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Supreme Court reaffirms its ruling on arbitration agreements as bars to class actions, begins chipping away at state laws to the contrary

The Supreme Court reaffirmed its recent ruling in Epic Resources that arbitration agreements, even mandatory pre-dispute arbitration agreements, bar class actions, even when silent on the subject. In doing so, the Supreme Court declined to adopt a standard that would have required such agreements to “clearly and unmistakably” permit class actions, ensuring the issue of just how much an arbitration agreement can and cannot say on the issue of class actions will continue to be litigated. For now, its decision, combined with Epic, mean, at least, that silence is itself a bar to class actions in arbitration.

In this decision the Supreme Court extended its Epic ruling even over what the lower courts had held was contrary California law. The lower courts had held that California law would permit arbitration of class action claims if the arbitration agreement was, although not silent, at least ambiguous on the issue. The lower courts had held that such amibiguity should be interpreted against the company, as the drafter of the agreement. The Supreme Court held here, no, federal public policy under the Federal Arbitration Agreement called for any ambiguity to be interpreted in favor of arbitration, without class actions.

The decision was a tough 5-4 split for the justices, with J. Kagan authoring a vigorous dissent.

The majority’s reasoning suggests other state laws that attempt to chip away at mandatory pre-dispute arbitration agreements are likely to fall if challenged. However, employers should remember that, at least as written, this decision does not expressly mandate the reversal of state laws like California’s notorious fairness factors (Armendariz).

Employers wishing to adopt language that expressly blocks class actions in arbitration, or even, for example, to delete their current opt-out (or opt-in) provisions, may wish to consider the effects first. As other employers have begun to see, blocking class action claims in arbitration can guaranty the filing of mass individual demands for arbitration, which may prove much more costly and time-consuming than the class action.

Source: Lamps Plus v. Varela, — S.Ct. —, case no. 17-988 (4/24/19).

California continues its contortions over arbitration agreements in employment cases

A trio of recent cases illustrateS how federal and state courts in California continue to struggle with their efforts to reconcile the recent pro-arbitration rulings by the Supreme Court with the historically anti-arbitration approach in California.

In NBCUniversal Media, LLC v. Pickett, the Ninth Circuit of the U.S. Court of Appeals held that an employee was required, under the Supreme Court’s 2009 14 Penn Plaza decision, to arbitrate individual employment discrimination claims under his union’s collective bargaining agreement’s arbitration clause, which read “neither the Union nor any aggrieved employee may file an action or complaint in court on any claim that arises under [an anti-discrimination clause], having expressly waived the right to so file.”

While that seemed to be a relatively straightforward application of the Supreme Court’s arbitration cases, the California Court of Appeals seemed to make the waters muddier in a pair of other cases.

In one case, Del Rosario Martinez v. Ready Pac Produce, Inc., the California Court of Appeals noted that the Supreme Court ruled in its 2011 Concepcion case and then in its 2018 Epic Resources case that an arbitration agreement is enforceable even if it means the employee is unable to pursue a class action. In line with those decisions, the Court held that the plaintiff was required to arbitrate her wage claims even though she was unable to pursue a class action.

However, in the other case, Ramos v. Superior Court of San Francisco County, the California Court of Appeals considered the same Supreme Court decisions and held they did not alter the fundamental underlying approach that California has taken against arbitration of employment claims, since the California Supreme Court’s 2000 decision in Armendariz. Under the Armendariz approach, the Court then held the arbitration agreement in this case was unconscionable and therefore unenforceable under California law, even though it would have been enforceable under federal law:

In sum, the arbitration agreement as applied to Ramos’s statutory and wrongful termination claims contains four unconscionable terms. The provisions requiring Ramos to pay half the costs of arbitration, pay her own attorney fees, restricting the ability of the panel of arbitrators to “override” or “substitute its judgment” for that of the partnership, and the confidentiality clause, are unconscionable and significantly inhibit Ramos’s ability to pursue her unwaivable statutory claims. Because we are unable to cure the unconscionability simply by striking these clauses, and would instead have to reform the parties’ agreement in order to enforce it, we must find the agreement void as a matter of law.

These three cases don’t answer every, or even most, questions about arbitration agreements in California employment cases. They do illustrate the federal and state courts continuing efforts to try to reconcile California’s Armendariz approach with the Supreme Court’s. Employers who wish to utilize arbitration agreements in California should carefully consider their options.

Employers should have background check forms reviewed immediately, especially in Ninth Circuit

In a surprising decision, the Ninth Circuit has issued a ruling that an employer violates both federal and California state background check laws when it uses relatively common language.

The federal law that governs background checks is the Fair Credit Reporting Act (FCRA). Its California equivalent is its Investigative Consumer Reporting Agencies Act (ICRAA). Both require certain content be included in the paperwork that goes to and must be signed by the candidate. Both state that nothing else may be set forth in those forms. This is called the “standalone requirement.” In other words, the requirement is that the background check forms be standalone documents; they cannot be part of a job application or the like.

