with the passing of AB-5.

AB-5 and its codification of the “ABC” test are not as easy as 1-2-3. California employers should consult with counsel to determine whether and to what extent AB-5 applies to their workforce, and assess their employment policies and practices to implement any necessary changes.

To learn more, we invite you to attend Troutman’s Labor & Employment Section’s annual seminars in Orange County on November 6, 2019 or in San Diego on November 7, 2019.

On September 12, 2019, the California Supreme Court ruled that an aggrieved employee bringing a representative action under California’s Private Attorneys General Act (PAGA) cannot recover unpaid wages. In ZB N.A. v. Superior Court, the plaintiff, Kalethia Lawson, brought a lawsuit alleging a sole cause of action under PAGA. She based her PAGA claim on several underlying allegations of Labor Code violations, including failure to provide overtime and minimum wages, meal and rest periods, timely wage payments, complete and accurate wage statements and payroll records, and reimbursement of business-related expenses. In addition to the civil penalties available under PAGA, Lawson sought unpaid wages and premium wages under Labor Code Section 558. The employer moved to compel arbitration of Lawson’s claim for unpaid wages, arguing that unpaid wages are the kind of “victim-specific relief” that Lawson had agreed to submit to binding arbitration.

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As of July 2019, the Washington Supreme Court has ruled that obesity is considered a disability protected under the Washington Law Against Discrimination (“WLAD”). The landmark ruling makes it illegal for employers in Washington to refuse to hire qualified potential employees because the employer perceives them to be obese.

The matter concerned a plaintiff who sued his prospective employer after the company made a conditional offer of employment contingent on a physical exam and medical history questionnaire. After it was determined that the plaintiff’s BMI was over 40 (considered “extremely” or “severely” obese according to the Center for Disease Control), the plaintiff was asked to complete expansive medical testing at his own expense before the company would decide if they would hire him.

In its analysis, the Court noted that the WLAD is generally broader than its federal counterpart, the Americans with Disabilities Act. The Court held that obesity is always an impairment under the WLAD and should be protected and accommodated even if it does not result from a separate disorder. Moreover, would-be plaintiffs do not need to show they actually are obese in order to make a claim under the WLAD; the showing that their actual or potential employers perceived them to be obese is enough to state a claim.

The case was before the Washington Supreme Court on a certified question from the Ninth Circuit. It will now go back to the Ninth Circuit for resolution. In the meantime, Washington employers must be aware of the new ruling and tread cautiously with their prospective and current employees. For jobs that require a certain degree of physical fitness, employers should be careful to approach the job requirements in a way that focuses on the essential job functions in technical and medical terms. Employers, particularly employers who use medical testing or require a physical exam before hiring a candidate, should reevaluate their practices to ensure compliance with the new ruling.

Employers who have any questions or concerns about Washington’s anti-discrimination laws or the new ruling on obesity should consult with a lawyer to address their concerns. Troutman Sanders has Washington-licensed attorneys available to provide guidance on the new ruling.[1]


[1] The case can be found at Taylor v. Burlington Northern Railroad Holdings, Inc., No. 96335-5 (Wash., July 11, 2019).

Partner Timothy St. George was quoted in an SHRM article titled, “FCRA’s Seven-Year Reporting Window Begins with Charge, Not Dismissal.” The article discusses a recent 9th U.S. Circuit Court of Appeals ruling that the measuring period for a criminal charge runs from the date of entry rather than the date of disposition under the Fair Credit Reporting Act (FCRA). Under this decision, criminal charges exceeding the seven-year limit shouldn’t appear in employment screens. St. George stated that, “This interpretation of the reporting rules is consumer-friendly in that it narrows the reporting window and gives specific guidelines of how to treat a non-conviction criminal charge that was ultimately dismissed.” He went on to explain that, “The court provided a lengthy analysis finding a charge is an adverse event upon entry, so it follows that the date of entry begins the reporting window. That interpretation mirrors the opinions put forward by the Federal Trade Commission and the Consumer Financial Protection Bureau.”

On June 3, 2019, the Supreme Court ruled unanimously in Fort Bend County, Texas v. Davis, No. 18-525, that while employees seeking to bring claims under Title VII of the Civil Rights Act of 1964 (“Title VII”) have a mandatory obligation to file a charge with the Equal Employment Opportunity Commission (“EEOC”) before filing suit in court, that filing obligation is procedural, not jurisdictional. That decision has certainly made headlines over the last few days – but what does it mean for employers? Practically speaking, employers should heed the Court’s ruling moving forward and scrutinize EEOC charges, with the assistance of counsel, very early in litigation in order to ensure that failure-to-exhaust defenses are identified and timely raised.

