The ruling comes from California’s Court of Appeals for the Sixth District in Bain v. Tax Reducers, Inc. after extensive litigation following the plaintiff’s month-long employment with the defendant. Plaintiff Harold Bain worked as an accountant for a firm where he was classified as an independent contractor, earning a salary for a fixed 32 hours per week.
A few years later, while attending a seminar, Bain and his employer realized he was improperly categorized as an independent contractor when in fact he was an employee. They agreed to finish the year, and then re-categorize Bain as an employee. However, shortly before the year’s end, in December 2004, the company was sold to defendant TRI. TRI’s President James Griffin met with Bain to discuss his employment, but did not discuss whether Bain would be an independent contractor or employee. After the takeover, Bain was never given any employment documents from TRI. Bain put together a packet consisting of a W-4, I-9, and other documents and placed them on Griffin’s desk; Griffin denied ever receiving them.
While working for TRI, Bain was instructed to continue to use his weekly time sheets to report his hours, and worked under the direction and supervision of TRI. He was directly supervised by Griffin and met with clients as they were assigned to him. At the end of the first month, Bain had not yet been paid and so he asked Griffin when he would receive his first pay check. Griffin responded by leaving an independent contractor agreement on Bain’s desk, proposing to pay Bain a reduced rate and terminating employment after six months. Believing Griffin was trying to reclassify him from his employee status, Bain responded to Griffin requesting employee status and no reduction in pay. Griffin said he would talk to the former employer. A few weeks later, Bain resigned citing TRI’s failure to pay him for seven weeks and failure to reimburse him for expenses submitted.
In March 2005 Bain filed a claim for unpaid wages and expenses with the California Labor Commissioner and sent a demand letter to TRI. TRI responded that its offer to pay Bain a reduced rate “still stands” but did not send a check. Bain claimed $7,700 in unpaid wages, $157.26 for unpaid expenses, and $6,600 in waiting time penalties. In its response, TRI claimed Bain was not entitled to wages or penalties because he was never an employee. The hearing before the Labor Commissioner occurred a year later in March 2006, at which time it was found that Bain was an employee and he was awarded the amounts requested plus interest. TRI appealed the decision to the superior court. Although labeled an “appeal” such trials are de novo in which the decision of the Labor Commissioner is not entitled to any weight.
In Superior Court, trial was set for December 2006. The parties reached a judicially supervised settlement the day of trial. However, the court failed to retain jurisdiction over the settlement. The parties attempted over the next few months to finalize a written settlement agreement, however they could not agree on the terms. A year and a half later, in May 2008, Bain filed a new action to enforce the settlement. Litigation followed at which time both parties conducted discovery and sought summary adjudication. TRI argued that Bain’s cause of action for Labor Code violations and wages due were time barred by the statute of limitations. The trial court denied the motion.
After a four day trial, the trial court held that Bain was in fact an employee of TRI and that his claims were governed by a three year statute of limitations period. However, because TRI had agreed to pay Bain wages in January 2007 as part of their December 2006 settlement, the limitations period began to run in 2007 and therefore the claims were not time barred. Alternatively, the court held that Bain was entitled to rely on the doctrine of equitable tolling because he had consistently pursued his claims. The court found in Bain’s favor on the claims and gave him a choice of two judgments both totaling approximately $25,400. TRI and Bain appealed; Bain claimed additional attorney’s fees owing and an enhancement factor against TRI due to alleged vexatious litigation. TRI claimed the court erred in finding the action was not barred by the statute of limitations and when it imposed statutory penalties.
On appeal, the Court stated that a cause of action for wage liability must be commenced within three years after the cause of action accrues. A cause of action accrues when the wages first become regularly due (i.e. on payday). Therefore, the Court held the trial court erred in finding the cause of action accrued after TRI agreed to pay a settlement, in 2007, when in fact it accrued no later than February 18, 2005, the last day Bain worked for TRI. As suit was not filed until May 7, 2008, more than three years later, his causes of action were time barred before the superior court.
However, on the issue of equitable tolling, the Court found the limitations period to be tolled. The doctrine of equitable tolling applies when a party has multiple remedies available and pursues one, such as where a plaintiff first pursues administrative remedies, even if not legally required to exhaust those first. Whether the doctrine applies is heavily reliant upon the individual facts and the proponent must demonstrate three elements: 1) timely notice, 2) lack of prejudice to the defendant, and 3) reasonable and good faith conduct of the plaintiff. Based upon Bain’s diligent prosecution of his claims, substantial evidence existed to support the trial court’s ruling that the statute of limitations was equitably tolled.
This case serves to remind employers that proper classification of employees is essential to avoiding litigation. It is clear in this case that both Bain’s former employer and defendant TRI lacked guidance or knowledge on the issue of employee classification. Furthermore, TRI failed to adhere to laws requiring payment to its employees thereby subjecting it to waiting time penalties. This case is a prime example of how such mistakes can lead to time-consuming and costly litigation, all which could have been avoided.
This blog was originally posted on December 3, 2013 by Jampol Zimet LLC. Click here
to read the original entry.