Pot Pourri of Recent Cases I missed

There have been so many recent employment law decisions that I can't long-form blog them all.  So, here's a quick roundup of three recent, significant rulings -

Don't miss Serri v. Santa Clara University opinion here.  This case is a defense lawyer's summary judgment go-to. Of note, the court handled a number of claims that are rarely seen (such as defamation by self-compelled publication, intentional interference, and the Labor Code's equal pay law. Here are some of the highlights:

- Upholds denial of extension to file opposition to motion for summary judgment.

- Affirms summary judgment against discrimination, retaliation and wrongful termination claims.  Good analysis of the employee's burden of establishing "pretextual" reason for termination.

- Upholds summary judgment on a national origin harassment claim because the alleged comments were not severe or pervasive.

- Agrees that the trial court properly adjudicated the plaintiff's claim under the state Equal Pay Act (Labor Code section 1197.5). The court held the plaintiff did not establish the proper "comparators" to establish she was paid less than someone performing substantially equal work.

- Rare bird:  Upholds summary judgment against the plaintiff's claim of breach of employment contract. The court held that the university had "good cause" to fire Serri as a matter of law.

- Affirmed summary judgment on the plaintiff's defamation claim, including "compelled self-defamation."  The court held that all statements were true or privileged.

- Affirmed summary judgment on an intentional interference with prospective economic advantage claim.

*****

Ruiz v. Affinity Logistics, opinion here is the Ninth Circuit's second pass on an independent contractor v. employee analysis for delivery drivers. The court reversed the district court and held that  the delivery drivers were mis-classified:  "Affinity retained absolute control over drivers’ rates, payment, routes, schedules, trucks, equipment, appearance, decision to hire helpers, choice of helpers, and the right to deal with customers."  Thus, the court held, the most important factor under the Borello analysis—right to control—indicates overwhelmingly that the drivers were Affinity’s employees."  Close case, right? 

*****

Anderson v. City and County of San Francisco, opinion here, is another unusual case, testing out a "bona fide occupational qualification" defense under Title VII of the Civil Rights Act of 1964.  San Francisco's jail implemented a policy of prohibiting male guards from supervising female inmates.  The Sheriff articulated four reasons: "(1) to protect the safety of female inmates from sexual misconduct perpetrated by male deputies, (2) to maintain the security of the jail in the face of female inmates’ ability to manipulate male deputies and of the deputies’ fear of false allegations of sexual misconduct by the inmates, (3) to protect the privacy of female inmates, and (4) to promote the successful
rehabilitation of female inmates."  Guards sued, alleging they were denied promotional opportunities, overtime, and other harms because of the restriction.  Reversing the district court, the Ninth Circuit held that the plaintiff was entitled to a jury trial on whether the policy violated Title VII.  The Court explained that a BFOQ is narrow and requires the defendant employer to prove specific issues as an affirmative defense. Because the city failed to do that, the city was not entitled to judgment as a matter of law.  The "common sense" assumption that females should be supervised by females to avoid sexual contact, invasions of privacy, etc. are not enough.

 

Court of Appeal: OK to Deduct from Exempt Employees' PTO/Vacation for Partial Day Absences of Any Length

Basic wage-hour principle: With some exceptions, an employee classified as "exempt" under the federal Fair Labor Standards Act is entitled to a full salary for any week in which she / he performs any work.  There are some exceptions allowing for salary deductions. For example, an employer can deduct from an exempt employee's salary for full-day absences for personal pursuits, or full day absences for illness if the employer has a bona fide paid sick leave plan.

The corollary of the above:  It generally is illegal to deduct from "exempt" employees' salaries for missing partial days of work, except in very limited circumstances such as partial day, federal FMLA leave.   The consequences could be invalidation of the exemption.  That statement is true under both federal law (FLSA) and California law.

When employees have vacation or PTO balances, can employers lawfully deduct from them when exempt workers are absent for partial days, and leave the salary intact?  Well, it's a definite yes under federal law. Federal law does not consider vacation / PTO to be "vested," and does not care if employers deduct from those balances for any reason.

Under California law, it's a little trickier.  That is because vacation / PTO are "vested" balances. The argument against allowing deductions is that the exempt employee can work variable hours and is entitled to the full salary. Deducting from PTO is an end-around, which reduces a vested balance of wages otherwise owed, for an absence that the employee is entitled to take without affecting his or her pay.  That's the plaintiffs' bar's argument, but it's not correct.

In 2005, the Court of Appeal decided in Conley v. Pacific Gas & Electric Co. (2005) 131 Cal.App.4th 260, that California law follows federal law in this area.  However, the PG&E policy provided that exempt employees' partial day absences were subject to a deduction from PTO, only if the absence was longer than 4 hours.  After Conley, the state Division of Labor Standards Enforcement, grudgingly, decided that Conley only authorized deductions from exempt employees' PTO when the absence was more than 4 hours.