First, a little background. As most employers are aware, Title VII prohibits discrimination in employment on the basis of race, color, religion, sex, and national origin, as well as retaliation on the basis of engaging in activity protected by the statute.  An employee who wants to bring a claim under Title VII is required to first file a charge with the EEOC – the federal agency responsible for enforcing most federal employment discrimination laws. This requirement was designed to encourage the early resolution of employment discrimination disputes, without litigation. While the EEOC cannot independently adjudicate an employee’s claims, it can choose to litigate such claims on behalf of the employee. The EEOC can also investigate or try to seek resolution between the employee and the employer through mediation or other means. Additionally, the EEOC can, and most often does, choose to take no action regarding a charge. At that point, the EEOC will issue a Notice of Right to Sue to the employee, after which he or she is considered to have “exhausted administrative remedies” and may file a lawsuit in court.

The issue the Supreme Court faced (and resolved) in Fort Bend was whether the requirement that an employee file a charge with the EEOC is jurisdictional – meaning the employer can raise it as a defense at any point in the litigation – or whether it is merely procedural, meaning that an employer waives it if it is not timely asserted. The Supreme Court agreed with the majority of circuit courts that have considered this issue and held that the charge-filing requirement is not jurisdictional but instead is a procedural, claim-processing rule “that must be timely raised to come into play.”

What does this mean for employers moving forward? The safest analysis is that an employee’s failure to include a particular claim in his or her EEOC charge (or failure to file a charge at all) does not automatically deprive the court of jurisdiction to hear the case. It does not remove the requirement to file with the EEOC – but if an employer wants to challenge an employee’s claims on the basis of failure to exhaust administrative remedies, the employer must raise the defense on a “timely” basis or risk waiving the defense.  Unfortunately, the Court did not provide specific guidance regarding at what point a failure-to-exhaust argument is no longer “timely.” (Other than the fact that the employer in Fort Bend waited almost five years, which the Court found was clearly too long).  So, prudent employers will want to consult with counsel early on regarding employment suits to determine whether allegations in the lawsuit that were not specifically identified in the charge can be challenged – and if so, you must be sure to raise this defense early in the litigation to avoid waiving that defense.

The days are getting longer, the temperatures are rising, and kids everywhere are counting down the days until summer vacation begins. For many employers, the change in the season brings another big shift: the arrival of summer interns.

Internship programs are great for employers and interns alike – interns gain experience, training, and exposure to the employer’s industry, and employers gain extra help, new ideas, and, hopefully, the chance to establish a pipeline of possible future employees. But the question of whether employers could lawfully offer unpaid internships has been a bit of a moving target. Since we last covered this topic in 2012, however, the rules governing unpaid internships have changed. This year, the Department of Labor (“DOL”) rejected the six-factor test that it had previously used to determine whether an intern should be considered an employee under at least the minimum wage provisions of the Fair Labor Standards Act (meaning that they could not work without pay). Instead, the DOL adopted a new, seven factor-test known as the “primary beneficiary test.”

In good news for employers, the new primary beneficiary test is considered more flexible than the prior test. It focuses on economic realities – in other words, if the employer is the primary beneficiary, the intern must be compensated as an employee.  On the other hand, if the intern primarily benefits from the relationship, the internship can be unpaid.  The DOL indicated that it would consider the following seven factors in the analysis:

  • The extent to which the intern and the employer clearly understand that there is no expectation of compensation. Any promise of compensation, express or implied, suggests that the intern is an employee—and vice versa.
  • The extent to which the internship provides training that would be similar to that which would be given in an educational environment, including the clinical and other hands-on training provided by educational institutions.
  • The extent to which the internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit.
  • The extent to which the internship accommodates the intern’s academic commitments by corresponding to the academic calendar.
  • The extent to which the internship’s duration is limited to the period in which the internship provides the intern with beneficial learning.
  • The extent to which the intern’s work complements, rather than displaces, the work of paid employees while providing significant educational benefits to the intern.
  • The extent to which the intern and the employer understand that the internship is conducted without entitlement to a paid job at the conclusion of the internship.

