California Fair Employment and Housing Council Regulations Effective April 1, 2016 Require Employers to Change EEO Policies Now

The California Fair Employment and Housing Council is issuing revised regulations regarding discrimination, harassment and the like under the Fair Employment and Housing Act.  Shaw Valenza will be publishing a more detailed article in the next couple of weeks, which I'll post here.

The full text of the revised regulations, with redline and strikeout to show the changes is here. 

Some of the changes will not affect how employers do business, but will affect liability in litigation if courts adopt the Council's view.  But there are several new provisions that employers will have to deal with by amending policies and procedures.

The most urgent issue for employers to deal with - right now - is the Council's new, specific requirements for anti-harassment, discrimination and retaliation policies:   Employers already have a duty to distribute a DFEH brochure or alternative document that complies with Govt Code section 12950. But now, the Council requires much more. This is from section 11023(b) of the new regulations:

In addition to distributing the Department’s DFEH-185 brochure on sexual harassment, or an alternative writing that complies with Government Code section 12950, an employer shall develop a harassment, discrimination, and retaliation prevention policy that: 

(1) Is in writing; 

(2) Lists all current protected categories covered under the Act; 

(3) Indicates that the law prohibits coworkers and third parties, as well as supervisors and
managers, with whom the employee comes into contact from engaging in conduct prohibited by the Act; 

(4) Creates a complaint process to ensure that complaints receive:

(A) An employer’s designation of confidentiality, to the extent possible;(B) A timely response; (C) Impartial and timely investigations by qualified personnel; (D) Documentation and tracking for reasonable progress; (E) Appropriate options for remedial actions and resolutions; and (F) Timely closures.

(5) Provides a complaint mechanism that does not require an employee to complain directly to his or her immediate supervisor, including, but not limited to, the following:

(A) Direct communication, either orally or in writing, with a designated company representative, such as a human resources manager, EEO officer, or other supervisor; and/or

(B) A complaint hotline; and/or

(C) Access to an ombudsperson; and/or

(D) Identification of the Department and the U.S. Equal Employment Opportunity Commission (EEOC) as additional avenues for employees to lodge complaints.

(6) Instructs supervisors to report any complaints of misconduct to a designated company representative, such as a human resources manager, so the company can try to resolve the claim internally. Employers with 50 or more employees are required to include this as a topic in mandated sexual harassment prevention training, pursuant to section 11024 of these regulations.  

(7) Indicates that when an employer receives allegations of misconduct, it will conduct a fair, timely, and thorough investigation that provides all parties appropriate due process and reaches reasonable conclusions based on the evidence collected.

(8) States that confidentiality will be kept by the employer to the extent possible, but not indicate that the investigation will be completely confidential 

(9) Indicates that if at the end of the investigation misconduct is found, appropriate remedial measures shall be taken. 

(10) Makes clear that employees shall not be exposed to retaliation as a result of lodging a complaint or participating in any workplace investigation.

These are all good ideas for employers to follow. But these now must be included in a written policy disseminated to all employees.  

The new regulations also explain how the policy must be disseminated:

Dissemination of the policy shall include one or more of the following methods:

(1) Printing and providing a copy to all employees with an acknowledgment form for the employee to sign and return;

(2) Sending the policy via e-mail with an acknowledgment return form;

(3) Posting current versions of the policies on a company intranet with a tracking system
ensuring all employees have read and acknowledged receipt of the policies;

 (4) Discussing policies upon hire and/or during a new hire orientation session; and/or (5) Any other way that ensures employees receive and understand the policies.

(d) Any employer whose workforce at any facility or establishment contains 10 percent or more of persons who speak a language other than English as their spoken language shall translate the policy into every language that is spoken by at least 10 percent of the workforce.

So, multi-state employers, no more "or any other characteristic protected by state law" in your policies. Please review EEO policies and revise them ASAP.  

It is also critical to ensure there are systems in place for addressing complaints should they arise that are consistent with the policy - such as translation if needed, dissemination of the policy and record keeping, investigations, complaint procedures, etc.

EEOC Will Provide Position Statements to Employees While Charge Is Pending...But

the door does not swing both ways.

When an employee files an administrative charge or complaint with the Equal Employment Opportunity Commission, the agency usually requires the employer to provide a position statement. A position statement is a response to the complaint charge, which is often a letter explaining the legitimate reason for action taken, along with a response to requests for information.  The EEOC uses the charge and position statement to investigate whether there is "reasonable cause" to find a violation of the federal anti-discrimination laws.

The position statements are usually subject to disclosure under the federal Freedom of Information Act during later litigation.  However, under a revised policy, employees who file the charge (and their lawyers) can simply ask for the position statements while the charge is pending. That gives the employees and their counsel what is known as "free discovery" It also gives them a chance to respond to the position statement.

The "but" in the title of this post is that the EEOC will not provide the employer with the Employee's response to the position statement upon request.  So, employers and their lawyers do not get a "free look" at the employee's proof of discrimination or harassment.

Writing a good position statement is key for several reasons.  Of course it will influence the EEOC's decision on the merits of the charge. But it also will influence the employee's lawyer's decision regarding whether to take a case. And it will affect the employer's litigation position later if there is a lawsuit.  Accuracy is important, because when an employer's reasons change over time, that can be used as proof of a discriminatory motive.

The EEOC's policy is explained on the agency's website here. The EEOC also provides tips to employers and employees linked on its site.

California Fair Employment and Housing Council Considering Regulations Limiting Consideration of Criminal History

The California Fair Employment and Housing Council has taken the first step to issue regulations that would limit employers' consideration of criminal history.  The proposed regulations expressly incorporate a number of existing laws.  They also explain how "disparate impact" standards will be applied to employer practices regarding criminal records.

Some highlights:

- The regulations expressly incorporate bans on consideration of arrest records that already appear in the Labor Code;
- No consideration of any conviction referred to a pre-trial or post-trial diversion program;

- No consideration of expunged, judicially dismissed, or statutorily eradicated convictions;

- Employers may not take action based on "non-felony" marijuana possession convictions more than two years old.  Unhelpfully, they don't say how the two years is measured (neither does the Labor Code section upon which this provision is based).

- The regulations explain that public sector employers may not consider convictions until after the employer determines the applicant meets minimum qualifications for the job.  This is so-called 'ban the box," meaning that public sector applications cannot ask for conviction information. This provision does not affect private sector applications.

- Local ordinances containing tougher proscriptions (such as San Francisco's) are preserved.

- Employers must ensure consideration of convictions do not impose an "adverse impact" on minorities or others protected by anti-discrimination laws.  However, employers may establish that the consideration of a previous conviction is "job-related and consistent with business necessity."  What does that mean?

The criminal conviction consideration policy or practice needs to bear a demonstrable relationship to successful performance on the job and in the workplace and measure the person’s fitness for the specific job, not merely to evaluate the person in the abstract. In order to establish job-relatedness and business necessity, any employer must demonstrate that the policy or practice is appropriately tailored, taking into account at least the following factors:
(A) The nature and gravity of the offense or conduct;
(B) The time that has passed since the offense or conduct and/or completion of the sentence; and
(C) The nature of the job held or sought.

- Employers have to show that bright-line disqualifications distinguish between applicants and employees that do or do not pose an unacceptable level of risk.  That means there has to be a way to conduct an individual assessment of the applicant notwithstanding the crime.

- Employers that consider convictions older the seven years are subject to a rebuttable presumption that the practice is NOT job-related.

- Employers must give employees a chance to explain a conviction is inaccurate.

- Even if the employer demonstrates its conviction policy is job-related and consistent with business necessity, the applicant can show there are less discriminatory alternatives, "such as a more narrowly targeted list of convictions or another form of inquiry that evaluates job qualification or risk as accurately without significantly increasing the cost or burden on the employer."

- The proposed regulation does not apply when laws require elimination of applicants who are convicted of certain crimes.

The FEHC will be vetting the proposed regulations via a notice and comment period. There will likely be revisions as well. But it appears that California employers will have to conform their policies and practices regarding convictions to new rules in the months to come.  We will keep you posted.

The Council has published more information about the comment period and proposed regulations here. 

EEOC Proposes to Modify EEO-1 Form to Include Wage Data

The EEOC is proposing to change EEO-1 reporting requirements to add wage data.  Employers who file the EEO-1 (private sector employers with > 100 employees and federal contractors with > 50 employees) already report race and sex of employees in certain job categories.  If adopted, the proposal would require employers to report the W-2 wages earned by race and sex in each of the job categories for a one-year fiscal period.

