Ninth Circuit Upholds Tip Pooling Under FLSA

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

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

U.S. Supreme Court Breathes Life Into Removal Statute

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

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

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

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

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

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

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

No Attorney's Fees for Minimal Recovery in FEHA Case

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

No Short Limitations Periods for Wage Claims

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

DFEH to Issue Procedural Regulations

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

Kin Care Case

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

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

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

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

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

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

DGV

Court of Appeal Upholds Arbitration Agreement

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

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

The model arbitation agreements can be amended again.

Pregnancy Disability Update. Sort of.

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

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

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

DGV

More Employment Law from the Defense Appropriations Act

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

Arbitration of Employment Law Claims - Going Away?

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

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

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

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

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

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

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

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

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

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

DGV

California WARN's Faltering Business Exception Explained

Happy new year everyone!

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

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

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

U.S. Supremes to Review Quon v. Arch Wireless

We posted about Quon v. Arch Wireless here. This was the 9th Circuit's opinion holding a county liable for auditing deputy sheriffs' text messages. The U.S. Supreme Court granted review of that case today (article here.) The court will have a decision out by June. We of course will keep track of it for you. But this could be a way for the court to issue a key privacy ruling about electronic communications. We shall see...

DGV

U.S. Supreme Court Clarifies Railway Labor Act Arbitration

If you have no interest in the Railway Labor Act or its arbitration procedures, skip this post.

The Supreme Court unanimously decided that under the Railway Labor Act, there is no jurisdictional requirement that the parties hold certain pre-arbitration proceedings, called "conferences." The arbitration panel erred when it held it had no power to decide 5 grievances because there was insufficient evidence of such conferences. However, the Court refused to consider the issue under the Constitution as a denial of due process. (I warned you to skip this post.)

The case is Union Pacific Railroad v. Brotherhood of Locomotive Engineers and the opinion is here.

9th Circuit: No Jury, Compensatory or Punitive Damages for ADA Retaliation

Alvarado sued his former employer, Cajun Operating Co., for retaliation because he complained to an internal hotline about discrimination based on disability, national origin, etc. Before trial, the court granted a motion in limine barring Alvarado's punitive damages, compensatory damage, and jury trial demand. The Ninth Circuit affirmed on appeal.

The analysis is interesting if you like statutory construction cases. I know what you're thinking: Zzz. If you just want the punchline - the Ninth Circuit joined the Seventh in holding that the Americans With Disabilities Act does not provide for compensatory or punitive damages in retaliation cases asserted under the ADA. As with pre-Civil Rights Act of 1991 cases, the only relief available is equitable, which removes the jury trial too. My bold prediction is that Congress will fix this issue in a few weeks or months.

The case is Alvarado v. Cajun Operating Co. and the decision is here.

California Supreme Court Takes on Harassment v. Discrimination

Roby sued McKesson for disability-based harassment and discrimination. The jury awarded over $3million in actual and $15million in punitive damages, including an award of damages for harassment against an individual defendant. The verdict, though, was a mess and was reduced because of overlapping, duplicative damages awards. In addition, there was an issue of whether the individual could be sued for harassment because much of the alleged conduct was in connection with personnel decisions.

One of the issues the Supreme Court addressed is whether a manager / supervisor's conduct during "personnel actions" is evidence not only of the discriminatory motive, but also harassment. The court explained the difference as follows: "discrimination refers to bias in the exercise of official actions on behalf of the employer, and harassment refers to bias that is expressed or communicated through interpersonal relations in the workplace. " * * *
"[H]arassment is generally concerned with the message conveyed to an employee, and therefore with the social environment of the workplace, whereas discrimination is concerned with explicit changes in the terms or conditions of employment"

Applying this standard, the court upheld Roby's harassment claim:

Roby's discrimination claim sought compensation for official employment actions that were motivated by improper bias. These discriminatory actions included not only the termination itself but also official employment actions that preceded the termination, such as the progressive disciplinary warnings and the decision to assign Roby to answer the office telephones during office parties. Roby's harassment claim, by contrast, sought compensation for hostile social interactions in the workplace that affected the workplace environment because of the offensive message they conveyed to Roby. These harassing actions included Schoener's demeaning comments to Roby about her body odor n10 and arm sores, Schoener's refusal to respond [*40] to Roby's greetings, Schoener's demeaning facial expressions and gestures toward Roby, and Schoener's disparate treatment of Roby in handing out small gifts. None of these events can fairly be characterized as an official employment action. None involved Schoener's exercising the authority that McKesson had delegated to her so as to cause McKesson, in its corporate capacity, to take some action with respect to Roby. Rather, these were events that were unrelated to Schoener's managerial role,
engaged in for her own purposes.

Does this clear things up? There was a bright line between personnel actions and harassing conduct before this case, supported by 15 years of authority. Does this mean that personnel actions now are evidence of harassment when the manager carrying them out is unpleasant? We will see how lower courts treat evidence of harassment after this decision.

Separately - the Court also analyzed punitive damages in employment law cases. After detailed analysis, the Court decided that a one-to-one ratio between actual and punitive damages was the constitutional limit. The Court based its conclusion on its conclusion that as a corporation, McKesson's conduct was not particularly "reprehensible." The Court also based its decision on the high damages award, warranting a lower ratio because of the actual damages' deterrence of similar conduct.

The Court also explained what a "managing agent" is for punitive damages purposes, clarifying prior rulings:

In this case, the Court of Appeal concluded that the jury could reasonably have found supervisor Schoener to be a "managing agent" of employer McKesson. On that basis, the court concluded that the jury's award of punitive damages could be justified based on Schoener's actions alone, regardless of whether more senior managers at McKesson were informed of Schoener's actions. We disagree.

At the time of Roby's termination, McKesson had over 20,000 employees; Schoener
worked at a local distribution center supervising four of them. When we spoke in White about persons having "discretionary authority over . . . corporate policy"
(White, supra, 21 Cal.4th at p. 577), we were referring to formal policies that affect a substantial portion of the company and that are the type likely to come to the attention of corporate leadership. It is this sort of broad authority that justifies punishing an entire company for an otherwise isolated act of oppression, {Slip Opn. Page 32} fraud, or malice. The record here does not support the conclusion that Schoener exercised that sort of broad authority or that she was a "managing agent" for purposes of awarding punitive damages under Civil Code section 3294, subdivision (b). Therefore, in assessing the reprehensibility of employer McKesson's conduct, we must look to what McKesson's more senior managers knew and did.

The case is Roby v. McKesson Corp. and the opinion is here.

IRS Standard Mileage Rate for 2010 is $0.50

The IRS dropped the standard mileage reimbursement rate to $0.50 from $0.505. So, beginning on Jan. 1, 2010, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:

50 cents per mile for business miles driven
16.5 cents per mile driven for medical or moving purposes
14 cents per mile driven in service of charitable organizations

Those of you who don't believe me and who want an IRS cookie (yum) deposited on their computers may see the announcement here.

DGV

CA Supreme Court Upholds Attorney-Client Privilege

Costco hired a law firm to advise the company regarding the classification of certain managers as exempt. The lawyer interviewed two of the managers to analyze their duties and responsibilities. She then produced a 22-page report. The report was considered confidential and privileged from the start.

Later, Costco was the subject of a wage and hour class action regarding the alleged mis-classification of the managers. The plaintiffs sought disclosure of the opinion letter. Costco objected, asserting attorney-client privilege.

Lower courts held that portions of the letter, containing factual information rather than attorneys' advice or opinions, should be disclosed. The California Supreme Court accepted the case for review and reversed.

