The U.S. Supreme Court Strengthens the Hand of Employers to Compel Individual Arbitration of Claims, while Public and Business Attitudes Towards Arbitration Are in Ferment

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Opposition to arbitration clauses by consumers and employees is growing, some employers, in response to that opposition, are taking actions to eliminate arbitration clauses in employment agreements or employee policies, and support is growing in Congress to rein in the ambit of arbitration.  In the midst of this political and cultural ferment over arbitration, the United States Supreme Court continues its years-long trend to enforce arbitration clauses in a manner that favors employers and consumer-focused companies.

In Lamps Plus, Inc. v. Varela, __ U.S. __, 139 S.Ct. 1407 (Apr. 24, 2019), the Court sided with employers to prevent class arbitration where the arbitration agreement was ambiguous as to whether class arbitration was contemplated.  Explaining that the Court’s “normal practice” is to defer to the Circuit Court on “interpretation and application of state law,” it adopted the Ninth Circuit’s conclusion, applying California contract law, that the “agreement was ambiguous on the availability of class arbitration.”

The finding of ambiguity teed up the issue of “whether, consistent with the [Federal Arbitration Act], an ambiguous agreement can provide the necessary ‘contractual basis’ for compelling class arbitration.”   (Citing Stolt-Nielsen, S.A. v. AnimalFeeds Int’l Corp., 559 U.S. 662, 684 (2010).)  Relying on Stolt-Nielsen and Epic Systems Corp. v. Lewis, 584 U.S. ___, 138 S.Ct. 1612 (2018), decided last term, the Court held that “it cannot” provide such supports, because “[c]lass arbitration is not only markedly different from the ‘traditional individualized arbitration’ contemplated by the FAA, it also undermines the most important benefits of that familiar form of arbitration.”

The Court rejected the Ninth Circuit’s application of California’s rule of contractual interpretation, under which an ambiguous contractual provision is construed against the party that drafted the contract.  It found the interpretive principle inconsistent with the FAA, because it undermines the foundational principle that arbitration is a matter of consent.  This rule of contractual construction, “[u]nlike contract rules that help to interpret the meaning of a term, and thereby uncover the intent of the parties” is “triggered only after a court determines that it cannot discern the intent of the parties.”  (Emphasis in original.)

In Epic Systems, the Court had admonished courts not to “rely on state contract principles to ‘reshape traditional individualized arbitration by mandating classwide arbitration procedures without the parties’ consent.’”  Explaining that “the FAA provides the default rule for resolving ambiguity here,” the Court determined that the California rule of construction could not be “applied to impose class arbitration in the absence of the parties’ consent.”  Neither silence nor ambiguity provides a sufficient basis for concluding that parties to an arbitration agreement agreed to undermine the central benefits of arbitration itself.”

Lamps Plus further closes the loop to prevent employees and consumers from evading individual arbitration of their claims.  Companies can rest assured that employees and consumers will not be able to rely on arbitration agreements that do not clearly prohibit class arbitration to compel class arbitration.

What is next for arbitration in the appellate courts?  In California, the California Supreme Court will soon address the issue of whether its decision in Iskanian v. CLS Transportation Los Angeles, LLC, 59 Cal.4th 348 (2014), holding that arbitration agreements are not enforceable in claims under California’s Labor Code Private Attorneys General Act (“PAGA”), applies to a claim for wages under section 558(a) of the California Labor Code.  Section 558(a) states that the unpaid wage claim penalty is recoverable 100 percent by the employee,[1] unlike other PAGA claims, for which the employee receives only 25 percent, the other 75 percent going to the state.  The U.S. Supreme Court has not yet taken up a case raising the issue of the enforceability of an arbitration agreement in a PAGA claim.  Meanwhile, the California Supreme Court recently reminded parties to an arbitration that court review of erroneous decisions by an arbitrator is extremely limited – in keeping with the notion that arbitration is designed to be a streamlined process.  Heimlich v. Shivji, __ Cal.5th __, 2019 WL 2292828 (May 30, 2019).  Be careful what you wish for.

In sticking to its established unwavering support of arbitration clauses, the Court may further fuel the flame for legislative reform of the arbitration process.  But any such reform will have to come from Congress, because efforts by state legislatures to adopt laws restricting arbitration will run afoul of FAA preemption.  Companies need to consider whether the benefits of enforcing agreements or policies requiring individual arbitration of claims outweigh the growing public backlash against such policies.

