Last week, the Ninth Circuit issued its decision in Muniz v. UPS, holding that the trial court did not abuse its discretion in awarding the plaintiff close to $700,000 in attorneys' fees, even though the plaintiff's damages recovery was only $27,000 and the defendant defeated the majority of plaintiff's claims prior to trial. This result is an unpleasant example of how an employer can be largely victorious in defending an employment suit yet still lose big on attorneys' fees.
In Muniz, the plaintiff was given a performance improvement plan and later demoted, based on unsatisfactory performance. Plaintiff sued, alleging "kitchen sink" discrimination based on age and gender, and also alleged retaliation and negligent supervision and training. Plaintiff's age discrimination, retaliation, and negligent supervision claims (as well as plaintiff's claim for punitive damages) were defeated and/or voluntarily dismissed prior to trial (meaning UPS prevailed on these claims). The only claim that was actually tried was plaintiff's claim for gender discrimination based on being given a performance improvement plan and later demoted. The jury determined that plaintiff's demotion was motivated by gender discrimination but awarded plaintiff damages of only $27,000 (much less than plaintiff's plea to the jury to award her $700,000). The jury also concluded that plantiff's performance improvement plan was motivated in part by gender discrimination, but that UPS would have taken the same action for legitimate, non-discriminatory reasons. As such, the plaintiff was not permitted to recover damages (alleged emotional distress) associated with the performance criticism.
In sum, the defense largely prevailed in the case, having defeated all but one of plaintiff's claims and substantially limiting plaintiff's recovery. That is, until plaintiff filed a motion for recovery of attorneys' fees for prevailing on one FEHA discrimination claim. Plaintiff outrageously sought $1.9 million in fees for her limited success, including a claimed lodestar (number of hours expended times hourly rates) of $1.3 million (which included time spent litigating the claims that were defeated) and a requested 1.5 upward enhancement. The trial court denied the requested 1.5 multiplier and limited its analysis to the reasonableness of the $1.3 lodestar. In this regard, the trial court found that plaintiff's counsel's proffered hourly rates were unreasonable and reduced them slightly. The trial court also found that plaintiff's counsel had not sufficiently proven the number of hours expended on the litigation and, therefore, reduced the compensable total hours by 20 percent, bringing the fee award down to $773,000. At that point, the court considered UPS' argument that the fee award needed to be substantially reduced to account for plaintiff's very limited success and the extreme disproportion between the plaintiff's damages and the amount of fees sought. The trial court reduced the fees by only 10 percent and awarded plaintiff nearly $700,000 in fees.
UPS appealed to the Ninth Circuit, arguing primarily that the fee award should have reduced more than 10 percent to account for plaintiff's limited success. The Ninth Circuit disagreed, relying heavily on the deferential standard of review which gives a trial court broad discretion to set the amount of fees awarded. The Ninth Circuit held that the trial court could have reduced the fee award more, but that it could not be said that it was an abuse of discretion for the trial court not to do so. The court reasoned that a reduction for time spent on unsuccessful claims is proper only to the extent it can be demonstrated that certain hours were spent exclusively on the unsuccessful claims. Time spent, for example in discovery, on both successful and unsuccesful claims should not be reduced from a fee award. The Ninth Circuit concluded that the trial court properly considered these issues and did not abuse its discretion in determining the amount of fees to award.
The Muniz case is another one for the plaintiffs' bar arsenal. It will make it more difficult for employers fighting FEHA claims in California federal courts to successfully limit any award of attorneys' fees to a prevailing plaintiff, thereby effectively increasing the incentive to settle such claims early on. The full decision is here.
Today, the Fifth Circuit issued its decision in D.R. Horton v. NLRB, invalidating the NLRB's holding that D.R. Horton's arbitration agreement violated the NLRA by prohibiting employees from pursuing employment claims on a class or collective basis. The NLRB had reasoned that disallowing class and collective claims in arbitration and in court precludes employees from exercising their right under the NLRA to engage in collective, concerted activity for mutual aid and protection. The Fifth Circuit disagreed.
