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.

CDF Attorneys Convince Court to Invalidate Use of Representative Testimony in Class Action Trial

CDF is pleased to report its recent victory in Duran v. U.S. Bank, a seminal decision striking down the use of statistical sampling and representative testimony to establish liability and restitution in a class action trial involving claims of alleged misclassification and unpaid overtime.  Reversing a $15 million judgment awarded to a class of business banking officers (BBOs), the court held that the trial court’s use of statistical sampling and representative testimony to extrapolate liability and restitution from a sample group of 21 witnesses to a class of 260 bankers violated U.S. Bank’s constitutional due process rights.  The court held that this trial plan improperly prevented U.S. Bank from presenting relevant evidence to contest classwide liability and to challenge the claims of individual class members outside of the sample.  The court also held the trial court erred in focusing on U.S. Bank’s policies and uniform exempt classification in maintaining class treatment.  Because the validity of each class member’s exempt misclassification claim required individual analysis, class treatment was improper and unmanageable.  As a result, the court, in addition to reversing the judgment, ordered that the class had to be decertified.  This case is significant because it is the first known California appellate decision reviewing a trial verdict in an overtime misclassification case, where the trial court employed one of the purported “innovative procedural tools” (statistical sampling) to manage class action trials referenced by the California Supreme Court in Sav-On Drug Stores, Inc. v. Superior Court, 34 Cal.4th 319, 339 (2004).  The Court stated that “while innovation is to be encouraged, the rights of the parties may not be sacrificed for the sake of expediency.”  


This case was originally filed as a putative class action alleging claims of misclassification brought under various provisions of the California Labor Code, as well as conversion and unfair competition under Business & Professions Code § 17200 (the “UCL” claim).  U.S. Bank claimed that the BBOs were properly classified under the administrative exemption, commissioned salesperson exemption, and outside sales exemption.  In opposing class certification, U.S. Bank argued that individual issues predominated as shown by the declarations of over 70 putative class members, in addition to deposition testimony of the four prior named class representatives, who all stated under oath that they spent a majority of their time outside U.S. Bank premises, and were therefore properly classified as exempt.  After certifying the class, the trial court granted Plaintiffs’ motion for summary adjudication as to the administrative and commissioned salesperson exemptions.  Just months before trial, Plaintiffs dismissed their legal claims and proceeded to a bench trial only on the equitable UCL claim that was premised on the alleged Labor Code violations and U.S. Bank’s defense based on the outside salesperson exemption. 

The “Fatally Flawed” Trial Plan Violated U.S. Bank’s Due Process Rights

Although the trial court requested briefing and proposals from both parties as to an appropriate trial management plan, it ultimately decided to implement a trial plan that was neither proposed by the parties nor endorsed by their experts.  Over U.S. Bank’s objections, the trial court determined that it would take a random sample of 20 class members (drawn out of a “hat”) plus the two named plaintiffs to testify at trial to determine both classwide liability and damages.  The trial court also selected 5 class members as “alternates” in case any of the 20 originally drawn class members were unavailable.  After this random witness group (“RWG”) was selected, however, the trial court ordered a second opt-out notice to be sent to the class because Plaintiffs had chosen to dismiss their legal claims.  U.S. Bank argued that any member of the RWG group that opted out after receiving the second opt-out notice should be required to provide deposition and trial testimony to maintain the integrity of the original sample and ensure statistical reliability of the  extrapolation process.  Four of the 20 class members (or 20%) of the RWG opted out, while only 5 of the remaining 250 (or 2%) absent class members opted out.  Notwithstanding the disproportionately higher opt-out rate among the RWG, the trial court denied U.S. Bank’s motion to allow two of the RWG witnesses to opt back into the class.  When those witnesses were later called to testify by U.S. Bank as to their percipient knowledge of other RWG members, they were precluded from testifying as to their own BBO experiences.

Consistent with its determination that the trial plan only allowed for testimony and evidentiary submissions regarding the RWG, the trial court steadfastly rejected U.S. Bank’s repeated attempts to introduce relevant evidence from absent class members outside of the RWG, including sworn deposition testimony and declarations from nearly one-third of the class (including that of the four prior named class representatives) indicating they spent a majority of their time outside of their offices and were therefore properly classified as exempt.  At the conclusion of the liability phase, the trial court concluded that the two plaintiffs and all 19 class members in the RWG were misclassified (one RWG member failed to appear at trial and was then treated as an absent class member) and therefore extrapolated those liability findings to conclude that all 260 members of the class were misclassified.  In Phase II of the trial, the trial court accepted Plaintiffs’ experts’ testimony that concluded, using the testimony provided by the RWG and the two named plaintiffs, at a 95% confidence level, that the class members worked an average of 11.87 hours of overtime per week, with a margin of error of 5.14 hours or 43.3%.  This “average” hours of weekly overtime was then extrapolated to the remaining 239 absent class members.

