On April 14, 2020 the Los Angeles County Board of Supervisors (“Board”) amended its March 19, 2020 order that implemented an eviction moratorium with respect to both residential and commercial tenants and provided that if a tenant was unable to pay their rent current they could defer rental payments that were due during the period March 4, 2020 through May 31, 2020 for months. On May 12, 2020, the Board issued an order that, among other things, extended the moratorium period through June 30, 2020.
After previously extending the order through July 31, 2020, on July 21, 2020, the Board has once again extended the order through September 30, 2020. Additional extensions will continue to be reviewed and approved on a month-by-month basis by the Board going forward.
Coming on the heels of the Board’s prior extension on June 23, 2020, both the Board and the Los Angeles City Council approved a combined $133 million in federal CARES Act money to be spent on rental assistance to tenants during the COVID-19 crisis. The City’s program allocates $103 million (and up to $2,000 per household) to residential tenants who earn below 80% of the area’s median income. However, over 100,000 applicants signed up the day that the enrollment period opened on July 13, 2020, forcing the City to randomly select 50,000 families that will receive subsidies. The County’s program extends $30 million to residential tenants hit hard by COVID-19, but the program is not expected to launch until mid-August, 2020. The County’s program will exclude any units located within the City and will require applicants’ landlords approval. We will continue to monitor these relief programs and provide updates accordingly.
The Board’s April 14 amendment expanded coverage of the March 19 order to all cities in Los Angeles County that have not enacted their own eviction moratorium/rent deferment order and mobile home parks who rent space to mobile homeowners, in addition to the unincorporated areas of Los Angeles County that the March 19 order initially covered. Thus, cities within Los Angeles County who have enacted their own order, like the City of Los Angeles, do not fall under the Los Angeles County order.
The May 12 amendment, effective June 1, excludes commercial tenants that are multi-national, publicly traded or have more than 100 employees. Further, commercial tenants with between 10 and 100 employees will only have 6 months following the end of the moratorium period to repay any deferred rental payments, while residential tenants and commercial tenants with 9 or fewer employees will still have 12 months.
Los Angeles County’s order requires defaulting tenants to demonstrate an inability to pay rent and/or related charges due to “financial impacts” related to COVID-19 in order to not be evicted for nonpayment of rent. However, the May 12 amendments provide that both commercial tenants with 9 or fewer employees and residential tenants may “self-certify” their inability to pay as a result of “financial impacts,” and requires landlords to accept such self-certification. For these qualifying tenants, a self-certification notice issued by the County can be used to comply with this requirement and notify landlords.
For the commercial tenants covered by the County’s order but that do not qualify for self-certification, additional guidance was issued on June 3, 2020 regarding the type of documentation such tenants will be expected to provide to adequately demonstrate their inability to pay rent as a result of financial impacts due to COVID-19. This documentation includes: bank statements before and after the COVID-19 pandemic, gross sales receipts before and after the COVID-19 pandemic, evidence of increased expenses before and after the COVID-19 pandemic, and applicable federal, state, and local health officer orders which demonstrate restrictions on business activity applicable to the tenant. These are only guidelines as to what should be provided, and it will ultimately be up to a court to determine if adequate information was provided to demonstrate an inability to pay rent. Further, the fact that a business is “essential” under a federal, state, or local public health order or continues to operate during the moratorium period shall not, in and of itself, prevent a commercial tenant from establishing a financial impact related to COVID-19. Regardless of whether this demonstration must be made or if self-certification applies, both residential and commercial tenants must still provide notice to their landlords of their inability to pay within 7 days of the due date.
“Financial impacts” include “substantial loss of household income due to business closure, loss of compensable hours of work or wages, layoffs, or extraordinary out-of-pocket medical expenses” that are “related to COVID-19” (i.e. if it is a result of any of the following: (1) a suspected or confirmed case of COVID-19, or caring for a household or family member who has a suspected or confirmed case of COVID-19; (2) layoff, loss of hours, or other income reduction resulting from business closure or other economic or employer impacts of COVID-19; (3) compliance with a recommendation from the County’s Health Officer to stay home, self-quarantine, or avoid congregating with others during the state of emergency; (4) extraordinary out-of-pocket medical expenses related to diagnosis and testing for and/or treatment of COVID-19; or (5) child care needs arising from school closures related to COVID-19). Los Angeles County’s order as amended also prohibits both residential and commercial evictions based on the presence of unauthorized occupants, pets, or nuisance necessitated by or related to COVID-19.
It is worth reiterating that if a city within Los Angeles County has enacted its own order, then that order would apply over Los Angeles County’s. It is thus crucial for landlords and tenants alike to familiarize themselves with any local city order applicable to their location, as the vast majority of cities both inside and outside of Los Angeles County, as well as other counties themselves, do not allow for similar “self-certification,” and instead require a defaulting tenant to “demonstrate” or “show” an inability to pay rent due to COVID-19. When such demonstration or showing is required, tenants should be prepared to provide some form of supporting documentation, along the lines of the type of documentation set forth above. Certainly, if the landlord insists on documentation of inability to pay rent, it would behoove both landlords and tenants to discuss the type of supporting documentation to be provided.
In sum, municipal eviction moratorium/rent deferment orders may differ from Los Angeles County’s order by: (a) excluding commercial tenants, or certain commercial tenants, from protection; (b) providing alternative timeframes for notifying landlords of an inability to pay or for making deferred rent payments once the applicable order or the COVID-19 emergency period expires; and (c) requiring a demonstration or showing of an inability to pay because of COVID-19.
For instance, while the City of Los Angeles’ eviction moratorium/rent deferment order (currently effective through June 30) also limits the type of commercial tenants that are protected and, like the County order, does not allow landlords to apply late fees or interest to properly deferred rental payments, it: (a) does not extend protections to commercial tenants that are publicly traded companies, transnational companies, or companies with over 500 employees; (b) only grants defaulting commercial tenants a 3 month time period after the emergency period to make up deferred payments (defaulting residential tenants have a 12 month time period); and (c) does not explicitly require defaulting tenants to “show” an inability to pay rent for reasons related to COVID-19; however, while residential tenants may use a simple notice form to landlords that suggests they may self-certify their inability to pay, whether and to what degree commercial tenants will need to substantiate an inability to pay because of COVID-19 under this order remains unclear.
In light of the foregoing, all landlords and tenants should immediately:
Familiarize themselves with their applicable order, specifically the notice requirements and deferment periods;
If the applicable order so requires, landlords need to understand their possible entitlement to certain information and documentation and tenants, where applicable, need to be prepared to provide documentation demonstrating an inability to pay because of COVID-19; and
As a tenant you need to keep in mind that you will need to pay any deferred rent eventually, so start the conversation with your landlord as soon as possible to work out an agreement.
This article was originally published on June 4, 2020 and was most recently updated on June 17, 2020.
On June 5, 2020, President Trump signed the Paycheck Protection Program Flexibility Act (the “Act”) into effect, giving more time and flexibility to employers who receive or have received forgivable loans under the Small Business Administration’s (“SBA”) Paycheck Protection Program (“PPP”). On June 11, 12, and 17, 2020, the Department of Treasury , in consultation with the SBA, issued interim rules providing further guidance on how the changes from the Act will be implemented. Also on June 17, 2020, the SBA posted a revised, borrower-friendly PPP loan forgiveness application implementing the Act, as well as a simplified forgiveness application that applies to certain borrowers.
New loan forgiveness applications
The revised PPP loan forgiveness application and related instructions implement the Act’s changes to the PPP, discussed in more detail below. Additionally, a newly introduced and simplified or “EZ” loan forgiveness application applies to borrowers that:
Are self-employed and have no employees; OR
Did not reduce the salaries or wages of their employees by more than 25%, and did not reduce the number or hours of their employees; OR
Experienced reductions in business activity as a result of health directives related to COVID-19 and did not reduce the salaries or wages of their employees by more than 25%.
The EZ application requires fewer calculations and less documentation for eligible borrowers. Instructions to the new EZ application form provide additional details on its use, which define key terms, walk borrowers through the forgiveness calculations, outline eligible and non-eligible costs, and list documents that must be submitted, and retained but not submitted, in connection with the application.
Both the revised loan forgiveness application and the new EZ application give borrowers the option of using the original 8-week covered period for calculating forgiveness (if their loan was made before June 5, 2020) or a 24-week covered period.