The goal in part is to identify wage disparities and eliminate the widely reported "wage gap," which is not based on wage disparity within comparable jobs.  But the information gathered allegedly will permit EEOC analysts to perform statistical tests of employers' equal pay practices beyond the "wage gap."

The equal pay information also covers the EEO-1 race classifications, allowing the EEOC to assert Title VII claims based on disparate impact.  The Equal Pay Act addresses sex but not race. So, this proposed modification to the EEO-1 report is intended to address broader issues than the "wage gap" between all male workers and all female workers you hear about in the press.  The EEO-1 report's race information is often imprecise, so it will be interesting to see how the data is used going forward.

The agency will publish a proposed rule in the Federal Register on 2/1/16, and seek comments for 60 days.  If adopted, this proposal would take effect for the 2017 EE0-1 report.

The EEOC's press release is here.

Some FAQs are here.

Court of Appeal: Employer Entitled to Recoup Training Costs Under Repayment Agreement

Employers invest in employees in different ways. For example, sometimes employers pay for employees to undergo significant training.  And they hope the employee will not promptly leave and use that training while working for another employer.  So, they may ask the employee to repay the cost of the training if they leave employment within a period of time after receiving the training.
At the same time, California law favors employee mobility, and disfavors employers' passing along the costs of doing business to employees.

So, some employees try to escape from their promises to repay training costs by attempting to claim that these arrangements violate the law.  Under most circumstances, though, these are legal agreements, and employers are entitled to the benefit of their bargain.

The Court of Appeal today issued a decision involving a company who sued its former employee and won summary judgment on a claim for breach of contract.  As explained by the Court:

Floyd Case voluntarily enrolled in a three-year, employer-sponsored educational program. He agreed in writing that if he quit his job within 30 months of completing the program, he would reimburse his employer, USS-POSCO Industries (UPI), a prorated portion of program costs. Two months after completing the program, Case went to work for another employer. When he refused to reimburse UPI, the company sued for breach of contract and unjust enrichment. Case cross-complained, asserting the reimbursement agreement was unenforceable and UPI had violated the Labor Code and other statutory provisions in seeking reimbursement.

So, Case received an estimated $46,000 in training while he was paid to work. He agreed that if he left within 30 months of completing the training, he would pay back $30,000, less $1,000 for each month he stayed.  

But Case left just two months after completing the training. So, UPI, the employer, sued him for $28,000.  Case cross-claimed against UPI, claiming that the agreement to repay the money was illegal for every reason under the Labor Code, and that it was a de facto non-compete agreement, that it violated the National Labor Relations Act, and that caused cancer.  OK, not the last one.

The trial court granted summary judgment and the court of appeal affirmed.  The court rejected all of the arguments essentially for the same reasons.  First, there was a written agreement.  Second, this was not an employer-mandated training program.  Third, participation was voluntary, in that Case could have taken the test for the position he sought without going through the training. Fourth, he did not have to lay out any money of his own, rendering most of his Labor Code claims inapposite.  Fifth, the training was transferable to other employers and other work.

The Court, however, noted that if an employer developed its own program and mandated it, it might not be something for which the employer could obtain reimbursement.  That was the case in In re Acknowledgment Cases (2015) 239 Cal.App.4th 1498, when Los Angeles tried to recoup certain costs of special training that it required of its police officers, unique to its own operations.  

We posted about another case on this subject a couple of years ago here.  In that case, Hassey v. City of Oakland, it was legal for Oakland to recoup its training costs from police officers who left employment before the agreed-upon date. (It was illegal to deduct the costs from the final paycheck, though).

Another issue this court addressed in this case was the revised attorney's fees statute in the Labor Code, section 218.5.  That section used to be purely "two-way" and award fees to the prevailing party. The Legislature has now made it so that employers can recover fees only if the plaintiff brings the case in bad faith.  The court held that this statute is retroactive because it is procedural, and therefore applies to all pending cases.  That's bad news for employers litigating a variety of wage-hour lawsuits that were pending before the amendments to section 218.5. 

This case is USS-POSCO Industries, Inc. v. Case, and the opinion is here.

U.S. Supreme Court: Rejected Settlement Offer Cannot "Moot" Plaintiff's Class Action Claim

Back in 2013, a 5-4 U.S. Supreme Court "assumed" in Genesis Healthcare v. Symczyk that an unaccepted "offer of judgment" could moot a plaintiff's class action, if the offer would have provided the plaintiff complete relief on her individual claim. We posted about that here.

The Court chose not to address the issue directly because of the way the case had been litigated.  As a result of the assumption, though, the court held that the plaintiff's decision to ignore the settlement offer took her out of the case, leaving the case without a proper named plaintiff.  Because the Court "assumed without deciding" the issue, it had no binding effect on lower courts.

Fast-forward to now, and the Court directly addressed the "assumed" issue above, and came out the other way.  This time, in Campbell-Ewald Company v. Gomez, the Court adopted the Genesis Healthcare dissent's position:  the unaccepted offer of compromise does not affect the plaintiff's right to continue litigation on behalf of the class. Let me explain.

Gomez was a recipient of a "spam" text message, for which he claimed he had not opted in. Campbell-Ewald Company, via a sub-contractor, sent the text message on behalf of the Navy. The Navy had hired Campbell to help with a recruiting campaign.

Gomez sued on behalf of a class of other recipients under a federal law not related to employment law. During the litigation, Campbell made an "offer of judgment" under Federal Rule of  Civil Procedure 68, under which Gomez would receive full payment for the text messages he received, including "treble damages." The offer included a proposed injunction, but no attorney's fees, and no relief for the other potential class members. (The statute does not provide for attorney's fees. The court had not yet granted class certification.)

Gomez let the offer lapse, resulting in a rejection. Campbell then asked the district court to dismiss the case. Campbell argued that its expired offer rendered Gomez's claim "moot" because he could not hope to recover more than Campbell had offered.  Campbell also argued that, as a federal contractor, it was immune from suit.  I'm focusing on the mootness argument here. The district court and 9th circuit rejected both arguments.

So, the Supreme Court had to decide if the unaccepted offer resulted in the case being "moot." Mootness is a doctrine that federal courts use to ensure that they are deciding "live" controversies, required by the Constitution.   A case may be moot if the plaintiff no longer has any personal stake in the litigation.

The 5-4 majority, led by Justice Ginsburg, decided that Campbell's offer did not mean Gomez had no personal stake in the litigation:

Having rejected Campbell’s settlement bid, and given Campbell’s continuing denial of liability, Gomez gained no entitlement to the relief Campbell previously offered. See Eli- ason v. Henshaw, 4 Wheat. 225, 228 (1819) (“It is an undeniable principle of the law of contracts, that an offer of a bargain by one person to another, imposes no obligation upon the former, until it is accepted by the latter . . . .”). In short, with no settlement offer still operative, the par- ties remained adverse; both retained the same stake in the litigation they had at the outset.

 * * *

Because Gomez’s individual claim was not made moot by the expired settlement offer, that claim would retain vitality during the time involved in determining whether the case could proceed on behalf of a class. While a class lacks independent status until certified, see Sosna v. Iowa, 419 U. S. 393, 399 (1975), a would-be class representative with a live claim of her own must be accorded a fair opportunity to show that certification is warranted.

The majority of course is correct that once expired, the offer could not be accepted. But the majority's decision weakened the point of Rule 68.  Rule 68 is supposed to end litigation early, and penalize parties who continue with litigation when they are offered a viable settlement.  

Justice Thomas concurred in the judgment, adding a sixth vote in favor of Gomez.  Justice Thomas, however, did not agree with the majority opinion. Rather, he focused on the fact that Campbell did not actually "tender" the settlement funds, and denied liability.  Historically, Justice Thomas noted, Campbell's actions were not enough to end the case. Therefore, there was no basis to hold the case was moot.

Chief Justice Roberts, writing for himself, and Justices Scalia and Alito dissented. They opined that Campbell offered Gomez what he wanted the district court to award him under federal law:

When a plaintiff files suit seeking redress for an alleged injury, and the defendant agrees to fully redress that injury, there is no longer a case or controversy for purposes of Article III. After all, if the defendant is willing to remedy the plaintiff’s injury without forcing him to litigate, the plaintiff cannot demonstrate an injury in need of redress by the court, and the defendant’s interests are not adverse to the plaintiff.