In this case, the forms stated the information required by FCRA and ICRAA. Then they added similar language for four other states, with headers setting off the state-specific language like “Minnesota and Oklahoma applicants or employees only. Check this box if ….” and “New York applicants or employees only. By signing below, you also acknowledge ….”

The Ninth Circuit held those additional state-specific disclosures violated FCRA and ICRAA because they had nothing to do with the particular individual being asked to fill out the form (an applicant for employment, in this case) who lived and was applying to work in California. The Ninth Circuit said that this seemingly clear language was nonetheless “extraneous” and “as likely to confuse as it is to inform.” Therefore the Ninth Circuit held it violated both FCRA and ICRAA’s standalone requirement. 

Source: Gilberg v. California Check Cashing Stores, LLC, case no. 17-16263 (9th Cir. 1/29/19).

California courts strike non-solicits

Two recent California decisions warrant immediate review by companies that might seek to enforce non-solicitation covenants. The two courts each struck covenants that prohibited former employees from soliciting the company’s employees. The first decision was announced by the California Court of Appeals, which summarized its analysis of the non-solicit at-issue, as follows:

Turning to the instant case, we independently conclude that the nonsolicitation of employee provision in the CNDA is void under section 16600. Indeed, the broadly worded provision prevents individual defendants, for a period of at least one year after termination of employment with AMN, from either “directly or indirectly” soliciting or recruiting, or causing others to solicit or induce, any employee of AMN. This provision clearly restrained individual defendants from practicing with Aya their chosen profession — recruiting travel nurses on 13-week assignments with AMN. (See Dowell, supra, 179 Cal.App.4th at p. 575 [finding a broadly worded nonsolicitation clause preventing employees from rendering any service to “any of the accounts, customers or clients with whom they had contact during their last 12 months of employment” void under section 16600]; D’Sa, supra, 85 Cal.App.4th at p. 930 [finding a provision in an employee confidentiality agreement was void under section 16600 because it prevented an employee from rendering “`services, directly or indirectly, for a period of one year after separation of employment with [employer] to any person or entity in connection with any [c]ompeting [p]roduct'”]; Metro Traffic Control, Inc. v. Shadow Traffic Network (1994) 22 Cal.App.4th 853, 859 (Metro Traffic) [finding a broadly worded noncompetition provision void under section 16600 because it prevented an employee from working for a competitor for a period of one year after termination from the employer].)

As that quote suggests, the Court of Appeals noted that the non-solicit acted, for these individuals, who were recruiters, like a non-compete. If they could not solicit the company’s employees, the Court of Appeals reasoned, they could not compete, since recruiting was their business.

Would this analysis apply even where the individual was not a recruiter? It isn’t clear, but the second recent court decision suggests it might.

Employers should have their proprietary information agreements (and any other agreement containing covenants) reviewed by legal counsel, especially if California law may be implicated.

Source: AMN Healthcare, Inc. v. Aya Healthcare Services, Inc., case no. No. D071924 (Cal.App. 11/1/18); Barker v. Insight Global, LLC, case no. 16-cv-07186-BLF (N.D.Cal. 1/11/19).

Reminder to provide compliant sexual harassment and other EEO-related training

As the new year begins, employers should consider reviewing their training regimen. A number of jurisdictions require sexual harassment and/or EEO-related training, including California, Connecticut, Delaware, Maine, New York State, and New York City. Even more encourage employers to provide training, and in all 50 states and the federal judicial system, training is a vital component of a possible defense in the event of litigation.

Employers are reminded not to simply engineer their own training programs, as some jurisdictions, such as California, specify minimum content and training qualifications.

Likewise, employers should not assume that recent training will suffice. For example, in 2018 California, which has confirmed it requires such training for both non-supervisors and supervisors, amended its 2004 sexual harassment training law, to require training, at least every two years, to all new and current employees, starting in 2019, even if the employee was also trained on sexual harassment in 2018.

Would-be class action plaintiffs jujitsu Uber’s arbitration agreement

In a move Bruce Lee would have admired, a group of 12,501 drivers seeking to assert wage-hour and related claims against Uber — faced with having each executed arbitration agreements — have filed a Petition in the federal courts for the Northern District of California demanding just that, 12,501 individual arbitrations.

The Petition illustrates what is likely to become a powerful tactic for would-be class/collective action plaintiffs who find themselves otherwise stymied by arbitration agreements that do not permit class/collective actions. As reported here, the U.S. Supreme Court recently endorsed arbitration agreements as effective tools against class/collective action litigation. This move turns that tool back onto the employer itself.

