Today the California Supreme Court issued its much-anticipated opinion in Iskanian v. CLS Transportation, addressing the post-AT&T Mobility v. Concepcion enforceability of class and representative action waivers in employment arbitration agreements under California law. The decision is a mixed bag for California employers. On the positive side, the Court held, consistent with Concepcion, that class action waivers are enforceable. The Court also held that class and collective action waivers do not categorically violate the National Labor Relations Act (“NLRA”) (rejecting the NLRB’s D.R. Horton analysis). That’s the good news. The bad news is that the Court held that PAGA representative action waivers in arbitration agreements are not enforceable. Thus, through properly drafted arbitration agreements, employers effectively can prevent class claims alleging wage and hour violations, but cannot prevent piggy-back “representative” claims brought under PAGA and, under the Court’s reasoning, the employee must be permitted to pursue his or her representative PAGA claim in some forum.
Class Waiver Provisions Are Enforceable
Prior to today’s decision in Iskanian, the California Supreme Court took the position that class waivers in employment arbitration agreements are “sometimes” enforceable. The test for determining enforceability was set forth by the Court in 2007 in Gentry v. Superior Court, 42 Cal.4th 443, 463-64:
“When it is alleged that an employer has systematically denied proper overtime pay to a class of employees and a class action is requested notwithstanding an arbitration agreement that contains a class arbitration waiver, the trial court must consider the [following] factors [ ]: the modest size of the potential recovery, the potential for retaliation against members of the class, the fact that absent class members of the class may be ill informed about their rights, and other real world obstacles to the vindication of class members’ right to overtime pay through individual arbitration. If it concludes, based on these factors, that a class arbitration is likely to be a significantly more effective practical means of vindicating the rights of the affected employees than individual litigation or arbitration, and finds that the disallowance of the class action will likely lead to a less comprehensive enforcement of overtime laws for the employees alleged to be affected by the employer’s violations, it must invalidate the class arbitration waiver to ensure that these employees can ‘vindicate [their] unwaivable rights in an arbitration forum.’”
Application of the Gentry factors resulted in many trial courts invalidating class waiver provisions in arbitration agreements in wage and hour cases. Today the California Supreme Court held that Gentry was effectively overruled by Concepcion and is preempted by the Federal Arbitration Act (“FAA”). As a result, class action waivers in employment arbitration agreements are now generally enforceable under California law.
Class Waiver Provisions Do Not Categorically Violate the NLRA
Plaintiff Iskanian alternatively argued that the class action waiver in his arbitration agreement was unenforceable because it violated his rights under the NLRA. Iskanian relied on the NLRB’s decisions in D.R. Horton and related cases, in which the NLRB reasoned that class waiver provisions prohibit employees from engaging in collective concerted activity for mutual aid and protection, and that the right to do so is guaranteed by the NLRA. The California Supreme Court (like the majority of courts that have addressed the issue) rejected the NLRB’s reasoning and held that the class waiver provision in this case did not run afoul of the NLRA. Notably, the Court carefully limited its holding to the specific arbitration agreement before it, suggesting that in some other factual contexts a class waiver might violate the NLRA:
“Notably, while upholding the class waiver in Horton II, the Fifth Circuit affirmed the Board’s determination that the arbitration agreement at issue violated section 8(a)(1) and (4) of the NLRA insofar as it contained language that would lead employees to reasonably believe they were prohibited from filing unfair labor practice charges with the Board. Moreover, the arbitration agreement in the present case, apart from the class waiver, still permits a broad range of collective activity to vindicate wage claims. CLS points out that the agreement here is less restrictive than the one considered in Horton. The arbitration agreement does not prohibit employees from filing joint claims in arbitration, does not preclude the arbitrator from consolidating the claims of multiple employees, and does not prohibit the arbitrator from awarding relief to a group of employees. The agreement does not restrict the capacity of employees to ‘discuss their claims with one another, pool their resources to hire a lawyer, seek advice and litigation support from a union, solicit support from other employees, and file similar or coordinated individual claims.”
The Court stated: “We have no occasion to decide whether an arbitration agreement that more broadly restricts collective activity would run afoul of section 7 [of the NLRA].”