The Court of Appeal found the lower court’s trial methodology to be both legally unprecedented and statistically unsound.  The court was extremely troubled that U.S. Bank was “hobbled” in its ability to prove its affirmative defense not only as to individual absent class members but as to classwide liability because it was “prohibited from introducing evidence pertaining to any non-RWG members, evidence that arguably would have shown some class members were either properly classified or did not work overtime.”  The trial court’s blind adherence to its trial plan sacrificed “fair and accessible justice” for convenience and efficiency. The court noted that neither state nor federal law supported the use of statistical sampling or representative evidence to determine liability in a misclassification case where time spent performing exempt duties may differ between employees.  Experts from both sides agree that, statistically speaking, even if 21 out of the 21 testifying class members were found to be misclassified, up to 13% of the class could nonetheless be properly classified.  Hence, there is no statistical basis to conclude that 100% of the class is misclassified based on a fact-finding process involving only a small sample of class members.  The court explained that using statistics to determine classwide liability in a misclassification case is problematic because a certified class that included both injured and uninjured class members would necessarily require individual mini-trials to determine which class members fell in which category.

Significantly, the court stated that  “due process principles require individualized inquiries where the applicability of an exemption turns on the specific circumstances of each employee, even in cases where the employer’s misclassification may be willful.”  The court distinguished this case from Bell v. Farmers Insurance, 115 Cal.App.4th 715 (2004) (Bell III), where this same court had approved the use of statistical sampling to determine classwide damages.  The trial court in Bell III had conducted an appropriate pilot study to determine an appropriate sample size and desired margin of error at the outset.  Importantly, both parties’ experts largely agreed on the sampling methodology and proposed margin of error.  In contrast, the trial court in Duran committed a number of errors in its unscientific and inconsistent use of statistics in its trial plan, including arbitrarily using a 20-member sample group without any surveys or pilot studies, permitting selection bias by allowing randomly selected members to opt out and for including the two non-randomly selected class representatives in its sample, arbitrarily using a mid-point to determine average work hours for class members who provided a range of hours worked, and failing to extrapolate results unfavorable to Plaintiffs (such as a RWG member signing a release that prevented him from personal recovery, or that a RWG member was properly classified for two weeks of his employment).  These and other errors resulted in a statistically invalid and inaccurate judgment, as evidenced by the 43.3% margin of error associated with the 11.87 “average” overtime hours worked.  This meant that the overtime hours worked by class members could range anywhere from 6.73 hours to 17 hours per week.  Using the low end of this margin of error meant that the $15 million judgment awarded to the class could actually be half as much and still fall within the undisputed margin of error.  While the court again declined to issue a bright-line rule as to an unconstitutional level of inaccuracy, it noted its consistent rejection of results containing a large margin of error, such as 32% in Bell III’s calculation of double-time damages, and 43.3% in Duran.

In concluding that the multitude of errors committed by the trial court resulted in serious due process violations, the Court of Appeal found persuasive the reasoning and analysis laid out in the recent U.S. Supreme Court opinion in Wal-Mart Stores v. Dukes, which had rejected a similar “trial by formula” theory advanced by plaintiffs to determine liability and damages from a sample group to the class as a whole in a gender discrimination class action.  The Court’s parallel reasoning and analysis of Dukes dispels any contention that the holding in Dukes would be limited to federal cases or discrimination claims.

Individual Analysis Required to Determine Exempt Classification Compels Decertification

The court acknowledged that Sav-On held there was not a requirement that “courts assess an employer’s affirmative exemption defense against every class member’s claim before certifying an overtime class action,” but concluded this passage does not apply to the trial phase of a class action lawsuit.  In so doing, the Duran court addressed the problem frequently ignored by many trial courts that certified class actions with no indication as to how a class action trial would be properly managed that comported with a defendant’s due process rights.  The court concluded that the evidence at trial showed that because BBOs were not monitored or tracked in any way, the “only way to determine with certainty if an individual BBO spent more time inside or outside the office would be to question him or her individually.”  The court held that the trial court erred in failing to grant U.S. Bank’s second motion to decertify at the close of the liability phase of trial because it erroneously relied on U.S. Bank’s policies (primarily its uniform classification of BBOs as exempt) and ignored variances in admissible evidence that “cast serious doubts as to the prevalence of common issues affecting liability.” 

