Arbitrator, Not Court, Gets to Decide Whether Arbitration Agreement Is Enforceable

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.

DHS Proposes EAD for H-4 Spouses

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.

S.F. Bay Area Employers Must Provide Commuter Benefits by September 30

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.

Covered Employers

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.

Covered Employees

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.

Administrative Requirements

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.

Employees to Be Allowed to Record Liens Against Employer Property for Alleged Unpaid Wages?  Whaaat?

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.

Don’t Miss CDF’s April 22 Webinar on the Use of Criminal History Inquiries For Employment Purposes

Our subscribers are reminded of our upcoming webinar on Tuesday, April 22, 2014 on the subject of criminal history inquiries during the hiring process (and for subsequent employment purposes).  In this webinar, CDF Partner Mark Spring will discuss recent developments in the law in this area, including recent federal EEOC enforcement guidance and the increasing number of states and cities (most recently San Francisco) enacting "ban the box" laws that limit criminal history inquiries on employment applications and in the employment context more generally.  He will also discuss additional restrictions on criminal history inquiries imposed by California law and offer practical guidance on best practices for California employers to follow in order to minimize risk in this area of increasing legislative focus and litigation.  For more information on this complimentary 30-minute webinar and to register, click here.  

San Francisco Employers Must Limit Criminal History Inquiries

San Francisco has joined several other cities in enacting “ban the box” legislation to restrict the ability of private employers to inquire about and consider criminal history information for employment purposes.  San Francisco’s recently enacted Fair Chance Ordinance takes effect August 13, 2014.  The Ordinance applies to private employers located or doing business in the City and County of San Francisco with 20 or more employees (including owners and regardless of where the employees work).  The Ordinance’s protections apply to applicants or employees whose place of employment is entirely or substantially located in San Francisco.

The Ordinance prohibits covered employers from making any inquiry regarding criminal history until after an initial job interview.  The Ordinance specifically prohibits “check the box” type questions regarding criminal history on employment applications.  In addition to prohibiting direct inquiry of an applicant or employee, the Ordinance also specifies that employers may not indirectly inquire about criminal history through the use of a background check or other means until after an initial interview.  Furthermore, prior to conducting any criminal history inquiry, the employer must provide the applicant or employee with a written notice of their rights under the Ordinance.  This notice, along with a required workplace poster, will be prepared and published by San Francisco’s Office of Labor Standards Enforcement (OLSE).

In addition to restricting the timing of any criminal history inquiry, the Ordinance also restricts the scope of any such inquiry as well as an employer’s permissible response to learning that an applicant or employee indeed has a criminal background.  The Ordinance completely prohibits employers from inquiring about or considering (1) arrests that did not result in a conviction (unless an investigation or charges are currently pending); (2) completion of a diversion program; (3) sealed or juvenile offenses; (4) offenses that are more than seven years old from the date of sentencing; and (5) offenses that are not felonies or misdemeanors (such as infractions).  Even if an employer learns of criminal history information, the employer is limited in its ability to consider that information as a bar to employment.  The Ordinance requires that the employer conduct an individualized assessment of the nature of the offense as it relates to the specific job position at issue.  The offense may only be considered if it has a “direct and specific negative bearing on that person’s ability to perform the duties or responsibilities necessarily related to the employment position.”  In this regard, the employer must consider whether the position “offers the opportunity for the same or a similar offense to occur” and whether “circumstances leading to the conduct for which the person was convicted . . . will recur.”  The employer must also consider the amount of time that has elapsed since the conviction and consider any mitigating factors and rehabilitation efforts specific to the individual applicant or employee.

If an employer decides to take adverse action based on criminal history information (e.g. refusal to hire or promote), the employer must first notify the applicant or employee of the intended decision in writing (and provide a copy of the background check or criminal conviction report) and allow the applicant or employee seven days to respond with any evidence of inaccuracy in the information or to describe any mitigating factors or rehabilitation.  After receiving such a response, the employer must wait a reasonable time to evaluate the information and reconsider the intended action before making a final decision.  If the employer decides to proceed with the adverse action, it must notify the employee of that decision and that it was based on the criminal history information.

The Ordinance requires covered employers to retain records (including application forms and other related records) for three years.  Covered employers are also affirmatively required to state on all job solicitations or advertisements that the employer will consider for employment qualified applicants with criminal histories in a manner consistent with the Ordinance.

