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.  

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.

Proposed Amendments to CFRA Regulations Published

On February 21, 2014, California's Department of Fair Employment and Housing Council (FEHC) published proposed amendments to the California Family Rights Act (CFRA) regulations.  These regulations are intended to clarify some aspects of the existing regulations and also to adopt many of the recent amendments to the federal FMLA regulations to make the two acts more consistent.  The proposed amended regulations touch on almost every aspect of the CFRA process, addressing, among other things, length of service/eligibility issues, the certification process and timeframes for responding to employee requests for CFRA leave, computation of amount of leave entitlements, key employee issues, clarification of reinstatement rights, maintenance of health and other benefits during leave, retroactive desingation of leave, and the interplay between CFRA leave and California pregnancy disability leave. The proposed regulations make clear that same-sex spouses are covered under CFRA and make clear that the FMLA regulations apply to CFRA leave "to the extent not inconsistent" with the CFRA regulations.  Importantly, there remain some areas where CFRA administration will continue to differ from FMLA administration.  Among other things, pregnancy disability is not covered under CFRA and, therefore, a California employee who is otherwise eligible for leave under CFRA/FMLA will be eligible for up to four months of leave for pregnancy disability AND up to twelve weeks of additional leave for baby-bonding under CFRA.  The proposed regulations make clear that a California employer is required to maintain the employee's group health benefits for this whole time period (and not just up to 12 weeks).  Some other notable differences between CFRA and FMLA are that the medical certification and scope of permissible medical inquiry are narrower under California law than under FMLA, and the circumstances under which an employer can seek re-certification are narrower under California law.  The proposed regulations provide a sample medical certification that California employers can use.  (In this author's opinion, the proposed certification is insufficient as it relates to intermittent leave needs).

Employers covered by CFRA should carefully review the proposed regulations and consider whether to submit comments and/or proposed revisions.  The full text of the proposed amended regulations is available here.  There is a public comment period through June 2, 2014.  Comments can be submitted via email to FEHCouncil@dfeh.ca.gov.  There will also be two public hearings on the proposed amended regulations:  10:00 a.m. on April 7, 2014 at UC Irvine School of Law, and 10:00 a.m. on June 2, 2014 at the California Public Utilities Commission Main Auditorium in San Francisco.  For more information, see the DFEH website here.

Ninth Circuit Issues Another Employer-Friendly Decision on CAFA Removals

Yesterday the Ninth Circuit issued its decision in Rea v. Michaels Stores, reversing a remand order and finding that the defendant employer’s removal of the case to federal court under the Class Action Fairness Act (CAFA) was proper.  In line with its decision last year in Roth v. CHA Hollywood Medical Center, the Ninth Circuit reaffirmed that a defendant’s removal options are not limited to the two 30-day windows specified in the federal removal statute.  As long as the defendant has not run afoul of either 30-day removal window (meaning that no pleading or other paper revealed on its face that the action was removable), the defendant may remove at any time based on its own information and investigation.  The Ninth Circuit also reaffirmed its holding last year in Rodriguez v. AT&T Mobility Services, that the preponderance of evidence standard (and not the legal certainty standard) applies to CAFA removals and that allegations in a complaint purporting to limit the amount in controversy to under $5 million are not binding and do not prevent removal under CAFA.

Applying these principles to the Michaels Stores case, a wage and hour class action alleging misclassification of store managers, the Ninth Circuit held that the employer’s removal was timely, even though it was filed years into the litigation and not within 30 days of any initial or subsequent pleading.  The court also held that Michaels had sufficiently demonstrated that the amount in controversy “could exceed $5 million” based on evidence that Michaels expected its managers to work 45 hours per week, along with deposition testimony of putative class members stating that they in fact regularly worked 45 or more hours per week.  Extrapolating these overtime hours to the number of employees in the putative class resulted in alleged overtime damages exceeding $5 million.  The court held that this evidence (particularly in the absence of any contrary evidence) was sufficient to meet the employer’s burden of proving by a preponderance of the evidence that the amount in controversy requirement was met.  For these reasons, the Ninth Circuit held that the district court’s order remanding the case to state court was erroneous.

Notably, while the plaintiff’s petition for review of the remand order was pending before the Ninth Circuit, the litigation proceeded on remand in the state court, resulting in a class being certified.  The plaintiff argued before the Ninth Circuit that this grant of class certification turned the Complaint’s non-binding allegation limiting recovery to under $5 million into a binding allegation, thereby precluding CAFA jurisdiction.  The Ninth Circuit rejected this argument, reasoning that post-removal developments are not relevant to assessing whether removal was proper at the time the removal was filed and that such subsequent developments do not defeat an otherwise proper removal.

The Rea v. Michaels Stores decision is helpful for employers defending wage and hour class actions in California state courts but seeking to remove those actions to federal court.  The full decision is available here.

NLRB Continues Reliance on D.R. Horton to Attack Employment Arbitration Agreements

As many predicted, the Fifth Circuit’s recent invalidation of the NLRB’s D.R. Horton decision has not caused the NLRB to revise its enforcement position on the subject of class action waivers in employment arbitration agreements.  The NLRB basically takes the position that, unless overruled by the United States Supreme Court (as opposed to a circuit court of appeal), Board decisions (such as D.R. Horton) remain in effect and are binding on the NLRB’s administrative law judges (“ALJ”).  A decision last week from an ALJ in Leslie’s Poolmart, Inc. and Keith Cunnigham evidences the NLBR’s continued adherence to its D.R. Horton decision and policy.  Indeed, the Leslie’s Poolmart decision actually expands D.R. Horton by holding that an arbitration agreement that was silent on the issue of class and collective claims still violated Section 7 of the NLRA by interfering with employees’ rights to engage in collective, concerted activity for mutual aid and protection.    

In Leslie’s Poolmart, employees were required to sign an arbitration agreement upon hire, whereby they agreed that they would arbitrate any employment-related disputes.  The agreement said nothing about whether an employee could pursue class or representative relief in arbitration.  Notwithstanding his agreement to arbitrate, employee Cunningham filed a class action lawsuit in California state court against Leslie’s, alleging various wage and hour violations.  Leslie’s removed the case to federal court and then filed a motion to compel arbitration of Cunningham’s individual claims and requested that the class claims be dismissed.  The court granted the motion (with the exception of a PAGA claim, which the court held was exempt from individual arbitration). 

Not to be deterred, Cunningham filed a charge with the NLRB alleging that Leslie’s arbitration agreement and efforts to enforce it violated section 7 of the NLRA.  Last week, a NLRB ALJ agreed.  The ALJ held that she was still bound by D.R. Horton regardless of the fact that the Fifth Circuit effectively overruled the decision.  The ALJ further held that D.R. Horton applied even though the arbitration agreement in this case (unlike the one at issue in D.R. Horton) did not expressly preclude arbitration of class or representative claims.  The ALJ reasoned that even though the agreement did not expressly foreclose class claims, it effectively foreclosed such claims because the employer required all employees to sign the agreement and responded to court actions by making motions to compel individual arbitration and to dismiss any class allegations.  Thus, the ALJ found that the agreement interfered with employees’ ability to engage in collective concerted activity.  The ALJ further held that a single employee's filing of a class action claim (even without active participation of any other employee) constituted protected concerted activity.  The ALJ ordered Leslie’s to rescind its arbitration policy and/or to revise it to make clear that employees can pursue class claims either in arbitration or in court.  The ALJ further ordered Leslie’s to file a motion with the district court requesting that it vacate its order compelling Cunningham to arbitrate his individual claims.  The January 17, 2014 Leslie’s Poolmart decision is available in full on the NLRB’s website here.

Unless and until the United States Supreme Court overrules D.R. Horton, it appears, at least for now, that some plaintiffs' class action lawyers may continue using unfair labor practice charges as a last ditch effort to try to avoid dismissal of their class claims.  Given the wide rejection by courts of the NLRB's D.R. Horton decision, the ultimate success of this type of tactic is doubtful. 

Collective Bargaining Agreement May Define When Overtime Pay Is Owed, Along With the Rate

Yesterday a California court issued a favorable decision for employers regarding overtime pay obligations for employees covered by a collective bargaining agreement.  In Vranish v. Exxon Mobil Corp., the plaintiffs, who were unionized production and maintenance workers at Exxon’s Santa Ynez facility, filed a putative class action against Exxon, alleging that Exxon failed to fully pay them overtime compensation required under California law.  Pursuant to the applicable CBA, the plaintiffs regularly worked an alternative workweek schedule of seven 12-hour shifts, followed by a period of seven days off.  Also pursuant to the CBA, the plaintiffs were paid overtime compensation at the rate of one and one-half times their regular rate of pay for hours worked in excess of 40 per week or 12 hours per day.  Overtime was not paid for hours worked between 8 and 12 in a workday.

Plaintiffs sued, alleging that Exxon’s failure to pay them overtime for hours worked between 8 and 12 in a workday was a violation of California’s daily overtime pay requirement set forth in California Labor Code section 510.  The court rejected this argument, holding that the daily overtime provision of section 510 did not apply to plaintiffs because they were covered by a valid CBA and sections 510 and 514 exempt employees covered by a CBA containing its own overtime pay provisions.  Plaintiffs did not dispute that the CBA was valid or that it  provided for payment of overtime compensation in certain circumstances.  However, plaintiffs argued that the CBA’s overtime provision was nonetheless in violation of California law because it did not provide for daily overtime for hours worked between 8 and 12 per day.  According to plaintiffs, the exemption for employees covered by a CBA only applies if the CBA provides for overtime compensation at least at the rates and in the circumstances set forth in section 510.  The court rejected this argument, citing the Division of Labor Standards Enforcement Policy Manual as well as opinion letters wherein the DLSE agreed that the parties to a CBA are free to negotiate and agree on the circumstances under which overtime pay is triggered and the rate at which it will be paid.  As a result, section 510’s specific overtime requirements do not apply to employees covered by a valid CBA that contains its own overtime pay provisions.

The court alternatively held that even if plaintiffs’ interpretation of the CBA exemption was correct, Exxon still would not be liable for overtime compensation because the plaintiffs worked a validly adopted alternative workweek schedule providing for 12-hour shifts and, as such, were not eligible for overtime compensation for hours worked between 8 and 12 in a workday.

The full decision is here.

IRS Announces New Mileage Reimbursement Rate

Yesterday the IRS announced the 2014 optional standard mileage reimbursement rates.  Beginning January 1, 2014, they decrease one-half cent from the current rates in effect, and are as follows:

  • 56 cents per mile for business miles driven;
  • 23.5 cents per mile driven for medical or moving purposes; and
  • 14 cents per mile driven in service of charitable organizations (same as current rate in effect).

Employers using the standard IRS rates for mileage reimbursement purposes should adjust their expense reimbursement policies accordingly.

SF Family Friendly Workplace Poster Available

San Francisco employers are reminded that the city's new Family Friendly Workplace Ordinance (FFWO) takes effect January 1, 2014 and requires employers to consider employee requests for flexible or predictable work arrangements to assist with caregiving responsibilities.  Our prior post on this new ordinance is here.  This new local ordinance requires San Francisco employers with twenty or more employees to post a poster setting forth the provisions of the ordinance.  That poster has just been made available.  Employers can access the poster here.  For more information on the FFWO, click here.

Ninth Circuit Approves $700,000 Attorney Fee Award In FEHA Case Even Though Jury Awarded Plaintiff Damages of Only $27,000

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.

Fifth Circuit Invalidates NLRB’s D.R. Horton Ruling

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.

Ninth Circuit Further Weighs In on Arbitration Agreements

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.

California Supreme Court Follows Concepcion and Holds That Administrative Wage Claims Are Arbitrable

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.

San Francisco Adopts Family Friendly Workplace Ordinance, Increasing Cost of Employing Workers in the City by the Bay

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.

New California Law Expands Missed Meal and Rest Period Premium Pay to Missed “Recovery” Periods

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.

California Governor Approves Minimum Wage Hike, Domestic Worker Bill of Rights, and Expansion of Paid Family Leave Benefits

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.

Prevailing Employer In Wage Case Can Only Recover Attorneys’ Fees If Claim Was Brought In Bad Faith

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.

California Legislative Watch:  Pending Labor and Employment Bills

There are a number of bills being considered by the California Legislature this session that are of interest to California employers.  With the Democratic supermajority in both legislative houses, as well as a Democratic Governor, it is quite likely that more employee-friendly bills will be passed and signed into law than in recent years.  The following are some of the notable pending bills:

SB 404 (FEHA/familial status):  This bill would expand the list of protected categories for employment discrimination purposes under FEHA, to include “familial status.”  “Familial status” is defined to include individuals who provide medical or supervisory care to a family member (child, parent, spouse, domestic partner, or parent-in-law).  If signed into law, this will expand the scope of lawsuits and potential liability against employers for alleged discrimination against applicants or employees based on their familial status.

AB 556 (FEHA/military and veteran status):  This bill would add “military and veteran status” to the list of protected categories for employment discrimination purposes under FEHA.

SB 400 (domestic violence/stalking):  This bill would expand employment protections provided to victims of domestic abuse (Labor Code section 230) by adding a provision that prohibits employers from discriminating against applicants or employees based on their known status as victims of domestic violence, sexual assault or stalking, and would also require employers to provide time off to employees who need to attend court proceedings dealing with stalking (the law already provides for time off for proceedings relating to domestic violence and assault).  Most notably, the law would require employers to provide “reasonable accommodation” to victims of domestic violence, sexual assault and/or stalking in the form of implementing safety measures for the employee while at work.

SB 655 (FEHA/mixed motive cases):  This bill is intended to codify the California Supreme Court’s recent decision in Harris v. Santa Monica, specifically to codify the burden-shifting framework and remedies available in cases where there are mixed motives for an adverse employment action in a FEHA discrimination case.  Under this bill, a plaintiff in a discrimination case will prevail if he/she proves that his/her protected status/activity was a “substantial motivating factor” for the employer’s decision to take adverse employment action against the plaintiff.  However, the employer can try to limit its liability by pleading and proving that it would have made the same adverse employment decision even without consideration of the protected characteristic/activity.  If the employer proves this, the employer will not be liable for economic damages (back pay/front pay).  However, the employer will still be liable for non-economic damages (emotional distress damages), attorneys’ fees, expert witness fees, a penalty of $15,000, and possibly injunctive relief. 

AB 263/SB 666 (wage complaints and immigration practices):  These bills would amend Labor Code 98.6 to make clear that written or oral complaints regarding wages the employee believes are owed him/her are protected activities for purposes of the prohibition on retaliation against an employee for engaging in protected conduct.  These bills would also make clear that an employee may, but is not required to, exhaust administrative remedies before filing a lawsuit.  These bills would also add sections 1019 et seq. to the Labor Code, delineating certain unfair and unlawful immigration-related practices.  “Unfair immigration practices” include requesting more or different documents of an applicant than are allowed under federal I-9 rules; refusing to honor documents that appear genuine on their face; using the federal E-verify program to check authorization status of a person at a time or in a manner not required or authorized under the program procedures; and threatening to file or filing a false police report.  The new law would also prohibit retaliation against applicants/employees who complain about the employer’s non-compliance with these provisions and/or inform others of their rights in this regard, or who even seek information from the employer about its compliance.  The new law would provide a rebuttable presumption that adverse action taken against an employee within 90 days of such protected activity is retaliatory.

AB 442 (liquidated damages for wage violations):  This bill would expand the remedies available to employees who file claims with the Labor Commissioner for payment of a wage lower than minimum wage.  The bill would permit the Labor Commissioner to award liquidated damages (employees can already recover liquidated damages in a civil lawsuit), in addition to unpaid wages, penalties, and interest.

AB 729 (privilege for communications with union agent):  This bill would create an evidentiary privilege (similar to the attorney-client privilege) to protect from disclosure confidential communications between a union agent and a represented employee or former employee.

AB 218 (limits state/local agency inquiries into applicant criminal history):  This bill would add section 432.9 to the Labor Code and would generally prevent state and local agency employers from asking applicants to disclose criminal history information, via application or otherwise, until after it is first determined that the applicant meets the minimum qualifications for the position.

AB 241 (domestic workers/wages):  This bill, which was introduced but unsuccessful last year, is back.  This bill would add certain wage protections for domestic workers, such as babysitters and house cleaners.  With certain exceptions, the bill would require payment of daily and weekly overtime and compliance with other wage order requirements, for most household workers.  With respect to babysitters, the law would exempt babysitters under age 18 and would also exempt "casual" babysitters who work no more than 6 hours per week in any given month (these employees are still entitled to minimum wage for all hours worked, however).  The law also sets forth specific requirements for live-in household employees.

AB 10 (minimum wage increases):  This bill provides for state minimum wage increases as follows:  $8.25/hour on January 1, 2014; $8.75/hour on January 1, 2015; $9.25/hour on January 1, 2016; $9.50/hour on January 1, 2017; and $10.00/hour on January 1, 2018.

AB 25 (social media/public employers):  Last year, a new law was passed prohibiting private employers from requiring applicants or employees to disclose usernames/passwords for social media and/or requiring employees to access or divulge social media.  This bill would extend these provisions to public employers.

SB 770 (paid family leave expansion):  This bill would expand California's paid family leave partial wage replacement program (administered through EDD) to provide wage replacement benefits to an employee who takes time off to care for a seriously ill grandparent, grandchild, sibling, or parent-in-law, effective July 1, 2014.  (Current law already provides such benefits to employees who take time off to care for a spouse, child, parent, or domestic partner.)

In addition to the foregoing bills being considered by the California Legislature, the Legislature already passed and the Governor already signed into law SB 292, which "clarifies" that a plaintiff claiming sexual harassment under FEHA need not prove that the harassment was motivated by sexual desire in order to prove "sexual" harassment.  This is not really a change in the law, but the bill was aimed at curtailing the effect of a recent California Court of Appeal decision, Kelley v. Conco, 196 Cal.App.4th 191 (2011), which had some language suggesting that in a same-sex harassment case, evidence that the alleged harasser was heterosexual and not motivated by sexual intent or desire could defeat a harassment claim.

The full text of each of these bills, along with information on the bills' sponsors, is available here.  Wondering why this list does not include all of the employer-friendly bills pending before the Legislature?  (Of course there aren't any--they were all defeated early on in the session.)

The California Legislature has until September 13 to pass bills this session, and the Governor thereafter has until October 13 to sign or veto such bills.

Only the Named Plaintiff’s Claim in PAGA Action Can Be Considered for Purposes of Diversity Jurisdiction

Today the Ninth Circuit issued its decision in Urbino v. Orkin Services of California, Inc., addressing how to properly analyze whether the amount in controversy element is satisfied for purposes of diversity jurisdiction in a PAGA action.  As most California employers know, PAGA is a California statute that allows an employee to recover penalties (purportedly on behalf of the state) against an employer for various violations of the California Labor Code.  Worse, the employee who is the named plaintiff can seek to recover penalties on behalf of all aggrieved employees.  Most claims are filed in state court, but employers retain the option to remove the action to federal court if the requirements for diversity jurisdiction are met.  One of those requirements is that the amount in controversy must exceed $75,000.  In determining whether the amount in controversy meets this jurisdictional threshold, the question becomes whether courts should look only at the amount of the named plaintiff's claim, or whether courts should look at the aggregate amount of the claim as to all "represented" employees.  California district courts have disagreed over the answer to this question.  Today, the Ninth Circuit resolved the question, holding that only the claim of the named plaintiff (and not the aggregate claims of all aggrieved employees sought to be represented) may be considered in determining whether the amount in controversy requirement is satisfied.  The result of this decision will be that far fewer PAGA claims will be capable of removal to federal court based on diversity jurisdiction.  The full opinion of the court is here

Supreme Court Issues Two Employer-Friendly Decisions Addressing Liability for Supervisor Harassment and the Standard for Proving Retaliation Under Title VII

Yesterday the United States Supreme Court issued two decisions important for employers litigating harassment and retaliation claims under Title VII.  In the first case, Vance v. Ball State University, the Court decided an important issue relating to an employer's liability for harassment of an employee by a "supervisor."  More specifically, the Court decided a dispute concerning what it means to be a "supervisor"--i.e. does the employee need to have authority to hire and fire and make similar decisions or is it enough if the employee directs the daily work of others(the latter approach being the approach endorsed by the EEOC)?  This issue is significant because employer liability for harassment under Title VII varies depending on whether the alleged harasser is a supervisory employee or a co-worker.  If the harasser is a supervisor, the employer generally is vicariously liable for the harassment.  If the harasser is not a supervisor but a co-worker of the victim, then the employer generally only is liable if it knew or should have known of the harassment and failed to take prompt and effective remedial action.  Prior to yesterday's decision, courts disagreed over the meaning of the term "supervisor" and thus parties to harassment suits under Title VII generally had to litigate whether the alleged harasser qualified as a supervisor (with Plaintiffs' attorneys of course arguing broadly for supervisor status, and employers urging a narrow view of supervisor status). 

In yesterday's 5-4 decision, the Supreme Court provided the needed clarification and guidance on this issue, defining the term "supervisor" narrowly in a way that benefits employers.  The Court held that to be considered a supervisor, the employee must be empowered by the employer to take "tangible employment actions against the victim."  This means that the employee must have the power to effect "a significant change in employment status, such as hiring, firing, failing to promote, reassignment with significantly different responsibilities, or a decision causing a significant change in benefits."  The Court rejected as "nebulous" the EEOC's (and many circuit court's) definition of a supervisor to include anyone with the ability to significantly direct another's daily work.

The Supreme Court's decision is a favorable one for employers because it narrows the circumstances under which employers can be held vicariously liable for harassment, and should reduce litigation costs that previously had to be expended litigating whether the alleged harasser was a supervisor or not.  The full decision in Vance is available here.

In another employer-friendly Title VII decision issued yesterday, University of Texas Southwestern Medical Center v. Nassar, the Court (also in a 5-4 decision) decided a split among the circuits concerning the standard for proving retaliation claims under Title VII (meaning claims that an employee was retaliated against for complaining about discriminatory practices in violation of Title VII).  Prior to yesterday's decision, some courts had held that an employee need only prove that a retaliatory motive was "a motivating factor" behind the adverse employment action.  Other courts held that an employee, in order to prevail, has a higher burden of proving that a retaliatory motive was the "but for" cause of the adverse employment action. The Supreme Court has now spoken and held that the standard for proving a retaliation claim under Title VII is "but for" causation.  This decision similarly is favorable for employers litigating Title VII retaliation claims because it makes it more difficult for the plaintiff to prove and prevail on the claim.  The full decision in Nassar is available here.

It has been a good week for employers on the United States Supreme Court front.

Supreme Court Issues Another Strong Decision Upholding Class Waivers in Arbitration Agreements

Today the United States Supreme Court issued its opinion in American Express Co. v. Italian Colors Restaurant, holding that courts may not invalidate a contractual waiver of class arbitration simply because the plaintiff’s cost of individually arbitrating a federal statutory claim exceeds the potential recovery he or she might receive.  This case is not an employment case, but a case involving a merchant with a credit card contract with American Express.  The merchant brought a class action against American Express, alleging violation of antitrust laws resulting in merchants being charged excessively high rates.  The contract between American Express and its merchants contained an arbitration agreement whereby the merchants had to agree that any disputes would be resolved by binding arbitration and that there would be no right to have claims decided on a class basis in arbitration.  Pursuant to this contractual agreement, American Express sought to compel individual arbitration of the merchant’s claim.  The trial court granted the motion to compel arbitration but the court of appeal reversed, holding that the prohibitive costs the merchant would face in arbitration to prove an antitrust violation precluded effective vindication of statutory rights and rendered the class waiver unenforceable.  Specifically, the individual merchant only stood to recover between $12,000-$38,000 in damages, but it would cost at least several hundred thousand dollars, and possibly more than one million dollars, to prove the violation through expert analysis.  The court of appeal concluded that requiring an individual to bear such cost in arbitration while precluding class wide relief, effectively eviscerated the right to pursue the action in the first place.  The United States Supreme Court granted certiorari and reversed.