Relying on recent United States Supreme Court decisions starting with AT&T Mobility v. Concepcion, the Fifth Circuit held that the Federal Arbitration Act (FAA) requires that arbitration agreements be enforced according to their terms and that a provision prohibiting class-wide arbitration is an enforceable term. The Fifth Circuit further held that nothing in the NLRA or its legislative history evinces any Congressional intent to ovveride the FAA, and that general language in the NLRA relating to "mutual aid and protection" could not be interpreted as an expression of Congress' intent to override the FAA.
The NLRB argued that its ruling was valid because it did not require employers to allow class-wide arbitration. Instead, it simply required employers to allow employees to pursue relief on a class-wide basis either in arbitration or in court. The Fifth Circuit held that there was nothing in the NLRA suggesting that a prohibition on class-wide claims violates the NLRA. The court also held that requiring employers to allow employees to pursue class-wide claims (either in court or in arbitration) has the effect of disfavoring arbitration, in contravention of the FAA.
The Fifth Circuit's decision was not an all-out win for D.R. Horton, however. The Fifth Circuit held that D.R. Horton's arbitration policy reasonably could be interpreted as preventing employees from pursuing administrative claims with the NLRB (based on broad language explaining that the employee was waiving the right to file a lawsuit "or other civil proceeding" relating to an employment dispute). As a result, the court held that the NLRB properly ordered D.R. Horton to take corrective action to revise its policy to clarify that employees are not prohibited from filing charges with the NLRB.
The Fifth Circuit's decision in D.R. Horton is the first circuit court decision addressing the D.R. Horton issue in a direct appeal from a NLRB action. However, many courts throughout the country, including many in California and in the Ninth Circuit have similarly rejected the NLRB's D.R. Horton analysis and refused to follow it. It remains to be seen what the NLRB will do in response to the Fifth Circuit's decision. The NLRB could petition for review to the United States Supreme Court. In the meantime, the NLRB may continue to follow and apply its D.R. Horton analysis to invalidate class waivers in jurisdictions outside the Fifth Circuit. Alternatively, the NLRB could abandon its attack on class waivers consistent with the weight of court decisions rejecting the NLRB's analysis in this regard. Time will tell.
For now, arbitration agreements with class action waiver provisions remain an effective tool for employers to prevent class-wide employment claims.
The Fifth Circuit's decision is available here.
This week, the Ninth Circuit has issued two new decisions on the enforceability of arbitration agreements post-Concepcion. In the first case, Ferguson v. Corinthian Colleges, the court issued an opinion favoring enforcement of arbitration agreements by striking down over a decade of California-based precedent holding that arbitration may not be compelled where the action is one seeking public injunctive relief. This precedent was widely known as the “Broughton-Cruz” rule (which was also adopted by the Ninth Circuit in Davis v. O’Melveny & Myers). The Ninth Circuit correctly held that, in light of the Supreme Court’s instruction in Concepcion, courts cannot carve out particular types of claims (such as claims for public injunctive relief) from arbitration. In the Corinthian Colleges case, the plaintiffs were vocational students who alleged that the college misled them through misrepresentations about future employment opportunities. The plaintiffs sought an injunction to preclude the college from continuing to make such misrepresentations to recruit future students. Corinthian sought to compel arbitration of the plaintiffs’ claims, but a federal district court refused to enforce the arbitration agreement. The Ninth Circuit reversed, holding that the claims were arbitrable regardless of the fact that they sought public injunctive relief. While not an employment case, the Corinthian Colleges case provides further federal precedent preventing California district courts from refusing to enforce arbitration simply because a specific type of claim is at issue. This principle applies equally to disputes concerning arbitration agreements in employment cases. The Corinthian Colleges case is available here.
