Mcle Self-study Article Where Agreements Won't Work - a Word to the Wise Regarding Strict Wage and Hour Liability and Related Claims

• Publication year: 2023
• Author: Written by Daniel C. Kim* and Ryan Abernethy*

MCLE SELF-STUDY ARTICLE WHERE AGREEMENTS WON'T WORK - A WORD TO THE WISE REGARDING STRICT WAGE AND HOUR LIABILITY AND RELATED CLAIMS

Written by Daniel C. Kim* and Ryan Abernethy*

I. SYNOPSIS

Ed was a vibrant and healthy 85-year-old. One day, he decided to sign an advance healthcare directive providing that if his physical condition ever declined, he wished to remain in his home as long as possible with the help of live-in caregivers and other staff, as needed. Although his wife, Donna, and his daughter, Taylor, tried to assist Ed on their own, Ed's growing needs became more than they could handle. They decided to bring in a live-in caregiver, Paula, who was a family friend. Paula was loosely hired by all three of them. Ed and his wife, Donna, were trustees of their family revocable trust. Taylor was Ed's acting agent under his advance healthcare directive. No written employment agreement was signed by the parties. Paula was expected to work a "standard" workday, Monday through Friday, but was expected to be "on-call" during the evenings, weekends, and holidays. The family verbally agreed to pay Paula $500 per week, which was more than she made at her last job, so she felt she was adequately compensated. Moreover, over the years, Ed repeatedly promised her that after he passed, his estate would be sure to "take care of her." Based on this promise, Paula selflessly cared for Ed until he sadly passed away more than ten years later. She did not pursue any other employment, despite having a number of great opportunities.

Following his death, Paula was stunned to learn that she was not a beneficiary of Ed's estate. She also learned from an attorney-friend that her work arrangement with the family did not comply with various labor laws. Paula filed a creditor's claim in Ed's estate and a subsequent lawsuit against Donna, as successor trustee and personal representative, and Taylor, as former agent under the advance healthcare directive. Paula alleged the following causes of action:

• Breach of contract (breach of a promise to make a will)
• Elder financial abuse
• Failure to pay overtime wages⁰¹
• Failure to furnish timely and accurate itemized wage statements⁰²
• Failure to provide mandated meal and rest breaks⁰³
• Violation of limitation on hours and days of work⁰⁴
• Failure to pay compensation due upon termination/ waiting time penalties⁰⁵
• Negligent misrepresentation
• Quantum meruit
• Unlawful business practices

Although the above facts are hypothetical, they are adapted from the authors' personal litigation experiences and a review of court filings across California. It appears the published appellate case law concerning wage and hour litigation against fiduciaries is nearly nonexistent. The

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upward trend in court filings, however, reveals an increase in wage and hour litigation that cannot be denied.

This article aims to provide a general overview of some of the most common wage and hour issues that may be encountered by our readership. Many attorneys and fiduciaries are at risk of unwittingly stepping into a wage and hour dispute that can potentially entail claims reaching years and years into the past and exposing fiduciaries (and in some cases, the attorneys) to personal liability.

II. RELEVANT BACKGROUND IN LABOR AND EMPLOYMENT LAW

A. Establishing the Employment Relationship

Trustees, conservators, personal representatives, and other fiduciaries often serve in roles where they knowingly or unknowingly act as an employer. For example, such professionals or private individuals serving in these roles may manage and employ household staff including: caregivers, cleaners, gardeners, drivers, handymen, etc. They may also participate in managerial activities such as hiring and firing workers, managing companies,⁰⁶ running agricultural operations, and managing payroll. They may even simply be aware of a neighbor providing neighborly "help," and believe there is no employment-related liability for the trust. The attorneys assisting their client-fiduciaries may also be involved in the hiring, firing, or managerial activities.

However, what is perhaps lesser known to practitioners who practice mainly in trust and estate law, is that the establishment of an employment relationship is more vague, arguable, indirect, and possible in more situations than one might imagine. As discussed below, the mere act of "permitting" work to occur and benefitting from that work can potentially create an employment relationship.

