Court of Appeal on Reporting Time (Redux)

We first blogged about Aleman v. Airtouch Cellular here.  I was pretty excited because I'm a dork. Oh, and because the Court of Appeal addressed two issues that come up all the time for clients, but never in court:  "reporting time" and the "split shift" premium. You remember.  

Anyway, as I predicted, the Supreme Court granted review and held the case, which meant it had no precedential value and pretty much disappeared.  But it's back.  And if it stays on the books this time, it may result in a big change to advice that employment lawyers give their employer clients.

Here are the facts as explained by the Court:

Krofta was required to attend occasional work-related meetings. Most of these were ―store meetings, which would be held once or twice a month on Saturday or Sunday morning, before the store opened, and which would last an hour to an hour and a half. The meetings were scheduled in advance and listed on employees‘ work schedules, and they were recorded in AirTouch‘s electronic timekeeping system.

Krofta‘s timesheets from AirTouch showed that there were five occasions on which he was scheduled to work, and did work, less than four hours (possibly to attend meetings). Separately, the AirTouch timesheets showed there were five times when Krofta worked a split shift—described by the parties for purposes of this litigation as a short shift (generally a meeting) in the morning followed by a longer shift later the same day.

*** Krofta contended, however, that he was owed additional compensation as reporting time pay for the five instances he worked less than four hours, and split shift premiums for the five times he worked a split shift.

REPORTING TIME PAY

Here's how the court analyzed the reporting time pay provision contained in the Wage Orders.  This will result in a big change to advice employment lawyers give to employers:

To simplify, the issue may be framed by the following question: If an employee‘s only scheduled work for the day is a mandatory meeting of one and a half hours, and the employee works a total of one hour because the meeting ends a half hour early, is the employer required to pay reporting time pay pursuant to subdivision 5(A) of Wage Order 4 in addition to the one hour of wages? The answer to this question is no, because the employee was furnished work for more than half the scheduled time. The employee would be entitled to receive one hour of wages for the actual time worked, but would not be entitled to receive additional compensation as reporting time pay. . . . [W]hen an employee is scheduled to work, the minimum two-hour pay requirement applies only if the employee is furnished work for less than half the scheduled time

SPLIT SHIFTS

The court's treatment of split shift pay clarified ambiguity in the law regarding whether split shift premiums are due for workers who make a certain amount more than minimum wage:

Krofta contends that he was owed additional compensation for working split shifts under subdivision 4(C) of Wage Order 4. Subdivision 4(C) is located under the section \4. Minimum Wages. heading of the wage order. It states: \When an employee works a split shift, one (1) houres pay at the minimum wage shall be paid in addition to the minimum wage for that workday, except when the employee resides at the place of employment.. (Cal. Code Regs., tit. 8, ˜ 11040, subd. 4(C).) * * *

*** While subdivision 4(C) applied to Krofta, the provision did not provide him with any tangible benefit, since the total amount of his regular pay was significantly higher than the minimum amount required by subdivision 4(C).

No published California case has previously addressed this direct issue. However, although obviously not binding, a well-respected treatise (Chin et al., Cal. Practice Guide: Employment Litigation (The Rutter Group 2011)) has embraced the same interpretation of subdivision 4(C). The Rutter guide explains the provision thusly: ―[A]n employee earning the minimum wage who works eight hours on a split shift is entitled to receive nine times the minimum hourly wage.‖ (Id. at ¶ 11:682, p. 11-68.) ―This provision also applies to employees paid more than the minimum wage. However, such employees are only entitled to the difference between what they actually earned and what they would have earned had they been paid the minimum wage for their entire shift plus an extra hour.‖ (Id. at ¶ 11:683, p. 11-69.) ***

So, this means that an employee is not required to earn a split shift premium of one hour at minimum wage, unless he or she earns < (minimum wage * hours worked + (minimum wage * 1 hour)).

OTHER ISSUES

If the above weren't enough, this case keeps on giving. The Court held that a release of claims will lawfully include disputed claims for unpaid wages, despite Labor Code Section 206.5, a California statute prohibiting releases of wage claims.

The Court also clarified that on the reporting time claim, either party may seek attorney's fees under Section 218.5, which means that the employer won its fees against the plaintiffs.

So, happy Friday!  Monday won't be so bad either.

The case is Aleman v. Airtouch Cellular and the opinion is here.

California Supreme Court Takes Up Arbitration Again

I posted in detail about Iskanian v. CLS Transportation here.  (This is one of the post-Concepcion cases that address arbitration. )  The California Supreme Court just granted review here.  The Court eventually will explain how Concepcion affects California arbitration law.  But that could take some time... Unfortunately for employers, the Court's grant of review means the Iskanian decision is uncitable going forward.
DGV

California Workers' Compensation Reform Bill

Governor Jerry Brown just signed SB 863, a big workers' compensation reform package, supported by the Cal. Chamber. 

We don't practice in this area, but we know workers' comp. premiums are expensive for employers and administration is employers' responsibility. So, the bill is here.  If I see a good summary I will post it as well.

Much of the bill addresses how the workers' compensation appeals board and medical providers will go about their business.  The Cal Chamber believes it will result in improved efficiency and reduced fraud.  See here. I hope so!

Court of Appeal: Rare Opinion on Inside Sales Exemption

Tyrone Muldrow and a class of recruiters sued their employer, Surrex Solutions Corporation,  for unpaid overtime, meals and breaks.  The trial court held that the employees were exempt undre the "inside sales exemption" and that the company had adequately provided meals and breaks.  The Supreme Court issued a "grant and hold" order pending the decision in Brinker Restaurant Corp. v. Superior Court (2012) 53 Cal.4th 1004, 1037.

