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What Can Employers Learn from Uber’s Challenge of California’s New Employment Law AB-5?

What Can Employers Learn from Ubers Challenge of Californias New Employment Law AB 5            On December 30, 2019, Uber and Postmates filed a lawsuit to stop enforcement of AB-5, California’s new legislation that makes it more difficult to classify workers as independent contractors.

            Obviously Uber and Postmates’ entire business model relies on having “gig” workers who drive for them. Other industries, such as trucking, have also filed suit to enjoin the enforcement of AB5.

            Prior to California enacting AB5 to expand the definition of employee, California businesses needed to meet the ABC test laid out in the Dynamex case in order to classify an worker as an independent contractor. Those factors were:

  1. Worker is not controlled by the company in performing work; and
  2. Worker has work outside the company’s usual course of business; and
  3. Worker is engaged in an independently established trade, occupation, or business of the same type of work performed for the company (perhaps certified or licensed).

           The ABC test was already a difficult one for some companies to meet, especially the requirement of being established in trade related to the same type of work. AB5 goes much further, adding a new provision to California Labor Code: Section 2750.3 to codify the ABC test as well as expanding beyond wage orders to cover reimbursement of business expenses and potential recovery under PAGA (Private Attorney General Act) penalties:

2750.3. (a) (1) For purposes of the provisions of this code and the Unemployment Insurance Code, and for the wage orders of the Industrial Welfare Commission, a person providing labor or services for remuneration shall be considered an employee rather than an independent contractor unless the hiring entity demonstrates that all of the following conditions are satisfied:

(A) The person is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact.

(B) The person performs work that is outside the usual course of the hiring entity’s business.

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

(2) Notwithstanding paragraph (1), any exceptions to the terms “employee,” “employer,” “employ,” or “independent contractor,” and any extensions of employer status or liability, that are expressly made by a provision of this code, the Unemployment Insurance Code, or in an applicable order of the Industrial Welfare Commission, including, but not limited to, the definition of “employee” in subdivision 2(E) of Wage Order No. 2, shall remain in effect for the purposes set forth therein.

 

            Additionally Section 2750.3 lists the exemptions, carving out exemptions to classes of work such as doctors, lawyers, architects, and financial services workers. Uber, recognizing that lobbying alone failed to broaden the exemption list, needed to mount an offensive as to why AB5 should be declared unconstitutional.

            Are the Exemptions in California’s New Employment Classification Law Arbitrary and Irrational?

There are two main arguments Uber’s lawsuit: 1) Uber claims that that the exemptions listed in the new law make it arbitrary and irrational; and 2) Uber claims that statements of legislators who backed the bill reveal an animus directed toward “network companies.”

            The first point focuses on a standard that courts apply when deciding whether laws are constitutional called “rational basis review.” When courts apply rational basis review, they must determine whether a law is “rationally related” to a “legitimate” government interest. The government interest can either be the actual interest expressed by proponents of the bill, or a hypothetical interest conceived of by the reviewing judge. It is a very lenient standard, and laws are almost always determined to be constitutional under rational basis review. Laws can be subject to higher standards of review, such as strict scrutiny if they involve racial classifications, but those higher standards are not likely to apply to AB-5 because it makes no such classifications. Therefore, Uber is stuck trying to have AB-5 declared unconstitutional under rational basis review.

            The first argument that Uber makes in its Complaint regarding the rationality of AB-5 focuses on the laundry list of exemptions that fill the new legislation. For example, Professional Service Providers are exempted from the new standard for determining whether an individual is an employee or an independent contractor. AB-5 includes as professional service workers those who provide: marketing services, human resources services, travel agent services, graphic design services, grant writing services, fine artist services, services of agents licensed by the U.S. Treasury to practice before the IRS, payment processing agent services, photography or photojournalist services, services provided by a freelance writer, editor, or newspaper cartoonist, and services provided by licensed esthetician, electrologist, manicurist, barber or cosmetologist. Uber focuses on other exemptions that it claims are “wholly arbitrary.” For example, Uber claims that a delivery truck driver is exempt when delivering milk, but not when delivering juice, fruit, baked goods or meat products. A commercial fisherman is exempt when working on an American vessel, but not a foreign vessel. A freelance editor or writer is exempt if she publishes 35 submissions per year per “putative employer,” but not if she publishes 36. Uber claims that these distinctions mean that AB-5 violates the Equal Protection Clause of the Fourteenth Amendment of the United states Constitution because it draws classifications without a “rational basis” (i.e. that its classifications and exemptions are not rationally related to a legitimate government interest).