The drivers allege that, as early as August 18, 2018, they began submitting claims to arbitration under the arbitration agreements. The drivers allege that, as of the time of the Petition, 12,501 demands for arbitration had been submitted.

Of those 12,501 demands, in only 296 has Uber paid the initiating filing
fees necessary for an arbitration to commence. Out of those matters, only 47 have
appointed arbitrators, and out of those 47, in only six instances has Uber paid the
retainer fee of the arbitrator to allow the arbitration to move forward..

Why hasn’t Uber (allegedly) paid the arbitrator’s retainer fees in the other cases? Well, if true, it might be related to the (alleged) fact that (according to the Petition, the fee in each such case is a “NON-REFUNDABLE filing fee of $1,500 for each.” As in, according to the Petition, a total of $18,681,000 (12,501-47x$1,500), just to start each of the 12,501 cases.

Are the Uber drivers asking the court to, therefore, let them out of their arbitration agreements? Are they asking the court to allow them to pursue a class/collective action in court? No, because that would be contrary to recent Supreme Court decision. Instead, they’re asking the Court to order Uber to comply with the (alleged) arbitration agreements, starting by paying the initial arbitration fees. The Petition seeks other relief to include an order requiring Uber to continue to participate in each of the 12,501 arbitrations and to pay the drivers’ attorney fees and costs in prosecuting their Petition.

 

Three new expansions of California law warrant employer considerations

Employers in California should carefully consider three new legal developments there.

1. California has restricted the use of nondisclosure agreements.

In California, employers may not include nondisclosure (confidentiality) provisions in settlement agreements involving allegations of sexual harassment or sex discrimination, or certain other sexual offenses (whether in the workplace or housing). See Senate Bill 820.

2. California has expanded its requirements for sexual harassment training.

Senate Bill 1343 has required sexual harassment training for most employers, effective January 1, 2020. Training is required for new hires, then again once every two years. California law also specifies particular topics that must be covered in the training.

3. California has expanded liability for discrimination.

Senate Bill 1300 has expanded liability for discrimination in a variety of ways. For example, the definition of sexual harassment has been expanded. Compared to federal law, California state law now provides that a single act of sexual harassment may itself be enough to be actionable, and further, under California law, the courts must now refuse to apply the stray remark doctrine. Additionally, this new California law creates the possibility of personal liability, in retaliation cases at least. Also, it limits the situations in which employers may require employees to sign a release and nondisparagement clauses, and limits an employer’s ability to recover its own costs and fees in litigation.

These are just some aspects of these new laws. California employers should carefully consider these new laws.

 

Will other states follow California’s lead with enhanced National Origin protections?

Effective July 1, 2018, California has, by way of administrative regulations, enhanced the protections against national origin discrimination found in its mini-Title VII called the California Fair Employment and Housing Act.

These well-intentioned but poorly drafted regulations expand the definition of national origin, now, to include an individual’s or their “ancestor’s” “actual or perceived”:

  1. physical, cultural, or linguistic characteristics associated with a national origin group;
  2. marriage to or association with persons of a national origin group;
    tribal affiliation;
  3. membership in or association with an organization identified with or seeking to promote the interests of a national origin group;
  4. attendance or participation in schools, churches, temples, mosques, or other religious institutions generally used by persons of a national origin group; and
  5. name that is associated with a national origin group.

The regulations offer few helpful definitions to interpret these new rules.

  • What is a “physical, cultural or linguistic characteristic” besides an obvious accent?
  • What is a church “generally used by persons of a national origin group”? For example, one can guess that the Greek members of a Greek Orthodox church are protected, but how about the non-Roman members of a Roman Catholic church parish that includes people of every national origin?
  • What is a “name that is associated with a national origin group”? For example, is the name “Garcia” such a name, where it is generally considered the most common Hispanic last name, even though it is common in nearly every Latino country and non-Latino country, and is actually of Basque origin (with the Basque arguably not being Hispanic in the sense their traditional language is Basque not Spanish)?

One definition that is offered in these vague regulations is for the phrase, “national origin groups”:

“National origin groups” include, but are not limited to, ethnic groups, geographic places of origin, and countries that are not presently in existence.

Unfortunately that definition raises more questions than it answers. For example, what does it mean to say someone identifies with “countries that are not presently in existence”?

The regulations also take a strong position against English-only rules. Under these new California regulations, English-only rules are never permitted during employee breaks, lunch, or employer-sponsored events, and only rarely permitted during working time and in workplaces when narrowly tailored as required by a business necessity.

With regard to accents, again, those seem to be protected as a national origin “characteristic,” and as such discrimination on the basis of accents is only permitted when, again, mandated as narrowly tailored to a business necessity.