While the prior test required employers to meet all six factors, the factors outlined for consideration in the primary beneficiary test are non-exhaustive, which should allow employers a bit more breathing room in structuring unpaid internship programs, especially when students are involved.

In addition to wage and hour issues, it’s important to be alert to other requirements governing your interns.  For instance, states may impose laws more stringent than the DOL’s rules interpreting the FLSA. Also, as we’ve also covered recently, an increasing number of states are considering and passing laws aimed at curbing sexual harassment in the workplace. Some of these laws (for instance, New York City’s) even include sexual harassment training requirements for interns who work for a specified amount of time. And, note that the considerations are different for employers with paid internship programs. Such employers may need to consider additional issues, such as possible coverage under some of the state and federal laws that protect employees.

So, as you prepare to welcome this year’s crop of interns to your office, in addition to checking off orientation, work assignments and welcome packets from your to-do list, consider reaching out to your favorite Troutman Sanders employment attorney to ensure your program is in tip-top shape by before you welcome this summer’s group aboard.

The United States Supreme Court has indicated that it will finally settle the circuit-splitting issue of whether gay and transgender status falls under the protection of Title VII. The court signaled this when it agreed recently to hear three cases that have been appealed to the high court. The three cases are: Altitude Express v. Zarda; Bostock v. Clayton County, Georgia; and R.G. & G.R. Harris Funeral Homes Inc. v. EEOC.

In the Altitude Express case, Zarda (through his estate, as he perished in a BASE-jumping accident after filing his lawsuit) contends that his employer fired him because of his sexual orientation. A three-judge Second Circuit panel first ruled that Zarda had no claim for sex discrimination under Title VII because sexual orientation was not covered by the law.

Then, however, the Second Circuit reversed itself in an en banc decision (which means all of the Second Circuit judges convened to hear the case as opposed to a three-judge panel). The Second Circuit then held that that sexual orientation discrimination is discrimination “because of” sex under Title VI, ruling in Zarda’s favor. The Second Circuit’s decision aligns with the decision from the Seventh Circuit in Hively v. Ivy Tech.

Zarda’s case is also particularly noteworthy not only because of the important contemporary legal issue it presents, but also because it exposed a rare public divide between two federal agencies (the Equal Employment Opportunity Commission and the Department of Justice) while under review at the Second Circuit. . Both agencies filed supplemental briefs in the case, with the EEOC arguing that Title VII applies to sexual orientation while the DOJ argued that it does not apply. It will be particularly instructive to see whether the agencies continue to take opposing stances before the Supreme Court.

Like the Zarda case, the second case—Bostock v. Clayton County, Georgia—presents the issue of whether sexual orientation is protected under Title VII. In the Bostock case, a three-judge panel from the Eleventh Circuit held that that Title VII did not prohibit discrimination based on sexual orientation. Bostock requested that that the full court hear the case en banc as in Zarda, but the court declined to do so.

The third case, EEOC v. R.G. & G.R. Harris Funeral Homes, Inc., is a case brought by plaintiff Aimee Stephens, a transgender woman who worked as a funeral director in Michigan. She presented as a male when she started her job, but then told her supervisor several years later that she was planning to transition to a woman and would start wearing women’s clothes to work. She was fired shortly after that.

Her supervisor said he fired her because Stephens “was no longer going to represent himself as a man.” The supervisor stated in the case that he believes gender transition “violat[es] God’s commands” since “a person’s sex is an immutable God-given fit.”

The EEOC sued on Stephens’ behalf in federal district court in Michigan, claiming discrimination in violation of Title VII. The district court held Stephens was discriminated against because it engaged in sex stereotyping, but that the employer was protected by the Religious Freedom Restoration Act. Stephens appealed.

The Sixth Circuit agreed with Stephens that Title VII bars employment discrimination against transgender people because: (1) transgender discrimination is gender stereotyping; and (2) transgender discrimination is inherently sex discrimination since such a decision must be “motivated, at least in part, by the employee’s sex.” The Sixth Circuit then held that the employer was not protected by the Religious Freedom Restoration Act, reversing the district court.

As these cases proceed before the Supreme Court, we will continue to monitor and update readers.

For the first time in many years, there seems to be momentum in Washington D.C. for the adoption of a national paid sick leave policy.  Currently, nine states and at least 10 localities have paid sick leave laws.  Paid sick leave is common throughout Europe, in many South American countries, and even in China.  The biggest issue, however, is that while both parties have plans to implement such a law, those plans are very different.