Period to receive loans extended
The Act extends the period that eligible applicants may receive and spend PPP loans. The CARES Act initially defined this period as February 15, 2020 to June 30, 2020. Under the Act, PPP loans will now remain available and may be used on specified categories of borrowers’ expenses through at least December 31, 2020. (For a detailed discussion on the permitted uses of PPP loans, see our prior post.)
Period eligible for loan forgiveness extended
Perhaps more importantly, the Act also extends the time PPP recipients have to spend their funds and still be entitled to receive loan forgiveness from eight weeks after disbursement, to the earlier of 24 weeks or December 31, 2020. This change shall be effective as if included in the CARES Act, which means that it is retroactive to March 27, 2020. However, borrowers that have received their loans prior to the Act’s enactment may still elect to use their funds over the original 8-week period and the related obligation to maintain payroll levels only through June 30, 2020. Borrowers using this new loan forgiveness covered period will be obligated to maintain payroll levels for an extra 16 weeks.
Exemption for reduced forgiveness amounts
Relatedly, the Act creates a new forgiveness exemption based on employee availability during the period from February 15, 2020 through December 31, 2020. Under this provision, loan forgiveness will be determined without regard to a proportional reduction in the number of full-time equivalent employees if a borrower documents in good faith both the inability to rehire individuals who were employees on February 15, 2020 and the inability to hire similarly qualified employees for unfilled positions on or before December 31, 2020. This exemption also extends to borrowers whom in good faith are able to document the inability to return to the same level of business activity at which the borrower operated on or before February 15, 2020, due to compliance with regulatory standards for sanitation, social distancing, or any other worker or customer safety requirement related to COVID-19 and promulgated between March 1, 2020 and December 31, 2020 (the Act specifically identifies guidance issued by Department of Health and Human Services, the Centers for Disease Control and Prevention, and the Occupational Safety and Health Administration).
75/25 rule now 60/40
Another significant provision from the Act lowers the portion of PPP funds borrowers must spend on payroll costs to qualify for full loan forgiveness from 75% to 60%. This means that 40% of the loan may now be spent on covered non-payroll costs (i.e., rent, mortgage interest and utilities), as opposed to the prior 25% requirement.
Given the way the Act is drafted, if a borrower did not spend 60% of funds on payroll costs during the applicable covered period (even if this amount was 59.9%) it was unclear if said borrower would be eligible for any loan forgiveness. However, the June 11 interim rule clarifies that a borrower’s failure to meet this new limit will result in a proportional reduction to forgiveness amounts, rather than serve as a threshold to receive any forgiveness.
Deferral period extended
For borrowers that apply for forgiveness within 10 months of the last day of the loan forgiveness covered period, the Act replaces the 6-month loan payment deferral period with the date on which the amount of forgiveness determined is remitted to the lender. For borrowers that fail to apply for forgiveness within 10 months of the last day of the loan forgiveness period, such recipients shall begin making payments of principal, interest, and fees at that time. Like the extension of the covered period for forgiveness purposes, this change shall also be effective as if included in the CARES Act and thus retroactive to March 27, 2020.
New minimum maturity date
Further, the Act also creates a new five-year minimum maturity date (measured from the date the borrower applies for loan forgiveness) that is applicable only to PPP loans made on or after June 5, 2020 (i.e. post-enactment). For loans made before June 5, 2020, the maturity date is two years; however, the Act allows lenders and pre-enactment borrowers to mutually agree on modifying the maturity terms to conform with this change.
Adjustment to delay of employer payroll taxes
Lastly, the Act now permits borrowers whose loans were forgiven in whole or in part to delay the payment of employer payroll taxes until December 31, 2021 (with respect to up to 50% of the amounts due) and December 31, 2022 (with respect to the remaining amounts due up to 50%). Borrowers who received forgiveness were previously prohibited from taking advantage of this benefit.
We will continue to closely monitor developments regarding these matters. You can view prior alerts and additional guidance regarding COVID-19-related matters at our resource center.
For more information on these matters, please contact our COVID-19 Task Force at or one of our attorneys at SA&M.
(Updated as of May 20, 2020)
On May 8, 2020, California’s stay-at-home order was modified to reflect the state’s entering Stage 2 of its COVID-19 pandemic response, where businesses in the retail, manufacturing, and logistics industries can reopen, subject to certain restrictions (e.g., delivery and curbside pickup only). Earlier this week, Governor Gavin Newsom also hinted that entering Stage 3 “may not even be a month away.” Below are some questions and answers for issues that may arise as businesses reopen.
Can workers obtain Workers’ Compensation benefits for injuries arising out of COVID-19 illness?
In California, workers’ compensation benefits are the exclusive remedy for injuries that a worker sustains from a condition of their employment. Some states’ workers’ compensation statutes exclude coverage for “non-occupational diseases” or “ordinary diseases of life,” such as a cold or flu, which may arguably encompass COVID-19. However, California’s Labor & Workforce Development Agency (“LWDA”) has clarified that workers are eligible for workers’ compensation benefits for injuries resulting from COVID-19.
However, generally speaking it is the worker’s burden to show that they were exposed to and contracted COVID-19 during their regular course of work. This showing will ultimately depend on the unique circumstances of each claim, including, for example, whether there were any known cases of COVID-19 infections at their workplace, whether the premises were contaminated with the virus, and whether the employer implemented safety and social distancing provisions.
On May 6, 2020, Governor Newsom changed the forgoing general presumption and issued an executive order that creates a rebuttable presumption for a period of 60 days (May 6 - July 5) that may entitle workers who work outside their homes to workers’ compensation benefits if they contract the coronavirus. The California State Insurance Fund (“State fund”) currently estimates that the added benefits from the Governor’s recent executive order will require approximately $115 million in funds.
Under the recent executive order, it will be presumed that the worker contracted COVID-19 during their regular course of work if (1) the employee tested positive with COVID-19 within 14 days after working at their place of employment; (2) the last day must have been on or after March 19, 2020; (3) the worker’s place of employment is not their home; and (4) the worker’s diagnosis of COVID-19 must be by a licensed physician and the diagnosis must be confirmed with further testing within 30 days of the diagnosis.
It will be up to the employer to establish that the worker did not contract COVID-19 at work by producing evidence that the injured worker did not satisfy one of the above four criteria or that the injured worker contracted the virus by another cause. The employer must produce such evidence within 30 days of the filing of the claim by the worker. After 30 days, an employer can produce evidence to rebut the presumption with evidence discovered after the 30-day period.
Overcoming the presumption will likely be difficult given the many variables in tracing how and where a worker has been exposed to the virus and obtaining evidence to disprove the worker’s claim. Further, employers and insurers will likely challenge the executive order due to the difficulty of proving that the employee contracted the coronavirus elsewhere. How is the employer supposed to establish this? Can the employer demand to know everyone the employee came into contact with outside of work and if those people were contagious? Can the employer go even further and inquire where the employee has been? And on and on down the line In short, there are a myriad of open issues and no guidance as of yet.
Are independent contractors eligible for workers compensation and unemployment compensation?
In California, workers compensation and unemployment compensation are typically only available to employees. However, workers who believe they were misclassified under recently enacted AB-5, and applicable case law, may be eligible for both of these benefits. To learn more about misclassification under AB-5, check out “The Evolution of the California Independent Contractor.”
Additionally, independent contractors who have voluntarily contributed to unemployment insurance Elective Coverage and made the required contributions or had a past employer contribute to the unemployment insurance fund on their behalf in the past 18 months, may also qualify for unemployment compensation. Further, the Pandemic Unemployment Assistance (“PUA”) program of the CARES Act gives states the unprecedented option of extending unemployment compensation to independent contractors and other workers who are ordinarily ineligible. On April 28, 2020, California’s Employment Development Department (“EDD”) followed suit and expanded the availability of unemployment compensation via the federal PUA program to business owners, self-employed individuals, independent contractors, and gig economy workers.
What happens to workers who are receiving unemployment compensation and do not feel comfortable returning to work as businesses begin to reopen?
Workers who opt not to return to their positions when their employers reopen amid the COVID-19 pandemic will likely not remain eligible for unemployment compensation. Generally, individuals receiving regular unemployment compensation must act upon any referral to, and accept any offer of, suitable employment. A request that a furloughed employee return to his or her job very likely constitutes an offer of suitable employment.