[1]               One California appellate court has held that the employee is entitled to only 25 percent of the recovery under section 558(a), because the same split must be applied to this claim as is applied to other PAGA claims.  Zakaryan v. Men’s Wearhouse, Inc., 33 Cal.App.5th 659, 674-75 (2019).

Timbs v. Indiana: The Potential Impact on PAGA Penalties of the Supreme Court’s Decision that the Eighth Amendment Excessive Fines Clause Applies to the States

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I.  Introduction – Timbs, the Excessive Fines Clause, and a Potential Defense to PAGA Penalties

The U.S. Supreme Court’s recent decision in Timbs v. Indiana (Feb. 20, 2019) 2019 WL 691578, holding that the Eighth Amendment’s Excessive Fines Clause applies to the states through the Fourteenth Amendment’s Due Process Clause, could offer support for a defense to the large monetary penalties sought in representative claims against employers under the California Labor Code Private Attorneys General Act (“PAGA”) (Cal. Labor Code §§ 2698 – 2699.6).

II.  The Timbs Decision and the Eighth Amendment Excessive Fines Clause

Under the Eighth Amendment to the U.S. Constitution, “[e]xcessive bail shall not be required, nor excessive fines imposed, nor cruel and unusual punishments inflicted.”  The portion of the amendment prohibiting excessive fines “limits the government’s power to extract payments, whether in cash or in kind ‘as punishment for some offense.’”  (Id. at *3 (citing United States v. Bajakajian (1998) 524 U.S. 321, 327-28).)  The restrictions imposed by the Excessive Fines Clause are not limited to criminal statutes; they cut across the division between criminal and civil law.  Civil proceedings may advance criminal and remedial goals.  The question is not whether a civil or criminal law is involved, but whether the purpose of the fine is punishment, in which case the clause applies, or remedial, in which case it does not.  (Austin v. United States (1993) 509 U.S. 602, 609-10.)

In explaining why the Excessive Fines Clause applies to the states, the Court noted:

“For good reason the protection against excessive fines has been a constant shield throughout Anglo-American history:  Exorbitant tolls undermine other constitutional liberties.  Excessive fines can be used, for example, to retaliate against or chill the speech of political enemies . . . .  Even absent a political motive, fines may be employed ‘in a measure out of accord with the penal goals of retribution and deterrence,” for ‘fines are a source of revenue,’ while other forms of punishment ‘cost a State money.’”

(Id. at *4 (citing Harmelin v. Michigan, 501 U.S. 957, 979, n.9 (1991) (opinion of Scalia, J.) (“it makes sense to scrutinize governmental action more closely when the State stands to benefit”).)

In applying the Eighth Amendment’s Excessive Fines Clause, “[t]he touchstone of the constitutional inquiry . . . is the principle of proportionality: The amount of the forfeiture must bear some relationship to the gravity of the offense that it is designed to punish. [Citations.] … [A] punitive forfeiture violates the Excessive Fines Clause if it is grossly disproportional to the gravity of a defendant’s offense.”  (United States v. Bajakajian, 524 U.S. at 334; People v. Urbano (2005) 128 Cal.App.4th 396, 406 (citing Bajakajian).)

III.  The California Constitution’s Excessive Fines Clause and Litigation Challenging PAGA

California has its own Excessive Fines Clause in Article I, section 17 of the California Constitution.  Even before Timbs was decided, the California Business & Industrial Alliance had filed a lawsuit in Orange County Superior Court against California Attorney General Xavier Becerra, seeking declaratory and injunctive relief against PAGA, in part based upon the state’s constitutional prohibition against excessive fines.  (California Business & Industrial Alliance v. Becerra, Orange County Sup. Ct. Case No. 30-2018-01035180-CU-JR-CXC (filed Nov. 28, 2018).)  The Attorney General filed a demurrer to the complaint, which is scheduled for hearing on March 28, 2019.

IV.  Timbs and PAGA

By encouraging PAGA lawsuits by private parties and their counsel, the PAGA statute raises one of the concerns on which the Court’s Timbs decision was based – that excessive fines might be used “in a measure out of accord” with the goal of retribution and deterrence, to promote increased revenues to the state.  Under PAGA, violations of Labor Code provisions governing, among other wage and hour issues, overtime, meal and rest breaks and payroll records, can result in large civil penalties that far exceed the value of the unpaid or underpaid wages.  In representative actions filed by private attorneys, 25 percent of the penalties recovered are paid to the State, without the state having expended any amount in fees to recover them.  The State of California has established a system to raise revenues via penalties imposed on employers without having appropriated any funds for an enforcement infrastructure and with minimal to no oversight of how those enforcement measures are used on its behalf.