PAGA Representative Action Waivers Are NOT Enforceable
The agreement at issue in Iskanian included not only a waiver of class claims in arbitration, but also a waiver of “representative” claims. The representative claim alleged by the plaintiff in Iskanian was a PAGA claim. The Court thus considered whether a waiver of representative claims under PAGA was enforceable. The Court’s answer? No. The Court reasoned that the employee’s right to bring a PAGA action is an unwaivable statutory right because that statute is intended for public benefit (collecting penalties for wage and hour violations that could otherwise be pursued by a public agency) and an individual cannot, by private agreement, waive that public benefit. “The PAGA was clearly established for a public reason, and agreements requiring the waiver of PAGA rights would harm the state’s interests in enforcing the Labor Code an in receiving the proceeds of civil penalties used to deter violations. Of course, employees are free to choose whether or not to bring PAGA actions when they are aware of Labor Code violations. But it is contrary to public policy for an employment agreement to eliminate this choice altogether by requiring employees to waive the right to bring a PAGA action before any dispute arises.”
The employer argued that because the arbitration agreement only prohibits representative claims, not individual PAGA claims, it does not result in any improper waiver of the right to bring a PAGA action. The plaintiff argued that PAGA claims can only be brought as representative claims. Without deciding whether or not an individual claim is permissible under PAGA, the Court held that the provision was unenforceable regardless because “a prohibition of representative claims frustrates the PAGA’s objectives.” As such, the Court held that “where an employment agreement compels the waiver of representative claims under the PAGA, it is contrary to public policy and unenforceable as a matter of state law.”
The Court acknowledged that a state law rule may not be enforced if it is preempted by the FAA. However, the Court held that its rule against PAGA waivers does not frustrate the FAA’s objectives and, therefore, is not preempted by the FAA. The Court reasoned that the FAA’s objective is to ensure an efficient forum for the resolution of private disputes, whereas a PAGA action effectively is a public dispute between the employer and the state Labor and Workforce Development Agency. “We conclude that California’s public policy prohibiting waiver of PAGA claims, whose sole purpose is to vindicate the Labor and Workforce Development Agency’s interest in enforcing the Labor Code, does not interfere with the FAA’s goal of promoting arbitration as a forum for private dispute resolution.”
So What Now?
The Court did not resolve how the action would proceed on remand, given that some claims were subject to arbitration while the PAGA claim was not. “This raises a number of questions [on remand]: (1) Will the parties agree on a single forum for resolving the PAGA claim and the other claims?” (2) If not, is it appropriate to bifurcate the claims, with individual claims going to arbitration and the representative PAGA claim to litigation? (3) If such bifurcation occurs, should the arbitration be stayed pursuant to Code of Civil Procedure section 1281.2? The parties have not addressed these questions and may do so on remand.”
As noted above, the Iskanian decision is mixed news for California employers. It remains to be seen whether CLS will seek review of the Court’s PAGA-related ruling before the United States Supreme Court. In the meantime, California employers should review their arbitration agreements to optimize enforceability in light of today’s decision. Among other things, employers should ensure that their agreements contain class waiver language if they do not already. The agreements should also include some language making clear that employees retain the right to file administrative charges with the NLRB and that the agreement is not intended to prohibit their exercise of rights under the NLRA. Employers should also ensure that their agreements contain a severability clause and provision for what happens in the event of bifurcated claims with some proceeding in arbitration and others in court. The full Iskanian opinion is available here.
Yesterday the Ninth Circuit issued its opinion in Ruiz v. Affinity Logistics Corp., holding that Affinity Logistics violated California law by misclassifying its home delivery drivers as independent contractors rather than employees. The full opinion is available here.
Prior to working for Affinity Logistics, Ruiz worked as a driver for Penske Logistics, a furniture delivery company that had a contract with Sears. Ruiz was classified as an employee throughout the time he worked for Penske. In 2003, Sears announced that Affinity Logistics was taking over the services that had previously been provided by Penske. Sears advised Ruiz and his fellow Penske drivers to speak to Affinity about working for Affinity. Affinity told Ruiz and the other drivers that if they wished to work for Affinity, they would have to do so as independent contractors. Affinity advised them that they would need a fictitious business name, a business license, and a commercial checking account. Affinity helped the drivers complete all necessary forms and procedures to accomplish these tasks. Affinity also required the drivers to sign an independent contractor agreement that automatically renewed from year to year but could be terminated for any reason on 60 days’ notice. Affinity’s drivers leased their trucks from Affinity and were required to leave them at Affinity during non-working hours.
Ruiz filed a class action lawsuit against Affinity, alleging that Affinity misclassified its drivers as independent contractors rather than employees and thereby deprived them of various benefits afforded employees, including sick leave, vacation, holiday, and severance wages, and improperly charged them workers’ compensation fees. The district court held a bench trial to determine whether or not the independent contractor classification was proper. Following the bench trial, the district court concluded that the drivers were properly classified as independent contractors under California law. The drivers appealed and the Ninth Circuit reversed, holding that the district court’s legal conclusion was wrong.