The court flatly rejected any attempt to "parse" the letter:

We hold the attorney-client privilege attaches to Hensley’s opinion letter in its entirety, irrespective of the letter’s content. Further, Evidence Code section 915 prohibits disclosure of the information claimed to be privileged as a confidential communication between attorney and client “in order to rule on the claim of privilege.” (Id., subd. (a).) Finally, contrary to the Court of Appeal’s holding, a party seeking extraordinary relief from a discovery order that wrongfully invades the attorney-client relationship need not also establish that its case will be harmed by disclosure of the evidence.

Without deciding whether the communications between the managers and lawyer during the wage and hour audit were privileged, the court held that the lawyer's discussion with Costco concerning the managers' interviews were still privileged:

In sum, if, as plaintiffs contend, the factual material referred to or summarized in Hensley’s opinion letter is itself unprivileged it may be discoverable by some other means, but plaintiffs may not obtain it by compelling disclosure of the letter.

This obviously is an important decision for employers seeking advice from lawyers without fear of having that advice disclosed in later discovery.

The case is Costco Wholesale Corp. v. Superior Court and the opinion is here.

Another Non-Solicit Bites the Dust

The Court of Appeal took up a complex lawsuit involving claims and cross-claims of unfair competition, including strong agreements not to compete or solicit and choices of law and forum clauses. The Court expanded on the decision this summer in The Retirement Group v. Galante, posted here.

Basically, Dowell, other employees and their new employer, St. Jude, sued Biosense Webster, which was attempting to enforce a non-compete agreement, which included broad non-solicitation clauses. The Court of Appeal agreed with the trial court that the agreements were unenforceable. Here is some language from the opinion:

Biosense contends that the clauses are valid because they were tailored to protect trade secrets or confidential information, and as such satisfy the so-called trade secret exception, citing cases such as Thompson v. Impaxx, Inc. (2003) 113 Cal.App.4th 1425, 1429–1430; Whyte v. Schlage Lock Co. (2002) 101 Cal.App.4th 1443, 1462; Metro Traffic, supra, 22 Cal.App.4th at p. 860; and American Paper & Packaging Products, Inc. v. Kirgan (1986) 183 Cal.App.3d 1318, 1322. Plaintiffs counter that in light of our Supreme Court’s recent decision of Edwards, supra, 44 Cal.4th 937, a common law trade secret exception no longer exists.The Court in Edwards concluded that section 16600 “prohibits employee noncompetition agreements unless the agreement falls within a statutory exception.” (Edwards, supra, 44 Cal.4th at p. 942.) . . . .

* * *

Although we doubt the continued viability of the common law trade secret exception to covenants not to compete, we need not resolve the issue here. Even assuming the exception exists, we agree with the trial court that it has no application here. This is so because the noncompete and nonsolicitation clauses in the agreements are not narrowly tailored or carefully limited to the protection of trade secrets, but are so broadly worded as to restrain competition. ...

Biosense argues that the clauses in the agreements are narrowly tailored to protect trade secrets and confidential information because they are “tethered” to the use of confidential information, and are triggered only when the former employee’s services for a competitor implicate the use of confidential information. As such, to the extent that no confidential information was disclosed or made known to Dowell and Chapman during their employment with Biosense, the noncompete clause would never be triggered. But this argument ignores the broad wording of the agreements. The noncompete clause prohibits an employee from rendering services, directly or indirectly, to a competitor where those services could enhance the use or marketability of a conflicting product through the use of confidential information to which the employee had access at Biosense. “Confidential information” is broadly
defined as information disclosed to or known by the employee, including such
information as the number or location of sales representatives, the names of customers, customer preferences, needs, requirements, purchasing histories or
other customer-specific information. Given such an inclusive and broad list of confidential information, it seems nearly impossible that employees like Dowell and Chapman, who worked directly with customers, would not have possession of such information. The prohibition here is not unlike the noncompete clause found facially invalid by the court in D’Sa, supra, 85 Cal.App.4th at p. 930. . . . .