On remand after Brinker, the Court of Appeal reaffirmed its earlier decision.  It's blogworthy because of the discussion of the "inside sales exemption" under the wage order .

The exemption is contained in both wage order 4 and wage order 7.  The court did not address which wage order applies, but quoted from wage order 7:

California Industrial Welfare Commission (IWC) Wage Order No. 7-2001 exempts from this statutory overtime compensation requirement "any employee whose earnings exceed one and one-half (1 1/2) times the minimum wage if more than half of that employee's compensation represents commissions." (Cal. Code Regs., tit. 8, § 11070, subd. (3)(D).)

Under federal law, this is known as the "inside sales" or "7(i)" exemption.

For the above exemption to apply, the employees had to be "selling" a product or service. 

Appellants' primary job duty was to recruit "candidates" for employer "clients." Surrex's clients would place "job orders" with Surrex and appellants would search for potential candidates to fill the job orders. Appellants would use various resources to find candidates, including an internal database that Surrex maintained and various "on-line job boards."

The court decided that these recruiters were "selling" the recruiting services, and that the other activities they engaged in were part of the sales process.

The court then decided that the compensation the recruiters received were "commissions" because they were sufficiently related to the sales price - the revenue the business received for placements:

the sole argument that appellants offer to support their contention that the term "commissions" in the commissioned employees exemption (Cal. Code. Regs., tit. 8, § 11070, subd. (3)(D)) should be construed as excluding commission systems such as Surrex's, is that such a formula is "too complex." Appellants' contention that the Surrex's commission system is "too complex" is neither factually accurate nor legally relevant. The formula was clearly stated in the employees' employment agreements and, in most cases, could be calculated simply by knowing the candidate's "bill rate" and "pay rate" (both of which the consulting service managers, themselves, negotiated).15 In any event, appellants fail to cite any authority for the proposition that complexity is, or should be, a factor in determining whether a compensation scheme constitutes a commission under relevant California law.

The court also decided that the commission plan was "bona fide" because the commissions regularly exceeded draw.

So, the court decided that the trial court was correct because the inside sales exemption applies.


There are a couple of things the court did not decide that might have affected the outcome. First, the court did not appear to actually decide if Wage Order 4 or 7 is the correct one. The court quoted from Wage Order 7, which applies to all employees working in the "mercantile" industry.   The definition of "mercantile" applies to the sale of goods, not recruiting agencies. From the Wage Order: "'Mercantile Industry' means any industry, business, or establishment operated for the purpose of purchasing, selling, or distributing goods or commodities at wholesale or retail; or for the purpose of renting goods or commodities."

Rather, Wage Order 4 applies to occupations such as office workers, if an industry order does not apply.

The applicable Wage Order actually does not affect the exemption under California law because that exemption is contained in both Wage Order 4 and 7. (The Court should have cited the correct one, though).   The issue, though, is that the federal "7(i)" exemption applies only to "retail" establishments. In fact, the applicable Department of Labor regulations specifically exclude employment agencies from the definition of a retail establishment. See regulation here.  I can't say for certain that Surrex is not a "retail" establishment under federal law, but someone probably should take a look at that issue if he/she hasn't already. 

This is one of the few instances in which California law is less generous than federal law. Although an employee may be exempt under California law, if an employee is not "exempt" under federal law, then federal law will require overtime for work performed over 40 hours in a work week. I may have missed something, but the court's opinion does not seem to address federal law, or the wage order issue. Yet, the court does acknowledge the existence of the 7(i) exemption at footnote 14 of the opinion. Annnyyyway, I may be nuts, or someone has some splaining to do, or both! The message to our dear readers remains:   Please do not apply the inside sales exemption unless you consider both state and federal law.
 The case is Muldrow v. Surrex Solutions Corp. and the opinion is here.  

Remember to vote

No, no....not that vote.  The ABA is collecting its Top 100 law blogs.  Over 5 years of bloggery and over 500 posts, and we've never won a Webbie, an Emmy or even a scratch ticket. 


Please remedy this oversight by voting for your favorite blogs, and this one too, at the ABA's site.

Thanks!

Court of Appeal: No Waiver of Arbitration and No Class Action Either

The Court of Appeal overturned a trial court's denial of the employer's motion to compel arbitration.  Here are some key points:

1.  The Court of Appeal expressly recognized that an arbitration agreement that is silent regarding class actions cannot be read to require classwide arbitration.

[A] party may not be compelled under the FAA to submit to class arbitration unless there is a contractual basis for concluding that the party agreed to do so. . . . As the Arbitration Agreement explicitly covers the type of claims that are the subject of Reyes‘s lawsuit and provides only for bilateral arbitration, there is no contractual basis for concluding the parties agreed to submit to class arbitration. Therefore, we conclude that the Arbitration Agreement does not authorize class arbitration.

2. The court held that the employer did not waive the right to arbitrate, even though it did not cite the arbitration agreement in the answer, and though it conducted lots of discovery in court.  The reason is that the employer likely would not have prevailed on a motion to compel arbitration until the U.S. Supreme Court issued its decision in AT&T Mobility v. Concepcion  (2011) 563 U.S. ___ [131 S.Ct. 1740, 179 L.Ed.2d 742].  Therefore, the employer did not "waive" the right to arbitrate, when seeking arbitration would have been futile.

