Give and Take: Appellate Decisions in California Clarify the Applicability of Wage and Hour Laws and a Sexual Harassment Statute, but May Increase Employer Logistical Burdens


I. Introduction – Clarification of the Applicability of (1) California Wage and Hour Laws to Employees Who Work only Part of the Time in California for Out-of-State Employers and (2) California’s Harassment Law Prohibiting Sexual Harassment in Professional Relationships

Three appellate cases in June and July 2020, two from the California Supreme Court and one from the Ninth Circuit U.S. Court of Appeals, clarify (1) the applicability of California wage and hour laws to employees who work only part of the time in California for employers based outside of California, and (2) how courts should determine whether section 51.9 of the Civil Code, which prohibits sexual harassment in business relationships outside the workplace, applies to such relationships that are “substantially similar” to relationships enumerated in that statute. 

Lessons:  The cases inform employers, employees and persons in other business or professional relationships, of the following:

  1. An out-of-state employer that has a worker who works principally in California must comply with California laws that govern the information to be included on that employee’s wage statements and the timing of payment of wages to that employee. 
  2. Such an employer whose worker works principally in another state does not need to comply with those laws as to that employee.
  3. Where employees of an out-of-state employer do not perform a majority of their work in any one state, but the workers perform some of their work in California and are based here, that is, the physical location where they present themselves to begin work is in California, the employer must comply with the wage statement and wage payment laws with regard to those employees.
  4. Where an employee is based outside of California and works more than half the time in another state, the laws that require certain information on wage statements and that govern the timing of wage payments do not apply to the limited amount of time the employee works in California. 
  5. These principles govern the applicability of the laws regarding wage statements and the timing of pay to employees on a pay period by pay period basis.  The location in which work is performed and the location of the base of operations for that employee in each pay period governs whether California Labor Code sections 204 and 226 apply during that pay period.  Therefore, while the California Supreme Court has relieved out-of-state employers of the burden of possibly having to comply in one pay period with multiple state laws on wage statements and timing of employee pay, employers will have the potential logistical burden of shifting obligations from one pay period to the next based on the state in which an interstate employee primarily works in a pay period. 
  6. A compensation scheme that does not promise particular compensation for a particular hour of work and that guarantees a level of compensation exceeding the minimum wage for each duty period and rotation is compliant with California’s minimum wage laws as well as the case law that prohibits an employer from “borrowing” compensation from one set of hours in which the employer pays compensation exceeding the minimum wage for another set of hours in which pay is less than the minimum wage, to come up with an average wage rate meeting the minimum wage requirement. 
  7. The prohibition of sexual harassment under California Civil Code section 51.9, which provides a cause of action for such harassment, applies to a business or professional relationship outside the workplace that is not enumerated in the statute, where “an inherent power imbalance exists such that, by virtue of his or her ‘business, service, or professional’ position, one party is uniquely situated to exercise coercion or leverage over the other.”  While this standard is stated in an opinion by a federal appellate court, it is likely predictive of how a California court would rule. 

II. California statutes governing wage statements and the timing of wage payments apply to interstate employees who perform a majority of their work in California or who do not work most of the time in any one state but for whom California serves as their base of work operations. 

In a pair of cases decided on June 29, 2020, Ward v. United Airlines, Inc., 9 Cal.5th 732 (2020) and Oman v. Delta Air Lines, Inc., 9 Cal.5th 762 (2020), the California Supreme Court clarified the application of California wage and hour laws to employees who work part of the time in California and the rest outside of California, for employers based outside of California.  In Ward, the Court held that the applicability of California Labor Code section 226, which requires certain information on wage statements, “depends on whether [the employees’] principal place of work is in California.”  For “interstate transportation workers who do not perform a majority of their work in any one state, this test is satisfied when California serves as their base of work operations, regardless of their place of residence or whether a collective bargaining agreement governs their pay.”  In Oman, the Court held that the applicability of Labor Code section 226 and Labor Code section 204, which requires that all wages earned by an employee be paid be paid twice a month, apply “only to pay periods during which an employee predominantly works inside California.” 

The issue in Ward, certified from the Ninth Circuit U.S. Court of Appeals, was whether section 226 applied “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”.[1]  The Court’s analysis of this issue began with the acknowledgment that “[t]here is no single, all-purpose answer to the question of when state law will apply to an interstate employment relationship or set of transactions.”  Each law must be considered “on its own terms.” 