The Ninth Circuit applied the test set forth by the California Supreme Court in 1989 in Borello & Sons, Inc. v. Dep’t of Industrial Relations, in order to analyze whether a worker is an employee or an independent contractor. Under that test, the primary consideration is the degree to which the principal has the right to control the manner and means by which the work is accomplished. While the right of control is the most important factor, the following secondary factors are also relevant: (1) whether the worker is engaged in a distinct occupation or business; (2) as a matter of local industry custom and practice, whether the type of work performed is typically done under the direction of a principal or by a specialist without supervision; (3) the skill required in the particular occupation; (4) whether the principal or the worker supplies the tools and place of work; (5) the length of time for which services are to be rendered; (6) whether or not the work is part of the regular business of the principal; and (7) whether or not the parties believe they are creating the relationship of employer-employee.
Applying this test to the largely undisputed facts, the Ninth Circuit held that Affinity’s drivers clearly were employees and not independent contractors. First, the court held that Affinity substantially controlled the manner and means of its drivers’ performance of their duties. Affinity determined and controlled the flat “per stop” rate paid to the drivers for their work and the drivers could not negotiate for higher rates, as independent contractors commonly do. Affinity decided the drivers’ schedules and set their daily routes each day, with specific instruction not to deviate from the order of deliveries list on the route manifests. Affinity also controlled the drivers’ appearance by requiring that they wear specific uniforms and prohibiting them from wearing earrings, displaying tattoos, or having certain designs of facial hair. Affinity also required its drivers to comply with a detailed procedures manual and closely monitored and supervised their work. Each morning, the drivers were required to report to the warehouse for a morning meeting where supervisors and drivers would discuss customer satisfaction reviews from previous deliveries and any other issues arising out of previous deliveries. Affinity further monitored its drivers by inspecting their appearance and the loading of their trucks and monitoring their progress throughout the day, including through a requirement that the drivers call their Affinity supervisor after every two or three stops and contacting them if they were running late or off course. Based on all of these facts, the court determined that Affinity retained and exercised the right to control the drivers’ work.
The district court had found that the drivers retained sufficient control over their work, largely because their independent contractor agreements stated that the drivers could hire helpers, and the right to hire others generally is indicative of independent contractor status. However, the Ninth Circuit disagreed that the drivers had any truly independent right to hire helpers because the evidence revealed that Affinity had the right to approve or disapprove of the helpers and the only time drivers hired helpers was if Affinity suggested they do so.
The court held that the balance of the secondary factors also supported a finding that the drivers were employees, not independent contractors. Affinity’s drivers did not have distinct occupations or businesses apart from their work for Affinity, and the type of work they provided was not a specialized or unique skill commonly performed by an independent contractor. The only reason the drivers established the formality of separate businesses was because Affinity required them to. However, most only performed work for Affinity. Indeed, they were not permitted to use the trucks they leased from Affinity for any purpose other than carrying out duties for Affinity. Affinity provided the trucks and phones for their drivers’ use, and required that the trucks be kept on Affinity property when not in use. Affinity even retained the right to use the drivers’ trucks for other purposes when not in use by the driver. The district court had held that because the drivers were required to pay for the use of the trucks and phones (through a payroll deduction), the drivers “provided” their own equipment. The Ninth Circuit rejected this analysis, effectively holding that paying for the use of the equipment is not the same thing as providing it. Affinity encouraged or required the drivers to use the trucks and phones owned and provided by Affinity and this equipment was only used by the drivers to perform work for Affinity—not for any other purpose. As such, this factor was suggestive of an employment relationship rather than an independent contractor relationship.
The court also reiterated that the drivers did not perform work without supervision because Affinity closely monitored and directed their work. Furthermore, the drivers’ work was a regular part of Affinity’s business. Affinity is a provider of home delivery services and, thus, the drivers’ work was at the very core of Affinity’s business. Additionally, the contracts between Affinity and its drivers did not contemplate any set duration or end for the drivers’ work for Affinity. The contracts automatically renewed from year to year, and many drivers worked for Affinity for years. The court further stated that the fact that the contracts were terminable on 60 days’ notice was not unique to an independent contractor relationship.