This case is a welcome development to California employers that have been besieged with wage-and-hour class actions in the last decade.  It calls into question the viability of using statistical sampling and representative testimony in misclassification cases where a proper exemption inquiry turns on an individual analysis.  It also forces trial courts to carefully consider trial management issues and due process arguments that have been largely ignored at the class certification stage.  The entirety of the Duran opinion can be read here.

CDF represented U.S. Bank during the entire pendency of the case at the trial court level and on appeal.

Oral Argument Scheduled in Kirby v. Immoos

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

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

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

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

Military Caregiver Leave

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

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

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

Airline Flight Crew Employees

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

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

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

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

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

California Court Says Professional Recruiters Are Exempt Commissioned Salespersons

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

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

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

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

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

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

CDF Partners to Present Panel Discussion on Social Media

On February 29, 2012, in conjunction with the Southern California Chapter of the Association of Corporate Counsel, CDF Partners Dan Forman and Mark Spring will be speaking on the topic of social media in the workplace.  Covered topics will include employee privacy and monitoring social media use, protection of trade secrets and confidential business information, social media and the hiring process, union organizing, and the NLRB's treatment of social media use as protected concerted activity.  The presentation will be held on the Queen Mary in Long Beach, with registration and cocktails beginning at 5:30 p.m. and the panel presentation following from 6:30-7:30 p.m.  For more detailed information, including registration information, click here.

Supreme Court Confirms Ministerial Exception to Discrimination Laws

On January 11, 2012 the United States Supreme Court issued its decision in Hosanna-Tabor v. Equal Employment Opportunity Commission, confirming a “ministerial” exception to discrimination laws.

Cheryl Perich worked as a “called” teacher for Hosanna-Tabor Evangelical Lutheran Church and School.  The term “called” means that she underwent a religious “commission” to teach for the school.  Perich developed narcolepsy and began the 2004-2005 school year on disability leave.  In January 2005 she notified the school principal that she would be able to report to work in February.  The principal responded that he had already hired another teacher to work in February.  The principal also expressed concern that Perich was not ready to return to the classroom.  The Church offered to pay a portion of Perich’s medical insurance costs in exchange for her resignation.  Perich refused to resign and told the principal she had spoken with an attorney and intended to assert her legal rights.  The Church then terminated Perich for insubordination and disruptive behavior.

Perich next filed a charge with the Equal Employment Opportunity Commission alleging she was terminated in retaliation for threatening to file a lawsuit in violation of the Americans with Disabilities Act.  At the District Court level Hosanna-Tabor argued that the lawsuit was barred by the “ministerial” exception to the ADA provided by the First Amendment.  The District Court agreed and granted summary judgment in Hosanna-Tabor’s favor.  The Sixth Circuit Court of Appeals vacated that decision because it found that Perich was not a minister under the exception.

The U.S. Supreme Court overturned the Court of Appeals’ decision and held that there is a ministerial exception to the ADA and that Perich was included within that exception.  The Supreme Court explained that the Free Exercise and Establishment Clauses of the First Amendment provide a “ministerial” exception to the ADA.  The Court wrote that imposing an unwanted minister on a religious group infringes on the group’s right to shape its own faith and mission through its appointments.  The Court further explained that Perich was a minister because she had a significant amount of religious training followed by a formal religious commissioning by the school, she held herself out as a minister, and her job duties included conveying the Church’s message in religious instruction.  Therefore, the Court concluded that Perich fell within the “ministerial” exception and could not make a discrimination claim against Hosanna-Tabor.

The Court’s ruling is a positive one for religious organizations.  It assures them a greater freedom to make employment decisions.  However, the Court did not provide much guidance regarding what organizations qualify as a “religious organization” or which employees would qualify as “ministers” to fit within the “ministerial” exception.  Organizations that have concerns about whether they fit within this exception may want to consult with counsel before relying on the exception in making employment decisions.

