Earlier this summer, the California Supreme Court ruled in Iskanian v. CLS that while class action waivers in employment arbitration agreements are enforceable, similar waivers of the right to bring a representative action under PAGA are not enforceable. The Court reasoned that preventing a representative action under PAGA is contrary to California public policy because it undermines the state’s interest in fully penalizing employers who violate labor laws. The Iskanian Court ruled that California’s public policy was not preempted by the Federal Arbitration Act (“FAA”) because the FAA only applies to arbitration of private disputes and a PAGA plaintiff represents the interests of the state, not himself, such that the claim isn’t really a private dispute between an employee and his employer but rather a dispute between the state of California and a private employer. The Court held that the FAA does not apply to disputes between a state agency and a private employer. This reasoning is a stretch in this author’s opinion. At least one (so far) federal district court in California apparently agrees, having chosen not to follow Iskanian. In Fardig v. Hobby Lobby, a wage and hour putative class action, a Central District judge granted the employer’s motion to compel arbitration, rejecting the plaintiffs’ argument that a PAGA representative action waiver in the arbitration agreement was unenforceable. The court held that FAA preemption is an issue of federal law and that federal courts are not bound by the California Supreme Court’s opinion that the FAA does not preempt California public policy with respect to PAGA representative action waivers. The court went on to hold that it disagreed with Iskanian and that a PAGA claim filed by an employee is a dispute between the employee and his employer, not between the state of California and the employer. As such, the district court held that the FAA applied and preempted any California public policy weighing against enforceability of a PAGA representative action waiver. This means that the individual plaintiffs will now have to litigate their individual wage claims in private arbitration and do not have the right to pursue any class or representative PAGA claims in any forum.
The Fardig v. Hobby Lobby decision (August 11, 2014, Central District Case No. SACV 14-00561 JVS) is a favorable development for California employers as it demonstrates that there is some continued viability of PAGA representative action waivers in employment arbitration agreements, notwithstanding Iskanian. Employers should also note that the parties is Iskanian have until late September to petition for review of the decision by the United States Supreme Court. If that happens, it is quite possible that the Supreme Court will reverse the PAGA portion of the Iskanian opinion. Even if review is not sought (or is sought but denied), employers facing the issue of enforceability of a PAGA representative action waiver should remove California state court cases to federal court wherever possible.
Last week a California Court of Appeal held that class certification was appropriate in a case alleging that the employer failed to reimburse employees for expenses associated with using their personal cell phones for work calls. At the trial court level, the employer successfully opposed class certification, arguing that liability could not be established on a class wide basis because it required individualized inquiry regarding whether an employee purchased a plan over and above what he normally would have had for purely personal use, and/or whether the employee incurred charges over and above his personal plan. The employer also argued that if someone other than the employee paid the employee’s cell phone bill, the employee would not have standing to pursue a claim for relief and this also created individualized issues. In addition to the individualized issues bearing on liability under Labor Code section 2802, the employer also successfully argued that damages would be highly individualized. The trial court denied class certification based on the predominance of individualized issues.
The Court of Appeal reversed, holding that the trial court abused its discretion in denying class certification. The Court of Appeal held that the trial court relied on the wrong standard for liability for a reimbursement claim under Labor Code section 2802. According to the Court of Appeal, all that is required to prove liability under Labor Code section 2802 is that the employee necessarily incurred expenses in the course of his job duties. The employee does not need to prove that he incurred expenses over and above what he would have incurred absent the job, nor does he have to prove that he actually paid his cell phone bill. The court held that if the rule were otherwise, the employer would receive a windfall by being able to pass on some of its operating expenses to employees. Thus, the court held that to be in compliance with Labor Code section 2802, “the employer must pay some reasonable percentage of the employee’s cell phone bill” if the employee uses a personal cell phone for work purposes. In other words, "reimbursement is always required." The court did not define what a “reasonable percentage” is, but instead held that “the calculation of reimbursement must be left to the parties and the court in each particular case.”
Based on its interpretation of the standard for liability under Labor Code section 2802, the Court of Appeal held that a class should have been certified because liability could be determined on a class wide basis and did not depend on adjudication of numerous individualized issues. The court acknowledged that damages issues were “more complicated” (i.e. individualized) but held that individualized damage issues do not defeat class certification and that the trial court could employ statistical sampling to calculate damages under the standards set forth by the California Supreme Court in Duran v. U.S. Bank.