The court acknowledged that the drivers were paid a flat rate per delivery, rather than by the hour, but disagreed with the district court’s conclusion that this supported a finding of independent contractor status. The Ninth Circuit reasoned that because most drivers made eight deliveries per day, their pay generally remained about the same week to week, and this was more akin to be being paid by a regular rate of pay than “per job” or “per assignment.” As such, this factor too was indicative of an employee relationship.
Finally, the Ninth Circuit acknowledged that the drivers and Affinity understood their working arrangement to be an independent contractor arrangement rather than an employment relationship. However, the court dismissed this factor, reasoning that the parties’ label is not dispositive and that the parties’ conduct in fact revealed an employment relationship.
The Ruiz v. Affinity Logistics decision serves as a reminder to employers that litigation surrounding the independent contractor/employee classification remains alive and well in California, and improper classification carries substantial risk for employers. Employers who have independent contractor arrangements should carefully review these classifications to ensure that these workers are properly classified. The fact that a worker agrees to be classified as an independent contractor, or even asks to be classified as an independent contractor, does not prevent a misclassification claim nor does it prevent liability if the worker ultimately is determined to have been misclassified.
Complaints about unsafe working conditions filed with the Occupational Safety and Health Administration (OSHA) typically have to be filed within 30 days of the violation to be timely. Complaints for unfair labor practices in violation of the National Labor Relations Act (NLRA) filed with the National Labor Relations Board (NLRB) typically must be filed within 6 months of the violation to be timely. Complaints of unsafe working conditions may also constitute NLRA violations, in certain circumstances.
Under a new NLRB policy and agreement announced last week, between OSHA and NLRB, OSHA agents will begin to notify any complainant who files an untimely OSHA complaint of his or her rights to file a charge for unfair labor practices with the NLRB. OSHA plans to train their agents about talking points to use for these referrals when communicating with complainants. This is just another of many efforts by the NLRB seeking to expand its reach and influence.
June 2, 2014
Posted by Cal Labor Law in New Laws & Legislation
Last week, SB 935 (Leno) passed through the California Senate. SB 935 provides for additional increases in the California minimum wage. Under the current language of the bill, if enacted, the California minimum wage would move to $11 an hour in January 2015, $12 an hour in January 2016, and $13 an hour in January 2017. Increases in 2018 and thereafter would be based upon inflation. The bill specifically provides that the California Industrial Welfare Commission would not have authority to lower the minimum wage during periods of negative inflation. We expect SB 935 to pass the Assembly as well. It is unclear if Governor Brown would sign it.
AB 1522 also passed its first legislative house last week. AB 1522 (Gonzalez), also referred to as the Healthy Workplaces – Healthy Families Act of 2014, provides that any employee who works in the State of California for more than 7 days in a calendar year shall accrue paid sick leave at the rate of one hour for every 30 hours worked and would be able to use sick time at a rate of 24 hours per year after 90 days of employment. Under the terms of AB 1522, paid sick leave could be used for the employee’s illness or that of a family member as well as for any leave related to domestic violence, sexual assault or stalking. AB 1522 provides for a collective bargaining exception, as long as the CBA provides for some sick days. We expect AB 1522 to pass the Senate as well and anticipate that most of the important lobbying on this bill will occur at the Governor’s office.
In a case that CDF has been handling since its inception in 2001, we are pleased to report that yesterday the California Supreme Court issued its opinion in Duran v. U.S. Bank National Association, affirming in full a Court of Appeal decision overturning a $15 million judgment in favor of a class of Business Banking Officers (“BBOs”) who alleged that they were misclassified as exempt outside salespersons and owed overtime wages. The California Supreme Court agreed with the Court of Appeal that the trial plan resulting in the judgment was fundamentally flawed and violated U.S. Bank’s due process rights. The flawed trial plan involved the use of sampling and “representative” testimony of just 21 class members to determine class-wide liability and restitution to the entire class of 260 BBOs. The plan precluded U.S. Bank from presenting evidence or testimony bearing on liability or damages as to any class member outside the 21-person sample. Thus, U.S. Bank was precluded from, among other things, presenting evidence that 1/3 of the class members had executed declarations under oath establishing that spent the majority of their time on sales duties outside the Bank and, therefore, were properly classified. U.S. Bank was also precluded from presenting evidence that the four prior named Plaintiffs in the case also all testified under oath that they spent the majority of their time on sales duties outside the Bank. Based instead only on the limited evidence surrounding the small sample, the trial court found that the entire class was misclassified. The trial court then allowed the overtime hours reported by the sample group to be extrapolated to the entire class (with a 43% margin of error), resulting in a verdict of $15 million and an average recovery of over $57,000 per person. U.S. Bank appealed.