The OLSE may investigate compliance and violations of the Ordinance and may award appropriate relief to an applicant or employee, as well as impose penalties against an employer.  The OLSE may also file a civil action against an employer for a violation of the ordinance.

Employers are reminded that they have separate obligations to comply with the Fair Credit Reporting Act as well as California’s Investigative Consumer Reporting Agencies Act.  Both of these acts regulate the process of conducting background checks for employment purposes and overlap in some ways with the requirements of the San Francisco Ordinance.  Additionally, employers are reminded that the EEOC recently published its own guidance on the use of criminal background checks for employment purposes and has stepped up its enforcement efforts in this area.  Employers are urged to review their criminal background check practices for compliance, and San Francisco employers must additionally ensure more specific compliance with the new San Francisco Ordinance.  The text of the Ordinance is available here.  

Real March Madness at the NLRB: NLRB Finds That Scholarship Football Players at Northwestern University Can Unionize

Yesterday, Region 13 of the National Labor Relations Board issued a groundbreaking decision in holding that scholarship football players at Northwestern University are “employees” under the National Labor Relations Act and can be represented by a union, the College Athletes Players Association (CAPA), if they vote to do so.  The NLRB ordered an election to take place and ordered Northwestern to provide an Excelsior list of voters to the Board by April 2.  In reaching this conclusion, after analyzing the testimony of players, coaches and others, the Board held:

  1. The scholarship football players are not primarily students.
  2. The athletic activities of the scholarship football players do not constitute a core element of their educational degree.
  3. The athletic activities of the scholarship football players are supervised by individuals who are not members of the academic faculty and this fact militates against a finding that these individuals are merely students.

Based on these and other sub-factors described in detail in the decision, the Board concluded that the walk-on players were not employees, but that the scholarship players were employees and could participate in a union election.  This decision has the potential to cause major changes in the way college athletics are administered.  It is being closely watched not only by labor and employment law experts, but by colleges, the NCAA, ESPN and all sports media, and anyone with any interest in college athletics and/or amateur athletics.

Northwestern has already announced that it will appeal this decision to the entire National Labor Relations Board.  Under NLRB rules, this Board will only consider the appeal if Northwestern can establish one of the following conditions:

  1. That a substantial question of law or policy is raised because of (i) the absence of, or (ii) a departure from, officially reported Board precedent.
  2. That the Regional Director’s decision on a substantial factual issue is clearly erroneous on the record and such error prejudicially affects the rights of a party.
  3. That the conduct of the hearing or any ruling made in connection with the proceeding has resulted in prejudicial error.
  4. That there are compelling reasons for reconsideration of an important Board rule or policy.

This was a surprising ruling, as many experts expected that the CAPA was going to have a difficult time convincing the NLRB that the student-athletes were “employees” under the NLRA.   However, there is a long way to go before this becomes a reality.  Most expect vigorous appellate litigation by both sides, which will be well financed by interested parties.  In addition, it is reasonably likely that Congress may intervene and act to amend the NLRA in some way to make it clear that student-athletes are not covered.  Influential Republican Senator Lamar Alexander, who formerly was the President at University of Tennessee and served as the Secretary of Education under President George H.W. Bush has already weighed in on his outrage over the decision with a public statement:  “Imagine a university’s basketball players striking before a Sweet Sixteen game demanding shorter practices, bigger dorm rooms, better food, and no classes before 11 a.m. This is an absurd decision that will destroy intercollegiate athletics as we know it.”  We already know that President Obama is a big college basketball fan, so he may be more than willing to sign any bills to prevent college athletics from being turned on its head.

For a copy of this very interesting decision, please click here.

We will continue to keep you updated on this matter as it moves forward as there will certainly be more developments in the coming months.

Obama to Seek to Narrow Federal Overtime Exemptions

News media are widely reporting that President Obama intends this week to direct the Department of Labor to materially revise the Fair Labor Standards Act (FLSA) regulations pertaining to overtime exemptions so that fewer employees will qualify for an exemption from overtime.  Obama's move relies on his executive authority to revise the rules that carry out the FLSA.  Obama is relying on this executive authority to carry out his pro-worker agenda, as a means of sidestepping the need to pass actual legislation that likely would be blocked by Republicans in Congress.

