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California Supreme Court’s 2014-2015 term: Cases involving the workplace

By J. Clark Kelso

Clark Kelso

In recent years, government laws and regulations regulating the workplace have become more prominent in policy and political discussions. Some state and local governments have increased the minimum wage, an issue that will undoubtedly be part of the 2016 presidential contest. The definition of “employer” is being tested by new types of business enterprises such as Uber. The National Labor Relations Board has become a much more central and controversial regulator of the employment marketplace. Stories are circulating about harsh workplace conditions abroad and within the United States, including at such high-tech fliers as Amazon.

The California Supreme Court dealt with a number of these issues during its 2014-2015 term. We start with a case dealing with the question of whether a franchisor can be held vicariously liable for misconduct by a supervisor employed by a franchisee, a question that requires the court to revisit what it means to be an employer. Next, we review a decision applying the primary assumption of risk doctrine to an employee who works in an inherently dangerous occupation. Our third case involves the application of California “wage orders” in the context of on-call employees. Finally, we have a case involving the definition of causation in the context of a workers’ compensation claim.

The cases present a mixed picture. The first two cases involve the application of time-honored, common law principles. These cases tend to favor the employer’s interests. The second two cases involve the application of statutory and regulatory provisions, and these cases tend to favor the employee’s interests. In all four cases – and this is the real message from this year’s decisions – the court essentially sticks to the existing law, following common law principles when there are no statutes or regulations in derogation, and fully embracing such statutes or regulations when they exist.

Are you my employer?

The consumer retail environment in the United States is a complex tangle of corporate relationships and contracts. One of the most common business structures for retail sales, particularly under nationally known trade names, is the franchise relationship.

To an ordinary consumer on the street, it may look like you are buying your pizza from Domino’s. But behind the name over the door, there is actually a detailed franchise contract between Domino’s, the franchisor and a local small business that operates the Domino’s outlet as a franchisee. Under the modern “business format” model of franchising, the franchisee pays fees and royalties from sales to the franchisor in return for the right to sell products or services using the franchisor’s trade names and trademarks. The franchisee also agrees to implement a detailed business plan that sets forth standards and procedures. The plan usually encompasses such things as marketing, production, business operations, information technology and administration.

The benefits to the franchisor from this structure are substantial. It can focus its attention upon raising capital and expanding the number of stores while letting local businesses handle the time-intensive management of day-to-day operations, including the hiring, management and firing of franchisee employees. The franchisee, who is often an individual or small business entrepreneur, gets the benefits of a nationally known product or service, nationally proven processes and standards and the opportunity to grow the business locally.

Given this division of responsibilities, when someone is injured as a result of local operations the question naturally arises whether the franchisee or franchisor or both can be held legally responsible. In the context of product-related injuries, the law generally makes both legally responsible based on reasoning that traces from McPherson v. Buick through modern product liability law. When an injury results from the wrongful conduct of a local employee, the liability question has generally been analyzed under the law of agency where the key question is whether the franchisee employee is also an employee of the franchisor. That inquiry usually focuses on whether the purported employer has sufficient control over the “manner and means” by which work is accomplished.

In a case of first impression in California, the court held in Patterson v. Domino’s Pizza, LLC, 60 Cal.4th 474 (2014) that a local supervisor was not an employee of the franchisor in the context of a sexual harassment suit brought by a former franchisee employee who claimed damages under the Fair Employment and Housing Act and various common law causes of action. In so holding, the court rejected the argument that the franchise agreement gave the franchisor such pervasive control over business operations that the franchisor must be found to be an employer. Instead, the court homed in more narrowly upon those aspects of the franchise contract which gave the franchisor control and those aspects which gave the franchisee control. Emphasizing that the contract and the practice under the contract showed that the franchisee had control over hiring, discipline and firing, and that the franchisor had no control over those aspects of the business, the court affirmed a summary judgment in favor of Domino’s.

The decision in Patterson is a strong endorsement of the “business format” model of franchising in which the franchisor can insulate itself from the significant risks associated with local business practices involving employee hiring, discipline and termination.

How dangerous is this job?

Workplace injuries have historically been a troubled subject for the common law. Recall the so-called “unholy trinity” of tort defenses to workplace injuries that, in the 19th century, denied compensation to the vast majority of employees injured on the job. No matter the circumstances of the injury, employees usually lost because of contributory negligence, the fellow-servant rule or assumption of risk. The hurdles to tort compensation were so great that state legislatures felt compelled to intercede on the workers’ behalf with statutory workers’ compensation systems.

Over time, the unholy trinity receded from view. Contributory negligence was replaced with comparative fault, the fellow-servant rule was limited by case law and then by statute, and assumption of risk appeared to have merged into comparative fault.

Sometimes, however, old wine sitting in dusty bottles in the cellar can be rediscovered and find favor with a new palate. That appears to be what is happening with primary assumption of risk, which has reemerged as a significant defense in an expanding set of circumstances. The modern reemergence began 23 years ago with Knight v. Jewett, 3 Cal.4th 296 (1992), where the court held that the plaintiff could not recover for injuries sustained from the ordinary rough-and-tumble activities of a touch football game. For a while, Knight appeared to be limited to sports activities, but in Nalwa v. Cedar Fair, L.P., 55 Cal.4th 1148 (2012), the court expressly expanded the doctrine beyond sports to include commercially provided recreational activities (in Nalwa, a customer was denied recovery for an injury suffered while driving a bumper car at a fair).

During this same period of time, the court recognized that the “firefighter’s rule” – which bars firefighters and police officers from suing members of the public for injuries resulting from fighting fires or engaging in law enforcement activities – was actually a specific instance of primary assumption of risk. In Priebe v. Nelson, 39 Cal.4th 1112 (2006), the court extended the firefighter’s rule to bar a worker in a veterinary kennel from suing the owner of a dog that bit her.