The Court of Appeal reversed the judgment, holding that the trial plan violated U.S. Bank’s constitutional due process rights by preventing U.S. Bank from presenting its affirmative defenses. The Court of Appeal also held that the trial court should have decertified the class based on the demonstrated unmanageability of individual issues at trial. Our post on the Court of Appeal decision is available here. The California Supreme Court granted review and issued its opinion affirming the Court of Appeal’s decision in full.
The Trial Court’s Use of Sampling Was “Profoundly Flawed”
In upholding the reversal of the judgment, the California Supreme Court explained that “the judgment must be reversed because the trial court’s flawed implementation of sampling prevented USB from showing that some class members were exempt and entitled to no recovery.” The Court explained that misclassification cases, and particularly cases involving the outside salesperson exemption, have the “obvious potential” to generate individual issues “because the primary considerations are how and where the employee actually spends his or her workday.” In such cases, “a defense in which liability itself is predicated on factual questions specific to individual claimants poses a much greater challenge to manageability.” The Court acknowledged that trial courts may employ various procedural tools to manage individual issues at trial, including statistical sampling, but emphasized that any such trial plan "must allow for the litigation of affirmative defenses, even in a class action case where the defense touches upon individual issues." Additionally, the trial plan must be statistically sound. "[W]hen a trial plan incorporates representative testimony and random sampling, a preliminary assessment should be done to determine the level of variability in the class. If the variability is too great, individual issues are more likely to swamp common ones and render the class action unmanageable." Against this backdrop, the Court held that the trial plan in this case was a "flawed statistical plan that did not manage but instead ignored individual issues." The Court explained that the parties' evidence revealed great variation among class members in the amount of time they spent outside the Bank and that such variation signaled that the exemption question could not be resolved by a simple "yes" or "no" answer as to the entire class. However, the trial plan ignored this variation by limiting the evidence from which liability would be determined to a small, unrepresentative sample of class members. The Court criticized the trial court's arbitrary determination of the size of the sample, which was done without any expert input or validation, and further attacked the trial court's method of determining which class members would comprise the purportedly "random" sample. This is because, among other things, the trial court allowed the named plaintiffs to be in the "representative" sample and also allowed BBOs to choose to opt-out of the trial sample (even though there was evidence that several class members with testimony favorable to the Bank opted out on the urging of Plaintiffs' counsel). The Court also heavily criticized that the plan precluded U.S. Bank from presenting relevant evidence relating to BBOs outside the sample group:
"The court's decision to extrapolate classwide liability from a small sample, and its refusal to permit any inquiries or evidence about the work habits of BBOs outside the sample group, deprived USB of the opportunity to litigate its exemption defense. USB repeatedly submitted sworn declarations from 75 class members stating that they worked more than half their time outside the office. This evidence suggested that work habits among BBOs were not uniform and that nearly one-third of the class may have been properly classified as exempt and lacking any valid claim against USB. USB also sought to introduce live testimony from witnesses about their work outside the office as BBOs. Yet the court refused to admit any of this evidence or allow it to be considered by experts as part of a statistical sampling model. Instead, extrapolating findings from its small sample and ignoring all evidence proffered to impeach these findings, the court found that the entire class was misclassified. The injustice of this result is manifest. While representative testimony and sampling may sometimes be appropriate tools for managing individual issues in a class action, these statistical methods cannot so completely undermine a defendant's right to present relevant evidence."
Thus, while the Court did not go so far as to say that statistical sampling may never be used to prove liability in a wage and hour class action, the Court strongly emphasized that any such use must, as a matter of constitutional due process, still allow the defendant to present its affirmative defenses.
The Court acknowledged that the use of statistical methods to prove damages in a class action is more acceptable than to prove liability, but that the statistical methods still must be scientifically sound and expert-endorsed. Here, the trial court's extrapolation of overtime from the sample group to the entire class had an astounding 43% margin of error, which the Court held was unacceptably high, in addition to having been linked to an invalid finding of classwide liability. For these reasons, the Court held that the judgment could not stand.