            The second main argument that Uber makes is directed toward the proponents of the AB-5. Uber points continually throughout its complaint to the statements of the legislative sponsor of the bill, Assemblywoman Gonzalez. For example, regarding the number of submissions that editors can make per years, Uber noted that Assemblywoman Gonzalez said: “Was it a little arbitrary? Yeah?” Uber also points to the animus of bill sponsors that was aimed directly at “network companies.” Uber listed number examples in its complaint such as a Tweet by Assemblywoman Gonzalez accusing Uber and Postmates of “wage theft” and a statement she made that California has “allowed a great many companies—including ‘gig’ companies such as Uber . . . to rely on a contract workforce, which enables them to skirt labor laws, exploit working people and leave taxpayers holding the bag.” This is not the first time in recent years that statements of public officials (particularly via Twitter) have come up in court when legal challenges are made to new laws. Early in the Trump administration, Courts across the country blocked implementation of the president’s travel ban, citing, among other things, anti-Muslim remarks by Trump and others around him.

            It remains to be seen whether Uber and Postmates’ challenge to AB-5 will gain traction regarding Constitutionality. Regardless of whether or not a federal judge blocks enforcement of the new law, the political debate will continue about whether increased regulation of “network companies” will strangle the flexibility and economic growth of the gig economy and whether such labor regulations are necessary to protect the economic livelihood of gig workers. The contentious debates around these issues mean that it is almost certain the law in this area will continue to change, which means that employers will have keep up with those changing laws.

ðIs it time for your California based business to have an evaluation of whether it satisfies the ABC test? Call the San Jose Employment Lawyers of Diemer & Wei at 408.971.6270 today.

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Self-Insured Employer Cannot Direct Which Excess Insurer Will Bear Responsibility Even With Claimant’s Consent

Self Insured Employer Cannot Direct Which Excess Insurer Will Bear Responsibility Even With ClaimantEmployees in California are protected by the Workers’ Compensation Act (WCA) which governs “compensation given to California employees for injuries incurred in the course and scope of their employment.” Charles J. Vacanti, M.D., Inc. v. State Comp. Ins. Fund (2001) 24 Cal.4th 800, 810. All employers except the state must secure the payments of compensation by either carrying workers’ compensation insurance or self-insuring. In a recent case, the San Mountain Empire School District was self-insured, but had also contracted for excess policy insurance. In the case of the Mountain Empire School District, its excess insurer ran out of money.

California law also provides for protection to both “insured and the public” through a system called the California Insurance Guarantee Association (CIGA). Fireman’s Fund Ins. Co. v. Workers Comp. Appeals Bd. (2010) 189 Cal.App.4th 101, 111-112. CIGA pays only: 1) covered claims and 2) claims for which neither a solvent insurer or self-insured employer is jointly and severally liable.

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What Must A California Landlord Disclose to Tenants?

 By: Julia M. Wei and Josue Uribe Fonseca

What Must A California Landlord Disclose to TenantsIn a purchase and sale context, California law requires the seller of residential real estate to disclose material facts affecting the value or desirability of the property, “if it is known that such facts are not known to or within the reach of the diligent attention and observation of a buyer.” Calemine v. Samuelson, 171 Cal. App. 4th 153, 161-62 (2009). A fact is material if it has an effect on the value or desirability of the property. Alfaro v. Cmty. Hous. Improvement Sys. & Planning Ass'n, Inc., 171 Cal. App. 4th 1356, 1382 (2009).

However, as a residential landlord, the disclosure requirements to tenants are less broad and largely controlled by state law with mandated disclosures such as the Mold Addendum and the Bedbug Addendum.

There is very little law on point for landlord’s duties to disclose in a residential leasing context. This is likely due to the fact that the California Civil Code provides numerous protections for the residential tenant, such as their right to repair and deduct.

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California Landlords: Do you know the difference between a “Service Animal” and an “Emotional Support Animal”?

Depositphotos 158124112 xl 2015Recently in the news we have seen articles about people traveling with their miniature horses or their pigs. Perhaps you may be wondering why is the airline permitting the miniature horse on the plane? The answer breaks down like this: if it is a miniature horse, it is likely a service animal and if it is a pig, it is likely an emotional support animal.