Granted that PAGA penalties can have a significant deterrent effect on companies bent on what has been characterized as “wage theft”.  But they also can wreak havoc on companies that have inadvertently violated wage and hour laws and are prepared to correct and pay any erroneously unpaid wages, but are hit with the prospect of also incurring multiples of the amount of the unpaid wages in penalties.  The prospect of representative lawsuits by private counsel alleging hundreds of thousands to millions of dollars of such penalties, for which attorneys’ fees are also recoverable, can create harrowing concerns for companies.

Beginning in 1996, with the case of BMW North America, Inc. v. Gore (1996) 517 U.S. 559, the United States Supreme Court began to establish, based upon due process concerns, limitations on the amount of punitive damages that could be awarded against a defendant.  The Court set bounds on such awards, requiring the amount of the award to bear some relationship to the gravity of the defendant’s conduct.  “Perhaps the most important indicium of the reasonableness of a punitive damages award is the degree of reprehensibility of the defendant’s conduct.”  (Id. at 575.)

The Court also looked at the ratio of punitive to compensatory damages, which was 500 to one in that case, and noted that, while that ratio cannot be the deciding criteria, “[w]hen the ratio is a breathtaking 500 to 1, . . . the award must surely “raise a suspicious judicial eyebrow.”  (Id. at 583 (citation omitted).)  Moreover, the penalty that could have been imposed by statute for the conduct involved in BMW was only $2,000.  “The sanction imposed in this case cannot be justified on the ground that it was necessary to deter future misconduct without considering whether less drastic remedies could be expected to achieve that goal.”  (Id. at 584.)  In subsequent cases, the Court established further bounds on awards of punitive damages.

Are we on the brink of other judicially crafted principles, based upon the Excessive Fines Clause of the Eighth Amendment, to reign in PAGA penalties?  The Court’s prior treatment of punitive damages, together with the excesses of some representative PAGA penalty claims, and the gathering of a solid conservative majority on the Court makes it more likely that the issue will be taken up.  However, the question of whether the Court will be able to draw definite bounds on such penalties will most likely take several cases and years to resolve.

Recent California Appellate Cases Continue Trend of Increased Scrutiny of Employer Pay Practices

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Two decisions from the California appellate courts in late December and early January reemphasize that employers must keep meticulous records to comply with the often complicated wage and hour laws governing compensation of their employees.  In particular:

  1. Employers must keep accurate records of all hours worked by employees. Failure to keep accurate records of hours worked by an employee relaxes the burden on that employee to prove he or she worked unpaid time.  While the employer has the opportunity to present evidence disputing the employee’s proof, the lack of accurate records works strongly in the employee’s favor.
  2. Employers must comply with section 226.2 of the California Labor Code, to pay piece-rate employees on an hourly basis for rest and recovery periods and other nonproductive time separate from any piece-rate compensation. According to the Court of Appeal, which rejected a constitutional challenge to the statute, the statutory definition of “other nonproductive time” as “time spent under the employer’s control, exclusive of rest and recovery periods, that is not directly related to the activity being compensated on a piece-rate basis,” is sufficiently clear for employer compliance.

Furry v. East Bay: Keep Accurate Records of Hours Worked to Avoid More Easily Provable Overtime Claims by Employees

In a case decided in December 2018 and ordered published in January 2019, Furry v. East Bay Publishing, LLC (Dec. 12, 2018) 2018 WL 6930903, the California Court of Appeal reinforced the legal principle that an employer’s failure to keep accurate and precise records of a non-exempt employee’s hours worked relaxes the employee’s burden of proving unpaid time worked.  At the same time, the court affirmed a judgment denying the employee regular or premium pay for meal periods, during which the employee had worked, because the employer had provided appropriate meal periods, and the employee had failed to show that the employer was aware or reasonably should have been aware that the employee was working through the meal periods.

With regard to the legal principle governing proof of unpaid hours worked, Furry’s evidence during a four-day bench trial established that the East Bay Publishing, LLC had not kept track of the hours that Furry worked, and that Furry had performed work during evenings and on weekends at employer-sponsored events and promotions.  Both a subordinate and a supervisor of Furry knew he was performing that work at times outside of normal business hours.

