Articles from July 2015

In a decision that could have reverberating effects in the so-called “sharing economy,” the California Labor Commission recently ruled that a driver for Uber Technologies, Inc. is an employee and not an independent contractor.

Hearing Officer Stephanie Barrett’s decision, issued on June 3, 2015, ordered Uber to reimburse Barbara Ann Berwick more than $4,000 (including interest) for mileage and other expenses incurred during her stint as an Uber driver last year. Rejecting Uber’s argument that the company is “nothing more than a neutral technological platform, designed simply to enable drivers and passengers to transact the business of transportation,” the Commissioner held that Uber is “involved in every aspect of the operation” and exercises significant control over drivers. See Order, Decision or Award of the Labor Commissioner, Berwick v. Uber Technologies, Inc., Case No. 11-46739 (June 3, 2015) (available here). The ruling was made public after Uber filed an appeal to the Labor Commissioner’s order in the San Francisco County Superior Court (available here).

Applying the 11-factor test enumerated by the California Supreme Court in S. G. Borello & Sons, Inc. v. Dept. of Industrial Relations, 48 Cal. 3d 341 (1989), the Commissioner found that Uber retained “all necessary control over the operation as a whole,” which was an overriding factor that established the existence of an employee-employer relationship. See Order at 8. The Commissioner also emphasized that the work done by drivers was “an integral part of the regular business” of Uber and that “[w]ithout drivers such as [Berwick], [Uber’s] business would not exist.” Id.

Although the Berwick decision is purely administrative, it may have significant implications for Uber’s labor model, which continues to utilize independent contractors as drivers. Given the Commissioner’s findings that Uber is “in business to provide transportation services to passengers,” and that drivers for Uber do “the actual transporting of those passengers,” Order at 8, it appears that Uber’s primary arguments regarding its role as a “mere platform” rather than an employer will not succeed in any future litigation. Such findings will likely have a lasting impact on businesses providing passenger transportation services that use an independent contractor labor model.

The debate over employee classification is likely to escalate as the sharing economy continues to grow exponentially, with the majority of such companies classifying workers as independent contractors—exempt from many wage-and-hour laws and protections—rather than employees. So long as these companies continue to classify workers as independent contractors, they risk facing misclassification claims, a growing trend in class action litigation nationwide.

Authored by: 
Suzy Lee, Associate
CAPSTONE LAW APC

On July 2, 2015, Judge Edward M. Chen of the Northern District of California granted final approval of a $40 million settlement reached between the Federal Trade Commission (“FTC”) and TracFone Wireless, Inc., d/b/a Straight Talk Wireless, Net10 Wireless, Simple Mobile, and TelCel America (“TracFone”). See In Re TracFone Unlimited Service Plan Litig., No. 13-3440 (N.D. Cal. July 2, 2015) (Order Granting Motion for Final Approval of Class Action Settlement and Granting for Award of Attorneys’ Fees, Costs, and Representative Service Awards) (available here). Class members alleged that TracFone advertised and sold “unlimited” data plans that, in reality, were quite the opposite. TracFone admitted to slowing down (aka “throttling”) or suspending its customers’ data service, and sometimes terminating customers’ cellular service entirely, when those customers exceeded a monthly data usage cap set by TracFone. TracFone did not disclose the data usage cap and subsequent data interference to class members prior to their purchase of “unlimited” data plans.

The settlement provides for the disbursement of $40 million paid by TracFone to the class members in varying amounts based on the timing and level of data interference. Additionally, the court granted injunctive relief to the class, whereby TracFone must disclose “throttle limits or caps, as well as the actual speeds to which customer data will be slowed” alongside any “unlimited data” advertisements and implement a system to notify customers by SMS text message when they reach the data usage cap. Order at 13.

Judge Chen approved the settlement after considering the factors set forth in In Re Bluetooth Headset Prods. Liab. Litig., including:

(1) the strength of the plaintiff’s case; (2) the risk, expense, complexity, and likely duration of further litigation; (3) the risk of maintaining class action status throughout the trial; (4) the amount offered in settlement; (5) the extent of discovery completed and the stage of the proceedings; (6) the experience and views of counsel; (7) the presence of a governmental participant; and (8) the reaction of the class members of the proposed settlement. In Re Bluetooth Headset Prods. Liab. Litig., 654 F.3d 935, 943 (9th Cir. 2011) (citing Churchill Village, L.L.C. v. Gen. Elec., citations omitted).

The court concluded that the terms were fair to both class members and TracFone, noting that TracFone had strong defenses if the case went to trial. The FTC has propounded similar claims against AT&T. See Fed. Trade Commission v. AT&T Mobility LLC, No. C-14-4785 EMC (N.D. Cal. Oct. 28, 2014).

Authored by: 
Trisha Monesi, Associate
CAPSTONE LAW APC

A settlement was reached last week in Zorio v. Walt Disney Worldwide Services Inc., a case brought by former Disneyland employee Reykeel Zorio, who alleged on behalf of himself and other former employees at six Disney facilities that Disney failed to compensate departing employees for accrued vacation time. See Zorio v. Walt Disney Worldwide Services Inc., No. BC549292 (Los Angeles Cty. Sup. Ct. 2014, consolidated with No. BC540154). Originally filed in March 2014 as a representative action, the claims relating to vacation wages were filed again in June 2014 as a class action.  The cases were subsequently consolidated and alleged that the defendants in the action failed to provide earned and vested vacation wages within any permissible time period to employees upon termination or separation.

The proposed settlement will reportedly pay $500,000 to more than 4,000 hourly-paid, non-exempt workers. The decision helps to reinforce the principle that paid vacation is a form of wages, earned as labor is performed, and is therefore compensable upon termination of employment pursuant to California Labor Code section 227.3, as well as sections 201-204.

While an employer is not required to provide its employees with vacation time, California law imposes restrictions on any policy, practice, or agreement implemented to provide paid vacation, and accrued vacation time is considered wages. See Suastez v. Plastic Dress-up Co., 31 Cal. 3d 774 (1982). An employee has no entitlement to be paid for accrued but unused vacation until the employee quits or is discharged. However, all earned and unused vacation must be paid to the employee at his or her final rate of pay within three days of termination of employment. Cal. Lab. Code § 227.3. The Disney Corporation learned this rule the hard way in Zorio.

Authored by: 
Karen Wallace, Associate
CAPSTONE LAW APC

It looks like President Barack Obama would like to add overtime reform to his growing list of second-term accomplishments.  Last week, in response to a March 2014 memorandum issued by the President, the Wage & Hour Division of the U.S. Department of Labor (“DOL”) made public a proposal that would broaden federal overtime pay regulations to include millions of additional workers and make it more difficult for employers to classify employees as exempt under the Fair Labor Standards Act’s “white collar” overtime exemption (29 CFR Part 541).

As the regulations stand now, employees are generally exempt from overtime pay if they perform certain types of work (i.e., executive, administrative, professional, outside sales, and/or IT) and receive a minimum annual salary of $23,660.  Under the proposed rule, this salary floor would more than double in 2016—to $50,440—and be indexed to inflation on an annual basis.  The current salary threshold was last updated in 2004.  

The proposal is expected to be published in the Federal Register this week, which will be followed by a 60-day comment period.  The DOL is specifically seeking input as to whether changes should be made to any of the job duty tests, and suggests the possibility of adopting the California rule (where a worker has to spend at least 50 percent of their time on exempt duties in order to be exempt from overtime) as the new federal standard.