The Ninth Circuit’s second arbitration decision this week was less arbitration-friendly. That case, Chavarria v. Ralphs Grocery, involved an employment arbitration agreement between a grocery store employee and the grocery chain. The employee filed a putative class action for alleged Labor Code violations and Ralphs sought to compel arbitration of the individual employee’s claim based on an arbitration policy the employee accepted as part of her employment application. The district court found the arbitration agreement unconscionable under California law and refused to compel arbitration. This week, the Ninth Circuit agreed with the district court’s holding that the agreement was unconscionable and unenforceable under California law (i.e. Armendariz and its progeny). The court specifically held that Concepcion and subsequent United States Supreme Court decisions do not affect the continued validity of state law unconscionability doctrine as a means for invalidating an arbitration agreement. Applying California’s unconscionability law, the court held that Ralphs’ arbitration agreement was procedurally unconscionable because it was presented to employees on a “take it or leave it” basis with no ability to negotiate, and the arbitration terms were not provided to employees until three weeks after they signed the agreement (i.e. the employment application). The court also agreed with the district court’s finding that the agreement was substantively unconscionable, meaning that it was unfairly one-sided so as to “shock the conscience.” The court focused on two provisions of the arbitration policy—the arbitrator selection provision and the costs provision. With respect to arbitrator selection, the court determined that the process would always result in the arbitrator being one proposed by Ralphs, which was unfairly one-sided. That is because the policy provided that each side could propose three arbitrators, followed by an alternating strike method allowing the party not demanding arbitration to strike first. In the court’s view, the party not demanding arbitration would always be Ralphs in any employee-initiated claim and that would always result in the last arbitrator standing being on Ralphs' list. (In this author’s view, that interpretation is a little tortured because in a typical case, the employee files a lawsuit in state court rather than “demanding” arbitration. The employee opposes arbitration and the employer has to “demand” it by making a motion to compel arbitration with the court. Ralphs also made this argument, but the Ninth Circuit rejected it.) The policy also specifically disallowed the use of AAA or JAMS arbitrators, which meant that those institutions’ rules for neutral arbitrator selection could not be used.
As to the costs provision in the policy, the Ninth Circuit held that this too was unconscionable. The policy itself is somewhat unclear, but generally provides that the arbitrator is to apportion arbitration-related fees to the parties at the outset of the proceeding subject to United States Supreme Court precedent on the subject and that if such precedent requires Ralphs to pay up to all of the arbitration fees, Ralphs would do that, but if United States Supreme Court precedent did not require such a result, then the arbitrator could apportion the arbitration fees/costs equally between the parties. The Ninth Circuit interpreted this provision as requiring the arbitrator in every case to impose substantial and prohibitive fees on the employee at the outset of the arbitration, so as to effectively preclude the employee from continuing with arbitration at all. On this basis, along with the unfair arbitrator selection provision, the court held that the agreement was substantively unconscionable. Having found that the agreement was both procedurally and substantively unconscionable, the court held that the arbitration agreement as a whole was unenforceable and that the employee could proceed with her claims in court. The Ralphs Grocery decision is available here.
The Ralphs Grocery decision, coupled with last week’s California Supreme Court decision in Sonic Calabasas, confirms that California state and federal courts will continue to recognize and apply California unconscionability law to review and potentially refuse to enforce employment arbitration agreements. Thus, litigation over the enforceability of these agreements is certain to continue, even though there have been huge employer-friendly gains in the last couple of years strengthening the enforceability of these agreements. The continued validity of the unconscionability doctrine serves as an important reminder to employers to review their arbitration policies and agreements to ensure that they pass muster under these standards. Employers are also reminded that important cases are still pending before the California Supreme Court on the issue of the enforceability of class action waivers in employment arbitration agreements and whether California's "Gentry" analysis for evaluating the enforceability of these waiver provisions is still valid in the wake of Concepcion. We will keep you updated on further developments in this area.
Today the California Supreme Court issued its opinion in Sonic-Calabasas v. Moreno, holding that an employment arbitration agreement is enforceable even where an employee is pursuing administrative remedies (typically for alleged unpaid wages) through the California Labor Commissioner.
