Court of Appeal Moves the Arbitration Goal Posts Again

One of the frustrations with employment arbitration is that the courts continue to invent new ways of invalidating them. Employers who favor arbitration are stuck with re-issuing agreements with each new court decision.

The California Court of Appeal's decision in Trivedi v. Curexo Technology Corp. is the latest effort to invalidate arbitration contracts.

First, the court found that the arbitration agreement was "procedurally unconscionable." That is the first step, because a court has to find both procedural and substantive unconscionability. Since the employer usually presents an arbitration agreement as "take it or leave it," an arbitration agreement usually has some "procedural unconscionability" because it is an "adhesion contract" (take it or leave it.).

But the court did not stop at adhesion contract. In a footnote, the court said that the arbitration clause was in the same type face as the rest of the employment contract in which it was contained. The court found that its lack of "prominence" was "one factor" courts consider in determining unconscionability. With this statement, the court proves once again that the doctrine of "unconscionability" is being used as an end-run around the Federal Arbitration Act. If the court required "prominence" as a condition of enforcing the agreement, the requirement would plainly violate the U.S. Supreme Court's decision in Doctor's Associates v. Cassarotto, 517 U.S. 681 (1996). In that case, Montana required arbitration agreements to be in all-caps and on the first page of a contract.

But wait, there's more. The court also held that the employer referenced the American Arbitration Association employment arbitration rules. These rules are expressly DESIGNED to implement procedural fairness. Get this - the employer did not attach the rules to the arbitration agreement. As a result, the court found, the agreement was procedurally unconscionable(!)
I just linked to the rules above. They're as easy to obtain as the Code of Civil Procedure or California case law. The employer did not attach the Code of Civil Procedure either. If the AAA rules were not used, would the agreement have been unconscionable because the Code of Civil Procedure was not attached? What if the California Supreme Court's Armendariz case was not attached? (That case imposes several requirements on lawful agreements.)

Anyway, the court then turned to substantive unconscionability. The arbitration agreement permitted the arbitrator to award fees to the prevailing party. The court held this provision to be unconscionable, because case law says that defendants may recover fees in FEHA cases only when the plaintiff's claims are frivolous, unreasonable, or without foundation. The funny thing is that the FEHA statute itself simply says that the "prevailing party" may recover fees. So, the decision requires the arbitration agreement to spell out what case law says?? The court ignored the reality that the arbitrator will consider case law in making his or her decision. The court also dismissed the employer's argument that the AAA rules require the arbitrator to award fees in accordance with applicable law.

The court also concluded that the agreement's reference to injunction relief was consistent with the Code of Civil Procedure, but was nevertheless evidence of unconscionability. The logic is that the employer would take advantage of that provision more frequently than the employee. The court leaves us to guess how a provision that is no broader than an existing statute is evidence that an agreement is invalid.

Finally, the court refused to sever the attorney's fees or injunction provision. It found the agreement was "permeated" by unconscionability because of the injunctive relief and attorney's fees provisions. The court neglected to cite the key case on severability, Little v. Auto Stiegler Inc., 29 Cal.4th 1064 (2003). The court also made no mention of how the agreement was "permeated" with unconscionability given the rather mild clauses the court found to be unconscionable.

Anyway, if this case stays on the books, it's going to require significant changes to arbitration agreements. Employers should consider either directing employees to dispute resolution rules on the web or, preferably, give the employees a copy with the agreement. Additionally, attorney's fees and injunctive relief provisions should contain the qualifying language, "as permitted by applicable law."

This case is a good example of why the U.S. Supreme Court is going to decide whether these "unconscionability" cases are a mere end run around the Federal Arbitration Act. Look for the Court's decision in AT&T v. Concepcion in a few months. Ross Runkel's excellent resources on Concepcion are here.

The decision in Trivedi v. Curexo Technology Corp. is here.

DGV

Ninth Circuit Explains "BFOQ" Defense in Sex Discrimination Case

Title VII of the Civil Rights Act of 1964 prohibits discrimination based on sex and other criteria. But there are some defenses to discrimination. One of these is the "BFOQ" or bona fide occupational qualification.

As the court of appeals explained in Breiner v. Nevada Dept. of Corrections, the BFOQ defense is "an 'extremely narrow exception to the general prohibition of discrimination on the basis of sex' that may be invoked 'only when the essence of the business operation would be undermined' by hiring individuals of both sexes."

So, the Nevada prison system was beset by a number of instances of male corrections officers engaging in sexual conduct with female inmates. A guard impregnated an inmate, which came to the attention of administration. The inmates purposely traded favors for better treatment.

Nevada's response, in part, was to exclude males from certain jobs, including "Corrections Lieutenant" at women's prisons. The thought was that hiring only female lieutenants would cut down corruption caused by female inmates' solicitations. Some male corrections officers sued, saying they were denied promotional opportunities at the female prisons.

The Ninth Circuit reversed the prison systems' summary judgment victory. The court did not believe that Nevada adequately supported its justification for discriminating against male candidates for hiring at women's prisons.

This opinion explains in detail the BFOQ defense and the employer's difficulty proving it. Much of the opinion focuses on prison cases, but the BFOQ defense and its burdens will be applicable to all businesses seeking to establish a sufficient justification for hiring women or men exclusively in a particular setting.

The case is Breiner v. Department of Corrections and the opinion is here.

New DOT Drug Testing Rules

The US Department of Transportation (DOT) modified its drug testing rules. The entire new rules can be read here.

Only employers that MUST comply with DOT drug testing rules (for drivers of larger trucks) MUST comply with these new rules, which take effect October 1, 2010.
So, employers that have voluntary (optional) drug testing plans in effect may wish to modify them to conform with the DOT rules, but they do not have to.

The DOT has summarized the changes in an email which I'm pasting here:

1) The Department is required by the Omnibus Transportation Employees Testing Act (Omnibus Act) to follow the HHS requirements for the testing procedures/protocols and drugs for which we test.

2) Primary laboratory requirements in this final rule include:

- Testing for MDMA (aka. Ecstasy);

- Lowering cutoff levels for cocaine and amphetamines;

- Conducting mandatory initial testing for heroin;


3) The Department brought several testing definitions in-line with those of HHS.

4) Each Medical Review Officer (MRO) will need to be re-qualified – including passing an examination given by an MRO training organization - every five years. The Final Rule eliminated the requirement for each MRO to take 12 hours of continuing education every three years.

5) An MRO will not need to be trained by an HHS-approved MRO training organization as long as the MRO meets DOT’s qualification and requalification training requirements.

6) MRO recordkeeping requirements did not change from the five years for non-negatives and one year for negatives.

7) The Final Rule does not allow the use of HHS-Certified Instrumented Initial Testing Facilities (IITFs) to conduct initial drug testing because the Omnibus Act requires laboratories to be able to perform both initial and confirmation testing but IITFs cannot conduct confirmation testing.

8) The Final Rule is effective October 1, 2010.

Ninth Circuit and Female on Male Sexual Harassment

The EEOC sued on behalf of Lamas, a male worker at Las Vegas' airport. He worked for a service company called Prospect Airport Services. Over time, a female, married employee,Munoz, openly solicited Lamas for sex and a relationship. When Lamas rebuffed him, she recruited co-workers to help. He steadfastly told her he wasn't interested.

Lamas ultimately complained. The first supervisor said she'd talk to Munoz, but didn't. The senior Prospect manager told Lamas it was a "personal" issue but that he would talk to Munoz as a "favor." He actually did talk with Munoz, but she was undeterred.

Lamas over time became upset and offended, his work performance suffered, and - yep - Prospect fired him.

So, the district court held the work environment was insufficiently hostile. The Ninth Circuit reversed. The court went through each element of a harassment claim and found Lamas satisfied each one at least enough to avoid Prospect's motion for summary judgment.

The opinion of course is interesting because it involves a female harassing a male. For readers of this blog, though, it's a reminder of how unsophisticated line management is about harassment. Had the sexes been reversed, it's pretty safe to assume management would not have been so cavalier. Lamas had written evidence of Munoz's come-ons. Management simply did not take him seriously, but then fired him when his performance deteriorated. Jeez. If they're conducting training at Prospect, it's not sinking in or it's not effective.

The opinion is EEOC v. Prospect Airport Services, Inc. and the opinion is here.

Court of Appeal Reverses Summary Judgment in Age and Disability Case

Sandell, formerly Taylor guitars' vice president of sales, suffered a stroke. As a result, he walked with a cane and spoke slower than had previously had. Taylor ultimately fired him, claiming he did not motivate the sales staff and because sales were anemic under Sandell's leadership.

The court of appeal reversed the trial court's summary judgment. On the disability discrimination claim, the court noted that Sandell did not claim Taylor failed to accommodate him. Sandell said he could do his job without accommodation. Rather, this was a straight disparate treatment case - "they fired me because I had a disability."

Finding a factual dispute on whether Taylor's reasons for discharge were pretextual, the court relied on performance appraisals that were rosier than Taylor's characterization of Sandell's performance during litigation. So... stop me if you've heard this ... overly nice performance appraisals will come back to bite you.