In today’s decision (a 5-3 decision authored by Justice Scalia), the Supreme Court held that the Federal Arbitration Act (FAA) requires that arbitration agreements be enforced according to their contractual terms, even for claims alleging a violation of a federal statute, unless the FAA's mandate has been overridden by a contrary congressional command.  The Court made clear that neither the antitrust laws nor Rule 23 of the Federal Rules of Civil Procedure contains any congressional command that individuals be permitted to pursue antitrust violations on a class basis.  The court further rejected application of an "effective vindication" exception used by some courts to invalidate class waivers in arbitration agreements.  Under that exception, which the Court emphasized originated from dicta in an earlier Supreme Court decision, courts sometimes invalidate arbitration agreements that operate to prospectively waive a party's rights to pursue a statutory remedy.  The Court held that there was no reason to apply any such exception in this case because the arbitration agreement did not result in a waiver of the merchant's right to pursue an antitrust claim.  The merchant could still pursue the claim in arbitration, even though not on a class basis.  "[T]he fact that it is not worth the expense involved in proving a statutory remedy does not constitute the elimination of the right to pursue that remedy."  The court further reasoned that if courts could invalidate arbitration agreements based on a principle of cost versus benefit analysis of individual versus class wide claims, this would require courts, in ruling on a motion to compel arbitration, to undertake an analysis of the legal requirements for success on the merits on a claim, the evidence necessary to meet those requirements, the cost of developing that evidence, and the damages that would be recovered in the event of success.  "Such a preliminary litigating hurdle would undoubtedly destroy the prospect of speedy resolution that arbitration in general and bilateral arbitration in particular was meant to secure."  The Court thus held that the arbitration agreement, including its class waiver, was enforceable as written under the FAA.

Today's Supreme Court decision is yet another example of the Court's strong position on enforcing arbitration agreements, including class waivers, according to their terms and the parties' intentions.  While this is not an employment action, the analysis and reasoning in the decision carries over to cases interpreting the enforceability of arbitration agreements and class waivers in the employment context and may well impact the California Supreme Court's upcoming analysis in important employment cases pending before it on the issue of enforceability of employment arbitration agreements in California, including on the issue of class waivers.  As readers of this blog know, the California Supreme Court is expected to decide this year whether the United States Supreme Court's recent decision in AT&T Mobility v. Concepcion (and the FAA) preempt California laws relating to the enforceability of arbitration agreements and class waivers in such agreements in employment cases, particularly in wage and hour class actions and PAGA representative actions. 

EEOC Steps Up Enforcement Actions Based on Employer Use of Criminal Background Checks

Employers probably recall that last year the EEOC published guidance on the use of criminal background checks in the hiring process.  This led many to forecast that the EEOC would be stepping up its enforcement efforts in this area.  Well, earlier this month the EEOC filed lawsuits against two different companies, BMW Manufacturing and Dollar General, alleging that their criminal background check policies discriminated against black applicants in violation of Title VII.  According to the lawsuit against BMW, BMW had a policy that barred employment to applicants with certain criminal convictions regardless of how old the conviction was, the nature or gravity of the offense, or the nature of the employment position sought.  The EEOC charged that BMW's policy had a disparate impact on blacks and constituted unlawful employment discrimination.

In the case against Dollar General, the EEOC similarly alleges that Dollar General's criminal conviction policy disparately impacts black applicants.  That lawsuit arose out of two administrative charges filed with the EEOC by rejected applicants.  In one case, the applicant had a six-year old drug conviction.  Dollar General's policy was to consider this type of conviction a bar to employment if the conviction was less than 10 years old.  As such, the applicant was not hired.  In the other case, the applicant's background check revealed a felony conviction but the applicant insisted that the report was wrong. Although she informed Dollar General of the mistake, she still was not hired.  The EEOC is now challenging Dollar General's criminal convictions policy as a whole.  In both cases, the EEOC seeks back pay as well as injunctive relief.  The EEOC's press release regarding these two lawsuits is available here

The EEOC's increased attention and enforcement efforts in this area serve as a reminder to employers of the need to review their criminal background check policies (as well as similar questions on employment applications) to try to ensure the policies pass muster under the EEOC's guidance.  Our prior post on that guidance is available here.  California employers must also be mindful that California has some additional restrictions on the scope of criminal background checks used for employment purposes (e.g. California Labor Code section 432.8, which prohibits employers from considering certain marijuana-related convictions in making employment decisions).  Thus, California employers need to ensure that their policies and procedures comply with both federal EEOC guidance and California law.

Another Court Strikes Down NLRB Employee Rights Poster

As we reported last month, the D.C. Circuit Court of Appeals recently issued a decision invalidating the NLRB’s rule requiring employers to post an Employee Rights poster to apprise employees of their rights under the NLRA.  This past Friday, another court weighed in and similarly concluded that the posting rule is unenforceable.  In Chamber of Commerce v. NLRB, the Fourth Circuit Court of Appeals held that the NLRB exceeded its authority in adopting the posting rule.  The court reasoned that the NLRB’s role is a reactive one, intended to address unfair labor practice charges, and that the NLRB exceeded this role when it acted in a proactive manner adopting a workplace posting rule.  While the outcome of the Fourth Circuit decision is the same as the D.C. Circuit’s earlier decision, the reasoning behind the two decisions is somewhat different.  The D.C. Circuit punted the issue of whether the NLRB had authority to issue the posting rule, instead ruling that the posting rule was invalid because it violated employers’ free speech rights.  The Fourth Circuit more strongly held that the NLRB plainly lacks authority to issue such a proactive posting rule.  It is unclear whether the NLRB will appeal to the United States Supreme Court or accept the adverse rulings of these two courts and abandon efforts to maintain the posting rule.  The most recent Fourth Circuit decision is here.

Courts Continue to Weigh in on Impact of Arbitration Agreements on Class Proceedings

Last week the United States Supreme Court issued its decision in Oxford Health Plans LLC v. Sutter, refusing to vacate an arbitrator’s finding that a doctor’s arbitration agreement with a health plan permitted class-wide arbitration.  Sutter, a pediatrician, had entered into a fee for service contract with Oxford Health, whereby Oxford Health agreed to pay Sutter certain rates for services he provided patients.  Sutter initiated a lawsuit on behalf of himself and other doctors also under contract with Oxford Health, alleging that Oxford Health failed to pay the doctors in accordance with the contract terms.  Oxford Health moved to compel arbitration, relying on the following arbitration provision in the contract with Sutter: 

“No civil action concerning any dispute arising under this Agreement shall be instituted before any court, and all such disputes shall be submitted to final and binding arbitration in New Jersey, pursuant to the rules of the American Arbitration Association before one arbitrator.”

The agreement did not expressly authorize nor expressly prohibit claims from proceeding in arbitration on a class-wide or collective basis.  However, the parties agreed that the arbitrator should decide whether the agreement permitted  class-wide arbitration or whether Sutter would be limited to pursuing only his individual claim in arbitration.  The arbitrator thereafter concluded that the agreement permitted class-wide arbitration.  The arbitrator reasoned that the agreement’s use of the term “civil action” was not limited to only certain types of civil actions, that a class action is a common type of civil action, and that by agreeing that all “civil actions” (without limitation) would be resolved by way of arbitration, the parties must have intended to include class claims in its scope. 

Oxford Health petitioned to vacate the arbitrator’s decision, but its efforts were unsuccessful.  While the arbitration process continued, the United States Supreme Court issued its decision in Stolt-Nielsen v. Animal Feeds International, 559 U.S. 662 (2010), holding that a party cannot be compelled to arbitrate claims on a class basis unless there is a contractual basis for concluding that the party agreed to do so.  In Stolt-Nielsen, the parties (very unusually) stipulated that they had no agreement concerning the use of class-wide arbitration.  Notwithstanding this fact, a panel of arbitrators ordered class-wide arbitration.  In those circumstances, the Supreme Court held that the arbitration panel exceeded its authority because it did not conclude class-wide arbitration was appropriate based on interpretation of the parties’ contract.  It could not have done so, given that the parties stipulated their contract did not cover the issue of class arbitration.  Instead, the panel ordered class arbitration as a matter of public policy.  According to the Supreme Court, this was not a proper exercise of the arbitrator’s power and as, such, the order was overturned.

Relying on Stolt-Nielsen, Oxford Health renewed its efforts to undo the arbitrator’s decision that the claims against it could proceed on a class basis in arbitration.  This time the challenge made its way to the Supreme Court, which issued its decision last week, disagreeing with Oxford Health’s position and limiting the scope of Stolt-Nielsen.  In its unanimous opinion, the Supreme Court held that this case was different than Stolt-Nielsen because in Stolt-Nielsen the parties had stipulated that they had no agreement concerning the use of class arbitration.  Here, by contrast, the parties simply disagreed about whether or not the subject was covered by the arbitration provision in their contract.  More significantly, the parties specifically agreed that the arbitrator should decide, as a matter of pure contract interpretation, whether the agreement permitted class arbitration.  By giving the arbitrator this power, the parties largely forfeited any meaningful judicial review of the arbitrator’s decision.  The Supreme Court explained that judicial review of an arbitrator’s rulings is extremely limited under the Federal Arbitration Act and a decision will only be vacated if clearly in excess of the arbitrator’s authority.  A decision that is simply a “wrong interpretation” is not in excess of authority.  The arbitrator was authorized to interpret the contract and did so.  The fact that he may have gotten the result wrong is not a proper ground for reversal. 

The Supreme Court hinted that had Oxford Health not stipulated that the arbitrator should decide the issue of class arbitration, Oxford Health could have argued that the issue was an issue of arbitrability in the first instance and one that a court, not an arbitrator, must decide.  If a court had issued the decision, judicial review would have been broader and the outcome quite possibly different. 

The Oxford Health case is a good reminder that employers must carefully review the language of their arbitration agreements to ensure that the subject of class/collective arbitration is expressly addressed and prohibited.  Employers should also consider and address in their agreements the issue of whether an arbitrator or a court will decide issues of arbitrability pertaining to the agreement.  Limited judicial review is great when the decision is in your favor, but cuts the other way too—as the Oxford Health case demonstrates.  The Oxford Health case is available here.

In a related development in California, yet another California has weighed in on the issue of whether a class waiver provision in an arbitration agreement precludes an employee from pursuing a representative claim under PAGA.  California state and federal courts have disagreed on this issue, with some concluding that class and representative claims, including those brought under PAGA, may be barred by an arbitration agreement, and others concluding that an arbitration agreement cannot preclude an employee from pursuing a representative action under PAGA.  Earlier this month, the Sixth District Court of Appeal handed down a decision in the Plaintiffs’ camp, holding that a plaintiff may pursue a representative claim under PAGA, notwithstanding an otherwise valid arbitration agreement precluding class/collective claims.  The decision is Brown v. Superior Court (Morgan Tire & Auto) and the decision is here.  Employers should note that the California Supreme Court is expected to resolve the issue of whether representative PAGA claims are excluded from the scope of an otherwise valid class waiver provision in an arbitration agreement sometime in the next year in Iskanian v. CLS Transportation (which reached the opposite conclusion with respect to the impact of a class waiver provision on a PAGA claim).  In the meantime, employers can expect continued assertion of PAGA claims by Plaintiffs’ lawyers in an effort to circumvent applicable arbitration agreements with class waivers. 

We will continue to post developments as they arise in this important area.

Duo of Unfavorable Class Certification Decisions Handed Down

Two steps forward, one step back.  That seems to be the pace of wage and hour class certification decisions for California employers these days.  In recent months, both the Ninth Circuit and some California Courts of Appeal have issued employer-friendly decisions holding that class certification is not proper on the facts of the wage and hour claims before them (see, e.g. Wang v. Chinese Daily News (9th Circuit) and Dailey v. Sears Roebuck (California court of appeal).  However, over the past week, two new decisions have been issued reminding California employers that class certification is far from dead in the wage and hour context.

Yesterday, the Ninth Circuit issued its decision in Leyva v. Medlin Industries, Inc., reversing a district court’s denial of class certification and ordering that class certification be granted.  The plaintiff in the case sought to represent a class of 538 hourly employees of Medline, alleging that the employer engaged in improper time rounding practices that resulted in employees performing work “off the clock” and without pay, and that the employer also failed to include bonus compensation in calculating the overtime rate.  The district court denied class certification, holding that individual damage issues predominated over any issues common to the class and that litigating the case on a class basis would be unmanageable.  The Ninth Circuit, without much factual discussion, held that the district court abused its discretion in denying class certification.  More specifically, the Ninth Circuit held that the district court erred in relying almost exclusively on individual damage issues as the basis for denial of class certification.  The Ninth Circuit held that the need for individual damage determinations does not defeat class certification and does not render a class proceeding unmanageable.  In so holding, the Ninth Circuit made clear that it does not believe the United States Supreme Court’s recent decision in Comcast v. Behrend, suggests otherwise.  According to the Ninth Circuit, Comcast v. Behrend simply held that the proponent of class certification must demonstrate a model of proving damages attributable to the theory of liability.   In Comcast, the proposed model did not isolate damages flowing from one theory of liability versus others.  The Ninth Circuit contrasted the case before it and held that if liability was proven for rounding violations and/or improper overtime rate calculations, the damages sought would all flow from the same theory of liability.  Furthermore, the employer had apparently demonstrated that classwide damages could be fairly easily calculated from the employer’s payroll database (the employer had filed a notice of removal early in the case, which included the employer’s own damages calculations).  The Ninth Circuit emphasized that individual damage issues, almost categorically, are not enough to defeat class certification in any wage and hour case.

The Ninth Circuit mentioned but provided no real discussion of facts or evidence in the case proffered by the employer to demonstrate that individual issues predominate.  For example, the employer apparently argued and/or submitted evidence that different employees had different types of bonuses—some being discretionary and some non-discretionary, which might impact whether such compensation even needed to be included in the overtime rate calculation.  Additionally, it is unclear how it could be determined on a classwide basis whether any particular class member actually performed work that was uncompensated (regardless of any rounding practice) without individually questioning each class member.  In any event, the Ninth Circuit’s view on individual damages issues was certainly made clear.  The full decision is here.

In another unfavorable class certification ruling, a California Court of Appeal issued its decision last week in Bluford v. Safeway Stores, also reversing a trial court’s denial of class certification, this time in a meal break case.  On the meal break claim, the employer’s policy apparently did not specifically mention the employee’s entitlement to a second meal break if the employee worked in excess of 10 hours per day.  There was evidence, however, that some employees indeed knew they could take second meal breaks and did take such breaks.  The trial court denied class certification, finding that individual issues predominated because a determination of liability would require questioning of the individual employees as to whether they were permitted to take such breaks and if they did not take them, why that was.  The court of appeal disagreed, holding that class certification could properly be based on the employer’s lack of a proper policy clearly authorizing and permitting second meal breaks for shifts in excess of 10 hours.  In other words, the lack of a fully compliant policy supported class certification, regardless of evidence that at least some employees knew by unwritten policy that they were in fact entitled to such breaks.

There was also a rest break claim at issue in the Bluford case, but it was premised on unique facts different that rest break claims in typical cases (i.e. employees were not permitted to take rest breaks).  Specifically, the rest break claim challenged whether Safeway provided paid rest breaks to its employees.  Safeway paid these employees based on a piece rate formula utilizing mileage rates applied according to number of miles driven, the time when the trips were made and the locations where the trips began and ended.  Pay was also based on fixed rates for certain tasks and hourly rates for other tasks and delays.  According to the court, neither the mileage rate compensation formula nor the fixed rate formula compensated employees for rest period time.  Safeway argued that the mileage and activity rates were designed to include compensation for rest periods.  The court rejected this theory, holding that averaging pay is not allowed under California law as a means for complying with minimum wage obligations.

Notably, the driver employees at issue in the Safeway case were covered by a collective bargaining agreement that had meal and rest break provisions.  The court rejected the argument that the claims were preempted by the Labor Management Relations Act.  The Bluford case is available here.

These two cases serve as an unfortunate reminder that wage and hour class actions remain alive and well in California, and will continue to so remain.  It is imperative that employers ensure that they have compliant wage and hour policies for California employees, as this remains one of the best tools for defeating class certification.  In the meantime, it remains to be seen how other courts (besides the Ninth Circuit) will interpret Comcast v. Behrend and its impact on class certification in wage and hour cases, where damages issues are often highly individualized.

Can Time Spent Simultaneously Performing Exempt and Non-exempt Work Be Counted as Exempt?

In order to be properly classified as an exempt employee in California, the employee must spend the majority of his or her weekly work time performing exempt tasks.  Thus, California's test for exemption has a very quantitative focus, a focus that is materially different than the "primary duty" test under the federal FLSA.  One question that commonly arises in lawsuits challenging exempt status of managers in California is whether time spent by those managers concurrently performing exempt and non-exempt tasks qualifies as exempt work for purposes of the quantitative analysis.  Take, for example, a retail manager who assists customers during a rush but continues oversight of the store and coaching and direction of subordinate employees at the same time.  Is such concurrent work exempt, non-exempt or both?  Yesterday, a California court held that the work cannot be both exempt and non-exempt nor partial time credit given to the exempt and non-exempt sides of the ledger.  Instead, the court held that the trier of fact must determine the "primary purpose" of the work and consider whether that primary purpose falls on the exempt or non-exempt side of the ledger.  The case is Heyen v. Safeway, Inc. and the decision is here

In the Heyen case, the court's analysis led to an adverse decision for the employer.  The plaintiff, a grocery store manager, claimed she spent the majority of her time on non-exempt work (cashiering, etc.) instead of management duties.  Following trial, the court found liability and awarded the plaintiff overtime compensation.  The employer said that the trial court erred in failing to consider time spent by the plaintiff concurrently managing while performing non-exempt tasks.  The appellate court found no erro and held that based on the evidence, the trier of fact properly concluded that the work was for a primarily non-exempt purpose and thus, the employer did not get time credit for the employee's concurrent management duties.

This case serves as a reminder to California employers about the need to carefully review exempt classifications to ensure that exempt employees truly spend the majority of their work time on exempt tasks. 

Court Ruling Provides Reminder That Exempt Employees Must Be Paid on a “Salary Basis”

There has been a lot of litigation in California concerning the exempt status of various categories of employees, with plaintiffs’ attorneys filing class action after class action seeking to recover four plus years of overtime compensation stemming from employers allegedly misclassifying employees as exempt from overtime compensation.  Typically, these claims are premised on an argument that the employees’ job duties (as opposed to the amount or manner of compensation paid to the employees) do not meet the test for exemption.  A decision hand down today by a California Court of Appeal serves as a reminder that failure to pay exempt employees on a salary basis also destroys exempt status, even if the employees’ job duties satisfy the test for exemption.

In Negri v. Koning & Assoc., the plaintiff was an insurance adjuster who was paid $29 per hour for his work.  He did not have any guaranteed and predetermined minimum salary that he would be paid regardless of hours worked.  In actual practice, the plaintiff always worked at least 40 hours per week and was paid $29 per hour for each of those hours worked (and more if he worked more than 40 hours).  Thus, the employee’s total compensation each week was far more than double the minimum wage (the minimum threshold amount of compensation to qualify for exempt status generally in California).  Nonetheless, the employee sued his employer, claiming he was improperly classified as exempt and was owed overtime compensation.  [He alleged he typically worked over 60 hours per week.]  The employer argued the employee was properly classified as exempt based on his job duties and compensation.  The trial court ruled in favor of the employer, citing federal authorities generally determining that insurance adjusters are exempt administrative employees.  The employee appealed.

The appellate court reversed, but wisely did not want to touch the issue of whether the employee’s job duties met the test for the administrative exemption in California.  [California courts have been all over the map on interpretation and application of the administrative exemption as to claims adjusters and as to many other categories of employees.]  Instead, the court analyzed whether the employee’s compensation met the salary basis test necessary for exempt status.  The court explained that payment on a salary basis requires that an employee be paid a guaranteed predetermined amount (of at least twice the minimum wage) that is not subject to reduction based on quantity or quality of work.  The court held that the employer’s method of paying this employee did not meet this salary basis test because the employee was simply paid hourly without any guaranteed minimum salary.  Thus, hypothetically, if the employee worked only a few hours in a week, his total compensation would be less than double the minimum wage because there was no guaranteed minimum salary in place.  The employer argued that this hypothetical scenario never happened and that the employee always worked and was paid for at least 40 hours and so there was no “actual reduction” based on quantity worked.  As such, the employer argued that the salary basis test was still satisfied as to this employee.  The court disagreed and held that there must be a guaranteed minimum salary in place in order for an employee to be deemed paid on a salary basis and qualify for exempt status.  The court clarified that it is permissible for an employer to pay an employee compensation over and above the guaranteed minimum without destroying exempt status, but there must at least be a guaranteed minimum in place in the first instance.  The full decision is available here.

This case serves as a cautious reminder for employers who pay exempt employees using hourly forms of compensation.  While this is generally permissible, there must be an agreement in place that the employee will receive a guaranteed minimum salary of at least double the minimum wage (California employees) for full-time employment.  Otherwise, exempt status can be successfully challenged, with back overtime owed (typically at an alarming overtime rate given the higher rate of compensation paid to employees classified as exempt).

Appeals Court Invalidates NLRB’s Employee Rights Poster as a Violation of Employers’ Free Speech Rights

This week the D.C. Circuit Court of Appeals issued its ruling in a case brought by several employer groups seeking to challenge the legality of the NLRB rule requiring employers to post an employee rights poster informing employees of their rights under the NLRA to unionize, among other things.  As employers will recall, the NLRB had postponed the effective date of the posting requirement several times pending various court challenges to the legality of the required poster.  The NLRB then gained a victory before a District of Columbia district court, which held that the poster was lawful.  Employer groups appealed to the D.C. Circuit Court of Appeals, which temporarily enjoined the NLRB from implementing the posting requirement until a ruling on the merits of the appeal.  This week, the Court of Appeals reversed the district court decision and held that the NLRB’s posting rule violated employers’ free speech rights and was, therefore, unlawful.  The full decision is here.  Our prior posts on this subject are here.  For now, employers remain free of any obligation to post the NLRB employee rights poster.

Employer Hit With Unpaid Vacation Wages Even Though Union Agreed Vacation Was Properly Paid Under CBA

California employers should all be aware that California law requires employers to pay out all accrued, but unused, vacation pay immediately upon termination of employment.  In other words, use it or lose it policies and/or policies that provide for forfeiture of vacation on termination of employment are illegal in California.  Employers who fail to timely pay vacation wages on termination of employment are liable not only for the actual amount of unpaid vacation wages, but also for "waiting time penalties" of a full day's regular wages for each day the payment is late, up to 30 days.  There is, however, an exception to the rule prohibiting a forfeiture of vacation wages for unionized employees if the collective bargaining agreement "otherwise provides" (meaning it provides for something other than full payment of all vested vacation upon termination of employment).  Today, a California court interpreted this exception narrowly to hold that a collective bargaining agreement ("CBA") must "clearly and unmistakeably" specify that vested vacation does not need to be paid in order for a waiver to be found.  In other words, an implied waiver or a waiver inferred from the totality of the circumstances (such as the past mutual practice of the union and the employer) is not good enough.  The case is Choate v. Celite Corp. and the decision is here.

In the Choate case, the employer granted its employees between one and five weeks of vacation annually.  At the beginning of each year, the employer calculated the yearly vacation allotment based on an employee's length of service and the number of hours the employee worked the year before.  Under the CBA, employees terminated from employment were entitled to "receive whatever vacation allotment is due them upon separation."  Both the union and the employer understood this provision to mean that employees were entitled to be paid for the vacation time already allotted to them for the year of their termination, but not for any vacation time they had accrued toward the next year's allotment by virtue of having performed a certain number of hours of work.  The employer paid out vacation in accordance with this understanding.  Notwithstanding the apparent agreement of the union and the employer as to the interpretation of the CBA's vacation provision, a group of terminated employees sued for unpaid vacation wages and waiting time penalties. 

The court held that the employer owed the pro rata vacation wages earned during the termination year because the CBA did not "clearly and unmistakeably" waive employees' right to receive those vacation wages.  The court held that it was not sufficient that the union had for years agreed with the employer's interpretation of the vacation provision.  Although the court held that the vacation wages were owed, the court held that the employer did not owe waiting time penalties because the employer's failure to pay was not "willful."  The court held that the employer reasonably believed that the wages were not owed based not only on the union's agreement but also on conflicting case law, some of which suggested that an implied waiver standard was proper. 

As a side note for litigators, the employer in this case also argued that the employees' vacation claim was preempted by the Labor Management Relations Act.  The court rejected this argument and held that the claim was not preempted because the claim did not really require "interpretation" or "analysis" of the CBA.

Employers with unionized employees who do not pay out all accrued, unused vacation on termination of employment should ensure that the applicable CBA clearly and unmistakeably waives this entitlement. 

Supreme Court May Review NLRB Recess Appointments

Recently we reported on the federal D.C. Circuit Court of Appeals’ decision in Noel Canning v. NLRB, holding that certain of President Obama’s recess appointments to the NLRB were invalid.  That decision calls into question the validity of numerous NLRB decisions made by a panel including these recess appointees.  The court held that the appointments were invalid because they were not made during a “recess” and because the vacancies did not arise during a recess. 

Last week, the Justice Department petitioned for review of the Noel Canning v. NLRB decision before the United States Supreme Court.  The Justice Department asks the high Court to decide the meaning of a “recess” for purposes of the President’s appointment power (whether it has to be an inter-session recess or whether it can be an intra-session recess, as was the case when President Obama made the NLRB recess appointments) and also asks the Court to decide whether the vacancy has to arise during the recess or whether it can arise prior to the recess but be filled during the recess.