The Class Properly Was Decertified
In addition to holding that the trial plan was unconstitutional and required reversal of the judgment, the Court also held that the class properly was decertified due to the lack of manageability of individual issues surrounding U.S. Bank's exemption defense. The Court emphasized that the presence of common issues does not necessarily mean that class certification is appropriate, if there are still individual issues that cannot be effectively managed at trial, as was the case here. The Court instructed that the time to consider manageability issues is at the class certification stage, not at trial. "In considering whether a class action is a superior device for resolving a controversy, the manageability of individual issues is just as important as the existence of common questions uniting the proposed class." The Court held that while statistical methods possibly may be used to manage individual issues, such "methods cannot entirely substitute for common proof." "There must be some glue that binds class members together apart from statistical evidence." If statistical evidence will comprise a part of the proof on a class action claim, trial courts should consider at the class certification stage how such methods will be used and whether they will effectively and fairly manage individual issues. "Rather than accepting assurances that a statistical plan will eventually be developed, trial courts would be well advised to obtain such a plan before deciding to certify a class action. In any event, decertification must be ordered whenever a trial plan proves unworkable."
Because the trial court had "no evidence establishing uniformity in how BBOs spent their time" and the trial plan wholly failed to manage individual issues bearing on U.S. Bank's exemption defense, class certification could not stand.
The Court's decision is clearly favorable for California employers defending wage and hour class actions, both on certification principles and on the use of statistical methods to prove liability and damages in such cases. The decision confirms a class action defendant's right to present its affirmative defenses, even where those defenses hinge on individualized issues, and also underscores that manageability issues must be at the forefront of the initial decision to certify a class. CDF has represented U.S. Bank throughout this litigation and is very pleased to report this outstanding result.
This week a California court issued a favorable decision for the employer in an off-the-clock case, holding that the employer was not liable to the plaintiff for work the plaintiff performed off-the-clock because there was no evidence that the employer knew about the off-the-clock work. While this is not a novel holding (it is well-settled that an employer is only liable for wages for off-the-clock work if the employer had actual or constructive knowledge about such work), the case is useful in illustrating the types of evidence that courts consider in analyzing whether the employer had “knowledge” of off-the-clock work being performed.
In Jong v. Kaiser Foundation Plan, the plaintiffs were three outpatient pharmacy managers for Kaiser. Their position previously was classified as exempt but Kaiser reclassified the position to non-exempt in connection with the settlement of a prior class action challenging the exempt classification of this position. Following the reclassification of the position to non-exempt, the plaintiffs filed a putative class action against Kaiser, alleging that Kaiser had a policy and practice of requiring its outpatient pharmacy managers to perform work off-the-clock and without pay. Kaiser filed a motion for summary judgment as to each of the three named plaintiffs’ off-the-clock claims. The trial court granted Kaiser’s motion as to Plaintiff Jong (holding that Kaiser was not liable to Jong and ending Jong’s claim against Kaiser), but denied the motion as to the other two named plaintiffs, allowing their claims to proceed. Jong appealed the adverse ruling against him.
The Court of Appeal upheld the trial court’s order summarily adjudicating Jong’s off-the-clock claim in Kaiser’s favor. The court explained that in order for an employer to be liable for unpaid wages for work performed off-the-clock, there must be evidence that the employer had actual or constructive knowledge that the employee was performing work off-the-clock. The court held that Jong had failed to present evidence from which it could be concluded that Kaiser had knowledge that he performed any work off-the-clock. The court’s holding was based on several admissions that Jong made in the case, including that (1) he knew Kaiser had a policy prohibiting off-the-clock work; (2) no manager or supervisor ever told him that he should perform work off-the-clock; (3) he was specifically told that he was eligible to work and be paid for overtime hours; (4) there was never an occasion when he requested approval to work overtime that was denied; (5) that he was paid for all work hours he recorded, including overtime hours, even when he did not seek pre-approval for the overtime work; and (6) he signed an attestation form agreeing not to perform work off-the-clock in accordance with Kaiser policy.
Notwithstanding these fatal admissions by Jong, Jong argued that Kaiser nevertheless still had constructive knowledge that he was performing work off-the-clock based on the fact that store alarm records revealed that Jong disarmed the alarm prior to the time he recorded beginning work and that Kaiser could have compared the alarm records to his time keeping records to discern that he was performing work off-the-clock prior to the start of his shifts. The court rejected this argument, suggesting that the standard for constructive knowledge is not whether the employer “could have known” that off-the-clock work was being performed, but rather whether the employer “should” have known about it. Moreover, the court held that the records did not establish that Jong was actually performing any work during any gap between disarming the alarm and signing in for the start of his shift.
Jong also argued that Kaiser was on notice that outpatient pharmacy managers must be performing work off-the-clock based on depositions in the misclassification class action revealing that employees in this position testified to working an average of 48 hours per week. The court rejected Jong’s argument, reasoning that this evidence related to work habits prior to the reclassification of the position from exempt to non-exempt and, in any event, the evidence did not establish that Kaiser had knowledge that Jong (as opposed to OPMs generally) was performing work off-the-clock. For these reasons, the court entered judgment in favor of Kaiser on Jong’s claims.