Another interesting part of the opinion addressed Sandell's subordinates declarations confirming Sandell's lack of leadership skills. The court said that the employees had failed to complain during Sandell's employment, so a reasonable jury could infer the opinions had changed (for litigation?!). That's a very generous inference for the court to make, IMO.
Finally, the court was troubled by some he-said /he-said discriminatory comments, which the court believed was enough additional evidence of discrimination to send the case to the jury. The court rejected the "same actor" claim that the CEO hired and fired Sandell within five years. The court said that the CEO's perception of Sandell as "old" could have changed within that period of time, particularly because of Sandell's physical changes.

The opinion is Sandell v. Taylor-Listug, Inc. and the opinion is here

No More Demurrers to Wage Hour Class Action Complaints?

The Court of Appeal in Guiterrez v. California Commerce Club, Inc. (opinion here) pretty much said that trial courts should not sustain demurrers (aka motions to strike class allegations) in wage-hour class actions. Ever. There are a few cases where demurrers have been sustained / granted. So, unless the Supreme Court or Legislature closes the door forever, it is not sanctionable to keep trying!

New California Workers' Compensation Regulations

Workers' compensation law is just one more thing that HR has to be worried about. I try not to worry about it, but I can't help it. Our friends at the California Chamber of Commerce published a handy FAQ regarding new regulations. The regulations concern Medical Provider Networks. In particular, the posters and notices must be revised substantially. The FAQ's lead you to the government's source documents. The deadline is October 8, 2010, so get ready.

California Court of Appeal Invalidates Anti-Injunction Law

I am still a bit behind on blogging because of last month's trial. Here's one that came down in the middle of the trial.

As the courts in this case noted, California law ma[d]e it nearly impossible to get an injunction against a union picketing in front of a private business. Labor Code Section 1138.1 and Code of Civil Procedure Section 527.3 impose significant procedural hurdles and substantive limitations on courts to issue injunctions against "peaceful picketing." These protections were extended to private property, such as outside the front entrance of retail stores.

The court first held that the entrance of a FoodsCo, including the sidewalk and "apron" were private property, not a public forum. The court distinguished cases that held enclosed shopping malls were public areas. Because the FoodsCo entrance and surrounds were private, the court noted, the company could prohibit speech without violating the picketers' First Amendment or California constitutional rights.

The court then examined whether the anti-injunction laws violated FoodsCo's rights. FoodsCo sought an injunction againt a union's trespass. The union had picketed from the opening of the store until the present, five days per week, 8 hours per day. The complaint was that FoodsCo was operating non-union.

The trial court denied the injunction because FoodsCo had not adequately proved its entitlement to an injunction under the Labor Code's special provision, Section 11381.1. The business owner must prove, among other things, that the police are unwilling or unable to provide assistance, and other grounds that do not apply to the issuance of trespass injunctions generally.
Here is the money quote:

Accordingly, as applied in this case, the Moscone Act violates the First and Fourteenth Amendments of the United States Constitution. The Act affords preferential treatment to speech concerning labor disputes over speech about other issues. It declares that labor protests on private property are legal, even though a similar protest concerning a different issue would constitute trespassing. And it denies the property owner involved in a protest over a labor dispute access to the equity jurisdiction of the courts even though it does not deny such access if the protest does not involve a labor dispute.

So, unless the Legislature acts somehow to create a constitutional anti-injunction law, the courts will have to enforce anti-trespass injunctions against unions on the same basis as it does so outside the union picketing context.

The case is Ralphs Grocery Company v. UFCW, Local 9 and the opinion is here.

Ninth Circuit: Fired Harassers Lose Sex Discrimination Claim

The plaintiffs were males who worked for Executive Jet. They were fired after an investigation revealed they engaged in certain inappropriate conduct that violated the Company's anti-harassment policy. The female who complained filed a charge with the EEOC, which found cause to believe a violation of Title VII occurred. The male employees claimed that the female was a willing participant and engaged in the same conduct of which she complained.

The males sued for, among other things, sex discrimination. They claimed that Executive Jet fired male employees for sex-based conduct, but not females who engaged in similar conduct.

The court engaged in detailed analysis regarding whether the male and female employees were "similarly situated," but found that they were not. The males never complained about harassment. The female did. Although the presence of a complaint by one group is not per se enough to render employees non-similar, that was enough to render their situations different in this case.

The court's analysis also included whether the EEOC's probable cause finding should be admitted as evidence that the males' conduct warranted action taken against them. The court of appeal reaffirmed its rule that EEOC probable cause determinations may be admissible in some circumstances, particularly in summary judgment proceedings and bench trials, where there is little chance of prejudice.

The case is Hawn v. Executive Jet and the opinion is here.

Ninth Circuit: Triable Issue on Accommodation of Hearing Impaired

The EEOC brought suit against UPS Supply Chain Solutions for failing to accommodate a hearing impaired employee. The employee, Mauricio Centeno, was deaf since birth and American Sign Language was his primary language.

He was able to do his job in accounting without a sign language interpreter. But he asked for an interpreter at company meetings. The employer offered post-meeting recaps in writing and contemporaneous notes during the meetings. He also wanted an interpreter's help with respect to certain job training and to understand the company's sexual harassment policy.

The district court granted UPS' motion for summary judgment because, it found, UPS had engaged in an interactive process with Centeno and had provided accommodations that were sufficient to enable Centeno to understand what transpired at meetings, etc.

But the court of appeals reversed. The appellate court held it was a genuine dispute of fact regarding whether the accommodations were effective. The court decided that agendas, contemporaneous notes, and summaries in English were not necessarily sufficient substitutes for a sign language interpreter. The court was especially concerned because Centeno was not proficient at written English, but the court also said it would be a triable issue even if Centeno were fluent in English.

Similarly, the court held that UPS may have failed to accommodate Centeno by delaying Excel training. Centeno claimed he could not read the online training program and required an interpreter. UPS ultimately provided him one, but two years later.

Centeno also complained he did not understand the company's anti-harassment policy and training materials because he was not given a sign language interpreter to read them. The court held that Centeno's professed lack of comprehension was sufficient to put UPS on notice that an accommodation was necessary.

This case raises the bar for employers who employ hearing impaired employees. Even when the hearing impaired can perform essential job functions without interpreters, they may be necessary so the employee can enjoy the "benefits and privileges" of employment.

The opinion is EEOC v. UPS Supply Chain Solutions and the opinion is here.

Court of Appeal Expands Wrongful Discharge Law

OK, so let's say an employee has a non-compete agreement with a former employer. After Employee is hired by new employer, the former employer sends a "cease and desist" letter to the new employer. The new employer, fearling litigation, fires the employee. Employee sues new employer for wrongful discharge?!

Yep. I know....#@^!%.

In 2003, Silguero began employment with Floor Seal Technology, Inc. as a sales representative. In August 2007, FST threatened Silguero with termination unless she signed a confidentiality agreement. The agreement prohibited her from sales activities for 18 months following either departure or termination. (A Non-compete). FST terminated Silguero's employment in October 2007.

Shortly therafter, Silguero was hired by with Creteguard. But FST contacted Creteguard and requested enforcement of the non-compete.

In November 2007, Creteguard's chief executive officer, Thomas Nucum, did not call me. Instead, he informed Silguero in writing that "although we believe that non-compete clauses are not legally enforceable here in California, [Creteguard] would like to keep the same respect and understanding with colleagues in the same industry." Nice.

Silguero argued the noncompetition agreement enforced by Creteguard was void pursuant to section 16600, that no statutory exception to section 16600 applied, and that Creteguard's enforcement violated public policy.

The Court of Appeal agreed:

The complaint in this case alleges an ―understanding‖ between Creteguard and FST pursuant to which Creteguard would honor FST‘s noncompetition agreement. Creteguard admitted in writing that it entered into this understanding with FST, ―although [Creteguard] believe[d] that non-compete clauses are not legally enforceable here in California,‖ because Creteguard ―would like to keep the same respect and understanding with colleagues in the same industry. This alleged understanding is tantamount to a no-hire agreement.

No hire agreements are illegal too.

This case is Silguero v. Creteguard, Inc. and the opinion is here.

California Supreme Court Bings Google

I think Reid v. Google (opinion here) will be more memorable for its discussion of objections in summary judgment proceedings than for its discussion of the stray remarks doctrine.

I will post my upcoming article here next Monday, which will explain the above gibberish. (Or I'll cheerfully refund your money, and that's a promise!)

Ninth Circuit Thwarts End Run Around California Labor Code

EGL, a Texas transportation company, came up with an idea. Avoid all those pesky California wage and hour laws by making everyone an independent contractor, and inserting a choice of law clause into the agreement.

First, the court had to get by the Texas choice of law clause. The clause said only that the independent contractor agreement would be "interpreted under the law of the State of Texas." The claims, however, were not brought under the agreement, but rather were brought under the California Labor Code. So, this case is a warning to practitioners to draft choice of law clauses expansively. The court did not consider whether the Texas choice of law clause could be enforced in California.

Then, applying California law, the court reversed summary judgment. The court held that there was significant evidence of an employment relationship under California's test for independent contractor status. The court went on at length. So, you can read the opinion in Narayan v. EGL, Inc. et al. here.

California Supreme Court Holds No Private Right of Action Re: Tip Pooling

Labor Code Section 351 provides that tips belong to the servers who generate them. Tip pooling - employer-mandated sharing of tips among service staff, has been held lawful under that section. But certain tip pooling arrangements, particularly those in which management shares tips, have been held illegal.