The opposition to the petition for certiorari is due May 28, 2013.  The Supreme Court is not likely to issue a decision on whether or not it will grant review until after its summer recess.  We will keep you posted.

California Considering Minimum Wage Hike

California's Legislature is considering AB10 this session, which would increase California's minimum wage from the current $8 per hour to $8.25 per hour next year, to $8.75 per hour in 2015, and to $9.25 per hour in 2016.  Beginning in 2017 and thereafter, the minimum wage would be automatically adjusted upward based on the state's inflation rate.  Recent legislative efforts to increase California's minimum wage rate have failed and it is not clear whether this bill will fare differently.  However, the bill did recently pass the Assembly Labor and Employment Committee.  California's minimum wage is already one of the highest in the country.  Only a handful of states have minimum wage rates higher than California's. 

On the federal level, legislation has also been introduced to raise the federal minimum wage from the current $7.25 per hour to $8.20 per hour three months after the legislation is passed, to $9.15 per hour one year after the legislation is passed, and to $10.10 per hour two years after the legislation is passed.  Starting the third year after the legislation is passed, the federal minimum wage would be automatically adjusted upward based on teh Consumer Price Index.  The federal legislation, known as the Fair Minimum Wage Act of 2013, would also increase the minimum wage for tipped employees over the next three years from $2.13 per hour to 70% of the minimum wage. 

We will post developments on this and other employment-related legislation here.

California Court Holds That Piece Rate Workers Must Be Paid At Least Minimum Wage for Non-Piece Rate Work Time

Earlier this week, a California court issued a published decision holding that an employer who employs piece rate employees must compensate those employees at the piece rate for all piece rate work and at a rate of at least the minimum wage for each hour of non-piece rate work.  It is not sufficient that an employer simply look backward at the pay period to determine if the total piece rate compensation divided by total hours worked (piece rate time and non-piece rate time) equals at least the minimum wage and then make up the difference only where the total falls below the minimum wage.  The case is Gonzalez v. Downtown LA Motors and the decision is here.

The decision rests on uncertain footing, relying on a prior California Court of Appeal decision in Armenta v. Osmose, 135 Cal.App.4th 314 (2005).  In turn, the Armenta decision relied on a 2002 DLSE opinion letter, in which the DLSE opined that piece workers must be paid at least minimum wage for all non-piece rate hours worked and that the employer may not satisfy this obligation by simply looking back at the end of the pay period at the total piece rate compensation earned and ensuring that it is equal to at least minimum wage for all hours (piece rate and non-piece) worked.   In that opinion letter, however, the DLSE acknowledged that California minimum wage law is susceptible to a divergent interpretation that the backward-looking/averaging approach is permissible.  Some California federal courts have also held that the backward-looking/averaging approach is proper.  To add to the confusion, the DLSE itself flip-flopped on its own interpretation of what is required in this situation.  In an earlier DLSE Interpretive Bulletin, the DLSE endorsed the backward-looking/averaging method.  See DLSE Interpretive Bulletin No. 84-3 (Feb. 1, 1984).  However, without explanation, the DLSE reversed its position several years later, explaining in its Operations and Procedures Manual that piece rate workers, in addition to their piece rate compensation, separately must be paid at least minimum wage for all non-piece rate hours worked. 

Of course, the employer in the Gonzalez case did not get any break from interpreting the law the same way the DLSE has at times interpreted it.  Instead, the employer was found liable to a class of piece rate employees for minimum wage violations and was ordered to pay the class for all unpaid minimum wages, as well as penalties for “willful” violation of the law.  Apparently, it’s only okay for the DLSE to get it wrong when trying to interpret the exact requirements of California wage and hour law. 

Unless and until there is a positive change in legal authority on this issue in California, employers who pay workers on a piece rate basis may want to take a cautious approach and pay these workers not only their piece rate for piece rate work, but also minimum wage for non-piece rate work hours.

Favorable Decisions Denying Class Certification in Wage and Hour Cases

In good news for California employers, over the last two weeks, two more favorable decisions have been issued denying class certification in California wage and hour actions.  Yesterday, in Dailey v. Sears, Roebuck and Co., a California court held that class certification was properly denied in a case alleging certain Sears auto center managers and assistant managers were improperly classified as exempt and denied overtime compensation as well as proper meal and rest breaks.  The court held that substantial evidence supported the trial court’s finding that individual issues predominated over issues common to the class on each claim.  The plaintiff had argued that his theory for class treatment was that Sears uniformly classified the positions as exempt, and had uniform policies and procedures (including strict labor budgets) that effectively required the employees to spend the majority of their time on non-exempt work and to work at least 50 hours per week.  Plaintiff submitted a declaration stating that he spent the majority of his work time on non-exempt work, and submitted declarations of just 4 co-workers stating the same thing.  In contrast, Sears submitted declarations of 21 putative class members, each explaining that they regularly spent the majority of their work time on exempt, managerial tasks. 

The plaintiff argued that his evidence was sufficient to demonstrate that misclassification was widespread and that class certification should have been granted.  Plaintiff argued that individual issues effectively could be managed at trial through the use of representative sampling to determine both liability and damages, whereby a random sample of class members would testify to their work experience and from that testimony liability and damages determinations would be made and extrapolated to the rest of the class.  The court rejected Plaintiff’s arguments.  The court held that the existence of uniform classification policies and other uniform policies and procedures applicable to the class was not enough to support class treatment.  Rather, the proper focus is on the impact of those allegedly uniform policies on the class and how much time class members spent on exempt versus non-exempt tasks.  In this regard, the court determined that substantial evidence supported the trial court’s finding that Sears’ evidence showed that work experiences (and time spent on exempt versus non-exempt work) materially varied from employee to employee depending on a number of factors and that there were no uniform policies “commonly” dictating that the putative class members spend the majority of their time on non-exempt work.  As such, individual issues would predominate over any common issues, making class treatment inappropriate.

The same conclusion was reached with respect to Plaintiff’s meal and rest break claims.  The court held that there was no evidence of a uniform policy or practice depriving class members of meal or rest breaks, making class treatment inappropriate.

Regarding Plaintiff’s proposed sampling plan for managing individual issues, the court expressed its doubt as to whether the use of representative sampling is proper to determine liability (as opposed to damages), based on the United States Supreme Court’s ruling in Wal-Mart v. Dukes.  The court held that even if it is permissible to use sampling to determine liability in some cases, it was not appropriate in this particular case given the predominance of individual issues and lack of common experience among class members. 

In another recently issued decision, Wang v. Chinese Daily News, the Ninth Circuit overturned a judgment following jury and bench trial in favor of a certified class of newspaper employees alleging various wage and hour claims.  The case has quite a procedural history.  First, a California district court granted class certification in favor of the newspaper employees.  Second, the district court granted summary judgment in favor of the class, finding that they did not qualify for exempt status as a matter of law.  Following that order, the district court held a trial on damages that resulted in the class being awarded over $2.5 million in damages.  Chinese Daily News appealed the judgment to the Ninth Circuit, and the Ninth Circuit affirmed.  The Supreme Court granted review and later reversed the Ninth Circuit’s decision in light of Wal-Mart v. Dukes

On remand, the Ninth Circuit reversed the district court’s grant of class certification.  In light of Wal-Mart v. Dukes, the court held that class certification could not be maintained under Federal Rule of Civil Procedure 23(b)(2) because the class sought individualized monetary relief, which was not merely “incidental” to their request for injunctive relief.  The Plaintiffs actually conceded that class certification was improper under 23(b)(2).  However, this still left open the question as to whether class certification properly could be maintained under Rule 23(b)(3), which applies when a court determines that common issues predominate over any issues requiring individualized adjudication.  In this regard, the court remanded the issue to the district court to reconsider in light of Wal-Mart v. Dukes and the Ninth Circuit’s decision.  In providing guidance and direction to the district court to consider on remand, the Ninth Circuit emphasized that “commonality” does not exist simply because the claims raise “common questions” about the employer’s compliance with wage and hour laws.  “What matters to class certification is not the raising of common questions—even in droves—but rather the capacity of a classwide proceeding to generate common answers apt to drive the resolution of the litigation.”  The court held that commonality could not be established simply because the employer had a uniform classification policy.  The court further emphasized that “dissimilarities within the proposed class may impede the generation of common answers.”  As a result, the court emphasized that on remand “Plaintiffs must show significant proof that [CDN] operated under a general policy of [violating California labor laws]” in order for class certification to be warranted.

The Wang decision, like the Sears decision, also contains some positive guidance on the impropriety of using sampling at trial in the event a class is again certified on remand.  The court explained its view that the United States Supreme Court has disapproved of “trial by formula” whereby sampling is used to determine damages, which are then extrapolated to the rest of the class without further individualized proceedings.  The court emphasized that “employers are entitled to individualized determinations of each employee’s eligibility for monetary relief” and that “employers are also entitled to litigate any individual affirmative defenses they may have to class members’ claims.” 

This guidance from both a California court and the Ninth Circuit on the impropriety of sampling to determine liability and/or damages is good stuff for California employers defending wage and hour class actions.  Employers should of course be aware that further guidance on this important issue is expected from the California Supreme Court in Duran v. U.S. Bank, which is currently under review.

Class Action Plaintiff Cannot Avoid Removal Under CAFA by Stipulating to Cap on Damages

Yesterday, the United States Supreme Court issued its decision in Standard Fire Ins. Co. v. Knowles, resolving a split of authority among the federal circuit courts as to whether a class action plaintiff filing in state court can prevent the defendant from removing the case to federal court under the Class Action Fairness Act (CAFA) by stipulating that plaintiff and the putative class will not seek damages in excess of $5 million (the jurisdictional minimum for CAFA removal).  Several circuits, including the Ninth Circuit (which governs California's federal courts) had ruled that a class action plaintiff could successfully avoid CAFA removal by signing a stipulation at the beginning of the case agreeing not to seek damages in excess of $5 million.  Other circuits had held that this practice was ineffective and could not be used to avoid removal under CAFA because a named plaintiff cannot bind absent class members in an uncertified class action.  As such, regardless of any stipulation by the named plaintiff to limit damages, a defendant could still remove under CAFA by demonstrating that the parties are diverse and that the amount in controversy is sufficient under CAFA.  Yesterday, in a unanimous decision authored by Justice Breyer, the United States Supreme Court in Knowles agreed with the latter view, thereby eliminating one forum shopping tool used by plaintiffs' class action lawyers to avoid federal court.  The Knowles decision overrules prior bad Ninth Circuit precedent to the contrary in Lowdermilk v. U.S. Bank National Association, which is good news for California employers.  The full opinion of the Supreme Court in Knowles is here.

Courts Continue to Weigh in on Employment Arbitration Agreements

Today, another California court weighed in on the enforceability of an employment arbitration agreement in the context of a class action wage and hour lawsuit.  In Compton v. Superior Court, the court refused to compel arbitration of an employee's wage and hour claims, based on the court's finding that the employee's arbitration agreement was unconscionable and unenforceable.  The court relied on California unconscionability caselaw, including the seminal California Supreme Court decision in Armendariz.  The court held that AT&T v. Concepcion did not preempt Armendariz and that California unconscionability standards remain a proper ground for refusing to enforce an arbitration agreement.   Applying those standards, the court held that the arbitration agreement at issue was procedurally unconscionable because it was required to be signed as a condition of employment, and that it was substantively unconscionable because it was insufficiently bilateral.  Specifically, the agreement required the employee to arbitrate virtually all claims employees typically bring against an employer, but excluded from arbitration claims an employer is most likely to bring against an employee (e.g. claims for injunctive or equitable relief for trade secret misappropriation).  The agreement also provided a shortened statute of limitations for employee claims (one year).  As such, the court held that the agreement was "permeated" with unconscionability and refused to sever the unconscionable provisions and otherwise enforce the agreement.  The Compton decision is available here

As California employers should know, there are several cases pending before the California Supreme Court on the issue of whether and to what extent Concepcion preempts California law relating to enforceability of employment arbitration agreements.  This case may well be taken up for review as well, on a grant and hold basis.  Stay tuned for guidance to be issued from the California Supreme Court on this important issue, hopefully later this year.

Reminder:  FMLA-Covered Employers Must Post New FMLA Poster

In recent years, the FMLA has been amended several times, most recently in 2009 under the National Defense Authorization Act and Airline Flight Crew Technical Corrections Act.  While the most recent amendments relate to rarely used FMLA provisions, the DOL recently approved new regulations covering these provisions, and of even more significance to all FMLA-covered employers, issued a new FMLA poster effective today, March 8, 2013.  The new poster is available here.  All employers covered by the FMLA should begin using the new poster immediately.  For more information on the most recent amendments to the FMLA, see our prior post here.  Additional information relating to the new regulations is available on the DOL's website here.

New Decision Serves as Reminder of Pregnancy Disability Accommodation Requirements

Yesterday a California Court of Appeal issued its decision in Sanchez v. Swissport, Inc., addressing whether an employee fired after exhausting her 16 weeks of pregnancy disability leave could assert valid claims against the employer for pregnancy discrimination and failure to accommodate a disability.  The court said yes. 

In Sanchez, the plaintiff employee only worked for Swissport for about a year and one-half when she learned she was pregnant and that she had a high-risk pregnancy requiring bed rest.  She informed her employer that she needed a leave of absence from February through at least her due date in October.  Her employer provided her with the full 16 weeks of pregnancy disability leave required under California's pregnancy disability leave law.  The employer also allowed her to use an additional three weeks of accrued vacation, bringing the employee's total leave to 19 weeks.  The employee was unable to return to work at the end of that 19 weeks, as it was only July and she was not due to give birth until October.  Swissport terminated her employment.  Can you guess what happened next? 

You guessed it.  The employee sued.  Swissport promptly moved to dismiss the case, arguing that because it provided the maximum leave (16 weeks) required for pregnancy disability in California, the employee's claims for pregnancy discrimination, gender discrimation, and failure to accommodate a disability were invalid as a matter of law.  The trial court agreed and threw out the case.  Not so fast, though...the employee successfully appealed.

In yesterday's decision, the California Court of Appeal held that the trial court should not have thrown out the case at the motion to dismiss stage.  The court held that an employer's providing of the 16 weeks of leave for pregnancy disability does not automatically shield the employer from claims for failure to accommodate a disability or for gender/pregnancy discrimination under FEHA.  The court reasoned that an extended leave of absence (beyond 16 weeks of pregnancy disability leave) may be a "reasonable accommodation" for a disability required under FEHA, and that Swissport may have been required to provide the additional leave time absent a showing of undue hardship.  The case was, therefore, remanded to the trial court level so that the employee's FEHA claims could be litigated.

The Sanchez v. Swissport case (available here) is a good reminder for employers that simply complying with maximum leave entitlements provided under laws such as California's pregnancy disability leave law and/or FMLA/CFRA does not necessarily satisfy an employer's obligation to a disabled employee.  Employers who terminate disabled employees simply because they have exhausted statutory leave entitlements are likely to face claims for failure to accommodate and disability discrimination.  Employers should always engage in an interactive process with the employee at or near the expiration of the leave to assess how much additional leave time (or other accommodations) the employee needs and determine whether additional leave can be provided as a reasonable accommodation and without undue hardship to the employer.

Latest Activity from the California Supreme Court

This week the California Supreme Court was busy deciding whether to review some notable employment decisions.  In favorable news for employers, the Court denied review in See's Candy Shops v. Superior Court (Silva), the time rounding case in which a California Court of Appeal recently held that time rounding policies are permitted under California law.  Our prior post on the See's Candy case is here.   The Court granted review of Richey v. Autonation, a case addressing whether employers can assert an "honest belief" defense to liability on a claim under the California Family Rights Act.  In the Richey case, the employer had a somewhat ambiguous policy prohibiting employees from engaging in other employment while on CFRA leave.  An employee took a CFRA leave of absence, but while on the leave, engaged in his own self-employment.  The employer believed the employee was abusing his CFRA leave and terminated his employment.  The employee sued, the case was ordered to arbitration pursuant to an arbitration agreement between the parties, and the arbitrator found in favor of the employer on the ground that the honest belief defense provides a complete defense to liability.  The employee appealed, and a California court reversed, which is unusual given the narrow standards for review and reversal of arbitration decisions.  The court of appeal held that the employer could not avoid liability under CFRA based solely on an "honest" belief that the employee was abusing the leave.  The court held that the employer must produce evidence demonstrating that the employee actually was abusing the leave.  The California Supreme Court has now granted review of that decision. 

Finally, the Court this week granted review of Franco v. Arakelian, another case addressing enforceability of employment arbitration agreements in California.  (See our prior post here.)  The Franco court held, contrary to some other California courts, that PAGA claims cannot be compelled to arbitration and that the United States Supreme Court decision in AT&T v. Concepcion does not preempt California law on enforceability of class action waivers in the employment context.  The California Supreme Court has granted review in several similar cases, and this week's grant of review in Franco was on a "grant and hold" basis pending the Court's decision in Iskanian v. CLS Transportation.  Stay tuned for guidance from the California Supreme Court on these important employment law issues.

California Supreme Court Splits the Baby on Mixed Motive Defense to Discrimination Claims

Today the California Supreme Court issued its decision in Harris v. Santa Monica, addressing the “mixed motive” defense to discrimination claims under FEHA.  This case addresses whether a discrimination plaintiff suing under California law must prove that a discriminatory motive was (1) the "but for" cause for the adverse employment decision, (2) a lesser standard, that the discriminatory motive was a motivating factor behind the decision, even if not the dispositive factor, or (3) something in between.  The California Supreme Court went with  "something in between."  In short, the Court held that in mixed motive cases, if an employee proves that an employment action was substantially motivated by discrimination (but also motivated in part by legitimate, non-discriminatory reasons), the burden shifts to the employer to prove that it would have made the same decision for legitimate, non-discriminatory reasons.  If the employer succeeds in proving this, then the employer wins, right?  Not so fast.  The Court today held that if the employer proves that it would have made the same decision for legitimate reasons, the employee may not recover back pay, reinstatement, or emotional distress damages.  However, the Court held that the employee may still be entitled to declaratory relief (a court declaration that the employer engaged in unlawful discrimination), injunctive relief (a court order requiring the employer to refrain from similar acts of discrimination in the future) and—the real kicker—attorneys’ fees.

In the Harris case, the plaintiff-employee was a bus driver for the City of Santa Monica.  Harris had a less than stellar performance record, to put it nicely.  Shortly into her initial 40-day training period, she had an accident determined to be her fault and which caused minor damage to the bus.  She then had a second at-fault accident within her first three months and while still a probationary employee.  In addition to these accidents, within the first few months of her employment (also while she was still a probationary employee) she reported late to her shift twice and failed to give the dispatcher at least one hour’s notice as required by policy.  Applicable policies clearly indicated that these circumstances warranted termination of employment.  Indeed, following these incidents, the transit services manager and the assistant director concluded that Harris did not meet the standards for continued employment.  However, prior to any termination decision actually being made and communicated to Harris, Harris had a chance encounter with her immediate supervisor (not the transit manager or assistant director), who noticed Harris’ uniform shirt sloppily hanging loose and he told her to tuck it in.  At that time, Harris informed the supervisor that she was pregnant.  Harris claims her supervisor looked displeased at the news.  He asked her to get a doctor’s note clearing her to continue to work, which she did.  A few days later, Harris’ supervisor was called to a meeting at which time he was given a list of probationary employees who were not meeting the performance standards for continued employment.  Harris was on the list.  Her employment was then terminated.

Harris sued for pregnancy discrimination, and the claim managed to survive summary judgment and get to trial.  At trial, the City requested that the jury be instructed on the “mixed motive” defense and, more specifically, that even if the jury concluded that pregnancy discrimination was a motivating factor in the termination decision (along with legitimate reasons), the City would not be liable if it proved that it would have terminated Harris for the legitimate business reasons even without pregnancy discrimination as a motivating factor.  The trial court refused to give this instruction to the jury.  The trial court instead instructed the jury that the City was liable if Harris proved simply that pregnancy discrimination was “a motivating factor” in the termination decision.   The jury thereafter concluded that discrimination was a motivating factor and awarded Harris about $150,000 for emotional distress and $25,000 for wage loss.  In addition, because a prevailing employee is entitled to recover attorneys’ fees incurred to successfully litigate a discrimination claim, the court awarded Harris some $400,000 in attorneys’ fees.

The City appealed, and the court of appeal reversed the judgment, holding that the trial court should have given the jury instruction requested by the City.  Harris then petitioned for review to the California Supreme Court, which granted review. 

Today the Supreme Court issued its decision, agreeing with the court of appeal in part.  The Court held that an employer is entitled to assert the mixed motive defense but that successful proof of the defense does not absolve the employer of all liability.  The Court reasoned that if an employee proves that discrimination was a substantial factor behind an adverse employment action, it would be contrary to public policy and the purpose of FEHA to allow the employer to escape all liability.  However, the Court held that where an employer proves that it would have made the same decision for legitimate business reasons irrespective of any partly discriminatory motive, the employee may not recover damages or reinstatement.  In such instances, though, the trial court could still award declaratory and/or injunctive relief against the employer and also award attorneys’ fees to the employee as the prevailing party. 

Given that the attorneys’ fees often exceed the damages awarded to a prevailing plaintiff in a discrimination case (such as was the case here), this still provides significant exposure to employers litigating this type of claim, even if successful in their defense.  To be clear, however, an employer will not be liable for declaratory relief, injunctive relief, or attorneys’ fees in a FEHA case unless the employee proves that discrimination was a “substantial” motivating factor behind the adverse employment action.  There is no bright line rule for what type of evidence will suffice, but the evidence of discriminatory motive must be substantial, not slight (e.g. a stray or isolated discriminatory remark likely would not be considered “substantial” evidence).  The full Harris decision is here.

Court Declares Obama’s Recess Appointments to the NLRB Unconstitutional

As readers of this blog know, over the last year the NLRB has issued a number of decisions unfavorable to non-unionized employers, including decisions relating to at-will employment policies, social media policies and related terminations, and arbitration policies.  Some of these decisions were made by an NLRB Board, comprised largely of members appointed by President Obama as recess appointments in January 2012.  This means that the members were not confirmed by the Senate as typically required.  Senate Republicans refused to confirm President Obama's NLRB appointments at the time, so President Obama decided to get around the Republicans' obstacle by exercising a right to appoint people to fill vacancies in government agencies during a tiime when Senate approval cannot be obtained due to the Senate being in recess.  A legal challenge was mounted to the President's recess appointments to the NLRB on the ground that the Senate was not really in recess at the time these appointments were made, and thus the appointments are unconstitutional.  Today, the D.C. Circuit Court of Appeals agreed.  In Noel Canning v. NLRB, the Court held that "recess" means the period of time during which the Senate is formally adjourned following a two-year session.  It does not mean any period of time when the Senate is not in session for one or more days (such as was the case last January when the President made the "recess" appointments).  As such, the Court held that the NLRB recess appointments were unconstitutional.  This is hugely significant given that the NLRB needs at least three members to act, and three of the four members of the NLRB in 2012 were recess appointments--likely rendering invalid all NLRB decisions issued during this time.

It is anticipated that the D.C. Circuit decision will be appealed to the United States Supreme Court.  We will post developments here.

Employer Wins Summary Judgment on Discrimination and Defamation Claims

Yesterday a California court affirmed a summary judgment win for the employer on an employee's claims of gender discrimination, retaliation, and defamation.  The case, McGrory v. Applied Signal Technology, Inc., contains a lot of favorable language for employers litigating these types of claims in California courts, particularly in the context of seeking summary judgment on the claims.

McGrory was a male department manager who issued performance discipline to a subordinate female employee who was gay.  The female employee refused to accept the discipline and instead lodged a complaint with HR that the discipline was motivated by McGrory's discriminatory bias against lesbians.  The complaint prompted the company to retain an outside investigator to conduct an investigation.  The investigator later issued a report finding that McGrory did not discriminate against the female employee and that the female employee did have performance issues that needed to be addressed.  However, the investigation revealed that McGrory had engaged in inappropriate conduct in the workplace, including regularly making inappropriate sexual and racial/ethnic remarks in violation of the employer's policies.  The investigator also concluded that McGrory (and one other male employee who was interviewed during the investigation) was not truthful in responding to all of her questions during the interview and was not fully cooperative in the interview process.  Based on the investigation report, the employer terminated McGrory's employment.

McGrory sued for wrongful termination in violation of public policy, arguing that his termination was because he was male and that it was also against public policy for an employee to be terminated based on his participation in an investigation.  Finally, the employee alleged that he was defamed as a result of HR telling one or more employees that he was terminated for not cooperating with the investigation (McGrory disputed he was uncooperative and claimed this conclusion was false).

The trial court granted the employer's motion for summary judgment, finding that McGrory's claims had no legal merit.  McGrory appealed, but the appellate court agreed with the trial court's decision.

