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UC, Berkeley, School of Law 590 Simon Hall Berkeley, CA 94720 T: 510.643.1076 F: 510.643.

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MEMORANDUM TO: FROM: DATE: RE: Worker Cooperative Coalition Policy Advocacy Clinic November 24, 2013 DLSE and Corporate Taxation

Question: Does an LLCs election of corporate taxation create a presumption of employment for the Department of Labor Standards Enforcements (DLSE) enforcement of wage and hour laws? Analysis: A cooperatives tax status will not in itself cause the DLSE to presume that an employment relationship exists between the company and a worker.1 The California Supreme Court has held that the fact that a company acted as an employer for the purpose of income and payroll tax reporting and withholdings was only relevant as one of many factor in determining whether the company was actually an employer of the worker under the IWC Wage Orders.2 Rather, the DLSE will look at whether the LLC: (1) exercises control over the wages, hours, or working conditions of the worker; (b) suffers or permits the worker to work; or (3) engages the worker, creating a common law employment relationship.3 These tests are discussed in the memo entitled DLSE Employee Definition Memo. However, the DLSE Practice Guide implies that an LLCs articles of organization may play a significant role in determining whether workers are presumed to be employees. The DLSE tends to consider LLC members to be more like partners when their articles of incorporation do not provide for managers.4 Where an LLCs articles do provide for centralized management, the DLSE considers the LLC to be acting more like a corporation.5
See Futrell v. Payday California, Inc., 190 Cal. App. 4th 1419, 1427 (2010). Id. 3 Id. at 1429. See also IWC Wage Order No. 1-2001, 2(D) & (F), available at http://www.dir.ca.gov/IWC/IWCArticle1.pdf. 4 DLSE Practice Guide 37.5.2.1, available at http://www.dir.ca.gov/dlse/dlsemanual/dlse_enfcmanual.pdf. 5 DLSE Practice Guide 37.5.2.2
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