The California Supreme Court had previously held in this same case that an arbitration agreement is unconscionable to the extent it seeks to preclude an administrative hearing before the Labor Commissioner. Following that ruling, however, the United States Supreme Court issued its decision in in AT&T Mobility v. Concepcion, striking down a similar California Supreme Court ruling that had found class action waivers is consumer contracts generally unconscionable and unenforceable. The United States Supreme Court thereafter ordered the California Supreme Court to reconsider its ruling in Sonic-Calabasas in light of Concepcion.
Today the California Supreme Court issued its new decision in "Sonic II." The Court held that Concepcion precludes a finding that an arbitration agreement is unconscionable simply because it requires parties to arbitrate a Labor Code dispute instead of permitting the employee to first proceed with an administrative hearing before the Labor Commissioner. Thus, an arbitration agreement now may still be enforced even in Labor Commissioner proceedings and require the parties to arbitrate their dispute. However, the California Supreme Court held that while there is no categorical unconscionability rule for arbitration agreements that preclude an administrative hearing before the Labor Commissioner, an arbitration agreement can still be deemed unenforceable if determined to be procedurally and substantively unconscionable (based on unfair terms above and beyond precluding an administrative hearing). The Court stated: "As with any contract, the unconscionability inquiry requires a court to examine the totality of the agreement's substantive terms as well as the circumstances of its formation to determine whether the overall bargain was unreasonably one-sided." The Court further stated that the agreement "must provide an employee with an accessible and affordable arbitral forum for resolving wage disputes." The Court basically held that the unconscionability standards it long ago set forth in Armendariz remain good law even after Concepcion.
The Court held that it did not have sufficient information to rule on the unconscionability issue as to the arbitration agreement between Moreno and Sonic-Calabasas. It therefore remanded the issue to the trial court to determine. The Court provided guidance to trial courts to assist in making unconscionability determinations, characterizing the inquiry as a detailed factual inquiry that still permits the court to consider (among other factors) the effect of the waiver of certain benefits of an administrative proceeding before the Labor Commissioner. The Court's opinion basically precludes a bright line rule on when an arbitration agreement will be deemed unconscionable and instead ensures that trial courts will continue to come out all over the map on these issues.
Justice Chin, joined by Justice Baxter, authored a vigorous dissent in which he criticized the majority's unconscionability analysis and stated that the Court's analysis contravenes Concepcion.
The full 100-plus page opinion is available here.
Last week, San Francisco’s Board of Supervisors unanimously adopted the Family Friendly Workplace Ordinance, giving employees the right to request flexible work schedules or other accommodations to help the employee with childcare obligations and other similar household obligations. The ordinance of course provides legal remedies to an employee whose rights under the ordinance are violated. San Francisco Mayor Ed Lee has stated that he will sign the ordinance into law, but has not yet done so. If signed into law as expected, the ordinance will take effect January 1, 2014. Thus, employers with employees in San Francisco should familiarize themselves with the newly passed ordinance.
The ordinance applies to employers who regularly employ 20 or more employees, including part-time employees, within the City of San Francisco. The ordinance grants employees with 6 or more months of service and who work at least 8 hours per week the right to request a flexible work arrangement to accommodate the employee’s caregiving responsibilities for (1) a child; (2) a parent age 65 or older; or (3) a spouse, domestic partner, parent, child, sibling, grandparent or grandchild with a serious health condition. An eligible employee may make up to two requests for accommodation per year, but may make additional requests following the birth or adoption of a child and/or an increase in the employee’s caregiving responsibilities for a family member with a serious health condition. An employee may request accommodation in the form of an alternative work schedule, telecommuting, job sharing, part-time work, or any other type of flexible work arrangement. An employee’s request must be made in writing, and must detail the accommodation requested and how that accommodation relates to the employee’s caregiving responsibilities. The request must also state the proposed commencement and duration for the requested accommodation.
