Supreme Court Denies Review in Iskanian v. CLS Transportation

Today, the United States Supreme Court issued an order denying review of the California Supreme Court’s decision in Iskanian v. CLS Transportation.  CLS Transportation had petitioned for review of the California Supreme Court’s recent ruling that a PAGA representative action waiver in an employment arbitration agreement is unenforceable.  Although most legal commentators seem to agree that the California Supreme Court’s ruling runs afoul of the Federal Arbitration Act and is inconsistent with United States Supreme Court precedent in AT&T Mobility v. Concepcion, the high Court has chosen not to review the case.  As a result, the California Supreme Court’s decision remains good law and is binding on all California state courts.

What This Means for California Employers

California employers using employment arbitration agreements need to ensure that their agreements are carefully drafted in order to withstand a legal challenge to enforceability.  Because arbitration agreements remain an important tool for preventing class action employment litigation, it remains worthwhile to include language in the agreement stating that any arbitration will be on an individual basis only and that the arbitrator shall not have any authority to preside over or to resolve claims on a “class” or collective basis.  What about on a “representative” basis (i.e. a PAGA claim)?  In light of the denial of review of Iskanian, any waiver of the right to bring a representative PAGA claim in any forum (arbitration or court) is going to be deemed unenforceable by a California state court.  On the other hand, federal district courts in California generally have refused to follow the California Supreme Court’s Iskanian ruling (federal courts are not bound by the California state court ruling) and have instead held that PAGA representative action waivers are enforceable just like class action waivers are enforceable.  See, e.g., Lucero v. Sears Holding Mgmnt. Corp. (S.D. Cal. 2014); Mill v. Kmart Corp. (N.D. Cal. 2014); Ortiz v. Hobby Lobby (E.D. Cal. 2014); Chico v. Hilton Worldwide (C.D. Cal. 2014); Langston v. 20/20 Companies (C.D. Cal.); Fardig v. Hobby Lobby (C.D. Cal. 2014). This means that the enforceability of a PAGA representative action waiver largely will depend on whether a federal or state court (or arbitrator) is deciding the issue.  This divide in enforceability promotes forum shopping, with federal court being the preferable forum for employers and state court being the preferable forum for employees. 

What Should Employers Do Now?

Because PAGA representative action waivers are not categorically unenforceable (federal courts generally enforce the waivers), this counsels against removing PAGA representative action waiver language from employment arbitration agreements.  However, because employers must be mindful that a California state court will find such language unenforceable, employers need to ensure that their agreements contain severability clauses providing that if any portion of the agreement (including but not limited to the class/representative action waiver) is deemed unenforceable, the remainder of the agreement shall still be enforced to the full extent permitted by law.  Employers should also include provision for what happens in the event some claims are found to be arbitrable and others are not (e.g. the employee has individual wage and hour claims that will be arbitrated but a representative PAGA claim that is exempt from arbitration).  Generally, employers will want to provide that arbitrable claims will be resolved first and any non-arbitrable claims will be stayed pending resolution of the arbitrable claims.  Finally, employers may also want to include specific language in the agreement providing for who decides gateway issues pertaining to the enforceability of the agreement – a court or an arbitrator?  There are arguments in both directions, but employers are cautioned that there is very limited judicial review of an arbitrator’s interpretations and rulings and, as a result, if you get an arbitrator who decides not only that the representative action waiver is unenforceable but also that the PAGA representative action can proceed in arbitration (as opposed to court), that could be a very undesirable result.  If a court adversely decides the issue, there is at least some avenue for independent judicial review. 

It Pays to Sleep on the Job in California

Today the California Supreme Court issued its decision in Mendiola v. CPS Security Solutions, Inc., addressing the issue of whether security guards working 24-hour shifts have to be paid for all 24 hours or whether 8 hours of sleeping time (during which the security guards are simply on-call) may be uncompensated.  The Court held that the entire 24-hour shift was compensable hours worked. 


CPS Security Solutions employed security guards to provide services at various construction sites.  The guards were designated as “trailer guards” who effectively lived on site in CPS-provided residential trailers.  The trailers were equipped to live in, with heating and air-conditioning, kitchens and bathrooms, furniture, etc.  The trailer guards were permitted to keep their personal belongings in the trailers and the trailers were equipped with locks.  During the week, the security guards were scheduled for 16 hour shifts, 8 hours of which was considered an active patrol shift and the other 8 hours was “on-call” time.  On the weekends, the security guards were scheduled for 24 hour shifts, 16 hours of which was active patrol and 8 hours of which (from 9:00 p.m. to 5:00 a.m.) was on-call time.  Pursuant to the employer’s on-call agreement signed by the security guards, the security guards were not paid for on-call hours unless they were actually required to perform work during those hours, in which case the security guards were paid for the actual work time.  However, if during their on-call hours the security guards did not get at least five hours of uninterrupted (sleep) time, they would be paid for the entire 8-hour on-call shift.

CPS placed certain restrictions on the security guards’ activities during on-call hours.  Specifically, the security guards were not permitted to have children, pets, and alcohol were not permitted on the premises, and adult visitors were allowed only with the permission of the CPS client.  Additionally, if the guard wanted to leave the job site, he or she could do so only by first notifying dispatch and providing information on where the guard would be and for how long and then was required to wait for a reliever to arrive before actually leaving the job site.  Then, the guard had to remain within a 30-minute radius of the job site and be available via pager or radio telephone to respond to any calls and return to the job site as needed.  While on the job site during on-call hours, the trailer guards were permitted to use their on-call time to read, watch television, eat, sleep, talk on the phone, and/or engage in myriad other personal activities.  

Some of the security guards filed a class action against CPS, alleging CPS violated California law by not paying them for their full on-call hours.  CPS defended their pay practice as compliant with California law, arguing that California law does not require payment for on-call time in these circumstances. 

The trial court certified a class action and ultimately ruled that the class was entitled to pay for all on-call hours, both during weekdays and on weekends.

Court of Appeal Decision

CPS appealed the trial court’s ruling to the court of appeal.  That court agreed with the trial court that the weekday on-call hours were compensable hours worked, but held that the on-call hours on the weekends were properly excluded from compensable hours worked.  In holding that the weekday on-call hours had to be compensated, the court applied established California caselaw holding that on-call hours must be compensated if the employee is substantially restricted in the ability to use the time for personal pursuits.  In this case, the court held that the trailer guards’ personal activities were substantially restricted because the guards generally were required to remain on-site, were not allowed to have children, pets, or alcohol on the premises, and were also limited in their ability to have adult visitors. Additionally, the guards could not leave the premises unless they were able to secure a relief worker and even then, they had to wait for the relief worked to arrive.  Once off premises, the guards had to remain within a 30-minute radius of the job site and carry a pager or telephone and remain available to respond and return to the job site immediately in the event of a page.  For all of these reasons, the court held that the on-call time was primarily used for the benefit of the employer and not for the guards.  As such, the on-call time had to be compensated.

Although the same restrictions on on-call time that applied to the weekday shifts also applied to the weekend on-call hours, the court reached a different conclusion about whether the weekend on-call time was compensable.  This is because the court applied a federal regulation, 29 CFR 785.22, which permits employees who are required to be on duty for 24-hours to enter into agreements to exclude up eight hours of regularly scheduled sleep time from hours worked.  This regulation was previously followed and applied by a California Court of Appeal in Seymore v. Metson Marine, 194 Cal.App.4th 361 (2011), where that court held that ship crewmembers lawfully agreed that 8 hours of sleep time during their 24-hour shifts would not be compensated.  Based on these authorities, the CPS court held that CPS’ on-call policy of excluding 8 hours of sleep time on the 24-hour weekend shifts was lawful.

California Supreme Court Reversal

Today the California Supreme Court reversed the Court of Appeal’s decision and held that CPS’ policy of not compensating security guards for on-call time on the weekends was unlawful and that there is no “sleeping time” exclusion under the applicable wage order.  The Court expressly “disapproved” the Seymore case for its contrary holding (though that holding has been good law for the past 3 years).  The Court also rejected the applicability of the federal regulation allowing sleep time to be excluded from compensable hours worked.  The Court held that there was no reason to import that federal regulation into the applicable wage order (Wage Order 4) and emphasized that California law has a more expansive definition of “hours worked” than under federal law.  California law, unlike federal law, focuses on the extent of employer control over an employee to determine whether the employee’s time must be compensated.  As such, the Court held that under Wage Order 4 and California law, the on-call time on the weekends had to be analyzed the same as the on-call time during the weekdays, producing the same result – i.e. because the trailer guards are substantially restricted in their use of the on-call time for personal pursuits, they are under sufficient employer control to make all of the time compensable as hours worked. The fact that the trailer guards were working a 24-hour shift and could sleep part of the time was basically irrelevant.

The Court acknowledged that different wage orders, such as the wage order applicable to ambulance drivers and attendants (Wage Order 9), contain different language than Wage Order 4, and allow for employers to exclude 8 hours of sleep time from compensable hours worked in a 24-hour shift in certain circumstances.  However, the Court held that Wage Order 4 contains no such exception and that Wage Order 4 controlled in this case.

Notably, prior to this lawsuit being filed against CPS, CPS actually sought and obtained the California Labor Commissioner’s guidance on the legality of their on-call policy and pay practice, and the Labor Commissioner endorsed the policy as lawful in 1999.  A couple of years later, a newly appointed Labor Commissioner reversed the prior Labor Commissioner’s endorsement and opined that CPS’ policy was not lawful.  The reversal prompted CPS to file an action in court for declaratory relief to have its policy deemed lawful.  Prior to trial, the Labor Commissioner and CPS settled and entered into a Memorandum of Understanding effectively agreeing (again) that CPS’ policy was lawful.  In these circumstances, it is obviously outrageous for CPS to retroactively be held liable for back pay. This is particularly true given that prior to today’s “disapproval” of the Seymore case, California courts endorsed the federal regulation allowing sleep time during a 24-hour shift to be excluded from compensable hours.  However, the California Supreme Court didn’t see it this way and refused to limit its holding to apply prospectively only.  The Court held that the Labor Commissioner’s view was not entitled to deference [of course, other employee-friendly Labor Commissioner interpretations conveniently were somehow entitled to deference] and suggested that the confusion in this area may have stemmed from unclear wording of Wage Orders, defunding of the Industrial Welfare Commission, and inadequate funding of DLSE enforcement.  The Court stated that these problems are the province of the Legislature to fix, not the courts.  [Apparently, it’s okay for California employers to pay the price for legislative and agency shortcomings in the meantime.]

What Now       

Employers that have employees working 24-hour shifts should carefully review their pay practices in light of the CPS decision, paying particular attention to the Wage Order specifically applicable to their industry to determine whether there is any lawful basis for excluding sleep time from compensable hours worked.  Employers that have employees who are on-call (regardless of whether or not a 24-hour shift contemplating sleep time) should similarly review their pay practices and the level of restrictions placed on employees during on-call time to ensure that employees are being paid properly for on-call time, where necessary.  

California Paid Sick Leave Posting and Notice Requirements Take Effect January 1, 2015

As California employers know, California recently enacted a statewide paid sick leave mandate for California employers.  Although employers need not start providing paid sick leave benefits until July 1, 2015, the law’s posting and notice requirements take effect January 1, 2015, according to guidance published this month by the California Labor Commissioner’s office.  This means that beginning January 1, 2015, California employers must display a poster in the workplace informing employees of their paid sick leave rights under the new law.  The Labor Commissioner’s office has published a template poster that employers may use to satisfy the posting requirement.  The template poster is available here.  Note that in many instances, an employer’s paid sick leave policy (or a combined paid time off policy) may provide for more generous benefits than required under the new paid sick leave law.  In such circumstances, the employer may want to revise the template poster to accurately reflect the specific paid sick leave benefits the employer provides.  Alternatively, employers may consider posting the Labor Commissioner poster along with their own specific policy. 

In addition to the posting requirement, employers must also begin complying with the law’s notice requirement effective January 1, 2015.  Under the law, employers are required to provide non-exempt employees with information, upon hire, on their paid sick leave benefits as part of the Wage Theft Prevention Act Notice (Labor Code section 2810.5).  Post-hire, a revised notice is required to be provided within 7 days of any changes to the paid sick leave policy (this will also apply to employees hired prior to January 1, 2015 where the employer is adopting or modifying  paid sick leave policy).  Although this notice is only required to be provided to non-exempt employees, employers certainly are permitted to provide the notice to exempt hires as well.  The Labor Commissioner’s office has published a template notice that employers may use.  The template notice is available here.

