By Pat Moody, Catherine Houlihan and Vismaad Gondara, Barsamian & Moody

Can non-compliant paystubs in violation of Labor Code section 226(a) lead to an unfair labor practice under section 1153(a) of the Agricultural Labor Relations Act (the “Act”)? Shockingly, or not so shockingly in California, the answer is yes, according to a recent ruling by the Agricultural Labor Relations Board (the “ALRB”). It is now the ALRB’s position that an employer’s misclassification of workers, in and of itself, is an unfair labor practice in violation of the Act. Even more significant is the Board’s holding that, absent any authority and in a groundbreaking divergence from years of Board precedent, employers may be subject to civil penalties under Labor Code section 226.8 for the willful misclassification of employees as independent contractors.

The ALRB’s recent decision in Cinagro Farms, Inc. (2017-CE-008-SAL) (48 ALRB No.2), related to the employment and alleged termination of a group of farmworkers. Upon hiring, the employer told the workers they would be receiving gross pay without deductions. The workers allegedly complained multiple times about the form of the checks and the lack of paystub information, such as year-to-date pay, hours worked, rates of pay and payroll tax deductions. Although the employer never expressly told the workers they are independent contractors, it allegedly instructed its bookkeeper to treat the workers as “vendors” [independent contractors] rather than employees.

A few months after hiring the first group and receipt of their complaints, the employer hired a different group of farmworkers and advised the previous group there was no work for them “until further notice.” Following a hearing, the ALRB held that the employer constructively terminated the first group of workers in violation of section 1152, which protects workers’ “concerted activities.” According to the ALRB, the employer did not need to expressly communicate to the workers that they were being “treated” as independent contractors, rather, the deficient paystubs by themselves constituted an implied admission to the workers. In issuing its decision, the Board held that the employer’s misclassification of the employees as independent contractors “implicitly conveyed to the workers that they have no labor rights.”

Earlier this year, the ALRB had invited briefs from interested parties on the question of whether misclassification of agricultural employees as independent contractors constitutes an unfair labor practice and the scope of the remedies available to the ALRB in cases of misclassification. Specifically, the ALRB requested briefs addressing three questions, one of which was “If the Board finds an agricultural employer willfully misclassified agricultural employees as independent contractors, what is the scope of the Board’s authority to assess civil penalties pursuant to section 226.8, if any?” Barsamian & Moody and a whole host of others filed briefs in support of Cinagro’s position, specifically providing authority evidencing that the ALRB lacked authority to impose civil penalties.

The ALRB ultimately rejected the arguments of the agriculture industry representatives and found that the misclassification was a per se violation of section 1153(a) of the Act and that the ALRB has the authority to assess civil penalties under Labor Code section 226.8.

Labor Code section 226.8 provides, in pertinent part, that it is “unlawful for any person or employer to engage in…[the] [w]illful misclassification of an individual as an independent contractor.” Section 226.8 can be enforced through civil proceedings in a court of competent jurisdiction (e.g., California Superior Court) or with the Labor and Workforce Development Agency (“LWDA”) and its departments, divisions, commissions, boards, or agencies. Notably the LWDA oversees seven agencies, including the Department of Industrial Relations (Labor Commissioner / Department of Labor Standards Enforcement (“DLSE”)) and the ALRB. Section 226.8 allows for the imposition of civil penalties, meant to punish the wrongdoer, upon the determination that a person or employer has engaged in the willful misclassification of an individual as an independent contractor. The available penalties include a penalty of not less than $5,000 and no more than $15,000 for each violation; which in this case was each employee misclassified. Employers who are found to engage in a “pattern or practice” of willful misclassification are subject to a minimum civil penalty of $10,000 with a maximum penalty of $25,000 for each violation. Section 226.8 allows for the imposition of additional fines and penalties as permitted by law, including required positing of a notice of violation.

As general background, while the ALRB has broad discretion in ordering an employer take an affirmative action in order to remedy an unfair labor practice, it is well established that the ALRB’s authority is not unlimited. The Board’s authority has always been remedial; i.e., to correct the alleged bad acts of the employer and make the employee whole for losses incurred due to the employer’s actions, such as back pay and reinstatement of employment.

In making its order to impose civil penalties under Labor Code section 226.8, the ALRB determined it has authority to impose Labor Code section 226.8 civil penalties for the following reasons:

1.  Section 226.8 provides for the assessment of penalties by any of the LWDA’s departments, divisions, commissions, boards, or agencies;

2.  The imposition of penalties under section 226.8 are obligatory in that it provides that if a determination of willful misclassification is made, “the person or employer shall be subject to a civil penalty” (emphasis added);

3.  It is the ALRB’s position that the determination that there has been a Labor Code section 226.8 violation is a standalone violation which it may enforce aside from unfair labor practices case and that the ALRB’s limitation to remedial remedies is limited to remedies under unfair labor practice violations;

4.  As a footnote, the Board opined that, even in unfair labor practice cases, the Board has authority to assess civil penalties as a remedial (nonpunitive) remedy because the “primary purpose [of civil penalties] is to secure obedience to statutes and regulations imposed to assure important public policy objectives.”

What this means for employers

Although the Board looked at a multitude of reasons in finding a willful misclassification, it nonetheless held that misclassification simply due to deficient paystubs is enough to find an unfair labor practice. What other non-affirmative actions of an employer constitute misclassification may differ in each case, but for now, employers must ensure they are properly classifying employees and issuing legally compliant paystubs to their workers as required under Labor Code section 226. This

decision is also a huge reminder that the Board will take every inch of “authority” that it feels entitled to, including imposing penalties as punishment for unfair labor practices, which is a radical deviation from the Act, Board authority and years of Board precedent. Cinagro has announced that it will be appealing the imposition of civil penalties under Labor Code section 226.8 as the Board lacks authority to impose such penalties, which are punitive rather than remedial or compensatory. WG will keep you posted on the outcome of the appeal on this issue.

The goal of this article is to provide employers with current labor and employment law information. The contents should neither be interpreted as, nor construed as legal advice or opinion. The reader should consult with Barsamian & Moody at (559) 248-2360 for individual responses to questions or concerns regarding any given situation.