3.  Like pretty much every other court, the court here refused to follow the National Labor Relations Board's decision in DR Horton (holding that arbitration agreements cannot require class action waivers unless the employee can bring a class action in court). 

The decision is Reyes v. Liberman Broadcasting and the opinion is here.

DGV

Court of Appeal Strikes Down Non-Compete Related to Sale of Business

Maas sold his company, Crave, to Handleman.  As part of the sale transaction, Maas signed a stock purchase agreement that prohibited Maas from competing with Handleman for three years from the sale.

Maas became a Handleman employee. He also signed an employment agreement with Handleman that contained another non-compete, barring him from competing for one year from the termination of his new employment with Handleman or from the expiration of the three-year non-compete, whichever came first.  That employment agreement also contained a non-solicitation clause.

Maas stayed with Handleman three years, thereby satisfying the non-compete in the purchase agreement.  But then he went to work for a new company, violating the non-compete in his employment contract. Handleman sued, claiming that the one-year non-compete was part of the sale transaction and was in consideration for the "good will" value of Crave.

Fillpoint bought the Crave assets from Handleman and sued Maas and others for violating the non-compete agreement.

Most people who read this blog know that most non-competition agreements are unenforceable under California law. But there are exceptions.  One exception applies to the sale of a business to protect the buyer.  See Business and Prof. Code Section 16601.

The court of appeal noted that the three-year covenant in the purchase agreement satisfied the exception contained in Section 16601, as it protected Handleman's purchase of Crave.  Fillpoint, however, argued that the employment agreement's further non-compete was part of the same transaction.   The court agreed that the purchase agreement and employment agreement must be read together.  But the court struck down the employment agreement's non-competition provision.

For one thing, Fillpoint argued that the employment agreement's non-compete served a different purpose from the purchase agreement's non-compete.  The latter applied to Maas as a shareholder and the former as a Handleman employee.  The court viewed that argument as a concession that brought the non-compete outside Section 16601.  Moreover, the court decided that the employment agreement non-compete was way too broad and precluded Maas from pursuing a profession regardless of Crave's goodwill.

So, according to the court's decision in Fillpoint v. Maas, non-competes associated with the sale of a business cannot have a "latent tail" that becomes effective years after the sale.   The opinion is here.

California Supreme Court: Workers' Compensation Preemption of Loss of Consortium Claim

The Workers' Compensation Act preempts most civil lawsuits by injured workers. There are certain exceptions allowing civil lawsuits, such as for emotional distress due to sexual harassment. There are statutory exceptions, too, such as when a co-worker intentionally injures the employee.  One less-known provision, called the "power press" exception permits civil actions in addition to workers' compensation claims. As explained by the Supreme Court:

[Labor Code] Section 4558 authorizes an injured worker to bring a civil action for tort damages against his or her employer where the injuries were “proximately caused by the employer’s knowing removal of, or knowing failure to install, a point of operation guard on a power press,” where the “manufacturer [had] designed, installed, required or otherwise provided by specification for the attachment of the guards and conveyed knowledge of the same to the employer.” (§ 4558, subds. (b) & (c).)

 If an injured worker can sue in court in addition to filing a workers' compensation claim for injuries falling within the "power press" exception, can his spouse sue for loss of consortium, or is that claim barred by the Workers' Compensation Act exclusivity provisions?

The Supreme Court said:

notwithstanding the availability of a civil cause of action for workers who suffer power press injuries, claims arising from the industrial accident that caused those injuries fundamentally remain compensable under the workers’ compensation system. Consequently, under settled principles of workers’ compensation law, the exclusivity rule bars a dependent spouse’s claim for loss of consortium.  

This means that the loss of consortium claim is not actionable, even if the power press exception applies. 

The case is Lifiell Mfg. Co. v. Superior Court and the opinion is here.

California Pregnancy and Disability Regulations - Final Comments?

The Fair Employment and Housing Commission has issued nearly almost final regulations regarding disability discrimination and regarding pregnancy disability leave.  You may read them here. You may comment on the proposed regulations through August 30.
We will have articles on each of these regulatory changes.
DGV

Court of Appeal: Desperate Housewives Case

From the court of appeal's opinion:

Touchstone Television Productions (Touchstone) hired actress Nicollette Sheridan (Sheridan) to appear in the first season of the television series Desperate Housewives. The agreement gave Touchstone the exclusive option to renew Sheridan‟s services on an annual basis for an additional six seasons. Touchstone renewed Sheridan's services up to and including Season 5. During Season 5, Touchstone informed Sheridan it would not renew her contract for Season 6.

In case you hadn't heard about this, Sheridan sued for wrongful termination and other torts, claiming that

During the September 24, 2008 filming of a Season 5 episode of Desperate Housewives, an incident occurred between Sheridan and Cherry, the series‟ creator. Sheridan claims that Cherry hit her. Thereafter, Sheridan complained to Touchstone about Cherry‟s (alleged) battery.

Then, Touchstone decided not to renew Sheridan for the final season, killed her character, but had her return as a ghost.  Yes, I did not make this up.  No, I never watched an episode.

A jury deadlocked on whether Touchstone wrongfully terminated Sheridan in violation of public policy (retaliation for her complaint she was battered).   The trial court repeatedly rejected Touchstone's argument that non-renewal of annual contracts do not give rise to wrongful termination claims.