The Democratic plan, embodied in the Healthy Families Act, would allow employees to earn up to one week of paid leave to use for any number of reasons, including recovery from an illness, receiving preventative treatment, caring for a sick family member, attending meetings related to the health of a child, or to seek assistance related to domestic violence, stalking or sexual assault.  The general contours of the Act would allow an employee to earn one hour of paid sick leave for every 30 hours worked.  The law sets the minimum cap for accrual at 56 hours.  In other words, employees would be guaranteed the ability to accrue at least seven days of paid sick leave per year (presuming an employee works an eight-hour day).  The Act would allow smaller employers (fewer than 15 employees) to front load this leave (i.e., give employees access to all 7 days of leave at once, instead of requiring them to earn it by working hours).  Employees would be allowed to carry over any unused paid sick leave from year to year, so long as they did not exceed 56 hours of accrued paid sick leave at any point.  For example, if an employee has 30 hours of paid sick leave accrued as the year turns, the employee would be permitted to carry over all 30 hours, then accrue 26 more to reach 56 accrued for that year.  It’s unclear how this would operate where employers allow employees to accrue more than the 56-hour minimum.  Existing practices at the state level would suggest that employers would only have to roll over up to 56 hours.

Republicans, in contrast, have set down their marker in the debate by introducing the Child Rearing and Developmental Leave Empowerment (“CRADLE”) Act, which would grant three months of paid parental leave to employees who are new parents.  To qualify, employees would need to have worked for either four out of the previous four quarters, five of the previous six, or 20 total quarters.  The level of benefits would be determined by Social Security’s primary insurance amount (so that benefits are more generous to those with lower incomes).  To make this plan “budget neutral,” employees would have to agree to postpone Social Security benefits to take the benefits under the CRADLE Act.  An employee would elect anywhere from one to three months of paid parental leave in exchange for delaying Social Security benefits by double the number of months of parental leave taken.  In other words, if an employee took one month of paid parental leave, the employee’s Social Security Benefits would be delayed by two months; if the employee took three months, the delay would be six months.

It is unclear which proposal, if either, will gain traction, or if some other proposal will be introduced or gain momentum.  So, stay tuned for any updates that may come.  In the meantime, if you need assistance creating a paid leave plan that complies with any state or local law, or even implementing a policy that addresses any type of paid time off, we always here help.

Last week, the United States Department of Labor (DOL) issued its long-awaited proposed change to the minimum salary threshold for the white-collar exemptions under the Fair Labor Standards Act. The new minimum salary threshold is $35,308/year (or $679/week).

This new rule is not finalized nor in effect now. Rather, the new rule is open for a notice and comment period, with the DOL accepting public comments for 60 days after the rule is published in the Federal Register. The Department of Labor predicts that the new rule will likely become effective in January 2020.

So, while you have some time to plan, here are the key points to understand from the new rule:

  1. The minimum salary threshold for all white-collar exemptions is moving to $35,308/year (or $679/week). The current level is $23,660/year (or $455/week). There are no changes to the duties portion of the tests for the various white-collar exemptions, which still have to be met for an employee to be exempt from overtime; only the minimum salary threshold is changing.
  2. The minimum salary threshold for highly compensated employees is moving to $147,414/year, a significant increase from the current level of $100,000/year.
  3. There are no automatic increases or regional differentiators built into the new rule (as some predicted). The DOL will, however, evaluate the threshold every four years.
  4. Employers will be allowed to meet the new minimum threshold with non-discretionary bonuses and incentive payments (g., commissions) for up to 10% of the new threshold amount.

Employee advocate groups have called for an increase to the threshold for years, especially since it has not been increased in 15 years. However, the new rule is not nearly as high as the $47,000/year threshold previously proposed by the Obama administration.

This new rule will almost certainly be challenged in court by business groups citing increased payroll costs for employers. At the same time, other groups representing employees will also probably challenge the rule in court, arguing that the increase is not high enough to protect workers.

Our readers will probably recall that the Obama administration’s proposed rule was blocked by a U.S. District Court in 2017, and that decision is still on appeal. The District Court, in that case, held that the DOL’s white-collar exemptions rules focused less on the duties portion of the tests (as set forth specifically in the Fair Labor Standards Act itself), and more on the salary threshold (which is not specifically set forth in the FLSA). Whether the new salary threshold functionally diminishes the importance of the duties tests will likely be addressed in the expected litigation around the DOL’s new rule.