While Kaiser was successful in defending Jong’s claims, it did not have the same success in getting the other two named plaintiffs’ claims thrown out. The trial court denied Kaiser summary judgment of their claims, based on testimony by those plaintiffs that they had conversations with their supervisors about performing work off-the-clock. Based on that testimony, the trial court concluded that there was a triable issue of fact regarding whether Kaiser had sufficient notice of those plaintiffs’ off-the-clock work to be liable for unpaid wages and that this issue would have to be tried.
The Jong v. Kaiser case is a good reminder of the importance of well-drafted and communicated policies prohibiting off-the-clock work and how documentation of those policies is effective evidence in defeating off-the-clock claims. The opinion also has useful language for employers to use in emphasizing the individualized nature of the liability inquiry on an off-the-clock claim, for purposes of opposing class certification when such claims are brought as putative class actions. The full opinion is here.
Last week, a California Court of Appeal overturned a trial court decision denying an employer's petition to compel arbitration where the trial court found that the arbitration agreement was unconscionable. In overturning the trial court's ruling, the Court of Appeal held that the trial court erred in even reaching the issue of whether the agreement was unconscionable because the arbitration agreement included a provision expressly delegating to the arbitrator authority to determine issues of enforceability of the agreement. The provision stated:
"The arbitrator, and not any federal, state, or local court or agency, shall have the exclusive authority to resolve any dispute relating to the interpretation, applicability, enforceability, or formation of this Agreement, including but not limited to, any claim that all or any part of the Agreement is void or voidable."
Relying on United States Supreme Court precedent in Rent-A-Center, West v. Jackson, 561 U.S. 63 (2010), the court held that delegation clauses, like this one, are enforceable as long as the delegation language is "clear and unmistakeable" and the provision is not revocable under state law principles such as fraud, duress or unconscionability (limited to the fairness of the delgation provision itself and not the fairness of the arbitration agreement as a whole). The court held the language of the delegation provision before it was clear and unmistakeable and that the provision itself was not unconscionable because there is nothing inherently unfair about authorizing an arbitrator, rather than a court, to decide issues relating to the enforceability of the arbitration agreement. As such, the court held that the delegation provision was enforceable and an arbitrator, not the court, should have decided whether the parties' arbitration agreement as a whole was enforceable and applicable to the parties' dispute. For these reason, the Court of Appeal overturned the trial court's denial of the employer's petition to compel arbitration because the trial court lacked authority to rule on the petition.
In its decision, the Court of Appeal noted that some California courts have in the past refused to enforce delegation provisions such as the one at issue in this case. However, the Court dismissed those cases as pre-dating more recent United States Supreme Court precedent, such as Rent-A-Center and AT&T Mobility v. Concepcion, which strongly favor enforceability of arbitration agreements according to their terms.
The case is Tiri v. Lucky Chances, Inc. and is available here. Employers may wish to consider including provisions in their arbitration agreements that specifically delegate authority to the arbitrator to decide whether the agreement is enforceable. This is one tool for keeping unconscionability decisions out of the hands of trial courts that are sometimes inconsistent in ruling on these issues. However, delegating authority to the arbitrator is not entiretly without risk, as one recent case before the United States Supreme Court demonstrated. In Oxford Health Plans v. Sutter, the parties' arbitration agreement contained a delegation clause and, pursuant to that clause, an arbitrator interpreted the agreement as allowing class claims in arbitration (a ruling that almost certainly would not have been made in court). Because of the very limited grounds for judicial review of an arbitrator's rulings, the arbitrator's interpretation of the agreement in that case was upheld. Bottom line--employers should think carefully about the provisions in their arbitration agreements, including deciding what issues to delegate to the arbitrator, and ensure that these provisions are very clearly drafted to best ensure that the agreement is enforced as intended. Employers must also periodically review their agreements to ensure that they are as beneficial as permissible in light of continually evolving case law.
May 7, 2014
Posted by Cal Labor Law in Immigration
The U.S. Department of Homeland Security (DHS) has proposed a regulation allowing for issuance of an employment authorization document (EAD) for certain H-4 spouses. It will primarily be used where the H-1B principal already has an approved I-140 immigrant petition and is waiting for their priority date to become current before they can file for permanent residency. DHS did not advise how long it would take for the proposed regulation to go final. Most likely, it will be at least several months. However, this is a good sign for H-4 spouses. The purpose of the rule is to make it easier for talented foreign nationals to remain working in the U.S. For more information, click here.