The Court of Appeal, however, disagreed: "Decisional law does not allow a plaintiff to sue for wrongful termination in violation of public policy based upon an employer‟s refusal to renew an employment contract. "

Like every good story, though, this one has a twist. The Court of Appeal permitted Sheridan to sue under Labor Code Section 6310(b):

(b) Any employee who is discharged, threatened with discharge, demoted, suspended, or in any other manner discriminated against in the terms and conditions of employment by his or her employer because the employee has made a bona fide oral or written complaint to the division, other governmental agencies having statutory responsibility for or assisting the division with reference to employee safety or health, his or her employer, or his or her representative, of unsafe working conditions, or work practices, in his or her employment or place of employment, or has participated in an employer-employee occupational health and safety committee, shall be entitled to reinstatement and reimbursement for lost wages and work benefits caused by the acts of the employer. Any employer who willfully refuses to rehire, promote, or otherwise restore an employee or former employee who has been determined to be eligible for rehiring or promotion by a grievance procedure, arbitration, or hearing authorized by law, is guilty of a misdemeanor.

So, why is this important?  Because the statute allows for "non-renewal" of employment as a basis for a claim. But the statute only allows for "reinstatement and reimbursement for lost wages and work benefits . . .. "  So, in Ms. Sheridan's case, she would be entitled to the one-year contract fee and related benefits, but not to emotional distress, front pay, or punitive damages.

For a minute, employers may have become interested in entering into six-month contracts with employees. But, as you can see, statutes may provide remeides, even if the common law does not.  On the other hand, these contracts, if done right, could limit exposure on the lost wages measure of damages .... maybe?  Another day and another case...

The case is Touchstone Television Productions v. Superior Court and the opinion is here.

US Department of Labor Stats on Leaves

The DOL's Bureau of Labor Statistics just released data from a survey regarding leaves of absence.

You can read the full press release about the survey here.


Here's the summary.


In 2011, 90 percent of wage and salary workers had access to paid or unpaid leave at their main jobs, the
U.S. Bureau of Labor Statistics reported today. Twenty-one percent of wage and salary workers took
paid or unpaid leave during an average week. Workers who took leave during an average week took an average of 15.6 hours of leave. Fifty-six percent of wage and salary workers were able to adjust their work schedules or location instead of taking leave or because they did not have access to leave in 2011. Seven percent of workers made such an adjustment in an average week.

End of summary. Begin my annoyed rant.

Let's read it again: 1/5 of workers take leave in an average week.  20% of people cannot report to work in a given week. Yes, there are some people who need leave.  But the system is abused.

End rant.

Court of Appeal: Administrative Exemption After Harris

Harris v. Superior Court (discussed here and article here) is the California Supreme Court's recent interpretation of the administrative exemption.  The Supreme Court reversed the lower court's decision, saying the court of appeal mis-applied the law.  Of note, the court insisted that the court of appeal apply the relevant standards in the wage order, which includes reliance on certain federal Department of Labor Regulations.  The court sent the case back down for the court of appeal's re-consideration.

The court of appeal has issued its new decision . Again, it decided that the claims adjusters at issue in the case are non-exempt under the administrative test.  In fact, the court again granted the plaintiffs' motion for summary adjudication, which means that the court believes the claims adjusters are non-exempt as a matter of law.  Therefore, there will be no trial over whether the class of claims adjusters are exempt or not. The only dispute is over damages and penalties. If allowed to stand or remain published, it appears the court of appeal's decision limits the administrative exemption.

The Supreme Court's decision rejected the court of appeal's analysis of the exemption because the court relied on the "administrative / production dichotomy" to the apparent exclusion of the Wage Order's tests for the exemption. This time the court of appeal mostly avoided the dichotomy and focused on a different method of analyzing the exemption:

Federal Regulations former part 541.205 (2000) is one of the regulations incorporated in Wage Order 4-2001, subdivision 1(A)(2)(f). That regulation defined the italicized phrase above. It is this directly related‘ phrase that distinguishes between 'administrative operations‘ and production‘ or sales‘ work. (Fed. Regs. § 541.205(a) (2000).) 

Parsing the language of the regulation reveals that work qualifies as 'administrative‘ when it is directly related‘ to management policies or general business operations. Work qualifies as directly related‘ if it satisfies two components. First, it must be qualitatively administrative. Second, quantitatively, it must be of substantial importance to the management or operations of the business. Both components must be satisfied before work can be considered directly related‘ to management policies or general business operations in order to meet the test of the exemption. (Fed. Regs. § 541.205(a) (2000).)  

The regulation goes on to further explicate both components. Federal Regulations former part 541.205(b) (2000) discusses the qualitative requirement that the work must be administrative in nature. It explains that administrative operations include work done by ‗white collar‘ employees engaged in servicing a business. Such servicing may include, as potentially relevant here, advising management, planning, negotiating, and representing the company. Federal Regulations former part 541.205(c) (2000) relates to the quantitative component that tests whether work is of ‗substantial importance‘ to management policy or general business operations. (Harris, supra, 53 Cal.4th at pp. 177–182 & fns. 3, 5, fns. 2, 4 & 6 omitted.)  

Only the qualitative component of the ―directly related‖ requirement is at issue in this case. (Harris, supra, 53 Cal.4th at p. 182.)

So, the Court set about analyzing what it means to be "directly related to management policies or general business operations."  In doing so, the court appeared to conflate the qualitative and quantitative standard.  The court reasoned that every job is in some way "directly related to management policies," which cannot mean that everyone is exempt.  The court explained that even the lowest level employees may "advise" management (about mundane things), and may "represent the company" when calling a cab.  The court reasoned that the exemption would include everyone if that were the case, seeming to ignore the "quantitative" test of "importance."