First, the court held that there was no evidence to support McGrory's claim that his termination was somehow motivated by the fact that he was a man.  There was no direct evidence of any gender bias on the part of the decisionmakers, and the fact that McGrory0 disagreed with the conclusions of the investigation report was not sufficient to establish a discriminatory motive.  The court reiterated the principle that discrimination cannot be proven simply by establishing that the employer's actions were unwise, unsound, or even incorrect.  The actions must be more than wrong; there must also be evidence that the actions were motivated by discriminatory intent.  McGrory had no such evidence.

Second, the court rejected McGrory's claim that his participation in the investigation was "protected activity" and that he should not have been terminated based on that particpation.  The court rationally explained that while it is true that California's anti-discrimination law, FEHA, protects participation in investigatory interviews, it does not protect dishonesty during an investigation or failure to fully cooperate in an investigation.  McGrory's termination was based in part on the employer's belief that McGrory was not truthful during the investigation and refused to provide certain information requested by the investigator.  This is not protected activity.

Finally, the court rejected McGrory's defamation claim.  In this regard, McGrory claimed that after he was terminated, HR told a co-worker that McGrory was terminated for not cooperating with the investigation.  McGrory claimed this was a false statement (because he cooperated) and that it defamed him.  The employer argued that it could not be liable for defamation because its statements were protected by the "common interest privilege."  The common interest privilege protects statements made in the employment context by one interested party to another, as long as those statements are not made "maliciously."  Malice generally means that the allegedly defamatory statement must have been motivated by hatred or ill will or with no reasonable grounds for believing the statement to be true. McGrory argued that there was no reasonable ground for the employer to believe that he failed to cooperate with the investigation.  The court held that this argument was not supported by the evidence and that the investigator (and hence, the employer who relied on the investigator's report) had grounds for believing McGrory was less than cooperative. The court explained that it did not really matter whether this conclusion was correct or fair. Thus, McGrory's defamation claim could not succeed.

The full text of this decision is available here.

More From the NLRB—Facebook Firings, Arbitration and Confidentiality of Witness Statements

The NLRB was busy in December issuing more decisions that are noteworthy and concerning for unionized and non-unionized employers alike.  First, the NLRB issued a new decision (Supply Technologies, LLC, 359 NLRB No. 58) finding that a non-union employer’s policy requiring arbitration of employment disputes violated Section 7 of the NLRA.  The NLRB relied on its prior decision and reasoning in D.R. Horton to invalidate the agreement, determining that the language of the agreement was ambiguous and would reasonably lead employees to believe they could not file unfair labor practice charges with the NLRB.

The Supply Technologies decision is not particularly surprising, given the NLRB’s prior decision in D.R. Horton which the NLRB is currently defending on appeal before the Fifth Circuit.  Employers should note that several courts in many different states, including California, have rejected D.R. Horton’s analysis. Oral argument before the Fifth Circuit is scheduled for February 5, 2013.  The ultimate decision and outcome in the D.R. Horton case may well impact the NLRB’s future handling of this issue.

In other December news, the NLRB upheld an earlier decision of an ALJ, finding that the termination of several employees for improper Facebook posts violated the NLRA.  In Hispanics United of Buffalo, 359 NLRB No. 37 (Dec. 14, 2012), the NLRB held that a non-union employer’s termination of five coworkers based on certain Facebook posts was unlawful, and awarded the employees reinstatement and backpay.  In this case, one coworker spoke critically of the work of several co-workers.  One of those co-workers responded by posting a comment on her Facebook page about the criticism and inviting comments from her fellow criticized co-workers.  Four co-workers posted their own responses to the criticism and about the co-worker who initiated the criticism.  The employee who initiated the criticism asked the co-workers to stop their “harassing and bullying” posts, and made a complaint to her supervisor regarding the harassment and bullying.  The employer ultimately terminated the five co-workers for bullying and harassing behavior.  The NLRB found the terminations unlawful, reasoning that the Facebook posts were protected activity engaged in for mutual aid and benefit (banding together to defend against job-related criticism).  This NLRB decision is a reminder to employers (union and non-union alike) to carefully consider discipline and terminations relating to social media in light of the NLRB’s continuing anti-employer posture on these issues.

Lastly, in December, the NLRB overturned decades-old precedent categorically exempting witness statements gathered during an employer’s internal investigation from disclosure to a union in response to a union request for information (which typically arises in connection with a grievance).  In Piedmont Gardens, 359 NLRB No. 46 (Dec. 15, 2012), the NLRB held that witness statements are not automatically exempt from disclosure to unions.  Instead, employers must consider the confidentiality interests in each specific case and apply a balancing test to evaluate whether there is a “legitimate and substantial confidentiality interest” and, if so, whether it outweighs the union’s need for the information.  In addition, the employer must “raise its confidentiality concerns in a timely manner and seek an accommodation from the other party.”  The Piedmont Gardens case muddies the waters in this area and obliterates any bright-line rule for treatment of witness statements as confidential.  Each case will instead have to be decided on its unique facts.

Further muddying the waters in this area, the NLRB issued a similar decision the day before Piedmont Gardens, this time addressing what constitutes a witness statement in the first place.  (If something isn’t a witness statement, it isn’t exempt from disclosure in response to the union’s request for information).  In Hawaii Tribune Herald, 359 NLRB No. 39 (Dec. 14, 2012), the NLRB held that a document is only a witness statement if (1) the witness, in some way, either through reading or reviewing the statement or having it read to him, adopted the statement as his own; and (2) the witness received an assurance that the statement would remain confidential.  In the Hawaii Tribune case, the NLRB held that an employer’s refusal to turn over a statement to the union was unlawful because the document did not constitute an actual “witness statement.”  The statement in question was documentation of an employee’s account of an event he witnessed in the workplace.  Although the statement was prepared by a supervisor, the employee was given the opportunity to make changes to the statement and then signed it as revised.  Sounds like a witness statement, right?  Not so, said the NLRB.  According to the NLRB, the employee was not assured the statement would remain confidential and, as such, it did not qualify as a witness statement. 

Stay tuned for more unusual developments from the NLRB, which we will endeavor to timely post on this blog.

California Adopts New Disability Regulations

We recently posted about California's adoption of new pregnancy disability regulations, which took effect December 30, 2012.  On December 18, California further adopted general disability regulations governing accommodation requirements for non-pregnancy related disabilities.  The disability regulations took effect December 30, 2012 and are available here.  The new regulations are 23 pages in length and contain definitions of mental and physical disabilities, explain essential versus non-essential job functions, and provide detail on employer and employee responsibilities in engaging in the interactive process and providing reasonable accommodation.  The new regulations incorporate the broad disability definitions and standards set forth under the recent amendments to the federal ADA, making the analysis of whether an employee is disabled much more similar under California and federal law than it used to be.  In simplest terms, it is rather easy to qualify as "disabled" under California (and federal) law.  Thus, in disability discrimination cases, the pivotal liability analysis will focus on the employer's response to the disability, not whether the employee qualifies as disabled.  In short, almost any condition (save and except very minor conditions, such as a common cold or scrape) qualifies as a disability as long as it limits a major life activity in some way.  The California regulations make clear, like the recent amendments to the ADA, that mitigating measures (such as glasses or contact lenses) may not be considered when determining whether a condition limits a major life activity.  Additionally, where the major life activity of working is considered, a condition can be determined to limit an employee's ability to work even if the condition only limits the employee's performance of one particular job (as opposed to an entire class of jobs). 

While the new regulations are too lengthy to summarize in their entirety in this post, there are some interesting points worth noting.  First, the regulations contain a lot of discussion about considerations of transferring a disabled employee to a vacant alternative position as a reasonable accommodation.  This concept is not new in and of itself.  However, what is new is that the regulations expressly state that employers are required to give preference to disabled employees when filling a vacant position.  The only exception is that the employer is not required to ignore a bona fide seniority system.

The regulations also discuss the circumstances under which employers may require medical documentation to support a request for reasonable accommodation.  Interesting in this regard is that the regulations imply that an employer is not entitled to request medical documentation in every circumstance.  The regulations instead say that the employer may request medical documentation "when the need for reasonable accommodation is not obvious."  Furthermore, in situations where the employer seeks medical documentation, the employer must communicate its requests (whether initial or supplemental) through the employee (not directly to a medical provider).  California (unlike federal law) continues to disallow employers from seeking diagnosis information or any medical information not necessary to determine the need for reasonable accommodation.  Finally, where the employee needs reasonable accommodation for over a year, the employer may request further medical certification on a yearly basis.  The regulations do not allow requests for recertification at earlier or more frequent intervals. 

All California employers (in particular, their Human Resources or other personnel responsible for managing leave requests or accommodation requests) should review the new disability regulations to ensure that their practices comply with the standards set forth therein. 

California Supreme Court Depublishes Two Favorable Cases Denying Class Certification

Following the California Supreme Court's long-awaited decision in Brinker last year, lower courts were left to resolve the numerous meal and rest break cases that had been held pending Brinker.  As we recently reported, a number of these cases have been favorably decided for California employers, with courts holding that class certification was improper on meal break claims due to the predominance of individual issues bearing on a determination of liability.  We reported on two of these specific cases, In re Lamps Plus Overtime Cases and Hernandez v. Chipotle here and here.  Following their losses, the plaintiffs in each of these cases petitioned for review to the Supreme Court.  Yesterday, the Supreme Court denied review but depublished both cases--suggesting that the Supreme Court did not agree with the court of appeals' analysis in some fashion.  This is unfavorable news for California employers and possibly an indicator that the highest court in this state will continue to view class certifcation standards in wage and hour cases with an employee-friendly eye.

In related  news, the California Supreme Court granted review yesterday of Reyes v. Liberman Broadcasting--another case addressing the enforceability of employment arbitration agreements and issues of FAA preemption (see our post here).  Review was granted on a "grant and hold" basis pending the Court's decision in Iskanian v. CLS (see our related posts here).  It appears the Court will continue to grant review on a grant and hold basis of cases dealing with these same issues until the lead case is decided.

U.S. Supreme Court to Again Address Class Action Waivers in Arbitration Agreements

On Friday, the United States Supreme Court granted review in Oxford Health Plans, LLC v. Sutter, which presents the question of whether class wide or collective arbitration may be imposed where the parties' arbitration agreement is silent on the issue of class claims.  In the Oxford Health case, the Third Circuit upheld an arbitrator's determination that the arbitration agreement permitted claims to be resolved on a class basis in arbitration.  Many readers of this blog are probably scratching their heads reading this, thinking that the Supreme Court already resolved this issue (and favorably for employers) a couple of years ago in Stolt-Nielsen v. AnimalFeeds International.   Those thoughts are well taken.  In Stolt-Nielsen, the Supreme Court held that arbitration fundamentally is a matter of contract and that a party to an arbitration agreement could not be compelled to arbitrate claims on a class or collective basis "unless there is a contractual basis for concluding the parties agreed to do so."  In the Stolt-Nielsen case, the parties stipulated that their arbitration agreement was silent on the issue of class arbitration and that there was not any agreement to arbitrate on a class basis.  As such, the Supreme Court in that case did not analyze what contractual circumstances would be sufficient to conclude that the parties agreed to arbitrate on a class basis.   Since Stolt-Nielsen, a split has developed among the circuit courts, with the Second and Third Circuits holding that an agreement may be inferred from other language in the agreement, and the Fifth Circuit rejecting that reasoning and holding that there must be more explicit language authorizing class arbitration in order for an agreement to be found.  With its grant of review in the Oxford Health case, the Supreme Court is expected to resolve this conflict and provide more clarity in this oft-litigated area.

California employers should also be aware that the California Supreme Court has several cases pending review that address the enforceability of class action waivers in employment arbitration agreements in California.  Additionally, the NLRB's anti-class waiver decision in D.R. Horton is similarly pending review.  For now, employers should stay the course and continue including express class waiver language in their arbitration agreements pending further guidance from the courts in this unsettled area. 

California Adopts New Regulations Governing Pregnancy Disability Leaves

California's Fair Employment and Housing Commission recently proposed new pregnancy disability regulations.  These proposed regulations underwent rounds of public comment and revision, but were recently finalized and approved by California's Office of Administrative Law.  As such, the new regulations take effect December 30, 2012.  The new regulations are available here.  California employers with 5 or more employees are required to provide up to 4 months of pregnancy disability leave to employees disabled by pregnancy or related conditions and there is no length of service requirement to be eligible for this leave.  The new regulations detail the process an employer is required to follow in accommodating such leave requests, from initial certification through reinstatement.  The regulations also clarify how "four months" is calculated for purposes of identifying the maximum amount of leave available to full-time and part-time employees.  The regulations further make clear (based on a recently enacted California law) that employers are required to maintain group health benefits under the same terms as if the employee was actively reporting to work for up to 4 months, and that this requirement is in addition to any additional obligation to maintain health benefits during an an additionally approved FMLA/CFRA leave of up to 12 weeks.  The new regulations contain a great amount of detail and guidance for employers trying to manage this leave process.  Employers are advised to review the rules and their policies and practices to ensure compliance.

The FEHC also has proposed regulations pending on disability (non-pregnancy) leaves.  Those rules are not yet final, but are available here for employers who are interested in reviewing and possibly providing comment and/or proposed changes to the FEHC. A public comment period is currently underway through December 17, 2012.  We will post developments here.

California Court Issues Employee Friendly Decision on Unenforceability of Class Action Waivers

The debate among California courts rages on concerning the enforceability of class action waivers in employment arbitration agreements.  2012 has brought  many employer-friendly decisions on this subject, with several courts enforcing class action waivers and compelling individual claims to arbitration and effectively precluding classwide relief.  However, most courts have been reluctant to directly answer the question everyone really wants to know--does the United States Supreme Court opinion in AT&T v. Concepcion preempt California decisions limiting the enforceability of class action waivers in employment arbitration agreements and instead compel that these waivers be categorically enforced?  One California court answered that question in the affirmative in Iskanian v. CLS Transportation--a very favorable opinion for California employers.  Our prior posts on the Iskanian case are here.  

Yesterday, another California court disagreed with Iskanian and expressly held that Concepcion does not preempt California law on enforceability of class action waivers in the employment context, specifically the California Supreme Court's decision in Gentry v. Superior Court.   The court held that Gentry is not preempted because it does not categorically preclude enforcement of class action waivers in employment arbitration agreements, but rather sets forth a multi-factor test for determining whether such waivers are enforceable as still permitting unwaivable statutory rights to be vindicated.  The court also held that a waiver of the right to seek representative relief under PAGA was unenforceable to the extent tied to the same Gentry analysis. This newest decision is Franco v. Arakelian and the decision is here.  (For employers who closely follow developments in this area, this case is actually a reincarnation of a prior case, Franco v. Athens Disposal Co., which resulted in a prior unfriendly published decision on the same subject). 

Notably, the California Supreme Court recently granted review of the Iskanian case (along with a couple of other similar arbitration cases dealing with the scope of Concepcion preemption).  It seems likely that the Court will also grant any petition for review in this newest case.  The bottom line is that employers should expect guidance from the California Supreme Court in 2013 on the continued validity and enforceability of class action waivers in employment arbitration agreements so stay tuned.

IRS Mileage Reimbursement Rate Going Up January 1

The Internal Revenue Service has announced the standard mileage reimbursement rate for business travel for 2013.  Effective January 1, 2013, the standard mileage rate will be 56.5 cents per mile (up from 55.5 cents per mile in 2012).   The IRS announcement is here.  Although California employers are not required to reimburse employee travel at the IRS mileage rate, it is advisable to do so because other methods for providing adequate reimbursement are more difficult and burdensome to prove.    

Class Certification Improper on Claims for Expense Reimbursement for Uniforms and Travel

This week, a California court affirmed a victory for clothing retailer Wet Seal, who successfully defeated class certification on wage and hour claims for alleged failure to reimburse uniform expenses and alleged failure to compensate employees for expenses associated with using their personal vehicles to travel between store locations.  The plaintiff and proposed class of retail employees alleged that Wet Seal required employees to purchase and wear Wet Seal clothing at work, but failed to reimburse employees for the cost of this alleged "uniform."  The employees further alleged that Wet Seal at times required them to use their own cars to travel from one store location to another for meetings or other business reasons, but did not reimburse employees for mileage or other travel expense.  In seeking to have a class of some 12,000 employees certified, the plaintiff submitted declarations of several employees stating that they purchased Wet Seal clothing without being reimbursed and used their car to travel to stores without reimbursement.  In opposing the motion, Wet Seal presented its expense reimbursement and work attire policies, which on their face made very clear that employees are entitled to reimbursement for travel expenses in accordance with law and that employees are not required to purchase Wet Seal clothing but rather simply expected to dress in the fashion style of the store.  Wet Seal also offered employees a generous discount on the cost of store merchandise.  Wet Seal additionally presented declarations of numerous employees confirming that they understood they did not have to buy or wear Wet Seal clothing, and that they had submitted documentation of travel expense and been reimbursed in accordance with company policy.

In concluding that class certification was not appropriate on these claims, the court explained that Wet Seal's policies were facially lawful and thus could not supply the necessary "common policy" or "common method of proof" needed to support a determination of liability on a class wide basis.  Instead, a determination of liability would depend on individualized testimony of employees that, for example, their particular supervisor required them to purchase Wet Seal clothing and/or told them that they could not be reimbursed for travel expenses.  In the circumstances, any trial of liability would require numerous individualized inquiries, making class certification unmanageable and inappropriate.  The case is Morgan v. Wet Seal and the decision is here

Minimum Wage Increasing for Employees in San Francisco and San Jose

California employers with employees in the cities of San Francisco and San Jose should take note of minimum wage increases for these cities taking effect in 2013.  San Francisco passed its minimum wage ordinance a few years ago, but the minimum wage is subject to adjustment each year based on the cost of living.  Effective January 1, 2013, the minimum wage for employees who perform at least two hours of work per week in the City of San Francisco is $10.55 per hour (up from $10.24/hour in 2012).

This week, San Jose voters approved a local minimum wage for the City of San Jose as well.  With the passage of Measure D, the minimum wage for employees working in San Jose will be $10.00 per hour.  The new San Jose minimum wage takes effect 90 days after the election results are certified, which means approximately March 2013.

The state minimum wage otherwise remains at $8.00 per hour. 

NLRB Rules That Opt Out Right Does Not Save Arbitration Agreement with Class Waiver

Ealier this year, we posted about a complaint filed by the NLRB against 24 Hour Fitness, alleging that the company's arbitration policy (including a class waiver) violated the NLRA.  This week, an NLRB administrative law judge ruled that the 24 Hour Fitness policy indeed violates the NLRA, following the NLRB's earlier (and oft-criticized) decision in D.R. Horton.  In the case of 24 Hour Fitness, the factual twist is that the arbitration policy and agreement expressly allows employees to opt out of the agreement to arbitrate.  24 Hour Fitness argued that this opt out right distinguished the case from D.R. Horton because arbitration was not a condition of employment (since employees could opt out if they wanted to preserve their right to engage in concerted, collective action).  The ALJ disagreed and found that the policy, even with the opt-out right, violated the NLRA.  The ALJ found the opt out right to be an "illusion" and a right easily overlooked or unconsciously forfeited by employees, thus still abridging the right to engage in collective action.  The decision is available on the NLRB website here

While it seems clear that the NLRB's focus and attack on employer arbitration agreements will continue unless and until overruled, employers are reminded that the NLRB's initial decision in this area, D.R. Horton, is still on appeal and pending decision by the Fifth Circuit Court of Appeal.  Stay tuned. 

California Supreme Court Depublishes Unfavorable Administrative Exemption Decision

As readers of the blog may recall, the California Supreme Court issued a decision last year on the administrative exemption in Harris v. Liberty Mutual.  The Supreme Court's decision was a positive one for California employers in that it curtailed the importance of the "administrative-production worker" dichotomy that had at times been relied on by California courts to find the administrative exemption inapplicable to classes of workers.  The Supreme Court did not decide whether the classes of employees involved in the Harris case--claims adjusters--were administratively exempt or not, but instead remanded the issue to the lower court to decide.  Well, on remand a California court of appeal issued a terrible decision, finding that several categories of claims adjusters did not qualify for the administrative exemption as a matter of law.  My prior post on the case is here.  As predicted, Liberty Mutual again petitioned for review before the California Supreme Court.  Last week, the Court denied the petition for review but issued an order depublishing the case.  (See here.)  Great news for California employers.  The unfavorable Harris decision is no longer citable and no longer precedent. 

California Increases Minimum Exempt Pay Rates for Computer Professionals and Licensed Physicians/Surgeons

California Labor Code sections 515.5 and 515.6 provide an overtime exemption for certain computer professionals and licensed physicians/surgeons who meet specified criteria for exemption.  One of those criteria is that they earn specified minimum pay, the amount of which is subject to annual adjustment by California’s Department of Industrial Relations (DIR).  The DIR has announced increases to the minimum pay for these workers as follows:

  • The DIR has increased the computer software employee's minimum hourly rate of pay for exempt status from $38.89 to $39.90, the minimum monthly salary from $6,752.19 to $6,927.75, and the minimum annual salary from $81,026.25 to $83,132.93, effective January 1, 2013; and
  • The DIR has increased the licensed physicians and surgeons employee's minimum hourly rate of pay for exempt status from $70.86 to $72.70, effective January 1,2013.

The DIR’s announcements are here and here.  Employers relying on these exemptions for  exempt computer professionals and licensed physicians/surgeons will want to take note of these changes and adjust their pay practices accordingly.

NLRB Issues Some Positive Guidance on At-Will Employment Policies

Yesterday, the NLRB’s Acting General Counsel issued advice memos analyzing whether two employers’ at-will policies violated employees’ Section 7 rights under the NLRA.  In both instances, the AGC found that the at-will policies did not violate the NLRA.  These findings are in contrast to a decision earlier this year by a NLRB administrative law judge finding that a fairly standard at-will employment policy maintained by American Red Cross Arizona violated Section 7.  So how do employers reconcile this, and do at-will employment policies really run afoul of Section 7 rights?  Yesterday’s newly issued advice memos shed a little more guidance on the issue. 

In the first case, involving Rocha Transportation, the employer’s at-will policy provided that employment is at-will, that nothing in the handbook should be interpreted to limit the right to terminate the employment relationship at-will, and that only the president of the company has the authority to enter into an agreement for something other than at-will employment.  An employee challenged this policy as a violation of the NLRA, arguing that the policy was overbroad and reasonably operated to “chill” employees’ exercise of Section 7 rights to engage in concerted activity to organize and try to achieve something other than at-will employment.

In the second case, involving Mimi’s Café, the at-will employment policy contained similar language but stated that “no representative of the company” has authority to enter into any agreement altering the at-will employment relationship.  As was the case with Rocha Transportation, a Mimi’s employee charged that Mimi’s policy was overbroad and would reasonably chill employees’ Section 7 right to select union representation and engage in collective bargaining.

The AGC rejected both employees’ contentions and found that the at-will policies did not violate the NLRA.  The AGC reasoned that the policies do not expressly restrict Section 7 activity and there was no evidence that the policies were promulgated in response to such activity or in an effort to restrict such activity.  The AGC further found that employees would not reasonably interpret the policies as restricting Section 7 rights.  The AGC reasoned that nothing in the policies required the employees to agree that they could not seek to change their at-will employment status, nor did the policies state that at-will employment could never be changed.  Instead, the policies simply operated to prevent the employers’ representatives from entering into agreements providing for something other than at-will employment.

So what about the earlier American Red Cross case?  In that case, the employer’s at-will policy was set forth in a written acknowledgement form that employees had to sign and which stated:  “I agree that the at-will employment relationship cannot be amended, modified or altered in any way.”  The ALJ in that case held that the policy would reasonably chill employees interested in exercising Section 7 rights to select a union and engage in collective bargaining that might “amend, modify or alter” the at-will nature of the employment relationship.  As such, the ALJ found that the policy violated the NLRA. 

In yesterday’s advice memos, the AGC did not expressly disagree with the ALJ’s conclusion in the American Red Cross case (though the AGC carefully noted that the American Red Cross matter settled before Board review, somewhat de-valuing the ALJ’s opinion).  Instead, the AGC distinguished the American Red Cross case by highlighting the fact that the at-will policy in that case expressly stated that at-will employment could never be altered (implicity, including through union representation), whereas the policies before the AGC did not contain that broad of a statement; they simply restricted the authority of the employers’ representatives from entering into private agreements for something other than at-will employment.

Employers may wish to review and revise their at-will employment policies in light of the NLRB’s guidance and the fact that the NLRB appears intent on continuing to attack and invalidate neutral employment policies that really have nothing to do with union rights or the right to engage in concerted activity.  All of the decisions referenced in this post are available in full on the NLRB’s website by clicking here.