Specifically, the U.S. Department of Labor outlines the conditions an individual has to meet to refuse to return to work in order to remain eligible for PUA, as provided by the CARES Act. The list includes (i) a COVID-19 diagnosis, restrictions due to childcare availability, (ii) caring for an ill family member, or (iii) health “complications that render the individual objectively unable to perform his or her essential job functions, with or without a reasonable accommodation” as a result of having recovered from COVID-19. However, voluntarily deciding to not return to work out of a general concern about exposure to COVID-19 is likely tantamount to the employee having quit and will likely eliminate PUA eligibility.
The EDD similarly requires applicants to be “able, available, and actively seeking work” to collect unemployment benefits. Accordingly, a worker’s decision to not return to work out of general health concerns related to COVID-19 would likely not satisfy this requirement. If, however, a worker declines to return given their underlying health conditions and thus an increased chance of significant illness if exposed to COVID-19, then the worker may be entitled to maintain unemployment compensation subject to the EDD’s discretion.
What if an employer offers a different position to a furloughed employee?
What if an employer offers a temporarily furloughed employee who is receiving unemployment compensation an otherwise similar role that provides, for example, hourly wages instead of the employee’s previous salaried compensation? Will this be considered “suitable work,” and would the adjusted compensation create “good cause” to refuse this position”? More generally, if the employer changes the terms of the employment – at what point does it constitute good cause to voluntarily quit and be eligible for unemployment compensation?
Whether an employee has good cause to not return to work or quit and be eligible for unemployment compensation is determined on a case-by-case basis and the burden of proving eligibility is on the claimant. The EDD provides the following framework in determining whether good cause exists for the claimant to have voluntarily quit and remain eligible for unemployment compensation:
“Once the claimant's reasons for leaving are determined, the interviewer must apply a three-part test to determine the presence of ‘good cause’: (1) Is the reason for leaving ‘real, substantial, and compelling’? (2) Would that reason cause a ‘reasonable person,’ genuinely desirous of working, to leave work under the same circumstances? (3) Did the claimant fail to attempt to preserve the employment relationship, thereby negating any ‘good cause’ he/she might have had in leaving?... ‘Compelling,’ in this sense merely means that the claimant's reasons for quitting exerted so much pressure that it would have been unreasonable to expect him or her to remain with the employment. The ‘pressures’ exerted upon the claimant may be physical (as with health), moral, legal, domestic, economic, etc.”
A relatively insignificant reduction in salary due to a worker’s being reassigned to a different hourly role has been found to not constitute good cause to terminate voluntarily. In one case, for example, a California court found that a reduction in the employee's wages by roughly 7% did not, by itself, constitute good cause for voluntarily leaving employment. However, the California Supreme Court has held that a 25% wage cut constituted a “substantial reduction in earnings” and that reduction was regarded as good cause for leaving employment.
Also uncertain is what happens in the situation where a salaried employee is offered an hourly position with no guarantee of actual work. This would likely serve to support a claimant’s argument that good cause exists to reject the offer of employment and remain eligible for unemployment compensation. Moreover, in some situations, an employee may be deemed to be partially unemployed and thereby entitled to partial unemployment compensation. Thus, hourly employees with reduced workloads may still receive partial unemployment compensation to supplement lost hours. Each of these situations must be evaluated on a case by case basis.
What other rights do workers have if they believe their employer has not adequately addressed COVID-19 related safety concerns?
If a worker believes their employer has not adequately addressed COVID-19-related concerns, other limited remedies are available. Per California’s Department of Industrial Relations, employees deemed non-essential who believe they were terminated or otherwise retaliated against for refusing to go to work while the stay-at-home order is in effect may file a retaliation claim with the Labor Commissioner’s Office. Similarly, essential workers who feel their employer has not taken steps to ensure a safe work environment may also file a claim with the Labor Commissioner. These claims can lead to damages and penalties against the employer if it is found to have treated an employee adversely or fired an employee for refusing to work in (or complaining of) an unsafe work situation.
Under the federal Occupational Safety and Health Act, enforced through the Occupation Safety and Health Administration (“OSHA”), employees can refuse to work if they reasonably believe they are in imminent danger, which means they must have a reasonable belief that there is a threat of death or serious physical harm likely to occur immediately or within a short period. In the context of COVID-19, this will likely require a specific fear of infection that is based on fact—not just a generalized fear of contracting COVID-19 infection in the workplace, and that the employer cannot address the employee’s specific fear in a manner designed to ensure a safe working environment.
California’s counterpart to OSHA(“Cal/OSHA”), requires every employer to develop and implement a written safety and health program tailored to the specific workplace. Among other things, recent Cal/OSHA guidance mandates that all California employers must determine if COVID-19 infection is a hazard in their workplace, and if it is, implement prevention measures and training. Workers can file confidential complaints with OSHA or Cal/OSHA if they believe their employer is non-compliant, which could lead to on-site investigations, various civil penalties, and/or special orders requiring employers make changes to their workplace.
Will businesses be shielded from COVID-19-related liability?
U.S. Senate Majority Leader Mitch McConnell has stated that any additional federal aid bill for state and local governments should make the money contingent on states providing liability protection to businesses and hospitals providing services amid the COVID-19 pandemic. Indeed, on May 12, Senator McConnell stated that he is overseeing the drafting of legislation that would “create a legal safe harbor for businesses, nonprofits, governments and workers and schools who are following public health guidelines to the best of their ability.” However, he was clear that the bill would not provide absolute immunity, and that “there will be accountability for actual gross negligence and intentional misconduct.”
The U.S. Chamber of Commerce has also made several suggestions on this topic, including safe harbors from: privacy laws for employers who inquire about health status, age and disability bias laws if companies follow guidelines regarding at-risk employees, and simple negligence claims for COVID-19 exposure if businesses follow government health guidance. Manufacturers have also suggested (i) raising the legal standard for plaintiffs’ claims that a business failed to protect them from COVID-19, (ii) giving additional protections to businesses making new products to address the COVID-19 crisis, and (iii) shielding businesses from privacy suits if they reveal a worker’s COVID-19 diagnosis for safety reasons. Currently, the extent to which any liability protections will be extended remains unclear.
What can businesses do to best protect against claims related to injuries from contracting COVID-19?
Businesses must consider the extent and manner in which they will reopen. As best practice, and in compliance with Cal/OSHA requirements, businesses should establish safety protocols, update employee and company handbooks to reflect the safety protocols (and provide handbooks to workers), and enforce compliance with the protocols. The State Fund has established the Essential Business Support Fund and the Returning California to Work COVID-19 Safety Protocol Fund, both of which provide $50 million in grants on a first-come, first-serve basis. State Fund policyholders operating an essential business can apply for a grant to help with safety-related expenses, including reimbursement for costs for goggles, masks, gloves, cleaning supplies and services, and worksite modifications. Each grant can total up to the lesser of $10,000 or twice the amount of the businesses’ premium. The State Fund will make applications for the Returning California to Work COVID-19 Safety Protocol Fund available after statewide stay-at-home restrictions are lifted.
Businesses can also turn to the California Department of Public Health (“CDPH”) for guidance on how to reopen their businesses and provide a safe working environment for their workers. While business can use effective alternative or innovative methods to provide a safe work environment, such as implementing guidance from the Centers for Disease Control and Prevention, the CDPH guidelines are helpful as they are industry specific and cover employee training, cleaning and disinfecting protocols, physical distancing guidelines, and a big-picture plan for creating and implementing the safety protocols.
Important and recommended practices include establishing policies and practices for maintaining a healthy work environment and social distancing. Employers can maintain a healthy work environment by, for example, providing and mandating use of personal protective equipment, such as masks and gloves, regularly sanitizing high-frequency touched surfaces, providing napkins and hand sanitizers to employees, limiting access to common areas such as break rooms and kitchens, increasing ventilation and outdoor air circulation, and requiring employees to report travel outside the state.
Social distancing means avoiding large gatherings and maintaining 6 feet distance from others when possible. Social distancing protocols can include providing flexible worksites (e.g., telework) and work hours (e.g., staggered shifts), increasing physical space among employees and between employees and customers at the worksite, implementing flexible meeting and travel options (e.g., postpone non-essential meetings or events, use video conferencing, etc.), and providing alternative delivery methods, including curbside pick-up for products and utilizing phone, video, or web for services.
We will continue to closely monitor developments regarding these matters. You can view prior alerts and additional guidance regarding COVID-19-related matters at our resource center.