The case is Cochran v. Schwan Home Service, Inc. and is available here. Employers that have employees using personal cell phones for business calls should review their expense reimbursement policies to ensure that these employees are reasonably compensated for the expense of making business calls on their personal devices.
August 4, 2014
Posted by Cal Labor Law in Union-Management Relations
Late last month, the NLRB in two separate steps, on July 18 and July 30, decided to ratify all administrative, personnel and procurement matters handled by the Board from January 4, through August 5, 2013 and all actions taken by the Regional Directors selected during this time period, including the Regional Director of Region 31 (Los Angeles). This is the period during which the United States Supreme Court held, in NLRB v. Noel Canning, that the NLRB did not have a proper quorum due to improper recess appointments. The NLRB believes that these acts of ratification eliminate any questions concerning the validity of actions undertaken during this period by the Board or by Region 31 (and the other regions where RDs were selected by a Board with less than a quorum). It remains to be seen whether anyone will attempt to challenge this ratification in the courts by arguing that any decisions made during the time period need to be given a de novo review and that ratification is simply not sufficient.
July 21, 2014
Posted by Cal Labor Law in CDF News & Events
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Last week the California Supreme Court continued its trend of issuing employee-friendly decisions, this time in a case involving the commissioned salesperson exemption. In Peabody v. Time Warner Cable, the plaintiff was a commissioned salesperson who sold advertising spots for Time Warner Cable. She was classified as exempt from overtime under California's commissioned salesperson exemption, which applies to a sales employee whose earnings exceed at least one and one-half times the minimum wage if more than half of those earnings represent commissions. Time Warner paid plaintiff her regular wages on a biweekly basis, but only paid her commission wages once per month. Thus, at least one paycheck per month was comprised only of base hourly pay and did not reflect earnings exceeding more than one and one-half times the minimum wage. However, the monthly commission check, which represented commissions earned for a monthly period (not just for a bi-weekly period), brought the employee's wages for the month to more than one and one-half times the minimum wage.
Plaintiff sued, arguing that she was not properly paid overtime wages for hours worked in excess of eight per day or forty per week. The trial court granted summary judgment for Time Warner, agreeing with Time Warner that it properly paid plaintiff under the commissioned salesperson exemption and that plaintiff was not entitled to additional overtime compensation. Plaintiff appealed to the Ninth Circuit, which certified a question to the California Supreme Court concerning whether an employer could properly allocate commission wages over the pay periods in which they were "earned," or whether the commission wages could only be attributed to the pay period in which they were actually paid. The California Supreme Court said the latter.
In so holding, the California Supreme Court reasoned that California overtime exemptions are narrowly construed and must be interpreted in favor of the employee and against the employer. The Court's holding certainly accomplishes that. The Court acknowledged that California law permits commission wages to be paid less frequently than regular wages and that monthly, or even less frequent, payment of commission wages is permissible (given that commission wages often are not "earned" until certain conditions are satisifed and are not calculable with the same frequency as the regular payroll schedule). However, the Court reasoned that just because California law allows less frequent payment of commission wages that aren't "earned" every pay period does not mean that an employer can use a monthly or less frequent schedule to pay commission wages that are earned. The Court reasoned that California law requires that all wages earned for work performed generally be paid no less frequently than twice per month. Time Warner was arguing that it could allocate commission wages to the pay periods in which they were "earned," but the Court said that permitting this would be tantamount to authorizing monthly pay periods for wages earned. Because monthly pay periods are not authorized by the California Labor Code, the Court held that Time Warner had not properly paid the plaintiff and she did not qualify for the commissioned salesperson exemption.
The Court acknowledged that Time Warner's pay system was proper under the federal commissioned salesperson exemption, but declined to find it proper under California law because California law, unlike federal law, requires at least semi-monthly pay periods.
The California Supreme Court's decision makes it much more difficult for employers to satisfy the commissioned salesperson exemption under California law. Employers that look back and allocate commission wages over the pay periods in which they were "earned" as a means of ensuring that the employee's pay is at least one and one-half times the minimum wage, should revise their practices in light of this decision.
