Initial Appellate Review of Labor Code §2810

California Labor Code §2810 prohibits a person from entering into a contract for certain types of services if the person knows or should know the contract price is insufficient to permit the other party to comply with applicable laws in the performance of the contract. Persons entering into such contracts are liable to employees who are "aggrieved" by this insufficiency.

In Castillo v. Toll Brothers, Inc. and Hernandez v. Toll Brother, Inc. employees of a construction subcontractor filed a class action lawsuit alleging multiple wage and hours violations, including minimum wage, meal and rest break, record keeping, and pay statement violations.  In addition, the plaintiffs alleged a claim under Labor Code §2810 seeking to a hold a general contractor, Toll Brothers, liable for a subcontractor’s Labor Code violations.  On July 27, 2011, the California First District Court of Appeals, rendered the first appellate review of this relatively new statute. See Castillo v. Toll Brothers, Inc. No. A128605
 The primary issue before the Court was whether the standard to determine the sufficiency of a contract under section 2810 was (a) minimum wage or (b) the actual market price of labor.  The Court determined that minimum wage was the proper standard.  In its analysis the Court noted that not only was section 2810 unambiguous, but also that the legislative history clearly supported a finding of minimum wage as the proper standard.  On a practical level the Court further added:  

There are strong practical reasons for using the minimum wage costs to determine contract sufficiency. The minimum wage provides a bright line test for sufficiency, readily ascertained by a contracting party. As the evidence in this case demonstrates, the use of any other wage standard opens the contracting parties to significant uncertainty.

Despite this holding on the proper legal standard for section 2810 claims, the Court concluded the trial court erred in granting summary judgment to Toll Brothers because the plaintiffs had provided triable issues of fact on the sufficiency of two contracts.

The 9th Circuit Holds Unlicenced Accountants Not Exempt Employees

On June 15, 2011 the 9^th Circuit Count of Appeals in Campbell v. Price Waterhouse Coopers ruled that unlicensed accountants in California are not ineligible, as a matter of law, from being exempt from overtime pay. Under California law employers must generally pay overtime to employees who work more to eight hours a day or 40 hours a week. However, there are certain exemptions to the mandatory overtime laws. In this case the 9^th Circuit Court of Appeals was asked to determine whether the unlicensed accountants fell under either the professional exemption or the administrative exemption.

At the trial court level the District Court ruled on summary judgment that unlicensed accountants are categorically ineligible for the professional exemption. On appeal, the 9^th Circuit concluded that the District Court’s finding that plaintiffs could not fall under the professional exemption because they were unlicensed was "contrary to the exemption’s text and structure and would produce highly problematic precedent affecting several non-accounting professions." The Court closely analyzed the first two subsections of the 2001 IWC wage order regarding the professional exemption which reads, in part:
A person employed in a professional capacity means any employee who made all of the following requirements: (a) Who is licensed or certified by the state in California is primarily engaged in the practice of one of the following recognized professions: . . . accounting . . . or (b) who is primarily engaged in occupation, you recognize as a word or artistic profession. The court had to determine if unlicensed accountants could be exempt under subsection (b), even though subsection (a) enumerates accounting as a profession and expressly requires licensure in California. The District Court had held that unlicensed accountants could not fall under subsection (a) because they were not licensed and they could not fall under subsection (b) because subsection (a) is the sole provision covering accountants. The Court of Appeals disagreed, holding that the professional exemptions language allows accountants to fall under both subsection (a) and (b), because the statutes introductory clause refers to "any employee." As such, any employee may fall into either subsection and subsections (a) and (b) are not mutually exclusive. The entire accounting profession is not excluded from subsection (b) and could fall within subsection (b) also long as the subsections criteria is meet.

The Court also disagreed with the District Court and held that the Defendant Employer provided sufficient evidence to survive summary judgment and could take its administrative exemption defense to trial.