So, the court sought to draw a line and readily concluded:

The undisputed facts show that Adjusters are primarily engaged in work that fails to satisfy the qualitative component of the "directly related" requirement because their primary duties are the day-to-day tasks involved in adjusting individual claims. They investigate and estimate claims, make coverage determinations, set reserves, negotiate settlements, make settlement recommendations for claims beyond their settlement authority, identify potential fraud, and the like.

 * * *

The claims adjusters were responsible for determining coverage, setting and updating reserves, determining liability, evaluating a claim for settlement, and negotiating settlement of claims,‖ as well as recognizing potential subrogation on claims and forwarding such claims to the Subrogation Unit‖ and recognizing indicators of potential fraud on claims and forwarding such claims to the Special Investigations Unit.‖ The settlement authority of the adjusters under the declarant‘s supervision ranged from $6,000 to $40,000, and their expense authority ranged from $5,000 to $20,000. The declarant estimated that 85 percent of the adjusters‘ claims were settled within their settlement authority; for claims exceeding their authority, he ―generally expect[ed] them to provide [him] with a recommendation of settlement as well as a thorough analysis of their reasoning.‖ Other declarations described other adjusters who had lower or higher settlement authority (some as high as $100,000), but all of them performed similar duties.

None of that work, or the similar work of the other class members, is carried on at the level of management policy or general operations. Rather, it is all part of the day-to-day operation of Employers‘ business.

Here's how you know the court of appeal seems to have conflated the qualitative and quantitative components of the exemption:

For example, if a Golden Eagle underwriter consults with a Golden Eagle claims examiner regarding whether the company should issue certain types of policies to a particular customer, the claims examiner is not giving advice about management policies or general operations. But if Golden Eagle‘s underwriters consult with Golden Eagle‘s claims examiners regarding whether the company should offer certain types of policies in general (namely, whether such policies should be included in Golden Eagle‘s line of products), the claims examiners are giving advice about management policies or general operations.

So, that means if you are not formulating or implementing policies on a company wide basis, you're non-exempt?  The exemption does not say you have to formulate the policies. Whether you issue a certain policy to a particular customer is the application of a business policy. That is "administrative" work.  Similarly, if an employee relations manager evaluates the employee handbook policies and decides whether a management decision to discharge is wise, that is exempt work - advising management.  If you take the court of appeal's analysis to the next step, only the HR manager responsible for drafting the handbook is exempt; everyone else just applies it to the individual worker and is non-exempt?  Everyone in the accounting department is non-exempt except the CFO or those who manage 2 or more people? That will be news to thousands of employers, (and plaintiff lawyers.)

There's more here, but you get the picture.

Dear court of appeal, with respect, I think you got this one wrong. I hope the California Supreme Court decides to re-review this one or depublish it.

The case is Harris v. Superior Court and the opinion is here.

Court of Appeal Upholds Arbitration Agreement

Nelsen v. Legacy Partners (opinion here) is the latest decision from the court of appeal to address the validity of arbitration agreements in California, after recent federal developments (Concepcion, DR Horton, etc.). 

The issues, as usual, are whether the arbitration agreement is "unconscionable," or violates public policy, and therefore is unenforceable as a contract.

The arbitration agreement was located at the end of a long handbook. Not surprisingly, the court first found that the agreement was "procedurally unconscionable,"  because

It was part of a preprinted form agreement drafted by LPI that all of LPI‘s California property managers were required to sign on a take-it-or-leave-it basis. The arbitration clause was located on the last two pages of a 43-page handbook. While the top of page 42 contains a highlighted prominent title ―TEAM MEMBER ACKNOWLEDGMENT AND AGREEMENT,‖ the title makes no reference to arbitration and the arbitration language itself appears in a small font not set off in any way to stand out from the rest of the agreement or handbook. Moreover, unless Nelsen happened to be conversant with the rules of pleading in the Code of Civil Procedure, the law and procedure applicable to appellate review, and the rules for the disqualification of superior court judges, the terms and rules of the arbitration referenced in the clause would have been beyond her comprehension.

So, now the courts say that failing to attach the Code of Civil Procedure makes an agreement procedurally unconscionable.  What happened to "everyone is bound to know the law?" or "ignorance is no excuse?"  Also, by saying that the agreement is not in a different font, the court is imposing a requirement that does not apply to other contracts.  That's not supposed to be allowed, demonstrating once again that the unconscionability doctrine is just an end run around Federal Arbitration Act preemption.

However, the court then turned to "substantive" unconscionability, which must also exist for an arbitration agreement to be invalidated.  In this case, though, the arbitration agreement was pretty much lifted verbatim from a California Supreme Court decision. (Little v. Auto Stiegler, Inc. (2003) 29 Cal.4th 1064.)  So, the Court did not find substantive unconscionability.

But Nelsen then argued that, regardless of unconcsionability, the arbitration agreement violated "public policy" under the California Supreme Court's decision in  Gentry v. Superior Court (2007) 42 Cal.4th 443.  In particular, Nelsen argued that the arbitration agreement barred her from bringing a class claim in arbitration because the agreement was silent as to class claims.

The court of appeal held that, indeed, the silent agreement did not encompass class-based claims.
However, the court then decided that Gentry did not invalidate the arbitration agreement because Nelsen did not adequately support the argument to the trial court.  That is, Gentry does not invalidate "all" class action waivers, so you have to establish the Gentry "factors," which Nelsen did not do.  In ruling this way, the court sidestepped whether Gentry remains good law.