Seizing on language in the majority opinion, the Chief Justice suggested that there is a way for defendants to moot future plaintiffs claims by actually paying the offered sums:

The good news is that this case is limited to its facts. The majority holds that an offer of complete relief is insufficient to moot a case. The majority does not say that payment of complete relief leads to the same result. For aught that appears, the majority’s analysis may have come out differently if Campbell had deposited the offered funds with the District Court. See ante, at 11–12. This Court leaves that question for another day—assuming there are other plaintiffs out there who, like Gomez, won’t take “yes” for an answer.

 The majority did not actually decide this question. Therefore, it remains to be seen whether five justices will hold that paying an offer into Court will moot a plaintiff's case in a class action.  Stay tuned. 

This case is Campbell-Ewald Company v. Gomez and the opinion is here. 

U.S. Dept of Labor's Administrator Interpretation Explains Joint Employer Status Under FLSA

We recently wrote an article about how courts and agencies are embracing the concept of sharing.
That is, forced sharing of responsibility among employers for the employment law violations of one.
(You can read our article here.  EMPLOYERS FACE NEW LIABILITY FOR OTHERS’ WORKERS )  As you'll see in that article, the National Labor Relations Board weighed in on joint employer status last year in a big decision.

Almost on cue, the U.S. Department of Labor has weighed in with one if its Administrator's Interpretations.  That is an opinion letter generally explaining an area of enforcement, which is not a full fledged regulation.  The Administrator Interpretation, No. 2016-1, is here.

Entitled "Joint employment under the Fair Labor Standards Act and Migrant and Seasonal Agricultural Worker Protection Act," the Administrator of the DOL's Wage and Hour Division seeks to explain how it will apply the Fair Labor Standards Act to "joint employer" relationships.

For the government,  "joint employer" relationships are helpful in different contexts.  And by "helpful in different contexts" I mean "ways to facilitate holding as many employers responsible as possible." Let the Administrator explain just some of the ways:

When two or more employers jointly employ an employee, the employee’s hours worked for all of the joint employers during the workweek are aggregated and considered as one employment, including for purposes of calculating whether overtime pay is due. Additionally, when joint employment exists, all of the joint employers are jointly and severally liable for compliance with the FLSA and MSPA.4 Where joint employment exists, one employer may also be larger and more established, with a greater ability to implement policy or systemic changes to ensure compliance. Thus, WHD may consider joint employment to achieve statutory coverage, financial recovery, and future compliance, and to hold all responsible parties accountable for their legal obligations. the 

 Rather than issue a regulation, with its notice and comments, and possibility of congressional action to stop it, the Administrator has chosen to issue this opinion letter.  It is helpful for employers to understand the federal wage-hour agency's position on how it will treat multiple employer business relationships, such as staffing agencies, temporary firms, and subcontracts.  

Here are some of the highlights:

1.  The letter distinguishes between "horizontal" relationships and "vertical" relationships.  Horizontal means that an employee works for two employers, but they are related enough that each employer is responsible for the wage-hour issues of the other.  For example, if there is a joint employer relationship between two horizontal employers, then the hours worked in a week are aggregated for overtime purposes.   Vertical means that the employee works for an entity like a staffing agency, but economic realities are that the employee also works for a joint employer that receives the benefit of the employee's labor. 

2.  With respect to horizontal employment, the interpretation surveys cases and regulations and comes up with several bulleted factors that the DOL will consider relevant in deciding whether separately owned businesses may be considered joint employers of an employee:

• who owns the potential joint employers (i.e., does one employer own part or all of the other or do they have any common owners);
  
• do the potential joint employers have any overlapping officers, directors, executives, or managers;
  
• do the potential joint employers share control over operations (e.g., hiring, firing, payroll, advertising, overhead costs);
  
• are the potential joint employers’ operations inter-mingled (for example, is there one administrative operation for both employers, or does the same person schedule and pay the employees regardless of which employer they work for);
  
• does one potential joint employer supervise the work of the other;
  
• do the potential joint employers share supervisory authority for the employee;
  
• do the potential joint employers treat the employees as a pool of employees available
  to both of them;
  
• do the potential joint employers share clients or customers; and
  
• are there any agreements between the potential joint employers. 
  

3.  With respect to vertical employment - like temporary staffing agencies' staff working at a factory owned by another company, the DOL explains that there sometimes is NO actual employment relationship with the joint employer, whereas there usually is an employment relationship with both horizontal employers.  So, the question is whether the DOL should impute - find - a relationship based on "economic realities."
The economic realities test will include an analysis of multiple factors including

• who directs and controls the work
• who directs and controls the employment conditions
• what is the permanency of the relationship - is this a long term contract?
• how repetitive and rote is the work?
• is the work integral to the potential joint employer's business?
• is the work performed on the joint employer's premises?
• does the joint employer perform administrative tasks for the employees that employers normally do?

The Administrator concludes that the joint employer relationship will be scrutinized in future cases to ensure broad coverage:

As a result of continual changes in the structure of workplaces, the possibility that a worker is jointly employed by two or more employers has become more common in recent years. In an effort to ensure that workers receive the protections to which they are entitled and that employers understand their legal obligations, the possibility of joint employment should be regularly considered in FLSA and MSPA cases, particularly where (1) the employee works for two employers who are associated or related in some way with respect to the employee; or (2) the employee’s employer is an intermediary or otherwise provides labor to another employer. 

The result is that employers may be found liable for wage-hour issues for which they are not necessarily aware of, or in control of. Therefore, employers must ensure that they account for these potential liabilities in their business relationships and contracts.

Reminder: California Minimum Wage Going Up 1/1/2016

There are so many new laws and rules going into effect that one obvious one may slip through the cracks.  The minimum wage in California is going up on January 1, 2016 to $10.00 per hour.   It says so right here on the old Minimum Wage Notice that has been around for a couple of years now. (HERE).

Because of the minimum wage increase, the California minimum salary for exempt "white collar" employees will increase to $3,466.6667 per month or $41,600 annually.  Also, those of you relying on the inside sales exemption (requiring minimum compensation of 1.5X minimum wage, take note that your employees will have to make at least $15.00 / hour).  

There are other wages pegged to minimum wage as well, but my boundless generosity is limited by time this morning. So, please consult with your attorneys, read your wage orders and labor code, and enjoy time with family and friends this holiday season. 

Best wishes for a safe and enjoyable holiday, and Merry Christmas.

Greg

 

IRS Lowers Standard Mileage Reimbursement Rates for 2016

Effective 1/1/2016, the IRS is lowering the standard mileage reimbursement rates, probably because of falling gasoline prices.  Most businesses reimburse employee's business use of their personal automobiles at the IRS rate. That rate will be going down from $0.575 to $0.54 on January 1, 2016.

Here is the text of the announcement, which is linked here.  Happy Festivus.

WASHINGTON — The Internal Revenue Service today issued the 2016 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.

Beginning on Jan. 1, 2016, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:

• 54 cents per mile for business miles driven, down from 57.5 cents for 2015
• 19 cents per mile driven for medical or moving purposes, down from 23 cents for 2015
• 14 cents per mile driven in service of charitable organizations

The business mileage rate decreased 3.5 cents per mile and the medical, and moving expense rates decrease 4 cents per mile from the 2015 rates. The charitable rate is based on statute.

The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs.

Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.

A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle. In addition, the business standard mileage rate cannot be used for more than four vehicles used simultaneously.

These and other requirements for a taxpayer to use a standard mileage rate to calculate the amount of a deductible business, moving, medical or charitable expense are in Rev. Proc. 2010-51.  Notice 2016-01 contains the standard mileage rates, the amount a taxpayer must use in calculating reductions to basis for depreciation taken under the business standard mileage rate, and the maximum standard automobile cost that a taxpayer may use in computing the allowance under a fixed and variable rate plan.

U.S. Supremes Enforce Arbitration Agreement, Reversing California Appellate Court

The U.S. Supreme Court in Direct TV Inc. v. Imburgia (opinion here) took on the California Court of Appeal in a test of the Federal Arbitration Act's preemptive force. Guess who won?

This case involves Direct TV's attempt to include a class-action waiver in an arbitration agreement as part of its service contract with customers.  Before the U.S. Supreme Court in AT&T Mobility LLC v. Concepcion, 563 U. S. 333 (2011), ruled that such waivers were valid under the Federal Arbitration Act, state courts (like California's) could invalidate class actions waivers as "unconscionable" or invalid against public policy. See Discover Bank v. Superior Court, 36 Cal. 4th 148 (2005).

