California Supreme Court to Address Post-Concepcion Arbitration Issues

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

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

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

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

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

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

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

California Bill Seeks to Expand CFRA Leave

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

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

California Employers May Be Barred from Requiring Disclosure of Social Media Passwords

Last week, we posted about the recent uproar over employers and colleges seeking to require applicants to surrender their Facebook passwords as a condition of hiring/admission and how that practice may be analyzed by the courts under an invasion of privacy challenge. 

California employers should also note that the California legislature has proposed a bill that would specifically outlaw the practice.   AB 1844, proposed by Assemblywoman Nora Campos (D), if enacted as currently drafted:

(a)  would prohibit an employer from requiring an employee or prospective employee to disclose a user name or account password to access social media used by the employee or prospective employee; and

(b) would also provide that an employer does not fail to exercise reasonable care to discover whether a potential employee is unfit or incompetent by the employer’s failure to search or monitor social media, as defined, before hiring the employee.

The bill would add sections 980-982 to the California Labor Code to read as follows:

980.  As used in this chapter, "social media" means an electronic medium where users may create and view user-generated content, including uploading or downloading videos or still photographs, blogs, video blogs, podcasts, or instant messages.

981.  For purposes of a claim of negligent hiring, an employer does not fail to exercise reasonable care to discover whether a potential employee is unfit or incompetent by the employer's failure to search or monitor social media before hiring the employee.

982.  An employer shall not require an employee or prospective employee to disclose a user name or account password to access social media used by the employee or prospective employee.

This bill is a mixed bag, as currently drafted.  Proposed section 982 of the Labor Code would make it impossible for those California employers who wish to require applicants to surrender their Facebook and other social media passwords to engage in this conduct.  Certain employers would see this as an unfair restriction.  However, proposed section 981 of the Labor Code would protect California employers from negligent hiring lawsuits that are based on an employer's failure to search or monitor an applicant's social media profile and this would likely be seen as a positive piece of legislation by many California employers. 

AB 1844 was referred to the Assembly Committee on Labor and Employment on March 5.  We would not be surprised if this bill gained some traction as it may end up getting support from both employers and employees.  We will continue to keep you updated on this and other important California legislative developments.

Facebook Offers Advice About Employers Requiring Applicants to Surrender Their Facebook Passwords

Over the last week or two, there have been many articles written about private employers and colleges that are requiring applicants to surrender their Facebook password as part of the hiring/admissions process.  Today, Facebook's chief privacy officer published Facebook's position on this practice on its website.  Click here for the details. 

What is interesting about this, is that the position statement, published by Facebook's chief privacy officer, Erin Egan, a former Covington and Burling attorney, offers her legal opinions to try to convince employers (private and public), colleges, and others not to engage in this practice.  Egan, offers the following legal analysis in the position statement:

"We don’t think employers should be asking prospective employees to provide their passwords because we don’t think it’s right the thing to do.  But it also may cause problems for the employers that they are not anticipating.  For example, if an employer sees on Facebook that someone is a member of a protected group (e.g. over a certain age, etc.) that employer may open themselves up to claims of discrimination if they don’t hire that person."  "It also potentially exposes the employer who seeks this access to unanticipated legal liability."
"Employers also may not have the proper policies and training for reviewers to handle private information.  If they don’t—and actually, even if they do--the employer may assume liability for the protection of the information they have seen or for knowing what responsibilities may arise based on different types of information (e.g. if the information suggests the commission of a crime)."

Setting aside whether or not private employers in California should be getting their legal advice from Facebook's chief privacy officer, Ms. Egan's advice that engaging in this practice is subject to challenge is accurate.  However, Egan's statement fails to address the biggest problem for California employers (and colleges) who engage in this practice: the California Constitution's privacy protections.

In California, individuals have a constitutional right of privacy that is provided by the California Constitution.  Article I, Section I of the California Constitution provides:   "All people are by nature free and independent and have inalienable rights.  Among these are enjoying and defending life and liberty, acquiring, possessing, and protecting property, and pursuing and obtaining safety, happiness, and privacy."   California courts have further held that this provision gives rise to the independent tort of invasion of privacy. 