1. The Labor Code's Definition of an Employer

The California Labor Code provides a broad definition of an employer. California Wage Orders⁰⁷ and the Labor Code define an employer as any "person, association, organization, partnership, business trust, limited liability company, or corporation," that: (1) exercises control over wages, hours, or working conditions, or (2) suffers or permits to work, or (3) engages, thereby creating a common-law employment relationship.⁰⁸

Various California Wage Orders also provide that establishing an employment relationship is not always an express decision that is knowing and intentional. For example, "employ" means to engage, suffer, or permit to work.⁰⁹ Thus, simply observing and "permitting" someone to work can potentially establish an employment relationship. Similarly, "employer" means any person (as defined in section 18 of the Labor Code), "who directly or indirectly, or through an agent or any other person, employs or exercises control over the wages, hours, or working conditions of any person" (emphasis added).¹⁰ Even the concept of "hours worked" is one where a passive role of indirect permission may suffice.¹¹ These broad definitions should concern fiduciaries and their attorneys regarding the possibility of potential, unintended employment relationships and their related liabilities.

2. Authority to Employ Under the Probate Code

The Probate Code is littered with statutes granting individuals serving in various fiduciary roles (trustees, personal representatives, agents under powers of attorney, etc.) the authority to employ individuals for services rendered. For example, trustees have an express power to hire persons. Probate Code section 16247 provides:

The trustee has the power to hire persons, including accountants, attorneys, auditors, investment advisers, appraisers (including probate referees appointed pursuant to Section 400), or other agents, even if they are associated or affiliated with the trustee, to advise or assist the trustee in the performance of administrative duties.

The trustee has the power to pay reasonable compensation to employees and agents of the trust, including expenses incurred in the collection, care, administration, and protection of the trust.¹² For example, the trustee has the power to hire individuals to make ordinary or extraordinary repairs, alterations, or improvements to buildings or other trust property.¹³ Other types of fiduciaries have similar authority under the Probate Code to employ workers.¹⁴

B. Classification as an Employee Versus Independent Contractor

Generally speaking, those who provide services in exchange for compensation can be classified either as an employee or an independent contractor. All of the applicable standards currently in effect, as discussed below, establish a rebuttable presumption that a worker is an employee and not an independent contractor.¹⁵

The distinction between an employee and an independent contractor is an important one. Misclassification as an independent contractor deprives a worker of a host of rights and protections available to employees. For example, the following are generally not applicable to contractors:

• Leave laws
• Minimum wage

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• Overtime
• Expense reimbursements
• Meal and rest periods
• Workers compensation
• Employer benefits offered to employees

Thus, for an employer, validly classifying workers as independent contractors can significantly reduce the burden of complying with California's employee-favored labor and employment laws and reduce employment-related expenses (e.g. taxes, unemployment contributions, etc.).

Additionally, numerous state and federal agencies scrutinize worker classification and actively enforce relevant laws:

• IRS (taxes)
• U.S. Department of Labor and the California Department of Labor Standards Enforcement (wage & hour enforcement)
• U.S. Equal Employment Opportunity Commission and the California Department of Fair Housing & Employment (harassment, discrimination, retaliation claims)
• California Employment Development Department (employment taxes & unemployment claims)
• California Department of Industrial Relations (workers' compensation)
• National Labor Relations Board (labor law/unions)

Importantly, companies and individuals do not have the power to choose to classify a worker as an independent contractor by contract or agreement. Classification is based upon objective criteria and not based on the parties' intent or desire. The relevant test for independent contractor status must be met and there are multiple tests that apply.¹⁶Discussed below are the most commonly required tests, including the Borello test and the ABC test.¹⁷

1. The Old Borello Test

The California Supreme Court established the Borello test in 1989.¹⁸ The test relies upon multiple factors to make the determination, including whether the potential employer has all necessary control over the manner and means of accomplishing the result desired, although such control need not be direct, actually exercised, or detailed. This factor, which is not dispositive, must be considered along with thirteen (13) other factors, which include:

1. Whether the worker performing services holds themself out as being engaged in an occupation or business distinct from that of the employer;
2. Whether the work is a regular or integral part of the employer's business;
3. Whether the employer or the worker supplies the instrumentalities, tools, and the place for the worker doing the work;
4. Whether the worker has invested in the business, such as

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