Thursday Thoughts with June Monroe: Employment Changes Taking Effect in the Agribusiness Industry in 2024

Agribusinesses are affected by the same broader laws that impact businesses and employers, with some new changes coming down the pipeline in 2024 at the federal and state levels in California. These changes include updated laws around non-compete contracts, ballot measures on back wages, and new federal distinctions on whether a worker is an employee or an independent contractor.

California Non-Compete Changes: California enacted two new laws related to non-competes, SB 699 and AB 1076, that became effective January 1, 2024. Non-competes are frequently used in the agricultural industry to primarily prevent poaching of suppliers and customers by former employees.

SB 699 makes any contract with a restraint on trade unenforceable “regardless of where and when the contract was signed” and “regardless of whether the contract was signed and the employment was maintained outside of California.” In other words, an employer may not attempt to enforce a contract in California that restricts an employee’s ability to engage in a lawful profession, trade or business, even if the contract was signed outside of California and the employment was maintained outside of California. 

AB 1076 requires employers to give notice to both current and former employees who were employed after January 1, 2022, and who are subject to an unlawful non-compete agreement or clause, that such agreement or clause is void. These notices must be in writing, individualized, and delivered to the individual’s last known physical address and email address on or before February 14, 2024. Failure to comply constitutes unfair competition under California Business & Professions Code § 17200 with civil penalties up to $2,500 for each violation.

What’s ahead for 2024 California Ballot Initiatives: Agribusinesses are keeping a close eye on the Fair Play and Employer Accountability Act (FPEA), which will be on the California November 2024 ballot, to potentially repeal the Private Attorneys General Act (PAGA). PAGA was intended to provide employees with a private right of action against employers, including agribusinesses, allowing employees to sue for both back wages and civil penalties on behalf of themselves, other employees, and the state of California.  

However, these PAGA claims have been exploited by employees and their attorneys, resulting in a proliferation of lawsuits against employers, some without merit. The PAGA system has been criticized as broken because awards or settlements often result in little recovery to employees after they are divvied up 75% to the state of California and 25% to employees, along with an award for attorneys’ fees. The FPEA proposes to revamp the recovery by doubling penalties for employers willfully violating labor laws and requiring 100% of monetary penalties to be awarded to harmed employees.

As an Agribusiness attorney, I will be carefully watching the California election results for the FPEA. I am excited that if FPEA does pass, then the PAGA can no longer be weaponized against agribusiness employers. Although it could result in the doubling of fines for employers willfully violating the law, it also provides resources to employers to ensure compliance with wage and hour laws.

Federal Rule on Employee vs. Independent Contractor Distinction: On a national level, the U.S. Department of Labor (DOL) published a final rule establishing a six-factor economic reality test to determine if a worker is an employee vs. an independent contractor.The rule goes into effect March 11, 2024, but there is a current legal challenge to its enforceability. The six-factor test examines:

  1. The worker’s opportunity for profit or loss depending on managerial skill
  2. The investments by the worker and the employer
  3. The degree of permanence of the work relationship
  4. The nature and degree of control over the worker
  5. The extent to which the work performed is an integral part of the employer’s business
  6. The worker’s skill and initiative 

To illustrate how these questions are examined, the DOL provided two agribusiness examples:

Examples: Extent to Which the Work Performed is an Integral Part of the Potential Employer’s Business

  • Example 1: A large farm grows tomatoes that it sells to distributors. The farm pays workers to pick the tomatoes during the harvest season. Because a necessary part of a tomato farm is picking the tomatoes, the tomato pickers are integral to the company’s business. These facts indicate employee status under the integral factor.
  • Example 2: Alternatively, the same farm pays an accountant to provide non-payroll accounting support, including filing its annual tax return. This accounting support is not critical, necessary, or central to the principal business of the farm (farming tomatoes), thus the accountant’s work is not integral to the business. Therefore, these facts indicate independent contractor status under the integral factor.

From a counseling perspective, agricultural employers should review how their workers are classified and carefully review if their independent contractors are truly that under the DOL’s six-factor test. California agribusiness employers should do the same using the ABC test:

(A) Whether a worker is free from control or director from the company;

(B) If a worker performs work outside the usual course of the company’s business;

(C) Whether a worker is customarily engaged in an independent trade, occupation or business.

When in doubt, it’s critical to consult with legal counsel because penalties for violations can be hefty.