For more information on these matters, please contact our COVID-19 Task Force at or one of our attorneys at SA&M.
This workshop on California Worker Classification Law covered the following topics:
(1) why proper worker (i.e. employee (W2) v. independent contractor (1099)) classification is important, including the penalties/liability for improperly classifying;
(2) the evolution of the operative test in CA for classifying workers and Dynamex;
(3) AB5, the numerous exemptions of the bill, and pending litigation and legislative challenges to the bill; and
(4) a brief outlook of considerations for employers moving forward.
Garett Hill is an Associate of the Firm. His practice focuses on all stages of business litigation.
Prior to joining the firm, Garett was a certified law clerk with the Re-Entry Clinic at Loyola Law School where he successfully represented Los Angeles residents seeking to expunge or seal their prior convictions or trying to obtain or restore a license that had been negatively impacted by prior convictions. Garett completed the Corporate Law Concentration at Loyola Law School where he excelled learning within the various substantive areas of business law. Additionally, Garett worked as a legal intern in-house at AECOM, where he primarily focused on corporate governance and construction law matters. He also worked as a law clerk at Girardi & Keese where he gained invaluable exposure to high-volume litigation.
Jeffrey Gersh
Jeffrey F. Gersh is a Partner of the Firm. Before joining Stubbs Alderton & Markiles, LLP, Jeffrey was Managing Partner of The Gersh Law Firm, Inc. for over 10 years and a partner for 25 years with a prominent litigation law firm. Jeffrey has been named a Thomson Reuters “Super Lawyer” for more than 8 years by his peers; an honor only achieved by less than 2.5% of attorneys in California.
Jeffrey successfully litigates, arbitrates, or mediates for both plaintiffs and defendants complex business and commercial matters, whether for individuals, public or private corporations, partnerships, limited liability companies and/or its members, shareholders and partners. Jeffrey successfully handles disputes regarding contract matters, trade secrets, intellectual property (trademarks, copyrights and trade dress) negligence and fraud, employment, real estate, license agreements, the apparel and garment industry, and general business matters.
Jeffrey approaches his litigation practice from a business perspective, rather than purely transactional. In addition to representing his clients in litigation and dispute resolution matters, Jeffrey handles many of their various transactional matters relating to general business, trademarks, trade dress, copyrights and other intellectual property matters, trade secret matters, and employment matters to name a few.
Force Majeure provisions in an agreement may excuse performance by one or both parties to a contract as a result of events that can neither be anticipated nor controlled. These provisions range from simple and boilerplate to extraordinarily detailed. But you may also be excused from performance of a contract if performance of the agreement impossible or impracticable.
In the case of the outbreak of the current coronavirus (“COVID-19 Pandemic”), there are several terms or phrases to look for in an agreement, including a Force Majeure provision, when considering whether an event may provide a party with the ability to be excused from performance. However, you must also review the entirety of the applicable agreement to determine if there is any specific exclusion or exception to certain events that do not constitute a Force Majeure or otherwise justify non-performance.
The most obvious is, whether there is any reference to viruses, particular illnesses, pandemic, plague, etc. For example, an explicit reference to a “virus” or “pandemic” would most likely excuse performance based on the COVID-19 Pandemic. COVID-19’s classification as a “pandemic” by the World Health Organization (“WHO”) will trigger a Force Majeure clause that expressly accounts for “pandemics.” However, the declaration of this event as a pandemic all by itself - without a reference to pandemics in a Force Majeure clause - will not automatically constitute an excuse from performance given the courts’ focus on whether the event is specified within the specific language in the agreement. Clauses that are silent on pandemics, epidemics, or other viral outbreaks are likely to be insufficient for a Force Majeure defense to performance due to COVID-19, unless, of course, courts change the analysis to account for the existing current situation. Further, courts may still evaluate whether measures could have been taken to avoid the consequences of the Force Majeure event or if the actions exacerbated the likelihood of the Force Majeure event causing non-performance.
In addition to the foregoing, the enactment of substantial governmental regulations, as many local, state, and the federal governments have recently done, including limiting the movement of “non-essential” workers, which could impact the supply chain and physical performance on many contracts, as well as on travel, large gatherings and the like have all resulted in significant business interruptions with significant impact on many businesses. If the applicable Force Majeure provision provides that if inability to perform is the result of governmental orders or regulations which makes performance impossible, businesses may be able to invoke the Force Majeure provision to excuse any contractual obligation to perform resulting from these events. Although if the provision does not include a reference to viruses, illness or the like, it may be more limited, as any non-performance will need to be caused by government action, not the virus or illness alone.
Finally, “open-ended” or “catch-all” language does not always work to cover a situation not explicitly stated in an agreement. It is most likely that these provisions will only apply to Force Majeure events that were not foreseeable at the time of contracting. Courts are typically reticent to allow broadly worded Force Majeure provisions to excuse performance, and whether an unprecedent outbreak of a virus or disease is something that a court would find to be “foreseeable” will vary by jurisdiction.
If you have questions regarding Force Majeure, please contact our COVID-19 Task Force – .
Families First Coronavirus Response Act (FFCRA)
The FFCRA was signed into law on March 18, 2020, by President Trump to provide emergency relief and support in response to the COVID-19 (or “coronavirus”) pandemic. The three provisions of the FFCRA discussed below significantly change employees’ rights to paid sick leave and employers’ responsibilities for providing it. It is therefore crucial for employers that need to comply with the FFCRA (those with less than 500 employees) to understand the impact of this new legislation.
1. The Emergency Family and Medical Leave Expansion Act (EFMLEA):
The EFMLEA requires employers with fewer than 500 employees to provide to employees that qualify under the Act with up to 12 workweeks of leave. However, the first 10 days are unpaid (discussed further below) and the next 10 workweeks are paid leave. An employee is qualified if he/she has been employed with the employer for at least 30 days and is “unable to work (or telework) due to a need for leave to care for the son or daughter under 18 years of age of such employee if the school or place of care has been closed, or the child care provider of such son or daughter is unavailable.” Notably, this does not apply to employees who cannot work because of: a recommendation or order by a public official or health care provider to quarantine due to exposure to or symptoms of coronavirus; or the need to care for a family member who is in quarantine based on a recommendation or order due to exposure to or symptoms of coronavirus.
As mentioned, the first 10 days of a qualifying employee’s leave are unpaid under the EFMLEA; however, if the employee is already entitled to paid time off, such as accrued vacation time, medical, or sick days, they could apply those days to the 10 days of unpaid leave and should be paid for the applicable time. For the remainder of the 12-workweek period, employers are required to provide qualifying employees with two-thirds pay for the number of hours the employee would otherwise be scheduled to work, with a cap of $200 per day and $10,000 in the aggregate.
Further, the EFMLEA gives the Department of Labor (DOL) explicit authority to create regulations that exempt businesses with fewer than 50 employees from the requirements of the EFMLEA “when the imposition of such requirements would jeopardize the viability of the business as a going concern.” The DOL has not acted on this yet and updates will be provided as changes occur.
Additionally, businesses with fewer than 25 employees will not be required to restore the job of an employee who takes leave under the EFMLEA if: (i) the employee’s position no longer exists due to economic conditions and (ii) the employer makes reasonable efforts to restore the employee to an equivalent role with equivalent pay and benefits or if a position is not available, the employer must make reasonable efforts for a 1 year period to contact the employee if an equivalent position becomes available.
Because the EFMLEA is technically an amendment to the Family and Medical Leave Act of 1993 (FMLA), the rights provided to employees under the FMLA, such as enforcement and a prohibition on retaliation, apply equally to the EFMLEA. Similarly, since the FMLA limits the 12 workweeks of leave to any 12-month period, an employee that has already exhausted 12 workweeks of leave under the FMLA in a 12-month period would be prohibited from additional paid leave under the EFMLEA.
The EFMLEA is set to go into effect on April 2 and will remain in effect until December 31, 2020.
2. The Emergency Paid Sick Leave Act of 2020 (EPSLA):
While the EFMLEA does not really deal with an employee who is ill, the EPSLA was enacted to deal with this in some part, although there is some overlap. The EPSLA requires employers with fewer than 500 employees to provide up to two workweeks of paid sick leave to all employees for almost any issue related to the coronavirus. Under the EPSLA, full-time employees will receive up to 80 hours of paid sick leave while part-time employees will be entitled to paid sick leave pro-rated by the average number of hours worked over a two-week period. This will apply to all employees regardless of how long the employee has been employed.
