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.