In Lu v. Hawaiian Gardens Casino, Inc., a card dealer sued over a tip pooling arrangement, claiming that the employer's policy violated section 351. The lower courts held that Section 351 does not authorize private lawsuits. The Supreme Court stepped in to resolve a split in the courts of appeal. Applying general principles regarding when the Legislature intends to create private causes of action, the Court held there was none authorized under Section 351.
Of course, the plaintiffs can pursue their unfair competition claims, etc. The main disadvantage I can see off the cuff is the absence of a claim for attorney's fees under the Labor Code.

This case does not address whether tip pooling itself is lawful. So, employers should continue to draft tip pooling arrangements in accordance with lower court decisions on the subject, such as Leighton v. Old Heidelberg, Ltd. (1990) 219 Cal.App.3d 1062, 1067; Etheridge v. Reins Internat. California, Inc. (2009) 172 Cal.App.4th 908, 921-922; Budrow v. Dave & Buster’s of California, Inc. (2009) 171 Cal.App.4th 875, 878-884; and Jameson v. Five Feet Restaurant, Inc. (2003) 107 Cal.App.4th 138, 143.

The case is Lu v. Hawaiian Gardens Casino, Inc. and the opinion is here.

Trial

Trial in employment cases is as rare as hen's teeth. Most cases settle. With the increasing prevalence of "EPLI" insurance, there is often little appetite for taking a case "all the way" and facing a jury. At least for us defense lawyers, going to trial is unusual.

Trial also is, to say the least, arduous. Sleep is something you get in between preparing for trial, conducting the trial, and preparing for the next day. No matter how much you prepare, there is much to do once the trial begins.

Once you're there, the odds are against you. Plaintiffs win as much as 60% of the time, depending on the type of claim and the court's location. That's another reason cases settle a lot. Let's not forget the time and money the employer has to spend, and victory defined only as a jury's conclusion that the defendant was right.

Don't let anyone tell you different. Winning is special. So, we're proud to let you know about two employment law trials that concluded this week with favorable outcomes.

First, Shaw Valenza alumnus Shane Anderies, now of Anderies and Gomes, won a verdict in style. His case, covered by the media (also rare), resulted not only in a defense verdict, but also a huge award on a cross-claim for defamation. Read about Moreno v. Ostly et al here.

Oh, yeah, and the Shaw Valenza trial team just received a verdict on behalf of our client Signature Properties in a retaliation case, tried in Sacramento Superior Court. The jury was out just 6 hours after a four week, fifteen trial-day, trial. No press coverage so far. The facts of our case were nowhere near as interesting as Shane's. (His involved a paralegal suing a lawyer for sexual harassment and his defamation cross-action). But winning was just as exciting for our client as us as it was for Shane and his.

Thanks to all of you who patiently waited for return calls during July. I will get back to you soon. I promise. I also will be posting on a number of new cases in the coming days. And congratulations again to Shane, Mr. Ostly, and of course Signature Properties.

DGV

Court of Appeal: Employee Must Initiate Interactive Process

Tanya Milan worked for the city of Holtville's water treatment plant. After a work-related injury, she began a leave of absence. During the leave, her workers' compensation doctor decided she would not be able to perform her duties. She never requested an accommodation or contacted her employer to state her intention to return to work. Instead, she accepted retraining benefits from the city's workers' compensation administrator and began taking courses for a new career.

The trial court awarded damages. The court felt that when the employee's doctor opined she was unable to do her job, that triggered the city's obligation to accommodate her.

However, on appeal, the court reversed. The court noted that the claim for failure to participate in an interactive process requires the employee to initiate the process:

Section 12940, subdivision (n), requires that an employer "engage in a timely, good faith, interactive process with the employee or applicant to determine effective reasonable accommodations, if any, in response to a request for reasonable accommodation by an employee or applicant with a known physical or mental disability or known medical condition." (Italics added.)

* * *

Importantly, by its terms section 12940 subdivision (n) requires that the employee initiate the process. (Gelfo v. Lockheed Martin Corp., supra, 140 Cal.App.4th at p. 62, fn. 22.) On the other hand, "no magic words are necessary, and the obligation arises once the employer becomes aware of the need to consider an accommodation. Each party must participate in good faith, undertake reasonable efforts to communicate its concerns, and make available to the other information which is available, or more accessible, to one party. Liability hinges on the objective circumstances surrounding the parties' breakdown in communication, and responsibility for the breakdown lies with the party who fails to participate in good faith."

Here is the money quote:

In short, where, as here, an employer has not received any communication from an employee over a lengthy period of time, and after the employee has been given notice of the employer's determination the employee is not fit, an employer is not required by section 12940, subdivision (n), to initiate any discussion of accommodations. Imposition of such a duty under those circumstances would contradict the express terms of the statute which requires that the employee initiate the interactive process.

Although this case does not require it, from a preventive standpoint, it is important to document attempts to check in with employees on long term leave. Employers should also ensure it has policies requiring employees to communicate periodically regarding their status and intentions. By doing so, that bolsters the argument that the employee's failure to communicate demonstrates a lack of intention to engage in an interactive process or request accommodation.

The case is Milan v. City of Holtville and the opinion is here.

Court of Appeal Approves Nordstrom Class Settlement

Nordstrom employees filed a class action challenging a commission plan. The parties settled for nearly $9 million in cash and vouchers, and Nordstrom agreed to make changes to its commission plans.

One employee filed a valid objection, which the trial court overruled. The trial court then approved the settlement as "fair, adequate and reasonable." The objector, Kellie Taylor, appealed.

Taylor's objection primarily went to the contention that the plaintiff's claims were stronger than what the settlement justified. The court evaluated the strength of the commission claims and found Nordstrom had a number of good faith defenses to whether its commission plan was faulty. This case will be helpful in providing an overview of commission plan law. For example, the court rejected the notion that the parties' allocation of $0 to PAGA and waiting time penalties was unreasonable:

There is no willful failure to pay wages if the employer and employee have a good faith dispute as to whether and when the wages were due. (Amaral v. Cintas
Corp. No. 2 (2008) 163 Cal.App.4th 1157, 1201-1202.)

The court then explored the good faith basis for the dispute. In doing so, the court summarized cases discussing commission plans and their validity:

The right to commission wages is subject to the employment contract between an employer and employee, and Nordstrom calculated and paid its employees’ commission wages in accord with its written commission agreements with its employees. “It is undisputed that commissions are ‘wages,’ and thus that plaintiff’s claim for commissions falls within the terms of Labor Code sections 2926 and 206. [Citations.] However, for purposes of enforcing the provisions of the Labor Code, ‘[t]he right of a salesperson or any other person to a commission depends on the terms of the contract for compensation.’ [Citations.] Accordingly, plaintiff’s right to commissions ‘must be governed by the provisions of the [employment agreement].’ [Citation.] We have already concluded that, pursuant to the plain language of the written employment agreement, plaintiff was not entitled to any further commissions after he was terminated. Accordingly, defendant’s failure to pay such commissions cannot constitute a violation of the Labor Code.” (Nein v. HostPro, Inc. (2009) 174 Cal.App.4th 833, 853, fn. omitted; see also Div. of Lab. Stds. Enforcement, Enforcement Policies and Interpretations Manual (June 2002 Rev.) § 34.3 [“Commission computation is based upon the contract between the employer and the employee”] (DLSE Manual); id., § 34.3.1 [“Computation of commissions frequently relies on such criteria as the date the goods are delivered or the payment is received. Sometimes, the commission of the selling salesperson is subject to reconciliation and chargebacks if the goods are returned. If these conditions are clear and unambiguous, they may be utilized in computing the payment of the
commissions”].)

Good stuff. Then the court discussed payment of commissions when they can be calculated, rather than immediately:

If commissions cannot be calculated as of the time employment is terminated,
California law permits an employer to pay commissions after the termination date, as long as they are paid once they can be calculated. (DLSE Manual, supra, §§ 4.6, 5.2.5.) California law also permits Nordstrom’s policy of paying commissions based on net sales. (Steinhebel v. Los Angeles Times Communications, LLC (2005) 126 Cal.App.4th 696, 707 [approving process under which “an employer makes advances on commissions to employees and later reconciles any overpayments by deductions from future commissions”]; Hudgins v. Neiman Marcus Group, Inc. (1995) 34 Cal.App.4th 1109, 1122 [central issue decided was that employer could not deduct pro rata share of commissions from all employees for returns where salesperson could not be identified; “[a]s to those items of merchandise the customer decides to keep, the sales associate has clearly earned his or her commission at the moment the sales documents are completed and the customer takes possession of the purchased items. As to identified returns, the sale is reversed and the individual sales associate is required to return the commission because his or her sale was rescinded”], italics added.)

Taylor also objected to the use of merchandise coupons as partial payment because coupons cannot be used as a substitute for wages under Section 212. The court rejected this argument because the wages were not due and earned. This was a settlement of a disputed claim.

So, the Court approved the settlement. This case appears to throw some cold water on the new trend of objecting to settlements.

The case is Nordstrom Commission Cases and the opinion is here.