Finally, the court decided that the National Labor Relations Board's decision in DR Horton was not binding and that the court would not follow it. The court noted that the decision was issued by just 2 Board members and that the issue of whether class action waivers are enforceable are beyond the Board's normal expertise.

So, another arbitration agreement survives. 

Court of Appeal: Employee's Attempt to Buy Shoes for Friend with Employer's Money Not Misconduct

Here's another Court of Appeal decision regarding an unemployment insurance benefits determination by the Employment Development Department.  A few weeks ago, the Court decided that refusing to sign a document was insubordination, disqualifying an employee from benefits.  See here.  Not this time.

In this case, Robles was employed by Liquid Environmental Solutions. He received an annual allowance for safety shoes.  He took a friend to the Red Wing store to buy the friend a pair of boots with his shoe allowance.  The store clerk would not permit the purchase.  Robles did not complete the transaction.  He was later suspended and then fired.

Robles applied for unemployment benefits.  The company did not appear or contest.  Robles admitted he attempted to use the Company's shoe allowance to buy shoes for a non-employee friend.  EDD denied the claim for unemployment on the basis of misconduct, as did the superior court.  Here is what the EDD's ALJ said, which pretty much sums it up:

Robles started to explain his objection to the characterization in the investigator・s report to the effect that claimant stated he was aware ―that the purchase had to be for employees only.‖The ALJ said he would have a chance later to ―tell me more about it.

The ALJ found that Robles was discharged for misconduct connected with work. In particular, Robles understood that the employer intended that its employees use the
annual shoe allowance to purchase shoes. Robles breached ―a duty of good faith and fair dealing when he attempted to obtain shoes for a friend who was not an employee rather than using the allowance for himself. [¶] The claimant may have had good intentions toward his friend, but in his actions he breached a serious obligation he had to the employer.

But the court of appeal disagreed with the EDD and superior court.  The court of appeal apparently did not accept that an employee who knowingly attempts to use company money to buy something for a third party is stealing, or at least attempting to do so:

In the case at hand, Robles knew that the employer intended its employees to use the shoe allowance to purchase safety shoes for work, but the element of culpable intent has not been established. First, Robles did not try to hide anything when he went to the shoe store. Next, it is undisputed that he wanted to help his friend who had a recent home accident. Further, Robles had decent safety shoes and did not feel he would jeopardize the safety purpose of the allowance or otherwise injure his employer‘s interests. When his supervisor indicated the employer did not approve of the intended use, Robles registered his regret and assured the supervisor he would comply. And finally, Robles did not use the shoe allowance for his friend. At most Robles was guilty of a good faith error in judgment. At the least Robles misunderstood the limits of what he could do with the safety shoe allowance, which he was entitled to as a benefit of employment.

Well, you be the judge.  Is the court of appeal indulging bad behavior.  Do you need a written policy saying don't use company money to buy friends shoes intended for employee safety?  Is this misconduct or just a "good faith error in judgment?"  These are rhetorical questions; don't write :)

The case is Robles v. EDD and the decision is here.

Court of Appeal: Advanced Commissions May Be Recovered

Verizon paid certain employees on commission. The commissions were paid on wireless subscriptions.  However, if customers canceled their service, Verizon would charge back the commissions that were advanced to employees under the assumption that the customer would pay for the entire subscription. Here is the court of appeal's description of the commission plan:

The compensation plans explain that commissions on the sale of cell phone service plans are paid in advance, but not earned until the expiration of a chargeback period during which the customer may cancel the service. The 2004 compensation plan stated: "Customer retention is an important element of earning any commission; therefore your commission for sales of service is not earned until after the expiration of the applicable chargeback period. However, as a benefit to employees so that they will have use of the money before it is actually earned, Verizon Wireless has a policy of advancing commission dollars, if certain requirements are met, for the sale of commission-eligible services." The 2005 compensation plan stated: "Your commission . . . is not earned and the sale does not „vest‟ until . . . your customer satisfies his [or her] contract during the applicable chargeback period."

The compensation plans include a section entitled, "Chargeback of Commission Advance." The 2004 compensation plan stated: "In the event a customer disconnects service during the commission chargeback period, your commission is subject to adjustment by the original amount advanced for the sale. Your commission advance will be adjusted to account for disconnects within the chargeback period . . . ." The 2005 compensation plan stated if a customer disconnects service during the chargeback period, "the sale is not considered vested[.]"

Deleon, a Verizon employee, brought a class action agianst Verizon, challening Verizon's right to recover advanced commissions. Deleon's point apparently is that he sold the plan to the customer. If the customer makes a return or cancels, Verizon must pay him the commission anyway and absorb the loss.  That's why there's little chance there will be a company called "Deleon Wireless" any time soon.

There is no allegation that Verizon failed to honor its plan, or that Deleon was underpaid. The entire focus was that he should be paid more, on sales that did not bear fruit.

Nice try. The trial court granted summary judgment, and the court of appeal affirmed. The courts decided that Verizon's plan was clear, Deleon had notice of it, and Verizon followed the plan correctly. The plan defined when commissions were "earned" and paid money in advance, but reconciled the advances against future earned commissions. Therefore, the courts held, Verizon's plan was lawful.

The court of appeal also made a refreshing observation.  If the plaintiff's argument prevailed, Verizon most likely would have dispensed with making advances. Employees would then have to wait up to a year to "earn" commissions when the subscriptions were fully paid. 

The case is Deleon v. Verizon Wireless, LLC, and the opinion is here.