Yesterday the California Supreme Court issued its decision in Ayala v. Antelope Valley Newspapers, holding that the trial court erred in denying class certification to a group of newspaper carriers who worked as independent contractors for Antelope Valley Newspapers and later sued the newspaper for wage and hour violations on the basis that they should have been classified as employees. The Court held that the trial court focused on the wrong legal criteria in denying class certification and that the matter had to be remanded for the trial court to re-assess class certification using proper criteria. In denying class certification, the trial court held that the issue of whether the carriers were employees or independent contractors could not be decided in one stroke as to the entire class because the evidence showed substantial variation in the degree of control the newspaper exercised over its carriers’ work, and the issue of degree of control is the primary factor in assessing whether a worker is an independent contractor or an employee.
The California Supreme Court held that the trial court erroneously focused on variation in the level of control actually exercised by the newspaper, rather than on whether the newspaper uniformly retained the right to control the carriers’ work. The Court emphasized that the key issue is whether the hirer has the right to control the work, not whether the hirer actually exercises that right. The Court explained that evidence of whether the hirer retains the right of control typically is found in the contract between the hirer and the worker. In this case, the newspaper used largely the same form independent contractor agreement for all of its carriers. The Court stated that the trial court “afforded only cursory attention” to the parties’ agreement, when it should have focused on the agreement as the starting point for its analysis. Rather than outright saying that if a hirer uniformly uses the same agreement for all of its workers, the issue of right to control can always be decided on a class wide basis, the Court reserved some room for trial courts to look to the parties’ “course of conduct” (and beyond just the agreement).
“While any written contract is a necessary starting point, [ ] the rights spelled out in a contract may not be conclusive if other evidence demonstrates a practical allocation of rights at odds with the written terms. In deciding whether claims that hinge on common law employee status are certifiable, then, a court appropriately may consider what control is ‘necessary’ given the nature of the work, whether evidence of the parties’ course of conduct will be required to evaluate whether such control was retained, and whether that course of conduct is susceptible to common proof – i.e. whether evidence of the parties’ conduct indicates similar retained rights vis-à-vis each hiree, or suggests variable rights, such that individual proof would need to be managed.”
The Court directed that on remand, the trial court would need to assess whether the newspaper, notwithstanding the form contract it entered with all carriers, actually had different rights with respect to each that would necessitate mini-trials. The Court briefly addressed the fact that the test for determining whether a worker is an independent contractor or an employee depends not only on the right of control, but also on numerous secondary factors (method of payment, who supplies the tools and equipment, place of work, etc.). The Court minimized the significance of the secondary factors and of evidence of individualized variation bearing on those factors, reasoning that variation in one or more secondary factors may not impact class certification if the factor is not a heavy one in the analysis compared to the other factors.
The Court’s decision and reasoning makes class certification more likely in independent contractor misclassification cases is likely to fuel more of this litigation. This is because many companies use form independent contractor agreements and these agreements often spell out the “right to control” retained by the company. The full decision is available here.
California employers must be aware that the state’s minimum wage increases to $9 per hour on Tuesday, July 1st. This is the first increase in the state minimum wage in six years, and represents a $1 per hour increase from the previous minimum wage of $8 per hour. This new minimum wage is only temporary, and will increase to $10 per hour on January 1, 2016.
Low-end, hourly employees are not the only employees who are affected by this increase, however. It is also important to remember that California law also requires salaried, exempt employees to earn a monthly salary equivalent of no less than two times the new state minimum wage for full-time employment. Consequently, even some exempt employees will see an increase in their salary as a result of the minimum wage increase. Effective July 1st, the new minimum monthly salary for exempt employees will be $3,120, or $37,440 per year.
It is also important to remember that effective January 1, 2014, the City and County of San Francisco increased its minimum wage for all employees working in San Francisco to $10.74 per hour. The notice that San Francisco requires its employers to post can be found and printed here.
Not to be outdone by the City of Seattle, San Francisco Mayor Ed Lee recently proposed a measure to increase San Francisco’s minimum wage to $15 per hour by July 2018. Voters will have the opportunity to weigh in on Mayor Lee’s proposal in the upcoming November ballot. Even if Mayor Lee’s proposal is voted down (which seems unlikely given the proposal’s support), San Francisco’s minimum wage is already set to increase to $11.03 on January 1, 2015.