In these circumstances, the appellate court held that the trial court erred in completely denying to Furry relief on his overtime compensation claim, because imprecise evidence by an employee of hours worked can form a sufficient basis for damages when the employer fails to keep accurate records of the employee’s work hours.  Relying on Hernandez v. Mendoza (1988) 199 Cal.App.3d 721, 727, the Court explained that the failure of an employer to keep records of hours worked by an employee results in the application of a relaxed standard of proof for the employee to show the number of hours worked.  Once the employee has made this showing, the burden then shifts to the employer to produce evidence of the precise amount of work performed or to negate the reasonableness of the inference of the number of hours worked that could be drawn from the evidence the employee provided.

Because Furry’s work beyond normal work hours was established by his and others’ testimony, the fact of damage was established and, consequently, his estimates of hours worked were sufficient to prove the amount of damage.  The trial court erred in holding that he had failed to account for hours worked for which he was not compensated by sales commissions he received.  According to the Court of Appeal, the trial court should have used the evidence of amount of commissions paid to calculate the regular rate of pay, and therefore, the overtime rate and pay, not as a basis for denying relief.

Nisei v. California LWDA:  The Law Requiring Hourly Compensation to Piece-Rate Workers Is Sufficiently Clear to Withstand Constitutional Challenge

In Nisei Farmers League v. California Labor and Workforce Development Agency (Jan. 4, 2019) 2019 WL 99087, the California Court of Appeal denied a challenge to the constitutionality of a Labor Code provision effective January 1, 2016, which codified case law requiring employers with piece-rate workers to pay those workers separately on an hourly basis at a rate not less than minimum wage for rest and recovery periods and other nonproductive time.  The employers groups that brought the case had argued that their piece-rate compensation system took account of nonproductive time to pay sufficient compensation, and challenged the constitutionality of the statute on the grounds that it (1) was void for vagueness, and (2) retroactive and therefore a violation of due process as well as a taking of property.

The appellate court held that the plaintiffs failed to allege an adequate basis to find the statute, section 226.2 of the Labor Code, unconstitutional.  The Legislature had enacted section 226.2 to codify the case law in Gonzales v. Downtown LA Motors, LP (2013) 215 Cal.App.4th 36, and Bluford v. Safeway Inc. (2013) 216 Cal.App.4th 8644, which had “upended” the expectations of employers who had assumed that a piece-rate system that allegedly took account of and compensated for nonproductive work periods by the way the piece-rate was set complied with California’s wage and hour laws.

In Gonzales, 215 Cal.App.4th at 40-41, the Court of Appeal had held that automobile service employees were “entitled to separate hourly compensation for time spent waiting for repair work or performing non-repair tasks directed by the employer during their work shifts”.  Such compensation was required to comply with minimum wage, because the minimum wage law applies to each hour an employee works.  For similar reasons, the Court in Bluford, 216 Cal.App.4th at 872, held that employers must separately pay piece-rate employees at the rate of at least minimum wage for rest periods.  Both cases relied on the earlier case of Armenta v. Osmose, Inc. (2005) 135 Cal.App.4th 314, 317-24, in which the Court had held that, because California’s minimum wage law applies to each hour worked, an employer could not withhold payment of wages to an hourly employee for nonproductive time and average the wages paid over productive and non-productive time to assure that the average met minimum wage requirements.

In codifying Gonzales and Bluford in section 226.2 of the Labor Code, the California Legislature also, in section 226.2(b), created a safe harbor affirmative defense for employers that had previously failed to pay on an hourly basis for rest periods and nonproductive work by employees who were otherwise paid on a piece-rate basis.  The affirmative defense was only available to those employers that, (1) by December 15, 2016, made payments of actual sums not paid (or underpaid) for rest and recovery periods and other nonproductive work (or based upon an alternative payment calculation) during the period July 1, 2012 through December 31, 2015, and (2) had provided notice by July 1, 2016 to the Department of Industrial Relations of their election to make those payments.

The trial court had sustained demurrers to the employer groups’ complaint without leave to amend, and the Court of Appeal affirmed.  It agreed with the trial court that the statute was not void for vagueness.  Section 226.2 clarified the statutory requirements for piece-rate compensation by confirming, as of January 1, 2016, that employers were required to compensate piece-rate employees for rest and recovery periods and other nonproductive time separate from any piece-rate compensation.  Neither the term “other nonproductive time” nor the term “actual sums due” in the statute were unconstitutionally vague.