The California Supreme Court has held that to determine whether an individual's constitutional right of privacy has been violated the court must balance the compelling need for the information against the reasonable expectation of privacy the person has in the information.  Most jurors and many judges have Facebook accounts, or at least have password protected information on the internet.  Their expectation of privacy with respect to the information behind the password is almost always going to be very high.  It will be difficult for most employers (other than perhaps those hiring for national security or other related positions where they are exposed to extremely sensitive information), or any college, to demonstrate a compelling or strong need for this information.  Employers have been hiring employees without detailed personal information for hundreds of years.  In most cases, it will be extremely difficult for an employer to demonstrate a new and sudden compelling need to get behind an applicant's Facebook password to be able to evaluate that individual.  When that is measured against a practice that many view as highly offensive and a significant intrusion into personal privacy (requiring someone to give up their personal password), this practice would likely be found improper by our courts and is likely to give rise to an independent tort.

In sum, Egan's conclusion that requiring applicants to surrender their facebook password as a condition of employment or admission is a legally risky practice, appears to be very accurate.  However, for California employers or employers hiring California applicants, the risks are even higher, due to the privacy protections of the California Constitution.

H-1B Visa Quota Will Open April 2

The Government will accept new H-1B visa filings on April 2 for a start date of Oct 1.   H-1Bs are for college degreed professionals such as software developers, engineers, chemists, scientists, teachers, financial analysts, pharmacists, and dentists.  The annual quota of 85,000 visas applies to first time H-1Bs, not to extensions with the same company or transfers to other companies. 

It is suggested that employers query their departments to see if they have a need for such a visa for either a possible new hire or to keep a valued current foreign national employee work authorized.   Due to the recession, the annual quota is not expected to fill up right away.  However, employers should not wait too long.  It is hard to predict when this year’s quota will be filled – possibly anywhere from one to five months.

Many employers have valued foreign national employees working on a one-year work permit after college (known as Option Practical Training or OPT).  Since the OPT will expire, it’s important that the H-1B visa be explored to allow them to remain work authorized.  Some employees are eligible for a one-time extension of their OPT (based on their education in science, technology, engineering, and math), but eventually will still need the H-1B visa.

Please note that it’s important that before you extend a job offer to a foreign national who requires sponsorship, you make sure that all immigration eligibility issues are covered such as their immigration history, eligibility for the visa, how much time in H-1B status they will be allowed, prevailing wage, etc. You don’t want any surprises. 

Immigration issues should first be addressed on your job application and include two questions regarding work authorization:  First, “Are you authorized to work in the U.S.” and second,  “Will you require sponsorship to work in the U.S.”   If the applicant answers “yes” to sponsorship, there are a host of permissible follow up questions regarding immigration status and history that can and should be delved into prior to extending an offer.

For more information and/or assistance with H-1B issues, please contact Greg Berk at (949) 622-5851 or

California Court Invalidates Another Arbitration Agreement

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

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

Will Being Unemployed Be a New Protected Class?

State and federal lawmakers are growing increasingly concerned about how our economy is making it difficult for long term unemployed workers to get back into the workforce.  As a result, there is a movement to make being unemployed a new protected class.  With a larger than normal percentage of voters being unemployed, you can bet this will be popular with some politicians up for re-election in November. 

California is one of a number of states where legislation has been introduced to protect unemployed workers and prohibit an employer from using a person's unemployed status at the time of applying for a job as a negative criteria in the hiring process.  The California bill is AB 1450 and was introduced in January.  In addition to the California bill, Congress has introduced HR 2501 in the House and S 1471, two bills that would provide similar protections on a nationwide basis. 

Currently, most protected status suits deal with harassment and termination of the employment relationship.  Hiring discrimination cases are relatively rare.  However, if any of these bills pass, employers covered by them should expect a wave of new litigation by unemployed applicants applied for positions but were not hired.  Employers will certainly have to alter their hiring practices and train those making the hiring decisions and doing the screenings, in order to ensure that they can defend against such suits. 

These bills will be something to keep an eye on in the coming months.  We will continue to keep you posted on this blog.

Federal Court Upholds NLRB Employee Rights Poster

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

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

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

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

Another Arbitration Agreement Bites the Dust

With the advantages inherent to arbitrating – rather than litigating – employment disputes, arbitration provisions between employer and employee have seen a sharp increase in recent years.  There have also been some significant new court decisions out of the United States Supreme Court favoring enforceability of these agreements.  Nonetheless, it remains true that California courts continue to scrutinize these agreements carefully and in many cases, still find them unconscionable and unenforceable.  The recent case of Ajamian v. CantorCO2e is one such example. 