While the details of the intended revisions have not yet been announced, it is reported that Obama will be urging at least two significant changes:  (1) an increase in the amount of minimum compensation that must be paid to an employee in order for the employee to qualify for exempt status (the minimum currently is $455 per week under the FLSA, and Obama is expected to direct that the minimum be substantially increased, with some urging that it be doubled); and (2) replacing the FLSA "primary duty" test with a more quantitative test that requires an employee to spend a certain percentage of his or her time (likely at least 50%) on exempt duties in order to qualify for exempt status.  These changes would substantially decrease the number of employees who qualify for overtime exemption under the FLSA, and would also likely substantially increase the number of wage and hour lawsuits (already soaring) filed against employers to challenge exempt status and seek unpaid overtime compensation.  Business groups are expected to vigorously oppose the intended overhaul of the regulations.

So what does this mean for California employers?  Probably not much.  California employers are already subject to more narrow overtime exemption laws under California law.  To qualify for exemption in California, an employee (among other things) must be paid a guaranteed salary of at least $640 per week (rising to $800 per week in 2016) and must spend more than 50% of his or her weekly work time on exempt duties.  Thus, the changes being contemplated by the White House are already in effect in California, and the Obama administration appears to be looking to California's laws as guidance in revising the FLSA's overtime exemptions.  This is not good news for employers.

Oral Argument Scheduled In Iskanian v. CLS Transportation

The California Supreme Court has scheduled oral argument for April 3, 2014 in Iskanian v. CLS Transportation, a case involving the enforceability of class/representative action waivers in employment arbitration agreements under California law.  The Iskanian court ruled that California's "Gentry" test for invalidating class action waivers was no longer good law in light of the United States Supreme Court's decision in AT&T Mobility v. Concepcion, and that employers may not be compelled to arbitrate on a class wide basis where they have not specifically agreed to do so.  The Iskanian court also held that the contractual waiver of the right to pursue a PAGA representative action in arbitration was similarly enforceable.  Finally, the Iskanian court rejected the NLRB's D.R. Horton decision invalidating class action waivers in arbitration agreements on the ground that such waivers violate the NLRA.  Our prior posts on the Iskanian case are here.  Following oral argument in April, a decision by the California Supreme Court should issue by early July.  California employers that have, or are considering, employment arbitration agreements will want to stay tuned for this key decision.

Important Employment and Immigration Cross Over Issues

Employers are faced with a plethora of employment and immigration cross over issues.  Here’s a list of 7 important tips:   

  1. Don’t include the I-9 with the job application.  You can only request that the I-9 be filled out once the applicant has accepted a job offer.
  2. Make sure you have a completed I-9 on file for every employee at your company.
  3. Keep the I-9’s in binders rather than the employee’s HR file.  Have one set of binders for active employees and one set for terms.
  4. Employers have begun to see more instances where an employee has recently legalized their status and presented a work permit and new social security number.  When the employee was originally hired they presented what were presumed to be valid work authorization documents. Now the employee comes forward and says my real name is different, and here is my new SSN and work permit.  In such a case, fill out a new I-9, attach a memo explaining the situation and a copy of the new work permit and social security card, and staple all of this to a copy of the old I-9.  Usually, the employer must terminate the old name in their HR information system and process the new one as a new hire.  In such a case, the original old I-9 can go into the term binder along with a copy of the memo as well.
  5. Anytime you are presented with a discrepancy in the employee’s SSN (i.e. a mis-match letter from any government agency), call the employee in to verify there isn’t a simple typographical error on the original hire paperwork.  If not, send them to the Social Security Administration and ask them to bring back verification of their SSN.  If no verification is forthcoming within 30 to 60 days, contact legal counsel re probable termination.
  6. If an undocumented employee files a labor/employment based claim with the employer, and the employer subsequently discovers that the employee is undocumented, the employee must be terminated since they are not work authorized.  However, the employer will be liable for the employment claim that led to the discovery of the undocumented status.
  7. When making a job offer to an H-1B or similar non-immigrant visa holder, indicate on the job offer letter that the job is still terminable at will despite the fact that you are petitioning for them for x number of years on the visa petition.  Also indicate that you are under no obligation to sponsor the employee for permanent residency, but even if you decide to do so in the future, it won’t alter the terminable at will relationship.

For more information, please contact Greg Berk, Chair of the CDF Immigration Practice Group.

Editor
Cal Labor Law

Robin E. Largent is a Partner in CDF’s Sacramento office and may be reached at 916.361.0991 or rlargent@cdflaborlaw.com BIO »

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