Court of Appeal: Nail Salon Independent Contractors

Happy Nails owns a number of nail salons.  Their workers were independent contractors.  The EDD sought to classify them as employees and lost before the Unemployment Insurance Appeals Board.

The Division of Labor Standards Enforcement was not convinced and instituted proceedings against Happy Nails for not providing itemized wage statements, predicated on the theory that the cosmetologists were really employees.   Happy Nails argued that it already had litigated this issue and that the DLSE should not proceed based on the legal principle known as collateral estoppel.
The DLSE hearing officer ignored Happy's arguments and the prior decisions and held that the workers were employees.

Happy Nails sued the DLSE, claiming violation of due process, and seeking a writ of administrative mandate overturning the DLSE's findings.  The superior court denied Happy's motion for summary judgment on this claim and denied the writ.

The Court of Appeal decided that the trial court should have issued the writ and precluded re-litigation of the independent contractor question, based on collateral estoppel:

For an issue to be precluded from relitigation, the following requirements must be satisfied: (1) the issue must be identical to an issue decided in a prior proceeding; (2) the issue must have been actually litigated in the prior proceeding; (3) the issue must have been necessarily decided in the prior proceeding; (4) the decision in the prior proceeding must be final and on the merits; and (5) the party against whom preclusion is sought must have been a party to or in privity with a party to the prior proceeding. (People v. Garcia (2006) 39 Cal.4th 1070, 1077; Castillo v. City of Los Angeles (2001) 92 Cal.App.4th 477, 481 (Castillo).) As we explain below, each requirement is satisfied in this case.

The court analyzed each factor and decided that Happy Nails established them.  Therefore, the DLSE should have respected the UIAB's decision.

Although this is a procedure-based decision, there is some interesting law discussed in the opinion.  For example, the DLSE argued that the Happy Nails cosmetologists were once classified as employees until the company restructured its relationship with them.  Therefore, the DLSE argued, they could not be re-classified as contractors.  Not so, said the court:

The law[] does not require private parties to share the Commissioner's "once an employee, always an employee" mindset. Rather, private parties are free to change the nature of their business relationship in accordance with the "long-standing established public policy in California which respects and promotes the freedom of private parties to contract" (Brisbane Lodging, L.P. v. Webcor Builders, Inc. (2013) 216 Cal.App.4th 1249, 1262) and which allows them "the widest latitude in this regard" (Stephens v. Southern Pacific Co. (1895) 109 Cal. 86, 89). Our adoption of the position advocated by the Commissioner's counsel at oral argument would effectively nullify the Board's determination and would impermissibly deny Happy Nails and the cosmetologists "their freedom to contract as they please" (Rosen v. State Farm General Ins. Co. (2003) 30 Cal.4th 1070, 1080), which they exercised by restructuring their business relationship.

It also bears noting that this decision holds that different government agencies are considered the same for collateral estoppel purposes when their interests are similar.  Here, the Employment Development Department and DLSE share the common purpose of protecting workers from mis-classification.

Finally, the court sent the case back to the trial court so that it could consider Happy's request for an injunction against the DLSE, prohibiting future claims unless it showed there was a material change, and for attorney's fees.

The case is Happy Nails and Spa of Fashion Valley L.P. v. Su and the opinion is here.

The California Labor Commissioner Updates Its Wage Theft Forms

Effective 4/12/12, the DLSE updated its templates and FAQs to help employers comply with the Wage Theft Prevention Act.  You can find the page of forms here.   I guess they couldn't wait until the Brinker hoopla died down a little?

There are clarifications such as related to who is responsible for the notice when an employer hires a temp from a staffing agency (the agency), etc.  Fortunately, the DLSE also says that employers don't have to distribute new notices every time the DLSE issues an update.  Whew!

DGV

More on AB 469 Notice "Template"

Per my previous post, the DLSE issued its "template" for compliant AB 469 disclosures.  See the post re DLSE template here.


An impolitic or imprudent employment lawyer might say that the DLSE's waiting until December 29 to issue a template implementing AB 469 disclosures (to begin on 1/1/12) was arrogant, unconscionable, and all but a gift to plaintiff lawyers. But I've never been one of those rash people.  :::whistling::::

What makes this all more galling is that the DLSE has imposed requirements over and above what the statute actually provides for.  DLSE had the right to expand on the law's requirements becuase the statute says that the required disclosure must include "any other information the Labor Commissioner deems material and necessary."

That's all fine, but how about more than 2 work days' notice of what you think is necessary?  Not to mention that 90% of management is on vacation.  Employers likely planned the new notices would include only the items expressly identified in the law, given DLSE's failure to promptly issue its template.  Now they have to re-tool, which may be easier to do in a mom & pop store, but not so easy when there are multiple outlets and hundreds of new hires to process.

Perhaps the DLSE didn't care because the notice provision does not apply to...the DLSE (!) or other government employers.  Go figure.

Oh well, enough whining.  The DLSE model includes a couple of itsems not specified in the actual statute:  1) the name and address of a PEO or other third party that administers the hiring process (but not a payroll processor or recruiting agency) 2) whether the employment agreement is oral or written... there may be more. I just got the thing today and all...

DGV

DLSE Opinion Letter re Reducing Salary and Workdays

The California Division of Labor Standards Enforcement agreed that temporarily reducing an exempt salaried employee's workweek to 4 days did not violate the salary basis test. The employer was free to proportionally reduce the employee's salary. This is consistent with a long line of federal authorities.

In a prior letter, 2002.03.12, the DLSE said that exempt employees would not be subject to salary reductions for a furlough. It appears DLSE has reversed that position. The new DLSE opinion is here.

Unfortunately, DLSE did not address another, separate, furlough question re exempt employees: can the employer "force" payout of vacation / PTO for furloughs / shutdowns of less than a full workweek? It's not a controversial proposition that the exempt employee is not entitled to any salary if the furlough is a full workweek. Therefore, there should not be any problem in paying out PTO/vacation for full workweek absences.

But what about partial week, ad hoc furloughs? Normally, the exempt employee is entitled to a full salary for any workweek in which s/he performs any work. There are exceptions, but involuntary absences of a day or more for lack of work are not one of them.

The new letter does not fully address this issue. I understand a prospective announcement reducing exempt employees' responsibilities to work with a concomitant reduction in salary. But if the employer says "we're going to shut down three days before Christmas," is that covered by this letter? If so, then it would be OK to pay required PTO for the three day furlough because the salary was reduced prospectively. If the opinion letter does not apply to this scenario, then it probably remains improper to force payout of PTO because the employee was already entitled to full salary. If you're confused, join the club.

This is a California-only issue, because the FLSA does not consider vacation / PTO to be vested. Also, there is an FLSA provision for public sector furloughs for economic reasons, so the question does not apply to the public sector.

Any wage-hour gurus who want to debate, send me an email / comment / wine.