The statutory definition of “other nonproductive time” as “time spent under the employer’s control, exclusive of rest and recovery periods, that is not directly related to the activity being compensated on a piece-rate basis,” was “reasonably clear and specific and provide[d] adequate notice of the nature of the conduct that is being described.”  Moreover, section 226.2 was enacted to codify Gonzales, which, like Bluford, relied on Armenta.  This context of case law lent clarity to the statute.  In particular, Gonzales provided “fact-based concrete illustrations of what was meant by the term ‘other nonproductive time’”.  The phrase in the definition, “not directly related” was not unconstitutionally vague: many statutes have used the phrase “directly related”.  The constitution did not require the statute’s terms to contemplate all possible circumstances in which it would be applied.

The second ground for the employers’ constitutional challenge, that the statute was retroactive, also was without merit.  The safe-harbor affirmative defense, which required payment by employers of pre-January 1, 2016 unpaid compensation, did not constitute an unconstitutionally retroactive statute, because the compensation for prior rest periods and nonproductive work, on which the affirmative defense was conditioned, was based upon the law that was in effect at the time, before the adoption of section 226.2—i.e., the case law of Gonzales, Bluford and Armenta.  When the Gonzales and Bluford decisions were final, employers were required to separately compensate piece-rate employees for nonproductive uncompensated time and for rest periods.

The Nisei Farmers League case makes clear that employers cannot expect a judicial reprieve from the requirement of separate hourly compensation of piece-rate employees for rest periods and other nonproductive time.  The workability of such a compensation system remains in question.  Tracking nonproductive time will continue to be cumbersome.  And the potential liability exposure for failing to track and pay for it properly may continue to shift employers away from any piece-rate compensation in California.  This development could adversely impact employees who, in some circumstances, can earn higher pay on a piece-rate basis than as an hourly employee.

Expanded Protections for Employees – Expanded Exposure for Employers under California Laws Effective January 1, 2019

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In the last several months of 2018, the California Legislature enacted many new statutes to keep employers hopping – following a sea-change decision by the California Supreme Court earlier in the year in Dynamex Operations West, Inc. v. Superior Court, 4 Cal.5th 903 (2018), which adopted a test for classification of workers that imposes more restrictions on treating them as contractors instead of employees.  (https://weinbergerlawblog.com/2018/05/09/the-abcs-of-the-worker-classification-the-california-supreme-courts-new-dynamex-standard-expands-employee-protections/)

The new laws require employers (1) to amend their settlement agreement templates to eliminate certain confidentiality provisions when settling a sexual harassment claim; (2) to delete provisions in such agreements waiving employees’ rights to testify in legal proceedings about the harassment; (3) to expand training of supervisorial and non-supervisorial employees on sexual harassment and prevention of abusive conduct; (4) to protect employees from harassment by non-employees on all grounds prohibited by the California Fair Employment and Housing Act (FEHA), not just sexual harassment; and (5) to provide more accommodating space for a lactating employee to express milk.  (6) One new law expands protections against sexual harassment for persons in a contractual or professional relationship with an alleged harasser.  (7) Amendments to the Fair Pay Act clarify restrictions on an employer’s use of pay history and on questions about pay that an employer may ask of an applicant.

Employers should take heed of the following laws, some of which are effective January 1, 2019:

  • Do Settle, Do Ask and Do Tell: SB 820 adds section 1001 to the California Code of Civil Procedure to prohibit inclusion in a settlement agreement entered into on or after January 1, 2019 of “a provision . . . that prevents the disclosure of factual information related to a claim filed in a civil action or a complaint filed in an administrative action” for sexual harassment under section 51.9 of the California Civil Code or sexual harassment, discrimination, “or failure to prevent an act of workplace harassment or discrimination based on sex or an act of retaliation against a person for reporting harassment or discrimination based on sex, under the FEHA.  Except where a “government agency or public official is a party to the settlement agreement,” at the claimant’s request, the agreement may include a provision to shield his or her identity or facts that “could lead to the discovery of” the claimant’s identity.  Notwithstanding these prohibitions, a settlement agreement may prohibit disclosure of the amount paid in settlement.  Failure to comply with these prohibitions on contractual confidentiality provisions can form the basis for a civil action against an employer.

The ability to keep all aspects of a settlement confidential had been a motivating factor for some employers to resolve cases short of litigation, but the concern over how confidentiality has prevented employees and claimants from protecting themselves from serial predatory supervisors outweighed the possible consequence of pushing more employers to fight what they view as meritless claims rather than settle.  The ability to shield the amount of settlement could still incentivize employers to settle, but it is unclear whether the publicity surrounding settlement will outweigh any benefit that limited shield will provide.