Here is what the ADA says about Miniature Horses:

“In addition to the provisions about service dogs, the Department’s revised ADA regulations have a new, separate provision about miniature horses that have been individually trained to do work or perform tasks for people with disabilities. (Miniature horses generally range in height from 24 inches to 34 inches measured to the shoulders and generally weigh between 70 and 100 pounds.) Entities covered by the ADA must modify their policies to permit miniature horses where reasonable. The regulations set out four assessment factors to assist entities in determining whether miniature horses can be accommodated in their facility. The assessment factors are (1) whether the miniature horse is housebroken; (2) whether the miniature horse is under the owner’s control; (3) whether the facility can accommodate the miniature horse’s type, size, and weight; and (4) whether the miniature horse’s presence will not compromise legitimate safety requirements necessary for safe operation of the facility.”

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View Restrictions in Planned Communities Struck Down As Inapplicable to Remodeling

Depositphotos 5785967 l 2015In California, a landowner has no enforceable property rights to an unobstructed view. That means, you can’t force your downhill neighbor to trim their trees. However, I have seen the occasional CC&R’s from planned communities that restrict heights of trees, plantings, and structures to ensure that the homeowners can enjoy their view.In those circumstances, the restrictive covenants are strictly construed against the person seeking to enforce them. American jurisprudence favors alienability and free use of land so that will be the default legal view.

In the recent case of Eisen v. Tavangarian, the appellate court evaluated the CC&R language governing lots in the posh Marquez Knolls area in Pacific Palisades, California. The properties are nestled in the hills in this exclusive community overlooking Los Angeles and the Pacific Ocean. The homes are likely valued in excess of $4 million and accordingly the view of the ocean no doubt has some impact on the high property values.

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Judgment Creditor Successfully Amends Judgment to Include General Partner of Judgment Debtor After Foreclosure of the Property.

Depositphotos 23227370 xl 2015In a recent opinion, the California Court of Appeal found that after foreclosure, all of the borrower’s leases (and its waivers) were assigned to the lender, and therefore unavailable as a defense to the former owner against a creditor. Therefore, the judgment creditor was successfully able to add two new parties to the judgment as the limitation the lease no longer shielded them.

Yolanda’s Inc. owns and operates restaurants. Yolanda entered into a lease to operate a restaurant at the Seabridge shopping center in Oxnard, California. The landlord K&G and Rocklin and its real estate broker KGCRE failed to inform the tenant that they were in negotiations to lease another space in the shopping center to the gym. The gym’s customers used all the parking spaces, resulting in loss of business for Yolanda’s. Yolanda’s prevailed in its lawsuit against the landlord, alleging among other causes of action, fraud and breach of lease. Yolanda obtained a judgment in the amount of almost 2 million dollars, plus another nearly half a million dollars in attorneys’ fees and costs.

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What happens if the easement does not describe the type of access granted?

What happens if the easement does not describe the type of access grantedIn the recent case of Southern California Edison Company v. Severns, the written easement described a 4 foot wide easement for the placement of five electrical power poles. The instrument went on further to provide that the grantee should have “free access” to maintain the electrical equipment. This created dispute between the grantor and the utility company because of the unspecified routes the utility company would take on the grantor’s property to access the easement. The court determined that the easement was in fact a “floating easement”.

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What Is The Broker’s Duty To Disclose Information Learned Regarding a Neighboring Property?

What Is The Brokers Duty To Disclose Information Learned Regarding a Neighboring PropertyCalifornia’s Fourth Appellate District came down with an unsurprising opinion that because a real estate broker has a duty to their principal to share information he or she possesses that will adversely affect the value of her property, an expert opinion is not required to establish breach of that duty.

The Ryans listed their La Jolla California property with Sotheby’s. During one of the open houses, the listing agent learned from the neighbor that a major remodel was planned on the neighboring property that would obstruct the Ryan’s ocean view. The Ryan’s agent failed to inform the Ryans and subsequently when the Ryan’s sold the property the listing agent failed to inform the buyers. When the buyers learned that the $3.86 million home that they had just purchased was about to lose its ocean view and be subject to two years of construction next door, they unsurprisingly sought rescission of the purchase. 

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Does a Foreclosing Trustee Have a Duty to Verify That the Lender Has Received a Valid Assignment of the Loan (deed of trust)?

San jose foreclosure lawyersContinuing the trend in California caselaw, an appellate court concluded that no, the trustee does not have duties beyond the deed of trust itself and the governing statutes.

California property developer citrus El Dorado LLC owed its lenders over $20 million in late 2014. Unsurprisingly, its lender Stearns Bank instructed the trustee, Chicago Title Company, to conduct a nonjudicial foreclosure sale of the real property secured by the deed of trust.

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Do California Property Owners Owe Third Parties An Affirmative Duty Of Care To Discover Criminal Acts Being Committed On The Property?