Unlike the EFMLEA, paid sick leave under the EPSLA will apply to any of the following situations:
To self-isolate because the employee is diagnosed with coronavirus;
To obtain a medical diagnosis or care if such employee is experiencing the symptoms of coronavirus;
To comply with a recommendation or order by a public official or health care provider to quarantine due to exposure to or symptoms of coronavirus;
To care or assist a family member who is self-isolating because of a coronavirus diagnosis or who is experiencing symptoms of coronavirus and needs to obtain medical diagnoses or care; or
To care for a child if the child’s school or place of care is closed or the child-care provider is unavailable.
To self-isolate due to any other substantially similar condition specified by the Secretary of Health and Human Services.
If an employee takes paid sick leave under reasons 1-3 as listed above, the leave will be paid at the employee’s regular rate or the minimum wage (whichever is higher) and is capped at $511 per day and $5,110 in the aggregate. If the employee takes leave due to reasons 4-6 as listed above, that leave will be paid at two-thirds of the employee’s regular pay or minimum wage rate and capped at $200 per day and $2,000 in the aggregate.
Employers must make paid sick leave under the EPSLA available in addition to what is already provided by an employer’s existing paid leave policies. Further, employers are prohibited from changing their existing leave policies to avoid this requirement (and are also prohibited from conditioning EPSLA paid sick leave on an employee’s finding a replacement). Employees will also be able to first use paid sick leave under the EPSLA before using other accrued paid sick leave, and an employer cannot require the employee to use other paid sick leave first. Unused paid sick leave under the EPSLA will not carry over from one year to the next and will not need to be paid out at the end of an individual’s employment. Moreover, the EPSLA can be applied in conjunction with the EFMLEA by employees who qualify under both Acts to cover the first 10 days of unpaid leave under the EFMLEA.
Employers will be required to post a notice related to the EPSLA in the workplace. A model notice will be provided by the DOL by March 25. Employers who fail to comply with the EPSLA will be subject to penalties under the Fair Labor Standards Act. Like the EFMLEA, the EPSLA will go into effect on April 2 and will remain in effect until December 31, 2020.
3. Tax Credits for Paid Sick and Paid Family and Medical Leave:
The FFCRA does extend some relief to employers that are required to provide paid leave to employees under the EFMLEA or the EPSLA. These employers will receive payroll tax credits subject to certain limitations. Credits for wages paid under the EPSLA will be capped at $511 per day for days in which full pay is required, and $200 per day for days in which two-thirds pay is required and are available for up to 10 days per employee per calendar quarter. EFMLEA credits are capped at $200 per day (and at $10,000 with respect to all calendar quarters). These credits are refundable to the extent they exceed the employer’s payroll tax and are not available to employers that are also receiving credits under Internal Revenue Code Section 45S for paid family and medical leave. The FFCRA also extends tax credits to the self-employed, which carry additional considerations.
We are actively monitoring the labor issues and resources that become available to businesses during this time. For more information or if you have questions about labor or employment issues for your business, please contact Jeff Gersh at .
The legal professionals at Stubbs Alderton & Markiles, LLP will continue to monitor changes to legislation and publish updates as information becomes available. Please contact one of our attorneys at SA&M if you would like to discuss how these changes might affect your business.
Stubbs Alderton & Markiles' attorneys were featured this week in Law360 for their article entitled "The Fight For Clarity On Calif. Worker Classification Law". The featured article can be viewed on their website.
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Since taking effect on Jan. 1, A.B. 5 has received its share of criticism and legal challenges. While the law may be well-intentioned, opponents claim it goes too far and restricts workers’ abilities to earn a living.
Steep penalties can result from noncompliance. As a result, many businesses are frustrated by the lack of guidance on how to appropriately conform to A.B. 5, especially considering the high number of exemptions and the potential for more to come.
Even for exempted professions, like freelance writers and photographers and fine artists, certain requirements must be met for said exemptions to apply. Rather than risking penalization for failing to properly conform or increasing their own costs to convert workers to employees, some businesses have opted to outsource work out of state.
These sentiments, among others, have necessitated a growing number of challenges to A.B. 5 in both California state and federal courts and the state’s Legislature. In light of these challenges, discussed in more detail below, California appears to be headed toward a series of much-needed judicial interpretations and legislative wrangling whereby the precise parameters of A.B. 5 will hopefully be clarified.
Generally, these challenges appear to signal a gradual erosion of the text of A.B. 5 as passed (i.e., more exemptions) and clear(er) guidance on how courts will interpret workers’ or public enforcement claims.
Specifically, a few of the currently unanswerable questions that will hopefully become clearer through 2020 include, but are in no way limited to:
• For purposes of qualifying under the professional services exemption, what does it mean to be "customarily engaged in the same type of work … with another hiring entity"?
• Relatedly, what exactly qualifies as a "fine artist" or "graphic design" worker?
• To apply under the business-to-business exemption, how must the hiring business demonstrate that the contracting business is free from its "control and direction"?
• Relatedly, will that phrase be interpreted the same as when applied to the referral agency exemption?
Below are brief summaries of a few of the most significant pending lawsuits challenging A.B. 5 enforcement.
Olson v. California
Two independent workers who used the Postmates and Uber applications to earn a living have filed suit in the U.S. District Court for the Central District of California claiming that A.B. 5 violates the California and U.S. Constitutions.[1] Postmates Inc. and Uber Technologies Inc. joined in the action as well.
They argue that there is no rational basis for determining the numerous professions that the bill exempts from applying the strict ABC test established by the California Supreme Court's 2018 decision in Dynamex Operations West Inc. v. Superior Court of Los Angeles County, thereby violating the equal protection clauses of the California and U.S. Constitutions. On Feb. 10, the court denied the plaintiff s’ request to halt A.B. 5’s enforcement, citing the state’s need to police misclassification as outweighing any harm to the companies and allowing the case to proceed to a determination on the merits.
California Trucking Association v. Becerra
The California Trucking Association has challenged A.B. 5 on preemption grounds in another lawsuit filed in the U.S. District Court for the Southern District of California, asserting it is inconsistent with the Federal Aviation Administration Authorization Act.[2] The suit gained steam on Jan. 16, when the court extended a previously granted temporary injunction that bars enforcement of the law on the trucking industry.
Separately, in an identical case brought by the California Trucking Association in Los Angeles Superior Court, the court there held that A.B. 5 is indeed preempted by the FAAAA on Jan. 8.[3]
American Society of Journalists and Authors Inc. v. Becerra
Freelance journalists have also challenged A.B. 5 in the U.S. District Court the Central District of California, arguing that their exemption, which allows for no more than 35 submissions per year in order to remain governed by the more flexible Borello test, violates the First Amendment.[4] In that case, the court denied injunctive relief in early January.
Proposed Legislation
While these litigation proceedings, and many others, are still working their way through the courts, California legislators have wasted no time introducing bills to upend the effects of A.B. 5. The following proposed bills, if passed, would take effect Jan. 1, 2021:
• S.B. 868 seeks to eliminate the 35-submission cap for freelance journalists and photographers, allowing all in the profession to remain independent contractors pursuant to satisfying the far less stringent Borello test regardless of how many pieces of content a freelance journalist submits to a given employer within a year.
• S.B. 867 seeks to make permanent the temporary exemption that A.B. 5 extends to newspaper distributors and carriers, which currently lasts until Jan. 1, 2021.
• S.B. 875 seeks to exempt interpreters, translators and court reporters, allowing them to remain independent contractors pursuant to passing the Borello test.
• S.B. 881 seeks to exempt persons providing services as a musician and music industry professionals, except where a collective bargaining agreement applies, also allowing them to remain independent contractors pursuant to passing the Borello test.
• A.B. 1925 would exempt small businesses, defined as independently owned and operated businesses with fewer than 100 employees and average gross receipts of $15 million or less over the previous three years, pursuant to their satisfying Borello.
• A.B. 1928 would overturn A.B. 5 in its entirety. Unlike the bills discussed above, A.B. 1928 would take immediate effect upon its passage. Specifically, A.B. 1928 seeks to reinstate Borello as the generally applicable standard for separating employees from independent contractors. However, A.B. 1928 would not nullify the Dynamex decision wherein the California Supreme Court held that the ABC test applies to claims brought under California wage order laws.