Although Conley says nothing about a 4 hour minimum absence, employment lawyers were hesitant to advise employers to go farther than the Conley holding because of the DLSE opinion.  And for good reason....

Enter Lori Rhea, who sued her employer, General Atomics.  General Atomics had a policy allowing deductions from PTO in any amount of time that exempt employees were absent from their jobs for partial days.  Rhea challenged this policy, arguing that Conley was wrongly decided, and that Conley only allowed deductions when her time away from work exceeded 4 hours.  The trial court disagreed, granting General's motion for summary judgment.

The Court of Appeal affirmed:

We do not agree with Rhea's contention that by requiring employees to use vested Annual Leave for partial-day absences, General Atomics is requiring a forfeiture of vested Annual Leave as that term is used in California law. In Suastez and Boothby the vacation time was forfeited because the employer took away the employee's vested vacation time. Suastez and Boothby establish that if an employer provides vacation benefits, the employer "is not free to reclaim it after it has been earned." (Henry v. Amrol, Inc. (1990) 222 Cal.App.3d Supp. 1, 5, italics added.) Here, General Atomics does not take away or reclaim vested Annual Leave when an employee is absent for a partial day; it merely requires that the employee use the Annual Leave under the terms and conditions that it has created. "The law permits an employer to offer new employees no vacation time" (Owen v. Macy's, Inc. (2009) 175 Cal.App.4th 462, 464; see Henry, at p. 6), and it correspondingly also affords an employer the right to control the terms under which vacation time may be exercised by employees. (Suastez, supra, 31 Cal.3d at p. 778, fn. 7 [noting "an employer's right to control the scheduling of its employees' vacations"].) General Atomics has set rules for the exercise of Annual Leave, which it is permitted to do. It has not taken away Annual Leave that has already vested.

The court also rejected the plaintiff's premise that partial day deductions was an impermissible "substitution" of vacation wages for salary that was legally required to be paid:

Put another way, Rhea argues that General Atomics is impermissibly "substituting" the employee's Annual Leave hours for the employee's salary earned during the partial-day absence. * * * * 

[W]e conclude that Rhea's argument fails because she has not established that General Atomics fails to pay all of the wages that it is obligated to pay during an employee's partial-day absence. It is undisputed that General Atomics continues to pay an employee's full salary during a partial-day absence and that the employee fully continues to accrue Annual Leave during a partial-day absence.13 Thus, there is no shortfall in wages or compensation during a partial-day absence that General Atomics "makes up" by requiring an employee to use Annual Leave for that period. This is simply not a situation like in Armenta where employees worked for a period without receiving compensation. Here, General Atomics' employees continue to receive their full compensation even when they are absent for a partial day.

Finally, the Court held that the "four hour" minimum absence is not required under California law:

we find no basis in California law for concluding that an employer is prohibited from requiring exempt employees to use their vacation or leave time when they are absent from work for a partial day. Rhea has not identified any reason for us to distinguish between partial-day absences of different lengths. Instead, she simply points out that the employer's policy in Conley only covered absences of at least four hours. We conclude that regardless of whether the absence is at least four hours or a shorter duration, a requirement that exempt employees use Annual Leave time for a partial-day absence does not violate California law.

So, it is legal to debit an exempt employee's PTO balance for absences of any length.  However, employers must consider the employee relations aspects of doing so.  If an employee works six 12-hour days, are you going to nick that employee's PTO balance for working only 4 hours on the seventh day in the week?

Also, as the court of appeal noticed, General Atomic did not deduct negative PTO balances from final pay upon termination of employment.  You don't do that either, right?  Cuz that would be bad.

The case is Rhea v. General Atomics and the opinion is here.

California Supreme Court Narrows the Inside Sales Exemption in California

The California Supreme Court unanimously decided the following:  "an employer may not attribute commission wages paid in one pay period to other pay periods in order to satisfy California‟s compensation requirements."

This decision will affect employers and employees trying to qualify for the inside sales exemption for sure, which was the issue before the court.  Will it affect other areas of wage-hour law?  What other areas?  Gee, you ask a lot of questions.   Read on.

Here are the relevant facts per the Court:

From July 2008 to May 15, 2009, Susan Peabody was a Time Warner account executive selling advertising on the company's cable television channels. Every other week, Time Warner paid $769.23 in hourly wages, the equivalent of $9.61 per hour, assuming a 40-hour workweek. About every other pay period, Time Warner paid commission wages under its account executive compensation plan.

Peabody claimed she worked more than 40 hours per week.  In some weeks, she worked 48 hours.  In those weeks, she would earn less than minimum wage per hour if there was no commission payment that week.

Hold the phone - Time Warner claimed Peabody was an exempt, inside sales person.  To qualify under the inside sales exemption, she must, among other things, satisfy two compensation criteria.  The one that matters here is "'that an employee's 'earnings exceed one and one-half (1 1/2) times the minimum wage” (ibid.), i.e., $12 per hour. '"

Peabody of course did not earn $12.00 per hour in base pay.  As shown above, she earned less than $10.00 per hour. So, for the exemption to apply, commissions would have to make up the difference.