The Bay Area Commuter Benefits Program, SB 1339, was enacted in 2012 to allow two local Bay Area agencies—the Metropolitan Transportation Commission and the Bay Area Air Quality Management District—to jointly adopt a commuter benefit ordinance requiring employers to offer commuter benefits to covered employees. These agencies have now adopted a Commuter Benefit rule requiring larger Bay Area employers to offer specified commuter benefits to covered employees by September 30, 2014 as a means of encouraging carpooling and use of public transporation.
The new Rule applies to employers with an average of 50 or more full-time (30 hours of work per week) employees performing work within the following nine Bay Area counties: Alameda, Contra Costa, San Mateo, Marin, Napa, San Francisco, Santa Clara, southern Sonoma County, and southwestern Solano County. For purposes of determining whether an employer has an average of at least 50 employees, the look back period is the most recent three month period.
The Rule requires covered employers to provide the commuter benefits described below to employees who perform an average of at least 20 hours of work per week (the average looks back to the previous calendar month) within the counties listed above, excluding a seasonal or temporary employee (an employee who works 120 days or less within the calendar year).
Required Commuter Benefits
By September 30, 2014, covered employers must offer at least one of the following commuter benefit options to covered employees:
- Pre-tax option: A program, consistent with section 132(f) of the Internal Revenue Code, allowing covered employees to elect to exclude from taxable wages costs incurred for transit (bus, rail or ferry) passes or vanpool (a vehicle with a carrying capacity of at least six adults, not including the driver) charges, up to $130 per month;
- Employer-paid benefit: A program whereby the employer pays employees a subsidy of up to $75 to cover the cost of commuting via transit or by vanpool; or
- Employer-provided transit: transportation provided by the employer to covered employees at no cost or low-cost via bus, shuttle, or vanpool.
In lieu of these options, an employer may offer an alternative benefit that provides at least the same reduction in single-occupancy vehicle trips as the three options identified above. Any alternative benefit must be submitted to and approved, in writing, by the Bay Area Air Quality Management District.
Covered employers are required to designate a Commuter Benefits Coordinator who is responsible for implementing the employer’s commuter benefit program and for complying with the Rule. Covered employers must also register online with the Bay Area Air Quality Management District and provide specified information before September 30 and annually thereafter. Covered employers must also provide notice of the Rule and the employer’s commuter benefits to covered employees. Finally, the Rule imposes a recordkeeping requirement of 3 years for records establishing compliance with the Rule.
For more information and for registration obligation details, click here.
Just when you think that California cannot get any more employer-unfriendly, the California Legislature reminds us that it actually can. The latest reminder is legislation that was recently introduced by Democratic Assemblyman Mark Stone (AB 2416) to allow employees to record liens against their employers’ property for alleged unpaid wages. That’s right—alleged. In order to record a lien, the employee does not need to have proven his entitlement to unpaid wages in a court action or Labor Commissioner proceeding or otherwise. It is only after the lien is recorded that the employee must prove up the lien by demonstrating that he is actually owed the unpaid wages. If the employee succeeds, he is also entitled to recover attorneys’ fees and costs. A lien can also be recorded and enforced by a group of employees or by a government agency (e.g. the DLSE). The only way the employer can avoid the lien is by obtaining a surety bond (similar to that required to stay a money judgment pending appeal), which is itself a costly procedure.
At least there’s some faint protective relief built in to the legislation for employers--well, sort of. If an employer defeats an action to enforce a lien, the employer can, in very limited circumstances, recover its attorneys’ fees and costs IF the employer can prove that the employee’s action was brought unreasonably and in bad faith. (Conversely, the employee of course automatically gets awarded his attorneys’ fees and costs if he proves entitlement to unpaid wages, regardless of whether the wage withholding was in good faith.)
The proposed legislation has exclusions for employees covered by collective bargaining agreements if certain specified conditions are met, and also excludes employees who are exempt administrative, professional or executive employees (of course, the employee can challenge his exempt status and thereby avoid this exclusion, and the legislation specifically states that it is the employer’s burden to prove, as an affirmative defense, that the employee meets the test for exemption).
Employers should voice their opposition to this unnecessary legislation, which has already passed one labor committee and, if enacted, will provide one more tool for the plaintiffs’ employment bar to use to pressure employers to settle wage and hour claims, particularly those brought on behalf of a class of employees. The text of the proposed legislation is available here.