  • Related Do Tell: AB 3109 adds section 1670.1 to the California Civil Code to make explicit what California public policy and case law already mandates:  Any provision in a settlement agreement “that waives a party’s right to testify in an administrative, legislative, or judicial proceeding concerning alleged criminal conduct or alleged sexual harassment on the part of the other party to the . . . settlement agreement, or on the part of the agents or employees of the other party, when the party has been required or requested to attend the proceeding pursuant to a court order, subpoena, or written request from an administrative agency or the legislature, is void and unenforceable.”   The law is effective as to settlement agreements entered into on or after January 1, 2019.  Any employers that had not already made clear in their settlement agreements that the agreement would not prevent the claimant from testifying in legal proceedings should amend their agreement forms immediately.
  • Further Related Do Tell: In addition to the prohibitions against certain contractual confidentiality provisions in settlement agreements, as described above, employers are prohibited, as of January 1, 2019, from requiring an employee “to sign a nondisparagement agreement or other document that purports to deny the employee the right to disclose information about unlawful acts in the workplace, including, but not limited to, sexual harassment.”  (Bus. & Prof. Code § 5(a)(2).)  The new law explicitly excludes a “negotiated” settlement agreement, where the employee has been given “notice and an opportunity to retain an attorney or is represented by an attorney.”
  • Expanded Training Requirement: SB 1343 expands the scope of employers that must provide training on prevention of sexual harassment and abusive conduct from those with 50 or more employees to those with five or more employees.  Employers with five or more employees must provide two hours of such training to supervisory employees and one hour of such training to non-supervisory employees within six months of employment and thereafter every two years.  The training must be provided by January 1, 2020.
  • Expanded Employer Liability for Discrimination/Harassment of Employees by Non-employees: The FEHA has been amended effective January 1, 2019, to expand protections of employees against harassment.  In determining whether a work environment is hostile in connection with a harassment claim under FEHA, that is, whether the conduct at issue is “severe or pervasive,” which is the rubric under which such cases are determined, “[a] single incident of harassing conduct is sufficient to create a triable issue regarding the existence of a hostile work environment if the harassing conduct has unreasonably interfered with the plaintiff’s work performance or created an intimidating, hostile, or offensive working environment.”  (Cal. Bus. & Prof. Code § 12923(b), (c).)  Therefore, evidence of a single incident can defeat an employer’s motion for summary judgment/adjudication of such a harassment claim.  The revised law states:  “Harassment cases are rarely appropriate for disposition on summary judgment.”

In addition, the liability of employers for harassment of employees by non-employees has been expanded, effective January 1, 2019, to include all prohibited harassment based upon all classifications (not just sex) under FEHA.  “An employer may . . . be responsible for the acts of nonemployees, with respect to harassment of employees, applicants, unpaid interns or volunteers, or persons providing services pursuant to a contract in the workplace, if the employer, or its agents or supervisors, knows or should have known of the conduct and fails to take immediate and appropriate corrective action.”  (Cal. Bus. & Prof. Code § 12940(j)(1).)

  • Expanded protections against sexual harassment for persons working under a contractual relationship: SB 224 amends section 51.9 of the California Civil Code to add the following categories to the list of professionals who could be found liable for sexual harassment to a person with whom the professional has a business or contractual relationship: an investor, elected official, lobbyist, director, and producer.  The other amendments to section 51.9 make a claim for sexual harassment easier to prove, (a) by adding that a plaintiff could show sexual harassment where “the defendant holds himself or herself out as being able to help the plaintiff establish a business, service, or professional relationship with the defendant or a third party;” and (b) by eliminating the requirement that the plaintiff show “there is an inability by the plaintiff to easily terminate the relationship.”
  • Expanded Lactation Accommodation: AB 1976 amends California Labor Code section 1031 to require employers to make reasonable efforts to provide a lactating employee with the use of room other than a bathroom to express milk in private.  Existing law required only that the employer make reasonable efforts to provide such a room other than a toilet stall.  The other amendments to this provision establishes safe harbors for an employer providing a temporary lactation area and for agricultural employers.
  • Clarified Employer Obligations under the Fair Pay Act: Effective January 1, 2019, the Fair Pay Act statute has been clarified by defining the terms, “pay scale” to mean “a salary or hourly wage range”, and “reasonable request” to mean “a request made after an applicant has completed an initial interview with the employer,” and “applicant” to mean an individual who is seeking employment with the employer and is not currently employed with that employer in any capacity or position.”  These definitions apply to the provision:  “An employer, upon reasonable request, shall provide the pay scale for a position to an applicant applying for employment.”  And the definition of “applicant” applies to the other provisions of the statute as well.