U.S. DOL Expands Who Can Take FMLA Leave to Care for a Child

The U.S. Department of Labor is busy writing new "interpretations" of the law, rather than promulgating regulations through the normal process. In their third effort, the DOL has decided to explain who is eligible to take Family and Medical Leave under the FMLA to care for a "son" or "daughter."

It is true that the FMLA and its regulations permit leave by employees who are not biological parents when they stand "in loco parentis." But what is "in loco parentis"? Well, the statute, the courts, and the DOL's own regulations have defined the term before. The DOL cited some of the interpretations in its letter:

In loco parentis is commonly understood to refer to “a person who has put himself in the situation of a lawful parent by assuming the obligations incident to the parental relation without going through the formalities necessary to legal adoption. It embodies the two ideas of assuming the parental status and discharging the parental duties.” . . . “The key in determining whether the relationship of in loco parentis is established is found in the intention of the person allegedly in loco parentis to assume the status of a parent toward the child. The intent to assume such parental status can be inferred from the acts of the parties.” . . . Courts have enumerated factors to be considered in determining in loco parentis status; these factors include the age of the child; the degree to which the child is dependent on the person claiming to be tanding in loco parentis; the amount of support, if any, provided; and the extent to
which duties commonly associated with parenthood are exercised.

After reciting these definitions, the DOL goes on to say in its letter: "The FMLA regulations define in loco parentis as including those with day-to-day responsibilities to care for and financially support a child. 29 C.F.R. § 825.122(c)(3). . . .

OK. But then, they say:

It is the Administrator’s interpretation that the regulations do not require an
employee who intends to assume the responsibilities of a parent to establish that he or she provides both day-to-day care and financial support in order to be found to stand in loco parentis to a child. For example, where an employee provides day-to-day care for his or her unmarried partner’s child (with whom there is no legal or biological relationship) but does not financially support the child, the employee could be considered to stand in loco parentis to the child and therefore be entitled to FMLA leave to care for the child if the child had a serious health condition. The same principles apply to leave for the birth of a child and to bond with a child within the first 12 months following birth or placement.

Huh? It may be news to parents that they can "intend to assume the responsibilities of a parent," without providing "financial support." It may also be news to the person who wrote the sentence right before the language quoted above, since the word "and" connects "day-to-day responsibilities"and "financially support."

And that last part of the above quote suggests that boyfriends can take "leave for the birth" of a girlfriend's child and for "bonding"? That sort of undercuts the entire statute and regulatory scheme. Why include "parent" in the statute at all when just about anyone can qualify as standing "in loco parentis?"

Here's another interesting quote from the DOL attempting to explain its interpretation:

Neither the statute nor the regulations restrict the number of parents a child may have under the FMLA. For example, where a child’s biological parents divorce, and each parent remarries, the child will be the “son or daughter” of both the biological parents and the stepparents and all four adults would have equal rights to take FMLA leave to care for the child.

If I read this right, any step-parent automatically can take FMLA leave even when the step-parent does not indicate any interest in acting as the parent of the other spouse's biological child from a previous relationship? What if the divorced parents meet their soul mates and choose not to remarry? Is that enough to confer "in loco parentis" status on the non-biological soul mate?

Can it be that anyone with a significant other who has a child can grab some job-protected leave, ostensibly to care for the child? Of course not. The DOL has stringent verificiation requirements to ensure that only persons really and truly standing in loco parentis can have leave:

Where an employer has questions about whether an employee’s relationship to a child is covered under FMLA, the employer may require the employee to provide
reasonable documentation or statement of the family relationship. A simple statement asserting that the requisite family relationship exists is all that is needed in situations such as in loco parentis where there is no legal or biological relationship. See 29 C.F.R. § 825.122(j); 73 Fed. Reg. 67,952 (Nov. 17, 2008).

OK, not so stringent. There is no documentation requirement other than a "simple statement": "My girlfriend has a child who has a serious health condition and I need leave to take care of her." No chance for abuse there.

If you sense I'm annoyed, it's not about whether bona fide FMLA leave is important for parents and children. The issue is that some may be tempted to seek refuge in taking FMLA leave for no reason other than to shield themselves from discipline. Yes, this has actually happened. The DOL has opened up a gaping hole permitting abuse of a well-intentioned law, but without issuing regulations and without persuading Congress to amend the statute.

Administrator Interpretation 2010-3 is here.
DGV

U.S. Supreme Court Declines to Take Up San Francisco Healthcare Law

Back in 2008, the Ninth Circuit Court of Appeals held that San Francisco's Healthcare Security Ordinance was not preempted by ERISA. We posted on that here. Fast-forward (chuckle) to yesterday, when the U.S. Supreme Court refused the Golden Gate Restaurant Association's petition for review. So, looks like those pesky surcharges disclosed at the bottom of menus throughout San Francisco are here to stay.

DGV

U.S. Supreme Court Issues Two More Arbitration Decisions

The U.S. Supreme Court closed out its employment cases for the 2010 Term with two arbitration decisions. The Court held in one opinion that the arbitrator must resolve an arbitrability issue. The Court reached the opposite result in the other. Here's what happened.

In Granite Rock Co. v. Teamsters, the company and its union agreed on a new contract. But the Company would not agree to hold the union harmless for strike-related damage. The union continued to strike. The company argued the strike violated the "no-strike" clause in the parties' new contract, which also contained an arbitration clause. The union believed the agreement was not properly ratified and, therefore, not a contract when the strike occurred.

Granite sued the Teamsters in federal court alleging breach of contract against the local union, and interference with contract against the International. District court allowed a jury to decide when the agreement was ratified - which determined if the strike was arbitrated or resolved in court. Once the jury decided the agreement was properly ratified, the district court sent the case to arbitration over the merits of the breach of contract issue. The Ninth Circuit, though, held that the arbitrator should have decided the ratification issue.

The Supreme Court held the district court got it right. The court was required to decide if the parties agreed to arbitrate the breach of the no-strike clause issue, because courts enforce arbitration only to the extent the parties agreed. The date the contract was ratified amounted to a dispute over the applicability of arbitration to the dispute. If ratified, there would be a valid contract. Here's how the court put it:

a court may order arbitration of a particular dispute only where the court is satisfied that the parties agreed to arbitrate that dispute. See First Options, supra, at 943; AT&T Technologies, supra, at 648−649. To satisfy itself that such agreement exists, the court must resolve any issue that calls into question the formation or applicability of the specific arbitration clause that a party seeks to have the court enforce. See, e.g., Rent-A-Center, West, Inc. v. Jackson, ante, at 4−6 (opinion of SCALIA, J.). Where there is no provision validly committing them to an arbitrator, see ante, at 7, these issues typically concern the scope of the arbitration clause and its enforceability. In addition, these issues always include whether the clause was agreed to, and may include when that agreement was formed.

So, the court, not the arbitrator, had to decide when the contract was ratified.

This decision was 7-2, authored by Justice Thomas. Justices Sotomayor and Stevens dissented from this part of the opinion, but joined in the unanimous decision that there is no claim for tortious interference under federal law.

The opinion in Granite Rock Co. v. Teamsters is here.

Just a couple of days earlier, though, the Court held in Rent-a-Center West, Inc. v. Jackson that the arbitrator must decide arbitrability, albeit in a different context. Granite was decided under Section 301 of the LMRA. Rent-a-Center is a Federal Arbitration Act case. But the Court cites FAA decisions in Granite, too. So, the analysis is probably the same.

Jackson sued for employment discrimination in Nevada federal court. Rent-a-Center sought to compel arbitration. Jackson argued the agreement was "unconscionable" under Nevada law, which is a defense to the enforceability of the arbitration agreement.

But the arbitration agreement provided: "[t]he Arbitrator, and not any federal, state, or local court or agency, shall have exclusive authority to resolve any dispute relating to the interpretation, applicability, enforceability or formation of this Agreement including, but not limited to any claim that all or any part of this Agreement is void or voidable."

So, unlike in Granite, the parties' agreement expressly gave the arbitrator the authority to determine whether the agreement was void, or enforceable. The Court held that, given the parties' "clear and unmistakable" agreement, any dispute over this provision was itself a question for the arbitrator to resolve:

The delegation provision is an agreement to arbitrate threshold issues concerning the arbitration agreement. We have recognized that parties can agree to arbitrate"gateway" questions of "arbitrability," such as whether the parties have agreed to arbitrate or whether their agreement covers a particular controversy.

The Court then analyzed whether the FAA permitted the court to permit the arbitrator to decide if the agreement was unconscionable. The Court held that the FAA did permit this. In particular, the court decided that Jackson alleged the entire arbitration agreement was invalid, not exclusively the provision conferring on the arbitrator the right to decide unconscionability. Had Jackson been able to argue this delegation provision alone was unconscionable (and how would he do that?) the court may have come down a different way.

Therefore, Jackson's challenge to the arbitration agreement as "unconscionable" must be decided by the arbitrator.

If arbitration agreements reserve the power to decide unconscionability to the arbitrator, that will certainly affect courts' power to decide "unconscionability" claims by plaintiffs seeking to avoid arbitration agreements.