So, Direct TV inserted a provision in its arbitration agreement that hedged against the possibility of invalidation by a state court, as explained by the Supreme Court in its opinion:

if the “law of your state” makes the waiver of class arbitration unenforceable, then the entire arbitration provision “is unenforceable.” Id., at 129. Section 10 of the contract states that §9, the arbitration provision, “shall be governed by the Federal Arbitration Act.”

This way, if California held that a class waiver is invalid, the whole case (class action and all) would be heard in court. 

Then, of course, the U.S. Supreme Court decided a case that preempted California law invalidating class-action waivers.  Even the California Supreme Court had to agree that if the Federal Arbitration Act applies, class action waivers in arbitration agreements are OK.  Therefore, one might say, the "law of the state" about class-waivers was gone.  What happened to this clause then? Well that's what this case is about.

The Court of Appeal interpreted the above language to say that the "state law" would continue to apply without regard to federal preemption.  That is, the "law of your state" would continue to prohibit class action waivers under this agreement, despite the preemption of the law by the Supreme Court.  And, despite the arbitration agreement's specific provision that the Federal Arbitration Act applies. 

6-3, the Supreme Court rejected the Court of Appeal's decision.  The Court decided that for the Court of Appeal to be correct, the term "law of your state" had to include "invalid" state law.  The Court then decided that the Court of Appeal would never have interpreted the term "law of your state" to include "invalid" state law unless this contract were an arbitration agreement. Therefore, because the Court of Appeal disfavored arbitration agreements, its decision violated the Federal Arbitration Act. 

nothing in the Court of Appeal’s reasoning suggests that a California court would reach the same interpretation of “law of your state” in any context other than arbitration. The Court of Appeal did not explain why parties might generally intend the words “law of your state” to encompass “invalid law of your state.” To the contrary, the contract refers to “state law” that makes the waiver of class arbitration “unenforceable,” while an in- valid state law would not make a contractual provision unenforceable. Assuming—as we must—that the court’s reasoning is a correct statement as to the meaning of “law of your state” in this arbitration provision, we can find nothing in that opinion (nor in any other California case) suggesting that California would generally interpret words such as “law of your state” to include state laws held invalid because they conflict with, say, federal labor statutes, federal pension statutes, federal antidiscrimination laws, the Equal Protection Clause, or the like. 

And as for disfavoring arbitration:

The view that state law retains independent force even after it has been authoritatively invalidated by this Court is one courts are unlikely to accept as a general matter and to apply in other contexts.

Justice Thomas believes the Federal Arbitration Act does not preempt any case brought in state court and would have affirmed the court of appeal. So he dissented on that special ground. 

Justices Ginsburg (writing) joined by Justice Sotomayor dissented on the merits, arguing that  Direct TV should be held to its original intent: to enforce the agreement only if state law (without regard to federal preemption) would allow the class waiver. The agreement was written before the Supreme Court ruled class action waivers were allowed and state laws to the contrary were preempted; therefore, the agreement's intent was not to include federal law in the mix.  

So, another anti-arbitration case goes by the wayside. But California's anti-arbitration case law remains on the books and strong because Armendariz and its progeny are still in force.  Therefore, it remains important to draft arbitration agreements in employment settings carefully. 

California Court of Appeal Drives a Truck Through Federal Arbitration Act's Class Action Waiver Rule

If the Federal Arbitration Act applies, and it does to most employer-employee relationships, then it's settled that arbitration agreements may be limited to individual claims only.  That is, a class action waiver is enforceable under the Federal Arbitration Act.  And a silent agreement is considered to be limited to individual claims only.

What if the Federal Arbitration Act doesn't apply?  Then California law takes over.  And when California law applies, then California courts' deep abiding love for arbitration comes into play.
I kid.

The question then, is when the Federal Arbitration Act does not apply. One example is that the Act itself exempts:  “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.”  At the turn of the century, the U.S. Supreme Court held that "workers engaged in commerce" was limited to transportation-type workers, not everyone in business. 

The U.S. Supremes have not yet decided what is a transportation-type worker.  Is it anyone who drives a truck  or vehicle across state lines as part of the job?  Or is it someone who is in the trucking business like a mover, bus driver, UPS, etc.?   

Well, that's what the Court of Appeal decided in Garrido v. Air Liquide Industrial U.S. LP.  

It seems Garrido filed a class action in state court, but signed an arbitration agreement containing a class action waiver. The agreement stated that the Federal Arbitration Act applied. But the superior court refused to enforce the class action waiver, even so.  That is because the trial court decided that even under the FAA the agreement would be invalid.  Of course, the trial court was wrong. if the FAA applied, the U.S. Supreme Court and the California Supreme Court both have held that a class action waiver is valid and enforceable. 

But the Court of Appeal decided that the FAA did not apply because Garrido's arbitration agreement was not covered by the FAA, as he was a "worker engaged in interstate commerce" by virtue of his job as a truck driver.    

Garrido’ s duty as a truck driver was the transportation of goods. Air Liquide cites to no authority holding that a truck driver whose responsibility is to move products across state lines does not fall under section 1 of the FAA. The fact that Garrido transported Air Liquide’s own products (rather than those of an Air Liquide client) is of little consequence: “a trucker is a transportation worker regardless of whether he transports his employer’s goods or the goods of a third party; if he crosses state lines he is ‘actually engaged in the movement of goods in interstate commerce.’” (International Brotherhood of Teamsters Local Union No. 50 v. Kienstra Precast, LLC (7th Cir. 2012) 702 F.3d 954, 957.)

Thus, because Garrido was a transportation worker, the FAA does not apply to the ADR agreement.

Once the FAA did not apply, then the issue was whether the class waiver was enforceable.  Without FAA preemption, the California case law is anti-class action waivers. The courts will invalidate class action waivers under Gentry v. Superior Court by applying a four-factor test:

In finding the ADR agreement’s class waiver provision unenforceable, the trial court applied Gentry’s four-factor test. As noted above, these four factors are: “[1] the modest size of the potential individual recovery, [2] the potential for retaliation against members of the class, [3] the fact that absent members of the class may be ill informed about their rights, and [4] other real world obstacles to the vindication of class members’ rights to overtime pay through individual arbitration.” (Gentry, supra, 42 Cal.4th at pp. 453, 463.) Under Gentry, if the trial court “concludes, based on these factors, that a class arbitration is likely to be a significantly more effective practical means of vindicating the rights of the affected employees than individual litigation or arbitration, and finds that the disallowance of the class action will likely lead to a less comprehensive enforcement of overtime laws for the employees alleged to be affected by the employer’s violations, it must invalidate the class arbitration waiver to ensure that these employees can ‘vindicate [their] unwaivable rights in an arbitration forum.’” (Ibid.)

The Court of Appeal held that the trial court properly applied that standard to hold that Garrido could maintain his class action in court because his class action waiver was unenforceable under California law. 

In this trucking case, there's little the employer could do. But if you are drafting an arbitration agreement or compelling arbitration, do your best to make sure the FAA applies.... or this could happen to you.

This opinion in Garrido is here. 

 

Court of Appeal: Two Attorney's Fees Statutes Could Mean Offsetting Awards

So, let's say the plaintiff wins at trial on an Equal Pay Act claim under California law. But the defendant wins a verdict on a claim for unpaid wages. The Equal Pay Act claim permits recovery of attorney's fees under Labor Code section 1197.5.  But Labor Code section 218.5 allows recovery of attorney's fees by the prevailing party.  Who gets attorney's fees?

The trial court awarded the plaintiff her fees on the Equal Pay Act claim, but only a fraction of what she claimed entitlement to.  She had only spent a portion of her time on the EPA part of the case, after all.

The trial court also awarded the defendant its fees on the wage-hour claim.  The net recovery by the Plaintiff was about $4,000.  That probably wasn't what the plaintiff's lawyer had in mind when he signed up for the case. So, the plaintiff appealed.

The Court of Appeal upheld the trial court's decision.

when there are two fee shifting statutes in separate causes of action, there can be a prevailing party for one cause of action and a different prevailing party for the other cause of action. 