Lastly, Uber Technologies, Lyf t Inc. and DoorDash Inc. are the primary funders behind the Protect App-Based Drivers & Services Act, an initiative currently gathering signatures in order to make its way onto the November 2020 California ballot. If successful, this act would classify app-based ride-share and delivery drivers as independent contractors for all purposes, subject to meeting certain flexibility-based requirements, in exchange for minimum wage, health care, anti-discrimination, and insurance-based protections.
For now, companies should consider at least the following to ensure compliance with this new framework:
1. A.B. 5 and the ABC test presume that anyone performing a service is an employee; therefore, it is imperative to evaluate how workers are classified. Misclassification can be costly. Unless there is a recognized exemption, independent contractor status is very difficult.
2. If you are concerned that someone has been misclassified, determine what action needs to be taken to avoid being penalized. This can include reclassifying an independent contractor as an employee and providing, among other things, compensation for missed meal breaks, overtime pay, and any tax obligations or contributions to unemployment insurance.
3. The Dynamex decision could be given retroactive effect by the California Supreme Court this year, which would result in the ABC test’s application to wage order law claims going back four years. Even if Dynamex is not determined to be retroactive, the ABC test would still apply to these claims going back to the date of the Dynamex decision in April 2018. The impact that this retroactivity decision will have on A.B. 5 enforcement, which explicitly states it is not retroactive aside from applying for exemptions, remains unclear. Accordingly, classification practices over the previous four years should be evaluated to determine potential liability.
4. Review your situation if you currently or historically have classified, someone, as an independent contractor and paid them accordingly.[5]
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Jeffrey F. Gersh is a Partner of the firm. Before joining Stubbs Alderton & Markiles, LLP, Jeffrey was Managing Partner of the Gersh Law firm, Inc. for over 10 years and a partner for 25 years with a major national litigation law firm. Jeffrey has been named a Thomson Reuters “Super Lawyer” for more than 7 years by his peers; an honor only achieved by less than 2.5% of attorneys in California.
Jeffrey successfully litigates, arbitrates, or mediates for both plaintiffs and defendants complex business and commercial matters, whether for individuals, public or private corporations, partnerships, limited liability companies and/or its members, shareholders and partners. Jeffrey successfully handles disputes regarding contract matters, trade secrets, intellectual property (trademarks, copyrights and trade dress) negligence and fraud, employment, real estate, license agreements, the apparel and garment industry, and general business matters.
Jeffrey approaches his litigation practice from a business perspective, rather than purely transactional. In addition to representing his clients in litigation and dispute resolution matters, Jeffrey handles many of their various transactional matters relating to general business, trademarks, trade dress, copyrights and other intellectual property matters, trade secret matters, and employment matters to name a few.
Jeffrey has been directly involved in litigation and business matters for clients not only in California, but also in New York, Nevada, Texas, Arizona, London, Australia, and Estonia and other places. He litigates cases from inception through trial and in some cases appeal, directly responsible for all aspects of the prosecution, defense, and resolution of his client’s complicated and sophisticated matters in both state and federal courts. As a result of his commitment to his client’s needs, he has enjoyed long-standing client relationships.
Garett Hill is an Associate of the Firm. His practice focuses on all stages of business litigation.
Prior to joining the firm, Garett was a certified law clerk with the Re-Entry Clinic at Loyola Law School where he successfully represented Los Angeles residents seeking to expunge or seal their prior convictions or trying to obtain or restore a license that had been negatively impacted by prior convictions. Garett completed the Corporate Law Concentration at Loyola Law School where he excelled learning within the various substantive areas of business law. Additionally, Garett worked as a legal intern in-house at AECOM, where he primarily focused on corporate governance and construction law matters. He also worked as a law clerk at Girardi & Keese where he gained invaluable exposure to high-volume litigation.
The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.
[1] Olson v. California, 2:19-CV10956 (C.D. Cal., filed December 30, 2019).
[2] California Trucking Association v. Becerra, 3:18-CV02458 (S.D. Cal., filed Oct. 25, 2018).
[3] The People of the State of California v. Cal Cartage Transp. Express, Cal. Super. Ct. No. BC689320, order 1/8/20.
[4] American Society of Journalists and Authors, Inc. v. Becerra, 2:19-CV10645 (C.D. Cal., filed December 17, 2019).
[5] This article is not intended to be a complete recitation of the law regarding the Dynamex decision or the impacts of A.B. 5. Each business has its own unique issues and circumstances that need to be separately evaluated by an attorney
Businesses operating in California need to be very careful when classifying someone as an independent contractor vs. an employee. Given the California Supreme Court’s ruling in Dynamex Operations W. v. Superior Court, 4 Cal. 5th 903 (2018) (“Dynamex”), and now the legislatures passing Assembly Bill 5 (“AB5”) which codifies Dynamex, the independent contractor in certain industries is essentially dead.
California’s Wage Order laws, found within the California Labor Code, demonstrate the importance of proper worker classification. These laws provide minimum-wage, overtime-pay, paid time off, and various other working condition-related protections to “employees” in a given industry and impose certain tax and insurance payment obligations on an employer. A true independent contractor is not afforded these same protections. Failure to properly classify workers can carry severe consequences that include a company’s liability for unpaid wages and other benefits due (plus interest), civil penalties, criminal sanctions, attorneys’ fees, and the potential for class-action litigation. The Private Attorneys General Act (“PAGA”) also provides a cause of action for misclassified workers wherein enforcement actions are brought on behalf of the state,[1] and AB5 will allow city attorneys in California cities with populations over 750,000 to pursue injunctive relief to prevent misclassification. Compliance with the new categorization framework is thus key to avoiding these pitfalls.
In April 2018, Dynamex effectively replaced the long-standing test for categorizing independent contractors and employees with respect to claims brought under the Wage Order laws, which was set forth in S. G. Borello & Sons, Inc. v. Department of Industrial Relations, 48 Cal. 3d 341 (1989) (“Borello”).The Borello court utilized a “control-of-details” test that requires workers to demonstrate an adequate degree of control that the employer asserts or could assert over all aspects of a worker’s performance. The Borello test considers a long list of factors to determine if someone is properly classified as an independent contractor vs. an employee, including, but in no way limited to, the degree of discretion a worker has in completing tasks, the difficulty of the work performed, where the work is performed, and whether the worker provided his/her own supplies. Ultimately, the California Supreme Court recognized a need for a clearer framework that would better protect workers.
Dynamex established the “ABC test,” which starts with the presumption that all workers are employees and shifts the burden to employers when classifying someone as an independent contractor to prove each of the following three prongs: (A) that the worker is free from the control and direction of the hirer in connection with the performance of the work, both under the contract for the performance of the work and in fact; and (B) that the worker performs work that is outside the usual course of the hiring entity’s business; and (C) that the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed. Prong B of the Dynamex ABC test is by far the most controversial. For example, gig-economy companies like Uber and Lyft largely classify their drivers as independent contractors. Despite Uber’s assertion that its drivers can pass the Dynamex ABC test because its usual course of business is a “technology platform for several different types of digital marketplaces,” the success of this argument if raised in court is highly questionable.
On September 10, 2019, the California Senate joined the State Assembly in approving the codification of the Dynamex ABC test via AB5. On September 18, 2019, Governor Newsom signed the bill into law; AB5 will now take effect on January 1, 2020. Notably, while Dynamex limited the application of its ABC test to claims brought under the Wage Order laws, AB5 will expand the Dynamex ABC test’s application to all claims brought under the Labor Code, including those related to workers compensation.
California’s Wage Order laws already exempt various employees from the entirety of those provisions, including, but not limited to, licensed lawyers, doctors, architects, engineers and accountants. However, AB5 builds upon these exemptions by listing professions that will be exempt from the Dynamex ABC test and subject to Borello beginning in 2020 for all claims brought under the Labor Code, without affecting those exempt professions under the Wage Order laws. Accordingly, professions exempt under both the Wage Order laws and AB5, such as those listed above, will remain exempt to Wage Order claims and subject to Borello for all other claims brought under the Labor Code. Professions not exempt under the Wage Order laws but exempt under AB5, like barbers, will be subject to Borello for all claims brought under the Labor Code, including Wage Order claims. Professions exempt under the Wage Order laws but not exempt under AB5, like teachers, will remain exempt from Wage Order law claims but subject to the Dynamex ABC test for all other claims brought under the Labor Code. Finally, professions not exempt by either the Wage Order laws or AB5, like those in the gig-economy, will be subject to the Dynamex ABC test for all claims brought under the Labor Code.