Court of Appeal Imposes Franchisor Liability for Franchisee Harassment Claim

A Domino's franchisee's employee claimed sexual harassment against her supervisor and her employer, the franchisee (Sui Juris).  However, she also sued franchisor Domino's Pizza.  Normally, only the "employer" can be held liable for FEHA violations.  But the victim, Patterson, claimed that Domino's was also her employer because of its control over franchisee Sui Juris. The trial court disagreed, but the Court of Appeal reversed.

The appellate court decided there at least was a triable issue of fact regarding whether the franchisor exercised sufficient control over Sui Juris' employment practices to make it an "employer."  The court did not apply "single employer" or "joint" employer standards that normally apply to these analyses.  Nor did the Court analyze franchisor liability under FEHA's text.  Rather, the Court of Appeal applied an independent contractor-type analysis applying to torts generally:

Whether a franchisor is vicariously liable for injuries to a franchisee's employee depends on the nature of the franchise relationship.  . . . ."The general rule is where a franchise agreement gives the franchisor the right to complete or substantial control over the franchisee, an agency relationship exists." . . . "'[I]t is the right to control the means and manner in which the result is achieved that is significant in determining whether a principal-agency relationship exists.'" (Ibid.) Consequently, a franchisee may be found to be an agent of the franchisor even where the franchise agreement states it is an independent contractor.  .... If the franchisor has substantial control over the local operations of the franchisee, it may potentially face liability for the actions of the franchisee's employees. 

"[T]he franchisor's interest in the reputation of its entire system allows it to exercise certain controls over the enterprise without running the risk of transforming its independent contractor franchisee into an agent."  ... Consequently, it may control its trademarks, products and the quality of its services. But the franchisor may be subject to vicarious liability where it assumes substantial control over the franchisee's local operation, its management-employee relations or employee discipline. 

Applying this rule, the Court decided there should be a trial on whether Domino's was sufficiently controlling of Sui Juris to the considered an "employer" and liable for the harassment.

Significantly, Domino's then argued it could not be liable because it had no advance knowledge there was sexual harassment at that franchise.  But the Court of Appeal ruled that the franchisor could be held strictly liable for the harassment of the franchisee's supervisor. 

Anyway, this decision opens up a significant avenue for franchisor liability when it exercises tight control over a franchisee's operations. 

It will be interesting to see if the California Supreme Court takes this one up or if Domino's seeks rehearing. The standard for liability under FEHA is usually analyzed under whether the corporate entity is an "employer."  At the same time, FEHA does impose liability on "agents" of the employer.   

The case is Patterson v. Domino's Pizza, LLC and the opinion is here.

California Supreme Court: Certain Cities Don't Have to Pay Prevailing Wage

Many employers who do business with the government have heard of the "prevailing wage."  If you haven't, here's what it is, as explained by the California Supreme Court:

contractors on "public works" projects [have] to pay "the general prevailing rate of per diem wages for work of a similar character in the locality in which the work is performed." . . . The term "public works" was defined as work done for public agencies and work paid for with public funds. ... Simply put, "[p]revailing wage laws are based on the . . . premise that government contractors should not be allowed to circumvent locally prevailing labor market conditions by importing cheap labor from other areas."

Basically, the law requires public employers to pay "prevailing" wages.  But "prevailing" usually means "pretty darn high" if you have ever seen them. They are calculated by the Bureau of Labor Statistics and state counterparts (such as the Department of Industrial Relations).

Anyway, so California's constitution authorizes "charter cities," which have broad authority to govern themselves.  State laws preempt charter cities' rules in certain circumstances.

Vista, CA, is a charter city.  Vista was implementing some public works projects, constructing buildings and such.  The project did not call for paying the "prevailing" wage and some unions sued.

Cutting to the chase, here is the 5-2 holding:

Here, we reaffirm our view — first expressed 80 years ago (see City of Pasadena v. Charleville (1932) 215 Cal. 384, 389 (Charleville)) — that the wage levels of contract workers constructing locally funded public works are a municipal affair (that is, exempt from state regulation), and that these wage levels are not a statewide concern (that is, subject to state legislative control).

How fast will someone try to pass an initiative to overturn this one?

The case is State Building and Const. Trades Council, etc. v. City of Vista and the opinion is here.

No More Fair Employment and Housing Commission?

The California Governor just signed SB 1038.  This bill, among many other things, eliminates the California Fair Employment and Housing Commission, and transfers its duties to the California Department of Fair Employment and Housing.  The Commission was the agency that developed regulations and acted as the judicial body that heard claims of discrimination brought before the agency instead of court.  Those duties will be handled by the Department internally now.  Claims for damages currently before the Commission involving emotional distress will be heard in court rather than before the Commission.  Other claims may be heard before an administrative law judge rather than the Commission.

It's unclear how this new law will affect the workings of the DFEH or the Fair Employment and Housing Act. Stay tuned.

SB 1038 is here. But be warned - it's really long and only a small part of it has to do with the FEHC / DFEH piece.

NLRB - More on Protected Activity and Social Media

Tired of hearing about the National Labor Relations Board?  Unless your business is outside of the NLRB's jurisdiction (because it's too small for NLRB jurisdiction, or your business is a public sector employer, for example), I think it's important to watch what the Board is doing. That's because they are on FIRE.  They are not giving up, despite receiving some unfriendly receptions their new initiatives have received in court.

Remember the poster?  A couple of months ago, courts invalidated the NLRB's mandate that employers post a list of rights protected under the NLRA. No poster?  No problem!  The Board is back with a website for employees seeking to understand their rights to engage in protected concerted activity.  The web page defines protected activity and contains links to cases addressing the subject that the Board has handled. Here is the website.