Why?

if plaintiff had brought her wage and Equal Pay Act claims in separate actions, defendant would have been entitled to recover its attorney fees in the action asserting the wage claim and plaintiff would have been entitled to recover her attorney fees in the action asserting the Equal Pay Act claim. There is no legal or logical reason why defendant should be precluded from recovering its attorney fees on plaintiff’s wage claim simply because plaintiff combined her wage and Equal Pay Act claims in a single action. By providing that the prevailing party under one statute is entitled to fees, and that a different prevailing party under another statute is entitled to fees, the Legislature expressed an intent that there can be two different prevailing parties under separate statutes in the same action. Thus, a net monetary award to a party does not determine the prevailing party when there are two fee shifting statutes involved in one action

As such, the court rejected the plaintiff's argument that her prevailing on just one of the claims meant she was the "prevailing party" in the lawsuit, precluding the defendant from recovering its fees on the claims on which it had prevailed.

Makes sense, right?  So,this is a great case for employers seeking leverage in settlement negotiations when there are multiple fee-shifting statutes involved. But there is one little wrinkle.

Labor Code section 218.5 was amended in 2013 to say that defendants do not recover attorneys fees anymore under that statute unless the plaintiff brought the wage claim "in bad faith." And that's a tough standard.  So, it may be that 218.5 will rarely result in a fee award to a prevailing defendant going forward.

This case is Sharif v. Mehusa, Inc. and the opinion is here.

Two Recent California Employment Law Decisions of Note

I know I haven't been blogging as much lately. I don't want to let you three readers down.
I'll try to do better.  Sometimes I think this blog has run its course, but then I get a meaningful piece of hate mail and my faith is restored.

Don't worry, you can catch up on all of the year's significant decisions at our upcoming legal update, which you can attend in person or via a convenient webinar.

Here are two recent employment law opinions of note, briefly summarized -

Class Action - No Precertification Discovery to Find New Plaintiff When Original Plaintiff Had No Case.

The plaintiff alleged that CVS has a policy under which it automatically terminates employment of those who perform no work for 45 consecutive days.  (It seems unlikely that such a policy would exist without containing any exceptions, given the need for FMLA/ CFRA / PDL leave).

The problem is that the plaintiff herself did not miss 45 days of work and was not fired under that policy. She was dismissed for lack of standing.

But the plaintiff's attorneys tried to obtain discovery of all the names and addresses of everyone fired under the alleged policy, despite the lack of a viable client.

There is case law allowing the search for a new plaintiff in class action cases, but only when the original plaintiff had some sort of viable case.  Here, the court of appeal was having none of it:

Deluca was never a member of the class she sought to represent. She does not claim a disability and CVS did not terminate her. We are hard pressed to explain why the trial court stated it “does not find that Deluca or her counsel had no reasonable, good faith belief that she lacked standing when the suit was initiated.”  * * * *

Class actions rest on considerations of equity and justice. Based on the facts before us, and applying the Parris test, we find the actual or potential abuse of the class action procedure outweighs the potential benefits that might be gained. Therefore, the trial court abused its discretion in allowing the proposed precertification discovery.

This case is CVS Pharmacy, Inc. v. Superior Court and the opinion is here.


Retaliation Claims Under Lab. Code Section 1102.5(b) Are Independent from Common Law Wrongful Termination (Tameny) Claims

The plaintiff in Cardenas v. Fanaian, DDS was a nurse who lost her wedding ring at work.   She filed a police report. The dentist / practice owner objected and fired the nurse. She sued under Labor Code section 1102.5, which prohibits retaliation against employees who report illegal conduct to law enforcement.  She also sued for wrongful termination in violation of public policy.   The jury awarded her damages.

On appeal, the defense lawyers mishandled the arguments according to the court of appeal. However, the court decided NOT to rule on the applicability of the wrongful termination claim.  There was a good argument that her "complaint" that someone stole her ring was not a "public" policy issue.

On the statutory claim, though, you can't fire someone for going to the police about a co-worker:

The special verdict findings bring this case squarely within the parameters of section 1102.5. The jury determined that Cardenas reported a workplace theft of her property to the police. Theft is a violation of the law. (Pen. Code, § 484.) The jury found that she was subsequently terminated from her employment and that her report to the police was a motivating reason for her termination. Thus, she engaged in protected activity, was subjected to an adverse employment action and there was a causal link between the two. (McVeigh, supra, 213 Cal.App.4th at p. 468.) She met all of the statutory elements of a claim under section 1102.5. She was not required to prove anything more.

So, this case is significant because section 1102.5 does not require reports about the employer's wrongdoing pertaining to business issues.  Rather, the law prohibits retaliation even if the employee makes a report to the government about something entirely unrelated to the employer.

The opinion in Cardenas v. Fanaian is here.

CA Governor Signs New Equal Pay Law

The California Legislature has turned its attention to anti-discrimination law: equal pay.  Now, who is against equal pay?  If you raised your hand, you violated at least four laws that already existed before Jerry Brown signed SB 358 (text is here).  Four laws?   At least.

1. Title VII of the Civil Rights Act of 1964 does not allow employers to set pay based on sex (or race or other protected criteria). So, if a restaurant employer paid female servers  $0.50 per hour less than male servers, that would violate Title VII absent a "legitimate, nondiscriminatory business reason."  The workers must be "similarly situated."

2. The California Fair Employment and Housing Act is analogous to Title VII.

3.  The federal Equal Pay Act of 1963 (here)  (yes, enacted a year earlier than Title VII) provides:

(1) No employer having employees subject to any provisions of this section shall discriminate, within any establishment in which such employees are employed, between employees on the basis of sex by paying wages to employees in such establishment at a rate less than the rate at which he pays wages to employees of the opposite sex in such establishment for equal work on jobs the performance of which requires equal skill, effort, and responsibility, and which are performed under similar working conditions, except where such payment is made pursuant to (i) a seniority system; (ii) a merit system; (iii) a system which measures earnings by quantity or quality of production; or (iv) a differential based on any other factor other than sex: Provided, That an employer who is paying a wage rate differential in violation of this subsection shall not, in order to comply with the provisions of this subsection, reduce the wage rate of any employee.

4. And the California Labor Code, section 1197.5  already says:

1197.5. (a) No employer shall pay any individual in the employer's employ at wage rates less than the rates paid to employees of the opposite sex in the same establishment for equal work on jobs the performance of which requires equal skill, effort, and responsibility, and which are performed under similar working conditions, except where the payment is made pursuant to a seniority system, a merit system, a system which measures earnings by quantity or quality of production, or a differential based on any bona fide factor other than sex.

That said, and dissatisfied with the "wage gap" that exists between the wages earned by all men and all women in all jobs (which has nothing to do with the equal pay laws), the Legislature has  modified section 1197.5, intending to strengthen it.

Here is the text of the new law's equal pay provisions:

1197.5. (a) An employer shall not pay any of its employees at wage rates less than the rates paid to employees of the opposite sex for substantially similar work, when viewed as a composite of skill, effort, and responsibility, and performed under similar working conditions, except where the employer demonstrates: 

(1) The wage differential is based upon one or more of the following factors:
  (A) A seniority system.
  (B) A merit system.
  (C) A system that measures earnings by quantity or quality of production.
  (D) A bona fide factor other than sex, such as education, training, or experience. This factor shall apply only if the employer demonstrates that the factor is not based on or derived from a sex-based differential in compensation, is job related with respect to the position in question, and is consistent with a business necessity. For purposes of this subparagraph, “business necessity” means an overriding legitimate business purpose such that the factor relied upon effectively fulfills the business purpose it is supposed to serve. This defense shall not apply if the employee demonstrates that an alternative business practice exists that would serve the same business purpose without producing the wage differential.
(2) Each factor relied upon is applied reasonably.
(3) The one or more factors relied upon account for the entire wage differential.

The key changes are:

- "substantially similar" work rather than equal work.  What does "views as a composite of skill, effort, and responsibility" mean?  This will be the subject of litigation. 

- the employee need not compare herself to others only within the same location, but may look to other job sites.  This change likely expands the new law beyond all four laws discussed above. When employers have multiple facilities and pay different rates based on location, this section could result in claims of pay disparity.  It is still lawful to do pay geographic differentials as far as I know. But employers will have to ensure that wage differentials based on geography are applied equally and do not create sex-based disparities.

-  the employer has to prove that wage disparities based on factors "other than sex, such as education, training or experience" are job-related, consistent with business necessity, and that the employee cannot prove a less discriminatory alternative.

- the court / jury gets to decide if the employer's reason for wage disparities are "reasonable."  