An employer who receives a written request must respond both verbally and in writing. The employer must meet with the employee about the request within 21 days of receiving the request. The employer thereafter must respond to the request in writing within 21 days, explaining whether the employer will grant or deny the request. An employer who denies the request must explain, in writing, “bona fide business reasons” for the denial, such as identifiable cost of granting the request (lost productivity, rehiring or retraining costs), negative effect on ability to meet customer demands, inability to meet work demands or transfer work among employees, etc.
If an employee’s request is denied, the employee then has 30 days to seek reconsideration, which requires the employer to again meet with the employee within 21 days and respond in writing thereafter within 21 days.
The new ordinance states that it shall be unlawful for a San Francisco employer to interfere with, restrain, deny the exercise of any rights granted by the ordinance. It also makes it unlawful to discharge, threaten to discharge, demote, or otherwise take adverse employment action against an employee for exercising rights under the ordinance. The ordinance grants enforcement authority to San Francisco’s Office of Labor Standards Enforcement, which can investigate alleged violations and take administrative and legal action to enforce the ordinance and remedy certain violations. The ordinance does not provide for a private right of action.
Employers will be required to post mandatory posters (not yet published) concerning the new ordinance and will also be required to maintain records of employee requests for 3 years.
The text of the ordinance is available here.
October 14, 2013
Posted by Cal Labor Law in New Laws & Legislation
Last week, California’s Governor signed into law SB 435, which provides for one hour of premium pay for missed “recovery periods.” This new law amends Labor Code section 226.7, which California employers know as the law providing premium pay for missed meal and rest periods. (Basically, it’s a penalty of one hour of pay for a missed break, but California courts call it a “wage” instead of a “penalty” so that the statute of limitations on the claim is three times as long). The statute has led to myriad class action lawsuits in California alleging missed meal and rest breaks and seeking premium pay under section 226.7 on behalf of proposed classes of employees. Well, with the new amendment to section 226.7, this will undoubtedly lead to a whole new category of class action lawsuits seeking premium pay—now for allegedly missed “recovery” periods. So what is a “recovery period?” A recovery period is a cool down period of at least 5 minutes on an “as needed” basis that must be afforded to employees who work outside. Thus, this new law does not affect all California employers, but only those with outside employees, such as construction industry employers, agricultural employers, and the like. Employers are encouraged to review Cal-OSHA/Department of Industrial Relations guidance on heat illness and injury prevention. For some information in this area, click here and here.
The text of the new law is available here.
Governor Jerry Brown signed AB 60 into law on October 3, 3013. The law allows individuals without immigration status to obtain driver privileges (DP) and to obtain a DP identification from DMV. The law goes into effect on January 1, 2015 in order to give DMV sufficient time to publish regulations and procedures and to staff up to meet the expected demand.
CDF reminds employers that the DP identification will not satisfy I-9 requirements. While a state issued driver license is an acceptable List B document, a DP card will not be. By definition, anybody who applies for the DP identification is most likely not work authorized.
It is the opinion of this author that Congress will eventually grant employment authorization documents (EAD’s) sometime during the next two years to this same population segment – however it remains to be seen when. Until then, employers are reminded to remain vigilant regarding accepting proper I-9 documentation for new hires and reverifications.
For more information on the new DP, click here.
For information on other immigration matters, please contact Attorney Greg Berk, Chair of the CDF Immigration Practice Group.
October 1, 2013
Posted by Cal Labor Law in Legal Information
With the shutdown of the federal government, employers should be aware of the extent to which key employment-related agencies will continue to operate during the shutdown. The following is a list of key agencies and their contingency plans:
1. Department of Homeland Security: Employers should be aware that the E-Verify system used to verify I-9 work authorization is unavailable during the shutdown. The DHS has instructed employers not to take any final action on tentative non confirmations that are still pending during this period. Employers will be given the opportunity to do late E-Verify verifications once the system is up and running again. For more information from the DHS website, click here.
2. EEOC: The EEOC has announced that it will continue processing charges of discrimination, but will not be conducting investigations or participating in scheduled mediations. In cases of pending litigation, the EEOC will participate as necessary if requests for stays are not granted by the courts. The EEOC’s contingency plan announcement is available here.