Another Board development - they are still issuing white papers on "social media" and protected activity.  The NLRB counsel's third essay on the subject is here.   If your organization has policies or a handbook listing prohibited employee conduct that could lead to discipline, you should read this memorandum.  You may be surprised to learn that some policies you consider to be routine are illegal under the current Board's view of the NLRA.   The NLRB's Assistant General Counsel picked through policy after policy, opining on portions that are illegal because they might have something to do with unions or working condition (even though the text of the policies have nothing to do with those subjects).  Then, the AGC attaches a policy that the Board found completely, 100% legal.

Here it is:

Social Media Policy

At [Employer], we understand that social media can be a fun and rewarding way to share your life and opinions with family, friends and co-workers around the world. However, use of social media also presents certain risks and carries with it certain responsibilities. To assist you in

making responsible decisions about your use of social media, we have established these guidelines for appropriate use of social media.

This policy applies to all associates who work for [Employer], or one of its subsidiary companies in the United States ([Employer]).

Managers and supervisors should use the supplemental Social Media Management Guidelines for additional guidance in administering the policy.

GUIDELINES

In the rapidly expanding world of electronic communication, social media can mean many things. Social media includes all means of communicating or posting information or content of any sort on the Internet, including to your own or someone else’s web log or blog, journal or diary, personal web site, social networking or affinity web site, web bulletin board or a chat room, whether or not associated or affiliated with [Employer], as well as any other form of electronic communication.

The same principles and guidelines found in [Employer] policies and three basic beliefs apply to your activities online. Ultimately, you are solely responsible for what you post online. Before creating online content, consider some of the risks and rewards that are involved. Keep in mind that any of your conduct that adversely affects your job performance, the performance of fellow associates or otherwise adversely affects members, customers, suppliers, people who work on behalf of [Employer] or [Employer’s] legitimate business interests may result in disciplinary action up to and including termination.

Know and follow the rules

Carefully read these guidelines, the [Employer] Statement of Ethics Policy, the [Employer] Information Policy and the Discrimination & Harassment Prevention Policy, and ensure your postings are consistent with these policies. Inappropriate postings that may include

discriminatory remarks, harassment, and threats of violence or similar inappropriate or unlawful conduct will not be tolerated and may subject you to disciplinary action up to and including termination.

Be respectful

Always be fair and courteous to fellow associates, customers, members, suppliers or people who work on behalf of [Employer]. Also, keep in mind that you are more likely to resolved work related complaints by speaking directly with your co-workers or by utilizing our Open Door Policy than by posting complaints to a social media outlet. Nevertheless, if you decide to post complaints or criticism, avoid using statements, photographs, video or audio that reasonably could be viewed as malicious, obscene, threatening or intimidating, that disparage customers, members, associates or suppliers, or that might constitute harassment or bullying. Examples of such conduct might include offensive posts meant to intentionally harm someone’s reputation or posts that could contribute to a hostile work environment on the basis of race, sex, disability, religion or any other status protected by law or company policy.

Be honest and accurate

Make sure you are always honest and accurate when posting information or news, and if you make a mistake, correct it quickly. Be open about any previous posts you have altered. Remember that the Internet archives almost everything; therefore, even deleted postings can be

searched. Never post any information or rumors that you know to be false about [Employer], fellow associates, members, customers, suppliers, people working on behalf of [Employer] or competitors.

Post only appropriate and respectful content

 Maintain the confidentiality of [Employer] trade secrets and private or confidential information. Trades secrets may include information regarding the development of systems, processes, products, know-how and technology. Do not post internal reports, policies, procedures or other internal business-related confidential communications.

 Respect financial disclosure laws. It is illegal to communicate or give a “tip” on inside information to others so that they may buy or sell stocks or securities. Such online conduct may also violate the Insider Trading Policy.

 Do not create a link from your blog, website or other social networking site to a [Employer] website without identifying yourself as a [Employer] associate.

 Express only your personal opinions. Never represent yourself as a spokesperson for [Employer]. If [Employer] is a subject of the content you are creating, be clear and open about the fact that you are an associate and make it clear that your views do not represent those of [Employer], fellow associates, members, customers, suppliers or people working on behalf of [Employer]. If you do publish a blog or post online related to the work you do or subjects associated with [Employer], make it clear that you are not speaking on behalf of [Employer]. It is best to include a disclaimer such as “The postings on this site are my own and do not necessarily reflect the views of [Employer].”

Using social media at work

Refrain from using social media while on work time or on equipment we provide, unless it is work-related as authorized by your manager or consistent with the Company Equipment Policy. Do not use [Employer] email addresses to register on social networks, blogs or other online tools utilized for personal use.

Retaliation is prohibited

[Employer] prohibits taking negative action against any associate for reporting a possible deviation from this policy or for cooperating in an investigation. Any associate who retaliates against another associate for reporting a possible deviation from this policy or for cooperating in

an investigation will be subject to disciplinary action, up to and including termination.

Media contacts

Associates should not speak to the media on [Employer’s] behalf without contacting the Corporate Affairs Department. All media inquiries should be directed to them.

For more information

If you have questions or need further guidance, please contact your HR representative.

Happy Anniversary to Us!

Shaw Valenza just celebrated its sixth anniversary on 6/19/06.  That means it's been six years since we started this blog. So, more than 500 posts after we began, we thank you once again for reading, commenting, and forwarding our posts.

Thanks and best wishes,

Greg