Displaying the paid sick leave poster and providing notice of paid sick leave benefits beginning in January is likely to cause some confusion for employees whose leave entitlements will not begin until July 2015.  Where applicable, employers can modify the text of the Wage Theft Prevention Act notice to make clear that paid sick leave benefits do not begin accruing until July 1, 2015.

The Labor Commissioner’s office has also posted on its website some frequently asked questions and answers relating to the paid sick leave law.  California employers are encouraged to review this guidance here to ensure their paid sick leave policies and practices are in compliance with the new law, as interpreted by the Labor Commissioner.  

San Francisco Retail Employers Must Comply With New Retail Workers’ Bill of Rights in July 2015

Continuing its trend of enacting burdensome ordinances requiring employers with employees in San Francisco to comply with specialized wage and hour requirements, the San Francisco Board of Supervisors has now passed two ordinances aimed at providing wage and hour protections for employees of “formula retail establishments.”  These ordinances are collectively referred to as the Retail Workers’ Bill of Rights. These ordinances are effective January 4, 2015 but do not become operative until July 3, 2015.

The Retail Workers’ Bill of Rights applies to employers operating a Formula Retail Establishment with 20 or more employees in the city of San Francisco, including corporate officers and executives.  A “formula retail establishment” means a business located in San Francisco that falls under the San Francisco Planning Code’s definition of “formula retail use” (section 703.3) except that the business must have at least 20 retail sales establishments located worldwide.  Formula retail establishments are commonly referred to as “chain stores” and include, among other things, retail stores, chain restaurants, fast food restaurants, and bars.  Professional service establishments such as medical offices and/or salons/gyms are not considered formula retail establishments.

The Retail Workers’ Bill of Rights imposes five main requirements on employers:

  1. Advance Notice of Work Schedules and Changes:  Prior to the start of employment, an employer shall provide a new employee with a good faith written estimate of the employee’s expected minimum number of scheduled shifts per month, and the days and hours of those shifts (not including on-call shifts).  The employee may request a modification in the proposed schedule, which the employer is required to consider (but not required to accept) and respond to prior to the employee’s start of employment.  Post-hire, an employer is required to provide employees with at least two weeks’ notice of their work schedules, by doing one of the following at least every 14 days:  (1) posting the work schedule in a readily accessible location in the workplace; or (2) electronically transmitting the work schedule to employees.  The work schedule must include any on-call shifts.  If the employer thereafter changes an employee’s schedule, the employer must give the employee notice of the change, along with “predictability pay” of one hour of pay at the employee’s regular rate for a change with more than 24 hours’ notice but less than 7 days’ notice.  If the employer makes a change with less than 24 hours’ notice, the employer must pay the employee 2 hours of pay for each changed shift of four hours or less, and 4 hours of pay for each changed shift that is more than four hours.  Predictability pay does not apply to on-call shifts, which are separately addressed below.  Predictability pay is not required if the change is necessitated by certain acts beyond the employer’s control (electric outage, etc.) or if (a) another employee previously scheduled to work the shift is unable to work due to illness or use of PTO and did not give the employer at least 7 days’ notice of the absence; (b) another employee previously scheduled to work the shift fails to report to work and/or is fired or sent home as a disciplinary action; (c) the change results only from an employer request to an employee to work overtime; or (d) the employee requests and/or causes the change to his or her own schedule.
  2. Pay for On-Call Shifts:  For each on-call shift that an employee is required to be available but is not called in to work (with less than 24 hours’ notice that the shift has been cancelled or moved to another date or time), the employee must be paid 2 hours of pay (regular hourly rate) for each on-call shift of 4 hours or less, and 4 hours of pay for each on-call shift of more than 4 hours.  The same exceptions to the predictability pay requirements also apply to the on-call pay requirements.
  3. Equal Treatment for Part-Time Employees:  Employers are required to provide part-time employees (those working fewer than 35 hours per week) with the same starting hourly wage as that provided to full-time employees (those working 35 or more hours per week) holding comparable positions.  However, pay differentials are permissible if based on considerations other than the part-time status of the employee.  Employers are also required to provide part-time employees with the same access to paid and unpaid time off offered to full-time employees of the same job classification.  However, a part-time employee’s eligibility for paid or unpaid time off may be pro-rated based on the number of hours that the employee works.  Employers must also provide part-time employees with the same eligibility for promotions as full-time employees of the same job classification, though the employer may condition promotion on the employee’s availability for full-time work and/or on reasons other than the part-time status of the employee.  Finally, the new ordinances require that if an employer has a need for additional workers, before hiring new employees or using contractors or a temporary staffing agency to perform work, the employer must first offer the additional work to existing part-time employees if the existing employees are qualified to do the work and the work is the same or similar type of work the employee already performs.  The employer is only required to offer the part-time employee the number of hours required to give the employee 35 hours of work per week.
  4. Sale of Business:  If a covered retail establishment is sold, the successor is required to retain the seller’s non-managerial incumbent employees who have been employed for at least 90 days prior to the sale.  The successor employer must retain these incumbent employees for at least 90 days and under the same terms of employment already in place (rate of pay, job classification, and number of work hours).  If the successor employer determines that it needs fewer employees than were employed by the prior owner, the successor employer must retain incumbent employees based on seniority and/or the terms of any applicable collective bargaining agreement.  During the 90-day retention period, the successor employer may not discharge a retained employee without cause.
  5. Notice and Recordkeeping:  Covered employers will be required to post a notice of employees’ rights under these new ordinances.  The San Francisco Office of Labor Standards Enforcement (“OLSE”) will prepare and publish the required posters for employer use.  Employers are required to retain pertinent personnel records for three years and these records are subject to inspection by the OLSE.

The Retail Workers’ Bill of Rights provides for administrative investigation and enforcement by the OLSE.  Additionally, the City Attorney’s office may file civil actions against non-compliant employers.  Retail employers covered by these new ordinances should review them promptly and take action to ensure compliance before the operative date of the ordinances, which is July 3, 2015.  The text of the ordinances is available here and here

2015 Standard Mileage Rate Announced

Earlier this week, the IRS issued the 2015 optional standard mileage rates used to calculate the costs of operating a vehicle for business, charitable, medical or moving purposes.  Beginning on January 1, 2015, the standard mileage rates are as follows:

  • 57.5 cents per mile for business miles driven, up from 56 cents in 2014;
  • 23 cents per mile driven for medical or moving purposes, down half a cent from 2014; and
  • 14 cents per mile driven in service of charitable organizations.

Under California Labor Code section 2802, California employers are required to reimburse employees for reasonable expenses necessarily incurred in the performance of their job duties.  This includes expenses associated with the use of their personal vehicles for business purposes.  Most employers use the standard mileage rate to satisfy their obligation to reimburse employees for expenses associated with using their personal vehicles for business travel.  Although employers are not required to use the IRS optional standard mileage rate, and can instead try to calculate an employee's "actual" expense associated with personal vehicle use (which includes more than just the cost of gas, but also the cost of wear and tear, etc.), the latter method carries risk of being challenged for not providing adequate reimbursement.

NLRB Says Employees Have Right to Use Employer Email for Union Organizing Activities

Yesterday, the NLRB issued a controversial 3-2 decision (divided on partisan lines) in Purple Communications, holding that employees are entitled to use an employer's email system for activities covered by Section 7 of the National Labor Relations Act (NLRA).  Section 7 protects employees' right to engage in concerted activity for mutual aid and protection (including, but not limited to, union organizing activity).  The NLRB reasoned that in the modern workplace, electronic communications are the functional equivalent of yesterday's "water cooler" conversations. The NLRB held that employees "presumptively" have a right (during nonworking time) to use the employer's email system to communicate about Section 7-covered topics if the employer gives them access to the email system for business purposes.  

Can this ruling be circumvented by imposing a total ban on nonwork-related use of email (whether for Section 7 purposes or other personal, nonwork-related purposes)?  One would think so, but the NLRB addressed this and basically said no.  According to the NLRB, an employer may only impose a total ban on nonwork use of email (or some lesser restriction on nonwork use of email) if special circumstances make the ban necessary to maintain production or discipline (whatever that means, conveniently undefined).  

As noted above, the Purple Communications decision was decided on a partisan basis with three Democrats on the NLRB issuing the decision.  Two Republican members filed dissents, reasoning, among other things, that the majority's holding was an unwarranted intrusion on employers' property rights and interests.  Notably, the partisan decision overrules an earlier 2007 decision, Register Guard, that had been decided by a Republican majority and held that an employer does not have to allow its email system to be used by employees for Section 7 activities.

Stay tuned for likely appeals in this case.  In the meantime, employers should exercise caution in issuing any discipline and/or corrective restrictions based on employee use of email for Section 7-covered communications.  The Purple Communications decision is available here.  

Supreme Court Unanimously Rules That Security Screening Time Is Not Compensable

Today the U.S. Supreme Court issued its decision in Busk v. Integrity Staffing Solutions, Inc., unanimously holding that time warehouse employees spent waiting to go through security checks and undergoing those checks at the end of their shift was not compensable time.  The decision overrules a contrary conclusion that the Ninth Circuit Court of Appeals reached earlier in the case.

The employees at issue in Busk were hourly warehouse employees whose job was to retrieve products off shelves and package them for Amazon customers.  Their employer required them to undergo an anti-theft security check at the end of their shifts before allowing them to leave for the day.  During this process, employees had to remove items such as belts, keys, and phones from their persons and go through a metal detector.  The employees were not compensated for the time they spent waiting in line for the security checks and undergoing the checks, which they alleged took up to 25 minutes each day.  The employees filed a class action lawsuit seeking to recover unpaid wages for this time.  The trial court dismissed the employees’ claim, holding that the security check time was not compensable time under the Fair Labor Standards Act.  The employees appealed to the Ninth Circuit, which reversed the district court’s ruling and held that the employees could proceed with their claim because the security checks were required by the employer and if they actually took as much as 25 minutes per day, that time would not be de minimis but instead would be compensable under the FLSA.  The U.S. Supreme Court granted Integrity Staffing Solutions’ petition for review.

In reversing the Ninth Circuit’s decision and holding that the security check time was not compensable, the U.S. Supreme Court held that the claim was governed by the standards set forth in the Portal to Portal Act and the reasons that the Act was initially enacted.  The Portal to Portal Act was enacted after several court decisions came out interpreting the FLSA to broadly require payment for preliminary and postliminary activities (including a plaintiffs’ counsel fave – Anderson v. Mt. Clemens Pottery), which in turn resulted in a flood of litigation by employees seeking pay for such activities.  In response to these decisions expansively interpreting the FLSA, Congress enacted the Portal to Portal Act to define “work” that is compensable and activities that are not compensable under the FLSA.  The Portal to Portal Act thus expressly excludes the following activities from compensable time:

  1. Time spent walking, riding or traveling to and from the actual place of performance of the principal activity or activities which such employee is employed to perform; and
  2. Activities which are preliminary to or postliminary to said principal activity or activities which occur either prior to the time on any particular workday at which such employee commences, or subsequent to the time on any particular workday at which he ceases, such principal activity or activities.

The term “principal activity or activities” means activities that are an “integral and indispensable” part of the principal activities the employee is hired to perform.  Based on these definitions, the Court held that time Integrity Staffing’s employees spent undergoing security checks was non-compensable postliminary work.  The Court reasoned that end of shift security checks were not the employees’ principal activity because the employees were not employed to undergo security checks; rather, they were employed to retrieve products in the warehouse and package them for customers.  Furthermore, the security checks were not an “integral” or “indispensable” part of the employees’ packaging activities.  The security checks were not necessary in order for the employees to perform their packaging duties, and the mere fact that the employer required the screenings does not change the nature of the screenings as being separate from the employees’ principal activities.  Indeed, the employer hypothetically could eliminate the security check requirement and this would have no impact on the employees' ability to perform their principal activities, thus demonstrating that the security checks were not an integral or indispensable part of the employees' duties.  The Court contrasted this type of activity from different types of preliminary or postliminary activity that would be compensable under the FLSA, such as time an employee spent donning required protective gear needed to perform job duties or removing contaminated clothing at the end of a shift in order to safely leave the worksite. Finally, the Court held that the Ninth Circuit erred in focusing on whether the time was de minimis or not in assessing whether it was compensable under the FLSA.  The Court held that the Portal to Portal Act definitions focus on the nature of the activity and its relation to the employees’ principal activities – not on how much time the activity takes the employee to complete. 