The San Francisco Board of Supervisors also recently voted to increase employers’ expenditures under the Health Care Security Ordinance (“HCSO”). Under the HCSO, employers must satisfy the Employer Spending Requirement by calculating and making required health care expenditures on behalf of all covered employees. Effective January 1, 2015, these expenditures are set to increase, depending on the number of employees. The notice that San Francisco requires its employers to post regarding the HCSO can be found and printed here. For more information on the HSCO in general, please click here.
The HSCO and the proposed increase to its minimum wage rate are additional examples of employment-related ordinances unique to the City and County of San Francisco. Employers should recall San Francisco’s Commuter Benefits, Family Friendly Workplace, and Paid Sick Leave.
Any employers interested in discussing or implementing any of the above changes to California and San Francisco law or any other employment-related policy or practice (or even the recent woes of the San Francisco Giants) are encouraged to contact Ryan McCoy in CDF’s San Francisco office.
Today the United States Supreme Court issued its decision in NLRB v. Noel Canning, voiding President Obama’s 2012 recess appointments to the NLRB on the ground that the appointments exceeded the President’s constitutional authority. In so holding, the Court affirmed the D.C. Circuit Court of Appeal’s decision last year in the case. However, the Court did not agree with the D.C. Circuit Court’s reasoning. The D.C. Circuit Court had held that the recess appointments were invalid because the Senate was not actually in “recess” at the time and that the recess appointment power only applies to inter-session recesses, and then, only to vacancies that arise during such a recess (as opposed to vacancies existing at the time the recess commences). By contrast, the Supreme Court held that the recess appointment power applies both to inter-session and intra-session recesses and is not limited to vacancies that arise during a recess. However, the Court held that the recess must be of a sufficient length to trigger the recess appointment power. The Court held that the break in the legislative session must be at least 10 or more days in order for recess appointments to be authorized. In the case of the 2012 NLRB recess appointments, the appointments were made during a period when the Senate was convening every three days for pro forma sessions when no business was actually conducted. The Court held: “Three days is too short a time to bring a recess within the scope of the clause. Thus we conclude that the president lacked the power to make the recess appointments here at issue.”
The Court’s voiding of the NLRB appointments invalidates many NLRB decisions and actions in which the 2012 recess appointees participated. It is unclear how the NLRB with proceed as to the many affected matters. However, NLRB Chairman Mark Gaston Pearce issued the following statement today:
“The Supreme Court has today decided the Noel Canning case. We are analyzing the impact that the Court’s decision has on Board cases in which the January 2012 recess appointees participated. Today, the National Labor Relations Board has a full contingent of five Senate-confirmed members who are prepared to fulfill our responsibility to enforce the National Labor Relations Act. The Agency is committed to resolving any cases affected by today’s decision as expeditiously as possible.”
The Court’s full opinion in Noel Canning is available here.
Today the California Supreme Court issued its decision in Salas v. Sierra Chemical Co., holding that an employee who fraudulently obtained employment through use of someone else’s social security number, may still pursue employment discrimination claims stemming from termination and recover damages against the employer, including post-termination back pay for the period when the employee was not authorized to work and did not actually perform work. The Court held that federal immigration law does not preempt this result.
Salas applied for employment with Sierra Chemical in 2003 and was hired. In compliance with its legal obligations, Sierra Chemical required Salas to complete an I-9 form as well as a W-4. Salas completed these forms by providing a resident alien card and a social security card. From 2003 to 2005, Salas was subject to seasonal layoffs on a few occasions, but was later recalled to work. Each time he was recalled to work, Salas provided the same social security number he had provided upon hire. In 2006, Salas injured his back in the course of his work. He sought medical treatment and returned to work with temporary modified work restrictions, with Sierra Chemical accommodated. A few months later, Salas was released to full duty.
Later the same year, Salas injured his back again and filed a workers’ compensation claim. He performed modified duties, which Sierra Chemical accommodated, until the winter of 2006, when he was subject to another seasonal layoff along with Sierra Chemical’s other production workers. In May 2007, Sierra Chemical notified Salas and other production workers that it was recalling them for work and directing them to make arrangements to return to work. Salas’ supervisor told Salas to also bring a doctor’s note indicating he was released to return to work. Salas contacted his supervisor and told him that he had not been released to return to full duty but that he had an appointment in June to obtain the release. Salas’ supervisor agreed to hold his job open for him until that time. Salas’ supervisor never heard from him again.