We also reject the argument of Biosense that the nonsolicitation clause is narrowly tailored to protect trade secrets and confidential information. The same argument was rejected by the Galante court, which noted: “However, Edwards rejected the claim that antisolicitation clauses could be exempt from section 16600 if the conduct covered by such clauses fell within the ‘narrow-restraint’ exception discussed in Campbell (Edwards, supra, 44 Cal.4th at pp. 948–950), and we decline TRG’s implicit invitation to engraft that exception onto this case.” (Galante, supra, 176 Cal.App.4th at p. 1241.) Moreover, the clause at issue here goes well beyond prohibiting active solicitation by prohibiting departing employees from selling or rendering any services to Biosense customers or directly or indirectly assisting others to do so—even if it is the customer who solicits the former employee. (See
Morris v. Harris (1954) 127 Cal.App.2d 476, 478 [invalidating restraint that
prohibited employee from providing services to former customers who sought him
out without any solicitation].)

St. Jude, though, lost on its attempt to enjoin Biosense from enforcing its non-compete agreement against all employees in California. The court said that St. Jude had no standing under the UCL to enforce an injunction in favor of plaintiffs not before the court.

Biosense cross-claimed against St. Jude for "raiding" by hiring Dowell and other employees. The Court of Appeal again affirmed summary judgment against Biosense, holding there was no evidence of unlawful conduct by St. Jude, which by default has the right to hire away St. Jude employees.

Biosense argued St. Jude used similar agreements to prevent competition by its own former employees. Therefore, Biosense reasoned, St. Jude came into court with "unclean hands." No sale. St. Jude's alleged unfair practices with respect to their own employees did not go to the heart of the matter with respect to Dowell's suit against Biosense. Therefore, unclean hands did not apply.

So, lots to read. Bottom line, though, is that a non-solicit probably is not going to be enforced except as a remedy for trade secret violations, not as a prophylactic measure where there is no finding of actual or threatened misappropriation under the UTSA. The agreement here was too broad, but there does not seem to be much room left for clauses that prohibit solicitation merely because an employee is exposed to "confidential" information and might use them some day.

The case is Dowell v. Biosense Webster, Inc. and the opinion is here.

Court of Appeal Once Again Explains 132a Liability

The Court of Appeal clarified what Labor Code Section 132a means - again. It appears the Workers' Compensation Appeals Board has not adapted to the California Supreme Court's decision in Department of Rehabilitation v. Workers’ Comp. Appeals Bd. (2003) 30 Cal.4th 1281 (Lauher).

So, Fowler had significant spine surgery. Initially he could not be cleared to return to work as an order puller / machine operator. The doctor's restrictions permitted him to use equipment for just an hour a day. Then, the doctor changed his mind and returned Fowler to work with no restrictions. Because of the seeming conflict, Fowler and his employer submitted his case to an "AME" doctor, who decided Fowler could return to work.

Fowler filed a workers' compensation discrimination claim under Labor Code Section 132a because of the delay in returning him to work. The Workers' Compensation Appeals Board held that Gelson's, the employer, discriminated against Fowler by refusing to accept his doctor's note returning him to work. The Board appeared to apply old law, basically saying that any negative action against an industrially injured worker is a violation of section 132a regardless of whether the employer would take the same action against a non-injured worker.

The Court of Appeal annulled the WCAB decision because Fowler did not prove discrimination - differential treatment:

Here Fowler made no showing that Gelson’s treated him differently from nonindustrially injured employees. That is, Fowler made no showing that Gelson’s would have returned to work a nonindustrially injured employee whose physician provided the same releases, but discriminated against Fowler by not returning him to work. Fowler made no showing that Gelson’s treated him disadvantageously because of the industrial nature of his injury, as compared to how Gelson’s treated a nonindustrially injured employee. Thus he did not make a prima facie case of discrimination in violation of section 132a and did not shift the burden to Gelson’s to establish an affirmative defense.

The case is Gelson's Markets, Inc. v. WCAB and the opinion is here.

Anybody See a Top 100 Employment Law Blog?

Who us? I mean, of COURSE it's us. Well, thanks for the honor, Delaware Employment Law Blog. We like you too.