Court Says Rounding Policies Are Permitted Under California Wage Law

Yesterday a California court issued its decision in Silva v. See's Candy, holding that California employers may lawfully use rounding policies--policies that round an employee's time worked to the nearest tenth of an hour worked (or other similar increment) for purposes of calculating pay.  This is the first published California decision holding that rounding policies are permitted under California law, though such policies are permitted under federal law and California's Department of Labor Standards Enforcement previously has opined that such policies are also permitted under California law. 

In the See's Candy case, See's employees were required to use a timekeeping system known as Kronos to record their start and end times of work.  See's had a rounding policy indicating that these times would be rounded to the nearest tenth of an hour (up or down) for purposes of payroll.  A former See's employee filed a class action claiming the rounding policy resulted in underpayment of wages to employees.  The trial court ultimately granted class certification.  See's defended the case by arguing, among other things, that its rounding policy was lawful.  The plaintiff employee moved for summary adjudication of See's rounding defense, asking the court to rule as a matter of law that See's rounding policy was unlawful.  The trial court ultimately granted the motion, precluding See's from relying on its rounding defense. 

Yesterday, a California court of appeal overturned the trial court's ruling and reinstated See's rounding defense.  Critically, the court held that "the rule in California is that an employer is entitled to use the nearest-tenth rounding policy if the rounding policy is fair and neutral on its face and it is used in such a manner that it will not result, over a period of time, in failure to compensate the employees properly for all the time they have actually worked."  Thus, the legality of a rounding policy depends on whether it, in practice, operates over time to pay employees for all time worked and not to short employees.  In the See's case, there was an expert report before the court analyzing the impact of See's rounding policy over time and concluding that the policy actually had a net effect of slightly overpaying employees.  The plaintiff in the case did not present evidence sufficient to rebut this expert report or to demonstrate that the rounding policy actually underpaid employees.  As a result, the appellate court held that the trial court erred in disposing of See's rounding defense.

The See's case is an important one for California employers because it is the first published California decision to uphold the use of rounding policies under California law.  Employers should understand, however, that this does not mean that all rounding policies will hold up in court.  In the See's case, the employer did not win the case (yet).  The court simply ruled that See's must be permitted to prove its rounding defense at trial and that this defense should not have been precluded.  Ultimately, the legality of a rounding policy depends on whether the policy operates, on average and over time, to properly compensate employees for hours worked or whether it results in a net underpayment to employees.  Without such analyses, rounding policies continue to present some level of risk and class action exposure to California employers.  The full decision in the See's Candy case is here.

Reminder About Employee Time Off to Vote

With the upcoming general election on November 6, California employers are reminded that California law provides employees with up to two hours paid time off to vote if an employee provides two working days' notice of the need for time off on the ground that he or she does not have sufficient time to vote outside of normal working hours.  With the polls open from 7:00 a.m. to 8:00 p.m., most employees should have sufficient time outside of regular working hours to vote, but employers need to be mindful of the need to accommodate any employees who do not have sufficient time.  Employers may require that the time off be taken at the beginning or end of the employee's shift.  California employers are also required to post a voting rights notice 10 days before the election.  Notices are available in English and Spanish on the California Secretary of State website here.  

California Governor Signs Some Employment Bills and Vetoes Others

Yesterday was the last day for California’s Governor to sign or veto legislation passed by the California Legislature this term.  In the past few days he finally acted on various pieces of employment-related legislation, by signing several bills into law and vetoing a couple.

Bills Signed Into Law

AB 2386 (FEHA amendment):  This bill includes breastfeeding and conditions related to breastfeeding under the definition of “sex” under FEHA, making clear that discrimination against a woman because of breastfeeding (or related conditions) is unlawful.

AB 1744 (temporary services employers):  This bill amends Labor Code section 226 relating to itemized wage statement requirements to impose additional requirements on temporary services employers (with the exception of security services companies) effective July 1, 2013.  In addition to the information already statutorily required to be included on employees’ wage statements, temporary services employers will also need to provide itemized information concerning the rate of pay and total hours worked for each assignment.  The bill also amends Labor Code section 2810.5—the statute requiring employers to provide written notice to new employees of certain wage-related information—to require temporary services employers (effective July 1, 2013) to provide the name, physical and mailing address and telephone number of the main office of the legal entity for whom the employee will perform work.  Again, security services companies are exempt from this requirement.

AB 2103 (fixed salaries and overtime):  This legislation overturns a 2011 California court decision in Arechiga v. Dolores Press (see our prior post on the case here), which held that an employer and employee can agree to a fixed salary that includes payment of overtime compensation.  Under the new law, Labor Code section 515 is amended to provide that payment of a fixed salary to a non-exempt employee will be deemed to be payment only for the employee’s regular non-overtime hours, notwithstanding any private agreement to the contrary.

AB 2674 (inspection of personnel records):  This bill amends Labor Code section 1198.5, which allows employees to inspect certain of their personnel records.  First, the new law makes clear that the inspection right applies to both current employees and former employees.  Second, the new law requires employers to maintain personnel records (including records relating to an employee’s performance and to any grievance concerning the employee) for at least three years after termination of employment.  Third, the new law requires that a current or former employee (or any authorized representative) is entitled to inspect (and to receive a copy, upon request) personnel records relating to their performance and/or to any grievance concerning the employee within 30 days of making a request.  The employee or representative must make the inspection request in writing, but may request a form from the employer to do so, which then must be provided by the employer.  The employer may redact the name of any non-supervisory employees referenced in the records, prior to making them available for inspection.  The employer may charge the employee the actual cost of reproduction if copies are requested.  The employer is not required to comply with more than 50 requests in any calendar month by a representative of employees for personnel records.  Additionally, if a former employee has an employment-related lawsuit pending against the employer, the employer is not required to make personnel records available under Section 1198.5 during the pendency of the lawsuit.  Finally, the new law establishes that if an employer fails to comply with inspection and copying requests under Section 1198.5, either the employee/former employee or Labor Commissioner may collect a penalty of $750.

AB 2675 (commission contracts):  Last year, legislation was enacted requiring commission payment arrangements to be in writing for California employees.  AB 2675 amends Labor Code section 2751 to exempt certain payments from this requirement.  Specifically, it exempts temporary, variable incentive payments that increase, but do not decrease, payment under the written contract.

SB 1255 (penalties for wage statement violations):  Under this new law, it will be easier for employees to prove “injury” for itemized wage statement violations and thereby recover damages or penalties.  The new law provides that employees are “injured” if the employer fails to provide a wage statement or fails to provide an accurate and complete wage statement from which the employee can promptly and easily determine the amount of the gross or net wages paid to the employee during the pay period or other specified information, the deductions the employer made from the gross wages to determine the net wages paid to the employee during the pay period, the name and address of the employer or legal entity that secured the services of the employer, and the name of the employee and only the last 4 digits of his or her social security number or an employee identification number other than a social security number, as specified.

AB 1844 (social media policies):  This legislation prohibits an employer from requiring or requesting an employee or applicant for employment to disclose a username or password for the purpose of accessing personal social media, to access personal social media in the presence of the employer, or to divulge any personal social media.  This legislation also prohibits an employer from discharging, disciplining, threatening to discharge or discipline, or otherwise retaliating against an employee or applicant for not complying with a request or demand by the employer that violates these provisions.

Vetoed Bills:

AB 1450 (discrimination against unemployed):  This bill would have made it unlawful for employers to place ads for employment that include a requirement that applicants be currently employed to be eligible.  It also would have made it unlawful to discriminate against applicants because of their status as unemployed.

AB 889 (domestic employee wage and hour requirements): This bill would have placed onerous wage and hour requirements (including relieving employees of duty for meal and rest breaks) on employers of domestic services employees (e.g. babysitters and nannies).

New laws take effect January 1, 2013 unless otherwise noted.  Employers should review their personnel policies and procedures to ensure compliance with these new laws and to minimize risk and exposure to lawsuits, particularly in the area of wage statement compliance  and personnel records inspection.

Activist NLRB Continues Effort to Regulate Employer Policies

In the past 60 days, the NLRB has issued two decisions further striking down various employer policies and practices as violating Section 7 of the NLRA.  In the first case, Banner Health Systems (July 30, 2012), the NLRB held that an employer’s practice of urging employees not to discuss an ongoing investigation violated the NLRA.  In the second case, Costco Wholesale Corporation (September 7, 2012), the NLRB struck down various Costco policies regulating employees’ electronic posting and discussion of certain information.

In Banner Health, the employer’s human resource department, like most, had a practice of urging complainants and witnesses interviewed as part of an investigation not to discuss the matter with coworkers during the pendency of the investigation.  The purpose of the practice obviously was to protect the integrity of the investigation.  The NLRB held that this generalized concern with protecting the integrity of investigations was insufficient to justify the infringement on employees’ Section 7 right to engage in concerted activity for mutual aid and protection (such as discussing their wages and terms and conditions of employment).  The NLRB did not say that requiring confidentiality during an investigation was always a violation of Section 7 rights, but said that blanket confidentiality rules were a violation.  According to the NLRB, the employer must determine, in the particular circumstances of any given investigation, whether confidentiality should be required because witnesses need protection, evidence is in danger of being destroyed, testimony is in danger of being fabricated, or there is a need to prevent a cover up.  Given that one or more of these concerns are present in most investigations, employers and HR should not be afraid to continue urging confidentiality during investigations as appropriate.  Just document the reason for the confidentiality in the given investigation.

In Costco, the NLRB analyzed whether various written work rules limiting discussion and electronic posting of information violated employees’ Section 7 rights.  The NLRB struck down the following Costco rules:

• “unauthorized posting, distribution, removal or alteration of any material on Company property” is prohibited;
• Employees are prohibited from discussing “private matters of members and other employees . . . includ[ing] topics such as, but not limited to, sick calls, leaves of absence, FMLA call-outs, ADA accommodations, workers’ compensation injuries, personal health information, etc.;”
• “sensitive information such as membership, payroll, confidential financial, credit card numbers, social security number or employee personal health information may not be shared, transmitted, or stored for personal or public use without prior management approval;”
• Employees are prohibited from sharing “confidential” information such as employees’ names, addresses, telephone numbers and email addresses; and
• Employees are prohibited from “electronically posting [including online message boards and discussion groups] statements that “damage the company, defame any individual or damage any person’s reputation.”

The NLRB held that these broadly phrased prohibitions violated employees’ Section 7 rights because they could “reasonably be interpreted” as prohibiting employees from discussing their wages and other terms and conditions of employment with other employees and third parties, including union representatives.  The NLRB held that there was nothing in the rules that made clear that the rules were not intended to interfere with employees’ Section 7 rights.

Costco didn’t lose entirely, in case you were wondering.  The NLRB surprisingly approved one of Costco’s rules—a rule requiring employees to use “appropriate business decorum” in communicating with others.

Based on the reasoning of the Costco decision and the NLRB’s recent advice memoranda concerning social media policies, employers continue to be advised to review and revise their work rules and policies to try to minimize NLRB-related risk.  Employers should use limiting language in their policies to make clear that the restrictions are not intended to interfere with or chill employees’ Section 7 rights.  Beware, however, the NLRB’s AGC has opined that a boilerplate disclaimer at the end of a broadly worded policy does not suffice.

The NLRB decisions are available in full on the NLRB’s website here.

Court Issues Favorable Decision on Reporting Time, Split Shifts, and Recovery of Fees by a Prevailing Defendant

This week a California court issued its decision in Aleman v. AirTouch Cellular, rejecting employees' claims that they were entitled to reporting time pay for attending store meetings, further rejecting the employees' split shift pay claim, and finally, awarding the prevailing employer its attorneys' fees incurred in defending the reporting time pay claim.

Reporting Time Claim

California law provides that if an employee reports to work as scheduled and is not put to work or is furnished with less than half of the scheduled day's work, the employee shall be paid for half of the scheduled day's work, but in no event less than two hours nor more than four hours.  In this case, the employees claimed that they were owed reporting time pay for having to attend store meetings.  It was undisputed that the store meetings were scheduled, that they always lasted at least half the time scheduled, and that the employees were paid their regular wages for time spent attending the meetings (which were of less than two hours duration).  Nonetheless, the employees claimed that they were entitled to be paid for a minimum of two hours for every store meeting they had to attend, even if the meeting lasted only an hour.  The court rejected this claim, holding that California's reporting time pay law does not require employers to pay employees for a minimum of two hours of work every time they report to work.  Rather, the focus is on whether the employee is furnished with at least half of the scheduled day's work.  If a meeting is scheduled for an hour and lasts an hour (or even a half hour), the employee is entitled only to regular pay for time actually spent attending the meeting and is not entitled to any additional reporting time pay.

[Note to employers: It is significant that the meetings at issue in this case were of a scheduled expected duration.  The outcome may have been different (and a minimum of two hours pay owed) if there was no expectation as to how long the meetings would last from which it could then be determined whether the employees "worked" at least half the scheduled time.]


Split Shift Pay Claim

On certain occasions, the employees were required to attend a store meeting on the same day as a regular work shift.  The store meeting and the sales shifts were not back to back, but were separated by a block of time.  This constitutes a "split shift."  Under California law, when an employee works a split shift, he/she is entitled to one hour additional pay at the minimum wage in addition to the minimum wage required for that workday. The AirTouch employees claimed that AirTouch failed to pay them the additional hour of pay on occasions when they worked split shifts.  AirTouch argued that no additional pay was owed because on every occasion the employees worked split shifts they were paid more than the sum of minimum wage for all hours worked plus an additional hour at minimum wage.  The court agreed with AirTouch's analysis and rejected the employees' split shift claim.  The employees had argued that the Wage Order simply means that the employee must be paid an additional hour at his or her regular wage when a split shift is worked.  Rejecting this argument, the court reasoned that the split shift provision refers not to "regular wages" but to "minimum wages" and that the provision is contained in the "Minimum Wage" section of the Wage Order, making it clear that the regulation is concerned solely with payment of minimum wage.

Release of Claims Bars One Employee's Claims

In addition to providing favorable rulings on split shift and reporting time pay requirements, the court also held that one employee's claims were barred by virtue of the fact that he had previously signed a general release of claims in favor of AirTouch.  Relying on Labor Code section 206.5, the employee argued that the release could not bar claims for wages owed but unpaid.  The court disagreed, holding that the release was valid and effective because 206.5 only bars a release of wages that are indisputedly owed. In this case, it was disputed whether the employee was owed reporting time pay and/or split shift pay.

Court Awards Attorneys' Fees to AirTouch

After prevailing on the merits of the case, AirTouch sought to recover its attorneys' fees.  The court considered whether Labor Code section 218.5 permits a prevailing employer to recover its attorneys' fees incurred to successfully defend reporting time and split shift pay claims.  In consideration of the California Supreme Court's recent ruling on this subject in Kirby v Immoos, the court held that AirTouch could recover its fees on the reporting time pay claim but not the split shift pay claim.  The court reasoned that the split shift pay claim was a minimum wage claim and was thus governed by Labor Code section 1194, which has a one way fee shifting provision that does not allow a prevailing employer to recover its fees.  However, the court held that the reporting time pay claim was not a minimum wage claim and thus fell under Labor Code section 218.5's two way fee shifting provision which allows the prevailing party (employee or employer) to recover its attorneys' fees.  As such, the court held that AirTouch was entitled to fees incurred to defend the reporting time pay claim.

The full text of the Aleman v. AirTouch decision is here.

California Supreme Court Grants Review of Important Arbitration Case

Yesterday the California Supreme Court granted review of Iskanian v. CLS Transportation, the first published California case holding that Concepcion invalidates Gentry and that arbitration agreements containing class and representative (PAGA) action waivers are enforceable in California.  For more detail on the Iskanian case and the court of appeal decision, see our prior post here.  The grant of review by the Supreme Court means that Iskanian is no longer citable authority, pending final decision by the Supreme Court.  With the grant of review, it appears that employers will get the California Supreme Court's guidance on the impact of Concepcion on California jurisprudence relating to enforceability of class action and representative action waivers in employment arbitration agreements.  A decision is unlikely for at least 12-24 months.  In the meantime, it is likely that California's appellate courts will continue to weigh in on the subject.  We will keep you posted.

California Expands Religious Accommodation Requirements

California's Governor has signed into law AB 1964, which modifies California's Fair Employment and Housing Act's provisions relating to employment discrimination based on one's religious beliefs.  FEHA has always prohibited discrimination against applicants and employees based on their religious beliefs, and has also required reasonable accommodation of employees' religious beliefs and observances, so this much is not new.  The new law makes clear that "religious beliefs" include religious dress practices and religious grooming practices, meaning that employers cannot discriminate against applicants or employees bases on these practices and must also reasonably accommodate such practices in the workplace.  According to the new law, “religious dress practice” shall be construed broadly to include the wearing or carrying of religious clothing, head or face coverings, jewelry, artifacts, and any other item that is part of the observance by an individual of his or her religious creed.  “Religious grooming practice” shall be construed broadly to include all forms of head, facial, and body hair that are part of the observance by an individual of his or her religious creed.  The new law further explains, in pertinent part, that it is an unlawful employment practice:

(l)  (1)  For an employer or other entity covered by this part to refuse to hire or employ a person or to refuse to select a person for a training program leading to employment or to bar or to discharge a person from employment or from a training program leading to employment, or to discriminate against a person in compensation or in terms, conditions, or privileges of employment because of a conflict between the person’s religious belief or observance and any employment requirement, unless the employer or other entity covered by this part demonstrates that it has explored any available reasonable alternative means of accommodating the religious belief or observance, including the possibilities of excusing the person from those duties that conflict with his or her religious belief or observance or permitting those duties to be performed at  another time or by another person, but is unable to reasonably accommodate the religious belief or observance without undue hardship, as defined in subdivision (t) of Section 12926, on the conduct of the business of the employer or other entity covered  by this part.  Religious belief or observance, as used in this section, includes, but is not limited to, observance of a Sabbath or other religious holy day or days, reasonable time necessary for travel prior and subsequent to a religious observance, and religious dress practice and religious grooming practice as described in subdivision (p) of Section 12926.  (2)  An accommodation of an individual’s religious dress practice or religious grooming practice is not reasonable if the accommodation requires segregation of the individual from other employees or the public.

While AB 1964's changes to FEHA arguably are intended simply to clarify existing law, the express modification of FEHA and highlighting of religious discrimination issues may lead to increased focus and scrutiny in this area and, thus, a greater likelihood of religious discrimination suits against employers.  The full text of AB 1964 is here.

Can Employers Provide Vacation at Rate Lower Than Regular Pay Rate?

This week, a California court said yes.  The case, Bell v. H.F. Cox, Inc., was brought by trucking employees against their employer, alleging various wage and hour claims, including unpaid vacation, unpaid overtime, and missed meal and rest breaks.  With respect to the vacation, the employer had an unusual policy that provided vacation but expressly stated that vacation would only be provided at the rate of $500 (later increased to $650) per week, regardless of what the employee’s actual rate of pay was. The policy further stated that unused vacation was not paid out on termination of employment (which generally is not legal in California).  The employer moved for summary adjudication of the vacation claims, arguing that the employer’s vacation pay plan was governed by ERISA and that ERISA preempted California law in this area.  The trial court agreed and threw out the employees’ vacation claims.

The appellate court reversed in part.  The appellate court held that the trial court erred in finding the vacation claims preempted by ERISA as a matter of law.  The appellate court held that there were triable issues of fact as to whether ERISA preemption applied to the employer’s vacation plan in this case, and thus remanded the issue to the trial court for hearing on that issue. (ERISA preemption generally only applies where the employer’s plan provides for payment of vacation from a separate fund as opposed to the employer’s general assets.)  However, the appellate court determined that ERISA preemption only impacted the issue of whether the employees had a valid claim against the employer for failure to pay out unused vacation on termination of employment.  As for the claim that the employer illegally provided current employees vacation at a lower wage rate than the employees’ current wage rate, the court held that there was nothing unlawful about this policy under California law and thus it did not need to reach the issue of ERISA preemption as to this claim.  The court analyzed the statute at issue, Labor Code section 227.3, which states that accrued, unused vacation generally must be paid out at the employee’s final wage rate on termination of employment.  The court held that this statute only applies to payout of vacation on termination of employment, and that it does NOT contain any requirement that vacation benefits be provided at an employee’s regular rate of pay during employment.  As such, the court held that the trial court properly granted summary adjudication of the employees’ claim for vacation based on the rate at which it was paid during employment.

In addition to addressing vacation issues, the H.F. Cox case also addresses the trucking employees’ claim to overtime compensation under the FLSA.  The trial court found in favor of the employer on this claim, holding that the employees were exempt from overtime under the federal motor carrier exemption, which generally applies to drivers engaged in interstate commerce.  The court of appeal agreed with the trial court that the motor carrier exemption applied, even though most of the driving performed by the employees at issue was intrastrate driving.  The court broadly interpreted the exemption to apply even to intrastate deliveries, if the goods being delivered originated out of state and the intrastate final delivery is a continuation of the out of state journey.

The H.F. Cox decision is a good one for employers relying on the motor carrier exemption as a defense to overtime claims of drivers.  As for the vacation-related portions of the decision, employers may not want to run out and revise their policies to try to invoke ERISA preemption to avoid payout of vacation on termination of employment, or to provide current employees vacation benefits at a pay rate less than the employees’ regular rate of pay.  Employers are cautioned to seek legal advice in these areas.

Class Certification Found Inappropriate in Another Post-Brinker Meal Break Case

Continuing the trend of decisions finding class certification inappropiate for meal break claims in the post-Brinker climate, today another California court held that class certification was properly denied in a case alleging a California employer failed to provide its employees meal breaks.  This case was brought against Lamps Plus and alleged meal and rest break claims, as well as other claims du jour, such as inaccurate wage statements and failure to timely pay wages on termination of employment.  The plaintiffs moved for class certification and the trial court denied the motion, finding that class treatment was not appropriate given the predominance of individual issues bearing on a determination of liability.  The court of appeal agreed with the trial court, reasoning that Lamps Plus had compliant meal and rest break policies and that based on Brinker, Lamps Plus was not obligated to ensure employees complied with those policies for every single meal (or rest) break.  As such, the fact that employees may have taken short breaks on some occasions or skipped a break entirely on occasion, did not support class treatment because the individual reasons for missed or short breaks would need to be analyzed to determine if the employer was liable.  The case is Lamps Plus Overtime Cases and the decision is here.

Court Upholds Denial of Class Certification of Meal Break Claim Post-Brinker

Last week, a California court held that class certification was properly denied in a case alleging the restaurant chain Chipotle failed to provide meal breaks to its employees.  In Hernandez v. Chipotle Mexican Grill, the plaintiff filed a putatitve class action alleging Chipotle failed to provide hourly workers with meal breaks.  The case was brought before the California Supreme Court decided Brinker and, as such, much of the dispute on class certification focused on whether Chipotle was required to ensure that meal breaks were taken or was simply required to provide employees the opportunity to take such breaks.  The plaintiff argued that Chipotle was required to ensure the breaks were taken and held that class certification was, therefore, appropriate based on evidence from time records revealing missed breaks or breaks less than 30 minutes in duration.  Chipotle argued that its obligation was only to provide the opportunity to take breaks and, thus, time records showing missed or short breaks were of little utility in analyzing liability.  Chipotle correctly argued that a determination of liability would require an individualized inquiry into why any particular employee missed a break or took a short break on any given day, making resolution on a class wide basis inappropriate.  This was particularly true on the facts of this case, given that Chipotle (unlke many employers) paid employees for meal break time, even though employees were relieved of duties and free to leave the premises if they wished.  Given that the time was paid, employees had little incentive to accurately record meal break times and there was evidence in the record that employees inaccurately recorded their breaks without correction.  The trial court agreed with Chipotle and denied class certification.

After the California Supreme Court granted review in Brinker, it similarly granted review on a grant and hold basis in Hernandez v. Chipotle (and many other cases whose outcome was premised on the extent of an employer's obligation to "provide" meal periods).  Of course, the Brinker Court ultimately held that employers need only provide employees the opportunity to take meal breaks, not ensure that they are actually taken.  After the Brinker decision was issued, the Supreme Court remanded all of the cases that had been granted review on a grant and hold basis, for reconsideration in light of Brinker.  On remand, the court in Hernandez v. Chipotle reached the same conclusion as it had previously--that class certification was properly denied on the meal break claim because a determination of liability would require a predmoninantly individualized inquiry as to why any meal break was missed on a given day.  The Hernandez v. Chipotle decision is here.