- the employer must prove the entire wage disparity is due to one or more of the defenses.

Other major changes:

 - Recordkeeping under this section goes from 2 years to 3.

-  It is already the law (in the Labor Code, even) that an employer cannot prohibit an employee from disclosing her own wages or discussing wages at work.  But this new law prohibits employers from preventing employees from "inquiring about another employee's wages" or "aiding or encouraging any other employee to exercise his or her rights under this section."  However, the new law says that it does not require anyone, including the employer, to disclose others' wages.  There is no exception for payroll or HR workers who may "discuss the wages of others" under this new law.  So, can the payroll manager chat with Sally about Bob's pay?  It also will be interesting to see if this law is preempted by the National Labor Relations Act, which also covers this area. 

- New private rights of action and remedies for violations. However, these existed in one form or another under the old laws as well.

Effective date and final thoughts:

This law takes effect on January 1, 2016.

Employers will have to revise payroll and confidentiality policies before then. It will also serve employers well do analyze compensation systems to ensure that wage disparities are justified in accordance with the defenses stated above.

Oh, and this law will do little to nothing to address the "wage gap" that you may have read about, or heard Patricia Arquette discuss at the Oscars.  That wage gap is a function of the average wage paid to women for all jobs compared with the average wage paid to men.   It's not a comparison of men and women doing the same job for the same employer.

If the politicians want to pass a law to address the overall wage gap and stop using it as a political talking point, they can do so.  But they will have to pass a law that sets wages for male-dominated occupations lower, set wages for female-dominated occupations higher,  and/or somehow balance the mix of males and females in each job category.  I have to go now.  I have an appointment in Room 101.

Finally finally, I think the law actually has a typo in it.  The usual way one refers to the commencement of the statute of limitations is when the cause of action "accrues."   This law reads, at least on the internet, and as of right now:

A civil action to recover wages under subdivision (a) may be commenced no later than two years after the cause of action occurs.

(emphasis mine).  I make typos too.  But I don't pass landmark legislation that affects millions of Californians.

California Health Care Industry Meal Period Waivers Are Back

Governor Jerry Brown just signed SB 327 (text here).  This bill overturns a court of appeal opinion that was going to significantly affect the health care industry and its meal break scheduling practices. That decision, Gerard v. Orange Coast Memorial Medical Center (2015) 234 Cal.App.4th 285, is on review to the California Supreme Court. It may be moot now.  And yes, the issue applies only to the health care industry (hospitals, nursing homes, etc.).  Everyone else, go back to your Facebook.

Here's the deal.  Wage Order 5 is the industry order that applies to the health care industry.  That Wage Order contains a special provision allowing health care workers to waive one or the other of their two meal periods when they are scheduled to work > 10 hour shifts.  That provision is section 11(D):

Notwithstanding any other provision of this order, employees in the health care industry who work shifts in excess of eight (8) total hours in a workday may voluntarily waive their right to one of their two meal periods. In order to be valid, any such waiver must be documented in a written agreement that is voluntarily signed by both the employee and the employer. The employee may revoke the waiver at any time by providing the employer at least one day’s written notice. The employee shall be fully compensated for all working time, including any on-the-job meal period, while such a waiver is in effect.

Seems pretty straightforward, right?  The intent is to allow those health care workers who have 3 X 12 hour shifts or 4X 10 hour shifts (which are common) to have only one meal period so they can go home to their families a half hour earlier.

But Gerard, cited above, held that section 11(D) was not valid.  That's because Gerard held that Labor Code 516 invalidated section 11(D) because section 516 is a statute that says that the Wage Orders have to be at least as generous as section 512. And section 512 does not permit waiver of either one of two meal periods by health care workers.

Confused?  So were employment lawyers, hospitals and everyone except three judges in Gerard.  Not to worry, Gerard is no more.   Because the Legislature amended section 516, thusly:

(a) Except as provided in Section 512, the Industrial Welfare Commission may adopt or amend working condition orders with respect to break periods, meal periods, and days of rest for any workers in California consistent with the health and welfare of those workers.
(b) Notwithstanding subdivision (a), or any other law, including Section 512, the health care employee meal period waiver provisions in Section 11(D) of Industrial Welfare Commission Wage Orders 4 and 5 were valid and enforceable on and after October 1, 2000, and continue to be valid and enforceable. This subdivision is declarative of, and clarifies, existing law. 

So, under (b), section 11(D) was is and will be valid.  That means the plaintiff in Gerard probably will lose this case at the Supreme Court, and all will be well in health care once again.

This is an urgency statute, meaning it takes effect immediately.

CA Governor Signs AB 1506, a Bill Granting Limited PAGA Relief Re Wage Statements

Governor Jerry Brown signed AB 1506 (text here), which amends the Private Attorneys General Act, or PAGA.

This law affects only PAGA claims that are based on defective wage statement claims asserting violations of Labor Code section 226. And only those claims were the alleged defects are that the employer does not include on the wage statement:

(6) the inclusive dates of the period for which the employee is paid, 

(8) the name and address of the legal entity that is the employer

So, a PAGA claim based on those two criteria may be avoided if the employer "cures" the defect upon receiving notice from the employee.   How do you cure?

A violation of paragraph (6) or (8) of subdivision (a) of Section 226 shall only be considered cured upon a showing that the employer has provided a fully compliant, itemized wage statement to each aggrieved employee for each pay period for the three-year period prior to the date of the written notice sent pursuant to paragraph (1) of subdivision (c) of Section 2699.3.

So, to "cure" you just have to re-do your wage statements for three years and re-issue them to all employees who received the defective ones.   It also means that the "aggrieved employees" must be "made whole," but it's unclear what that means unless someone has suffered some harm because the proper weeks or employer name were not listed on the wage statement.

The cure must occur after the employer receives notice of a PAGA claim within the 33 day period before the employee can file a lawsuit. If the employee claims the employer has not cured the defect, the employee may appeal to the DLSE. The DLSE has 17 days to rule on whether or not the defect was cured.  If not, the employer has three more days to cure.  If the employee still disagrees, he may appeal to the superior court.  If the DLSE finds the the employer did not cure, then the employee may file suit.

So, this is a very minor amendment to PAGA, but one that may help employers avoid an expensive claim in limited circumstances.

This is an "urgency" measure, which means it takes effect right away. Stay tuned for explanations of some of the other legislation that will take effect in January.

NLRB's "Joint Employer" Case Matters to Non-Union Employers, Too

As you may have read, the NLRB has changed its definition of what is a "joint employer" relationship.  In the labor law context, this may come up, for example, when the Board decides what is an appropriate unit for bargaining or voting.  Additionally, a joint employer may have to bargain alongside its co-employer about the employment conditions under its "joint" control. Joint employers also can be jointly liable for unfair labor practice decisions and more. 

Before you decide this is "union stuff" and irrelevant, remember that courts may use the "joint employer" doctrine to impose liability on one company for the discrimination, sexual harassment, etc.  perpetrated by employees of another company.  The standards for transferring liability between separate companies (single employer, integrated enterprise, alter ego, joint employer) are influenced by NLRB decisional law.   So, this case could affect other areas of the law unrelated to union stuff.  Plus, the NLRB's reach continues to expand. Sooner or later, it is going to create more private-sector unionization unless the current trend is reversed. So, it pays to pay attention.

"Joint" employer is when there are two separate entities, owned and managed by different enterprises. But they both exercise sufficient control over a group of workers that they are considered "jointly" responsible for issues that arise.  A "single" employer or "integrated enterprise" on the other hand, usually refers to when there are related entities, like parents and subsidiaries, that are deemed one enterprise.  An "alter ego" is when one entity pretends to be unrelated to another, usually to disguise itself and avoid liability.

Joint employer relationships often come up in the context of temporary agencies, or when an employer subcontracts some of its work to a separate company, such as cleaning.  

In the case under consideration, Browning-Ferris Industries operated a recycling plant.  They employed their own employees, who operated forklifts, loaders and other equipment.   Inside the facility, there are a series of conveyor belts that sort the recycled materials.  BFI hired another company, Leadpoint, to staff the conveyor belts.  The Leadpoint workers cleaned the facility, sorted the materials and performed other work.  A union sought to represent the Leadpoint workers. The same union already represented the BFI employees mentioned above.   

