California Labor &
Employment Law Blog

Apr. 7 2017

New Developments: Criminal History Regulations, Arbitration Ruling, and More

Topics: Arbitration Agreements, Court Decisions, Personnel Policies and Procedures

In the past several days, there have been a few different employment-related developments in California.  Here are the highlights:

Criminal History Regulations

California has given final approval to regulations governing employer use of applicant criminal history in making employment decisions.  These new regulations take effect July 1, 2017.  The regulations reiterate that employers may not use criminal history information in a manner that has an adverse impact on certain protected classes (e.g. race, national origina, gender). The regulations go on to provide that an applicant or employee bears the burden of demonstrating that the policy of considering criminal convictions has an adverse impact.  An adverse impact may be established through the use of conviction statistics or by offering any other evidence that establishes an adverse impact. State or national statistics showing substantial disparities in the conviction records of one or more categories enumerated in FEHA are presumptively sufficient to establish an adverse impact. This presumption may be rebutted by a showing that there is a reason to expect a markedly different result after accounting for any particularized circumstances such as the geographic area encompassed by the applicant or employee pool, the particular types of convictions being considered, or the particular job at issue.      

If the policy or practice of considering criminal convictions creates an adverse impact on a protected class of applicants or employees, the burden shifts to the employer to establish that the policy is nonetheless justifiable because it is job-related and consistent with business necessity. The criminal conviction consideration policy or practice needs to bear a demonstrable relationship to successful performance on the job and in the workplace and measure the person’s fitness for the specific position, not merely to evaluate the person in the abstract.

In order to establish job-relatedness and business necessity, any employer must demonstrate that the policy or practice is appropriately tailored, taking into account at least the following factors: (A) the nature and gravity of the offense or conduct; (B) the time that has passed since the offense or conduct and/or completion of the sentence; and (C) the nature of the job held or sought.

Demonstrating that a policy or practice of considering conviction history in employment decisions is appropriately tailored to the job for which it is used as an evaluation factor requires that an employer either:

(A) Demonstrate that any “bright-line” conviction disqualification or consideration (that is, one that does not consider individualized circumstances) can properly distinguish between applicants or employees that do and do not pose an unacceptable level of risk and that the convictions being used to disqualify, or otherwise adversely impact the status of the employee or applicant, have a direct and specific negative bearing on the person’s ability to perform the duties or responsibilities necessarily related to the employment position. Bright-line conviction disqualification or consideration policies or practices that include conviction-related information that is seven or more years old are subject to a rebuttable presumption that they are not sufficiently tailored to meet the job-related and consistent with business necessity affirmative defense; or

(B) Conduct an individualized assessment of the circumstances and qualifications of the applicants or employees excluded by the conviction screen. An individualized assessment must involve notice to the adversely impacted employees or applicants (before any adverse action is taken) that they have been screened out because of a criminal conviction; a reasonable opportunity for the individuals to demonstrate that the exclusion should not be applied due to their particular circumstances; and consideration by the employer as to whether the additional information provided by the individuals or otherwise obtained by the employer warrants an exception to the exclusion and shows that the policy as applied to the employees or applicants is not job-related and consistent with business necessity.

Regardless of whether an employer utilizes a bright line policy or conducts individualized assessments, before an employer may take an adverse action such as declining to hire, discharging, laying off, or declining to promote an adversely impacted individual based on conviction history obtained by a source other than the applicant or employee (e.g. through a background check), the employer must give the impacted individual notice of the disqualifying conviction and a reasonable opportunity to present evidence that the information is factually inaccurate. If the applicant or employee establishes that the record is factually inaccurate, then that record cannot be considered in the employment decision.

Importantly, under the new regulations, even if an employer successfully demonstrates that its policy or practice of considering conviction history is job-related and consistent with business necessity, adversely impacted employees or applicants may still prevail on a FEHA claim if they can demonstrate that there is a less discriminatory policy or practice that serves the employer’s goals as effectively as the challenged policy or practice, such as a more narrowly targeted list of convictions or another form of inquiry that evaluates job qualification or risk as accurately without significantly increasing the cost or burden on the employer.

These new regulations, along with recent EEOC guidance and the increasing number of city ordinances restricting the use of criminal history information, are a good reminder for employers to review their practices to ensure that their use of criminal history information complies with applicable law.