Another Favorable Decision Compelling Individual Arbitration in Wage Case

Last week, another California court issued an employer-friendly decision compelling individual arbitration of a case brought as a wage and hour class action.  In Reyes v. Liberman Broadcasting, Inc., the plaintiff signed an arbitration agreement as a condition of his employment, agreeing to arbitrate any and all disputes arising out of the employment relationship, including wage claims.  Notwithstanding his agreement to arbitrate, the plaintiff later filed a putative class action in state court alleging various Labor Code violations.  The employer filed an answer to the complaint, failing to assert any defense that the claims were subject to arbitration.  The employer then proceeded to litigate the case in state court for about a year.  After the Supreme Court issued its decision in Concepcion in April 2011, breathing new life into the enforceability of employment arbitration agreements and class action waivers, the employer in this case decided to move to compel arbitration.  The trial court denied the motion, finding that the employer had waived the right to arbitrate.  The employer appealed.

The court of appeal reversed and held that the employer had not waived the right to arbitrate, despite having engaged in the litigation process for a year and not raising arbitration during that time.  The court reasoned that the employer's conduct in not raising arbitration pre-Concepcion was reasonable in light of the state of the law in California at the time.  Based on that law, the employer likely would not have prevailed on the motion and/or would have risked having an arbitration ordered on a classwide basis.  The court also reasoned that even though the litigation had been going on for a year, not much of substance had really occurred.  There were no dispositive motions and little discovery had actually been conducted.  Ultimately, the court found that there was no prejudice to the plaintiff in the one year delay in compelling arbitration. 

The court went beyond its finding of no waiver and addressed the enforceability of the arbitration agreement itself.  The court held that although the agreement did not include an express class action waiver, such a waiver had to be implied because of United States Supreme Court law (Stolt-Nielsen) making clear that class claims cannot be compelled to arbitration unless the parties to the agreement expressly agreed to arbitrate class claims.  The court then addressed the enforceability of the class waiver, finding it enforceable under Concepcion.   The court noted conflict among California state and federal courts on whether Concepcion preempts California's previous test (set forth in Gentry) for determining whether a class waiver in an employment arbitration agreement is enforceable.  The court held that in this case, the plaintiff had not made any showing why the agreement would fail under Gentry, even if Gentry is still good law.  As such, the court held that it did not need to decide whether Gentry is still good law.  The court held that under Gentry and Concepcion, the agreement was enforceable.

Finally, the court addressed the argument that the agreement was unenforceable under the NLRB's decision in D.R. Horton.  The court rejected this argument, holding (like other California courts) that the NLRB's reasoning in D.R. Horton was "unpersuasive." 

The Reyes decision is a favorable case for employers to cite in moving to compel arbitration in wage and hour class actions.  The decision is also a useful one for refuting arguments that the employer has waived the right to arbitrate by participating in state court litigation.  Employers are cautioned, however, that they should assert the right to arbitrate at the earliest opportunity (e.g. as an affirmative defense in the answer to the civil complaint) and avoid conduct inconsistent with the right to arbitrate, to prevent the possiblity of a finding of waiver.

California Court Re-Issues Favorable Decision on Commissioned Salesperson Exemption

We previously reported on Muldrow v. Surrex Solutions Corp., a case in which a California court held that certain professional recruiters qualified for California's commissioned salesperson exemption.  The court applied a broad and favorable interpretation of the types of pay that qualify as commissions for purposes of the exemption.  Our prior post on this case is here.  Well, the case also involved the court's denial of the class members' claim for missed meal breaks, based on the court's determination that the employer need only provide the opportunity to take breaks and does not have to ensure that they are taken.  The plaintiffs appealed while Brinker was pending before the California Supreme Court.  The Supreme Court granted review on a "grant and hold" basis pending the Court's issuance of a decision in Brinker.  The grant of review rendered the Muldrow case no longer citable authority.  As the world now knows, the Supreme Court eventually confirmed in Brinker that employers need only provide, not ensure the taking of, meal breaks.  After issuing its decision in Brinker, the Supreme Court transferred the held cases, included Muldrow, back to the originating courts for further review in light of Brinker.  This week, the court in Muldrow issued a new decision, essentially re-confirming its prior decision and reasoning on the commissioned salesperson exemption and confirming that the plaintiffs' meal break claim was also properly denied.  The new decision in Muldrow (now citable) is here.

New Case Is Reminder of Need to Carefully Draft Non-Competes Connected to Sale of Business

This week a California court reinforced the general validity of non-compete agreements in the context of the sale of a business, but nonetheless struck the agreement at issue in the case on the ground that it was overbroad and not limited to protecting the buyer's good will interest in the business.  The case is Fillpoint v. Maas and the decision is here.  Most California employers are aware that California law generally prohibits non-compete agreements in the employment context based on the public policy favoring employee mobility and the right to pursue a livelihood.  However, one notable exception to this general rule is California's statutory allowance of non-compete agreements connected to the sale of a business.  This exception is codified at California Business and Professions Code section 16601.  The purpose behind the exception, generally, is that the buyer of a business has a justifiable interest in preventing the seller from obliterating the value of the sold business by running out and competing against the buyer.  As such, reasonable restrictions on competition are upheld when based on agreement of the parties in connection with the sale of a business.

In Fillpoint, the employer, Crave, was in the business of distributing and publishing video games and Maas was an employee and stockholder in Crave.  Crave was acquired by Handleman. As part of the acquisition, Maas sold his stock to Handleman and signed a stock purchase agreement containing a non-compete agreement.  He also signed an employment agreement with Handleman containing an additional non-compete provision.  The two agreements cross-referenced eachother and were “integrated” but the non-compete provisions were not identical.  The non-compete provision in the stock purchase agreement essentially prohibited Maas from competing for a three year period following Handleman’s acquisition.  In contrast, the employment agreement prohibited Maas from competing for a one year period following Maas’ termination of employment, whenever that might be (it was not tied to the timing of Handleman’s acquisition of Crave).

Maas fulfilled the three year term of the non-compete in the stock purchase agreement (as he continued working for Crave this entire time).  However, after the three year period expired, Maas resigned and went to work for a competitor, in violation of the one-year covenant not to compete in his employment agreement.  By this time, Handleman had been acquired by another company, Fillpoint.  Fillpoint sued Crave for violation of the non-compete.  The issue in the case was whether the non-compete in the employment agreement was enforceable under B&P Code section 16601’s allowance of non-compete agreements connected to the sale of a business.  The trial court held as a matter of law that the non-compete provision in the employment agreement was not enforceable and the court of appeal agreed.

The court held that the two agreements had to be read together in evaluating whether the provisions were enforceable under the sale of business exception.  To this end, the court held that the three year provision in the stock purchase agreement was valid under section 16601.  However, the court held that the additional one-year provision in Maas’ employment agreement could not be enforced under section 16601 because it was not sufficiently tied to the sale of the business.  Unlike the stock purchase agreement’s non-compete, which provided for a non-compete term immediately following the acquisition, the employment agreement’s non-compete term provided for a non-compete term that was tied to Maas’ separation of employment with the company—whenever that might occur in the future.  Thus, it had nothing to do with protecting the buyer’s interest in the value of the sold company.  Instead, it was more geared toward limiting Maas’ mobility and freedom to compete generally.  The court noted that the provision was so broad in scope that it aimed to prohibit Maas not just from soliciting known Crave customers or employees, but also from doing business with Crave actual or potential customers or employing Crave employees.  Based on the breadth of the non-compete and insufficient connection to the actual sale of the business, the court held that it was void and unenforceable.

The Fillpoint case is a good reminder that even where a statutory exception exists permitting non-competes in limited circumstances, these provisions are still carefully scrutinized by California courts and must be carefully drafted to best ensure enforceability.

Arbitration Provision in Employee Handbook Is Not an Enforceable Contract

A California state court decision issued this week reminds California employers that arbitration policies set forth in employee handbooks generally do not amount to an enforceable agreement to arbitrate claims.  In Sparks v. Vista Del Mar Child & Family Services, the employer had an employee handbook containing, among many other policies, a policy requiring arbitration of employment disputes.  The handbook (like most) elsewhere included language making clear that the handbook was not an express or implied contract.  Employees were required to sign a form acknowledgement indicating they had received the handbook.  However, the acknowledgement did not specifically allude to the arbitration policy or separately include any agreement to arbitrate.  A former employee filed an employment-related claim against the employer, and the employer moved to compel arbitration, arguing that the employee had agreed to arbitrate the dispute by virtue of his signed acknowledgement of receipt of the employee handbook.  The court refused to compel arbitration, holding that there was no evidence that the employee had agreed to arbitrate.  The court reasoned that the arbitration provision was buried in a lengthy employee handbook, the handbook itself stated that it was not intended to create a contract, the acknowledgement form made no specific mention of arbitration, and the handbook also stated that the employer could modify the policies therein at any time, making any agreement to arbitrate illusory.  The court also noted that even if there was a valid agreement to arbitrate, it would be still be unenforceable due to unconscionability because the arbitration policy did not provide for adequate discovery and incorporated AAA arbitration rules that were not included nor provided to the employees. 

The Sparks case is a good reminder that to be enforceable, employment arbitration agreements ideally should be free-standing agreements signed by employees.  They may be included on acknowledgement forms or in broader agreements, but the arbitration provision should be a prominent provision, making the employee's knowledge of the provision and agreement thereto unmistakeable.   

Supreme Court Likely to Have Another Chance to Review Harris

California employers were provided a helpful ruling from the California Supreme Court late last year when it issued its decision in Harris v. Superior Court (Liberty Mutual), rejecting the oft-cited administrative/production worker dichotomy as a dispositive test for determining whether employees qualify for the administrative exemption.  The court of appeal had held that insurance company claims adjusters were "production" employees who did not advise on general policies or business operations of the employer, but rather merely carried out the day to day affairs of the business and, as such, could not qualify for the administrative exemption from overtime pay.  The California Supreme Court reversed, holding that the court of appeal erred in focusing so heavily on the production worker dichotomy as a dispositive test for excluding application of the exemption.  The Court held that the adjusters' duties (as opposed to their general "production" role within the company) had to be examined to assess applicability of the exemption.  Notably, the Court cited with approval federal regulations and caselaw suggesting that the exemption may well apply to certain employees, such as claims adjusters, involved in servicing the employer's business.  The Court also disapproved of the reasoning of certain cases finding that adjusters did not qualify for the administrative exemption based on the fact that adjusters service the business rather than advising management on policies or general operations.  The Supreme Court did not go so far as to decide whether the exemption applied to the adjusters at issue in the case, but instead remanded the case back to the court of appeal to undertake an appropriate examination and revisit whether the administrative exemption applied to the claims adjusters at issue (bearing in mind the guidance and direction of the Supreme Court on the proper focus for the analysis). 

Yesterday, the court of appeal issued its decision on remand, surprisingly finding that the adjusters as a whole group (including 39 job classifications of adjusters working for at least two companies in three different lines of business) did not qualify for the administrative exemption as a matter of law.  The court's reasoning again focused on the "production" nature of the adjusters' work, with a slight twist.  The court explained that it was following Supreme Court guidance by not focusing on the adjusters' production "role," but was instead focusing on the adjusters' "duties," which it viewed as production duties and hence non-exempt.  The court held that adjusting individual claims is just carrying out the day to day production work of the company and does not involve advising management on policies or general business operations, much less formulating such policies or operational strategies on their own.  The court acknowledged that the adjusters at issue had varying levels of responsibility and authority (some with authority to settle claims for $100,000 while others had lesser authority of $40,000, and some advised management on certain policies while others did not), but the court dismissed these differences as immaterial to the exemption analysis.  The court reasoned that regardless of the amount of their authority, all adjusters' duties were to adjust individual claims and that simply is not "administrative" work at the level of policy or general operations.  Furthermore, even though some adjusters may have advised management some of the time, which might qualify as administrative work, they would have to engage in this work the majority of their work time in order to qualify for the administrative exemption.

So, what about the federal regulations and caselaw cited with approval by the California Supreme Court, suggesting adjusters may well qualify for the exemption?  As noted, one federal regulation specifically cites claims adjusters as an example of the type of service employee who may qualify for exemption.  Similarly, the Supreme Court cited with approval a Ninth Circuit case (Miller v. Farmers Insurance) holding that adjusters were exempt based on their duties of interviewing witnesses, determining coverage and value of claims, determining fault, and negotiating settlements.  The Supreme Court also noted that many other federal cases are in accord with Miller and that these cases are "instructive."   Well, notwithstanding the fairly clear import of the Supreme Court's statements, the court of appeal on remand simply dismissed all of this authority as "not persuasive."

The court of appeal's decision on remand in Harris is a very unfavorable one for California employers, given the court's very narrow interpretation of the administrative exemption.  Stay tuned for yet another likely petition for review to the California Supreme Court.  Our prior post on the Supreme Court's decision in Harris is here.  The court of appeal's decision on remand is here.

Another California Court Rejects D.R. Horton

Yesterday, in Nelsen v. Legacy Partners, another California court followed the lead of the recent decision in Iskanian v. CLS, enforcing an employment arbitration agreement notwithstanding that it precluded class wide relief for alleged wage and hour violations.  Interestingly, the agreement at issue in Nelsen was silent on whether class claims could be pursued in arbitration.  However, following Supreme Court precedent (Stolt-Nielsen), the Nelsen court held that because arbitration is a matter of contract, a party cannot be required to arbitrate claims it has not expressly agreed to arbitrate.  Silence on the issue of class claims could not be interpreted as the employer's express agreement to arbitrate class claims.  As a result, the court held that Nelsen had to pursue her claims individually in arbitration. 

The court also rejected the employee's argument that the implicit class waiver was unconscionable under California law (Gentry).  The court refused to decide whether Gentry is preempted by Concepcion, instead finding that even if Gentry is still good law, the employee made no factual showing as to why the class waiver would be found unconscionable under the factors set forth by the California Supreme Court in Gentry.  The court also rejected the employee's argument that the implicit class waiver was unenforceable under the NLRB's decision in D.R. Horton.  The court essentially rejected the NLRB's analysis and further found that the NLRA did not even apply to Nelsen because she was a supervisor. 

Finally, the court rejected Nelsen's argument that her claim for injunctive relief under Business and Professions Code section 17200 was exempt from arbitration.  The court held that Concepcion makes clear that the FAA preempts laws that exempt certain claims from arbitration.  The Nelsen v. Legacy Partners decision is available here.

Legislative Update:  Proposed Employment Legislation Pending in California

California employers may want to be aware of a number of employment-related bills still pending before the California Legislature, each of which is listed below.  This list does not include employment bills that have already died in various committees during this legislative session.  Pending bills must be passed by each house by August 31.  After that, the Governor has until September 30 to sign or veto the legislation.

AB 2386:  This bill would expand the definition of “sex” under the Fair Employment and Housing Act to include breastfeeding and medical conditions relating to breastfeeding, making discrimination on those grounds a violation of FEHA with a correlating private right of action.

AB 2373:  This bill would add a new section to the Labor Code setting forth 17 factors to consider to determine whether a worker is an employee or an independent contractor.  The enumerated factors are similar to those employed by California courts analyzing independent contractor/employee status.

AB 1450:  This bill would make it unlawful for an employer to exclude from the applicant pool or refuse to hire someone based on their unemployed status.  It would also prohibit job advertisements stating that current employment is a requirement for consideration for the job.

AB 1999:  This bill would add “family caregiver status” as a protected class under FEHA, thereby prohibiting discrimination in employment against a person based on the person being a family caregiver.  For purposes of the legislation, “family caregiver” is defined as an individual who provides medical or supervisory care for a child, parent, spouse, domestic partner, parent-in-law, sibling, grandparent or grandchild.

AB 2039:  This bill would expand the circumstances under which employees could take leave under the California Family Rights Act (CFRA) by (1) eliminating current age and dependency requirements from the definition of “child,” thereby permitting an employee to take leave to care for an adult child, (2) expanding the definition of “parent” to include parents-in-law, and (3) permitting an employee to take leave to care for a grandparent, sibling, or grandchild.

AB 1844:  This bill would prohibit an employer from requiring or requesting that an employee or applicant disclose user name or password information for personal social media, or to divulge any personal social media.

SB 1255:  This bill would specify circumstances under which “injury” would be presumed to an employee as a result of an employer not providing wage statements, or providing incomplete wage statements.  Presumed injury would allow the employee to recover penalties and/or actual damage.  Presumed injury could be shown by the failure to provide a wage statement at all, or by the failure to include the employee's name and last 4 digits of the social security number.  It could also be shown by failing to provide complete wage information, causing the employee to be unable to determine (from the statement alone) gross and net wages earned, deductions therefrom, and the name and address of the employer.

AB 1744:   This bill would require temporary services employers to include additional information on itemized wage statements for employees, including the rate of pay for each assignment, the name and address of the entity that secured the services and total hours worked for each entity.

AB 2674:  This bill would amend section 1198.5 of the Labor Code relating to employee rights to inspect personnel files.  The bill would require employers to maintain employee personnel files for at least 3 years following termination of employment, and to permit current and former employees (or their designated representatives) to inspect and copy personnel records, within 30 days of a request to do so by the employee.  The bill specifies that an employer is not required to comply with more than 50 (whaaat?) requests for copies of personnel records by a representative of employee(s) in one calendar month.

AB 1964:  This bill would add to the current requirement under FEHA that employers reasonably accommodate religious beliefs and observances of employees, by specifying that a religious dress practice or grooming practice are covered “beliefs and observances.”

AB 1875:  While not technically an employment bill, this bill would impact employment litigation by limiting depositions in state court cases to 7 hours (as is the limitation in federal court).

As you can see, most if not all of these bills have the effect of adding new prohibitions on employment actions and increasing burdens on California employers, simultaneously giving rise to new potential legal claims for violations.  Bills that aimed to reduce burdens on California employers, add flexibility to the workplace, and/or reduce litigation were largely killed by the California Legislature.  We will continue to keep you updated on the progress of these bills as the close of the legislative session nears.

NLRB Continues Attack on Arbitration Agreements

In a recent decision, a NLRB administrative law judge held that a company's mandatory employment arbitration policy violated the NLRA, even though the policy permitted class claims by agreement of the parties and otherwise allowed class claims seeking to challenge the enforceability of the arbitration agreement itself.  The ALJ relied on D.R. Horton in reaching the conclusion that the arbitration agreement violated employees' Section 7 right to engage in concerted activity.  The employer argued that the agreement was valid and not barred by D.R. Horton because the agreement expressly permitted class claims in certain instances.  The ALJ disagreed, reasoning that the provision allowing the parties to "agree" to arbitrate claims on a class basis was hollow.  According to the ALJ, because the agreement did not specify the circumstances under which the employer would ever make such an agreement, employees would have no reasonable basis to believe that they would be able to proceed with claims collectively or as a class.  As such, the provision still "chilled" employees' Section 7 rights.

Notably, the ALJ also found problematic a confidentiality provision in the employer's arbitration agreement, requiring employees to maintain confidentiality of arbitration proceedings conducted pursuant to the agreement.  The ALJ found that this provision chilled employees' rights to discuss the terms and conditions of their employment, also violating the employees' rights under the NLRA.  The case is Advanced Services, Inc. and Tabita Sheppard Howard, issued on July 2, 2012, and is available on the NLRB website here. This case is another illustration of the NLRB's commitment to enforcing D.R. Horton and continuing to strike down class waiver provisions in employment arbitration agreements under its jurisdiction.  This will continue to be problematic for employers with such provisions, if D.R. Horton survives appeal.  California employers of course should be aware that at least one California state court (Iskanian v CLS) has rejected D.R. Horton and enforced an employment arbitration agreement containing a class waiver.  Interestingly, the California Legislature also just killed proposed legislation (SB 491) that would have barred contracts precluding claims on a class basis.  It is certain that the enforceability of class waivers and other aspects of arbitration agreements will continue to be the subject of litigation in California, so stay tuned for further developments in this area.

Court Approves Chargebacks Against Commissions

Yesterday, a California court held that a commission plan providing for chargebacks against commissions did not violate California law.  The plaintiff in the case was a sales representative for Verizon Wireless and as such, his job was to sell cell service plans to customers.  He was paid a base wage plus commissions for his work.  Verizon's commission plan clearly stated that commissions would be advanced to sales representatives based on securing signed contracts from customers, but that commissions were not actually earned and vested until expiration of a prescribed chargeback period (up to 365 days in some cases).  If a customer cancelled their service during the chargeback period, any commission advanced to the sales representative on that contract would be charged back against future commission advances.  The plaintiff filed a lawsuit alleging a PAGA violation and related Labor Code claims, all stemming from the central allegation that the chargeback practice violated Labor Code section 223 (which prohibits employers from secretly paying a wage less than that agreed to).  Verizon argued that its chargeback policy was lawful and the trial court agreed, throwing out the plaintiff's claims on summary judgment.  The plaintiff appealed, and yesterday a court of appeal agreed with the trial court.  The court reasoned that commission plans are matters of contract and the Verizon plan clearly explained that commissions were not earned or vested (and hence, not "wages") until the specified chargeback period expired without cancellation by the customer.  The plan also made clear that commissions paid to employees prior to the expiration of that period were merely advances on commissions and would be subject to chargeback in the event of cancellation during the chargeback period.   The court found that Verizon had clearly communicated the written plan to the plaintiff and also trained plaintiff and other representatives on the plan.  As such, the contract terms could not support a finding that Verizon was underpaying "wages" or otherwise violating the compensation agreement by virtue of its chargeback policy. 

The plaintiff also argued that the chargeback policy was unconscionable because it operated to shift business losses to the employees, and plaintiffs disputed that they had any responsibility for customer cancellations during the chargeback period.  The court rejected this argument as well, reasoning that to find a contract term unconscionable, it has to be of such a nature as to "shock the conscience," as opposed to being found merely "unreasonable."  The court held that Verizon's chargeback policy did not rise to the level of shocking the conscience and had some business justification because the net compensation a sales representative received bore direct relation to the product (cell phone service contract) sold and any chargebacks were tied directly to the representative responsible for the sale.

The case is Deleon v. Verizon Wireless LLC, and the full opinion is here.  Although the outcome in this case is a favorable one for employers with similar commission plans, it also serves as a good reminder that commission plans must be in writing, with some evidence of receipt by the covered employees, and the commission plan should clearly spell out the circumstances under which commissions are deemed earned and payable. 

Court Denies Class Certification in Independent Contractor Misclassification Case

This week a California court held that class certification was properly denied in a wage and hour case alleging an employer misclassified its employees as independent contractors and failed to pay overtime or provide meal and rest breaks.  The defendants in the case were newspaper publishers who hired workers as independent contractors to insert advertisements into newspapers and to bag and deliver newspapers to customers.   The lawsuit alleged that the defendants intentionally misclassified the workers as independent contractors to avoid wage and hour obligations to these workers, including payment of overtime, provision of meal and rest breaks, and indemnification for business expenses.  The workers sought to have the case certified as a class action, but the trial court denied the motion on the grounds that the class was not sufficiently ascertainable and individualized issues predominated over common issues.  The workers appealed the ruling, but were unsuccessful on appeal.  In affirming the ruling of the trial court, the appellate court agreed that the class was not ascertainable and that substantial evidence supported the trial court's finding that individual issues predominated.  On the ascertainability issue, the evidence showed that the defendant newspapers had contracts with some 5,000 entities to do the stuffing and delivery work, but those entities themselves subcontracted with various other individuals to do the work and the defendant employers had no records from which the universe of workers (or size of proposed class) could be ascertained.  In trying to save class certification, the plaintiffs argued that the class definition could be revised to limit the class to the 5,000 workers who were identifiable based on the defendants' records.  The appellate court agreed with this point, but held that class certification was still improper based on the predominance of individual issues.  More specifically, the court held that the plaintiffs had not presented sufficient evidence to demonstrate that a uniform policy or practice existed with respect to entitlement to or failure to provide overtime or meal and rest breaks.  Additionally, the court held that the trial court was within its discretion in finding that indivdiual issues predominated on whether the workers were properly classified as independent contractors as opposed to employees.  The case is Sotelo v. Medianews Group, Inc. and the full decision is here.

Franchisor May Be Liable for Harassment by Franchisee’s Employee

Exemplifying the principle that “bad facts made bad law,” a California court held this week that Domino’s Pizza may be liable for alleged sexual harassment by one of its franchisee’s employees.  The plaintiff in the case was a 16 year old employee who worked for a Domino’s franchise.  The plaintiff alleged that she was sexually assaulted and harassed by a restaurant manager employed by the franchise.  The plaintiff sued both the franchisee and Domino’s Pizza, as the franchisor.  The franchisee filed for bankruptcy, which left Domino’s as the only practical payor of any significant settlement or judgment in the case.  Domino’s moved for summary judgment, arguing that it could not be held liable for conduct by a franchise employee.  Domino’s presented evidence of its franchise agreement, which provided that franchisees were independent contractors and responsible for employment decisions and the like at their own franchise.  The trial court granted Domino’s motion, holding that Domino’s was not liable, as a matter of law, for conduct by a franchise employee because Domino’s was not the employer.  The plaintiff appealed.