BFI and Leadpoint had a written agreement, under which Leadpoint was the employer of its workers. Here are some of the provisions:

• Leadpoint had its own supervisors and managers on site.
• Leadpoint management scheduled its workers
• Leadpoint evaluated its own employees' work.
• Leadpoint had its own HR manager on site.
• Leadpoint made all hiring decisions, but BFI provided criteria / job qualifications
• BFI imposed hiring criteria including a drug panel and skills test
• Leadpoint made all discipline and termination decisions, although BFI requested a couple of discharges after catching Leadpoint employees engaged in misconduct at the facility.
• Leadpoint set pay rates with employees, but BFI's agreement provided the maximum it would reimburse Leadpoint.
• BFI set the hours of operation of the plant and the shift times. But Leadpoint scheduled the employees.

The Board undertook an historical analysis of the joint employer test. It found that the Board over the years had narrowed the test to exclude many relationships that were "joint employers" under older Board and case law.   The Board then announced its "new" rule, which it argues is really a "return" to the old rule:

The Board may find that two or more entities are joint employers  of a single work force if they are both employers within the meaning of the common law, and if they share or codetermine those matters governing the essential terms and conditions of employment. In evaluating the allocation and exercise of control in the workplace, we will consider the various ways in which joint employers may “share” control over terms and conditions of employment or “codetermine” them, as the Board and the courts have done in the past

So, there are two prongs.  First, what is "employer within the meaning of the common law?"   The Board quoted from the Restatement of Agency:

a servant is a person employed to perform services in the affairs of another and who with respect to the physical conduct in the performance of the services is subject to the other’s control or right to control.

The Board emphasized that, going forward, it would merely look to the "right" to control, rather than the exercise of control.  So, BFI owns the equipment, sets the starting and ending times, and has its own quality and management standards in play in its own plant.  Does BFI always have the "right" to control its own property and, therefore, the sub's employees to one degree or another?  Probably yes, right?  I think that's the way the Board wants it.    Am I just trying to scare you?  Nope. From the opinion:

The common law, indeed, recognizes that control may be indirect . For example, the Restatement of Agency (Second) §220, comment l (“Control of the premises”) observes that

[i]f the work is done upon the premises of the employer with his machinery by workmen who agree to obey general rules for the regulation of the conduct of employees, the inference is strong that such workmen are the servants of the owner... and illustrates this principle by citing the example of a coal mine owner employing miners who, in turn, supply their own helpers. Both the miners and their helpers are servants of the mine owner.

So, that is the outer limit of what an employee is, but it's not enough to ensure joint employer status. Hence the second prong: "share or codetermine those matters governing the essential terms and conditions of employment." Here, the Board decided to return to prior case law that expanded the list of criteria it considers relevant to "share or codetermine." 

Essential terms indisputably include wages and hours, as reflected in the Act itself.82 Other examples of control over mandatory terms and conditions of employment found probative by the Board include dictating the number of workers to be supplied;83 controlling scheduling,84 seniority, and overtime; 85 and assigning work and determining the manner and method of work performance

The Board overruled at least four decisions "and others" that conflict with its new standard.  

Then, the Board turned to BFI and found, yes, it is a joint employer with Leadpoint.  

• Re hiring, BFI required drug testing, asked Leadpoint not to hire those BFI previously employed and deemed ineligible, and BFI could reject anyone brought to its premises.  

• Re discipline and termination, BFI could report to Leadpoint employees whom BFI felt should be disciplined or discharged.

• Re working conditions, BFI had the right to control its conveyor belt, including the speed at which it operated.  BFI held meetings with Leadpoint employees to provide feedback and training.  And because BFI set the shift times and decided how many workers were needed to staff the plant, those were indirect indicia of control. 

• Re wages:

Under the parties’ contract,  Leadpoint determines employees’ pay rates, administers all payments, retains payroll records, and is solely responsible for providing and administering benefits. But BFI specifically prevents Leadpoint from paying employees more than BFI employees performing comparable work.111 BFI’s employment of its own sorter at $5 more an hour creates a de facto wage ceiling for Leadpoint workers. In addition, BFI and Leadpoint are parties to a cost-plus contract, under which BFI is required to reimburse Leadpoint for labor costs plus a specified percentage markup.112 Although this arrangement, on its own, is not necessarily sufficient to create a joint-employer relationship,113 it is coupled here with the apparent requirement of BFI approval over employee pay increases.114

The Board's decision is 3-2.  Two Members dissented in an opinion that expressed more than a touch of concern about the affect the majority's decision may have on labor law.  Here are a couple of  excerpts from the beginning of the dissent:

Today, in the most sweeping of recent major decisions, the Board majority rewrites the decades-old test for determining who the “employer” is. More specifically, the majority redefines and expands the test that makes two separate and independent entities a “joint employer” of certain employees. This change will subject countless entities to unprecedented new joint-bargaining obligations that most do not even know they have, to potential joint liability for unfair labor practices and breaches of collective-bargaining agreements, and to economic protest activity, including what have heretofore been unlawful secondary strikes, boycotts, and picketing.

What do you really think, dissenters?

no bargaining table is big enough to seat all of the entities that will be potential joint employers under the majority’s new standards.

But, the majority said that the Board is merely returning to an existing set of precedents, right?

today’s majority holding does not represent a “return to the traditional test used by the Board,” as our colleagues claim even while admitting that the Board has never before described or articulated the test they announce today. Contrary to their characterization, the new joint-employer test fundamentally alters the law applicable to user-supplier, lessor-lessee, parent-subsidiary, contractor-subcontractor, franchisor-franchisee, predecessor-successor, creditor-debtor, and contractor-consumer business relationships under the Act. In addition, because the commerce data applicable to joint employers is combined for jurisdictional purposes,11 the Act’s coverage will extend to small businesses whose separate operations and employees have until now not been subject to Board jurisdiction.

This decision will mean more collective bargaining, and that can't be bad!  Can it?

The Act encourages collective bargaining, but only by  an “employer” in direct relation to its employees. Our colleagues take this purpose way beyond what Congress intended, and the result unavoidably will be too much of a good thing. We believe the majority’s test will actually foster substantial bargaining instability by requiring the nonconsensual presence of too many entities with diverse and conflicting interests on the “employer” side. Indeed, even the commencement of good-faith bargaining may be delayed by disputes over whether the correct “employer” parties are present. This predictable outcome is irreconcilable with the Act’s overriding policy to “eliminate
the causes of certain substantial obstructions to the free flow of commerce.”

The dissent then goes into great detail to explain its reasons for why the new Board decision is so problematic, contrary to the Board's authority, and how it will have unintended consequences.  But I have a day job so I cannot summarize it all here. 

This case likely will be appealed to the court of appeals. So we will see it it is enforced.  The courts are very deferential to board decisions, however. So, the odds are that this is another major shift in labor law.  Or "fundamental transformation" as someone might say.

This case is Browning-Ferris Indus. of Calif. and the opinion is here.

Court of Appeal: Incorporation of AAA Rules = Delegation to Arbitrator

In many employment arbitration agreements, the employer provides that the arbitration will be conducted under the employment dispute rules of the American Arbitration Association or AAA.  (The formal name of these rules is the National Rules for Resolution of Employment Disputes.)  Why?  These rules have been upheld as sufficiently benign to employee rights such that arbitration under those rules will be compelled.  And sometimes they're probably just included by default.

The Court of Appeal in Universal Protection Service LP v. Superior Court (opinion here) decided that the parties' arbitration agreement incorporating these rules meant that the arbitrator, rather than the court, had the power to decide whether class-wide arbitration was available.

UP employees sued the company based on wage-hour claims and termination-based claims in a purported class action. The employees sought to arbitrate the class action. UP sought to compel individual claims to arbitration. The trial court ordered the entire claim, class and all to arbitration and stayed the lawsuit, thereby leaving the decision on whether the class was arbitrable to the arbitrator.   UP sought relief from the Court of Appeal via writ of mandate.  UP wanted the appellate court to rule that only individual claims were arbitrable.

Here's what the arbitration clause said:

“I further expressly acknowledge and agree that, to the fullest extent allowed by law, any controversy, claim or dispute between me and the Company . . . relating to or arising out of my employment or the cessation of that employment will be submitted to final and binding arbitration before a neutral arbitrator . . . for determination in accordance with the American Arbitration Association’s [AAA] National Rules for the Resolution of Employment Disputes as the exclusive remedy for such controversy, claim or dispute.”