Confusion Surrounds California’s New Wage Notice

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

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

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

3. The regular payday designated by the employer;

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

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

6. The telephone number of the employer;

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

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

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

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

1. The employee’s hire date and position;

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

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

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

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

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

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

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

NLRB Enters Fray on Non-Union Employment Arbitration Agreements

Last week the increasingly controversial NLRB issued a decision holding that class action waivers in employment arbitration agreements (non-union) violate employees' rights to engage in protected concerted activity under the NLRA.  The case involved a national homebuilder, D.R. Horton, Inc.  Like many employers, D.R. Horton several years ago started requiring its employees, as a condition of employment, to agree to resolve any employment-related disputes by way of binding arbitration.  Also like most similar agreements, D.R. Horton's agreement contained a class action waiver provision--a provision that precludes arbitration of collective or class claims.  There has been much litigation both in California and on the federal level concerning the enforceability of class action waivers, the most recent important decision being that of the United States Supreme Court in AT&T Mobility v. Concepcion.  In the AT&T Mobility case, the Supreme Court upheld the validity of class action waivers in consumer arbitration agreements, holding that the Federal Arbitration Act (FAA) preempted a California state law invalidating such class action waivers in consumer agreements.  Although the AT&T Mobility case was not an employment case, its reasoning may be applied to similarly support the enforceability of class action waivers in employment arbitration agreements.  There have been numerous legislative efforts both in California and in the United States Congress to bar mandatory arbitration agreements in the employment context but none of these legislative efforts have succeeded to date.  With the NLRB's decision in D.R. Horton, it appears the NLRB is now presenting a new attack on the validity of such agreements, at least insofar as the agreements contain a class action waiver. 

In the D.R. Horton case, the employees were required to sign an agreement to arbitrate any and all employment disputes arising between them and the company.  The agreement included a provision indicating that arbitration proceedings had to be conducted individually and not on a collective or classwide basis.  Notwithstanding this provision, an employee by the name of Michael Cuda advised the company that he intended to initiate arbitration of a claim for unpaid overtime on behalf of himself and all similarly situated employees who were allegedly misclassified by the company.  D.R. Horton took the position that the demand for arbitration was invalid because the arbitration agreement precluded class claims and mandated that any claim in arbitration be pursued individually.  Cuda filed an unfair labor practices charge with the NLRB, alleging that the class action waiver provision violated the employees' rights under the NLRA.  The NLRB agreed.

The NLRB first held that the arbitration agreement violated the NLRA because its scope could be interpreted by employees as precluding them from filing unfair labor practice charges with the NLRB.  If this were the sole finding of the NLRB, it would not be much cause for alarm because employers with mandatory arbitration agreements could simply revise them to clarify that the agreement does not prohibit the filing of unfair labor practice charges with the NLRB.  Most administrative claims (for example, EEOC claims and claims filed with similar state agencies) are already exempted from the scope of arbitration agreements by virtue of applicable law.   The NLRB did not so limit its holding, however.   Instead, the NLRB went on to hold that the agreement's class action waiver further violated employees' rights to engage in concerted activity to improve the terms and conditions of employment on matters such as wages, hours and working conditions.  According to the NLRB, an individual pursuing a lawsuit on behalf of other employees is one such means of concerted activity:  "Clearly, an individual who files a class or collective action regarding wages, hours or working conditions, whether in court or before an arbitrator, seeks to initiate or induce group action and is engaged in conduct protected by Section 7."

The NLRB held that neither the FAA nor the Supreme Court's decision in AT&T Mobility compelled a different conclusion.  The Board held that the FAA does not require enforcement of arbitration agreements where a party is precluded from vindicating substantive rights protected by statute.  The NLRB reasoned that the class action waiver impairs employees' substantive right to band together to improve working conditions as set forth in Section 7 of the NLRA.  The NLRB similarly distinguished the AT&T Mobility case, reasoning that it did not involve the compatibility of two federal statutes (the FAA and the NLRA) and harmonizing their purposes.  Instead, the AT&T Mobility case involved the issue of federal law (the FAA) preempting a state law disfavoring enforceability of arbitration agreements. 

The NLRB did not go so far as to say that all employment arbitration agreements violate the NLRA.  The NLRB instead said that agreements prohibiting employees from pursuing collective or classwide relief in any forum violate the NLRA.  So long as the agreement allows employees to pursue collective/classwide relief in some forum--arbitral or judicial--it will not violate the NLRA.  This is of course of little practical utility to employers utilizing arbitration agreements. 

Does the NLRB's D.R. Horton decision mean that employers should stop including class action waivers in their arbitration agreements?  Not so fast.  It should be expected that the NLRB's decision will be appealed to the Eleventh Circuit Court of Appeals and possibly further reviewed by the United States Supreme Court.  This is amidst much other controversy surrounding the current NLRB and many of its other recent actions.  There is so much current uncertainty regarding the NLRB and the validity of its recent actions that employers should stay tuned and monitor continuing developments on this front.         

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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