The appellate court disagreed with the trial court and reversed the judgment in favor of Domino’s.  The appellate court held that the franchise agreement was not dispositive of the issue of whether Domino’s truly had an independent contractor relationship with its franchise.  The plaintiff had presented evidence suggesting that Domino’s exercised significant control over the local operations of the franchise, suggesting that the franchise may have been an agent of Domino’s as opposed to an independent contractor.  The plaintiff also presented evidence that a Domino’s area leader made recommendations for terminating certain franchise employees, including the supervisor accused of assault and harassment in this particular case.  Based on evidence suggesting a high level of control by Domino’s over franchise operations, the court held that there was a triable issue of fact as to whether Domino’s could be held liable for the conduct of the franchise employee.  As a result, the court held that the plaintiff’s claims could proceed against Domino’s. 

The case is Patterson v. Domino’s and the decision is here.

 

NLRB Launches Webpage Describing Protected Concerted Activity

The increasingly activist NLRB furthered its efforts today by launching a new webpage describing, with examples, the meaning of "protected concerted activity."  According to the NLRB press release, the webpage "describes the rights of employees to act together for their mutual aid and protection, even if they are not in a union."  The webpage recounts stories of a dozen or so complaints involving protected concerted activity, ranging from an employee who was fired after discussing wages with a coworker to employees who were fired after discussing grievances with a newspaper reporter.  The press release emphasizes that "more than 5% of the agency's recent caseload" involves non-union concerted activity.  NLRB Chairman Mark Gaston Pearce stated, "We think the right to engage in protected concerted activity is one of the best kept secrets of the National Labor Relations Act, and more important than ever in these difficult economic times. Our hope is that other workers will see themselves in the cases we’ve selected and understand that they do have strength in numbers.”  The NLRB press release, including a link to the new webpage, is here.  The NLRB's new webpage is the latest in the agency's reliance on the Section 7 right to engage in protected concerted activity as a means to regulate employer policies and practices in non-union work environments.  As we have posted several times in the past few months, the NLRB has relied on Section 7 to strike down class action waivers in employment arbitration agreements and to declare a host of social media policies and social media related terminations unlawful.  There surely will be more to come from the NLRB in the coming months, and we will post such developments here.

Supreme Court Rules That Pharmaceutical Sales Reps are Exempt Outside Salespersons

Today the United States Supreme Court issued its decision in Christopher v. SmithKline Beecham, holding that pharmaceutical sales representatives are exempt outside salespersons under the federal Fair Labor Standards Act (FLSA).  This is a very favorable decision for the pharmaceutical sales industry, which has been plagued with class action lawsuits seeking overtime compensation for these typically highly paid sales representatives.

To qualify as an exempt outside salesperson under the FLSA, an employee’s primary duty must be sales and he must customarily and regularly work away from the employer’s premises in performing those sales duties.  In this case, the issue in dispute was whether the employees’ duties qualified as “sales” duties because the pharmaceutical reps’ work is not sales work in the common sense of the term--that is, the reps do not actually sell products in exchange for money.  Instead, the reps’ job is to meet with physicians with the goal of promoting certain drugs and encouraging physicians to write prescriptions for those drugs.  The plaintiffs in the case, as well as the federal Department of Labor, argued that this activity is not “sales” and that for it to constitute sales, there would have to be a consummated transaction involving a transfer of title to property that is the subject of the transaction.   A federal district court rejected this narrow interpretation of “sales,” and held that the reps’ work was sales and that they qualified for the outside sales exemption.  The Ninth Circuit agreed.

Not to be deterred, the plaintiffs sought further review by the Supreme Court, which has now agreed with the lower courts that the reps’ work is sales and that they are exempt outside salespersons, not entitled to overtime compensation under the FLSA.  In its ruling, the Court flatly rejected DOL’s narrow interpretation of the term “sales” as requiring an actual transfer of title to property, holding that the DOL’s interpretation was “unpersuasive” and not entitled to deference.  The Court practically reasoned that the term “sales” has to be viewed in the context of the industry involved and that in the pharmaceutical sales industry, securing a physician’s nonbinding commitment to prescribe certain drugs is the most a sales rep can do to “sell” the drug in the unique context of the highly regulated pharmaceutical sales industry.

While the Supreme Court’s ruling is favorable for the pharmaceutical sales industry and provides a favorable interpretation of the meaning of “sales” that may carry over into other industries, California employers are cautiously reminded that for their sales employees to qualify as outside salespersons, they must meet the requirements of California’s outside sales exemption test and not just the FLSA test.  California’s test requires the employees to spend more than 50% of their work time away from the employer’s premises engaged in sales duties.

The full opinion in Christopher v. SmithKline Beecham is here.

California Court Holds That Concepcion Invalidates Gentry

Today a California court issued the first published state court decision addressing whether the United States Supreme Court's decision in AT&T Mobility v Concepcion invalidates the California Supreme Court's decision in Gentry v. Superior Court, addressing the enforceability of class action waivers in employment arbitration agreements.   In a very favorable ruling for employers, the court in Iskanian v. CLS Transportation Los Angeles held that the employer's motion to compel arbitration was properly granted and that the plaintiff had to pursue his wage and hour and PAGA claims individually in arbitration and that all class and representative allegations had to be dismissed from the case. 

The plaintiff was a former driver for CLS.  In the course of his employment, he signed an agreement providing that any all claims arising out of his employment would be resolved by binding arbitration.  The agreement included a provision stating that class and/or representative actions could not be pursued in arbitration. 

Disregarding the arbitration agreement, the plaintiff employee filed a class action lawsuit in court against CLS, alleging run of the mill wage and hour claims (overtime, meal and rest break claims, wage statement claims, and a PAGA claim).  CLS moved to compel arbitration, which the trial court granted.  Plaintiff appealed, and during the pendency of the appeal the California Supreme Court issued its decision in Gentry v. Superior Court, holding that class action waivers in employment arbitration agreements are unenforceable if certain factors are present that  effectively preclude the plaintiff from vindicating statutory rights.  Based on Gentry, CLS withdrew its motion to compel arbitration and the parties proceeded to litigate the case in court, during which time class certification was ordered.  After all this, the tide turned and the United States Supreme Court issued its decision in Concepcion, holding that the FAA preempts state laws that impose special limitations on arbitration.  Based on Concepcion, CLS renewed its motion to compel individual arbitration and to dismiss the class and representative claims.  The trial court granted the motion and the plaintiff again appealed.

The appellate court agreed with the trial court's ruling compelling arbitration and dismissing both the class and representative claims.  The court held that Concepcion invalidates Gentry's limitation on enforcing class action waivers and that parties cannot be compelled to arbitrate claims on a classwide basis.  Going a step further, the court also held that the representative action (PAGA) waiver was also enforceable, disagreeing with another recent California case, Brown v. Ralphs Grocery.  If that were not enough, the court further addressed whether the NLRB's recent decision in D.R. Horton (holding that class action waivers violate the NLRA) was a basis for invalidating the class action waiver.  The court disagreed with the NLRB's analysis in D.R. Horton and declined to follow it.   Finally, the court rejected the plaintiff's argument that CLS had waived its right to compel arbitration by withdrawing its motion and litigating the case for some period of time after Gentry was issued.  The court held that CLS had not waived its right to compel arbitration because it originally timely pursued arbitration and only changed course after Gentry came out and Gentry would have led to denial of the motion.  When Concepcion was issued, CLS again timely pursued arbitration.  As a result, there was no waiver.

In sum, the Iskanian v. CLS case is a very favorable case for employers trying to compel arbitration in putative class actions in California.  Employers should bear in mind that there is still some disagreement among courts on the breadth of Concepcion and the degree to which it invalidates California law on enforceability of employment arbitration agreements, particularly in the area of enforceability of PAGA representative action waivers.  Stay tuned as there will certainly be continuing developments in this area. 

NLRB Issues Memo on Social Media Policies

Today, Acting General Counsel of the NLRB, Lafe Solomon, issued a report on findings from cases addressing the legality of various employers' social media policies.  The NLRB report is the third NLRB report addressing social media issues, with two prior reports having been issued in August 2011 and January 2012.  Whereas the prior reports dealt primarily with the legality of employee terminations stemming from social media use, today's report deals solely with social media policies.  The report provides several examples of broadly worded policy provisions determined to be unlawful because they "could be interpreted" to restrict employees' Section 7 rights to engage in concerted activity and discuss the terms and conditions of their employment.  By way of example, policies that broadly preclude employees from posting or discussing any type of "confidential" information on social media sites are overbroad unless defined NOT to preclude employees from engaging in Section 7 rights protected by the NLRA.  Employers should review this most recent NLRB report in considering any appropriate changes to social media policies.  The report is available here.

Ninth Circuit:  Medical Marijuana Use Not Protected by ADA

In Ross v. Ragingwire, the California Supreme Court held that an employer may lawully terminate an employe (or refuse to hire an applicant) who tests positive for marijuana, even if the marijuana use if for lawful medical purposes under California law.  This week the Ninth Circuit held that the ADA similarly does not protect medical marijuana use.  In James v. City of Costa Mesa, the Ninth Circuit held that the ADA does not protect individuals who claim discrimination against them because of medical marijuana use.  The court reasoned that the ADA excludes from coverage disabilities based on illegal drug use, and that "illegality" is tied to federal, not state, law.  Because marijuana is illegal under federal law, medical marijuana use is not covered under the ADA, even if states such as California have legalized the medical use of marijuana.  Employers should note that while it is not unlawful to discriminate against an applicant or employee on the basis of their marijuana use (even if for medical reasons), it is still unlawful to discriminate against an applicant or employee for an underlying disability (for which the individual may be using the medical marijuana).  As such, employers should use caution in handling these situations to minimize risk and ensure they can demonstrate that any adverse employment decisions were based on knowledge of illegal marijuana use and not on knowledge of an underlying disability.  The James v. City of Costa Mesa opinion is here

NLRB Suspends Implementation of New Election Rule

On the heels of yesterday's federal court decision invalidating the NLRB's new election rule that had taken effect April 30, the NLRB announced today that it is suspending implementation of the rule as a result of the court decision.  The NLRB stated that it is reviewing the court decision and considering how it will respond.  The NLRB's announcement is available here.  Stay tuned for further developments. 

Federal Court Invalidates NLRB’s New Election Rule

The United States District Court for the District of Columbia issued a ruling yesterday invalidating the NLRB's new election rule.   The court held that the rule was not properly adopted because the NLRB lacked a quorum when it voted to adopt the rule.  Only two NLRB members voted on the rule.  A third had voiced opposition to the rule and made clear that his position was to oppose the rule's adoption.  However, he did not actually participate in the vote.  According to the court, this resulted in the lack of a quorum and rendered the rule's adoption ineffective.  As a result of the court's holding, for now the new election rule is invalid and representative elections will proceed under the old rules.  It is of course possible that the NLRB will simply hold a new vote on the election rule, and employers will be back in the same position shortly only to await legal rulings on substantive challenges to the election rule.  We'll keep you posted on further developments here.

California Court Holds Armendariz Still Applies After Concepcion

This week a California court held that the United States Supreme Court's recent decision in AT&T Mobility v. Concepcion does not overrule California unconscionability standards for assessing employment arbitration agreements, including the standards generally prescribed by the California Supreme Court in Armendariz v. Foundation Health.  Armendariz is the leading case setting forth basic standards for assessing whether an employment arbitration agreement is unconscionable in California.  The case makes clear that in order to be enforceable, an agreement must include a mutual agreement to arbitrate, must provide for adequate discovery, must not impose costs on the employee that the employee would not normally bear in court, must provide for selection of a neutral arbitrator, and similar other fairness requirements.  In addition to Armendariz, the California Supreme Court issued a decision in a case called Gentry, providing grounds for assessing whether a class action waiver in an employment arbitration agreement is unconscionable and unenforceable.  Recently, the continued validity of these cases was called into question when the US Supreme Court issued its decision in Concepcion, overruling a California Supreme Court case known as Discover Bank, which is a case similar to Gentry but sets forth unconscionabilty standards for class action waivers in consumer (not employment) arbitration agreements.  The US Supreme Court held that the FAA preempts state laws that place unique restrictions on the enforceability of arbitration agreements.  Although Concepcion did not specifically address Armendariz or Gentry, their continued validity is called into question by the reasoning of Concepcion.  This week, one California court specifically held that Concepcion does not overrule Armendariz and that the Armendariz standards still apply to employment arbitration agreements in California.  The court relied on Armendariz to find the agreement at issue unconscionable and unenforceable, primarily because it was presented on a take it or leave it basis, required the employees (actually contractors) to arbitrate all claims but reserved a judicial forum for certain employer claims, shortened the statute of limitations for filing claims, and contained a unilateral fee-shifting provision requiring the workers to pay the employer's costs in certain circumstances.  The case is Samaniego v. Empire Today, and the full decision is here.  Stay tuned for further developments in this evolving area of law. 

California Supreme Court Limits Recovery of Attorneys’ Fees on Meal and Rest Claims

Yesterday the California Supreme Court issued its opinion in Kirby v. Immoos Fire Protection, Inc., addressing whether a prevailing party in a rest break case is entitled to recover attorneys' fees incurred in litigating the case.  In this case, the defendant employer was the prevailing party on a claim by plaintiffs for alleged missed rest breaks in violation of Labor Code section 226.7.  The employer, as the prevailing party, sought to recover its attorneys' fees under Labor Code section 218.5, which on its face allows for an award of attorneys' fees to "the prevailing party" in "any action brought for the nonpayment of wages, fringe benefits, or health and welfare or pension fund contributions."  The trial court awarded attorneys' fees to the employer on multiple claims, but the court of appeal reversed claims covered by Labor Code section 1194 (minimum wage and overtime claims) and 2810 because each of these provisions specifically allow for only one-way fee shifting in favor of a prevailing plaintiff.  The court of appeal upheld the award of attorneys' fees to the employer on the rest break claim, holding that the claim sought additional "wages" and was, therefore, covered by Labor Code section 218.5 and its mutual fee shifting provision.  The plaintiffs sought review by the California Supreme Court, arguing that the rest break claim was governed by section 1194's unilateral fee shifting provision because it was really in the nature of an action for payment of less than the minimum wages required by law.  Plaintiffs also argued that because they had a separate claim for unpaid overtime covered by section 1194, that section should apply to the whole action, including the rest break claim.

The Supreme Court rejected the plaintiffs' argument that section 1194 applies to a rest break claim, reasoning that section 1194 expressly states that it only applies to claims for unpaid minimum wage or overtime compensation.  As such, the Court held that section 1194 does not provide a mechanism for a prevailing party to recover attorneys' fees on a rest break claim.  Turning to section 218.5, the Court similarly held that this fee shifting statute does not apply to rest break claims.  Using somewhat strained reasoning, the Court held that a claim for missed rest breaks is not a claim for "nonpayment of wages" within the meaning of 218.5 (even though the Supreme Court recently held that the premium pay owed for missed breaks is a "wage" and not a "penalty").  Nor is a claim for missed rest breaks a claim for nonpayment of fringe benefits or health and welfare contributions.  Instead, according to the Court, a claim for missed breaks is a claim for denial of a mandated break and, as such, is not covered by the express language of section 218.5 and 218.5 does not provide a mechanism for a prevailing party to recover attorneys' fees on a claim for missed breaks.

The Supreme Court's decision was bad news for the employer in the Kirby case, who had its attorneys' fee award reversed.  However, the result appears to be a good one for California employers in the larger sense because the decision precludes prevailing plaintiffs from using section 218.5 (or 1194) to recover attorneys' fees in connection with meal and rest break claims.  This should operate to drive down the incentive for the plaintiffs' bar in connection with such suits.  They may try to utilize PAGA or California Code of Civil Procedure section 1021.5's private attorney general theory as means to recover fees on these claims, but these avenues are not without hurdles and in many cases, will not work.

NLRB Takes Aim at Class Waiver in 24 Hour Fitness’ Arbitration Policy

The NLRB filed a complaint today against 24 Hour Fitness, alleging the company's arbitration policy violates the NLRA.  According to the NLRB, the action was prompted by a complaint lodged with the NLRB by a 24 Hour Fitness employee in California.  24 Hour Fitness' arbitration policy, like those of many companies, contains a class action waiver provision that effectively requires employment disputes to be resolved individually.  As employers may recall, the NLRB recently issued a decision in a case called D.R. Horton, holding that class waiver provisions violate employees' section 7 rights to engage in concerted activity.  D.R. Horton has been appealed and it was not clear how active the NLRB was going to be in enforcing its position declaring class waiver provisions unlawful.  Well, the NLRB's complaint against 24 Hour Fitness may be a sign of  more to come.  Stay tuned.  For the NLRB's press release on the 24 Hour Fitness matter, click here.

Employer Cannot Be Compelled to Arbitrate Class Claims Absent Express Agreement to Do So

Today a California court held that where an employment arbitration agreement is silent on the issue of whether class claims may be arbitrated, the employer may not be ordered to arbitrate such claims.  In Kinecta v. Sup. Ct., the employer and employee had an agreement that any disputes between them arising out of the employment relationship would be resolved by binding arbitration.  Notwithstanding the agreement, the plaintiff employee filed a wage and hour class action against Kinecta in California state court.  Kinecta moved to compel arbitration of the plaintiff's individual claims and to dismiss the class allegations from the complaint.  The trial court granted the motion to compel arbitration, but denied the motion to dismiss the class allegations, thereby effectively requiring Kinecta to arbitrate class claims.  Kinecta appealed and the court of appeal agreed with Kinecta that it should not have been ordered to arbitrate class claims.  The court of appeal relied on the United States Supreme Court 's decision in Stolt-Nielsen v. Animalfeeds Intl., 130 S.Ct. 1758 (2010), in which the Supreme Court held that a party cannot be compelled to arbitrate class claims unless the party has expressly agreed to do so.   The arbitration agreement between Kinecta and its employee was silent on the issue of classwide arbitration.  Because there was no express agreement to arbitrate class claims, the court held that they could not be compelled to arbitration based on Stolt-Nielsen.   As a result, the court of appeal issued an order directing the trial court to dismiss the class allegations. 

In its decision, the court of appeal considered whether the agreement's practical prohibition on an individual pursuing claims as a class action in any forum was enforceable under the California Supreme Court's decision in Gentry.   The court noted that "there is some question" whether Gentry is still good law or whether it is preempted by the United States Supreme Court's decision in AT&T v. Concepcion.  However, the court held that it need not decide that issue because even if Gentry is still good law, the plaintiff had failed to make an evidentiary showing that the waiver of class claims would be unenforceable under the standards set forth in Gentry.  The Kinecta decision is here.

Enforcement of Attendance Policy Does Not Violate ADA Where Attendance is Essential Function

This week the Ninth Circuit held that where attendance is an essential function of the job (isn't it always?), an employer's enforcement of its attendance points policy as to a disabled employee does not constitute a failure to reasonably accommodate under the ADA.  In this particular case, the employee was a neonatal intensive care nurse who had an abominable attendance record due to a multitude of stated reasons, ranging from fibromyalgia to personal life issues.  Even though she worked part-time and only a couple of shifts per week, she was continually absent.  She also took a variety of leaves of absence, all accommodated by her employer.  The employer had an attendance policy that allowed up to five unplanned absences in a rolling 12 month period.  This employee regularly exceeded the limit and had a history of performance discipline for her unexcused absences.  The employer quite reasonably tried to work with the employee to save her, allowed several exceptions from the policy for her, and gave her numerous chances to improve her attendance and escape termination.  The employee nonetheless did not improve her attendance and admittedly continued to exceed the allowed unplanned absences under the attendance policy (she was even absent for a planned meeting to discuss her attendance).  She requested that her employer except her from the attendance policy and essentially allow her uncapped unplanned absences, apparently as a "reasonable accommodation" for some sort of disability.  The employer did not agree.  She was ultimately terminated (duh).  Not to be deterred, she filed a lawsuit claiming the employer violated her ADA rights by not excepting her from the attendance policy as a reasonable accommodation under the ADA.   

In the lawsuit, the employer did not dispute that the employee was disabled.  The dispute focused instead on whether the employer had a duty to except the employee from the attendance policy as a reasonable accommodation.  The trial court said no and granted the employer summary judgment.  The employee appealed to the Ninth Circuit, which agreed with the trial court.  The Ninth Circuit held that the employer had adequately established that regular attendance is an essential function of the position of a neonatal ICU nurse and that an employer is not required by the ADA to relieve a disabled employee from essential functions as an accommodation.  The case is Samper v. Providence St. Vincent and the decision is here

Employer Right to Modify Arbitration Agreement May Make It Unenforceable

This week, a California court held that an employment arbitration agreement was unenforceable based on a provision in the agreement giving the employer the right to modify or revoke the agreement on 30 days' notice to the employee.  The court held that the termination right rendered the agreement illusory and lacking sufficient "mutual" agreement to arbitrate.  In Peleg v. Neiman Marcus, the employer's arbitration agreement provided that Neiman Marcus could modify or revoke the agreement on 30 days' notice to employees and that claims not "filed" with AAA by the end of 30 day period would not be subject to the agreement.  Thus, the agreement did place some limit on Neiman Marcus' ability to selectively avoid arbitration of claims.  Nonetheless, the court held that the notice provision was insufficient to save the agreement from being illusory.  The court held that a provision allowing the employer to modify/revoke the agreement must make clear that it applies prospectively only, and does not apply to claims that are "accrued" and/or "known" prior to the date of the change.  In the case of Neiman Marcus' agreement, the requirement that claims be "filed" within 30 days of notice of the change in order to be covered by the agreement to arbitrate impermissibly shortened the statute of limitations applicable to pursuing claims. 

Neiman Marcus' arbitration agreement had a provision in it stating that it was governed by Texas law.  The California court applied the choice of law provision (and Texas law) in holding that the modification provision rendered the agreement illusory and unenforceable.  However, the court held that application of California law would essentially lead to the same result.  The only difference is that under California law, if a modification provision is silent on whether it applies prospectively only, the court could "imply" or read into it that it operates prospectively only and thereby avoid a finding that it renders the agreement illusory.

Many employers' arbitration agreements contain clauses expressly giving the employer the right to make changes to the agreement, or to revoke it entirely.  In order to avoid a finding that this clause renders the agreement illusory and unenforceable, employers should review their clauses and revise, as appropriate, to make clear that any changes will be made with reasonable notice to employees, will operate prospectively only, and will not apply to claims arising prior to the date of the change. 

D.C. Circuit Temporarily Enjoins NLRB From Requiring Employee Rights Poster

As we reported yesterday, a South Carolina District Court ruled that the NLRB did not have authority to mandate the Employee Rights Poster.  The ruling is in conflict with the only other court to rule on the issue thus far--the District Court for the District of Columbia--and that decision is on appeal.  Well, this morning the D.C. Circuit Court of Appeal granted the National Association of Manufacturers' request for a temporary injunction enjoining the NLRB's posting requirement pending appeal.  The court reasoned that the uncertainty regarding enforceability of the posting requirement counsels in favor of temporarily preserving the status quo pending appeal.  The NLRB has not yet affirmatively postponed its April 30 effective date for employer compliance, but with this ruling it appears employers will not need to comply effective April 30 and will instead need to stay tuned for developments in the ongoing legislation.  The D.C. Circuit Court of Appeal's decision is here.

Courts Finds NLRB Employee Rights Poster Unlawful

Last week, a federal District Court in South Carolina ruled that the NLRB does not have the authority to require employers to post its Employee Rights Poster.  The ruling was issued in a lawsuit brought by the U.S. Chamber of Commerce challenging the validity of the posting requirement.  The judge held that the NLRA does not require any type of notice posting and that the NLRB's actions in requiring the posting were, therefore, not necessary to carry out the Act.  The judge also reasoned that the NLRB's role is intended to be a "reactive" one, responding to unfair labor practice charges, petitions and the like.  In requiring employers to post an employee rights notice, the NLRB is attempting to act in a "proactive" role and not in its intended reactive role.  While this ruling is good news for employers, it is not the final word on the validity of the notice.  Employers may recall that recently, another federal district court judge (District of Columbia) ruled that the notice was lawful.  That decision is currently on appeal before the Eleventh Circuit Court of Appeals, and it is likely that the NLRB will appeal the South Carolina District Court's adverse ruling.  With the newly issued adverse ruling, it is possible that the NLRB will again delay the effective date for the posting--which is currently April 30.  Employers should stay tuned for further developments on this issue.