Time Warner paid its commissions about once a month.  And therein lies the issue the Court decided.  Could Time Warner allocate the monthly commission payments over the course of the month in which they were paid?   Could Time Warner allocate the commissions across the time period during which the commissions were "earned"?

No, no, and.....no, said the California Supreme Court, unanimously.  Yes that was three "nos."

It was clear in this case that Peabody did not receive 1.5 times minimum wage for the hours worked on many of her paychecks.  Time Warner argued that the commissions it paid Peabody "counted" towards the period during which the commissions were "earned."  So, if the commission check was paid on March 23 for commissions earned in February, then the minimum wage calculation had to take into consideration those commission wages.

Agreeing with Peabody, the Court rejected that argument.  The Court held that commissions may be earned over time. It may be that a sale occurs in January, but is not earned until payment is received in April.  That's fine with respect to wage-hour law governing commissions.

But if the commission check is paid in April because the commissions are finally earned, then those commissions are counted towards minimum wage only during the (bi-weekly or semi monthly) pay period  for which the pay check is paid.

Whether the minimum earnings prong is satisfied depends on the amount of wages actually paid in a pay period. An employer may not attribute wages paid in one pay period to a prior pay period to cure a shortfall.

The Court then explained why it was making satisfying the exemption difficult:

Making employers actually pay the required minimum amount of wages in each pay period mitigates the burden imposed by exempting employees from receiving overtime. This purpose would be defeated if an employer could simply pay the minimum wage for all work performed, including excess labor, and then reassign commission wages paid weeks or months later in order to satisfy the exemption‟s minimum earnings prong. 

Finally, the court refused to rely on Fair Labor Standards Act cases interpreting the federal inside sales exemption, aka "7(i)."  Under federal law, the employer may pay commissions at greater intervals than per pay period and still comply with the exemption.

So, bottom line re inside sales exemption in California:

- to satisfy the exemption, the employee must receive in each pay check at least 1.5 times the minimum wage, for the hours worked during the applicable workweeks covered by that pay check. That means $13.50 per hour worked, starting July 1 of this year.  An employer who pays commissions less frequently than semi-monthly or bi-weekly must pay a sufficient hourly rate to ensure the 1.5 times minimum wage threshold is met.

-  This requirement will increase the non-commission earnings, by increasing the hourly pay required to maintain the exemption. That will have two consequences. First, payroll expense will increase absent a reduction in the commission rate.  Second, the inside sales exemption depends on a second criterion:  the employee must make more than 50% of wages from commission.  Paying a higher hourly rate will make it harder for employers to meet that 50% threshold.

Moving on... on the bright side the Court unanimously endorsed the view that commissions are earned when conditions are met, even if there is a delay between when a sale occurs and when commissions are earned:

an employment agreement may require receipt of a client's payment before any commissions on sold advertising are earned. If a client routinely pays its bills on the 15th of each month, commissions will be earned and owed once a month. Yet this does not create a monthly pay period in contravention of section 204(a). To summarize, section 204 establishes semimonthly pay periods, but there is no obligation to pay unearned commission wages in any pay period. Commissions are owed only when they have been earned, even if it is on a monthly, quarterly, or less frequent basis.

(emphasis is mine).

Finally, some thoughts:

-   If commissions are only counted towards minimum wage in the pay period during which they are actually received, will that holding also affect the "regular rate of pay" calculation in California?  Overtime pay is based on the "regular rate of pay."  The "regular rate of pay" can include hourly wages and commissions.  The calculation of the "regular rate" may include allocating periodic payments like bonuses or commissions over the periods during which they are earned. So, if  commissions are only counted towards wages earned in the pay period in which payment is made, then should those commissions be counted for overtime earnings purposes only during that same pay period?

If this Peabody rule applies outside the inside sales exemption context, then during the pay period when the commission check is received, there will be a high regular rate of pay, and during non-payment weeks, the regular rate of pay will be low.   That could drastically affect employees' overtime pay calculations.  What about quarterly bonuses?  If Peabody is extended to overtime calculations, will "retroactive" overtime still be due for pay periods during which the bonuses were not paid?

My guess is that the courts will continue to allocate periodic payments over longer periods of time for overtime purposes.  For one thing the allocation of commissions or bonuses over more than one pay period for overtime purposes is settled federal law, and California appears to have followed that rule.

-  I still want to know if the inside sales exemption is valid in California under Wage Order 4, which applies to businesses that do not involve a "retail concept."  Under federal law, there is no inside sales exemption outside of retail, e.g., you can't have an  exempt, inside salesperson at a hospital.   Under state law, there appears to be a broader exemption because non-retail employees can qualify for the state exemptoin. If federal law requires overtime, but a state law exemption applies, isn't that an issue?  Can you be exempt under state law, but non-exempt under federal law?  (I also ask a lot of questions.)

