With $3 million in funding from A.B. 102, California’s recent appropriations bill, the Industrial Welfare Commission (IWC), the administrative body charged by statute to regulate wages, hours, and working conditions, will reconvene for the first time since 2004, when it was defunded for budgetary reasons.  The IWC was established in 1913 and has gone through several changes throughout the years.  Its most recent, lasting impact on employment in California, however, consists of 17 “wage orders” regulating the wages, hours and working conditions in specific industries. 

Some wage order provisions expound upon existing statutes, expanding or creating exemptions to requirements already in the Labor Code.  For example, while California’s general meal period requirements are set forth in Labor Code sections 226.7 and 512, the IWC wage orders clarify the circumstances when an “on duty” meal period is permitted.  Other wage order requirements, however, were created wholesale by the IWC.  For instance, the wage orders’ requirement that employers provide employees with “suitable seating” when the nature of their work reasonably permits the use of seats has no statutory corollary.  The IWC’s authority to issue these latter regulations derives in part from Labor Code section 1198, which makes unlawful the employment of any employee “under conditions of labor” prohibited by an IWC wage order. 

Thus, the IWC has expansive authority to implement new protections for employees.  The IWC’s power to erode employee protections, however, is less robust, and A.B. 102 makes explicit that the reconvened IWC “shall not include any standards that are less protective than existing state law.”[1]  With this mandate, it is near certain that the IWC will increase protections for employees when it reconvenes later this year.  And while it is not entirely clear where the IWC will focus its attention, recent changes to the workplace have made the following three areas ripe for new regulation:

Independent Contractors and Joint Employers

The rise of app-based companies such as Uber, Instacart, Taskrabbit, and Upwork prompted a bevy of court decisions, legislation, and regulations designed to convert workers who were previously considered independent contractors into employees—most notably, the creation of a strict ABC test for establishing independent contractor status.  Importantly, the initial iteration of the test, in the California Supreme Court decision Dynamex Operations West, was based on the Court’s interpretation of the IWC’s wage orders.  Since Dynamex, however, California appellate courts have determined, based on their construction of the same wage order language, that the ABC test does not apply to a joint employer relationship.[2]  The IWC may clarify that the ABC test applies to all questions of employee status, irrespective of whether the dispute involves a putative primary employer or a putative joint employer.

Another aspect of the ABC test that has generated significant debate is the proper interpretation of prong B, which requires a business defending its classification of a worker as an independent contractor to establish that the worker “performs work that is outside the course of the hiring entity’s business.”  It is not always clear how to define the “course of business” of a gig economy company.  Uber, for example, defines itself as a “technology company,” but courts have held that “Uber does not simply sell software; it sells rides.”[3]  Meanwhile, other gig economy companies have had more success distinguishing between their own business as technology developers and the business of the service providers who use their platforms.  For example, one court held that pet sitters and dog walkers who used the defendant’s app to connect with pet owners worked outside the defendant’s course of business.[4]  The IWC may clarify how a gig economy company’s “course of business” should be defined in applying prong B of the ABC test.

Remote Work

With a significant number of California employees working completely or partially from home, the IWC may also consider the scope of employers’ obligations—if any—to reimburse employees for internet, cell phone, and other expenses resulting from remote work required by an employer.  In Cochran v. Schwan’s Home Service, Inc., a California appellate court held that Labor Code section 2802 requires employers to reimburse employees who are required to use their personal cell phones as a part of their jobs for a “reasonable percentage of their cell phone bills.”[5]  However, the precise meaning of “reasonable percentage” and how to calculate it remains unclear.  Moreover, the rise in mandatory remote work has raised questions about whether employers should apply the “reasonable percentage” principle to other expenses, such as office equipment, rent/mortgage, etc. 

Scheduling

Cities in California and other states have recently enacted ordinances requiring employers, particularly those in the retail industry, to provide their employees advance notice of schedules, as well as premium wages for schedule changes.  The IWC may create new regulations on this topic or clarify current wage order provisions—particularly, Section 5, which requires employers to pay employees “reporting time pay” when employees report to work as scheduled but are furnished less than half their scheduled shift.  In Ward v. Tilly’s, a California appellate court held that Section 5 requires employers to pay reporting time pay to employees who do not physically report to work but rather must call their employers before their scheduled shifts to determine whether they should report.  The IWC could further expand reporting time pay provisions or add separate obligations and protections related to schedule changes.

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Ultimately, it is difficult to predict exactly what the IWC will do, but, given recent history and the language of A.B. 102, the net result is extremely likely to benefit employees and create more challenges for employers.  The regulatory process, however, gives both employee and employer interests opportunities to voice their concerns at public IWC hearings.  The business community should take advantage of these opportunities to educate the IWC about the impact new employment regulations will have on business in California.

[1] See also See Bearden v. U.S. Borax, Inc., 138 Cal. App. 4th 429, 437-439 (2006) (finding the IWC exceeded its authority in creating exception from meal period requirements for employees under collective bargaining agreement). 

[2] See e.g., Curry v. Equilon Enterprises, 23 Cal. App. 5th 289 (2018); Henderson v. Equilon Enterprises, LLC, 40 Cal. App. 5th 1111 (2019); but see Medina v. Equilon Enterprises, LLC, 68 Cal. App. 5th 868 (2021). 

[3] O’Conner v. Uber Tech., Inc., 82 F. Supp. 3d 1133, 1141 (N.D. Cal. 2015). 

[4] Sportsman v. A Place for Rover, Inc., 537 F. Supp. 3d 1081, 1097 (N.D. Cal. 2021).

[5] 228 Cal. App. 4th 1137, 1140 (2014).