Noting that section 226 and its accompanying Labor Code provisions are “intended to ensure workers are correctly and adequately compensated for their work,” the Court inferred “that the relevant geographic connection for purposes of determining what state law applies is where that work occurs.”  Such a “work-location-based test” must “reconcile the possibility that some employees may perform their work in more than one jurisdiction with the legislative desire for a single statement documenting employee pay.”  Achieving that reconciliation requires application of the “insight” guiding courts that seek to discern the geographic scope of California law:  “the Legislature ordinarily does not intend for its enactments to create conflicts with other sovereigns.” 

Applying these principles, the Court inferred “that the Legislature intended for section 226 to apply to workers whose work is not performed predominantly in any one state, provided that California is the state that has the most significant relationship to the work.”  As to interstate workers in the transportation and other industries, “who do not work more than half the time in any one state, . . . this principle will be satisfied if the worker performs some work here and is based in California, meaning that California serves as the physical location where the worker presents himself or herself to begin work.” 

Specifically applied to section 226, “workers are covered if they perform the majority of their work in California; but if they do not perform the majority of their work in any one state, they will be covered if they are based for work purposes in California.” 

In Oman, a case involving wages of flight attendants, the California Supreme Court held that, consistent with the holding in Ward, California laws governing wage statements and the timing of wage payments “apply only to flight attendants who have their base of work operations in California”.  The Court also held that, whether or not California minimum wage law applies to work by flight attendants while on the ground in California, Delta Air Lines’ “pay scheme” complied with those minimum wage requirements. 

The issues that the Ninth Circuit (where the case was pending) had certified to the California Supreme Court were (1) whether sections 204 and 226 of the Labor Code apply to wage payments and statements provided by an out-of-state employer to an employee who worked in California “only episodically and for less than a day at a time;” (2) whether California’s minimum wage law applies “to all work performed in California for an out-of-state employer by an employee who works in California only episodically and for less than a day at a time;” and (3) whether the bar, developed by California case law, on averaging wages applies “to a pay formula that generally awards credit for all hours on duty, but which, in certain situations resulting in higher pay, does not award credit for all hours on duty”. 

The Court applied the analysis established in Ward to determine “whether a few minutes or hours of work in California necessarily trigger the detailed pay-period documentation requirements of California law [under section 226],” and answered that question, “no: Employees are entitled to California-compliant wage statements only if California is the principal place of their work.”  It concluded that “section 226 does not apply to work performed in California during pay periods in which the employee, based outside California, works primarily outside California.” 

Because section 204 of the Labor Code “works hand in hand with section 226,” the Court saw “no reason to interpret section 204’s geographic coverage differently from that of section 226.” 

Addressing the second and third issues, whether California’s minimum wage law applied to “the hours (or fractions thereof) that Oman worked on the ground in California,” and, if so, whether Delta’s method of computing his wages complied with that law,” the Court punted on determining the geographic reach of the minimum wage laws, because, it concluded, even if they did apply, Delta was in compliance.  Under Delta’s compensation rubric, “flight attendants are paid according to whichever formula yields the largest amount for the complete rotation.”  It was “undisputed that under this compensation scheme, flight attendants are always paid, on an hourly average, above the minimum wage.” 

The Court determined that the scheme did not violate California’s prohibition on borrowing compensation paid at higher than the minimum wage for one set of hours to comply with minimum wage requirements where an employer paid under the minimum wage in another set of hours.  “State law prohibits 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, regardless of whether the average of paid and unpaid (or underpaid) time exceeds the minimum wage.”  In accordance with Wage Order No. 9, §§ 2(H), 4, and Labor Code section 221 to 223, “[f]or all hours worked employees are entitled to the greater of the (1) amount guaranteed by contract for a specified task or period, or (2) the amount guaranteed by the minimum wage.” 

Delta’s compensation scheme was compliant, because its “four-formula method for calculating compensation guarantees that flight attendants are always paid above the minimum wage for the hours worked during each rotation without borrowing from compensation promised for other rotations.”  No borrowing from one set of hours to another set of hours occurs, because “the scheme, taken as a whole, does not promise any particular compensation for any particular hour of work; instead, . . . it offers a guaranteed level of compensation for each duty period and each rotation.  Because there are no on-duty hours for which Delta contractually guarantees certain pay – but from which compensation must be borrowed to cover other un- or undercompensated on-duty hours – the concerns presented by the compensation scheme in Armenta [v. Osmose, Inc. (2005)] 135 Cal.App.4th 314 and like cases[, which hold that an employer may not average out times at work for which it pays no compensation or compensation under the minimum wage with times at work for which it pays more than the minimum wage to meet minimum wage requirements], are absent here.” 

III. California Civil Code section 51.9’s prohibition on sexual harassment in professional relationships applies where, because of an inherent power imbalance, one party is uniquely situated to exercise coercion or leverage over the other.