The case is Peabody v. Time Warner Cable and the opinion is here.

Be careful out there!

Greg

9th Circuit: California Meal / Rest Period Laws Apply to Trucking Companies; Not Preempted by Federal Law

Trucking companies subject to the Federal Aviation Administration Authorization Act have litigated a number of cases concerning whether federal law preempts California wage-hour requirements concerning meal and rest periods.  The FAAAA provides: “States may not enact or enforce a law . . . related to a price, route, or service of any motor carrier . . . with respect to the transportation of property.” 49 U.S.C. § 14501(c)(1).

So, are meal / rest period laws "related to" a price, route or service? The district courts had split on the issue.  The Ninth Circuit finally weighed in with its first opinion on the matter.  The three-judge panel said:

Although we have in the past confronted close cases that have required us to struggle with the “related to” test, and refine our principles of FAAAA preemption, we do not think that this is one of them. In light of the FAAAA preemption principles outlined above, California’s meal and rest break laws plainly are not the sorts of laws “related to” prices, routes, or services that Congress intended to preempt. They do not set prices, mandate or prohibit certain routes, or tell motor carriers what services they may or may not provide, either directly or indirectly. They are “broad law[s] applying to hundreds of different industries” with no other “forbidden connection with prices[, routes,] and services.”

The court rejected all of the employer's arguments as to how meal / rest period laws adversely affect pricing, routes and service.  The court particularly emphasized that the California meal/ rest period  laws do not apply to motor carriers exclusively, but to nearly all employers in the state. 

So, truckers involved in the transportation of property covered by the FAAAA, the 9th Circuit has spoken regarding meal and rest periods.  The employer may seek "en banc" review or petition the U.S. Supreme Court for review.  Stay tuned.  

This case is Dilts v. Penske Logistics, Inc. and the opinion is here. 

U.S. Supreme Court Ends Term With 3 L/E Law Decisions

The U.S. Supreme Court's Term ended last week.  The Court issued three labor/employment-related opinions.  You probably heard about "Hobby Lobby," which the lay media butchered and sensationalized.  You may have heard about Harris v. Quinn, which the lay media half-ignored, and half butchered and sensationalized. And, unless you are a labor / employment law or benefits wonk, you may have missed Fifth Third Bancorp. v. Dudenhoeffer.   Here are summaries of these three opinions.  Each applies to specific employers in specific ways.

Fifth Third Bancorp v. Dudenhoeffer (opinion here) is an ERISA case.  (Those of you operating machinery or driving please skip to the next decision).  Fifth Third's retirement plan permitted employees to invest in a variety of vehicles, including Fifth Third's stock via an Employee Stock Ownership Plan (ESOP).  When the company's stock declined (74%) after the great recession killed Fifth Third's mortgage portfolio, employees sued Fifth Third and some of its officers, claiming that as administrators of the retirement plan, they owed the investors a fiduciary duty to be prudent, and should have taken actions to mitigate losses.  They did not, and bought and held the stock as normal.

The lower courts decided that the administrator was entitled to a "presumption" that their decisions were prudent. The Supreme Court unanimously disagreed, holding that the administrators of an ESOP had the same duty as fiduciaries as anyone else.

You might say, "duh," but an ESOP exists to buy and hold the stock of the company.  ERISA does not require administrators to diversify ESOP holdings as it requires administrators to diversify traditional retirement plan holdings.

Thus, an ESOP fiduciary is not obliged under §1104(a)(1)(C) to “diversif[y] the investments of the plan so as to minimize the risk of large losses” or under§1104(a)(1)(B) to act “with the care, skill, prudence, and diligence” of a “prudent man” insofar as that duty “requires diversification."

The Court then rejected the lower courts' "presumption of prudence" that it conferred on ESOP administrators.

In our view, the law does not create a special presumption favoring ESOP fiduciaries. Rather, the same standard of prudence applies to all ERISA fiduciaries, including ESOP fiduciaries, except that an ESOP fiduciary is under no duty to diversify the ESOP’s holdings. This conclusion follows from the pertinent provisions of ERISA,

The fiduciaries argued that if they are not provided protection from lawsuits, then decreases in stock price will lead to meritless lawsuits against ESOP administrators. The Court recognized the concern, and provided guidance to lower courts on how to weed out "sour grapes" lawsuits that do not allege actual breaches of fiduciary duties.  As with many Supreme Court decisions, the Court left it to the lower courts to sort out how future claims will be addressed.

So, this case removes some protection from administrators of ESOPs.  Employers should have their ESOPs reviewed to ensure the administrators act consistently with ERISA's "prudent" person standard. 