Do California Property Owners Owe Third Parties An Affirmative Duty Of Care To Discover Criminal ActIt is well-settled California law that land owners are required to maintain land in their possession and control in a reasonably safe condition. California courts look to what are called the “Rowland factors” to evaluate if a duty is owed beyond the principles of Civil Code section 1714:

  • the foreseeability of harm to the plaintiff
  • the degree of certainty that the plaintiff suffered injury
  • the closeness of the connection between the defendant’s conduct and injury suffered
  • the moral blame attached to the defendant’s conduct
  • the policy of preventing future harm
  • the extent of the burden to the defendant and consequences to the community of imposing a duty to exercise care with resulting liability for breach, and the availability, cost, and prevalence of insurance for the risk involved.[1]

In the recent case of Williams v. Fremont Corners Inc., The Sixth Appellate District found that the defendant shopping center had no duty to take affirmative measures beyond those already found in the record to discover criminal activity on the premises.

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What Use Constitutes Adverse Use Sufficient to Establish Prescriptive Easement in California?

What Use Constitutes Adverse Use Sufficient to Establish Prescriptive Easement in CaliforniaIn the recent case of RANCH AT THE FALLS, LLC v. Keith O’Neal et al., a ranch owner tried to establish prescriptive or equitable easement rights along private roads to reach her ranch. Ms. Hart prevailed at the trial court level but was not so fortunate on appeal. California’s second Appellate District concluded that Ms. Hart had failed to meet the hostility requirement to establish prescriptive easement.

Ms. Hart use the private roads from 2002 until 2012. However because Ms. Hart also owned several properties within the homeowners associations named in the lawsuit, she was personally entitled to use the private streets of the communities. The court cited Witkin, noting “Prescription cannot be gained if the use is permissive.”

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Ninth Circuit Rules that Arbitration Clauses Can Cover Racial Discrimination Claims

Ninth Circuit Rules that Arbitration Clauses Can Cover Racial Discrimination ClaimsThe Ninth Circuit has expanded the scope of claims that are subject to arbitration clauses to include racial discrimination claims under 42 U.S.C. Section 1981. Lambert v. Tesla, 2019 U.S. App. LEXIS 14591.

In 2015, DeWitt Lambert, who is African American, began working as a production associate in Tesla’s Fremont, California factory. He claimed that during his employment other employees consistently harassed him and that he was not promoted because of his race. Lambert alleged that his complaints to human resources went nowhere.

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Under The Uniform Voidable Transfer Act, Judgment Creditors May Reach Debtor’s Spouse’s Property Despite a Premarital Agreement.

diemer wei san jose caIn a case of first impression, the Second Appellate District concluded that assuming fraudulent intent, the UVTA (formerly the Uniform Fraudulent Transfer Act) applies to premarital agreements which treat after marriage earnings and assets as separate property.

In 2005, Judgment Creditor Robert Strum obtained a $600k bankruptcy judgment against debtor Todd Moyer. The creditor renewed the judgment and conducted a number of debtor’s examinations. Upon an OEX in 2016, the creditor learned that the debtor married in 2014 and identified Sturm’s judgment as an exhibit to a premarital agreement.

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CALIFORNIA BORROWERS CANNOT WAIVE THE RIGHT OF REINSTATEMENT, EVEN IN A LOAN MODIFICATION.

Diemer Wei San Jose Real Estate LawyersWe are still seeing the effects of the subprime meltdown ripple through the appellate courts. In the case of Taniguchi v. Restoration Homes, what appears on first blush to be a straight forward analysis that under California law borrowers can stop a foreclosure sale by reinstating the loan had a twist.

The Taniguchis own a home in San Mateo County and in 2006, they borrowed $510k. They missed 4 loan payments in 2013, and normally to cure the default with the lender, the borrowers would simply need to reinstate the 4 missed payments and late charges under the promissory note.  Here's the twist back in 2009, the Taniguchis entered into a loan modification that adjusted the principal amount, reduced the interest rate and monthly payments, and deferred until the maturity of the approximately $116k (including accrued and unpaid interest and principal, fees, and foreclosure expenses).

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Always Perfect Your Interest – A Petroleum Producer Learns an Invaluable Lesson

Always Perfect Your Interest A Petroleum Producer Learns an Invaluable Lesson U.C.C Section 9-319(a) grants a consignee ownership rights in consigned goods. Does it also apply to proceeds from the sale of those goods? In the recent decision of In Re Pettit Oil Company, the Ninth Circuit said that it does, holding that proceeds from goods held by a consignee at the time of a bankruptcy filing are subject to the perfection and priority rules in the Bankruptcy Code.