In the end, we now have some guidance on what the current DOL intends to do.  While it may be a while before the rule goes into effect (and while litigation may occur), employers can now evaluate how the rule will affect their workforce and make proper decisions to address the changes to which employees will continue to be considered exempt from overtime.

Arbitration agreements with employees are a hot topic – and continue to make headlines. As we covered in Part 1 of this blog series, there are many practical and legal considerations involved in deciding whether your business should require employees to arbitrate employment-related disputes (as opposed to resolving them in court). But once you have weighed the pros and cons, consulted with legal counsel, and made the decision to proceed in that direction, how do you make sure your agreements to arbitrate are enforceable?

Drafting enforceable arbitration agreements presents a challenge, particularly for multi-state employers. This is because most states have specific, individual requirements governing arbitration agreements that can range from the technical (such as requiring that employees specifically initial the arbitration provision), to the more substantive (such as prohibiting certain claims from arbitration altogether). This may seem simple enough but can quickly become complicated when attempting to draft an agreement that works for employees in multiple states.  Adding to the confusion, the U.S. Supreme Court has held that the Federal Arbitration Act (“FAA”) generally preempts state statutes that single out arbitration clauses, or that serve as an obstacle to the accomplishment of the FAA’s objectives (meaning, they prevent enforcement of an arbitration agreement in accordance with its terms). But whether and to what extent a particular state’s requirements are found to “single out” arbitration clauses or “serve as an obstacle” to the FAA is often unclear in practice. Courts’ interpretations of these types of issues can vary widely and are constantly evolving, so there are no guarantees.

So, this area of law can be a moving target – which means drafting an enforceable agreement is often no easy feat. But, here are a few tips to help make yours more likely to hold up.

Avoid common unconscionability pitfalls. 

Regardless of whether a technical or substantive requirement imposed by state law will or will not be preempted, the FAA generally does not preempt state laws governing contract formation.  This means that defenses like unconscionability, duress, or fraud will generally still apply. The requirements of every state’s contract formation rules are beyond the scope of this article.  But, there are a few things you can include in your agreement to help avoid common concerns.

A few do’s and do nots: do not make the agreement impossible to read or confusing, and do not bury an arbitration provision in fine print.  Do have employees sign a standalone agreement to arbitrate employment-related disputes, rather than including such an agreement as part of a larger document, such as an employee handbook. And, although this goes without saying, do make sure your hiring managers and human resources professionals know not to rush an employee through the process of signing an agreement to arbitrate, or pressure or otherwise coerce employees into signing the agreement.

Make sure employees specifically assent to arbitration.

On a related note, an important factor in the analysis of whether an arbitration agreement is enforceable is whether the employee has specifically agreed to arbitration. So, you’ll want to make sure the agreement clearly states that the employee is assenting to arbitrate employment-related claims (and that he or she is giving up the right to a jury trial/the right to sue in court). You may even consider including a provision allowing employees to “opt out” of the arbitration requirement, or at least outlining a procedure for him or her to do so.

Make sure your agreement outlines procedures that are fair to both sides.

Make sure your agreement covers the procedures that will govern arbitration proceedings between the parties to help avoid arguments or surprises later on. One way to do this is to incorporate rules from an organization like the American Arbitration Association. There are various sets of rules applicable to different types of disputes (including specific to employment claims). These rules typically outline procedural requirements for arbitration and will provide a framework for how the resolution of a claim will proceed.  Note that these rules will often limit the amount employees must pay in arbitration fees, as courts will sometimes find an agreement is unenforceable if it costs the employee more to pursue arbitration of an employment-related dispute than it would have cost him or her to proceed in court.  These rules will also generally cover other important topics such as requiring selection of a neutral arbitrator, providing that any arbitral award be put into writing, and outlining the scope of what will be allowed in discovery.

Don’t forget the small stuff.

Make sure the agreement to arbitrate is mutual, meaning that both the employer and the employee agree to arbitrate claims, and, importantly, that both parties sign the agreement. Make sure that the actual employing entity is a party to the agreement. This means that employers with subsidiaries or affiliates should ensure that a corporate representative from the appropriate entity is a signatory to the agreement. Finally, be sure that your arbitration agreement carves out any other employment agreements or benefit plans that may have separate or different dispute resolution procedures.

As you can surely recognize, drafting an enforceable arbitration agreement isn’t something that should be taken lightly. Reach out to your favorite Troutman Sanders employment attorney for guidance specific to your business.