*  *  *  *

Harris v. Quinn (opinion here)  is a case about the First Amendment and those public sector employees who perform in-home, personal attendant work.  These are workers paid by the state, funded by federal Medicaid, who provide in-home care to the elderly and others who would require nursing home care.  However, unlike most public sector employees, the laws creating these positions provide that the true "employer" is not the state, but rather the "customer" who receives the care.   So, these personal care attendants are a special type of public sector worker.   The Harris case concerns the Illinois program and workers.

Unions have organized many of these employees.  State law authorized the unions to bargain with the state over personal attendants' terms and conditions of employment.  Those who choose not to join the union still are covered by the collective bargaining agreements the union negotiates. They are required to pay a reduced fee (called "fair share") to pay for the unions' collective bargaining activities. The employees do not pay additional "dues," which go towards other union activities, such as lobbying and political contributions.

Several Illinois personal attendants sued the state, claiming the state law authorizing union representation and the "fair share" fee violate the First Amendment, because they require employees to pay a union they do not support.   If the union workers were true "public sector" employees, the Supreme Court already upheld "fair share" agreements against a First Amendment claim in Abood v. Detroit Bd. of Ed. 431 U. S. 209 (1977).

The Supreme Court held, 5-4, that Abood did not apply to personal attendants, who were in fact "employed" by the private sector "customer," but paid by the state.  The Court's majority analyzed and criticized Abood as based on flawed reasoning and a misinterpretation of precedent. But the majority did not overrule it as it applies to "full-fledged," public sector employees. The personal attendants, employed by private sector "customers" were not "full fledged."

Without Abood's protection, the Illinois law therefore violated the First Amendment.  Here is the money quote:

we refuse to extend Abood in the manner that Illinois seeks. If we accepted Illinois’ argument, we would approve an unprecedented violation of the bedrock principle that, except perhaps in the rarest of circumstances, no person in this country may be compelled to subsidize speech by a third party that he or she does not wish to support. The First Amendment prohibits the collection of an agency fee from personal assistants in the Rehabilitation Program who do not want to join or support the union.

The dissent, penned by Justice Kagan, essentially argued that Abood controlled the case.  The dissent rejected the majority's distinction between personal attendants and other state-paid employees.  The dissent also noted that the majority criticized, but did not overrule Abood.

Thus, unless or until Abood is overruled in a future case, it remains good law.  This decision applies only to personal care attendants working under state laws that treat them as employees of private customers.  Those employees need not join unions or pay agency fees if they do not wish to do so.  It remains to be seen if the state laws will be modified to fit the employees within Abood, or if this decision applies equally to personal attendants in states other than Illinois.  Breathe.

*  *  *  *

Finally, Burwell v. Hobby Lobby Stores, Inc.  (opinion here) involves the interplay between the Affordable Care Act (ACA aka Obamacare)  and the Religious Freedom Restoration Act (RFRA).  As explained by the Court:

RFRA prohibits the “Government [from] substantially burden[ing] a person’s exercise of religion even if the burden results from a rule of general applicability” unless the Government “demonstrates that application of the burden to the person—(1) is in furtherance of a compelling governmental interest; and (2) is the least restrictive means of furthering that compelling governmental interest.”

Congress passed RFRA in response to an earlier Supreme Court decision that upheld a law against a claim that it violated religious beliefs. The Court noted "[b]y enacting RFRA, Congress went far beyond what this Court has held is constitutionally required." RFRA provides broad protection to religious practices, but allows the government to demonstrate the necessity of a law that burdens religious beliefs under the standard above.

The ACA requires employer health plans to provide “preventive care and screenings” for women without “any cost sharing requirements.”  The Department of Health and Human Services issued regulations, implementing that statutory provision. The regulations require the health plans to include 20 contraceptive methods approved by the FDA.  The 20 include 4 methods that "may have the effect of preventing an already fertilized egg from developing any further by inhibiting its attachment to the uterus."

The regulations expressly exempt religious organizations, such as churches,  from that contraception mandate.  HHS also excluded non-profits with religious objections.  But this case involves whether a for-profit, "closely held" corporation (Hobby Lobby and others) can claim that providing the 4 contraception methods described above impinge on its religious convictions, violating the RFRA.

The majority, 5-4, over vigorous dissents, held that the "contraception mandate" violated the RFRA.  The Court decided that, as a closely held corporation, Hobby Lobby and the other employers involved were "persons" covered by RFRA.

The Court then decided that the mandate burdens the religious beliefs of the persons who own these close corporations.  The Court noted that the employer's options were (1) ignore their religious beliefs to provide the mandated coverage (2) pay humongous penalties for non-compliance with the ACA.

The Court assumed that the mandate served a "compelling interest."  But the Court decided that the regulations were not the "least restrictive means of furthering" the government's interest in providing preventive care.   The Court noted that the ACA itself contained alternatives that would provide the contraception desired, but without requiring the employers to pay for them in a way that burdened their religious beliefs.