3. NLRB: The NLRB has announced that it generally is not processing charges and that representative elections and hearings are postponed. However, the NLRB has advised that in certain instances filings should be faxed to NLRB regional offices. For more information, click here.
4. Department of Labor: The Wage and Hour Division has announced that it will generally only continue operations as necessary to respond to emergencies involving the safety of human life or protection of property. The WHD will investigate incidents involving serious injury or death of a minor while employed or any transportation accident or any housing safety violation involving serious injury or death of a farm worker. For more information, click here.
5. Federal courts: Federal courts are expected to continue operating normally for about 10 business days. If the shutdown lasts longer than that, federal courts are expected to be impacted.
This week, California's Governor signed into law legislation (1) increasing the state minimum wage, (2) providing overtime compensation for many household employees, and (3) expanding the scope of California's paid family leave insurance program. With respect to minimum wage (which is currently $8/hour in California), AB 10 increases the minimum wage to $9/hour effective July 1, 2014, and further increases it to $10/hour effective January 1, 2016. Currently, the only state with a higher minimum wage than California's upcoming $9/hour is Washington, where the minimum wage is $9.19/hour.
The Governor also signed into law AB 241, which adds section 1450 to the California Labor Code and is known as the Domestic Worker Bill of Rights. Under this new law, individuals who work in many household occupations are now required to be paid overtime compensation at a rate of one and one-half times their regular rate for all hours worked in excess of 9 hours per day or 45 hours per week. The law excludes "casual babysitters" whose work is intermittent or irregular as well as babysitters who are under age 18, and further excludes individuals who work in residential care facilities. The law would apply to nannies, housekeepers, and individuals who provide care for the elderly and/or disabled within a private household. This new law takes effect January 1, 2014.
Finally, the Governor signed into law SB 770, which expands the scope of California's family temporary disability insurance program. Under the current program, employees who take time off to care for a seriously ill child, spouse, parent or domestic partner, or for baby bonding, are entitled to partial wage replacement benefits through this state insurance program administered by the EDD. Under the new law, these benefits are expanded to also be provided to employees who take time off to care for a seriously ill grandparent, grandchild, sibling or parent-in-law. This new law takes effect July 1, 2014. To be clear, this new law is not a leave statute and does not require California employers to provide leaves of absence to employees for any of these circumstances, much less to provide employees pay for such leaves. An employer's leave obligations are governed by the employer's policies and the employer's coverage under other applicable laws such as the FMLA and CFRA.
We will continue to keep you updated on any additional legislative developments.
Employers may recall recent publicity in California over the extent to which an employer may recover its attorneys’ fees after prevailing in a wage and hour action. This is because Labor Code section 218.5 on its face provides that the prevailing party in any action brought for nonpayment of wages “shall be awarded” its reasonable costs and attorneys’ fees. Thus, Labor Code section 218.5’s fee-shifting provision on its face applies equally to a prevailing employee and employer. Based on this language, in Kirby v. Immoos, a trial court awarded attorneys’ fees to an employer who prevailed in a wage case alleging, among other things, meal and rest break violations. A California court of appeal thereafter affirmed the employer’s fee award. However, the California Supreme Court ultimately reversed this outcome and held that Labor Code section 218.5 does not apply to meal and rest break claims, reasoning that these claims are not claims alleging “non-payment of wages.” The Court’s ruling left open the possibility that a prevailing employer could recover attorneys’ fees in certain other types of wage-related actions.
To avoid this result, the California Legislature introduced a bill, SB 462, to amend Labor Code section 218.5 to provide that a prevailing employer may only recover attorneys’ fees if a trial court finds that the employee brought the wage action in bad faith. The legislature recently passed this bill and yesterday California’s Governor signed it into law. With this amendment, it will be even more difficult and rare for a prevailing employer to recover attorneys’ fees in wage and hour actions in California.