This one was 5-4. The dissent argued the majority simply got it wrong, synthesizing the law as follows:

questions related to the validity of an arbitration agreement are usually matters for a court to resolve before it refers a dispute to arbitration. But questions of arbitrability may go to the arbitrator in two instances: (1) when the parties have demonstrated, clearly and unmistakably, that it is their intent to do so; or (2) when the validity of an arbitration agreement depends exclusively on the validity of the substantive contract of which it is a part.

The majority believed this rule required arbitration because both prongs were satisfied. But the dissent argued (1) because the agreement was alleged to be unconscionable, Jackson could not have "clearly and unmistakably" submitted arbitrability to the arbitrator. The dissent also argued

when a party raises a good-faith validity challenge to the arbitration agreement itself, that issue must be resolved before a court can say that he clearly and unmistakably intended to arbitrate that very validity question. This case well illustrates the point: If respondent’s unconscionability claim is correct—i.e., if the terms of the agreement are so one-sided and the process of its making so unfair—it would contravene the existence of clear and unmistakable assent to arbitrate the very question petitioner now seeks to arbitrate. Accordingly, it is necessary for the court to resolve the merits of respondent’s unconscionability claim in order to decide whether the parties have a valid arbitration agreement under §2. Otherwise, that section’s preservation of revocation issues for the Court would be meaningless.

The bottom line: unless or until Congress overturns this decision, it appears employers will be able to avoid courts' rulings on unconscionability and have arbitrators decide them instead.

The opinion in Rent-a-Center West, Inc. v. Jackson is here.

Happy Anniversary to Us (Again)

Yes, it's a slight detour into self-indulgence. Thank you for your patience.

So, four years ago, two wide-eyed kids, with barely a tuna sandwich and $3.00 between them, decided to stake out their little corner of the American Dream and start a small business of their own.... Oh, and Jennifer and I started Shaw Valenza four years ago today, too! What a coincidence! (I hope those two scrappy kids made it.)

Anyhoo, after perfectly timing our decision to start a business a few months in advance of the worst time to start a business in history, we're grateful to still be here. We know why we made it, too. Coffee and toner? Sure. But we're also thankful for our clients, prospective almost-clients, and even former clients, who have made our survival possible. We are grateful to our colleagues / co-workers / employees, who have helped us flourish. Thank you, too, to our vendors and everyone else who have helped us along the way. And a big thanks to the courts, legislatures, and regulators, who continue to provide us with an ever-expanding, confusing, and conflicting body of employment laws!

By the way, SV's 4th anniversary also means that this blog celebrates its fourth year of existence. This is post number 368, and I've enjoyed every one of them. So, thank you, adoring public, for reading along with us. :::echo....echo....echo....::::

See you next year. I hope.

DGV

U.S. Supreme Court Partially Punts in Electronic Monitoring Case

We posted about Quon v. Arch Wireless here when it was just a Ninth Circuit case. There, the court of appeals held that a deputy sheriff had a reasonable expectation of privacy in his text messages sent on an employer-provided PDA.

On review, the U.S. Supreme Court ducked on the reasonable expectation of privacy issue that the courts below focussed on. The Supreme Court is concerned that the use of electronic data in the workplace and in society is still in flux and it does not want to pass judgment too soon on how privacy is maintained and expected in electronic communications. So we won't know about what policies are valid, whether a supervisor's oral statement could modify a written policy, and whether employers can destroy an expectation of privacy merely by furnishing the equipment. Another day, perhaps.

Instead, the court did hold that the City of Ontario was within its rights to look at Quon's text messages to see if he was using too much bandwidth for personal use. The court assumed there was a sufficient expectation of privacy without deciding the issue, and simply held that the search was "reasonable."

Because the search was motivated by a legitimate work related purpose, and because it was not excessive in scope, the search was reasonable under the approach of the O’Connor plurality. 480 U. S., at 726. For these same reasons—that the employer had a legitimate reason for the search, and that the search was not excessively intrusive in light of that justification—the Court also concludes that the search would be “regarded as reasonable and normal in the private-employer context” and would satisfy the approach of JUSTICE SCALIA’s concurrence. Id., at 732. The search was reasonable, and the Court of Appeals erred by holding to the contrary. Petitioners did not violate Quon’s Fourth Amendment rights.

Bottom line - this case would have more relevance to private sector employers in California if the Court had addressed the "reasonable expectation of privacy" issue. However, the court's discussion also concludes that employee monitoring is "regarded as reasonable and normal in the private-employer context."

For public sector employers, this case is significant because it clarifies the standard for the government-as-employer performing workplace monitoring even where employees have a reasonable expectation of privacy.

The case is City of Ontario v. Quon and the opinion is here.

U.S. Supreme Court: NLRB Must Have 3 Members to Rule

So, what are we going to do about the over-500 - count 'em - NLRB decisions issued by the 2-member panels??

The NLRB normally has 5 members. At the end of 2007, the Board had 4 members, and anticipated the terms of 2 recess appointments would expire shortly. So, the 4 members "delegated" its powers to a three-member panel.

Then, one of the panel members left because his term expired. That left just two - a quorum of the panel of three...right?

Well no. Several litigants challenged the Board's power to function as a two member panel. The Courts of Appeals split on the issue. The Supreme Court ruled today that the two-member decisions were improper:

we find that the Board quorum requirement and the three-member delegation clause should not be read as easily surmounted technical obstacles of little to no import. Our reading of the statute gives effect to those pro-visions without rendering any other provision of the statute superfluous: The delegation clause still operates to allow the Board to act in panels of three, and the group quorum provision still operates to allow any panel to issue a decision by only two members if one member is disqualified. Our construction is also consistent with the Board’s longstanding practice with respect to delegee groups. We thus hold that the delegation clause requires that a delegee group maintain a membership of three in order to exercise the delegated authority of the Board.

So, what happens to the 500+ decisions issued by the 2-member panel? We'll see how many of the litigants attempt to challenge them. Or, perhaps the Board, which has been staffed by 4 members since March 2010, will find some way to re-affirm the decisions. We shall see.

The case is New Process Steel LP v. NLRB and the opinion is here.

DGV

US DOL Issues New Adminstrator Interpretation

The U.S. Department of Labor is not waiting around for employers and employees to request informal opinion letters. The administrator is busy reviewing its previous letters and issuing new Administrator Interpretations. These are not the same as official regulations, but they give you an idea of how the department will enforce its laws.

The department issued its second such letter yesterday. This one addresses "donning and doffing" - basically whether changing at the beginning and end of the shift constitutes "preliminary" or "postliminary" activity (non-compensable under federal law) or compensable work time.

The issue arises under the federal Fair Labor Standards Act, as modified by the Portal-to-Portal Act:

Section 3(o) of the Fair Labor Standards Act (FLSA) provides that time spent “changing clothes or washing at the beginning or end of each workday” is excluded from compensable time under the FLSA if the time is excluded from compensable time pursuant to “the express terms or by custom or practice” under a collective bargaining agreement. 29 U.S.C. § 203(o).

In 1997, the DOL issued an opinion letter saying that meat packing employees' putting on "protective" clothing or gear, such as smocks, arm guards, belly guards, gloves, etc. was compensable time because these items were not considered "clothes." In 2002 and 2007, the DOL retreated from this position and held that donning/doffing "protective clothing" could be considered "clothes," excluded from work time.

In its Administrative Interpretation, No. 2010-2, the DOL returns to its 1997 interpretation. After reviewing the legislative history and court decisions, the DOL says:

the § 203(o) exemption does not extend to protective equipment worn by employees that is required by law, by the employer, or due to the nature of the job. This interpretation reaffirms the interpretations set out in the 1997, 1998 and 2001 opinion letters and is consistent with the “plain meaning” analysis of the Ninth Circuit in Alvarez. Those portions of the 2002 opinion letter that address the phrase “changing clothes” and the 2007 opinion letter in its entirety, which are inconsistent with this interpretation, should no longer be relied upon.

The DOL then went a step further. The DOL opined that changing clothes, even if not compensable, may constitute a "principal activity" where changing is integral to the job. When changing is considered a "principal activity," it starts the work day. The activities that follow are part of the work day and compensable, even if they would not be compensable by themselves. So, if changing clothes is a "principal activity," then walking from the locker to the work area is also compensable under the "continuous workday" doctrine:

it is the Administrator’s interpretation that clothes changing covered by § 203(o) may be a principal activity. Where that is the case, subsequent activities, including walking and waiting, are compensable. The Administrator issues this interpretation to assist employees and employers in all industries to better understand the scope of the § 203(o) exemption.

This interpretation is highly significant in industries where employees change clothes at the beginning and end of the shift, even when they do not necessarily wear "protective clothing" or equipment. That is because time that otherwise would not be compensable may become so if the clothes changing is considered a "principal activity."

The Obama administration's DOL, run by former California legislature member Hilda Solis, is awake. Employers should not ignore the federal agency, even in California.
The new interpretation is posted here.

U.S. Supreme Court to Review California Arbitration

So, I asked in this post whether the California Supreme Court's jurisprudence on class action waivers in arbitration would survive the U.S. Supreme Court's recent decision in Stoltt-Nielsen v. AnimalFeeds. There, the SCOTUS held that the Federal Arbitration Act does not authorized arbitrators to require class action arbitration when an arbitration agreement is silent.
The California Supreme Court, on the other hand, say that arbitration agreements cannot preclude class-wide arbitration.