The Busk v. Integrity Staffing Solutions decision is a great one for employers fighting wage and hour lawsuits based on unpaid preliminary and postliminary activities brought under the FLSA.  California employers are cautioned, however, that the Busk decision is based solely on the FLSA/Portal to Portal Act and is not an interpretation of California law.  California courts interpreting California’s Labor Code and Wage Orders have applied a much broader definition of compensable work time to include all time that an employee is subject to the control of the employer.  Thus, even though an employer may be able to defeat a claim for compensation for preliminary/postliminary work under the FLSA, the result may not be the same under California law.  Employers seeking guidance on whether preliminary or postliminary activities performed by California employees are compensable should consult California employment law counsel.

The Busk decision is available in full here.

California Court Complicates Determination of Independent Contractor Misclassification Claims

A decision earlier this month by a California Court of Appeal in Dynamex v. Superior Court greatly (and unnecessarily) complicates the determination of whether an employee is an independent contractor or an employee, and in some instances makes it extremely difficult for an employer to defeat class certification of an independent contractor misclassification claim. 

The plaintiff in the case was a delivery driver for Dynamex, a nationwide courier and delivery service.  Dynamex used to classify its drivers as employees, but in 2004 Dynamex converted its drivers to independent contractor status.  One driver thanked Dynamex with a lawsuit alleging that the reclassification to independent contractor status violated California law.  The plaintiff, who sought to represent a class of about 1,800 Dynamex drivers, alleged that due to their improper independent contractor classification, they were unlawfully denied overtime compensation and expense reimbursement.  The trial court ultimately certified a class.  Dynamex later sought to have the class decertified, arguing that the trial court applied the wrong legal standard for determining whether common issues predominated on liability.  The trial court applied the definitions of “employ” and “employer” found in the applicable IWC wage order (Wage Order No. 9, applicable to the transportation industry).  That wage order defines “employ” as “to engage, suffer, or permit to work,” and defines “employer” as any person “who directly or indirectly, or through an agent or any other person, employs or exercises control over the wages, hours, or working conditions of any person.”  Applying these definitions, the trial court concluded that determining whether the drivers were “employees” (as opposed to independent contractors) within the meaning of the wage order could be determined based on common proof and would not require numerous individualized inquiries.  As such, the trial court concluded that class certification was proper. 

Dynamex sought to have the court of appeal decertify the class, arguing that the trial court applied the wrong test for determining whether a worker is an employee or an independent contractor.  Dynamex argued that the multi-factor test set forth by the California Supreme Court in S.G. Borello & Sons v. Dep’t of Indus. Relations, 48 Cal.3d 341 (1989), applied and that under this test, liability could not be established based on common proof, but instead would require individualized inquiries concerning the degree of control Dynamex exercised over any individual driver, along with other individualized inquiries relevant to the Borello factors. 

The court of appeal agreed with Dynamex – well, sort of.  With highly questionable reasoning, the court essentially held that the test for independent contractor vs. employee status varies, depending on what wage and hour violation is being alleged.  Thus, if a worker is alleging that the employer violated a provision of an applicable wage order, then the wage order definitions of “employer” and “employ” apply to determine whether the worker is an employee.  However, if the worker is alleging wage and hour violations that are not based on violation of a wage order but rather on some other provision of law (e.g. a Labor Code requirement that is not also set forth in the wage order), then Borello’s multi-factor common law test for employee/independent contractor status applies.  Thus, the court looked at the claims alleged by the drivers against Dynamex and held that to the extent the claims were based on violations of the wage order (e.g. the overtime claim), the trial court had properly applied the definitions of “employ” and “employer” set forth in the wage order to grant class certification.  However, the court held that to the extent the drivers’ other claims did not fall under the wage order, the trial court would need to reconsider whether class certification was appropriate based on application of the Borello test.  More specifically, the court explained that the wage order expressly covers expense reimbursement of certain types of expenses (e.g. tools, uniforms), but may not cover all of the types of expenses for which the driver class was seeking reimbursement (e.g. rental or purchase of personal vehicles).  On remand, the trial court will have to consider which of the expense claims are for expenses covered by the wage order and which are not, and for claims that fall outside the wage order the trial court will have to re-assess the propriety of class certification using the multi-factor Borello test.

The Dynamex decision is a bad one for employers defending class claims for independent contractor misclassification for two important reasons.  First, as a practical matter, application of the wage order definitions of “employ” and “employer” makes it virtually impossible for an employer to prevail in establishing that a worker is an independent contractor because all workers are "engaged" and "permitted to work" which makes the hiring entity an "employer" under the wage order, as interpreted by the Dynamex court.  Second, the Dynamex decision makes it much easier for a class to be certified in an independent contractor misclassification case because the wage order definitions of "employ" and "employer" are much more susceptible to common proof than the Borello factors.  For these reasons, the decision magnifies the risk of classifying workers as independent contractors in California.  In this author’s opinion, the Dynamex decision is questionable because it relies predominantly on caselaw applying the wage order definitions to determine whether an third party could be held liable for wage and hour violations as a “joint employer.”  Joint employer analysis has nothing to do with independent contractor classification analysis.  It seems likely that this issue will end up before the California Supreme Court.  In the meantime, however, California employers should tread cautiously and carefully in classifying workers as independent contractors because the court decision trend in this area has been largely unfavorable for employers -- with several recently publicized cases finding employers liable for misclassification of workers as independent contractors and now the Dynamex court holding that an "employee" includes any worker "engaged" or "suffered or permitted" to work.

California Enacts New Laws Attacking Arbitration and Arbitration Agreements

On the last day to sign or veto bills this legislative session, California’s Governor signed into law two bills clearly aimed at attacking and limiting arbitration and arbitration agreements in California.  The first, AB 2617, prohibits mandatory, pre-dispute arbitration agreements in contracts for the provision of goods or services, to the extent an individual is required to waive the right to bring a civil action for violation of civil rights relating to hate crimes or political activity.  The statute does not expressly state that it applies to employment arbitration agreements and is instead specifically tied to the Ralph Civil Rights Act (Civil Code section 51.7), which prohibits violence or threat of violence against a person because of a person’s protected characteristics (e.g. political affiliation, sex, race, color, religion, marital status, etc.), and the Bane Civil Rights Act (Civil Code section 52.1), which prohibits interference by intimidation or coercion with a person’s constitutional or statutory rights.  The new law prohibits a person or business entity from requiring an individual to waive the rights provided by these statutes, including the right to pursue a civil action for a violation of these statutes.  The new law applies to contracts entered into, modified, renewed or extended on or after January 1, 2015.  Any person seeking to enforce an arbitration provision waiving the right to bring a civil action under these statutes will bear the burden of proving that the waiver was entered into knowingly and voluntarily and not as a condition of the contract or of providing or receiving the goods or services.

Although the new law is tied specifically to hate crime statutes, there is some potential for the law to impact arbitration agreements in the employment arena.  In some instances, courts have held that certain types of employment discrimination and harassment claims may also constitute hate crimes within the meaning of Civil Code sections 51.7 and 52.1.  These statutes are very broadly and poorly worded, leaving some room for differing interpretations by courts.  The new law may also be held to apply to arbitration provisions in independent contractor agreements.  

While the scope of the new law and its impact is far from clear, it does seem clear that the new law is contrary to the Federal Arbitration Act and would be deemed preempted as to agreements governed by the FAA.  There almost certainly will be many legal challenges to the legality of this new law.

Also in an effort to decrease the attractiveness of arbitration as a forum for dispute resolution, Governor Brown signed into law AB 802, which requires major arbitration providers such as JAMS and AAA to publish at least quarterly on their websites (beginning in January 2015) detailed information concerning arbitrations they have handled, including (1) the name of any non-consumer party involved in the arbitration (i.e. the name of the employer), (2) the nature of the dispute (e.g. employment), (3) where the non-consumer party is an employer, whether the employer was the initiating or responding party, (4) the annual wage (in a range) earned by the involved employee, (5) the amount of the claim, which party prevailed, and the amount of any award, including attorneys’ fees, (6) whether the employee was represented by an attorney and, if so, the name of the attorney and the law firm, (7) the name of the arbitrator and the amount of the arbitrator’s fees, and (8) the total number of times the employer previously has been a party in arbitration or mediation before the dispute resolution provider.  This new law has the obvious (and likely intended) effect of destroying the usual benefit of privacy that arbitration and mediation provide.

We will keep you posted as to further developments in this area. 

New California Law Makes Companies Liable for Wage Violations of Contractors

Yesterday, California’s Governor signed AB 1897 into law, notwithstanding tremendous opposition from business and trade groups.  Under AB 1897, which takes effect January 1, 2015, a client employer will share civil legal responsibility and civil liability for all workers supplied by a labor contractor for the payment of wages and the failure to obtain valid workers’ compensation coverage.  A “client employer” means a business entity that obtains or is provided workers to perform labor within its usual course of business from a labor contractor.  However, it does not include business entities with a workforce of less than 25 workers (including those hired directly by the client employer and those provided by a labor contractor) or businesses with five or fewer workers supplied by a labor contractor at any given time.

The new law makes the client employer jointly liable with the labor contractor for civil liability relating to the payment of wages and/or failure to provide workers’ compensation coverage.  However, the statute expressly permits client employers to include indemnification provisions in their service contracts and to enforce those provisions as a remedy against the labor contractor for liability created by acts of the labor contractor.  Labor contractors may also contractually agree to indemnity provisions in their favor for acts on the part of the client employer that lead to liability.  The statute sets forth one exception to the ability of the parties to shift liabilities by contract – a client employer may not shift to the labor contractor any legal duties or liabilities under Cal-OSHA.

Under the new law, a worker or his representative must notify the client employer of violations at least 30 days prior to filing a civil action against the client employer.  Of course, the new law also prohibits client employers or labor contractors from taking adverse action against a worker for providing notifications of violations or filing a claim or civil action.

Looks like Christmas came early for the plaintiffs' bar, which will now have more potential pockets to pick in wage and hour actions filed against California employers.

California Expands Mandated Sexual Harassment Training to Include Workplace Bullying

Since 2005, California has required employers with 50 or more employees to conduct sexual harassment training of supervisors within 6 months of assuming a supervisory position and biennially thereafter.  Last week, Governor Brown signed AB 2053 into law, expanding the mandated content of this training to include training on prevention of “abusive conduct.”  The statute defines "abusive conduct” as conduct of an employer or employee in the workplace, with malice, that a reasonable person would find hostile, offensive, and unrelated to an employer’s legitimate business interests.  The statute further provides that abusive conduct may include repeated infliction of verbal abuse, such as the use of derogatory remarks, insults, and epithets, verbal or physical conduct that a reasonable person would find threatening, intimidating, or humiliating, or the gratuitous sabotage or undermining of a person’s work performance.  However, “a single act shall not constitute abusive conduct, unless especially severe and egregious.” 

The new law does not further specify the content of the training on prevention of abusive conduct, nor does it mandate that any specific amount of time be allotted to this topic within the 2-hour sexual harassment training.  The new law takes effect January 1, 2015.  Employers covered by California’s training requirement should review and revise their training materials to ensure that prevention of abusive conduct is covered. 

To be clear, this new training requirement does not create a private right of action by an employee against the employer to seek damages for workplace bullying.  It is a training requirement only.  That said, if an employee is “bullied” because of a characteristic protected under California’s Fair Employment and Housing Act (e.g. race, gender, religion, disability, age), the employee could bring a claim for harassment or discrimination under that law.  Additionally, even if bullying is not directed at an employee because of a protected characteristic, it is still possible for a bullied employee to pursue a claim for intentional infliction of emotional distress.  For these reasons, employers (regardless of whether they are covered by the new training requirement) may wish to include language in their employee handbooks making it a violation of company policy for employees to engage in workplace bullying/abusive conduct toward other employees.  Employers should also take workplace complaints of abusive conduct/bullying seriously by conducting prompt investigations and taking appropriate remedial action. 

California Employers Must Provide Paid Sick Leave Starting Next Year

As expected, yesterday Governor Brown signed the paid sick leave bill (AB 1522) into law, making California the second state to mandate that employers provide paid sick leave to their employees (Connecticut was the first).  This means that starting in July 2015, California employers generally will have to provide their employees with at least 3 paid sick leave days per year.  Our recent post on the bill is available here.  California employers who already provide paid sick leave to their employees will want to review their policies against the requirements of the new law to ensure compliance.  Employers who currently do not provide paid sick leave will want to review the new law and adopt a compliant sick leave policy.      