California Supreme Court Arbitration Ruling

This week, the California Supreme Court issued its decision in McGill v. Citibank, holding that agreements waiving the right to pursue claims for public injunctive relief in any forum (whether in arbitration or in court) are unenforceable.  Of particular note, this is not an employment case. It is a case involving an arbitration agreement between a credit card company and an indvidual consumer who sued Citibank for violations of the Consumer Legal Remedies Act, the unfair competition law, and the false advertising law.  Plaintiff sought public injunctive relief to prevent further false, deceptive, and unfair practices.  She also sought damages.  

The trial court granted Citibank's petition to compel arbitration, excepting only the claims for public injunctive relief.  The trial court held that these claims were not subject to arbitration based on established California caselaw, i.e. the Broughton-Cruz rule.  On appeal, the court of appeal held that the Broughton-Cruz rule was preempted by the Federal Arbtitration Act and ordered that all of Plaintiff's claims should be ordered to arbitration (including the claims for public injunctive relief).

On review by the California Supreme Court, the high Court held that it need not decide whether the Broughton-Cruz rule is preempted by the FAA.  The  Court reasoned that such a decision would be necessary only if the arbitration agreement at issue required Plaintiff to arbitrate her claims for public injunctive relief instead of pursuing them in court.  Here, by contrast, the Court held that the parties' agreement waived McGill's right to pursue claims for public injunctive relief in any forum.  The Court relied on provisions in the arbitration agreement stating that any disputes between the parties had to be decided in arbitration on an individual basis and that no claim could be pursued in court.  Moreover, no arbitrator could award relief on behalf of anyone other than the individual claimant.  The Court held that this effectively waived Plaintiff's ability to pursue a claim for public injunctive relief entirely, in any forum.  The Court further held that such a waiver is not enforceable.

The Court emphasized that it was not suggesting that all claims for injunctive relief under the UCL and CLRA are claims for "public" injunctive relief that cannot be waived.  The Court explained that claims for public injunctive relief are those that are primarily for the benefit of the public rather than the private plaintiff (or a group of similarly situated privated plaintiffs). In other words, the relief sought must be to prevent future harm to the public at large rather than to redress harm or prevent injury to a plaintiff.  "Relief that has the primary purpose or effect of redressing or preventing injury to an individual plaintiff — or to a group of individuals similarly situated to the plaintiff — does not constitute public injunctive relief."  

Thus, the impact of the California Supreme Court's decision in McGill is limited in employment cases.  However, in wage and hour class actions (which typically include UCL claims and may include a claim for injunctive relief against a wage and hour practice), Plaintiffs' lawyers may try to argue that the injunctive relief claim is a claim for "public" injunctive relief under McGill and use this as one way to try to attack the enforceability of any applicable arbitration agreement.  This should not succeed, given that a class action for wage and hour violations surely seeks relief that primarily benefits the plaintiff and individuals similarly situated to the plaintiff -- as opposed to seeking relief that primarily seeks to prevent harm to the public at large.  This is likely to be a subject of future litigation, however, and an issue that also may come up in the context of discrimination class actions.

What is clear for now is that the California Supreme Court continues to demonstrate some hostility toward arbitration agreements and continues to find ways to limit their enforceability and applicability to certain claims under California law, notwithstanding the United States Supreme Court's repeated decisions favoring enforcement of these agreements under the FAA. 

Safeway Prevails in Proving Assistant Managers Are Exempt from Overtime

This week, a California Court of Appeal issued a decision in Batze v. Safeway, affirming a trial verdict in favor of grocery giant, Safeway, finding that Safeway successfully proved that the assistant manager plaintiffs were properly classified as exempt from overtime under California law.  If you have assistant manager classifications and/or are defending this type of claim by a managerial employee, this decision contains some good reasoning and analysis.  You can read the full opinion here.

About CDF

For over 20 years, CDF has distinguished itself as one of the top employment, labor and immigration firms in California, representing employers in single-plaintiff and class action lawsuits and advising employers on related legal compliance and risk avoidance. We cover the state, with five locations from Sacramento to San Diego.

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About the Editor

Robin Largent represents employers, including major food and retail companies, in all types of employment litigation: wrongful termination, retaliation, breach of contract, wage and hour (California Labor Code) and unfair competition. She also regularly counsels and advises California employers on issues of compliance with California and federal employment laws.
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