In Ajamian, the employer and employee entered into an arbitration agreement providing that any and all disputes would be resolved by final and binding arbitration.  In March 2010, Ajamian’s employment was terminated, and later that year she filed a complaint in civil court, asserting claims for sexual discrimination, sexual harassment, retaliation, and various wage-hour claims.  Ajamian refused to arbitrate.

The first issue the court addressed was whether the parties’ agreement called for an arbitrator or a court to decide the preliminary issue of whether the arbitration agreement was enforceable.  Under the Federal Arbitration Act, the enforceability of an agreement is ordinarily to be determined by the court, but the parties may agree in the arbitration agreement that the enforceability issue will be delegated to the arbitrator.  To establish this exception, it must be shown by “clear and unmistakable” evidence that the parties intended to delegate the issue to the arbitrator.  The relevant language of the agreement in this case read: “Any disputes, differences or controversies arising under this Agreement shall be settled and finally determined by arbitration.”  The employer argued this language showed the parties intended that even the threshold issues of unconscionability would be decided by the arbitrator.  The employee, on the other hand, argued the language encompassed only all substantive disputes, while the enforceability of the arbitration provision itself remained a matter for determination by a court.  The court agreed with the employee that the language was not explicit enough to show that the parties expressly intended for an arbitrator to decide the issue of enforceability.  As a result, the issue was left to the court to decide.

After determining the court was tasked to decide enforceability, it then turned to whether the agreement was sufficiently fair to Ajamian to allow the dispute to go to arbitration.  First, the court found the non-negotiable, “take-it-or-leave-it” nature of the agreement amounted to some unfairness.  Despite the fact that Ajamian had an attorney review the agreement on her behalf prior to her signing it, the court found that the agreement still was not a product of negotiation.  Ajamian had no “realistic bargaining power,” and was required to sign the agreement to receive her promised compensation for work she had already performed.  As such, the agreement was procedurally unconscionable.  The court also found several of the agreement’s terms substantively unconscionable.  The agreement limited Ajamian’s ability to recover certain damages, forced her to forfeit otherwise “unwaivable” California statutes, and compelled her to travel to New York from California to attend arbitration, thereby costing Ajamian thousands of dollars she otherwise would not have to spend.  Most importantly, the agreement allowed the employer, but not the employee, to recover its attorneys’ fees as prevailing party.  These factors, taken as a whole, led the court to hold that the arbitration agreement was unconscionable and unenforceable.

This case is a reminder that any arbitration provision intended to leave the issue of enforceability to an arbitrator must be explicit.  Employers should also ensure that the substance of the agreement (e.g., not limiting employee’s recovery and not adding extra costs to employee) is sufficiently fair to the employee to pass muster.

Duran v. U.S. Bank:  Changing the Class Action Landscape

Please join us on March 15, 2012 for a unique opportunity to hear about the trial and appeal of the Duran v. U.S. Bank case directly from lead counsel.  The Court of Appeal’s published decision in Duran issued only weeks ago, addressed, for the first time, the use of statistical sampling and representative testimony in a wage and hour misclassification class action trial on both liability and damages.  The Duran decision will likely prove to be very helpful to many employers facing wage and hour class action litigation in California.  This webinar is presented by CDF attorney Timothy Freudenberger, who was U.S. Bank’s lead trial counsel in the Duran matter.

In this webinar, we will review:

• The trial court’s trial management plan, and the role the experts played;
• How the trial was actually conducted using representative testimony and statistical sampling;
• The legal positions and defenses that ultimately persuaded the Court of Appeal to overturn the verdict and decertify the class; and
• The potential legal impact of the Duran decision on other class actions

We hope you will join us for this engaging and informative webinar March 15 from 9:00 a.m. to 10:00 a.m. PST.

To register for this event, click here:

Please Note: Immediately following the completion of your registration, you will be emailed a calendar entry.  Click on this email and select "Accept".  This email/calendar entry contains important information you will need the day of the webinar, including the link to join the meeting, along with the call-in information.

Cal Labor Law

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


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