In August 2007, Salas sued Sierra Chemical, alleging claims for failure to accommodate a disability in violation of FEHA, and for unlawful refusal to rehire him in retaliation for filing a workers’ compensation claim. Salas sought lost wages, emotional distress damages, punitive damages, and attorneys’ fees. Two years into the litigation, Sierra Chemical learned that Salas had falsified his employment eligibility documentation and that he was not authorized to work in the United States. Sierra Chemical filed a motion for summary judgment, arguing that it was entitled to judgment as a matter of law on Salas’ claims based on the doctrines of after-acquired evidence and unclean hands. The trial court denied Sierra Chemical’s motion, but was then directed by the court of appeal (by writ of mandate) to grant the motion. After judgment was entered for Sierra Chemical, Salas appealed. The court of appeal again held that Salas’ claims were barred by the doctrines of after-acquired evidence and unclean hands and affirmed the judgment in favor of Sierra Chemical. The California Supreme Court granted review and reversed the judgment in favor of Sierra Chemical, holding that the doctrines of after-acquired evidence and unclean hands did not operate to completely bar Salas’ claims.
The Court (in an opinion authored by Justice Kennard and joined by Justices Cantil-Sakauye, Werdegar, Corrigan, and Liu) held that the doctrines of after-acquired evidence and unclean hands may operate to reduce an employee’s damages and/or preclude reinstatement, but that they are not a complete defense to an employee’s claims. The court held that where lost wage damages are at issue, these doctrines generally preclude recovery of lost wage damages from the point of the employer’s discovery of the employee’s misconduct forward, but that the doctrines do not bar recovery of damages for the period of time prior to the employer’s discovery of the information. In the case of an employee who is fired and later sues, and during the litigation the employer discovers that the employee fraudulently obtained employment through use of someone else’s social security number, the employee would still be entitled to recover lost wages for the time period from termination until the employer discovered the fraud (typically years later during the litigation process). In other words, the employee who wasn’t even authorized to hold employment in the first instance and did not perform any work for the employer during the post-termination time period could still recover lost wages for being denied employment during that time period. Really?
Employers shaking their heads have good reason to do so. The United States Supreme Court does not seem to agree with the result reached today by the California Supreme Court. Indeed, in 2002, in Hoffman Plastic Compounds, Inc. v. NLRB, 535 U.S. 137, the United States Supreme Court held that a worker who fraudulently obtained employment in violation of immigration laws was not entitled to backpay from the period of time from termination through the employer’s discovery of the fraud. Reversing an award of backpay to an employee for a four and one-half period of time from his termination through his employer’s discovery of his undocumented status, the Court held that “awarding backpay to illegal aliens runs counter to policies underlying” the Immigration Reform and Control Act of 1986, and that it was improper to “award backpay to an illegal alien for years of work not performed, for wages that could not lawfully have been earned, and for a job obtained in the first instance by criminal fraud.” Makes sense, right? The California Supreme Court apparently does not think so. In an effort to get around Hoffman Plastics, the California Supreme Court held that Hoffman Plastics did not apply because it dealt with NLRB proceedings and that somehow made it materially different. The Court held that because this case involves California law and, more specifically, discrimination claims brought under FEHA, there are different public policy considerations at issue. The Court also emphasized the fact that in 2002, the California legislature, which also did not like the Hoffman Plastics decision, enacted a state law specifically designed to render Hoffman Plastics inapplicable to state law employment claims. That 2002 California state law specifically provided that all state-provided worker protections, rights, and remedies (except reinstatement prohibited by federal law) were equally available and applicable to all individuals regardless of immigration status.