Employment-Related Bills Pending Signature By California Governor

The California Legislature has passed the following notable labor and employment bills, which are now awaiting approval or veto by Governor Brown:

AB 1897 – This bill would expand liability for a contractor’s wage and hour violations to make the hirer of the contractor jointly liable for the contractor’s wage and hour violations.  The bill applies to businesses that obtain workers from labor contractors but excludes businesses that have less than 25 workers (including those obtained from a labor contractor) as well as businesses that have less than 5 workers supplied by a labor contractor at any given time.  The bill excludes certain employee leasing entities and also excludes workers who are exempt from overtime under California laws. 

AB 1522 – This bill would mandate that private California employers provide paid sick leave for employees, beginning in July 2015.  If the bill is signed into law, most employees will be entitled to one hour of paid sick leave for every 30 hours worked.  Employees will be able to use sick leave for their own illness or for preventive care, to care for a sick family member, and/or to recover from certain crimes.  Employers will be able to cap annual sick leave use at 3 days (24 hours) per year, however unused, accrued sick leave will roll over from year to year (this rollover can be capped at no less than 6 days (48 hours).  Employers will be able to set a minimum increment for use of sick leave, but the minimum increment cannot be greater than 2 hours.  Employees will not be entitled to pay for unused sick leave at the time of separation of employment.  Employers will be required to provide notice to employees of their accrued sick leave on their itemized wage statements or on a separate document provided at the same time as wages.  Employers will also be required to post a paid sick leave poster to be prepared by the Labor Commissioner’s office.  The bill also prohibits retaliation against an employee for using sick leave and establishes a rebuttable presumption of such retaliation if adverse action is taken against an employee within 30 days after the employee’s use of sick leave.  Employees covered by collective bargaining agreements with paid sick leave provisions and other enumerated criteria will be exempted from the new law.  Employers that already have paid sick leave policies that comply with at least the minimum leave rights provided under the bill will not be required to provide additional leave.

In addition to the foregoing, Governor Brown already signed into law AB 2074, which increases employer liability in actions alleging the employer paid the employee less than the minimum wage.  Under AB 2074, employees will now be able to recover liquidated damages for violations going back three years (4 years under the Unfair Competition Law).

If there is any positive news for California employers, it is that AB 2416 was not passed by the Legislature.  AB 2416 would have provided a procedure for an employee with a wage claim against his or her employer to record a lien against the employer’s real and personal property in the state.

Governor Brown has until September 30 to sign or veto the bills pending before him.  Employers who wish to voice opposition should direct comments to the Governor’s office.

Federal District Court in California Rules That Iskanian Is Wrong and That PAGA Representative Action Waivers Are Enforceable

Earlier this summer, the California Supreme Court ruled in Iskanian v. CLS that while class action waivers in employment arbitration agreements are enforceable, similar waivers of the right to bring a representative action under PAGA are not enforceable.  The Court reasoned that preventing a representative action under PAGA is contrary to California public policy because it undermines the state’s interest in fully penalizing employers who violate labor laws.  The Iskanian Court ruled that California’s public policy was not preempted by the Federal Arbitration Act (“FAA”) because the FAA only applies to arbitration of private disputes and a PAGA plaintiff represents the interests of the state, not himself, such that the claim isn’t really a private dispute between an employee and his employer but rather a dispute between the state of California and a private employer.  The Court held that the FAA does not apply to disputes between a state agency and a private employer.  This reasoning is a stretch in this author’s opinion.  At least one (so far) federal district court in California apparently agrees, having chosen not to follow Iskanian.  In Fardig v. Hobby Lobby, a wage and hour putative class action, a Central District judge granted the employer’s motion to compel arbitration, rejecting the plaintiffs’ argument that a PAGA representative action waiver in the arbitration agreement was unenforceable.  The court held that FAA preemption is an issue of federal law and that federal courts are not bound by the California Supreme Court’s opinion that the FAA does not preempt California public policy with respect to PAGA representative action waivers.  The court went on to hold that it disagreed with Iskanian and that a PAGA claim filed by an employee is a dispute between the employee and his employer, not between the state of California and the employer.  As such, the district court held that the FAA applied and preempted any California public policy weighing against enforceability of a PAGA representative action waiver.  This means that the individual plaintiffs will now have to litigate their individual wage claims in private arbitration and do not have the right to pursue any class or representative PAGA claims in any forum.

The Fardig v. Hobby Lobby decision (August 11, 2014, Central District Case No. SACV 14-00561 JVS) is a favorable development for California employers as it demonstrates that there is some continued viability of PAGA representative action waivers in employment arbitration agreements, notwithstanding Iskanian.  Employers should also note that the parties is Iskanian have until late September to petition for review of the decision by the United States Supreme Court.  If that happens, it is quite possible that the Supreme Court will reverse the PAGA portion of the Iskanian opinion.  Even if review is not sought (or is sought but denied), employers facing the issue of enforceability of a PAGA representative action waiver should remove California state court cases to federal court wherever possible.

New Case Highlights Duty to Reimburse Employees for Using Personal Cell Phones for Work Purposes

Last week a California Court of Appeal held that class certification was appropriate in a case alleging that the employer failed to reimburse employees for expenses associated with using their personal cell phones for work calls.  At the trial court level, the employer successfully opposed class certification, arguing that liability could not be established on a class wide basis because it required individualized inquiry regarding whether an employee purchased a plan over and above what he normally would have had for purely personal use, and/or whether the employee incurred charges over and above his personal plan.  The employer also argued that if someone other than the employee paid the employee’s cell phone bill, the employee would not have standing to pursue a claim for relief and this also created individualized issues.  In addition to the individualized issues bearing on liability under Labor Code section 2802, the employer also successfully argued that damages would be highly individualized.  The trial court denied class certification based on the predominance of individualized issues.

The Court of Appeal reversed, holding that the trial court abused its discretion in denying class certification.  The Court of Appeal held that the trial court relied on the wrong standard for liability for a reimbursement claim under Labor Code section 2802.  According to the Court of Appeal, all that is required to prove liability under Labor Code section 2802 is that the employee necessarily incurred expenses in the course of his job duties.  The employee does not need to prove that he incurred expenses over and above what he would have incurred absent the job, nor does he have to prove that he actually paid his cell phone bill.  The court held that if the rule were otherwise, the employer would receive a windfall by being able to pass on some of its operating expenses to employees.  Thus, the court held that to be in compliance with Labor Code section 2802, “the employer must pay some reasonable percentage of the employee’s cell phone bill” if the employee uses a personal cell phone for work purposes.  In other words, "reimbursement is always required."  The court did not define what a “reasonable percentage” is, but instead held that “the calculation of reimbursement must be left to the parties and the court in each particular case.”

Based on its interpretation of the standard for liability under Labor Code section 2802, the Court of Appeal held that a class should have been certified because liability could be determined on a class wide basis and did not depend on adjudication of numerous individualized issues.  The court acknowledged that damages issues were “more complicated” (i.e. individualized) but held that individualized damage issues do not defeat class certification and that the trial court could employ statistical sampling to calculate damages under the standards set forth by the California Supreme Court in Duran v. U.S. Bank.

The case is Cochran v. Schwan Home Service, Inc. and is available here.  Employers that have employees using personal cell phones for business calls should review their expense reimbursement policies to ensure that these employees are reasonably compensated for the expense of making business calls on their personal devices.

California Supreme Court Narrows Commissioned Salesperson Exemption

Last week the California Supreme Court continued its trend of issuing employee-friendly decisions, this time in a case involving the commissioned salesperson exemption.  In Peabody v. Time Warner Cable, the plaintiff was a commissioned salesperson who sold advertising spots for Time Warner Cable.  She was classified as exempt from overtime under California's commissioned salesperson exemption, which applies to a sales employee whose earnings exceed at least one and one-half times the minimum wage if more than half of those earnings represent commissions.  Time Warner paid plaintiff her regular wages on a biweekly basis, but only paid her commission wages once per month.  Thus, at least one paycheck per month was comprised only of base hourly pay and did not reflect earnings exceeding more than one and one-half times the minimum wage.  However, the monthly commission check, which represented commissions earned for a monthly period (not just for a bi-weekly period), brought the employee's wages for the month to more than one and one-half times the minimum wage.

Plaintiff sued, arguing that she was not properly paid overtime wages for hours worked in excess of eight per day or forty per week.  The trial court granted summary judgment for Time Warner, agreeing with Time Warner that it properly paid plaintiff under the commissioned salesperson exemption and that plaintiff was not entitled to additional overtime compensation.  Plaintiff appealed to the Ninth Circuit, which certified a question to the California Supreme Court concerning whether an employer could properly allocate commission wages over the pay periods in which they were "earned," or whether the commission wages could only be attributed to the pay period in which they were actually paid.  The California Supreme Court said the latter.

In so holding, the California Supreme Court reasoned that California overtime exemptions are narrowly construed and must be interpreted in favor of the employee and against the employer.  The Court's holding certainly accomplishes that.  The Court acknowledged that California law permits commission wages to be paid less frequently than regular wages and that monthly, or even less frequent, payment of commission wages is permissible (given that commission wages often are not "earned" until certain conditions are satisifed and are not calculable with the same frequency as the regular payroll schedule).  However, the Court reasoned that just because California law allows less frequent payment of commission wages that aren't "earned" every pay period does not mean that an employer can use a monthly or less frequent schedule to pay commission wages that are earned.  The Court reasoned that California law requires that all wages earned for work performed generally be paid no less frequently than twice per month.  Time Warner was arguing that it could allocate commission wages to the pay periods in which they were "earned," but the Court said that permitting this would be tantamount to authorizing monthly pay periods for wages earned.  Because monthly pay periods are not authorized by the California Labor Code, the Court held that Time Warner had not properly paid the plaintiff and she did not qualify for the commissioned salesperson exemption.

The Court acknowledged that Time Warner's pay system was proper under the federal commissioned salesperson exemption, but declined to find it proper under California law because California law, unlike federal law, requires at least semi-monthly pay periods.

The California Supreme Court's decision makes it much more difficult for employers to satisfy the commissioned salesperson exemption under California law.  Employers that look back and allocate commission wages over the pay periods in which they were "earned" as a means of ensuring that the employee's pay is at least one and one-half times the minimum wage, should revise their practices in light of this decision.

California Supreme Court Eases Path to Class Certification in Independent Contractor Misclassification Cases

Yesterday the California Supreme Court issued its decision in Ayala v. Antelope Valley Newspapers, holding that the trial court erred in denying class certification to a group of newspaper carriers who worked as independent contractors for Antelope Valley Newspapers and later sued the newspaper for wage and hour violations on the basis that they should have been classified as employees.  The Court held that the trial court focused on the wrong legal criteria in denying class certification and that the matter had to be remanded for the trial court to re-assess class certification using proper criteria.  In denying class certification, the trial court held that the issue of whether the carriers were employees or independent contractors could not be decided in one stroke as to the entire class because the evidence showed substantial variation in the degree of control the newspaper exercised over its carriers’ work, and the issue of degree of control is the primary factor in assessing whether a worker is an independent contractor or an employee.

The California Supreme Court held that the trial court erroneously focused on variation in the level of control actually exercised by the newspaper, rather than on whether the newspaper uniformly retained the right to control the carriers’ work.  The Court emphasized that the key issue is whether the hirer has the right to control the work, not whether the hirer actually exercises that right.  The Court explained that evidence of whether the hirer retains the right of control typically is found in the contract between the hirer and the worker.  In this case, the newspaper used largely the same form independent contractor agreement for all of its carriers.  The Court stated that the trial court “afforded only cursory attention” to the parties’ agreement, when it should have focused on the agreement as the starting point for its analysis.  Rather than outright saying that if a hirer uniformly uses the same agreement for all of its workers, the issue of right to control can always be decided on a class wide basis, the Court reserved some room for trial courts to look to the parties’ “course of conduct” (and beyond just the agreement).

“While any written contract is a necessary starting point, [ ] the rights spelled out in a contract may not be conclusive if other evidence demonstrates a practical allocation of rights at odds with the written terms.  In deciding whether claims that hinge on common law employee status are certifiable, then, a court appropriately may consider what control is ‘necessary’ given the nature of the work, whether evidence of the parties’ course of conduct will be required to evaluate whether such control was retained, and whether that course of conduct is susceptible to common proof – i.e. whether evidence of the parties’ conduct indicates similar retained rights vis-à-vis each hiree, or suggests variable rights, such that individual proof would need to be managed.”

The Court directed that on remand, the trial court would need to assess whether the newspaper, notwithstanding the form contract it entered with all carriers, actually had different rights with respect to each that would necessitate mini-trials.  The Court briefly addressed the fact that the test for determining whether a worker is an independent contractor or an employee depends not only on the right of control, but also on numerous secondary factors (method of payment, who supplies the tools and equipment, place of work, etc.).  The Court minimized the significance of the secondary factors and of evidence of individualized variation bearing on those factors, reasoning that variation in one or more secondary factors may not impact class certification if the factor is not a heavy one in the analysis compared to the other factors.