The amendment to the Fair Pay Act also clarifies that the Act does not prohibit an employer from asking an applicant about the applicant’s salary expectations.  And it clarifies that prior salary is not justification for any disparity in compensation, and that an employer is not prohibited from making “a compensation decision based on a current employee’s existing salary, so long as any wage differential resulting from that compensation decision is justified by one or more of the factors” listed in section 1197.5 of the Labor Code.

Employers should have written pay scale information prepared before they receive a request for pay scale information, so that they can thoroughly think it through without the time pressure of responding to such a request.

Troester v. Starbucks: The CA Supreme Court Holds Routine Tasks that Take Minutes to Perform are not too Minute to Evade Compensation

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In a July 27, 2018 decision, the California Supreme Court in Troester v. Starbucks Corp., 5 Cal.5th 829 (2018), clarified that, where an employer requires an employee to perform several minutes of compensable work after the employee has clocked out for the day, California law requires the employer to pay the employee for the work, even if the additional time may be administratively difficult to capture.  California case law does not support the application of the “de minimis” rule, which is applicable under the federal Fair Labor Standards Act, to avoid payment.

In light of the Troester decision, employers should adopt or revise their practices and policies to capture all time employees spend on work routinely done:

  1. If employees have been performing such tasks before they clock in or after they clock out, the employer should make sure to capture that time and compensate the employees. Employers should arrange that such tasks be performed after clocking in or before clocking out.  No such tasks should be performed once an employee has clocked out.
  2. If the tasks required of an employee make it difficult for the employee to clock out after performing them, because, for example, the manner of clocking out is by a clock or a computer distant from the task and the exit, the employer should explore new technologies, perhaps using smart phones, for clocking in or out.
  3. Employers should adopt a strong policy prohibiting work before clocking in or after clocking out and provide periodic reminders to employees of that policy.
  4. Supervisors should be trained to remind employees of that policy and to check with employees to make sure they are not performing tasks off the clock for which they are uncompensated. Employers should consider making work off the clock reportable to HR as a disciplinary matter, while still making sure to compensate the employee for the work.

In Troester, the Court, upon request by the U.S. Court of Appeals for the Ninth Circuit, examined whether the “federal Fair Labor Standards Act’s de minimis doctrine . . . [applies] to claims for unpaid wages under California Labor Code sections 510, 1194 and 1197.  Section 510 states, among other things, that a workday consists of eight hours, and any hours worked in excess of eight hours in a day or 40 hours in a workweek must be compensated at an overtime rate of time-and-a-half.  Section 1194 authorizes an employee to file suit for any amount of wages that is paid at a rate of less than minimum wage and any unpaid overtime pay.  And section 1197 provides for the setting of the minimum wage and makes it unlawful for an employer to pay at a rate less than the minimum wage.

The Court concluded that California’s wage laws and regulations have not adopted the FLSA’s de minimis principle.  The Court also concluded that California’s own de minimis principle, which operates in other contexts, cannot be applied to wage and hour statutes in the context of an employer that requires “the employee to work ‘off the clock’ several minutes per shift.”  The Court left to another day the question of whether the de minimis principle could be applied in “circumstances where compensable time is so minute or irregular that it is unreasonable to expect the time to be recorded.”

While California wage orders have not directly addressed the de minimis rule used in federal cases, they define “hours worked” broadly to include “preliminary” and “postliminary” tasks that may be excluded under federal law.  And they place” more importance on the policy of ensuring that employees are fully compensated for all time spent in the employer’s control.”

In light of that emphasis under the Labor Code and Wage Orders, the de minimis principle was inapplicable in the circumstances presented in Troester.  The duties that the employee had to perform after clocking out related to closing the store (activating the burglar alarm, exiting the store quickly thereafter, locking the door to the store, walking coworkers to their cars and, from time to time, arranging for coworkers to re-enter the store or bringing in patio furniture that had been left outside).  The Court noted that these are compensable tasks; that they take only a few minutes per day to accomplish does not absolve an employer from its obligation to pay the wages attributable to them.

California law does not make time non-compensable simply because of the difficulty of keeping track of that time.  The Court was unwilling to impose on the employee the burden arising from the difficulty in keeping track of time worked.  In addition, the Court noted that the availability of class action lawsuits has made it possible and worthwhile to fashion a remedy for such lost wages.  And technological advances have made it feasible to track and record work time that was previously unmanageable to capture.