This year, in Gregory v. Cott, 59 Cal.4th 996 (2014), we see the strands of these cases woven together into a more generalizable primary assumption of risk defense. In Gregory, the plaintiff was employed by a home health care agency. The defendant hired the agency to assist with the care of his 85-year-old wife who suffered from Alzheimer’s disease, and the plaintiff was given the assignment. The plaintiff was trained to care for Alzheimer’s patients and knew they could be combative, violent and unpredictable. One morning, while the plaintiff was washing a large knife at the sink, the Alzheimer’s patient came up behind her, bumped her and caused her to drop the knife, which seriously injured the plaintiff’s hand. The plaintiff received a workers’ compensation recovery from her employer but wanted to recover additional damages from the defendant in tort.

The court held that primary assumption of risk barred the claim, describing the risk presented to the plaintiff as an “inherent occupational hazard” (Id., 59 Cal.4th at 1001) which the plaintiff was “hire[d] … to handle” (Id., 59 Cal.4th at 1002). The court tries in various ways to limit the scope of its holding, indicating that “[t]he rule we adopt today is limited to professional home health care workers who are trained and employed by an agency.” Id., 59 Cal.4th at 1008-09. However, efforts to limit the logic of assumption of risk seem likely to fail. Certainly the trend over the last 23 years has been to steadily expand the defense to additional circumstances.

Did my workplace cause my injury?

When workers’ compensation systems were first created, the various stakeholder interests forced a tradeoff in the rules of the game. The fault-based rules from the tort system – along with the unholy trinity of defenses – were discarded so that compensation for injuries could be more certain and swift. To balance this employee gain, the levels of compensation that employees could receive were reduced, and employers were protected from being sued in tort. So employees traded lower levels of compensation for more certain and swift payment. The precise elements of this balance are periodically reviewed and adjusted by the Legislature as employers, employees and insurance companies advocate for their interests.

In South Coast Framing, Inc. v. Workers’ Compensation Appeals Board, 61 Cal.4th 291 (2015), the court reaffirmed one of the legal tradeoffs that benefited employees. The employee in South Coast Framing was injured on the job when he fell eight to 10 feet while working as a carpenter. His workers’ compensation physician prescribed various drugs to treat his injuries, including several pain relievers and an antidepressant. His personal doctor subsequently prescribed an anti-anxiety medicine and a sleep aid. Six months later, his wife found him dead, and an autopsy concluded the death was an accidental overdose from the combined toxic effects of the antidepressant, one of the pain relievers, the anti-anxiety medicine and the sleep aid.

In light of the fact that two of the four overdose drugs had been prescribed by the employee’s personal physician, the question for the court was whether the overdose was caused by or arose out of the workplace.

In the law of torts, the causation standard requires a showing that the defendant’s wrongful conduct was a “substantial factor” and “proximate cause” of the plaintiff’s injury. The workers’ compensation standard is more generous, permitting employees to recover so long as there is evidence that an injury arose out of the employment or, equivalently, that employment was a contributing cause of the injury.

The court affirmed the workers’ compensation judge’s conclusion that causation was satisfied on the facts presented. It was enough that the autopsy concluded that all four of the prescribed drugs contributed to the death, even though the autopsy could not assign any particular percentage contribution to each drug. Alternatively, it was enough that the sleep aid drug prescribed by the decedent’s personal physician had probably been prescribed because the decedent was having trouble sleeping after his workplace injury. That connection was sufficient for the employment injury to be a contributing cause of the overdose.

There was no new law in South Coast Framing. In essence, the court reaffirmed the rule first adopted almost 100 years ago shortly after workers’ compensation was adopted by the California Legislature. As noted above, the law of workers’ compensation is periodically reviewed and adjusted by the Legislature. That makes this a field of law where it is particularly important for the court to preserve the deals that are cut in the legislative process.

Can I get paid to sleep?

The issue of pay for sleep arose in the context of security employees who worked overnight, on-call shifts. The employer in Mendiola v. CPS Security Solutions, Inc., 60 Cal.4th 833 (2015), provided security at construction work sites. Its employees were on active patrol during the day, and it assigned employees to remain on-call at the work site throughout the night (unless relieved by another employee) and to respond to any disturbances as necessary. The employer made a trailer available to its employees at the work site, which had some residential amenities such as a bed, bathroom, kitchen, heating and air conditioning. The guards were paid hourly for active patrol, but were not paid anything for on-call time at night unless they actually had to conduct an investigation during that time or had to wait for requested relief to arrive. Guards were paid for the actual time of an investigation at night, but received a full eight hours of night compensation if an investigation took more than three hours.

The court held that these compensation provisions violated the applicable wage order promulgated by the Industrial Welfare Commission. First, the court held that, in light of the control exercised by the employer over the employee throughout the on-call period, all of the on-call hours were compensable as “hours worked.” Second, the court rejected an argument based on federal labor law that permits an employer who requires employees to work a 24-hour shift and provides adequate sleeping facilities to exclude eight hours for sleep time. According to the court, there was no convincing evidence that the IWC intended to incorporate the federal rule into the applicable state wage order.

It is not clear from the court’s ruling how many industries might be affected by its holding. California courts have interpreted a different wage order in the context of ambulance drivers and attendants as allowing uncompensated eight-hour sleep time during a 24-hour shift, and the court gave a lukewarm endorsement of that rule in that specific job context. Given the complexity of the labor laws and the 18 different wage orders issued by the IWC, employers with on-call employees should check to make sure they are still in compliance after Mendiola.

J. Clark Kelso is a professor at the University of the Pacific McGeorge School of Law and serves as the federally appointed receiver responsible for California’s prison medical care system. The views expressed in this article are solely the personal views of the author.