Given that incorporation of AAA rules, the Court of Appeal noted that the AAA employment dispute rules authorize the arbitrator to rule on the scope of the arbitration agreement:

Paragraph No. 6(a) of those rules provides: “The arbitrator shall have the power to rule on his or her own jurisdiction, including any objections with respect to the existence, scope, or validity of the arbitration agreement.”

The Court also noted that the AAA rules include supplemental rules governing purported classwide claims.

“Upon appointment, the arbitrator shall determine as a threshold matter, in a reasoned, partial final award on the construction of the arbitration clause, whether the applicable arbitration clause permits the arbitration to proceed on behalf of or against a class (the ‘Clause Construction Award’). The arbitrator shall stay all proceedings following the issuance of the Clause Construction Award for a period of at least 30 days to permit any party to move a court of competent jurisdiction to confirm or to vacate the Clause Construction Award.”

Having found these provisions were included in the parties' agreement to arbitrate, the Court decided that the Arbitrator had the power to rule on whether the arbitration would include class-based claims.

Employers of course may mandate individual employees to arbitrate their individual claims (excluding PAGA claims).  Employers also may exclude class-based claims from arbitration.   Employers may do so expressly, which is legal.

The parties to an arbitration agreement may agree to have courts rule on arbitrability of class claims or may agree on having an arbitrator do so.  This decision simply says that incorporating the AAA employment rules means that the parties elected the arbitrator as the decider of this critical issue.  Not that there's anything wrong with that.

California Supreme Court Upholds California's Tough Arbitration Jurisprudence Again, Mostly

In a non-employment decision, the California Supreme Court held the following:

1.  The U.S. Supreme Court's decision in AT&T Mobility v. Concepcion requires the Court to uphold a waiver of class actions in a consumer arbitration agreement (this one within an auto-sales contract). This is not news, as the California Supreme Court already recognized this rule in a prior case, which was decided while this one was pending.

2.  SCOTUS's Concepcion case permits California to continue to apply an "unconscionability" defense to arbitration agreements under state law, provided the courts do not single out arbitration contracts for disfavored treatment.  However, the Court, perhaps subtly, is putting some brakes on how courts may apply the doctrine of "unconscionability" to invalidate arbitration agreements.

This case involved a contract between a consumer and car dealership over the sale of a luxury car. So,  not an employment case. We will have to wait some more for the courts of appeal to apply this decision, Sanchez v. Valencia Holdings LLC, to employment agreements. I think there will be a relaxation of the unconscionability standard, but not enough to allow significant changes to employers' arbitration contracts.

The language of the arbitration agreement is not entirely transferable to employment agreements. But some of the provisions may allow employers to include provisions that previously had been struck down as "unconscionable."

Justice Liu penned the 6-1 opinion.  Justice Liu does not provide a lot of concrete standards for what is going to be considered "unconscionable."  For example, as Justice Chin, concurring and dissenting, points out, the majority simply refuses to announce one formal standard for what counts as "unconscionable."  Does a contract have to "shock the conscience" or must it be simply too one-sided that it's too unfair to the other side?

The standard the court distills is quite mushy and guarantees continued litigation over unconscionability:

The ultimate issue in every case is whether the terms of the contract are sufficiently unfair, in view of all relevant circumstances, that a court should withhold enforcement.

Nevertheless, the Court set forth a definition of unconscionable that appears to signal that courts should not be too eager to strike down terms that they feel are simply unfair:

that unconscionability doctrine is concerned not with ‗a simple old-fashioned bad bargain‘ (Schnuerle v. Insight Communications Co. (Ky. 2012) 376 S.W.3d 561, 575 (Schnuerle)), but with terms that are ‗unreasonably favorable to the more powerful party‘ (8 Williston on Contracts (4th ed. 2010) § 18.10, p. 91). These include ‗terms that impair the integrity of the bargaining process or otherwise contravene the public interest or public policy; terms (usually of an adhesion or boilerplate nature) that attempt to alter in an impermissible manner fundamental duties otherwise imposed by the law, fine-print terms, or provisions that seek to negate the reasonable expectations of the nondrafting party, or unreasonably and unexpectedly harsh terms having to do with price or other central aspects of the transaction.‘ (Ibid.)‖ (Sonic II, supra, 57 Cal.4th at p. 1145.) Because unconscionability is a contract defense, the party asserting the defense bears the burden of proof. (Id. at p. 1148.

* * *

unconscionability requires a substantial degree of unfairness beyond ‘a simple old-fashioned bad bargain.’ (Id. at p. 1160, italics added.) This latter qualification is important. Commerce depends on the enforceability, in most instances, of a duly executed written contract. A party cannot avoid a contractual obligation merely by complaining that the deal, in retrospect, was unfair or a bad bargain. Not all one-sided contract provisions are unconscionable; hence the various intensifiers in our formulations: ―overly harsh,―unduly oppressive,―unreasonably favorable. (See Pinnacle, supra, 55 Cal.4th at p. 246 [―A contract term is not substantively unconscionable when it merely gives one side a greater benefit . . . .].)

The Court also made clear that it wants to avoid federal intervention be emphasizing that courts may not single out arbitration agreements for more scrutiny than other contracts.

our unconscionability standard is, as it must be, the same for arbitration and nonarbitration agreements. (Concepcion, supra, 563 U.S. at p. __ [131 S.Ct. at p. 1747].) Of course, unconscionability can manifest itself in different ways, depending on the contract term at issue. (See, e.g., Washington Mutual Bank v. Superior Court (2001) 24 Cal.4th 906, 916–917 [choice of law clause]); City of Santa Barbara v. Superior Court (2007) 41 Cal.4th 747, 777 [waivers of liability provision]); Moreno v. Sanchez (2003) 106 Cal.App.4th 1415, 1434 [statutes of limitation provision]; Smith, Valentino & Smith, Inc. v. Superior Court (1976) 17 Cal.3d 491, 495–496 [forum selection clause].) But the application of unconscionability doctrine to an arbitration clause must proceed from general principles that apply to any contract clause. In particular, the standard for substantive unconscionability — the requisite degree of unfairness beyond merely a bad bargain — must be as rigorous and demanding for arbitration clauses as for any contract clause.

Here are a few issues the Court addressed that can help employers' arbitration agreements:

1. The Court made clear that there is no obligation to set an arbitration provision apart from other contractual provisions or call it to the consumer's attention.

2. The Court also does not have lot of sympathy for the argument that the consumer did not read the contract or that it was buried under a lot of other papers, which employees often argue.

3. The Court upheld a provision where the plaintiff could appeal a $0 award to a panel of 3 arbitrators, and the defendant could appeal if the award exceeded $100,000.  Therefore, provisions do not have to be 100% mirror image, which some lower courts have insisted on.

4.  Along the same lines, the Court said that requiring the plaintiff to bear the expenses of the appeal was not unconscionable because the plaintiff did not prove he was unable to bear that cost.  However, this case arose under a different statutory scheme than applies to employment disputes.  So, employers should continue to bear any "type" of cost that is not incurred in court.

5. On the mirror-image "mutuality" issue, the Court said that a provision exempting "self help" such as repossession was OK because of the car dealer's legitimate business needs to repossess cars, and because the agreement exempted small claims cases, which benefited the consumer. Trade-offs, therefore, may save unconscionable provisions.  Caution, though, because the Court in part based its decision on the fact that "self-help" itself is outside of litigation, so it was naturally something that need not be arbitrated.   If the lower courts run with this, employers may be able to "carve out" some issues from arbitration - like intellectual property - if they carve out other claims that favor employees - like expense reimbursements maybe, for example?  We shall see.

To sum up, the Supreme Court upheld the business's agreement. But it did not set forth clear standards on unconscionability. It may have relaxed the law of unconscionability a bit, but it did not hold that Concepcion guts California's (de facto) tough stance on arbitration agreements.

This case is not a blockbuster for employers or employees.  It remains to be seen whether the employer or employee will try for U.S. Supreme Court review.

The court system in California is still under water. It can take a long time to get to trial. Judges are worked hard, and may not give your case the attention you think it deserves.  So, arbitration can be quicker, which can cut down on defense costs.  On the other hand, the cost of the arbitrator and administration can be expensive.  And arbitrators are not afraid to issue large awards when they find cause to do so.  So, arbitration is a yellow light, before and after Sanchez.  Nothing in this case changes that view for me.   Just my 0.02. YMMV.  YOLO.  [Insert cliche].

Sanchez v. Valencia Holdings LLC is here.