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July 19, 2022
9th Circuit Agrees Walmart’s Failure to Pay Wages Wasn’t Willful

California’s labor commissioner and courts have historically been harsh in evaluating whether an employer’s failure to pay wages was willful, a finding often yielding a penalty far higher than the amount of money owed. If it turned out in retrospect that wages were due and you failed to pay them, it was considered willful even if you believed the wages weren’t owed in the first place. A recent federal court of appeal decision cast a new light on the issue by affirming a trial judge who dismissed the penalty claim and found no willful violation existed.

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Model Cites Repeated Failures to Get Paid on Discharge

Bijon Hill is a model who appeared in 10 photo shoots organized by Walmart in San Francisco between July 2016 and August 2017. She worked for a total of 15 days in nonconsecutive periods of one or two days. Hill claims the work amounted to 10 separate instances of employment and that she was “discharged” at the end of each photo shoot.

During the time, Hill was represented by Scout Talent Management Agency. Walmart had a move contract with Scout whereby it agreed to pay the talent agency a flat rate for each day of modeling services, which was to be given to Hill along with a commission. The agency was required to send invoices, which were payable within 30 days, and its contract specified the models were independent contractors. On the other hand, an employee must be paid all wages owed on the spot in the event of a termination.

In July 2019, Hill sued Walmart in California Superior Court, citing the state labor code obligation to pay her immediately after she was terminated. If an employer willfully fails to make the payment, it can be liable for waiting-time penalties of up to 30 days per violation. Claiming she was terminated on 15 separate occasions, Hill sought more than $540,000 in penalties. Walmart removed the case to federal court.

Borello Test Applied, not Dynamex Formulation

The parties disagreed over which test to use to determine employment status. Walmart claimed, and the court agreed, the applicable test was the common-law test of Borello & Sons. It held the new test established in Dynamex v. Superior Court and in the Alameda part of the labor code applied only to violations of California’s industrial wage orders, which weren’t implicated in Hill’s case.

Dynamex “did not purport to replace the Borello standard in every instance where a worker must be classified as either an independent contractor or an employee for purposes of enforcing California’s labor protections.” Rather, it applies only to cases governed by Industrial Welfare Commission (IWC) wage orders.

Although some of the Borello factors spoke to an employment relationship, Hill exercised significant control over her activities. For examples, she:

  • Arranged for and paid for her own travel;
  • Covered her own expenses, ranging from payments for getting her nails done to gym membership fees, as business expenses on her tax returns; and
  • Provided modeling services for other companies and was free to decline any bookings from Walmart.

Walmart didn’t provide Hill with a Form W-2, and its agreement with her described the relationship as an independent contractor. The short length of time she worked for Walmart also made it objectively reasonable for the company to believe she wasn’t an employee.

The court disposed of several California Court of Appeal decisions that found a willful violation under generally similar circumstances, distinguishing those cases and finding them not applicable. One case dealt with a photographer’s model, a different situation because the photographer was engaged in the kind of work that the model did. On the other hand, Walmart isn’t in the photography or modeling business.

The court disposed of another similar case, involving a model for L’Oréal cosmetics, because the matter didn’t specifically address the willfulness issue. In short, while a jury will determine the issue of employee vs. independent contractor status, the court went out of its way to define Walmart’s arguments as reasonable.

Claim Must Go to Jury, but Without Waiting-Time Penalties

In November 2020, Walmart asked the court to look at the undisputed facts and enter judgment on Hill’s claims on two grounds. First, she was an independent contractor who fell outside labor code provisions. Second, the company claimed that regardless of whether she was an employee, it had a good-faith belief she was an independent contractor, so there was no willful refusal to pay and no penalties due.

Possible employee status. The district court denied the defense that Hill was a contractor outside the labor code’s protection, finding there were disputed facts to present to the jury. Though Walmart proved several factors suggested an independent contractor status, it did direct what photos it wanted taken, which could be sufficient control over the model to create an employment relationship.

No willful refusal to pay. On the second issue, however, the district court concluded there was a good-­faith dispute about whether Hill was an independent contractor, which made it objectively reasonable for Walmart to believe she wasn’t an employee. Therefore, there was no willful failure to pay, and no waiting-time penalties were owed.

9th Circuit’s Ruling

Walmart wasn’t foreclosed from raising a good­ faith defense based on mistakenly classifying an employee as an independent contractor, according to the U.S. 9th Circuit Court of Appeals (which covers employers in Alaska, California, Hawaii, Idaho, Montana, Nevada, Oregon, and Washington). It found nothing to suggested bad faith on the company’s part. Without evidence of subjective bad faith, it is “beside the point” that it may have “formulated” its independent contractor arguments only during litigation.

The 9th Circuit found an employer presents a good-faith defense by showing its legal obligations were unclear even if its conduct was ultimately incorrect. Legal ambiguity is a valid basis for a good-faith dispute. Consequently, Walmart had some reasonable grounds to believe Hill was an independent contractor, which is sufficient for a good-faith dispute.

Without any evidence to support willfulness, waiting-time penalties won’t be part of Hill’s case when it returns for a trial in front of a northern California federal district court jury. Bijon Hill v. Walmart, No 21-15180, 9th Circuit, April 26, 2022.

Bottom Line

Many cases going to litigation today have almost no actual damages but massive obligations in penalties, interest, and attorneys’ fees—driving cases that would otherwise be minor. The trend is propelled in part by the fact that California regulators deem almost any failure to pay equates to a willful violation, no matter the excuse.

If Hill’s case proves to create a new trend, returning “willfulness” to its traditional meaning, it will go a long way toward eliminating opportunistic litigation. Employers can feel a little bit more comfortable today in the hope that their innocent mistakes won’t be met by massive penalties.

Mark I. Schickman is Editor of the California Employment Law Letter and the founder of Schickman Law in Berkeley, California. Mark has successfully litigated almost every type of employment case in the courts before juries and administrative agencies and on appeal and is a popular and engaging trainer providing employment advice to employers across the country. He can be reached at Mark@SchickmanLaw.com.

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