Looks like we're going to find out. The U.S. Supremes just granted review of a 9th Circuit decision in AT&T Mobility v. Concepcion. There, the Ninth Circuit held that a class action waiver was "unconscionable" under California law and that the FAA does not preempt California's unconscionability jurisprudence. Ross Runkel's arbitration blog posts the details here. This case will be argued next term, which begins in October 2010.

U.S. Supreme Court on Attorney's Fees in ERISA cases

The Supreme Court unanimously held that a court may award attorneys fees in ERISA benefits denial cases to any party without proving it is a "prevailing" party:

a fees claimant must show "some degree of success on the merits" before a court may award attorney’s fees under §1132(g)(1), id., at 694. A claimant does not satisfy that requirement by achieving "trivial success on the merits" or a "purely procedural victor[y]," but does satisfy it if the court can fairly call the outcome of the litigation some success on the merits without conducting a "lengthy inquir[y] into the question whether a particular party’s success was ‘substantial’ or occurred on a ‘central issue.’"

The ERISA attorney's fees statute awards fees to "any" party in the district court's discretion. Courts had read into that statute the requirement that a litigant be deemed the "prevailing" party. Under case law, a "prevailing" party has to demonstrate certain characteristics, like monetary gain, etc. The Supreme Court held that as a matter of statutory construction, courts could not simply add a prevailing party requirement.

So, in ERISA benefits denial cases, it will be easier for litigants to claim attorney's fees, even if they simply win a remand by the district court to the insurance plan administrator, rather than total victory.

Justice Stevens concurred in most of the opinion and in the judgment. The decision otherwise was unanimous.

The case is Hardt v. Reliance Standard Life Insurance Co. and the opinion is here.

U.S. Supreme Court on Timeliness of Disparate Impact Claims

The U.S. Supreme Court unanimously held that disparate impact claims were timely even though the plaintiffs did not challenge the original implementation of the alleged discriminatory practice. Justice Scalia wrote the opinion. So there, Scalia haters.

The City of Chicago conducted an examination for firefighters in 1995. It announced it would begin selecting from among the highest scorers, called "well-qualified." The middle tier was called "qualified." Applicants who scored in this range would be kept on an eligibility list. No one brought suit attacking the examination at the time it was given.

Over time, the city exhausted the "well-qualified" list. On March 31, 1997, some African-American applicants filed a charge with the EEOC. They claimed the use of the "well qualified" score had a disparate impact on black applicants - i.e., it resulted in exclusion of a disproportionate number of black applicants. After receiving right to sue letters, they brought a class action on behalf of 6,000 "qualified" applicants.

The Court framed this issue like this:

We consider whether a plaintiff who does not file a timely charge challenging
the adoption of a practice—here, an employer’s decision to exclude employment
applicants who did not achieve a certain score on an examination—may assert
a disparate-impact claim in a timely charge challenging the employer’s later
application of that practice.

The city argued the charges were untimely and that the scoring was justified by business necessity. The city lost at trial. The district court rejected the business necessity of the test as a justification for the admittedly "severe" disparate impact.

Regarding timeliness, the plaintiffs were timely regarding the city's more recent selections of well-qualified applicants, but were untimely regarding the city's initial classification of qualified and well qualified persons.

The Supreme Court decided that the city's use, rather than adoption, of the practice was the discriminatory act. Therefore, the decision that the City's selection of well-qualified applicants within the limitations period was sufficient to establish a disparate impact claim.

The issue in Ledbetter v. Goodyear Tire & Rubber Co., 550 U. S. 618 (2007), in contrast, was whether a plaintiff could allege disparate treatment - intentional discrimination - based on time-barred past decisions. The court distinguished Ledbetter because the disparate impact claim is based on the use of neutral, but discriminatory, criteria, without the need to prove intent. So, Ledbetter is not in conflict with this decision.

The case is Lewis v. City of Chicago and the opinion is here.

California Supreme Court Defines "Employer" in Wage Hour Cases

In 2005, the California Supreme Court held in Reynolds v. Bement (2005) 36 Cal.4th 1075, that individual agents / managers cannot be held liable as "employers" under California wage-hour law. In Martinez v. Combs, opinion here, the court similarly held that investors / business partners could not be held liable as "employers" either.

To get there, the Court engaged in a rigorous, painstaking (euphemisms for tedious) analysis of the history of California wage-hour laws, all the way back to the Magna Carta, or so it seemed.

But the Court did something that had not been done before. It came up with a framework for deciding just what entity can be held liable for unpaid wages.

This case arises because Munoz, the employer that hired, supervised, and (previously) paid its farm workers, went bankrupt. So, the case has relevance during these troubled times. Munoz operated a strawberry harvesting operation. Because of lower strawberry prices and financial reverses, Munoz could not pay its workers and then declared bankruptcy.

Unable to recover from Munoz, the employees sued: "two of the produce merchants through whom Munoz sold strawberries: Apio, Inc. (Apio), and Combs Distribution Co., together with its principals, Corky and Larry Combs, and its field representative Juan Ruiz (collectively Combs). Plaintiffs’ separate action against a third merchant, Frozsun, Inc. (Frozsun), has been stayed pending the outcome of this action."

The Labor Code does not specify who is liable for unpaid wages under Lab. Code Section 1194:

Notwithstanding any agreement to work for a lesser wage, any employee receiving
less than the legal minimum wage or the legal overtime compensation applicable to the employee is entitled to recover in a civil action the unpaid balance of the full amount of this minimum wage or overtime compensation, including interest thereon, reasonable attorney’s fees, and costs of suit.

The Court first decided that liability under Section 1194 is limited to an "employer" under the Industrial Welfare Commission's Wage Orders. The Wage Orders do define "employer." As the Court related:

Employ’ means to engage, suffer, or permit to work,” and “ ‘[e]mployer’ means any person as defined in Section 18 of the Labor Code, who directly or indirectly, or through an agent or any other person, employs or exercises control over the wages, hours, or working conditions of any person.”

So, who is an employer? The Court said that under the IWC's definition, one can become an employer in one of three ways:

To employ, then, under the IWC’s definition, has three alternative definitions. It means: (a) to exercise control over the wages, hours or working conditions, or (b) to suffer or permit to work, or (c) to engage, thereby creating a common law employment relationship.

Suffer or permit - The Court clarified that to "suffer or permit" someone to work results in a finding of employer only when the person permitting the work has the power to stop it. The vendors / defendants could not stop or prevent the work. Munoz had all the power to hire or fire his own workers.

Regarding the "control over the wages hours and working conditions," the Court rejected the claim that the vendors' financial relationships with Munoz resulted in de facto control over the plaintiffs' working conditions.

Finally, "to engage" means that the employer hires the employees to work, which is the straightforward way of establishing an employment relationship. There was no such evidence in this case.

So, this test will be used to define who is liable under California law as an "employer," with the exception of the employer's agents / employees. The employer's own agents and employees are not liable under Reynolds v. Bement, cited above. If the IWC changes the definition of "employer," then this case may be superseded. But the Legislator has all but abolished the IWC. So, the Legislature will have to define the employment relationship or reconstitute the IWC to change the effect of this case.

The opinion in Martinez v. Combs is here.

FAA Does Not Permit Claswide Arbitration Unless Parties Agree

Well, the U.S. Supreme Court may have made employment arbitration agreements really popular, until Congress decides to ban them.

The court held in a non-employment case, STOLT-NIELSEN S. A. ET AL. v. ANIMALFEEDS INTERNATIONAL CORP., that parties cannot force the arbitration of class actions unless the arbitration agreement permits it.

What if the agreement is silent about class arbitration? The court said silence does not mean consent.

In California, though, it is illegal to prohibit class action arbitration. So, what if the agreement is silent? Does that now mean you're prohibiting class arbitration because of the silence? If you argue that, under the Federal Arbitration Act, a silent agreement essentially prohibits class arbitration, where does that leave the arbitration agreement under California law?

Will the Federal Arbitration Act trump the California Supreme Court's decision in Gentry v. Superior Court (opinion here; post here), in which the California high court held that classwide arbitration waivers are illegal / unconscionable?

I know, so many questions. My opinion is: I think so. But I have never really understood how California arbitration agreement law has escaped the FAA anyway.

The U.S. Supreme Court's decision is here. Stay tuned!

DGV

Ninth Circuit Issues Walmart Class Certification Opinion

Dukes v. Walmart is the massive class action filed on behalf of some 1.5 million current and former female employees. Back in 2007, we posted about this case here and here.

An en banc panel of the Ninth Circuit just issued a "rather lengthy" opinion (read: super-long). It's a scholarly exposition of class action certification law. It makes a law review article read like a comic book.

The court's intention is to clarify the standards for class certification in the Ninth Circuit for cases brought or removed to federal district court. Federal court class action practitioners are going to want to read this opinion again and again. They're going to have to, because the majority's opinion is a bit, well, windy.

I will spare you the details because you can read as much of the opinion as you can stand. To sum up, the court is permitting the certification of a class of hundreds of thousands of current workers claiming sex discrimination. The court, however, remanded the case to the district court regarding whether to allow a separate class of former employees, and whether punitive damages makes the case inappropriate for certification.