The Court’s decision and reasoning makes class certification more likely in independent contractor misclassification cases is likely to fuel more of this litigation.  This is because many companies use form independent contractor agreements and these agreements often spell out the “right to control” retained by the company.  The full decision is available here.

Supreme Court Rules That Obama’s 2012 Recess Appointments to the NLRB Are Invalid

Today the United States Supreme Court issued its decision in NLRB v. Noel Canning, voiding President Obama’s 2012 recess appointments to the NLRB on the ground that the appointments exceeded the President’s constitutional authority.  In so holding, the Court affirmed the D.C. Circuit Court of Appeal’s decision last year in the case.  However, the Court did not agree with the D.C. Circuit Court’s reasoning.  The D.C. Circuit Court had held that the recess appointments were invalid because the Senate was not actually in “recess” at the time and that the recess appointment power only applies to inter-session recesses, and then, only to vacancies that arise during such a recess (as opposed to vacancies existing at the time the recess commences).  By contrast, the Supreme Court held that the recess appointment power applies both to inter-session and intra-session recesses and is not limited to vacancies that arise during a recess.  However, the Court held that the recess must be of a sufficient length to trigger the recess appointment power.  The Court held that the break in the legislative session must be at least 10 or more days in order for recess appointments to be authorized.  In the case of the 2012 NLRB recess appointments, the appointments were made during a period when the Senate was convening every three days for pro forma sessions when no business was actually conducted.  The Court held:  “Three days is too short a time to bring a recess within the scope of the clause.  Thus we conclude that the president lacked the power to make the recess appointments here at issue.”

The Court’s voiding of the NLRB appointments invalidates many NLRB decisions and actions in which the 2012 recess appointees participated.  It is unclear how the NLRB with proceed as to the many affected matters.  However, NLRB Chairman Mark Gaston Pearce issued the following statement today:

“The Supreme Court has today decided the Noel Canning case.  We are analyzing the impact that the Court’s decision has on Board cases in which the January 2012 recess appointees participated.  Today, the National Labor Relations Board has a full contingent of five Senate-confirmed members who are prepared to fulfill our responsibility to enforce the National Labor Relations Act.  The Agency is committed to resolving any cases affected by today’s decision as expeditiously as possible.”

The Court’s full opinion in Noel Canning is available here.

California Supreme Court Holds, Contrary to Federal Law, That Unauthorized Workers Can Recover Back Pay Even for the Post-Termination Time Period When They Did Not Perform Work and Could Not Legally Earn Wages

Today the California Supreme Court issued its decision in Salas v. Sierra Chemical Co., holding that an employee who fraudulently obtained employment through use of someone else’s social security number, may still pursue employment discrimination claims stemming from termination and recover damages against the employer, including post-termination back pay for the period when the employee was not authorized to work and did not actually perform work.  The Court held that federal immigration law does not preempt this result.

Salas applied for employment with Sierra Chemical in 2003 and was hired.  In compliance with its legal obligations, Sierra Chemical required Salas to complete an I-9 form as well as a W-4.  Salas completed these forms by providing a resident alien card and a social security card.  From 2003 to 2005, Salas was subject to seasonal layoffs on a few occasions, but was later recalled to work.  Each time he was recalled to work, Salas provided the same social security number he had provided upon hire.  In 2006, Salas injured his back in the course of his work.  He sought medical treatment and returned to work with temporary modified work restrictions, with Sierra Chemical accommodated.  A few months later, Salas was released to full duty.

Later the same year, Salas injured his back again and filed a workers’ compensation claim.  He performed modified duties, which Sierra Chemical accommodated, until the winter of 2006, when he was subject to another seasonal layoff along with Sierra Chemical’s other production workers.  In May 2007, Sierra Chemical notified Salas and other production workers that it was recalling them for work and directing them to make arrangements to return to work.  Salas’ supervisor told Salas to also bring a doctor’s note indicating he was released to return to work.  Salas contacted his supervisor and told him that he had not been released to return to full duty but that he had an appointment in June to obtain the release.  Salas’ supervisor agreed to hold his job open for him until that time.  Salas’ supervisor never heard from him again.

In August 2007, Salas sued Sierra Chemical, alleging claims for failure to accommodate a disability in violation of FEHA, and for unlawful refusal to rehire him in retaliation for filing a workers’ compensation claim.  Salas sought lost wages, emotional distress damages, punitive damages, and attorneys’ fees.  Two years into the litigation, Sierra Chemical learned that Salas had falsified his employment eligibility documentation and that he was not authorized to work in the United States.  Sierra Chemical filed a motion for summary judgment, arguing that it was entitled to judgment as a matter of law on Salas’ claims based on the doctrines of after-acquired evidence and unclean hands.  The trial court denied Sierra Chemical’s motion, but was then directed by the court of appeal (by writ of mandate) to grant the motion.  After judgment was entered for Sierra Chemical, Salas appealed.  The court of appeal again held that Salas’ claims were barred by the doctrines of after-acquired evidence and unclean hands and affirmed the judgment in favor of Sierra Chemical.  The California Supreme Court granted review and reversed the judgment in favor of Sierra Chemical, holding that the doctrines of after-acquired evidence and unclean hands did not operate to completely bar Salas’ claims.

The Court (in an opinion authored by Justice Kennard and joined by Justices Cantil-Sakauye, Werdegar, Corrigan, and Liu) held that the doctrines of after-acquired evidence and unclean hands may operate to reduce an employee’s damages and/or preclude reinstatement, but that they are not a complete defense to an employee’s claims.  The court held that where lost wage damages are at issue, these doctrines generally preclude recovery of lost wage damages from the point of the employer’s discovery of the employee’s misconduct forward, but that the doctrines do not bar recovery of damages for the period of time prior to the employer’s discovery of the information.  In the case of an employee who is fired and later sues, and during the litigation the employer discovers that the employee fraudulently obtained employment through use of someone else’s social security number, the employee would still be entitled to recover lost wages for the time period from termination until the employer discovered the fraud (typically years later during the litigation process).  In other words, the employee who wasn’t even authorized to hold employment in the first instance and did not perform any work for the employer during the post-termination time period could still recover lost wages for being denied employment during that time period.  Really?

Employers shaking their heads have good reason to do so.  The United States Supreme Court does not seem to agree with the result reached today by the California Supreme Court.  Indeed, in 2002, in Hoffman Plastic Compounds, Inc. v. NLRB, 535 U.S. 137, the United States Supreme Court held that a worker who fraudulently obtained employment in violation of immigration laws was not entitled to backpay from the period of time from termination through the employer’s discovery of the fraud.  Reversing an award of backpay to an employee for a four and one-half period of time from his termination through his employer’s discovery of his undocumented status, the Court held that “awarding backpay to illegal aliens runs counter to policies underlying” the Immigration Reform and Control Act of 1986, and that it was improper to “award backpay to an illegal alien for years of work not performed, for wages that could not lawfully have been earned, and for a job obtained in the first instance by criminal fraud.”  Makes sense, right?  The California Supreme Court apparently does not think so.  In an effort to get around Hoffman Plastics, the California Supreme Court held that Hoffman Plastics did not apply because it dealt with NLRB proceedings and that somehow made it materially different.  The Court held that because this case involves California law and, more specifically, discrimination claims brought under FEHA, there are different public policy considerations at issue.  The Court also emphasized the fact that in 2002, the California legislature, which also did not like the Hoffman Plastics decision, enacted a state law specifically designed to render Hoffman Plastics inapplicable to state law employment claims.  That 2002 California state law specifically provided that all state-provided worker protections, rights, and remedies (except reinstatement prohibited by federal law) were equally available and applicable to all individuals regardless of immigration status.

Hmmm.  Doesn’t federal immigration law preempt state laws to the contrary?  Not so, according to today’s California Supreme Court ruling.  The Court held that there was no direct conflict between federal immigration law and California law permitting unauthorized workers to recover lost wages for a period of time when the employer did not know of the employee’s fraud and unauthorized status.  The Court also held that California law was not in conflict with the policy and purpose of federal immigration law.  According to the Court:

“Even if permitting [unauthorized aliens who have used false documents to secure employment] to obtain state remedies for violations of the state labor and employment laws provides an incentive for such federal law violations, the practical effect of such incentive is minimal because the typical unauthorized alien wage earner is not familiar with the state law remedies available for unlawful termination and because job seekers rarely contemplate being terminated in violation of the law.  Thus, it is highly unlikely that an unauthorized alien’s decision to seek employment in this country would be based in any significant part on the availability of lost wages as a remedy for unlawful discharge. . . . Furthermore, not allowing unauthorized workers to obtain state remedies for unlawful discharge, including prediscovery period lost wages, would effectively immunize employers that, in violation of fundamental state policy, discriminate against their workers on grounds such as disability or race, retaliate against workers who seek compensation for disabling workplace injuries, or fail to pay the wages that state law requires.”

Based on this and other reasoning, the California Supreme Court held that California’s 2002 law and its holding were not preempted by federal immigration law.

In sum, the California Supreme Court held that a worker who fraudulently obtains employment through false immigration documents and is later terminated for reasons unrelated to the employee’s fraud may pursue claims for employment discrimination and that those claims are not completely barred by the employee’s fraudulent conduct.  The employee loses the right to reinstatement as a remedy if the employee was not actually authorized to work in the United States in the first place and also loses the right to recover lost wages for any time AFTER the employer discovers the employee’s fraud.  However, the employee can still recover lost wages from the time of termination until the time the employer discovers the fraud, even though the employee was not authorized to work and did not actually perform any work for the employer during that time period.  Of course, the employee can also still seek emotional distress damages, punitive damages, and attorneys’ fees as well.

Justice Baxter, joined by Justice Chin, dissented from the majority’s holding, stating that in their view, Hoffman Plastics and federal immigration law preempt and preclude a state law award of back pay during the time period from an employee’s termination through the employer’s discovery of the fraudulent conduct.  Perhaps Sierra Chemical will seek review by the United States Supreme Court.  Stay tuned.  Today’s decision is available in full here.

Administration of FMLA Leave for Same-Sex Spouses Gets Easier Under Proposed Rule

The Department of Labor (“DOL”) has announced a notice of proposed rulemaking to revise the definition of “spouse” under the FMLA to make it clear that the FMLA applies to legally married same-sex spouses, regardless of where they live.  Before last year, the FMLA applied only to opposite sex spouses.  Last year, the United States Supreme Court issued its decision in United States v. Windsor, holding that federal laws that discriminate against same-sex married couples are unconstitutional.  As a result of the Windsor decision, the FMLA’s provisions allowing family and medical leave to care for a “spouse” became applicable not only to opposite-sex spouses but also to same-sex spouses – so long as the employee requesting leave resides in a state that recognizes same-sex marriage.  This is because the FMLA currently defines “spouse” in a way that is tied to the law of the state where the employee resides.  The problem with the current spousal definition is that many states still do not recognize same-sex marriage, and even if an employee was married in a state that does recognize same-sex marriage, he or she technically is not eligible for FMLA leave (to care for a spouse) if currently living in a state that does not recognize same-sex marriage.  This has resulted in administration difficulties for employers, many of whom would prefer not to have to engage in an inquiry about whether the employee resides in a state that recognizes same-sex marriage in order to determine whether to allow the employee leave.  However, employers who have decided that they will provide the same leave benefits to same-sex spouses regardless of the state in which they reside, run the risk of deducting from an employee’s FMLA leave bank if the employee actually resides in a state that does not recognize same-sex marriage.  Because the FMLA technically does not apply to spousal leave for that employee, any leave allowed should not be deducted from the employee’s FMLA leave bank.  If the leave was deducted and the employee improperly was deemed to have exhausted all available leave only to later be denied leave that did fall under the FMLA, the employer could face liability for wrongful denial of FMLA leave.

The proposed amendment to the FMLA’s “spouse” definition eliminates this problem.  Under the proposed rule, “spouse” would be defined to include individuals legally married in any state (including common law marriage where recognized under the law of the state).  The definition would also extend to individuals validly married abroad if the individuals could have been legally married in any U.S. state.

The proposed rule has not yet been published in the Federal Register.  Once it is, it will be subject to a public comment period and approval process before it is actually approved and implemented.  We will keep you posted of developments in this regard.  Employers covered by the FMLA will want to follow these developments and, once the rule is finalized, revise their FMLA policies and practices to ensure that their FMLA administration practices are in compliance with the new rule.  The DOL’s notice of proposed rulemaking is available here.  Additional information, including answers to frequently asked questions, are available here and on the DOL’s website.