This is a politically charged decision engendering much controversy and loud arguments about important social and political issues.  My job is to explain what the opinion says, and how it affects employers.  So here goes:

1.  The decision applies only to "closely held" corporations: "a federal regulation’s restriction on the activities of a for-profit closely held corporation must comply with RFRA."  The term "closely held" corporation will be contained in state and federal corporate law.  In this case, the companies were owned and operated by one family.  Publicly traded corporations, private corporations owned by unrelated shareholders who have no day-to-day responsibilities to operate the business, etc. are not covered by this decision.

2.   The ruling applies only to those closely held corporations that operate under sincerely held religious beliefs that conflict with a law that burdens those beliefs.  Closely held corporations that do not operate under religious tenets will not be covered. Still, this is a broad standard. But the Court majority pointed out that federal courts must ferret out insincere religious beliefs in a variety of contexts.  Larger corporations, with diverse shareholders, likely will not be able to establish a common religious  belief, or that its belief governs the operation of the business.

3.   As the majority points out, the law and regulations already provide full access to contraceptives for religious entities and non-profits, even though the contraceptive mandate does not apply.  So, the administration and/or Congress can still ensure women who want the 4 contraceptives at issue, and who work for closely held corporations with religious objections to them, can obtain them free of charge.

The employees of these religious nonprofit corporations still have access to insurance coverage without cost sharing for all FDA-approved contraceptives; and according to HHS, this system imposes no net economic burden on the insurance companies that are required to provide or secure the coverage. **** 

Although HHS has made this system available to religious nonprofits that have religious objections to the contraceptive mandate, HHS has provided no reason why the same system cannot be made available when the owners of for-profit corporations have similar religious objections. 

4.   The Hobby Lobby opinion therefore does not apply to most employers or most workers.  Smaller businesses are grandfathered in old plans, do not offer health insurance, and are exempt from ACA's penalties.  Even if the ACA fully applies to a business, some businesses offer no coverage and pay the penalties, allowing employees to buy individual coverage via the health exchanges.  It remains to be seen whether the HHS will modify its regulations, or if the insurance companies will change coverage options to provide contraception coverage to affected workers as it does to employees of religious organizations and non-profits.

There are several dissents, with the lead dissent penned by Justice Ginsburg.   Two dissenters (Justice Ginsburg and Sotomayor) would not confer RFRA protections to for-profit corporations. Justices Kagan and Breyer would not reach that issue. Justice Ginsburg also argued that the contraception mandate did not burden the employers' owners' religious beliefs because it was up to employees whether or not to use the contraceptives involved.  Finally, Justice Ginsburg warned of a flood of claims for religious exemption.

California Supreme Court Again Weighs in on Class Certification

The California Supreme Court decided Duran v. U.S. Bank Nat. Assn., 59 Cal.4th 1, just a few weeks ago.  We  discussed that here.  That was a major decision on class actions.  The Court there explained how courts are to consider whether to certify a class action. The Court suggested that trial courts must consider not only whether there are "common questions" but whether a class action is "manageable" in that the individual issues won't drown the trial court. From the opinion in Duran:

In the misclassification context, as in other types of cases, trial courts deciding whether to certify a class must consider not just whether common questions exist, but also whether it will be feasible to try the case as a class action. Depending on the nature of the claimed exemption and the facts of a particular case, a misclassification claim has the potential to raise numerous individual questions that may be difficult, or even impossible, to litigate on a classwide basis. Class certification is appropriate only if these individual questions can be managed with an appropriate trial plan.

Now, the Court has issued another class-action-related opinion in Ayala v. Antelope Valley Newspapers, Inc., opinion here.  Here, the court considered another "misclassification case," one involving the issue of independent contractors.  The Court's focus again was whether common issues "predominate" and how trial courts make that determination.

Curiously, other than a quick cite to the opinion for an unremarkable proposition of law, there is no discussion of Duran in this latest case.  Perhaps that is because this case is a roadmap to certification of independent contractor v. employee class actions.

In Ayala, the plaintiff's case involves the test for employee v. independent contractor status.  The Court made clear that to determine whether common issues predominate, one must look at the nature of the legal claims.  Said the Court:

We begin by identifying the principal legal issues and examining the substantive law that will govern. In doing so, we do not seek to resolve those issues. Rather, the question at this stage is whether the operative legal principles, as applied to the facts of the case, render the claims susceptible to resolution on a common basis. (Brinker, supra, 53 Cal.4th at pp. 1023–1025; Sav-On Drug Stores, Inc. v. Superior Court (2004) 34 Cal.4th 319, 327 [the focus ―is on what type of questions—common or individual—are likely to arise in the action, rather than on the merits of the case‖].) 

* * *

A court evaluating predominance ―must determine whether the elements necessary to establish liability [here, employee status] are susceptible to common proof or, if not, whether there are ways to manage effectively proof of any elements that may require individualized evidence.‖ (Brinker, supra, 53 Cal.4th at p. 1024.)