The case is Dukes v. Walmart and the opinion is here.

California Supreme Court Continues to Love Arbitration! (Not)

In its latest installment of "let's silently kill mandatory arbitration," the California Supreme Court (by Justice Moreno, writing for a 4-3 majority), decided that courts may vacate arbitration awards in FEHA or other statute-based claims merely when the arbitrator makes a legal error that results in a ruling in favor of the employer without a "hearing on the merits."

Will arbitrators ever grant motions for summary judgment now that a court will review the decision for "legal error"? They'll get right on that. Here's the money quote:

We therefore hold that when, as here, an employee subject to a mandatory employment arbitration agreement is unable to obtain a hearing on the merits of his FEHA claims, or claims based on other unwaivable statutory rights, because of an arbitration award based on legal error, the trial court does not err in vacating the award. Stated in other terms, construing the [California Arbitration Act] in light of the Legislature’s intent that employees be able to enforce their right to be free of unlawful discrimination under FEHA, an arbitrator whose legal error has barred an employee subject to a mandatory arbitration agreement from obtaining a hearing on the merits of a claim based on such right has exceeded his or her powers within the meaning of Code of Civil Procedure section 1286.2, subdivision (a)(4), and the arbitrator’s award may properly be vacated. (See Armendariz, supra, 24 Cal.4th at pp. 106-107.)

To emphasize: this holding does not authorize court review for an arbitrator's mere legal errors when a "hearing on the merits" has occurred. In this case, the arbitrator decided the claim was barred by the statute of limitations. That, of course, is not a "merits" argument.

The case is Pearson Dental Supplies v. Superior Court (Turcios) and the opinion is here.

US DOL Clarifies Unpaid Internships

The US Department of Labor issued new guidance regarding unpaid internships (here). The DLSE just got done with their opinion letter (posted here), and here come the feds with a fact sheet of their own. Coincidence? I think NOT! Scuse me, I need to dry clean my tinfoil hat.

California Fair Employment and Housing Commission to Issue Pregnancy Discrimination Regulations

So, the California FEHC, which enforces the Fair Employment and Housing Act (FEHA) is fixing to revise its pregnancy disability leave regulations. The webpage devoted to these efforts, including a link to the first draft of the regulations is here. If history is a guide, there will be a number of hearings and revisions before final regulations are promulgated. We will have a detailed article on these proposed regulations in the coming weeks. However, one highlight I noticed right away is that the new regulations will explain in more detail how pregnancy disability dovetails with other disabilities regarding "reasonable accommodation obligations" (over and above the separate pregnancy disability leave requirement).

CA Division of Labor Standards Issues Opinion Letter re Internships

Summer's here and the time is right for hiring free labor - er educational interns, that is! The Division of Labor Standards Enforcement issued an opinion letter, here, explaining when an internship / training period may be unpaid. The opinion letter arose in the context of a non-profit's training program. But the agency goes into detail regarding the factors it considers relevant, etc.

El Torito Managers Denied Class Certification

The courts are not requiring class certification in class actions attacking the executive exemption. The main point continues to be that the trial court's decision is entitled to lots of deference. If the trial court's factual findings are supported by "substantial evidence" is does not matter that there is conflicting evidence. The appellate court then looks to whether the trial court applied the proper legal standard. The bottom line is that the trial court has a lot of power in class certification matters.

In this case, involving restaurant managers, the trial court properly found evidence that a class of managers, even broken into sub-classes, was not amenable to common class treatment. Therefore, the court of appeal upheld the trial court's denial of certification. The court sets forth a long discussion regarding what the trial court found to be important on the certification issue....

The plaintiff arguments that classifying everyone as exempt proves commonality, and that chain restaurant managers don't have enough discretion to create individual issues precluding class certification, continue to be losers.

So lawyers defending restaurants in wage and hour matters, take note.

Arenas v. El Torito Restaurants, Inc. et al. and the opinion is here.

Nevada Minimum Wage Going Up 7/1/2010

Our neighbor to the east will raise its minimum wage on July 1. In Nevada, there are different minimum wage levels for employees who receive qualifying health benefits and those who do not.

The Nevada minimum wage will increase to the federal level of $7.25 per hour for employees who receive qualifying health benefits. The rate goes up to $8.26 per hour for those workers who do not receive health benefits. The increase is covered in this article. It is not yet posted on the Nevada Labor Commissioner's website, but likely will show up here. Qualifying health benefits are defined here.

Megan's Law and SLAPPs

The court of appeal's decision in Mendoza v. ADP Screening and Selection Services is interesting and perhaps dangerous for employers. The plaintiff, Mendoza, applied for an unspecified job with an unnamed employer. The employer conducted a background check through ADP Selection Services. ADP, as part of its services, checked the Megan's Law website, where information about registered sex offenders is kept. Although he does not definitively say so, the implication is that he was denied employment because of his appearance on the Megan's Law website.
Mendoza sued ADP, alleging that its use of the website was unlawful - because it was supplying the information to the employer. He claimed the disclosure violated Megan's Law itself, as well as the California investigative consumer report law.
ADP filed a motion to strike the complaint, claiming Mendoza's lawsuit was a "SLAPP" - strategic lawsuit against public participation. ADP claimed it has the right to republish the Megan's Law information, doing so is a protected activity, and Mendoza was seeking to interfere with that right by filing suit.
And both the trial court and court of appeal agreed. So, ADP won this case on the motion and on appeal, and obtained a huge award of attorney's fees, as the anti-SLAPP statute provides.
But do not be fooled. Mendoza did not sue the prospective employer for denying him employment. Had he done so, the court of appeal acknowledged, he might have had a good case.
So, why would an employer agree to receive the information from a third party, when it faces liability for using that information?
Of note, the court did say that an employer MAY use the information on the Megan's Law website "to protect a person at risk" even if for employment purposes. So, employers with operations exposing employees to minors, for example, possibly can use the Megan's Law website's information. The question remains whether the employer's use fits within the definition of "protecting a person at risk."
The bottom line is that unless the employer is using the information from the Megan's Law website to "protect a person at risk," which is not defined, it remains illegal for the employer to "use" that information to deny employment, whether it comes from the website itself or a third party. Therefore, notwithstanding this decision, employers should carefully consider whether to permit third party background investigators to disclose information found on the Megan's Law website.
The case is Mendoza v. ADP Screening and Selection Services and the opinion is here.

Ninth Circuit Changes Its Mind a Little

We posted about Rutti v. Lojack Corp. here, and wrote an article about compensation for preliminary/postliminary work here. Rutti was a case in which the plaintiff and a class of workers for Lojack claimed they were not paid for off-the-clock work performed at home, as well as for their commutes to and from work. The initial panel opinion shut down most of Rutti's claims, holding Rutti's activities were either de minimus or not compensable under the FLSA and California law. The panel did find that Rutti's uploading data at the end of the day potentially was compensable, however.

The first panel voted 2-1 that Rutti's use of a company vehicle to commute to and from home was not compensable under California law. But, on rehearing, the panel changed its position. Judge Cynthia Holcomb Hall flipped her vote. So, the new opinion gave Rutti a trial on his claim that driving to and from work is compensable under California law. The issue is the amount of control Lojack exercised over the use of the company truck. Money quote from Judge Silverman's separate majority opinion (which looks a lot like his previous dissent):

Rutti was required to drive the company vehicle, could not stop off for personal
errands, could not take passengers, was required to drive the vehicle directly from home to his job and back, and could not use his cell phone while driving except that he had to keep his phone on to answer calls from the company dispatcher. In addition, Lojack’s computerized scheduling system dictated Rutti’s first assignment of the day and the order in which he was to complete the day’s jobs. There is simply no denying that Rutti was under Lojack’s control while driving the Lojack vehicle en route to the first Lojack job of the day and on his way home at the end of the day.

So, employers who provide employees with company vehicles, take note. Too many restrictions on use of a company vehicle could turn commuting time into compensable time. And that means overtime, and maybe more meal periods, etc.

The case is still Rutti v. Lojack Corp. The new, fractured opinion, is here.

Ninth Circuit Upholds Tip Pooling Under FLSA

The Fair Labor Standards Act does not prohibit employers from allocating tips under a tip pool, if the employer does not apply a "tip credit" to satisfy the minimum wage obligation.
The Fair Labor Standards Act permits payment of a sub-minimum wage to tipped workers, so long as the base subminimum wage plus tips exceeds the normal minimum wage.
The plaintiffs claimed that the employer's allocation of pooled tips violated the Fair Labor Standards Act. They raised a number of arguments regarding the validity of the tip pooling arrangement, under which 55-70% of tips were distributed to kitchen and dishwashing staff. But the court said the FLSA does not prohibit tip allocations where the employee earns full minimum wage before tips. When an employer does pay subminimum wage and relies on tips to fill the gap, however, there are restrictions on tip pooling under FLSA (29 U.S.C. s. 203(m)). But those did not apply in this instance.
California law, however, does not permit the subminimum wage. Neither does Oregon law, which is where this case arose. Therefore, employers complying with state law minimum wages will not have to worry about the FLSA when constructing tip pools.

The case is Cumbie v. Woody Woo, Inc. and the opinion is here.