Ninth Circuit Further Weighs In on Class Waivers in Employment Arbitration Agreements

The California Supreme Court wasn’t the only court focused on arbitration agreements today.  The Ninth Circuit also issued a pair of decisions relating to the enforceability of class waiver provisions in employment arbitration agreements.  In both instances, the Ninth Circuit upheld the enforceability of the agreements.

In the first case, Johnmohammadi v. Bloomingdale’s, the Ninth Circuit considered whether a class waiver provision was enforceable to bar court litigation of wage and hour claims brought on behalf of a putative class of employees.  The narrow issue before the court was whether the class waiver violated the Norris-LaGuardia Act and/or the National Labor Relations Act, both of which protect employees’ rights to engage in concerted activities for mutual aid and protection and prohibit employers from restraining or interfering with these rights.  The court held that the class waiver provision did not violate either Act because the arbitration agreement allowed employees 30 days to elect to opt-out of the agreement.  Had the plaintiff opted out, she would have been free to pursue her class claims in court.  By not opting out, she elected to proceed with any claims individually in arbitration.  The court held that this opt-out right effectively precluded a finding that the plaintiff was coerced into waiving class claims or otherwise restrained from pursuing them.  The plaintiff admitted she was aware of the arbitration agreement and the right to opt-out and that she did not elect to do so.  There was no evidence that the plaintiff was coerced into not opting out.  On these facts, the Ninth Circuit held that the class waiver provision in the agreement was enforceable and not in violation of the NLRA or Norris-LaGuardia Act.

In the second case decided by the Ninth Circuit today, Davis v. Nordstrom, the court considered whether a class action waiver provision that the employer added to its arbitration policy (set forth in an employee handbook, not a free-standing agreement) was enforceable to preclude an employee from litigating wage and hour claims on behalf of a putative class in court.  The court held that the handbook provision was an enforceable agreement and that the class waiver provision was enforceable.

Nordstrom had a long-standing arbitration policy in its employee handbook, but the policy did not include class waiver language.  The handbook did include language indicating that Nordstrom would provide employees with 30 days written notice of any substantive changes to the arbitration provision in the handbook to allow employees to consider the changes and decide whether or not to continue employment subject to those changes.  In July and August 2011, Nordstrom revised its arbitration policy to require that employees arbitrate any employment claims individually and to preclude the filing of class claims.  Nordstrom sent letters to its employees in June 2011 advising them that the arbitration policy had been modified and provided a copy of the new policy.  In August 2011, the plaintiff filed a putative class action alleging wage and hour violations against Nordstrom.

Nordstrom moved to compel arbitration of the plaintiff’s individual claims, but the district court denied the motion.  The district court held that no “agreement” was ever reached because Nordstrom did not provide clear notice to employees of the change, that it would go into effect in 30 days, and that by continuing employment employees would be bound by the change.  The Ninth Circuit reversed the district court’s ruling and held that the plaintiff had entered into an enforceable agreement by continuing her employment after notice of the change to the arbitration policy, thereby agreeing to the change.  “While the communications with its employees were not the model of clarity, we find that Nordstrom satisfied the minimal requirements under California law for providing employees with reasonable notice of a change to its employee handbook by sending a letter to [the employees] informing them of the modification, and not seeking to enforce the arbitration provision during the 30 day notice period.”

As for Nordstrom’s failure to expressly alert employees that by continuing employment for 30 days they would be agreeing to the change to the arbitration policy, the Ninth Circuit held that California law does not require employers to expressly inform employees that continued employment constitutes acceptance of policy modifications.  As such, this was not a basis for invalidating the class waiver or for finding that no agreement was reached.

The Ninth Circuit’s decisions in these two cases are here and here.  While today's Ninth Circuit opinions are favorable for California employers, employers are cautioned that best practice is still to have any arbitration agreement be a separate agreement rather than simply a part of an employee handbook.  Additionally, it is a good idea to specifically advise employees not only that their employment is at-will, but also that this means the employer has the right to modify the terms and conditions of employment at any time and that continued employment constitutes the employee's acceptance of any such modifications.    

California Supreme Court Upholds Enforceability of Class Waivers in Arbitration Agreements, But Not PAGA Waivers

Today the California Supreme Court issued its much-anticipated opinion in Iskanian v. CLS Transportation, addressing the post-AT&T Mobility v. Concepcion enforceability of class and representative action waivers in employment arbitration agreements under California law.  The decision is a mixed bag for California employers.  On the positive side, the Court held, consistent with Concepcion, that class action waivers are enforceable.  The Court also held that class and collective action waivers do not categorically violate the National Labor Relations Act (“NLRA”) (rejecting the NLRB’s D.R. Horton analysis).  That’s the good news.  The bad news is that the Court held that PAGA representative action waivers in arbitration agreements are not enforceable.  Thus, through properly drafted arbitration agreements, employers effectively can prevent class claims alleging wage and hour violations, but cannot prevent piggy-back “representative” claims brought under PAGA and, under the Court’s reasoning, the employee must be permitted to pursue his or her representative PAGA claim in some forum.

Class Waiver Provisions Are Enforceable

Prior to today’s decision in Iskanian, the California Supreme Court took the position that class waivers in employment arbitration agreements are “sometimes” enforceable.  The test for determining enforceability was set forth by the Court in 2007 in Gentry v. Superior Court, 42 Cal.4th 443, 463-64:

“When it is alleged that an employer has systematically denied proper overtime pay to a class of employees and a class action is requested notwithstanding an arbitration agreement that contains a class arbitration waiver, the trial court must consider the [following] factors [ ]:  the modest size of the potential recovery, the potential for retaliation against members of the class, the fact that absent class members of the class may be ill informed about their rights, and other real world obstacles to the vindication of class members’ right to overtime pay through individual arbitration.  If it concludes, based on these factors, that a class arbitration is likely to be a significantly more effective practical means of vindicating the rights of the affected employees than individual litigation or arbitration, and finds that the disallowance of the class action will likely lead to a less comprehensive enforcement of overtime laws for the employees alleged to be affected by the employer’s violations, it must invalidate the class arbitration waiver to ensure that these employees can ‘vindicate [their] unwaivable rights in an arbitration forum.’”

Application of the Gentry factors resulted in many trial courts invalidating class waiver provisions in arbitration agreements in wage and hour cases.  Today the California Supreme Court held that Gentry was effectively overruled by Concepcion and is preempted by the Federal Arbitration Act (“FAA”).  As a result, class action waivers in employment arbitration agreements are now generally enforceable under California law.

Class Waiver Provisions Do Not Categorically Violate the NLRA

Plaintiff Iskanian alternatively argued that the class action waiver in his arbitration agreement was unenforceable because it violated his rights under the NLRA.  Iskanian relied on the NLRB’s decisions in D.R. Horton and related cases, in which the NLRB reasoned that class waiver provisions prohibit employees from engaging in collective concerted activity for mutual aid and protection, and that the right to do so is guaranteed by the NLRA.  The California Supreme Court (like the majority of courts that have addressed the issue) rejected the NLRB’s reasoning and held that the class waiver provision in this case did not run afoul of the NLRA.  Notably, the Court carefully limited its holding to the specific arbitration agreement before it, suggesting that in some other factual contexts a class waiver might violate the NLRA:

“Notably, while upholding the class waiver in Horton II, the Fifth Circuit affirmed the Board’s determination that the arbitration agreement at issue violated section 8(a)(1) and (4) of the NLRA insofar as it contained language that would lead employees to reasonably believe they were prohibited from filing unfair labor practice charges with the Board.  Moreover, the arbitration agreement in the present case, apart from the class waiver, still permits a broad range of collective activity to vindicate wage claims.  CLS points out that the agreement here is less restrictive than the one considered in Horton.  The arbitration agreement does not prohibit employees from filing joint claims in arbitration, does not preclude the arbitrator from consolidating the claims of multiple employees, and does not prohibit the arbitrator from awarding relief to a group of employees.  The agreement does not restrict the capacity of employees to ‘discuss their claims with one another, pool their resources to hire a lawyer, seek advice and litigation support from a union, solicit support from other employees, and file similar or coordinated individual claims.”

The Court stated:  “We have no occasion to decide whether an arbitration agreement that more broadly restricts collective activity would run afoul of section 7 [of the NLRA].”

PAGA Representative Action Waivers Are NOT Enforceable

The agreement at issue in Iskanian included not only a waiver of class claims in arbitration, but also a waiver of “representative” claims.  The representative claim alleged by the plaintiff in Iskanian was a PAGA claim.  The Court thus considered whether a waiver of representative claims under PAGA was enforceable.  The Court’s answer?  No.  The Court reasoned that the employee’s right to bring a PAGA action is an unwaivable statutory right because that statute is intended for public benefit (collecting penalties for wage and hour violations that could otherwise be pursued by a public agency) and an individual cannot, by private agreement, waive that public benefit.  “The PAGA was clearly established for a public reason, and agreements requiring the waiver of PAGA rights would harm the state’s interests in enforcing the Labor Code an in receiving the proceeds of civil penalties used to deter violations.  Of course, employees are free to choose whether or not to bring PAGA actions when they are aware of Labor Code violations.  But it is contrary to public policy for an employment agreement to eliminate this choice altogether by requiring employees to waive the right to bring a PAGA action before any dispute arises.”

The employer argued that because the arbitration agreement only prohibits representative claims, not individual PAGA claims, it does not result in any improper waiver of the right to bring a PAGA action.  The plaintiff argued that PAGA claims can only be brought as representative claims.  Without deciding whether or not an individual claim is permissible under PAGA, the Court held that the provision was unenforceable regardless because “a prohibition of representative claims frustrates the PAGA’s objectives.”  As such, the Court held that “where an employment agreement compels the waiver of representative claims under the PAGA, it is contrary to public policy and unenforceable as a matter of state law.”

The Court acknowledged that a state law rule may not be enforced if it is preempted by the FAA.  However, the Court held that its rule against PAGA waivers does not frustrate the FAA’s objectives and, therefore, is not preempted by the FAA.  The Court reasoned that the FAA’s objective is to ensure an efficient forum for the resolution of private disputes, whereas a PAGA action effectively is a public dispute between the employer and the state Labor and Workforce Development Agency.   “We conclude that California’s public policy prohibiting waiver of PAGA claims, whose sole purpose is to vindicate the Labor and Workforce Development Agency’s interest in enforcing the Labor Code, does not interfere with the FAA’s goal of promoting arbitration as a forum for private dispute resolution.”

So What Now?

The Court did not resolve how the action would proceed on remand, given that some claims were subject to arbitration while the PAGA claim was not.  “This raises a number of questions [on remand]:  (1) Will the parties agree on a single forum for resolving the PAGA claim and the other claims?”  (2) If not, is it appropriate to bifurcate the claims, with individual claims going to arbitration and the representative PAGA claim to litigation?  (3) If such bifurcation occurs, should the arbitration be stayed pursuant to Code of Civil Procedure section 1281.2?  The parties have not addressed these questions and may do so on remand.”

As noted above, the Iskanian decision is mixed news for California employers.  It remains to be seen whether CLS will seek review of the Court’s PAGA-related ruling before the United States Supreme Court.  In the meantime, California employers should review their arbitration agreements to optimize enforceability in light of today’s decision.  Among other things, employers should ensure that their agreements contain class waiver language if they do not already.  The agreements should also include some language making clear that employees retain the right to file administrative charges with the NLRB and that the agreement is not intended to prohibit their exercise of rights under the NLRA.  Employers should also ensure that their agreements contain a severability clause and provision for what happens in the event of bifurcated claims with some proceeding in arbitration and others in court.  The full Iskanian opinion is available here.  

Ninth Circuit Rules That Home Delivery Drivers Are Not Independent Contractors

Yesterday the Ninth Circuit issued its opinion in Ruiz v. Affinity Logistics Corp., holding that Affinity Logistics violated California law by misclassifying its home delivery drivers as independent contractors rather than employees.  The full opinion is available here.

Prior to working for Affinity Logistics, Ruiz worked as a driver for Penske Logistics, a furniture delivery company that had a contract with Sears.  Ruiz was classified as an employee throughout the time he worked for Penske.  In 2003, Sears announced that Affinity Logistics was taking over the services that had previously been provided by Penske.  Sears advised Ruiz and his fellow Penske drivers to speak to Affinity about working for Affinity.  Affinity told Ruiz and the other drivers that if they wished to work for Affinity, they would have to do so as independent contractors.  Affinity advised them that they would need a fictitious business name, a business license, and a commercial checking account.  Affinity helped the drivers complete all necessary forms and procedures to accomplish these tasks.  Affinity also required the drivers to sign an independent contractor agreement that automatically renewed from year to year but could be terminated for any reason on 60 days’ notice.  Affinity’s drivers leased their trucks from Affinity and were required to leave them at Affinity during non-working hours.