Exempted professions under AB5 include:
insurance agents, physicians, surgeons, dentists, podiatrists, psychologists, veterinarians, lawyers, architects, engineers, private investigators, accountants, securities broker-dealers/investment advisers, direct salespersons and commercial fishermen licensed in California;
individuals who, through a business entity, provide “professional services” under contract and who can meet certain requirements related to their independence[2];
real estate and repossession agents licensed under the Business and Professions Code;
businesses that contract with other businesses to provide a service and that can meet certain requirements related to their independence;
individuals who perform construction work pursuant to a sub-contract with a contractor; and
individuals who, through a business entity (referred to as “service providers”), contract with a “referral agency” to connect with clients and that can meet certain requirements related to their independence.[3]
Notably, gig-economy company workers have not been granted an exemption and industry giants will continue to lobby the legislature until AB5 takes effect. Indeed, both Uber and Lyft, along with DoorDash, have pledged $30 million each to support a ballot measure that would exempt the industry from AB5.
Dynamex did not address whether its ABC test applies retroactively, (i.e., to claims filed after Dynamex was decided but with respect to activity that occurred prior to the decision). In May 2019, the Dynamex ABC test was briefly given retroactive effect by the Ninth Circuit in Vazquez v. Jan-Pro Franchising International, Inc., 923 F. 3d 575 (9th Cir. 2019) (“Vazquez”). However, on July 22, 2019, California businesses breathed a collective sigh of relief when the Ninth Circuit withdrew its opinion in Vazquez and sought certification on the issue by the California Supreme Court. Meanwhile, AB5 provides that it will only apply to work performed on or after January 1, 2020, with the exception for any “existing claims and actions” wherein the retroactive application of AB5 would relieve an employer from liability “to the maximum extent permitted by law” (i.e. Wage Order law claims brought by individuals in professions exempted under AB5 that were not previously exempted, such as barbers). It is unclear from AB5’s text whether this exception will only apply to claims that have already been filed, or those that may have arisen but have not yet been filed. It is also unclear what "the maximum extent permitted by law" means in this specific context.
In sum, businesses operating in California that hire independent contractors, particularly those that hire in professions not exempted by AB5, must consider the Dynamex ABC test or risk facing the consequences. In many cases, this will mean re-categorizing independent contractors as employees and providing, among other things, meal breaks, overtime-pay, and contributions to unemployment insurance. These companies should also be paying close attention to: (1) the forthcoming wave of litigation expected to both challenge and clarify aspects of AB5, such as which businesses qualify under certain exemptions; (2) whether the California Supreme Court provides any guidance regarding retroactivity; and (3) any additional developments to AB5 prior to it taking effect.
[1] On September 12, 2019, the California Supreme Court held in ZB, N.A. v. Superior Court of California, that PAGA does not allow workers who have entered agreements that subject wage-related disputes to arbitration to recover back pay and limited a company’s liability under these claims to cumulative civil penalties per violation. The ruling is a setback to those workers who have relied on PAGA to recover unpaid wages outside of forced solo arbitration, since PAGA claims belong to the state and are thus not subject to arbitration.
[2] “Professional services” include marketing, human resources, travel agent services, graphic design, grant writing, fine artistry, services provided by an agent licensed to practice before the IRS, payment processing, unlicensed photography, freelance writing, and services provided by: licensed estheticians, electrologists, manicurists, barbers and cosmetologists.
[3] “Referral agencies” are businesses that connect clients with “service providers” to provide design, photography, tutoring, event planning, minor home repair, moving, home cleaning, errands, furniture assembly, animal services, dog walking, dog grooming, web design, picture hanging, pool cleaning, or yard cleanup related services.
Garett Hill is an Associate of the Firm. His practice focuses on all stages of business litigation.
Prior to joining the firm, Garett was a certified law clerk with the Re-Entry Clinic at Loyola Law School where he successfully represented Los Angeles residents seeking to expunge or seal their prior convictions or trying to obtain or restore a license that had been negatively impacted by prior convictions. Garett completed the Corporate Law Concentration at Loyola Law School where he excelled learning within the various substantive areas of business law. Additionally, Garett worked as a legal intern in-house at AECOM, where he primarily focused on corporate governance and construction law matters. He also worked as a law clerk at Girardi & Keese where he gained invaluable exposure to high-volume litigation.
Jeffrey F. Gersh is a Partner of the firm. Before joining Stubbs Alderton & Markiles, LLP, Jeffrey was Managing Partner of the Gersh Law firm, Inc. for over 10 years and a partner for 25 years with a major national litigation law firm. Jeffrey has been named a Thomson Reuters “Super Lawyer” for more than 7 years by his peers; an honor only achieved by less than 2.5% of attorneys in California.
Jeffrey successfully litigates, arbitrates, or mediates for both plaintiffs and defendants complex business and commercial matters, whether for individuals, public or private corporations, partnerships, limited liability companies and/or its members, shareholders and partners. Jeffrey successfully handles disputes regarding contract matters, trade secrets, intellectual property (trademarks, copyrights and trade dress) negligence and fraud, employment, real estate, license agreements, the apparel and garment industry, and general business matters.
Jeffrey approaches his litigation practice from a business perspective, rather than purely transactional. In addition to representing his clients in litigation and dispute resolution matters, Jeffrey handles many of their various transactional matters relating to general business, trademarks, trade dress, copyrights and other intellectual property matters, trade secret matters, and employment matters to name a few.
Jeffrey has been directly involved in litigation and business matters for clients not only in California, but also in New York, Nevada, Texas, Arizona, London, Australia, and Estonia and other places. He litigates cases from inception through trial and in some cases appeal, directly responsible for all aspects of the prosecution, defense and resolution of his client’s complicated and sophisticated matters in both state and federal courts. As a result of his commitment to his client’s needs, he has enjoyed long-standing client relationships.
Stubbs Alderton & Markiles, LLP is pleased to announce that six lawyers have been named to the 2018 Southern California Super Lawyers. Super Lawyers is a rating service of outstanding lawyers from more than 70 practice areas who have attained a high-degree of peer recognition and professional achievement. The patented selection process includes independent research, peer nominations and peer evaluations.
Super Lawyers Magazine features the list and profiles of selected attorneys and is distributed to attorneys in the state or region and the ABA-accredited law school libraries. Super Lawyers is also published as a special section in leading city and regional magazines across the country. Lawyers are selected to a Super Lawyers list in all 50 states and Washington, D.C.
Stubbs Alderton & Markiles, LLP would like to congratulate the following attorneys named to the 2018 Super Lawyers list –
Scott Alderton is a founding partner of the Firm, Managing Partner, and a member of the Firm’s Executive Committee. Scott is co-chair of the Firm’s Venture Capital and Emerging Growth Practice Group and chair’s the Firm’s Interactive Entertainment and Video Games Group. Scott advises both public and private clients across a number of industries, including technology, manufacturing and distribution of goods in commerce, finance, the Internet, interactive video games, and new media industries.
Kevin D. DeBré is the chair of the Firm’s Intellectual Property & Technology Transactions Practice Group. Kevin advises entrepreneurs and companies that use intellectual property to build their businesses. Kevin has particular expertise in structuring and negotiating technology commercialization and patent licenses, strategic alliances, research and development collaborations, trademark licensing and brand merchandising agreements and manufacturing, distribution and marketing arrangements. He also counsels clients on compliance with data security and privacy laws and regulations.
Jeff Gersh is a Partner of the Firm. He has litigated, arbitrated, or mediated complex business and commercial matters, for both plaintiffs and defendants, whether individuals, public or private corporations, partnerships, limited liability companies and/or its members, shareholders and partners, involving various types of disputes, including contract matters, trade secrets, intellectual property (trademarks, copyrights and trade dress) negligence and fraud, employment, real estate, license agreements, the apparel and garment industry, and general business matters.
Daniel Rozansky is a Partner of the Firm in the Business Litigation Practice. Dan concentrates his practice on entertainment, privacy, First Amendment and complex business and real estate disputes. Dan’s areas of focus are entertainment finance, anti-SLAPP motions, unfair competition, trade secrets, intellectual property, surreptitious tape recording, reality television, profit participation, rights of privacy and publicity, real estate, partnership disputes and First Amendment issues. He represents clients both at the trial and appellate levels in state and federal court on a wide array of issues.