U.S. Supreme Court Breathes Life Into Removal Statute

Employers usually prefer federal court over California state court. Federal court practice includes a unanimous jury, tough rules that drive plaintiff attorneys nuts, judges that seem to grant summary judgment more readily, and other perceived benefits.

Federal courts don't routinely hear state law claims unless they are tied to a federal claim, or unless the plaintiff and defendant are "diverse" citizens. But federal courts often prefer not to litigate relatively simple state-law based claims. So, they have limited jurisdiction to hear those matters based on "diversity" of the parties' citizenship.

The Supreme Court stepped in to clarify how to determine a corporation's citizenship for diversity jurisdiction. The case arose in California. Melinda Friend and other sued Hertz for wage and hour violations. Hertz sought to remove the case on the ground that Friend was a California Citizen, and Hertz was a citizen of New Jersey. The lower federal courts determined that Hertz was the equivalent of a California citizen, because it had substantial activities in California.

On review, the Supreme Court rejected the analysis. The Court concluded:

“principal place of business” is best read as referring to the place where a corporation’s officers direct, control, and coordinate the corporation’s activities. It is the place that Courts of Appeals have called the corporation’s “nerve center.” And in practice it should normally be the place where the corporation maintains its head-quarters—provided that the headquarters is the actual center of direction, control, and coordination, i.e., the “nerve center,” and not simply an office where the corporation holds its board meetings (for example, attended by directors and officers who have traveled there for the occasion).

So, that's a much more straightforward analysis, which will result in the limitation of corporations' citizenship to its state of incorporation and the state where the officers/ senior management primarily do business. As a result, employers with lots of operations in different states will be able to remove cases to federal court based on diversity of citizenship jurisdiction.

The case is Friend v. Hertz Corporation and the opinion is here.

No Attorney's Fees for Minimal Recovery in FEHA Case

The California Supreme Court held that trial courts may deny attorney's fees to prevailing plaintiffs in discrimination cases brought under the Fair Employment and Housing Act, if the plaintiff recovers less than the $25,000 jurisdictional minimum for superior court. The plaintiff recovered about $11,000 and tried to recover over $800,000 in attorney's fees. Code of Civil Procedure Section 1033 authorizes trial courts to deny recovery of costs and fees when the jurisdictional minimum is unmet. The Supreme Court held that Section 1033 applies in FEHA cases. The court also held that the trial court properly considered that the plaintiff grossly inflated his request for attorney's fees. The case is Chavez v. Los Angeles and the opinion is here.

No Short Limitations Periods for Wage Claims

The Court of Appeal held an employer could not include in an employment agreement applicable to wage and hour claims. The court also held that the plaintiff was entitled to judgment as a matter of law against the defendant's administrative exemption. The case involved recruiting managers. The opinion is Pellegrino v. Robert Half International and the opinion is here.

DFEH to Issue Procedural Regulations

The California Department of Fair Employment and Housing has proposed a series of procedural regulations regarding, among other things, how charges are processed. The proposal codifies the DFEH's case-handling procedures, which have not been included in the agency's regulations up to now. The draft proposal is here. There will be hearings and a comment period before they are revised and ultimately promulgated.

Kin Care Case

The California Supreme Court decided that unlimited sick leave is not subject to California's "kin care" law. We blogged about this case (the court of appeal's opinion), McCarther v. Pacific Telesis, here.

To remind you - the company had an unlimited paid sick leave policy. You could take up to five days of paid sick time off. Once five days were up, you had to work a half day, and then you could start taking another five days of paid sick time off again. Yes, there is a union contract.

Labor Code section 233 requires employers to permit employees to use up to 1/2 of sick leave to care for a covered relation. So, the plaintiff in this case argued that she was entitled to use 1/2 of unlimited...

The Supreme Court, disagreeing with the court of appeal, decided that this unlimited sick pay policy was not "sick leave" under Labor Code section 233. Therefore, there was no kin care obligation - and no obligation to permit employees to use up to 1/2 the annual sick pay benefit.

The Supreme Court therefore ducked whether the company could apply its attendance control policy to the use of sick leave to care for a relative, when the employer applied the policy to time off for one's own sickness. The court of appeal had said that the employer was within its rights to apply the same conditions to kin care as to sick leave for one's own illness.

Not a lot of employers have unlimited sick leave. So, this case won't have a LOT of applicability. But for employers interested in the court's ruling, it is here.

DGV

Court of Appeal Upholds Arbitration Agreement

I know, I've been remiss in my blogging. Blame it on Jennifer Shaw's new baby. She can't read yet.

So, the Court of Appeal in Dotson v. Amgen (opinion here) held that Amgen's arbitration agreement was lawful. Specifically, a limitation of one deposition per side unless the arbitrator ordered more based on need was lawful. The Court also noted that a provision reserving all interpretation issues to the arbitrator save unconscionability was ok. The Court also held that a provision permitting appellate review in a separate court action to set aside an award was lawful.

The model arbitation agreements can be amended again.

Pregnancy Disability Update. Sort of.

As some of you know, Jennifer Shaw is my partner, chief rainmaker, and employment lawyer extraordinaire, over here at Shaw Valenza. As a partner, she is not entitled to Pregnancy Disability Leave under California law. You can read about that in this article I recently wrote for the SF Daily Journal, here.

Of course, this is just my sneaky way of announcing the arrival of Baby Shaw, female, on January 21. "What's New in Employment Law?" you ask? "Jennifer's baby," I reply. See what I did there? Huh?

Please send her well wishes and presents if you're so moved. Her favorite color is pink. The baby's favorite color also is pink. (Even if it isn't, the baby doesn't read the blog.) So, go with pink.

DGV

More Employment Law from the Defense Appropriations Act

Yep, the recent extension of the discount on COBRA premiums is part of our national defense effort. The 2010 Defense Department Appropriations Act contained an extension of the COBRA premium discount (enacted in Feb. 2009 as part of the ARRA stimulus bill) through February 28, 2010. A US DOL announcement regarding the extension is here.

Arbitration of Employment Law Claims - Going Away?

Did you know that the 2010 Defense Appropriations Bill is actually an employment law bill?

Well, when Congress keeps passing laws over with 100's of pages of text, you're going to see some hidden gems in there. So, the 2010 Defense Appropriations Act, which was H.R. 3326, appears to make the first cut of the 1000 that eventually will end arbitration of individual employment claims.

The new law applies only to defense contractors that receive more than $1,000,000 under the Defense Dept. Appropriations Act. The new law prohibits arbitration of certain claims for covered defense contractors But the contractor can't arbitrate covered claims with any of its employees, whether or not they are paid by contract money.

Here's the text of the section of the law:

Sec. 8116. (a) None of the funds appropriated or otherwise made available by this Act may be expended for any Federal contract for an amount in excess of $1,000,000 that is awarded more than 60 days after the effective date of this Act, unless the contractor agrees not to:

(1) enter into any agreement with any of its employees or independent contractors that requires, as a condition of employment, that the employee or independent contractor agree to resolve through arbitration any claim under title VII of the Civil Rights Act of 1964 or any tort related to or arising out of sexual assault or harassment, including assault and battery, intentional infliction of emotional distress, false imprisonment, or negligent hiring, supervision, or retention; or

(2) take any action to enforce any provision of an existing agreement with an employee or independent contractor that mandates that the employee or
independent contractor resolve through arbitration any claim under title VII of
the Civil Rights Act of 1964 or any tort related to or arising out of sexual assault or harassment, including assault and battery, intentional infliction of emotional distress, false imprisonment, or negligent hiring, supervision, or retention.

The secretary of defense may grant a waiver of this provision when needed for national security.

So, defense contractors, check your arbitration agreements. Everyone else, don't start your own arbitration administration company. I think demand for arbitration services may go down if this Congress acts quickly to abolish pre-dispute arbitration. The window of opportunity could be narrower after November, though.

The text of this portion of the bill is here, in Title VIII. By the way, if you care about such things, this portion of the law is known as the Franken amendment.

DGV

California WARN's Faltering Business Exception Explained

Happy new year everyone!

The director of California's Department of Industrial Relations issued an opinion letter clarifying one of the provisions of California's baby WARN Act. In essence, the law requires employers to provide 60 days' notice of a shutdown, relocation, or mass layoff under certain circumstances. However, there are some situations in which notice is not required. One is when the employer is actively seeking capital or business when the notice was required to be given (at least 60 days before the triggering shutdown):

1402.5. (a) An employer is not required to comply with the notice requirement contained in subdivision (a) of Section 1401 if the department determines that all of the following conditions exist:
(1) As of the time that notice would have been required, the employer was actively seeking capital or business.
(2) The capital or business sought, if obtained, would have enabled the employer to avoid or postpone the relocation or termination.
(3) The employer reasonably and in good faith believed that giving the notice required by subdivision (a) of Section 1401 would have precluded the employer from obtaining the needed capital or business. . . . .
(d) This section does not apply to notice of a mass layoff as defined by subdivision (d) of Section 1400.

Note that the defense does not apply to layoff notices, only to shutdown notices. So, if a company is looking for a buyer, is that the same as seeking capital or business? No, said the Director. The opinion letter surveys the analogous federal case law and concludes that the employer should have given the notice even though it was trying to obtain a buyer before it went out of business.
The opinion letter is here.