Ruiz filed a class action lawsuit against Affinity, alleging that Affinity misclassified its drivers as independent contractors rather than employees and thereby deprived them of various benefits afforded employees, including sick leave, vacation, holiday, and severance wages, and improperly charged them workers’ compensation fees.  The district court held a bench trial to determine whether or not the independent contractor classification was proper.  Following the bench trial, the district court concluded that the drivers were properly classified as independent contractors under California law.  The drivers appealed and the Ninth Circuit reversed, holding that the district court’s legal conclusion was wrong.

The Ninth Circuit applied the test set forth by the California Supreme Court in 1989 in Borello & Sons, Inc. v. Dep’t of Industrial Relations, in order to analyze whether a worker is an employee or an independent contractor.  Under that test, the primary consideration is the degree to which the principal has the right to control the manner and means by which the work is accomplished.  While the right of control is the most important factor, the following secondary factors are also relevant:  (1) whether the worker is engaged in a distinct occupation or business; (2) as a matter of local industry custom and practice, whether the type of work performed is typically done under the direction of a principal or by a specialist without supervision; (3) the skill required in the particular occupation; (4) whether the principal or the worker supplies the tools and place of work; (5) the length of time for which services are to be rendered; (6) whether or not the work is part of the regular business of the principal; and (7) whether or not the parties believe they are creating the relationship of employer-employee.

Applying this test to the largely undisputed facts, the Ninth Circuit held that Affinity’s drivers clearly were employees and not independent contractors.  First, the court held that Affinity substantially controlled the manner and means of its drivers’ performance of their duties.  Affinity determined and controlled the flat “per stop” rate paid to the drivers for their work and the drivers could not negotiate for higher rates, as independent contractors commonly do.  Affinity decided the drivers’ schedules and set their daily routes each day, with specific instruction not to deviate from the order of deliveries list on the route manifests. Affinity also controlled the drivers’ appearance by requiring that they wear specific uniforms and prohibiting them from wearing earrings, displaying tattoos, or having certain designs of facial hair.  Affinity also required its drivers to comply with a detailed procedures manual and closely monitored and supervised their work.  Each morning, the drivers were required to report to the warehouse for a morning meeting where supervisors and drivers would discuss customer satisfaction reviews from previous deliveries and any other issues arising out of previous deliveries.   Affinity further monitored its drivers by inspecting their appearance and the loading of their trucks and monitoring their progress throughout the day, including through a requirement that the drivers call their Affinity supervisor after every two or three stops and contacting them if they were running late or off course.  Based on all of these facts, the court determined that Affinity retained and exercised the right to control the drivers’ work.

The district court had found that the drivers retained sufficient control over their work, largely because their independent contractor agreements stated that the drivers could hire helpers, and the right to hire others generally is indicative of independent contractor status.  However, the Ninth Circuit disagreed that the drivers had any truly independent right to hire helpers because the evidence revealed that Affinity had the right to approve or disapprove of the helpers and the only time drivers hired helpers was if Affinity suggested they do so.

The court held that the balance of the secondary factors also supported a finding that the drivers were employees, not independent contractors.  Affinity’s drivers did not have distinct occupations or businesses apart from their work for Affinity, and the type of work they provided was not a specialized or unique skill commonly performed by an independent contractor.  The only reason the drivers established the formality of separate businesses was because Affinity required them to.  However, most only performed work for Affinity.  Indeed, they were not permitted to use the trucks they leased from Affinity for any purpose other than carrying out duties for Affinity.  Affinity provided the trucks and phones for their drivers’ use, and required that the trucks be kept on Affinity property when not in use.  Affinity even retained the right to use the drivers’ trucks for other purposes when not in use by the driver.  The district court had held that because the drivers were required to pay for the use of the trucks and phones (through a payroll deduction), the drivers “provided” their own equipment.  The Ninth Circuit rejected this analysis, effectively holding that paying for the use of the equipment is not the same thing as providing it.  Affinity encouraged or required the drivers to use the trucks and phones owned and provided by Affinity and this equipment was only used by the drivers to perform work for Affinity—not for any other purpose.  As such, this factor was suggestive of an employment relationship rather than an independent contractor relationship.

The court also reiterated that the drivers did not perform work without supervision because Affinity closely monitored and directed their work.  Furthermore, the drivers’ work was a regular part of Affinity’s business.  Affinity is a provider of home delivery services and, thus, the drivers’ work was at the very core of Affinity’s business.  Additionally, the contracts between Affinity and its drivers did not contemplate any set duration or end for the drivers’ work for Affinity.  The contracts automatically renewed from year to year, and many drivers worked for Affinity for years.  The court further stated that the fact that the contracts were terminable on 60 days’ notice was not unique to an independent contractor relationship.

The court acknowledged that the drivers were paid a flat rate per delivery, rather than by the hour, but disagreed with the district court’s conclusion that this supported a finding of independent contractor status.  The Ninth Circuit reasoned that because most drivers made eight deliveries per day, their pay generally remained about the same week to week, and this was more akin to be being paid by a regular rate of pay than “per job” or “per assignment.”  As such, this factor too was indicative of an employee relationship.

Finally, the Ninth Circuit acknowledged that the drivers and Affinity understood their working arrangement to be an independent contractor arrangement rather than an employment relationship.  However, the court dismissed this factor, reasoning that the parties’ label is not dispositive and that the parties’ conduct in fact revealed an employment relationship.

The Ruiz v. Affinity Logistics decision serves as a reminder to employers that litigation surrounding the independent contractor/employee classification remains alive and well in California, and improper classification carries substantial risk for employers.  Employers who have independent contractor arrangements should carefully review these classifications to ensure that these workers are properly classified.  The fact that a worker agrees to be classified as an independent contractor, or even asks to be classified as an independent contractor, does not prevent a misclassification claim nor does it prevent liability if the worker ultimately is determined to have been misclassified.

California Supreme Court Rejects Trial by Formula and Reaffirms That a Class Action Trial Must Properly Manage, Not Ignore, Individual Issues Bearing on Liability

In a case that CDF has been handling since its inception in 2001, we are pleased to report that yesterday the California Supreme Court issued its opinion in Duran v. U.S. Bank National Association, affirming in full a Court of Appeal decision overturning a $15 million judgment in favor of a class of Business Banking Officers (“BBOs”) who alleged that they were misclassified as exempt outside salespersons and owed overtime wages.  The California Supreme Court agreed with the Court of Appeal that the trial plan resulting in the judgment was fundamentally flawed and violated U.S. Bank’s due process rights.  The flawed trial plan involved the use of sampling and “representative” testimony of just 21 class members to determine class-wide liability and restitution to the entire class of 260 BBOs.  The plan precluded U.S. Bank from presenting evidence or testimony bearing on liability or damages as to any class member outside the 21-person sample.  Thus, U.S. Bank was precluded from, among other things, presenting evidence that 1/3 of the class members had executed declarations under oath establishing that spent the majority of their time on sales duties outside the Bank and, therefore, were properly classified.  U.S. Bank was also precluded from presenting evidence that the four prior named Plaintiffs in the case also all testified under oath that they spent the majority of their time on sales duties outside the Bank.  Based instead only on the limited evidence surrounding the small sample, the trial court found that the entire class was misclassified.  The trial court then allowed the overtime hours reported by the sample group to be extrapolated to the entire class (with a 43% margin of error), resulting in a verdict of $15 million and an average recovery of over $57,000 per person.  U.S. Bank appealed.

The Court of Appeal reversed the judgment, holding that the trial plan violated U.S. Bank’s constitutional due process rights by preventing U.S. Bank from presenting its affirmative defenses.  The Court of Appeal also held that the trial court should have decertified the class based on the demonstrated unmanageability of individual issues at trial.  Our post on the Court of Appeal decision is available here.  The California Supreme Court granted review and issued its opinion affirming the Court of Appeal’s decision in full.

The Trial Court’s Use of Sampling Was “Profoundly Flawed”

In upholding the reversal of the judgment, the California Supreme Court explained that “the judgment must be reversed because the trial court’s flawed implementation of sampling prevented USB from showing that some class members were exempt and entitled to no recovery.”  The Court explained that misclassification cases, and particularly cases involving the outside salesperson exemption, have the “obvious potential” to generate individual issues “because the primary considerations are how and where the employee actually spends his or her workday.”  In such cases, “a defense in which liability itself is predicated on factual questions specific to individual claimants poses a much greater challenge to manageability.”  The Court acknowledged that trial courts may employ various procedural tools to manage individual issues at trial, including statistical sampling, but emphasized that any such trial plan "must allow for the litigation of affirmative defenses, even in a class action case where the defense touches upon individual issues."  Additionally, the trial plan must be statistically sound.  "[W]hen a trial plan incorporates representative testimony and random sampling, a preliminary assessment should be done to determine the level of variability in the class.  If the variability is too great, individual issues are more likely to swamp common ones and render the class action unmanageable."  Against this backdrop, the Court held that the trial plan in this case was a "flawed statistical plan that did not manage but instead ignored individual issues."  The Court explained that the parties' evidence revealed great variation among class members in the amount of time they spent outside the Bank and that such variation signaled that the exemption question could not be resolved by a simple "yes" or "no" answer as to the entire class.  However, the trial plan ignored this variation by limiting the evidence from which liability would be determined to a small, unrepresentative sample of class members.  The Court criticized the trial court's arbitrary determination of the size of the sample, which was done without any expert input or validation, and further attacked the trial court's method of determining which class members would comprise the purportedly "random" sample.  This is because, among other things, the trial court allowed the named plaintiffs to be in the "representative" sample and also allowed BBOs to choose to opt-out of the trial sample (even though there was evidence that several class members with testimony favorable to the Bank opted out on the urging of Plaintiffs' counsel).  The Court also heavily criticized that the plan precluded U.S. Bank from presenting relevant evidence relating to BBOs outside the sample group:

"The court's decision to extrapolate classwide liability from a small sample, and its refusal to permit any inquiries or evidence about the work habits of BBOs outside the sample group, deprived USB of the opportunity to litigate its exemption defense.  USB repeatedly submitted sworn declarations from 75 class members stating that they worked more than half their time outside the office.  This evidence suggested that work habits among BBOs were not uniform and that nearly one-third of the class may have been properly classified as exempt and lacking any valid claim against USB.  USB also sought to introduce live testimony from witnesses about their work outside the office as BBOs.  Yet the court refused to admit any of this evidence or allow it to be considered by experts as part of a statistical sampling model.  Instead, extrapolating findings from its small sample and ignoring all evidence proffered to impeach these findings, the court found that the entire class was misclassified.  The injustice of this result is manifest.  While representative testimony and sampling may sometimes be appropriate tools for managing individual issues in a class action, these statistical methods cannot so completely undermine a defendant's right to present relevant evidence."

Thus, while the Court did not go so far as to say that statistical sampling may never be used to prove liability in a wage and hour class action, the Court strongly emphasized that any such use must, as a matter of constitutional due process, still allow the defendant to present its affirmative defenses.

The Court acknowledged that the use of statistical methods to prove damages in a class action is more acceptable than to prove liability, but that the statistical methods still must be scientifically sound and expert-endorsed.  Here, the trial court's extrapolation of overtime from the sample group to the entire class had an astounding 43% margin of error, which the Court held was unacceptably high, in addition to having been linked to an invalid finding of classwide liability.  For these reasons, the Court held that the judgment could not stand.

The Class Properly Was Decertified

In addition to holding that the trial plan was unconstitutional and required reversal of the judgment, the Court also held that the class properly was decertified due to the lack of manageability of individual issues surrounding U.S. Bank's exemption defense.  The Court emphasized that the presence of common issues does not necessarily mean that class certification is appropriate, if there are still individual issues that cannot be effectively managed at trial, as was the case here.  The Court instructed that the time to consider manageability issues is at the class certification stage, not at trial.  "In considering whether a class action is a superior device for resolving a controversy, the manageability of individual issues is just as important as the existence of common questions uniting the proposed class."  The Court held that while statistical methods possibly may be used to manage individual issues, such "methods cannot entirely substitute for common proof."  "There must be some glue that binds class members together apart from statistical evidence."  If statistical evidence will comprise a part of the proof on a class action claim, trial courts should consider at the class certification stage how such methods will be used and whether they will effectively and fairly manage individual issues.  "Rather than accepting assurances that a statistical plan will eventually be developed, trial courts would be well advised to obtain such a plan before deciding to certify a class action.  In any event, decertification must be ordered whenever a trial plan proves unworkable."

