Ninth Circuit Enforces California Protections for Consumers and Workers in the Intersection of Federal and State Laws on Arbitration and Wages

Standard

I.     Summary of the Court Decisions, and Suggested Action Steps for Companies

In two decisions in June 2019, the U.S. Ninth Circuit Court of Appeals (1) reinforced that California does not recognize the federal de minimis doctrine, which relieves employers of paying wages to employees for work that lasts only a few seconds or minutes before or after regular working hours, and (2) held that the Federal Arbitration Act does not preempt a California Supreme Court decision that holds unenforceable an agreement purporting to waive a party’s right to seek public injunctive relief in any forum.  The first case requires California employers to pay their employees for the limited time that they are subject to inspections after they clock out at work.  The second prohibits companies from insisting that consumers waive their right to seek public injunctive relief in an arbitral forum.

In light of these decisions, companies should consider taking the following steps:

  1. Employers with workers in California should work out the administrative and logistical means to compensate employees for minimal post-clock-out or pre-clock-in work.
  2. If an employer determines that it is not reasonably possible to compensate employees for such work, then it should make sure that it maintains a record of its diligent efforts to work out the means to pay employees for such work.
  3. Companies that have arbitration agreements with consumers or workers in California should review the agreements to assure that they do not contain a waiver of the right to seek public injunctive relief.

II.     Rodriguez v. Nike: An employer must pay an employee for the time the employer’s work rules require the employee to stay after regular working hours.

Rodriguez v. Nike Retail Stores, Inc. 928 F.3d 810 (9th Cir. 2019), involved a work rule at Nike’s 34 retail stores in California requiring employees “to submit to exit inspections each time they leave the store on a break or at the end of the day.”  Non-exempt employees, who tracked their hours via a punch-clock, had to punch out before undergoing such inspections, precluding them from being compensated for that time.  Rodriguez filed a class action wage and hour lawsuit seeking monetary relief and penalties under several provisions of the California Labor Code.

Nike filed a motion for summary judgment on the basis of the federal de minimis doctrine, which “precludes recovery for otherwise compensable amounts of time that are small, irregular, or administratively difficult to record.”  The precise amount of time employees spent in such inspections was disputed, but the federal trial court found that the range of time that the exit inspections each lasted – between zero seconds and several minutes – was undisputed.  That court granted Nike’s motion based upon that doctrine.

After the motion was granted and while the plaintiff’s appeal was pending, the California Supreme Court issued its Troester decision.  In Troester v. Starbucks Corp., 5 Cal.5th 829 (2018), the Court 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.  See the discussion of Troester at https://weinbergerlawblog.com/2018/10/23/troester-v-starbucks-the-ca-supreme-court-holds-routine-tasks-that-take-minutes-to-perform-are-not-too-minute-to-evade-compensation/.

In light of Troester, the appellate court held that the trial court erred in granting summary judgment to Nike based on the de minimis doctrine.  The Court of Appeals declined to establish a 60-second threshold under which a California de minimis doctrine would apply, because Troester emphasized that California labor laws require employees to be paid for all hours worked.

Therefore, “where employees are required to work for more than trifling amounts of time ‘on a regular basis or as a regular feature of the job,’ [Troester, 5 Cal.5th] at 1125, Troester precludes an employer from raising a de minimis defense under California law.”  Summary judgment was error because there was a dispute of fact regarding whether the exit inspections lasted for more than a minute, were brief or were trifling.

The Rodriguez Court left unanswered in what circumstances work off-the-clock could be so irregular that it would be unreasonable to expect the time to be recorded.

III.     Blair v. Rent-a Center: The FAA does not preempt California law prohibiting waiver of the right to public injunctive relief, even in an arbitral forum.

In Blair v. Rent-a-Center, Inc., 928 F.3d 819 (9th Cir. 2019) the Ninth Circuit addressed whether the Federal Arbitration Act, which has been held to strongly favor enforcement of arbitration agreements, preempts the California Supreme Court’s holding in McGill v. Citibank, N.A., 2 Cal.5th 945 (2017).  In McGill, the California Supreme Court held that, under California law, an agreement waiving a party’s right to seek public injunctive relief in any forum is unenforceable.  The McGill rule was not preempted, because it is “a generally available contract defense” – that any contract, including those that contained and those that did not contain an arbitration provision, could not provide for a waiver of public injunctive relief.  Under the “savings clause” in section 2 of the FAA, the McGill rule was permissible.  The rule “expresses no preference as to whether public injunction claims are litigated or arbitrated, it merely prohibits the waiver of the right to pursue those claims in any forum.”

The Court acknowledged the U.S. Supreme Court’s admonition in AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 341 (2011), that even a generally applicable contract defense could be preempted by the FAA if it is “an obstacle to the accomplishment of the FAA’s objectives,” one of which is to “facilitate streamlined proceedings.”

Applying the Concepcion doctrine, the Ninth Circuit Court of Appeals had considered in Sakkab v. Luxotica Retail N. Am., Inc., 803 F.3d 425, 427 (9th Cir. 2015), the rule in Iskanian v. CLS Transp. L.A., LLC, 59 Cal.4th 348 (2014), which “bars contractual waiver in any fora of representative claims under California’s Private Attorneys General Act of 2004 (‘PAGA’), Cal. Lab. Code §§ 2698 et seq.”  The Sakkab Court concluded that the Iskanian rule does not conflict with the FAA, because it “is generally applicable,” barring “any waiver of PAGA claims, regardless of whether the waiver appears in an arbitration agreement or a non-arbitration agreement;” and does “not ‘prohibit the arbitration of any type of claim’” or “‘diminish the parties’ freedom to select informal arbitration procedures,’” since PAGA actions, unlike class actions, are not concerned with the claims of other employees and so do not implicate absent employees’ due process rights.  Sakkab, 803 F.3d at 432, 434-36, 439.

Applying these principles to the rule in McGill, the Court noted initially that the rule was generally applicable, holding unenforceable under California law “any contract – even a contract that has no arbitration provision”.  As a “ground[] . . . for the revocation of any contract,” the McGill rule “falls within the FAA’s savings clause at the first step of the preemption analysis.  9 U.S.C. § 2.”

Taking the next step in the analysis, the Court determined that the McGill rule, like the rule in Iskanian, does not “deprive parties of the benefits of arbitration.”  The laws governing public injunctive relief do not require procedural formality that is inconsistent with arbitration.  As with representative PAGA claims, “public injunction claims are brought for the benefit of the general public, not on behalf of specific absent parties.”  Likewise, prohibiting waiver of public injunctive relief in the arbitration context does not require that a bilateral agreement for arbitration be expanded to arbitration of multi-party claims.

The possible complexity that a public injunction case may present in arbitration as compared to a conventional individual claim does not preclude arbitration.  “[A]s with PAGA actions, the complexity involved in resolving a request for a pubic injunction ‘flows from the substance of the claim itself rather than any procedures required to adjudicate it (as with class actions).’”  (Citing Sakkab.)

The high stakes nature of some public injunction requests also does not preclude arbitration.  Provided a public injunction does not interfere with the informal, bilateral nature of arbitration, FAA preemption is not triggered by the high stakes of such a claim.

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