Labor Commissioner Makes Further Changes to Wage Protection Act Notice

California employers trying to comply with the recently enacted Wage Theft Protection Act should take note that the Labor Commissioner has again modified the notice template, effective April 12, 2012.  The new law, which went into effect January 1, 2012, requires California employers to provide non-exempt new hires with written notice of wage and related information.  Most of the information required to be provided is set forth in the statute itself.  However, the Labor Commissioner has authority to prescribe additional categories of information to be provided in the notice.  Given that authority, the Labor Commissioner was also tasked with publishing a template that employers can use to satisfy their notice obligations.  Causing challenge to employers is the fact that the Labor Commissioner waited until close to January 1 to publish any template and then prescribed additional content beyond that set forth in the text of the statute.  If that is not confusing enough, the Labor Commissioner's office cannot seem to make up its mind about the contents of the template or the requirements of the Act.  The Labor Commissioner has at least twice revised the FAQ on the Act's notice requirements, and has now issued a revised template.  Employers who downloaded the original template will want to review the newly published template and newly revised FAQ.  Most of the changes are fairly minor, but the newly revised template has different language on the subject of whether there is a written or oral employment agreement.  It appears that this was in response to concern from employers that checking one of these boxes suggests the employee actually has some sort of employment agreement, weakening the at-will nature of the employment relationship.  The new template (and FAQ) are revised to make clear that all this is referring to is whether the rate of pay is set forth in writing or was communicated only verbally.  The revisions also make clear that the acknowledgement of receipt portion is optional, not mandatory.  The new template and revised FAQ are available here and here.  Employers will want to review these forms to ensure compliance.  Unfortunately, there is no practical way for employers to stay apprised of continued changes by the Labor Commissioner going forward other than to periodically check the Labor Commissioner's website.  We will of course try to report on changes on this blog.

Breaking—The Brinker Decision:  Supreme Court Issues Favorable Meal Break Decision But Surprising Rest Break Decision

Today the California Supreme Court issued its long-awaited decision in Brinker v. Superior Court, laying to rest some greatly litigated issues surrounding California’s meal break requirements.  The biggest issue on which employers were awaiting guidance is whether employers are required to provide non-exempt employees the opportunity to take a 30-minute meal break, or whether employers must ensure that employees comply and perform no work for a full 30 minute period.  On this issue, the Court held favorably for employers.  The Court held that an employer satisfies its obligations if it “relieves its employees of all duty, relinquishes control over their activities and permits them a reasonable opportunity to take an uninterrupted 30-minute break, and does not impede or discourage them from doing so.”  The Court specifically held that the law does NOT require employers to ensure no work is performed during the break, so long as the employer provided the break.  The employer will not be liable to an employee who voluntarily chooses to perform work during his or her break or who chooses not to take a full 30 minute break.  However, if an employer encourages the employee to do work during the meal break or otherwise effectively precludes the employee from taking a 30 minute meal break, the employer may then be liable for failing to provide required breaks.

The Court also addressed the issue of WHEN meal breaks must be provided.  The Court made clear that California law requires a meal break to be provided at or before the end of the fifth hour of work (unless the employee’s shift is no more than 6 hours and the employee has waived the meal break).  The Court rejected the plaintiff’s argument that employees are entitled to a second 30 minute meal break for every additional five hours worked.  The plaintiff had argued that if an employee takes an early lunch (e.g. after 2 hours of work) and then works five more hours, the employee would be entitled to a second 30 minute meal break.  The Court held that there is no such “rolling” five hour requirement for providing additional meal breaks.  (Employers should note, of course, that if an employee works a shift in excess of 10 hours, the employee is entitled to a second 30 minute meal break.)

In addition to addressing these meal break issues, the Court also addressed California’s rest break requirements.  In a somewhat surprising ruling, the Court interpreted California’s rest break requirements in a highly technical manner to require more than just the provision of a 10 minute rest break for every four hours worked (which is many employers’ understanding of the general rule).  The Court essentially held that employees are entitled to a rest break of at least 10 minutes for every four hours worked, or major fraction thereof (meaning more than 2 hours).  The exception is if the employees’ shift is not more than three and one-half hours, in which case no rest break need be provided.  This does not raise any big issue for the typical eight hour employee shift, where the employee is provided two ten minute rest breaks.  Where it gets complicated is a situation where an employee works, for example, six and one-half hours.  According to the Court’s interpretation of the rest break rules, the employee should be provided two 10 minute rest breaks in that situation because the employee is working one four hour shift and then a “major fraction” of another four hour shift.  In the words of the Court:  “Employees are entitled to 10 minutes rest for shifts from three and one-half to six hours in length, 20 minutes for shifts of more than six hours up to 10 hours, 30 minutes for shifts of more than 10 hours up to 14 hours, and so on.”

In the specific case before the Court, Brinker had a rest break policy stating as follows:  “If I work over 3.5 hours during my shift, I understand that I am eligible for one ten minute rest break for each four hours that I work.”  The Court held that the plaintiff could establish this policy violated California law and denied a class of employees required rest breaks if “for example, Brinker under this uniform policy refused to authorize and permit a second rest break for employees working shifts longer than six, but shorter than eight, hours.”

As for general timing of rest breaks, the Court held that the only requirement for timing of rest breaks is that they be authorized and permitted to be taken as close to the middle of a four hour work period as is practicable. The Court rejected a strict rule that a rest break occur before a meal break.

Based on the Court’s rulings on meal and rest break requirements, California employers will want to review their policies and practices to ensure compliance, with particular attention to ensuring rest break policy language comports with the Court’s interpretation of the requirements.  The Brinker decision is available here.

California Supreme Court to Address Post-Concepcion Arbitration Issues

As most California employers are aware, mandatory employment arbitration agreements have taken a lot of hits in California courts.  It seems that many (but certainly not all) judges will find any reason they can to refuse enforcement of the agreement.  In most cases where enforcement is denied, it is on the basis of a finding that the agreement is unconscionable—meaning that the employee has no meaningful choice but to sign the agreement and the agreement contains terms that are unfair to the employee in some way.  Most recently, courts began grappling with the inclusion of “class action waivers” in these agreements, often finding such waiver provisions unconscionable.  A class action waiver is a provision in the agreement that makes clear that the employee will be required to arbitrate any individual claims he or she may have against the employer, but will not be permitted to pursue any type of classwide or representative relief in the arbitration.  These class action waivers were, and are, common in both employment arbitration agreements and in consumer arbitration agreements.  The California Supreme Court issued a decision that became known as the Discover Bank rule, providing grounds to find most class waivers in consumer contracts unconscionable.  The California Supreme Court then issued a decision in a case called Gentry, which provided similarly reasoned grounds for finding class waivers in employment arbitration agreements unconscionable.  Because the rules were not “bright-line” prohibitions on such waiver provision, these provisions came to be analyzed on a case-by-case basis with some being enforced and some being found unconscionable and unenforceable.

The United States Supreme Court then provided what appears to be bright line guidance on this issue in AT&T Mobility v. Concepcion, in which the Court held that the Federal Arbitration Act preempts California’s Discover Bank rule and permits class action waivers in consumer arbitration agreements.  To be clear, the Court acknowledged that arbitration agreements may be found unenforceable on grounds that would apply to the enforceability of any contract (e.g. fraud, duress, unconscionability).  However, the Court emphasized that these doctrines may not be used to apply special standards simply due to the fact that an arbitration agreement is at issue. 

In the wake of Concepcion, there are unanswered questions about its scope and whether its reasoning applies with equal force to class action waivers in employment arbitration agreements.  In other words, is Gentry still good law?  There is not yet any published California state court opinion holding that Gentry has been effectively overruled by Concepcion, and many trial courts continue to apply the Gentry criteria to determine whether to enforce a class action waiver in an employment arbitration agreement.

Are employers going to get some guidance on the California Supreme Court’s take on the scope of Concepcion?  Perhaps.  The California Supreme Court has two cases before it that should require some guidance:  Sonic Calabasas v. Moreno, and Sanchez v. Valencia Holding Co.

The Sonic Calabasas case is an interesting one because it is an employment case in which the California Supreme Court held that an arbitration agreement foreclosing an employee’s right to pursue administrative relief for unpaid wages before the DLSE, was unconscionable and unenforceable.  Sonic Calabasas petitioned for review by the United Stated Supreme Court, which in turn remanded the case to the California Supreme Court with specific (and interesting) direction to reconsider its decision in light of Concepcion.  As a result, the California Supreme Court will have to determine the proper application of Concepcion in this employment context.

Also relating to Concepcion, the California Supreme Court just granted review in Sanchez v. Valencia Holding Co., which involves a class action waiver in a consumer arbitration agreement (similar to the Concepcion case).  In Sanchez, the trial court held that the class action waiver was unconscionable and unenforceable, notwithstanding Concepcion.  The court of appeal chose a different route and dodged the issue of Concepcion by finding the arbitration agreement as a whole unconscionable, without reaching the propriety of the class action waiver.  The court basically reasoned that many other terms (beyond the class waiver) were unconscionable under California state law and that this precluded enforcement of the agreement to arbitrate, even if the class waiver itself passed muster under Concepcion.  The California Supreme Court granted review and may provide guidance on its interpretation of the scope of Concepcion and the extent to which it believes California unconscionability law is (or is not) preempted.

California employers should stay tuned for further developments in this important area of evolving law.

California Bill Seeks to Expand CFRA Leave

There have been many changes to leave laws in recent years, both under the FMLA and under California’s CFRA.  Proposed legislation recently has been introduced in California to further expand employees’ leave entitlements under CFRA.  CFRA currently allows eligible employees to take up to 12 weeks of leave in a year as needed for the birth or placement of a child, or to care for their own serious health condition or that of a child (up to 18 years of age or an adult dependent), parent (which includes a step parent and/or person who stands in loco parentis to the child), or spouse/domestic partner.  AB 2039 seeks to expand CFRA leave to allow employees to take such leave to care for siblings, parents in law, grandparents, and adult children.  If enacted, AB 2039 will obviously increase employee leaves, resulting in additional burden to California employers.  This is particularly true because California employers covered by CFRA are typically also covered by FMLA, meaning they have to comply with both laws and their employees are entitled to leave under the terms of both laws.  Because FMLA does not provide for leave to care for parents in law, siblings, and grandparents, an employee who uses leave for that purpose under CFRA will not have exhausted their FMLA leave because the CFRA leave could not be concurrently counted as FMLA leave.  In other words, the employee could theoretically take 12 weeks of leave under CFRA for a parent-in-law, grandparent or sibling, and then still be entitled to an additional 12 weeks of leave under FMLA for a spouse or child.  This very scenario already exists in California where leave is taken for disability caused by pregnancy or to care for a domestic partner.  Differences between CFRA and FMLA on these two categories result in leave not running concurrently under these two laws in these situations.  AB 2039 would add further differences between CFRA and FMLA, making leave tracking even more complicated for California employers.

The full text of AB 2039 is available here.  We will keep you posted on the status of this and other pertinent employment-related legislation pending in California.

California Court Invalidates Another Arbitration Agreement

One of our last posts reported on a California court refusing enforcement of an employment arbitration agreement on unconscionability grounds.  Today we report on yet another example.  In Mayers v. Volt Management, the court invalidated an employee’s agreement to arbitrate his discrimination claims, finding the employer’s arbitration agreement too unconscionable to be enforced.  Why?  Because the arbitration agreement stated that arbitration would be conducted pursuant to the rules of the American Arbitration Association, but the employer did not provide the employee with a copy of those rules or direction on where the employee could access those rules.  Additionally, the agreement stated that the prevailing party could recover attorneys’ fees at arbitration.  The court found that this provision exposed the employee to greater fee exposure than he would face if proceeding in court (because a court would simply apply the statutory language of the applicable discrimination statute, FEHA, which for the most part only permits a prevailing plaintiff to recover fees).  The court refused to simply sever the offending fee shifting provision and instead invalidated the entire arbitration agreement, allowing the employee to proceed with his claims in court.

This is not the first California case to find unconscionable an agreement that incorporates rules published elsewhere without providing an employee a copy of those rules.  However, this has not been a predominant, or even common, basis for invalidating arbitration agreements in California.  The Mayers case serves to highlight that some California courts will look for any reason to invalidate a mandatory arbitration agreement.  California employers should strive to draft their agreements as cautiously as possible to avoid any such ground for a court to invalidate the agreement.

Federal Court Upholds NLRB Employee Rights Poster

On March 2, the United States District Court for the District of Columbia issued a ruling upholding the NLRB’s employee rights poster.  The ruling was issued in a lawsuit brought by the National Association of Manufacturers (NAM) to challenge the NLRB’s authority to mandate such a poster.  In its ruling, the court held that the NLRB was within its authority to issue a rule requiring employers to post the employee rights notice.  The court rejected NAM’s argument that the posting requirement violates employers’ free speech rights. 

Although the court upheld the posting requirement, it did place some limits on the NLRB’s enforcement efforts.  The court held that an employer’s failure to post the notice, in and of itself, may not be automatically deemed an unfair labor practice by the NLRB.  However, an employer’s “knowing and willful” failure to post the notice may be considered as evidence supporting a finding of an unlawful motive on the part of the employer in a case alleging some other unfair labor practice by the employer.

The court also invalidated a portion of the NLRB rule providing that the statute of limitations would be tolled in unfair labor practice actions against employers who failed to post the notice.  The court held that the NLRB’s effort to extend the clear six-month statute of limitations provided for in the NLRA exceeded the NLRB’s authority.

The court’s ruling in the case brought by NAM is the first ruling in one of several cases challenging the validity of the NLRB’s employee rights poster.  Another ruling is expected in the near future in a lawsuit brought by the Chamber of Commerce in South Carolina.  It may well be that the ruling in the NAM case will be appealed as well.  Employers should stay tuned for further legal developments with respect to the notice.  In the meantime, the current effective date for employer compliance is April 30, 2012.  No court has halted or invalidated that posting deadline.  As such, employers are advised to begin posting the employee rights notice effective April 30 barring contrary legal developments before that time.  The poster is available on the NLRB's website here.

Oral Argument Scheduled in Kirby v. Immoos

The California Supreme Court has scheduled oral argument in Kirby v. Immoos for March 6, 2012 at 9:00 a.m. in San Francisco.   This case involves the important issue of whether employers may recover their attorneys' fees after prevailing in a case alleging denial of meal and rest breaks.  The plaintiffs in Kirby had brought a lawsuit alleging unpaid overtime wages under Labor Code section 1194 as well as claims for missed meal and rest breaks under Labor Code section 226.7.  The employer prevailed and sought to recover its attorneys' fees under Labor Code section 218.5, which on its face is a bilateral fee-shifting provision that allows a prevailing party to recover its fees in wage cases, except in certain circumstances.  One of the circumstances excepted from section 218.5 is claims for unpaid overtime covered by section 1194.  Section 1194 has its own fee-shifting provision and provides that only a prevailing plaintiff may recover fees.

The lower court in Kirby held that based on these two Labor Code sections, the prevailing employer was entitled to its fees incurred in defending the meal and rest break claims, but not fees incurred in defending the overtime claim.  The Supreme Court granted review and is expected to decide whether a prevailing employer may properly recover fees for meal and rest break violations under section 218.5, and whether fees are precluded if the meal and rest break claims are brought in the same lawsuit as claims for overtime governed by section 1194.  Stay tuned for the outcome of this case.

DOL Issues Proposed Regulations Expanding FMLA’s Military Caregiver Leave and Other Provisions


The Department of Labor this week announced proposed regulations that would expand the military caregiver leave provisions of the FMLA, and also create special rules for FMLA eligibility for airline flight crew employees. The proposed regulations would implement amendments to the FMLA set forth in the National Defense Authorization Act for Fiscal Year 2010.  The proposed regulations set forth the following changes to current FMLA leave provisions:

Military Caregiver Leave

According to the DOL, “The proposed regulations would extend the entitlement of military caregiver leave to family members of veterans for up to five years after leaving the military.  At this time, the law only covers family members of ‘currently serving’ service members.”

The proposed regulations would also expand the military family leave provisions of the FMLA by extending qualifying exigency leave to employees whose family members serve in the regular armed forces. Currently, the law only covers families of National Guard members and reservists.

The DOL’s proposed regulations also contemplate other changes to the military caregiver leave provisions, including that qualifying exigency requires the service member to be deployed in a foreign country.  The regulations would also expand the definition of “serious injury or illness” to include conditions that existed prior to military service but were aggravated by military service.
 

Airline Flight Crew Employees

According to the DOL, the proposed regulations would make the benefits of the FMLA more accessible to airline flight crew employees by adding a special hours of service eligibility requirement for them and specific provisions for calculating the amount of FMLA leave used, in consideration of the “unique and often difficult to track” hours worked by crew members.  Specifically, airline flight crew employees who have worked or been paid for not less than 60 percent of the applicable total monthly guarantee and worked or been paid for not less than 504 hours (not including personal commute time or time spent on vacation, medical, or sick leave) during the previous 12 months satisfy the hours of service eligibility requirement for FMLA.

For more information on the proposed regulations, you can review the DOL’s FAQ here.

So, do employers need to worry about any of these changes now?  According to the DOL, yes.  Some of the changes technically are already in effect by virtue of the passage of the NDAA.  The extension of qualifying exigency leave to employee’s whose covered service member is in the Regular Armed Services is in effect.  Additionally, the new requirement for qualifying exigency leave that the service member be deployed in a foreign country is in effect.  Finally, the expanded definition of “serious illness or injury” to include aggravations of pre-existing conditions, is currently in effect.  According to the DOL, the only military caregiver leave change not yet in effect (until the proposed rules are approved and implemented) is the extension of caregiver leave for veterans as opposed to current service members.

As for the FMLA changes pertaining to airline flight crew employees, the DOL is taking the position that these changes are also effective now, per the passage of the Airline Flight Crew Technical Corrections Act (AFCTA).

We will keep you posted as to developments with these proposed regulations.  In the meantime, employers will want to review their policies and procedures for compliance.

California Court Says Professional Recruiters Are Exempt Commissioned Salespersons

In Muldrew v. Surrex Solutions, a California court held this week that certain professional recruiters qualified for California’s commissioned salesperson exemption, thereby defeating their claim for alleged unpaid overtime wages.  Surrex Solutions is in the business of recruiting—locating qualified candidates to fill job positions for Surrex’s clients.  The plaintiffs in the case worked as recruiters for Surrex.  In that capacity, they located qualified candidates and tried to place them with Surrex clients.  Surrex’s clients paid Surrex a fee (generally a percentage of a placed employee’s annual compensation) if they hired a candidate proposed by Surrex.  Surrex in turn paid the recruiter a percentage of the fee as “commission.”  The plaintiffs in Surrex filed a lawsuit alleging that they worked overtime hours without being paid overtime compensation.  Surrex defended the suit on the ground that the recruiters were exempt commissioned salespersons and not entitled to overtime compensation under California law. 

California’s commissioned salesperson exemption provides an exemption from overtime pay for employees who earn more than one and one-half times the minimum wage and whose total compensation is derived more than 50% from commissions.  Courts have held that in order to qualify for the exemption, an employee must be principally engaged in sales duties and must be paid a percentage of the price of goods sold.  The plaintiffs in the case argued that they did not meet the test for exemption because they were not engaged in “sales” and their pay was not based on a percentage of the price of a product.  The court rejected both arguments.

First, the court held that the recruiters’ job duties constituted “selling” within the meaning of the exemption.  The recruiters’ job was essentially to locate and “sell” a candidate to Surrex clients.  The court further held that job duties such as researching candidates and meeting with them were directly related to and part of their sales duties.

Second, the court held that Surrex’s method of paying its recruiters satisfied the definition of “commission” pay.  Surrex placed two types of candidates with its clients:  employees and consultants.  If a candidate was hired as an employee by a Surrex client, then Surrex received a flat fee for the placement and in turn paid a percentage of that fee to the recruiter.  The plaintiffs conceded that this payment qualified as a “commission” for purposes of the exemption.  The plaintiffs, however, challenged the payment system used in the case of a consultant who was placed with a client. In the case of consultants, Surrex employed them and provided their services to clients based on hourly rates.  Surrex then paid the recruiter a percentage of the “adjusted gross profit” earned by Surrex (revenue minus Surrex’s costs associated with employing the consultant).  The plaintiffs argued that because the formula considered factors other than a straight percentage of the fee, it could not be considered commission pay.  The court rejected this argument, holding that the concept of commissions is broad enough to include a formula such as Surrex’s that takes into account a reduction for overhead in calculating commission pay.

Finally, the court rejected the plaintiffs’ argument that Surrex’s commission plan was not really a bona fide commission plan because it involved paying the recruiters a guaranteed draw against commissions.  The plaintiffs argued that the plan was designed in a way to ensure that recruiters would essentially earn close to the amount of the draw.  The court rejected this argument, holding that Surrex produced evidence showing that recruiters’ commission often far exceeded the draw amount.  The court held that this evidence was sufficient to support a finding that Surrex’s commission plan was a bona fide commission plan.

The Muldrow v. Surrex decision is a positive one for California employers, in that it rejects an overly restrictive interpretation of elements of the commissioned salesperson exemption.  Employers who rely on the exemption for certain employees are reminded, however, that satisfying the exemption is more complex than it seems.  Given the litigation climate in California concerning overtime exemptions, it is advisable to have commissioned salesperson classifications reviewed by counsel.

Confusion Surrounds California’s New Wage Notice

As we previously posted on this blog, a new California law was passed in October requiring California employers, effective January 1, 2012, to provide new hires with a written notice containing certain wage and other information.  The new law is codified as Labor Code section 2810.5 and requires employers to provide newly hired non-exempt employees with the following  categories of information (in one self-contained writing):

1. The rate or rates of pay and basis thereof, whether paid by the hour, shift, day, week, salary, piece, commission or otherwise, including any rates for overtime;

2. Allowances, if any, claimed as part of the minimum wage, including meal or lodging allowances;

3. The regular payday designated by the employer;

4. The name of the employer, including any “doing business as” names used by the employer;

5. The physical address of the employer’s main office or principal place of business, and a mailing address, if different;

6. The telephone number of the employer;

7. The name, address, and telephone number of the employer’s workers’ compensation insurance carrier; and

8. Any other information the Labor Commissioner deems material and necessary.

Employers are required to begin providing the foregoing information to non-exempt new hires effective January 1.  If there are changes to any of the information provided, written notice of the change must be provided to employees within 7 calendar days.  The information must be provided in the language normally used by the employer to communicate employment-related information.  The new law exempts from the notice requirement State workers and most unionized employees covered by the terms of a collective bargaining agreement, as well as employees who are exempt from overtime.

While the foregoing seems fairly straightforward to apply, some confusion has arisen over the eighth category of prescribed information listed—“any other information the Labor Commissioner deems material and necessary.”  The Labor Commissioner waited until late December to post anything substantive about this new law and has since revised its position at least once regarding the scope of the new law, leaving employers with less than clear guidance over compliance.  Under the new law, the Labor Commissioner is charged with creating a template that employers may (but are not required to) use to comply with the new notice requirement.  The Labor Commissioner waited until almost the end of December to publish this template, which is available here.  Interestingly, the Labor Commissioner’s template includes several additional categories of information (beyond those enumerated in the actual statute):

1. The employee’s hire date and position;

2. The business form of the employer (e.g. corporation, partnership, LLC, etc.);

3. Specified information about other businesses or entities the employer uses to hire employees or to administer wages or benefits;

4. Whether the employee’s employment agreement is written or oral; and

5. The employer’s workers’ compensation policy number.

Adding more to the confusion, the Labor Commissioner also posted (at the eleventh hour) some “Frequently Asked Questions” about the new law, including guidance stating that the notice needed to be provided to all current employees, not just to new hires as indicated in the statute.  It appears that the Labor Commissioner’s office then realized it had overstepped its authority in exceeding the scope of the statute by extending its coverage to current employees, so the Labor Commissioner (without explanation) revised the FAQ to delete this reference.  The most current FAQ published by the Labor Commissioner’s office is here.  Employers should review both the template and FAQ.

Although employers are not required to use the Labor Commissioner template as a form notice, they are advised to make sure that any written notice they create includes all categories of information indicated on the Labor Commissioner template.  To be clear, it appears that the Labor Commissioner does have the authority (prescribed by the express language of the statute) to broaden the categories of information that must be provided in writing to new hires.  At this time, the notice must only be provided to new hires and not to current employees.  However, changes to any of the information provided in the new hire notice will need to be provided to current employees within 7 calendar days of the change.

Employers should note that although the new law does not provide for any specific penalties for non-compliance, it appears that the law can be enforced through California’s “catch-all” penalty provision, known as the Private Attorneys’ General Act (PAGA).  PAGA allows for recovery of substantial penalties for non-compliance with provisions of the Labor Code.  Employers should review the Labor Commissioner template and guidance and ensure that they have a compliant notice in place, if they have not already done so.  Employers are advised to include language in their notice to make clear, as applicable, that the employment relationship is at will and that nothing in the notice should be construed as creating a contract of employment or for the promise of any particular term or condition of employment, and that the employer has the right to change the terms and conditions of employment at any time with both employer and employee having the right to terminate the employment relationship with or without cause or advance notice.  Employers should also monitor the Labor Commissioner website from time to time in the event there are changes to the content of the notice requirement that may be prescribed by the Labor Commissioner.