So, it's more than just the plaintiff's "theory" that drives whether issues are common. That "theory" has to be valid within the context of the substantive law.

Here, the theory was that Antelope Valley's "right to control" its newspaper carriers rendered them employees, rather than independent contractors.  That indeed is the central issue in employee v. independent contractor cases.  So, the Court evaluated whether that right to control was susceptible to resolution via common proof.

at the certification stage, the relevant inquiry is not what degree of control Antelope Valley retained over the manner and means of its papers‘ delivery. It is, instead, a question one step further removed: Is Antelope Valley‘s right of control over its carriers, whether great or small, sufficiently uniform to permit classwide assessment? That is, is there a common way to show Antelope Valley possessed essentially the same legal right of control with respect to each of its carriers? Alternatively, did its rights vary substantially, such that it might subject some carriers to extensive control as to how they delivered, subject to firing at will, while as to others it had few rights and could not have directed their manner of delivery even had it wanted, with no common proof able to capture these differences?

The Court then assessed whether the trial court properly decided that Antelope Valley's "right to control" the carriers was susceptible to common proof.  The Court decided the trial court applied the wrong analysis, because it focused on the degree to which Antelope Valley actually exercised control. The trial court believed that because it did not uniformly exercise control, the case would splinter into mini-trials of whether each carrier was a contractor or employee.

The Supreme Court instead focused on Antelope's contract with the carriers, which was uniform in that it applied to all of the carriers.  The contract specified the "right to control," thereby providing a sufficient "common issue":

At the certification stage, the importance of a form contract is not in what it says, but that the degree of control it spells out is uniform across the class. Here, for example, the two form contracts address, similarly for all carriers, the extent of Antelope Valley‘s control over what is to be delivered, when, and how, as well as Antelope Valley‘s right to terminate the contract without cause on 30 days‘ notice.

* * *

Evidence of variations in how work is done may indicate a hirer has not exercised control over those aspects of a task, but they cannot alone differentiate between cases where the omission arisesbecause the hirer concludes control is unnecessary and those where the omission is due to the hirer‘s lack of the retained right. That a hirer chooses not to wield power does not prove it lacks power. (Malloy, at p. 370 [―It is not essential that the right of control be exercised or that there be actual supervision of the work of the agent.

The Court summarized:

For class certification under the common law test, the key question is whether there is evidence a hirer possessed different rights to control with regard to its various hirees, such that individual mini-trials would be required. Did Antelope Valley, notwithstanding the form contract it entered with all carriers, actually have different rights with respect to each that would necessitate mini-trials?

Then the Court explained how to address whether there is variation in the right to control, such that there is no "common" question.  For example, the Court explained that, despite the written contract, there could be evidence of the parties' course of dealing that showed individual rights to control depending on the carrier involved.  The Court explained that when there is a dispute in the evidence over the central issue, a trial court must consider it if certification "depends on" resolution of that dispute:

The extent of Antelope Valley‘s legal right of control is a point of considerable dispute; indeed, it is likely the crux of the case‘s merits. To address such an issue on a motion for class certification is not necessarily erroneous. We recently reaffirmed that a court deciding a certification motion can resolve legal or factual disputes: ―To the extent the propriety of certification depends upon disputed threshold legal or factual questions, a court may, and indeed must, resolve them.‖ (Brinker, supra, 53 Cal.4th at p. 1025; see Dailey v. Sears, Roebuck & Co. (2013) 214 Cal.App.4th 974, 990–991.) But we cautioned that such an inquiry generally should occur only when ―necessary.‖ (Brinker, at p. 1025.) The key to deciding whether a merits resolution is permitted, then, is whether certification ―depends upon‖ the disputed issue. (Ibid.)

Finally, the Court addressed the "secondary factors" that apply in independent contractor cases.  These include who specifies the location of the work, whether the contractor uses his or her own tools, how the relationship is terminated, the form of compensation, etc.  The Court wrote that trial courts must weigh individual v. common issues, but give special weight to whether the "more important" factors are susceptible to common proof. 

Accordingly, the impact of individual variations on certification will depend on the significance of the factor they affect. Some may be of no consequence if they involve minor parts of the overall calculus and common proof is available of key factors such as control, the skill involved, and the right to terminate at will; conversely, other variations, if they undermine the ability to prove on a common basis the most significant factor or factors in a case, may render trial unmanageable even where other factors are common. The proper course, if there are individual variations in parts of the common law test, is to consider whether they are likely to prove material.

All 7 justices agreed the trial court erred. But the majority opinion, by Justice Werdegar, is joined by  (Liu, Kennard, Corrigan, and CJ. Cantil-Sakauye).  Justice Baxter wrote a concurring opinion, joined by Justice Corrigan, in which he argued that most of the majority's opinion was unnecessary to the decision.  It is a bit strange that Justice Corrigan joined Justice Baxter's concurrence, but also joined the majority opinion.  And Justice Chin concurred in the result only, authoring a long opinion explaining his view of the record and the flaws in the majority's analysis. 