The regulations expressly state that they protect even unauthorized immigrants. The only exception is when mandated otherwise by federal law. This is true even where the individual presents, as part of the I-9 process, a California driver’s license that expressly identifies the individual as an undocumented worker. The regulations also state that even a “single unwelcome act of harassment” may be sufficient to violate these laws, without explaining how it is that an employer can ask such a worker about their work authorization without inadvertently crossing the line into having asked a question that the worker found to be a “single unwelcome act of harassment.”

It remains to be seen whether other states will follow California’s lead, or if at some point the federal government will do so under Title VII. However, employers in every state may wish to take a moment to review these new regulations. Arguably their poorly drafted language does not, at least in some instances, expand Title VII so much re-interpret its existing requirements. If other jurisdictions do decide to follow California’s lead, they will hopefully provide employers with more clear language, especially since employers generally probably agree with the basic thrust of what the California bureaucrats who drafted these regulations intended.

Source: 2 California Code of Reglations 11027, et seq.

California Court of Appeals rejects double-dipping for penalties in certain wage-hour cases

California state law provides for penalties and other liability under California’s Private Attorney Generals Act when an employer fails to provide an accurate, itemized wage statement (which statements must contain certain types of information further specified under California law). But what if the statement was correct when issued but later the employer is held liable for additional amounts, such as overtime or minimum wage amounts? Do otherwise correct wage statements become retroactively inaccurate because the employer is later held liable for additional amounts like overtime or minimum wage? Contending that it does, it has not been uncommon in California for plaintiffs in wage-hour casesto file wage-statement claims demanding the extra penalties.

A division of the California Court of Appeals recently rejected double-dipping, holding that, no, the wages statement do not become retroactively inaccurate, such that an employer becomes liable for extra wage-statement related penalties when they are found liable for amounts like overtime and minimum wage.

Source: Maldonado v. Epsilon Plastics, case no. B278022 (Cal.App. 4/18/18).

California adopts ABC Test for gauging independent contractor classification

The California Supreme Court announced a new test for determining whether a worker is truly an independent contractor or an employee under California’s wage orders (regulating wages, hours and working conditions).

(I)n determining whether, under the suffer or permit to work definition, a worker is properly considered the type of independent contractor to whom the wage order does not apply, it is appropriate to look to a standard, commonly referred to as the “ABC” test, that is utilized in other jurisdictions in a variety of contexts to distinguish employees from independent contractors. Under this test, a worker is properly considered an independent contractor to whom a wage order does not apply only if the hiring entity establishes:

(A) that the worker is free from the control and direction of the hirer in connection with the performance of the work, both under the contract for the performance of such work and in fact;

(B) that the worker performs work that is outside the usual course of the hiring entity’s business; and

(C) that the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity.

This new test continues California’s approach to scrutinizing whether the relationship includes a right to control and direct the work (test A) and whether the worker is engaged in an independent trade (test C), but adds a focus on whether the worker is doing “work that is outside the usual course” of the company’s own business (test B).

Companies that use independent contractors to do work that is within the company’s own “usual course” of work, much less that is being done by its own employees, should take special care to review this new test and determine if they are in compliance.

Source: Dynamex Operations v. Superior Court, case no. S222732 (Cal. 4/30/18).

San Francisco enacts Ban-The-Box ordinance for marijuana offenses

San Francisco is the latest to join a trend of authorities enacting ban-the-box legislation with an ordinance that supplements its “fair chance” law by, now, prohibiting employers from inquiring into marijuana use within California‘s marijuana-permissive law.

Source: San Francisco Ordinance No. 17-14.

California is at it again, this time, how to calculate overtime

Under federal law (the Fair Labor Standards Act, “FLSA”), a non-exempt employee’s regular rate of pay is calculated, for overtime purposes, for each workweek, by totaling their compensation that week (excluding only certain limited things likely discretionary bonuses) then dividing by their total hours worked that week. They receive half that on top of the pay they’ve already received as compensation for overtime hours worked (in excess of 40).

Under a recent California case, California has decided, yet again, to be the odd jurisdiction out and, now, mandates that the denominator is only non-overtime hours.

What’s the difference? Here’s a simple hypothetical to illustrate. Assume in Week-1 of the year, John works 42 hours at a rate of $10 per hour. He gets paid $420 for that straight time (42x$10). That same week, John also receives an attendance bonus of $42. So far, his pay that week totals $462 ($420+$42). His regular rate is therefore, under FLSA, $11 ($462/42). He still hasn’t been overtime, so for overtime, he gets paid half that regular rate $5.50 ($11/2) for the 2 hours he worked overtime, in other words, an extra $11. His total pay that week, under FLSA, is $473.

Under the California approach, when it comes to calculating the regular rate, the company can only divide by 40. So his regular rate of pay is $11.55 ($462/40), nearly a 10% increase. That means his overtime rate is half that, making his total pay that week is $473.50 ($420+$42+$11.50).

Source: Alvarado v. Dart Container Corp. of Calif., case no. S232607 (Cal. 3/5/18).