Michael Sherman is an accomplished trial lawyer in high-stakes, “bet-the-company” litigation, and has represented both large and early-stage companies as well as entrepreneurs in all facets of business and complex commercial litigation. He has evenly split his litigation practice on both the plaintiff and defense side of cases, has first-chaired numerous trials in complex matters in industries as varied as energy, securities, healthcare, environmental, consumer products, technology, project development/finance, advertising, real estate and apparel, and is highly skilled in class actions and unfair competition law.
Joe Stubbs is a founding partner of the Firm, and a member of the Firm’s Executive Committee. He is co-chair of the Firm’s Venture Capital and Emerging Growth Practice Group, and of the Firm’s Mergers and Acquisitions Practice Group. Joe practices in the areas of corporate and securities law, emphasizing the corporate representation of both publicly-held and privately-held emerging growth and middle-market companies, venture capital and private equity firms, angel investment groups and investment banks.
The official Super Lawyers 2018 publication can be read in its entirety here.
For more information about Stubbs Alderton & Markiles, contact Heidi Hubbeling at or (310) 746-9803.
Stubbs Alderton & Markiles, LLP is pleased to announce that six lawyers have been named to the 2017 Southern California Super Lawyers. Super Lawyers is a rating service of outstanding lawyers from more than 70 practice areas who have attained a high-degree of peer recognition and professional achievement. The patented selection process includes independent research, peer nominations and peer evaluations.
Super Lawyers Magazine features the list and profiles of selected attorneys and is distributed to attorneys in the state or region and the ABA-accredited law school libraries. Super Lawyers is also published as a special section in leading city and regional magazines across the country. Lawyers are selected to a Super Lawyers list in all 50 states and Washington, D.C.
Stubbs Alderton & Markiles, LLP would like to congratulate the following attorneys named to the 2017 Super Lawyers list -
Scott Alderton is a founding partner of the Firm, Managing Partner, and a member of the Firm’s Executive Committee. Scott is co-chair of the Firm’s Venture Capital and Emerging Growth Practice Group and chair’s the Firm’s Interactive Entertainment and Video Games Group. Scott advises both public and private clients across a number of industries, including technology, manufacturing and distribution of goods in commerce, finance, the Internet, interactive video games, and new media industries.
Joe Stubbs is a founding partner of the Firm, and a member of the Firm’s Executive Committee. He is co-chair of the Firm’s Venture Capital and Emerging Growth Practice Group, and of the Firm’s Mergers and Acquisitions Practice Group. Joe practices in the areas of corporate and securities law, emphasizing the corporate representation of both publicly-held and privately-held emerging growth and middle-market companies, venture capital and private equity firms, angel investment groups and investment banks.
Michael Sherman is an accomplished trial lawyer in high-stakes, “bet-the-company” litigation, and has represented both large and early-stage companies as well as entrepreneurs in all facets of business and complex commercial litigation. He has evenly split his litigation practice on both the plaintiff and defense side of cases, has first-chaired numerous trials in complex matters in industries as varied as energy, securities, healthcare, environmental, consumer products, technology, project development/finance, advertising, real estate and apparel, and is highly skilled in class actions and unfair competition law.
Jeffrey F. Gersh is a Partner of the Firm. He has litigated, arbitrated, or mediated complex business and commercial matters, for both plaintiffs and defendants, whether individuals, public or private corporations, partnerships, limited liability companies and/or its members, shareholders and partners, involving various types of disputes, including contract matters, trade secrets, intellectual property (trademarks, copyrights and trade dress) negligence and fraud, employment, real estate, license agreements, the apparel and garment industry, and general business matters.
Kevin D. DeBré is the chair of the Firm’s Intellectual Property & Technology Transactions Practice Group. Kevin advises entrepreneurs and companies that use intellectual property to build their businesses. Kevin has particular expertise in structuring and negotiating technology commercialization and patent licenses, strategic alliances, research and development collaborations, trademark licensing and brand merchandising agreements and manufacturing, distribution and marketing arrangements. He also counsels clients on compliance with data security and privacy laws and regulations.
The official Super Lawyers 2017 publication can be read in its entirety here.
For more information about Stubbs Alderton & Markiles, contact Heidi Hubbeling at or (310) 746-9803.
The Obama Administration and the Department of Labor (DOL) enacted the “Overtime Final Rule” regulation 6 months ago, which was supposed to be effective as of December 1, 2016. However, in the recently consolidated pending cases Nevada v. U.S. Department of Labor and Plano Chamber of Commerce v. Perez, on November 22, 2016, the United States District Court, Eastern District of Texas enjoined enforcement of the Final Rule. The Court upheld the challenges against the Final Rule based on arguments in support of the 10th Amendment – limiting the power of the federal government over the states. It appears the DOL’s regulation will note be enforced as of December 1, however the ultimate outcome and the timing as to whether the Final Rule will be enforced is unknown. The uncertainty has several employers scrambling for immediate answers and for good reason.
By the Final Rule, 4.2 million workers nationwide currently not eligible for overtime pay will automatically qualify as “non-exempt” employees entitled to overtime pay. If effective, California employers will be required to align their policies with the Final Rule. This includes approximately 400,000 employees in California.
What Happens.
Previously, California employees who worked at a managerial or other executive level and were paid a base annual salary higher than $23,660 were exempt from overtime. The Final Rule establishes a bright-line divide between exempt and non-exempt employees by placing all employees making less than $47,476 annually or $913 per week into the non-exempt category – which means they are entitled to overtime. This is over a 200% jump from the standard salary set in 2004. Literally, any employee making under $22.85 per hour would be entitled to overtime regardless of his or her position.
Essentially, the Final Rule forces employers to either increase the gross salaries of all exempt employees making less than the new threshold, or in the alternative to ensure all employees under the threshold are paid overtime. However, it gets trickier. In California, if an employee works 9 hours in one day and 7 the next day, that employee is still likely entitled to an hour of overtime even if the work week balances at 40 hours – this depends on the “regularly scheduled” work week, and whether it is a 3 or 4 day work week rather than a 5 day work week.
What To Expect.
Employers were given a chance to change their overtime policies well in advance of the effective date of this new regulation. As the grace period ended, the District Court prolonged it – but for how long? As of today, employees who were not properly compensated would have had the right to sue for failure to pay overtime. Certainly, several attorneys are already searching for employers not currently in compliance with the Final Rule. If the regulation remains in effect, employers should be prepared to face widespread litigation – potentially class actions depending on the size of your company or quasi-class actions, such as Private Attorney General Act of 2004 (PAGA) complaints regardless of the company’s size. Employers not already adjusted for the upcoming overtime policy should monitor the recent developments knowing a potential tidal wave of lawsuits may come.
What To Do.
Employers used the “exempt” classification as an excuse to work its employees late-nights and on weekends, without keeping track of their hours. That luxury no longer exists. If an employee makes less than the threshold, an employer needs to have records to challenge an employee’s potential overtime claim. Employers should immediately implement a system to monitor the hours each employee works, whether it be enacting a policy prohibiting employees from working more than 8 hours in a day and 40 hours in a week, or requiring timesheets or clocking in-and-out.
Don’t subject your company to attorneys’ fees, statutory penalties, possible class actions and not to mention your own litigation costs. It’s simply not worth it. Keep track of your employees’ hours, and if your pay period begins before December 1, 2016, pro-rate the increase in salary or make sure you pay overtime.
Also, the recently enacted Labor Code Section 558.1 holds individuals liable for a company’s failure to pay overtime. These individuals include managing agents, owners, directors or officers. For more information on Section 558.1, stand-by for further analysis from Jeffrey F. Gersh.
Now What.
The far-reaching implications of the recent November 22, 2016 ruling by the District Court raises many concerns that cannot yet be answered, such as: If the rule is enforced, will it be retroactive as of December 1st? or, How are employers and employees affected if this ruling is appealed? or, What do employers do who have already promised overtime pay or an increase in salaries to its employees? or, Should I start paying overtime, to play it safe?
For help on complying with the Final Rule and following the developments of District Court’s decision, Jeffrey F. Gersh () at (818) 444-4500. Please note that nothing herein constitutes legal advice.
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Garett Hill 
Garett Hill is an Associate of the Firm. His practice focuses on all stages of business litigation.