Because the trial court had "no evidence establishing uniformity in how BBOs spent their time" and the trial plan wholly failed to manage individual issues bearing on U.S. Bank's exemption defense, class certification could not stand.

The Court's decision is clearly favorable for California employers defending wage and hour class actions, both on certification principles and on the use of statistical methods to prove liability and damages in such cases.  The decision confirms a class action defendant's right to present its affirmative defenses, even where those defenses hinge on individualized issues, and also underscores that manageability issues must be at the forefront of the initial decision to certify a class.  CDF has represented U.S. Bank throughout this litigation and is very pleased to report this outstanding result.

Employer Without Notice of Off-the-Clock Work Not Liable for Unpaid Wages

This week a California court issued a favorable decision for the employer in an off-the-clock case, holding that the employer was not liable to the plaintiff for work the plaintiff performed off-the-clock because there was no evidence that the employer knew about the off-the-clock work.  While this is not a novel holding (it is well-settled that an employer is only liable for wages for off-the-clock work if the employer had actual or constructive knowledge about such work), the case is useful in illustrating the types of evidence that courts consider in analyzing whether the employer had “knowledge” of off-the-clock work being performed.

In Jong v. Kaiser Foundation Plan, the plaintiffs were three outpatient pharmacy managers for Kaiser.  Their position previously was classified as exempt but Kaiser reclassified the position to non-exempt in connection with the settlement of a prior class action challenging the exempt classification of this position.  Following the reclassification of the position to non-exempt, the plaintiffs filed a putative class action against Kaiser, alleging that Kaiser had a policy and practice of requiring its outpatient pharmacy managers to perform work off-the-clock and without pay.  Kaiser filed a motion for summary judgment as to each of the three named plaintiffs’ off-the-clock claims.  The trial court granted Kaiser’s motion as to Plaintiff Jong (holding that Kaiser was not liable to Jong and ending Jong’s claim against Kaiser), but denied the motion as to the other two named plaintiffs, allowing their claims to proceed.  Jong appealed the adverse ruling against him.

The Court of Appeal upheld the trial court’s order summarily adjudicating Jong’s off-the-clock claim in Kaiser’s favor.  The court explained that in order for an employer to be liable for unpaid wages for work performed off-the-clock, there must be evidence that the employer had actual or constructive knowledge that the employee was performing work off-the-clock.  The court held that Jong had failed to present evidence from which it could be concluded that Kaiser had knowledge that he performed any work off-the-clock.   The court’s holding was based on several admissions that Jong made in the case, including that (1) he knew Kaiser had a policy prohibiting off-the-clock work; (2) no manager or supervisor ever told him that he should perform work off-the-clock; (3) he was specifically told that he was eligible to work and be paid for overtime hours; (4) there was never an occasion when he requested approval to work overtime that was denied; (5) that he was paid for all work hours he recorded, including overtime hours, even when he did not seek pre-approval for the overtime work; and (6) he signed an attestation form agreeing not to perform work off-the-clock in accordance with Kaiser policy.

Notwithstanding these fatal admissions by Jong, Jong argued that Kaiser nevertheless still had constructive knowledge that he was performing work off-the-clock based on the fact that store alarm records revealed that Jong disarmed the alarm prior to the time he recorded beginning work and that Kaiser could have compared the alarm records to his time keeping records to discern that he was performing work off-the-clock prior to the start of his shifts.  The court rejected this argument, suggesting that the standard for constructive knowledge is not whether the employer “could have known” that off-the-clock work was being performed, but rather whether the employer “should” have known about it.  Moreover, the court held that the records did not establish that Jong was actually performing any work during any gap between disarming the alarm and signing in for the start of his shift.

Jong also argued that Kaiser was on notice that outpatient pharmacy managers must be performing work off-the-clock based on depositions in the misclassification class action revealing that employees in this position testified to working an average of 48 hours per week.  The court rejected Jong’s argument, reasoning that this evidence related to work habits prior to the reclassification of the position from exempt to non-exempt and, in any event, the evidence did not establish that Kaiser had knowledge that Jong (as opposed to OPMs generally) was performing work off-the-clock.  For these reasons, the court entered judgment in favor of Kaiser on Jong’s claims.

While Kaiser was successful in defending Jong’s claims, it did not have the same success in getting the other two named plaintiffs’ claims thrown out.  The trial court denied Kaiser summary judgment of their claims, based on testimony by those plaintiffs that they had conversations with their supervisors about performing work off-the-clock.  Based on that testimony, the trial court concluded that there was a triable issue of fact regarding whether Kaiser had sufficient notice of those plaintiffs’ off-the-clock work to be liable for unpaid wages and that this issue would have to be tried.

The Jong v. Kaiser case is a good reminder of the importance of well-drafted and communicated policies prohibiting off-the-clock work and how documentation of those policies is effective evidence in defeating off-the-clock claims.  The opinion also has useful language for employers to use in emphasizing the individualized nature of the liability inquiry on an off-the-clock claim, for purposes of opposing class certification when such claims are brought as putative class actions.  The full opinion is here.

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

Last week, a California Court of Appeal overturned a trial court decision denying an employer's petition to compel arbitration where the trial court found that the arbitration agreement was unconscionable.  In overturning the trial court's ruling, the Court of Appeal held that the trial court erred in even reaching the issue of whether the agreement was unconscionable because the arbitration agreement included a provision expressly delegating to the arbitrator authority to determine issues of enforceability of the agreement. The provision stated:

"The arbitrator, and not any federal, state, or local court or agency, shall have the exclusive authority to resolve any dispute relating to the interpretation, applicability, enforceability, or formation of this Agreement, including but not limited to, any claim that all or any part of the Agreement is void or voidable."

Relying on United States Supreme Court precedent in Rent-A-Center, West v. Jackson, 561 U.S. 63 (2010), the court held that delegation clauses, like this one, are enforceable as long as the delegation language is "clear and unmistakeable" and the provision is not revocable under state law principles such as fraud, duress or unconscionability (limited to the fairness of the delgation provision itself and not the fairness of the arbitration agreement as a whole).  The court held the language of the delegation provision before it was clear and unmistakeable and that the provision itself was not unconscionable because there is nothing inherently unfair about authorizing an arbitrator, rather than a court, to decide issues relating to the enforceability of the arbitration agreement. As such, the court held that the delegation provision was enforceable and an arbitrator, not the court, should have decided whether the parties' arbitration agreement as a whole was enforceable and applicable to the parties' dispute. For these reason, the Court of Appeal overturned the trial court's denial of the employer's petition to compel arbitration because the trial court lacked authority to rule on the petition.

In its decision, the Court of Appeal noted that some California courts have in the past refused to enforce delegation provisions such as the one at issue in this case.  However, the Court dismissed those cases as pre-dating more recent United States Supreme Court precedent, such as Rent-A-Center and AT&T Mobility v. Concepcion, which strongly favor enforceability of arbitration agreements according to their terms.

The case is Tiri v. Lucky Chances, Inc. and is available here.  Employers may wish to consider including provisions in their arbitration agreements that specifically delegate authority to the arbitrator to decide whether the agreement is enforceable.  This is one tool for keeping unconscionability decisions out of the hands of trial courts that are sometimes inconsistent in ruling on these issues.  However, delegating authority to the arbitrator is not entiretly without risk, as one recent case before the United States Supreme Court demonstrated.  In Oxford Health Plans v. Sutter, the parties' arbitration agreement contained a delegation clause and, pursuant to that clause, an arbitrator interpreted the agreement as allowing class claims in arbitration (a ruling that almost certainly would not have been made in court).  Because of the very limited grounds for judicial review of an arbitrator's rulings, the arbitrator's interpretation of the agreement in that case was upheld.  Bottom line--employers should think carefully about the provisions in their arbitration agreements, including deciding what issues to delegate to the arbitrator, and ensure that these provisions are very clearly drafted to best ensure that the agreement is enforced as intended.  Employers must also periodically review their agreements to ensure that they are as beneficial as permissible in light of continually evolving case law.

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

The Bay Area Commuter Benefits Program, SB 1339, was enacted in 2012 to allow two local Bay Area agencies—the Metropolitan Transportation Commission and the Bay Area Air Quality Management District—to jointly adopt a commuter benefit ordinance requiring  employers to offer commuter benefits to covered employees.  These agencies have now adopted a Commuter Benefit rule requiring larger Bay Area employers to offer specified commuter benefits to covered employees by September 30, 2014 as a means of encouraging carpooling and use of public transporation.

Covered Employers

The new Rule applies to employers with an average of 50 or more full-time (30 hours of work per week) employees performing work within the following nine Bay Area counties:  Alameda, Contra Costa, San Mateo, Marin, Napa, San Francisco, Santa Clara, southern Sonoma County, and southwestern Solano County.  For purposes of determining whether an employer has an average of at least 50 employees, the look back period is the most recent three month period.

Covered Employees

The Rule requires covered employers to provide the commuter benefits described below to employees who perform an average of at least 20 hours of work per week (the average looks back to the previous calendar month) within the counties listed above, excluding a seasonal or temporary employee (an employee who works 120 days or less within the calendar year).

Required Commuter Benefits

By September 30, 2014, covered employers must offer at least one of the following commuter benefit options to covered employees:

  • Pre-tax option:  A program, consistent with section 132(f) of the Internal Revenue Code, allowing covered employees to elect to exclude from taxable wages costs incurred for transit (bus, rail or ferry) passes or vanpool (a vehicle with a carrying capacity of at least six adults, not including the driver) charges, up to $130 per month;
  • Employer-paid benefit:  A program whereby the employer pays employees a subsidy of up to $75 to cover the cost of commuting via transit or by vanpool; or
  • Employer-provided transit:  transportation provided by the employer to covered employees at no cost or low-cost via bus, shuttle, or vanpool.

In lieu of these options, an employer may offer an alternative benefit that provides at least the same reduction in single-occupancy vehicle trips as the three options identified above.  Any alternative benefit must be submitted to and approved, in writing, by the Bay Area Air Quality Management District.

Administrative Requirements

Covered employers are required to designate a Commuter Benefits Coordinator who is responsible for implementing the employer’s commuter benefit program and for complying with the Rule.  Covered employers must also register online with the Bay Area Air Quality Management District and provide specified information before September 30 and annually thereafter.  Covered employers must also provide notice of the Rule and the employer’s commuter benefits to covered employees.  Finally, the Rule imposes a recordkeeping requirement of 3 years for records establishing compliance with the Rule.

For more information and for registration obligation details, click here.

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

Just when you think that California cannot get any more employer-unfriendly, the California Legislature reminds us that it actually can.  The latest reminder is legislation that was recently introduced by Democratic Assemblyman Mark Stone (AB 2416) to allow employees to record liens against their employers’ property for alleged unpaid wages.  That’s right—alleged.  In order to record a lien, the employee does not need to have proven his entitlement to unpaid wages in a court action or Labor Commissioner proceeding or otherwise.  It is only after the lien is recorded that the employee must prove up the lien by demonstrating that he is actually owed the unpaid wages.  If the employee succeeds, he is also entitled to recover attorneys’ fees and costs.  A lien can also be recorded and enforced by a group of employees or by a government agency (e.g. the DLSE).  The only way the employer can avoid the lien is by obtaining a surety bond (similar to that required to stay a money judgment pending appeal), which is itself a costly procedure.

At least there’s some faint protective relief built in to the legislation for employers--well, sort of.  If an employer defeats an action to enforce a lien, the employer can, in very limited circumstances, recover its attorneys’ fees and costs IF the employer can prove that the employee’s action was brought unreasonably and in bad faith.  (Conversely, the employee of course automatically gets awarded his attorneys’ fees and costs if he proves entitlement to unpaid wages, regardless of whether the wage withholding was in good faith.)

The proposed legislation has exclusions for employees covered by collective bargaining agreements if certain specified conditions are met, and also excludes employees who are exempt administrative, professional or executive employees (of course, the employee can challenge his exempt status and thereby avoid this exclusion, and the legislation specifically states that it is the employer’s burden to prove, as an affirmative defense, that the employee meets the test for exemption).

Employers should voice their opposition to this unnecessary legislation, which has already passed one labor committee and, if enacted, will provide one more tool for the plaintiffs’ employment bar to use to pressure employers to settle wage and hour claims, particularly those brought on behalf of a class of employees.  The text of the proposed legislation is available here.

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  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.