Hmmm. Doesn’t federal immigration law preempt state laws to the contrary? Not so, according to today’s California Supreme Court ruling. The Court held that there was no direct conflict between federal immigration law and California law permitting unauthorized workers to recover lost wages for a period of time when the employer did not know of the employee’s fraud and unauthorized status. The Court also held that California law was not in conflict with the policy and purpose of federal immigration law. According to the Court:
“Even if permitting [unauthorized aliens who have used false documents to secure employment] to obtain state remedies for violations of the state labor and employment laws provides an incentive for such federal law violations, the practical effect of such incentive is minimal because the typical unauthorized alien wage earner is not familiar with the state law remedies available for unlawful termination and because job seekers rarely contemplate being terminated in violation of the law. Thus, it is highly unlikely that an unauthorized alien’s decision to seek employment in this country would be based in any significant part on the availability of lost wages as a remedy for unlawful discharge. . . . Furthermore, not allowing unauthorized workers to obtain state remedies for unlawful discharge, including prediscovery period lost wages, would effectively immunize employers that, in violation of fundamental state policy, discriminate against their workers on grounds such as disability or race, retaliate against workers who seek compensation for disabling workplace injuries, or fail to pay the wages that state law requires.”
Based on this and other reasoning, the California Supreme Court held that California’s 2002 law and its holding were not preempted by federal immigration law.
In sum, the California Supreme Court held that a worker who fraudulently obtains employment through false immigration documents and is later terminated for reasons unrelated to the employee’s fraud may pursue claims for employment discrimination and that those claims are not completely barred by the employee’s fraudulent conduct. The employee loses the right to reinstatement as a remedy if the employee was not actually authorized to work in the United States in the first place and also loses the right to recover lost wages for any time AFTER the employer discovers the employee’s fraud. However, the employee can still recover lost wages from the time of termination until the time the employer discovers the fraud, even though the employee was not authorized to work and did not actually perform any work for the employer during that time period. Of course, the employee can also still seek emotional distress damages, punitive damages, and attorneys’ fees as well.
Justice Baxter, joined by Justice Chin, dissented from the majority’s holding, stating that in their view, Hoffman Plastics and federal immigration law preempt and preclude a state law award of back pay during the time period from an employee’s termination through the employer’s discovery of the fraudulent conduct. Perhaps Sierra Chemical will seek review by the United States Supreme Court. Stay tuned. Today’s decision is available in full here.
The Department of Labor (“DOL”) has announced a notice of proposed rulemaking to revise the definition of “spouse” under the FMLA to make it clear that the FMLA applies to legally married same-sex spouses, regardless of where they live. Before last year, the FMLA applied only to opposite sex spouses. Last year, the United States Supreme Court issued its decision in United States v. Windsor, holding that federal laws that discriminate against same-sex married couples are unconstitutional. As a result of the Windsor decision, the FMLA’s provisions allowing family and medical leave to care for a “spouse” became applicable not only to opposite-sex spouses but also to same-sex spouses – so long as the employee requesting leave resides in a state that recognizes same-sex marriage. This is because the FMLA currently defines “spouse” in a way that is tied to the law of the state where the employee resides. The problem with the current spousal definition is that many states still do not recognize same-sex marriage, and even if an employee was married in a state that does recognize same-sex marriage, he or she technically is not eligible for FMLA leave (to care for a spouse) if currently living in a state that does not recognize same-sex marriage. This has resulted in administration difficulties for employers, many of whom would prefer not to have to engage in an inquiry about whether the employee resides in a state that recognizes same-sex marriage in order to determine whether to allow the employee leave. However, employers who have decided that they will provide the same leave benefits to same-sex spouses regardless of the state in which they reside, run the risk of deducting from an employee’s FMLA leave bank if the employee actually resides in a state that does not recognize same-sex marriage. Because the FMLA technically does not apply to spousal leave for that employee, any leave allowed should not be deducted from the employee’s FMLA leave bank. If the leave was deducted and the employee improperly was deemed to have exhausted all available leave only to later be denied leave that did fall under the FMLA, the employer could face liability for wrongful denial of FMLA leave.
The proposed amendment to the FMLA’s “spouse” definition eliminates this problem. Under the proposed rule, “spouse” would be defined to include individuals legally married in any state (including common law marriage where recognized under the law of the state). The definition would also extend to individuals validly married abroad if the individuals could have been legally married in any U.S. state.
The proposed rule has not yet been published in the Federal Register. Once it is, it will be subject to a public comment period and approval process before it is actually approved and implemented. We will keep you posted of developments in this regard. Employers covered by the FMLA will want to follow these developments and, once the rule is finalized, revise their FMLA policies and practices to ensure that their FMLA administration practices are in compliance with the new rule. The DOL’s notice of proposed rulemaking is available here. Additional information, including answers to frequently asked questions, are available here and on the DOL’s website.