So, bottom line:

- The California Supreme Court's recent decisions in Duran and Ayala have clarified class certification practice. However, on the whole, class certification will be easier to obtain.

- Class action defense must change strategies to defeat certification.  The proffered "differences' among the putative class members have to concern the common issues advanced by the plaintiff.  

- Larger employers facing class actions in a variety of contexts may wish to consider arbitration agreements containing class action waivers.

- Companies relying on large groups of independent contractors to perform aspects of their work should review their independent contractor agreements and consider (1) whether the classification is defensible and (2) whether the "right to control" is common enough to allow for class certification, or whether the agreement can build in variations in the right to control.

California Supreme Court Confirms: "Refusing to Sign" Is Insubordination. But it's not "Misconduct."

Somewhere along the line, employees got the idea that they can "refuse to sign" personnel documents.  Our advice is always to clearly indicate on a form that "signing" simply means acknowledgement of receipt.  Yet, employees still refuse to sign, even with that disclaimer.  Some then claim they did not receive them, usually during depositions.

Can the employer fire a worker for refusing to sign?  One of this blog's most popular posts addressed the court of appeal's decision in Paratransit v. Unemployment Insurance Appeals Board.  (Here)  The court there held that an employee's "refusing to sign" a disciplinary notice was insubordination, warranting discharge. But the court also held that the employee's refusing to sign was also "misconduct" within the meaning of  unemployment insurance law, disqualifying the fired worker from benefits.

The California Supreme Court has now weighed in on the case. As stated by the Court:

Craig Medeiros (Claimant) worked for Paratransit, Inc. (Employer) as a vehicle operator for approximately six years. As a condition of his employment, Claimant was required to join a union. The union and Employer were parties to a collective bargaining agreement (CBA) containing the following provision: “The Employer shall provide a Vehicle Operator with copies of complimentary letters received regarding his or her job performance and with copies of disciplinary notices, including verbal warnings that have been put in writing. All disciplinary notices must be signed by a Vehicle Operator when presented to him or her provided that the notice states that by signing, the Vehicle Operator is only acknowledging receipt of said notice and is not admitting to any fault or to the truth of any statement in the notice.”

Yet, when Paratransit attempted to discipline Medeiros, he refused to sign the document.  Later, he claimed he was tired and confused, and believed he did not have to sign because of advice he had received from his union.  

Paratransit contested Medeiros's claim for unemployment benefits.  Ultimately, the Court of Appeal decided, 2-1, that Medeiros was disqualified, because his refusal to sign amounted to "misconduct" within the meaing of California's Unemploymet Insurance Code section 1256.

The Supreme Court previously ruled in Amador v. Unemployment Ins. Appeals Bd. (1984) 35 Cal.3d 671, that misconduct means the following:

“conduct evincing such wilful or wanton disregard of an employer‟s interests as is found in deliberate violations or disregard of standards of behavior which the employer has the right to expect of his employee, or in carelessness or negligence of such degree or recurrence as to manifest equal culpability, wrongful intent or evil design, or to show an intentional and substantial disregard of the employer‟s interests or of the employee‟s duties and obligations to his employer. On the other hand mere inefficiency, unsatisfactory conduct, failure in good performance as the result of inability or incapacity, inadvertencies or ordinary negligence in isolated instances, or good faith errors in judgment or discretion are not to be deemed "misconduct" within the meaning of the statute.” 

With respect to insubordination, the Court noted prior rulings established that

“an employee‟s unequivocal refusal to comply with the employer‟s rule, without more, is not misconduct within the meaning of section 1256.” (Robles v. Employment Development Dept. (2012) 207 Cal.App.4th 1029, 1035 (Robles).) As in all cases of misconduct, the employee‟s insubordination must be marked by fault. (See Amador, supra, 35 Cal.3d at p. 678; Robles, at p. 1035.) Hence, violating an employer‟s reasonable order because of a good faith error in judgment does not disqualify an employee from receiving benefits. (See Amador, at p. 680; Moore v. Unemployment Ins. Appeals Bd. (1985) 169 Cal.App.3d 235, 243 (Moore).)

The Supreme Court acknowledged that refusing to sign the paper was insubordinate and justified discharge.  But the Court also unanimously held that Medeiros's refusing to sign one disciplinary notice was insufficient evidence of "misconduct" under the above definitions.

So, the Court found the disciplinary notice's disclaimer ambiguous, because it did not say that signing was "only" for acknowledging receipt of the document.  So, it pays to include a clear statement on documents requiring an employee's signature.  Additionally, the Court was concerned that Medeiros merely made a "good faith error in judgment" rather than misconduct.  The Court may have been persuaded otherwise had Medeiros engaged in a pattern of insubordination, or if his action had been detrimental to the employer.

This case is Paratransit v. CUIAB and the opinion is here.