Would you believe that two airline cases just might affect truck transportation in California? The following is just another reason not to have trucking employees in California. Once again California is raising its anti-business head. This is also why it is so important to utilize real Independent Contractors who have established businesses. Gone are the days when you could grab a driver off the street, put him in your truck, and call him an Independent Contractor. Believe it or not, this term has been deemed just a label – it means nothing more to the courts. Also, gone are the days when you could plead, “But your Honor, we issued him/her a 1099 at the end of the year.” Once again, all this term means to the Courts is that you didn’t deduct any taxes and nothing more.
Now you may wonder how two airline cases would affect the transportation industry. Well, one of my duties at NTA (NorthAmerican Transportation Association) is to review any lawsuits in the United States, on a daily basis, that might have a bearing on the transportation industry, especially trucking, and any misclassification lawsuits of drivers. This is why we have a variety of transportation companies such Boeing, Coyote Logistics (a division of UPS), PepsiCo, Transport American, United Parcel, Walmart and many more come to our website (www.ntassoc.com) or Facebook page to check up on the latest news, as well as state and federal regulations.
Just recently in two court cases involving Delta Air Lines and United Airlines, the California Supreme Court found that the California Labor Code, Section 226, which has detailed requirements for wage payroll statements, only applies to any pay period in which the employees’ principal place of work is in California. For interstate workers whose work is not primarily performed in any single state that is more than 50%, the Court held that Section 226 will apply if the workers have their base of work operations in California. The Court did not define what would constitute a “base of work operations” but suggested
that designating an employee as assigned to or associated with a particular terminal or location would suffice.
The Court did not create any exceptions for nonresident employees or companies based outside of California. Therefore, all employers must give California compliant wage statements to any employee whose principal place of work in a “given pay period” is in California. Now think about that for a moment. However, the Labor Code Sections 204 and 226 do not apply to pay periods in which an employee works only “episodically” and for less than a day at a time in California unless the employee works primarily in California during the pay period, or does not work primarily in any state, but has his or her base of operations in California.
The Court left open the question of whether California’s minimum wage laws applied to interstate workers employed by non-California employers, because it concluded that Delta Air Lines’ compensation policy complied with California law. Nevertheless, the Court’s analysis could prove helpful for motor carriers confronted with California minimum wage claims or setting up piece-rate compensation policies.
More importantly, the Court held that California’s minimum wage laws gave employers and employees the flexibility to broadly define the work paid by the piece-rate pay, subject to two requirements: 1) the average rate for the piece-rate work is at least the minimum wage; and 2) under the California Labor Code 226.2, the employer must still pay piece-rate to employees separate wages for “non-productive time” (that is work that is not directly related to the activity paid by the piece). Motor carriers who pay drivers on a piece-rate basis and dispatch those drivers to and from California should consider reviewing all their compensation policies to make sure they comply with the Court’s interpretation of California’s minimum wage laws.
Now here is a situation: does Section 226 apply to wage statements provided by an out-of-state employer to an employee who resides in California, receives pay in California, and pays California income tax on his or her wages, but who does not work principally in California or any other state? The answer is maybe. In other words, the question whether Section 226 applies is two-fold.
First, consider whether the employee works more than half of his/her time in any one state. If the answer is yes, and that state is California, Section 226 applies. If the answer is yes, and that state is not California, Section 226 does not apply.
Second, if the employee does not work more than half of his/her time in any one state, consider “whether the employee has a definite base of operations in California, in addition to performing at least some work in the state for the employer.” If the answer is yes, Section 226 applies. If the answer is no, Section 226 does not apply (the Court did not address any additional considerations for employees who are not localized nor have any established base of operations in any state).
To complicate matters more, California’s limits on “wage borrowing” permit compensation schemes that promise to compensate all hours worked at a level that is at or above the minimum wage, even if particular components of those schemes fail to attribute to each and every compensable hour a specific amount equal to or greater than the minimum wage. So, to put this another way, in this decision, the California Supreme Court for the first time endorsed the rule against “wage borrowing” established in an earlier case and adopted in later Court of Appeal decisions, holding that an employer may not satisfy its obligation to pay at least the minimum wage for all hours worked by borrowing compensation contractually owed for one set of hours or tasks to rectify compensation below the minimum wage for a second set of hours or tasks.
Are you confused? You should be – it’s complicated. Now, after all this gobbley-gook, ask yourself, do you still want to have interstate employee drivers? Probably not! If you have questions, need advice, or want to learn more about the benefits of becoming a member of NTA, call us at (800) 805-0040 or visit our website (www.ntassoc.com) today.