In Judd v. Weinstein, 2020 WL 4343738 (9th Cir. July 29, 2020), the U.S. Court of Appeals, interpreting California law, held that California Civil Code section 51.9, which prohibits sexual harassment in a variety of business relationships that are not in the context of employment, covers the producer-client relationship that Harvey Weinstein had with Ashley Judd.  Concluding that the U.S. District Court’s dismissal of her claim under section 51.9 was error, the appellate court reversed. 

While the California legislature amended section 51.9, effective January 1, 2019, to explicitly include directors and producers to the categories of persons that the statute encompasses, the Court’s analysis in concluding that the statute covered such professionals through its catch-all provision is instructive.  At the time Judd filed her lawsuit, section 51.9 required a plaintiff to plead four elements to state a cause of action:

  • First, that a business, service or professional relationship exists between the plaintiff and defendant, including but not limited to relationships in which the defendant was (a) a doctor, psychotherapist or dentist, (b) an attorney, holder of a master’s degree in social work, real estate agent or appraiser, accountant, banker, trust officer, financial planner, loan officer, collection service, building contractor, or escrow loan officer, (c) an executor, trustee or administrator, (d) a landlord or property manager, (e) a teacher, or (f) “a relationship that is substantially similar to any of the above;” (emphasis added)
  • Second, the defendant made sexual advances, solicitations, sexual requests, or demands for sexual compliance by the plaintiff “that were unwelcome and persistent or severe, continuing after a request by the plaintiff to stop;”
  • Third, that there “is an inability by the plaintiff to easily terminate the relationship without tangible hardship;” and
  • Fourth, that the plaintiff suffered or will suffer economic loss or disadvantage or personal injury as a result of the conduct described in the second element.

Since the appellate court was reviewing a ruling on a motion to dismiss an amended complaint, the court took as true all facts alleged in that pleading, which included a description of sexual importuning that clearly met the second element of the claim.  The main issue was whether the relationship between Weinstein and Judd was “substantially similar” to the relationships enumerated in section 51.9.  Although Weinstein argued that the enumerated relationships were “so idiosyncratic that” they could not be the basis of finding that his relationship with Judd was substantially similar, the Court of Appeals disagreed. 

Since the California Supreme Court had not “squarely addressed” the issue, the U.S. appellate court had to “predict how the highest state court would decide the issue using intermediate appellate court decisions, decisions from other jurisdictions, statutes, treatises, and restatements as guidance.”  Far from finding the enumerated examples in section 51.9 idiosyncratic, the Court found that each of them “consists of a relationship wherein an inherent power imbalance exists such that, by virtue of his or her ‘business, service, or professional’ position, one party is uniquely situated to exercise coercion or leverage over the other.” 

The potential for abuse of power by those in the enumerated “business, service, or professional” positions, “also exists in the producer-actor relationship.”  In an amicus brief, the Screen Actors Guild explained that the film industry still contains “a small cadre of top producers and executives” with “considerable power to make or break actors’ careers,” in light of the relationship-oriented business in Hollywood.  Judd’s complaint presented just such a scenario: she had been engaged in discussions with the director and producer of the Lord of the Rings movies, who intended to cast her, until comments by Weinstein to them about her being a “nightmare to work with” caused them to rethink working with her. 

Under “the facts as alleged, the relationship between Judd and Weinstein was characterized by a considerable imbalance of power substantially similar to the imbalance that characterizes the enumerated relationships in section 51.9.”  Rejecting Weinstein’s argument that the relationships enumerated in section 51.9(a)(1) did not all share a power imbalance as an element, the Court explained that “the fact that the traditional balance of power in a relationship may be flipped in some scenarios does not negate the reality that a power imbalance nevertheless tends to exist in these relationships under normal circumstances.” 

The allegations of Judd’s complaint also met the third element, “an inability by the plaintiff to easily terminate the relationship without tangible hardship,” given “Weinstein’s highly influential and ‘unavoidable’ presence in the film industry . . . .”  Addressing the District Court’s conclusion that section 51.9 did not apply because Weinstein and Judd’s relationship “centered around employment or potential employment,” and section 51.9 applies only to relationships outside the workplace, the Court of Appeals held that the issue whether it was an employment relationship is a question of fact that cannot be resolved on a motion to dismiss. 

[1]           The other issue certified by the Ninth Circuit to the California Supreme court was whether section 226 of the Labor Code applies to wage statements issued to an employee who works under a collective bargaining agreement.  The Court held that the section 226 requirements applied to such employees, because the explicit exemption from wage statement requirements in California Wage Order No. 9, for employees who had entered into a collective bargaining agreement, applies only to the wage statement requirements under that Wage Order and not to such requirements stated in the Labor Code.