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Supreme Court Holds That A Law Firm Conducting Foreclosures Is Not A “Debt Collector” Under the Fair Debt Collection Practices Act

California Supreme Court Rules Foreclosure Purchasers Need To Record Their Trustees Deed Before StarThis week the Supreme Court issued their opinion in Obduskey v. McCarthy & Holthus LLP. In 2007, Obduskey bought a house in Colorado, borrowed $330k from a lender and secured repayment of the loan with a mortgage (or deed of trust) against the house. In 2014, Wells Fargo hired the law firm of McCarthy & Holthus LLP to commence foreclosure as the borrower was in default.

The firm sent a letter to borrower as required under state law to commence the foreclosure. The opinion did not publish the text of that initial letter but I suspect it contained a “mini Miranda” which is common in demand letters, ie, that this could be considered an attempt to collect a debt under the Fair Debt Collection Practices Act. (“FDCPA”). The borrower disputed the debt and invoked section 1692g)b of the FDCPA which would require a debt collection to cease collection until it obtains verification of the debt.

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Beautiful Boundaries – A Split in the California Appellate Courts.

One California Appellate Court Grants Marin County Neighbor Irrevocable Parol License But Denies Equitable Easement. Another Denies The Accommodation of a Trivial Expense.

by Julia M. Wei, Esq. and Alexander J. Lewicki, Esq.

Beautiful Boundaries A Split in the California Appellate CourtsNeighbor disputes over shared boundaries can arise over a misplaced fence, a shared driveway, or water rights. These claims are heavily fact-based and often the accuracy of the modern survey can only be overcome with meeting the elements for adverse possession or prescriptive easement.

In recent decades California courts have fashioned various remedies instead, such as the equitable easement and even the “irrevocable parol license” over someone else’s property.

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Third party records such as bank statements are fair game in post judgment discovery

Third party records such as bank statements are fair game in post judgment discoveryA new ruling from California’s 6th Appellate District clarifies what appeared to be a gap in what is permitted for post-judgment document discovery on third parties.

California’s Enforcement of Judgment laws (enumerated in the California Code of Civil Procedure)+ §680.010 et seq.) has very clear code sections on what is allowed for discovery of the judgment debtor:

  1. the judgment creditor may propound interrogatories (§708.020), and may seek production of judgment debtor’s financial records (§708.030); and
  2. the judgment creditor may take the debtor’s examination (§708.110) “The judgment creditor may apply to the proper court for an order requiring the judgment debtor to appear before the court, or before a referee appointed by the court, at a time and place specified in the order, to furnish information to aid in enforcement of the money judgment.”
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FLSA UPDATE: United States Department of Labor Issued New Regulations

FLSA update diemer wei san jose caThe United States Department of Labor issued new regulations today affecting the white collar exemptions to the overtime wage and hour laws under FLSA. (The Fair Labor Standards Act.) DOL apparently set a new threshold amount for claiming the exemption. Workers must now make $35,308 per year in order to claim any of the white collar exemptions. The effect of the new overtime rules, issued today, March 7, 2019, is unclear as a number of groups have indicated that they intend to take legal actions related to these new regulations.

[DOL’s Fact Sheet here: https://www.dol.gov/whd/overtime/fs17a_overview.htm]

Diemer & Wei, LLP routinely represents employers related to wage and hour claims. Please call if you need legal advice about this type of matter, or are concerned about how the new rules might affect your business operations.

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How Small Partnerships End in California

How Small Partnerships End in CaliforniaThe California Corporations Code requires founders to follow specific procedures and file specific forms before the entity comes into existence. For example, articles of incorporation must be filed with the Secretary of State in order to create a corporation. In contrast, a general partnership can be formed without any document at all.

A partnership is formed when two or more individuals co-own a business for profit. Cal. Corp. § 16101 (9). No writing at all is required to form a partnership. However, written partnership agreements are often created by the partners and this article discusses one reason why a partnership agreement is important.

For example, Sallie and Juan open a bakery shop together in downtown San Jose. Sallie buys all the groceries, pays for them and hires the staff. Juan gets up early, bakes everything and stocks the display windows. Together Sallie and Juan help customers and man the cash register. At the end of each day, they split the proceeds after costs are paid. They are clearly doing business together in their San Jose bakery. Even without a written partnership agreement or the intent to form a partnership, they have.

However, one day Sallie tells Juan that she has to move out of state to care for an elderly relative. Sallie leaves San Jose for Reno the next day. Juan no longer has a partner.

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