Strides and Work Yet to do: Progress for LGBT Attorneys in the Profession

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On September 27, 2018, the Los Angeles Daily Journal published a column I wrote regarding the progress made by LGBT attorneys in the profession, with strengthened laws protecting against discrimination and harassment and heightened focus on diversity and its benefits.  Whatever progress has occurred, there is still much work to do.  You can read the column at 2018-09-27 LA DJ

Epic Change in the Class Action Landscape: Supreme Court Holds Class Action Waivers in Employment Arbitration Agreements Enforceable

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In its May 21, 2018 decision in Epic Systems Corp. v. Lewis, 584 U.S. ___, 2018 WL 2292444, the U.S. Supreme Court closed the door on efforts by employees to avoid class action waivers in arbitration agreements.  Having previously held in AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011), that “courts may not allow a contract defense to reshape traditional individualized arbitration by mandating classwide arbitration procedures without the parties’ consent,” the Court in Epic stated that the same holds true in the employment context:

“[A]s a matter of law the answer is clear.  In the Federal Arbitration Act, Congress has instructed federal courts to enforce arbitration agreements according to their terms – providing for individualized proceedings.”

It further held that the protections for collective activity under section 7 of the National Labor Relations Act (NLRA) do not impede class action waivers in the employment context.  Although the NLRA “secures to employees rights to organize unions and bargain collectively,” it does not speak to “how judges and arbitrators must try legal disputes that leave the workplace and enter the courtroom or arbitral forum.”  The FAA and the NLRA are not in conflict; enforcing class action waivers in arbitration agreements pursuant to the FAA impacts no fundamental principle or provision of the NLRA.

The Court again emphasized that the “savings clause” in section 2 of the FAA authorizes courts to deny enforcement of arbitration agreements “upon such grounds as exist at law or in equity for the revocation of any contract.” Therefore, section 2 permits as a defense to enforcement of an arbitration agreement (or class-action waiver in the agreement) only “generally applicable contract defenses, such as fraud, duress, or unconscionability.”  And such defenses may not target arbitration agreements “either by name or by more subtle methods,” for example, by challenging “fundamental attributes of arbitration,” like its individualized and less formal procedures.  The Court found that the employees’ defense to the arbitration agreements involved in Epic improperly targeted those very attributes.

In ruling that the NLRA does not prohibit class action waivers in employment arbitration agreements, the Court noted that section 7 “focuses on the right to organize unions and bargain collectively,” but “does not express approval or disapproval of class or collective action procedures.  It does not even hint at a wish to displace the” FAA.

What does Epic portend for the means of resolving legal disputes between employees and their employer?  Employers should consider the following consequences in managing the risks and costs of resolving disputes via class action procedures as compared to multiple individual actions:

  1. What policies an employer should adopt in response to Epic may depend upon how employees’ counsel adapt their strategies. If they start bringing multiple individual arbitrations, then employers may find that class action waivers do not serve the interests of efficient and less expensive resolution of legal disputes with employees.  One advantage of a class action is that it can fully and finally resolve all employee complaints regarding particular issues without having to engage in multiple lawsuits or arbitrations.  An employer in California that faces many individual arbitration proceedings, will, under the California Supreme Court decision in Armendariz v. Foundation Health Psychcare Services, Inc., 24 Cal. 4th 83 (2000), have to pay any costs incurred by an employee that exceed what the employee would incur in bringing an action in court.  And depending upon the discovery permitted in those arbitrations, an employer could find it necessary to have company officials deposed multiple times in separate arbitrations.
  2. On the other hand, with individual arbitrations, an employer should find it easier to manage the risks of an adverse result in arbitration or litigation with regard to a particular employment practice or circumstances. It could focus on one or a few cases to determine the risk of liability exposure and then, depending on the outcome of those limited number of cases, determine whether and at what amount to try to settle all the cases or, rather, to dig in and defend the cases to the end.
  3. Another advantage of individual arbitration will be that an employer should find it easier to resist discovery of the identity of other potential claimants or of practices with regard to other similarly situated employees.
  4. In California, collective or representative claims under the Private Attorneys General Act (PAGA), Cal. Labor Code § 2698 et seq., are not subject to class action waivers in arbitration agreements.  In Iskanian v. CLS Transportation Los Angeles, LLC, 59 Cal.4th 348 (2014), the California Supreme Court held that “a PAGA claim lies outside the FAA’s coverage because it is not a dispute between an employer and an employee arising out of their contractual relationship. It is a dispute between an employer and the state, which alleges directly or through its agents—either the [California] Labor and Workforce Development Agency or aggrieved employees—that the employer has violated the Labor Code.”  The U.S. Supreme Court refused to take up Iskanian.