One of the new bills recently passed (AB 749) prohibits standard “No Rehire” provisions in settlement agreements and general releases.  These provisions typically read something like this:

No Future Employment.  Employee agrees that she will not seek employment or any other remunerative relationship in the future with the Company, or with any of the Released Parties, nor will the Company or any related entity be obligated in any way to provide Employee with future employment.  Employee further agrees that she hereby waives any claim of retaliation or discrimination against the Company or any Released Parties in the event that she applies for employment at such entity in the future and is denied employment.  Employee also agrees that, in the event she is inadvertently employed by any entity that is related to the Company or any Released Parties, that she shall resign from said employment immediately upon request, and that should Employee fail or refuse to do so, Employee’s employment shall be terminated and Employee shall have no recourse against Company or any Released Party. 

Employers don’t want an employee who sued them to apply for work again, or to deal with a subsequent lawsuit or claim for failure to hire.  Employers want to pay for peace, and not have to deal with the employee ever again.  That desire for closure is now more complicated given AB 749.

So what can employers do?  Thankfully there are some options.

First, employers can still include the typical No Future Employment provision in separation agreements that are not based on any legal claims filed or initiated by an “aggrieved party.”  That term is defined as someone who has filed a claim against the employer in court, before an administrative agency, in an alternative dispute resolution forum, or through the employer’s internal complaint process.   Granted, the “internal complaint process” is a bit open-ended, so use caution.

Second, for agreements entered into on or after January 1, 2020, employers can amend the No Rehire provision to track the statutory language and clarify that the employee is not eligible for rehire due a legitimate non-discriminatory or non-retaliatory reason such as:

  • Documented misconduct; or
  • Documented poor performance; or
  • Because the employer has made a good faith determination that the person engaged in sexual harassment or assault

Third, require the employee to agree to accurately include all prior employment history with the Company (or any Released Party) in any future application, and acknowledge that failure to do so will be grounds for termination.  This will make it easier to check if the employee is eligible for rehire (if the file exists and includes appropriate documentation), and to terminate if a misrepresentation is made.

Plus, remember the updates from last year, including changes to the 1542 release language required for all California releases.

For years, employers settling with former employees have included a clause saying that the employee would never reapply and was not eligible for rehire. The rationale is obvious. After litigating, sometimes for years, no employer wants to bring the employee back and potentially start the process over.

However, there was never clear authority saying those clauses were permissible. They could arguably be retaliatory. I’m refusing to rehire you because you sued me. Protected activity, adverse action, causal connection – the elements of a retaliation claim.

Now, the Ninth Circuit is asking whether the no-rehire clause is also an unlawful restraint of trade. California is very protective of employees’ rights to compete. Business & Professions Code sec. 16600 states quite simply that:

Except as provided in this chapter, every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.

In Golden v. California Emergency Physicians Medical Group, et al., a doctor refused to finalize a settlement containing a no-rehire clause. He argued that his former employer (CEP) was a major player in his field with plans to grow by acquiring other practices. As written, the provision would not only preclude him from applying to practices affiliated with CEP, but to resign from practices with no such affiliation if CEP later acquired them.

Copyright:  / 123RF Stock Photo
Copyright: / 123RF Stock Photo

Two judges on the panel concluded that the settlement agreement was a contract restraining plaintiff from engaging in a lawful profession, trade, or business. They decided to send the case back to the trial court to decide if the restraint was “substantial.” A dissenting judge thought the clause was permissible and, if it was later used for improper ends, should be challenged at that time. So more guidance may be forthcoming.

Here’s your “takeaway”: The law is still developing here. More risk-averse employers may want to avoid no-rehire clauses for the time being. Sometimes, however, litigation creates so much antagonism, that the employer may find the risk of the clause being held unlawful to be more attractive than the risk of having to potentially rehire the person. After all, rehiring someone who’s already sued you is fraught with its own risks.

Have you been re-using the same old agreement template that was drafted many years ago?  Well, if you are in California, it is time for another refresh before year end (effective January 1, 2022).

Agreement to Settle a Claim or Lawsuit

The law currently prevents an employer from requiring victims of sexual assault or sexual harassment to agree to confidentiality regarding the underlying facts of their claims, SB 331 (recently signed by Governor Newsom) expands this prohibition to include other acts of workplace harassment or discrimination beyond those based on sex.  Accordingly, a settlement agreement can still keep the amount of the payment confidential, but can’t impose non-disclosure obligations on the employee about the underlying facts related to a discrimination, harassment, or retaliation claim (on any protected basis, such as race, age or disability, not just sex).  This is intended to prevent hush money type payments that are often touted in the press, and that arguably allow serial harassers (and other bad actors) to continue their malfeasance.

Separation Agreements

While prior law did not apply to separation agreements, such as upon layoff, or a negotiated exit, SB 331 changes that.  Separation agreements must also carve out the ability to disclose any underlying facts in the workplace.  Typically separation agreements do not involve specific claims, so the legislature drafted it as follows:  “Nothing in this agreement prevents you from discussing or disclosing information about unlawful acts in the workplace, such as harassment or discrimination or any other conduct you have reason to believe is unlawful.”  This wording can be modified, but must be presented in substantially similar form.

Oh, and an employee must be given at least five business days to review any separation agreement, and advised of the right to consult an attorney.  Most separation agreements have this anyway, and any agreement for an employee over age 40 must still give 21 days under the ADEA.

Confidentiality Agreements and Non-Disclosure Agreements Also May Be Impacted

SB 331 also addresses non-disparagement agreements and “other documents” required of employees beyond settlement or separation agreements.  In fact, any agreement that has the purpose or effect of prohibiting the disclosure of information about unlawful acts in the workplace must now include the same quoted language referenced above.  Employers with broad Confidentiality or NDA agreements should take note, and amend these documents for 2022.

Take-Aways

If your template agreements are more than a few years old, then you may want to take a look at some other updates from recent years that we blogged about, including this post (about the original prohibition relating to harassment claims and updated Civil Code 1542 language), and this post regarding provisions limiting rehire (aka “no future employment”).

If you are paying to resolve claims, or buy peace, or protect your confidential information, you might as well make sure the agreement documenting those terms is enforceable.  Otherwise you could pay without the protection you thought you were buying!

Note:  This blog post was updated on October 18, 2021.

A number of new requirements for California settlement and separation agreements took effect on January 1, 2019. Two of them stem from the #MeToo movement. These are:

  • Assembly Bill (AB) 3109 prohibits language in contracts or settlement agreements that bars anyone from testifying in administrative, legislative or judicial proceedings concerning alleged criminal conduct or sexual harassment. I think that those provisions would have been void under prior law, but there’s no doubt that they’re void now.
  • Senate Bill (SB) 820 prohibits non-disclosure provisions in settlement agreements related to civil or administrative complaints of sexual assault, sexual harassment, and workplace harassment or discrimination based on sex. The bill expressly authorizes provisions that (i) preclude the disclosure of the amount paid in settlement and (ii) protect the claimant’s identity and any fact that could reveal the identity, so long as the claimant has requested anonymity and the opposing party is not a government agency or public official. Settlement agreements signed after January 1, 2019 should be reviewed by counsel to ensure compliance with the new restrictions.

A third bill (SB 1431) has received less attention. This bill changes the language of the ubiquitous Civil Code § 1542 waiver. As of January 1, 2019, the language required to waive unknown claims is:

 

“A general release does not extend to claims that the creditor or releasing party does not know or suspect to exist in his or her favor at the time of executing the release and that, if known by him or her, would have materially affected his or her settlement with the debtor or released party.”

It’s not a huge change (adding “or releasing party” and “or released party”). But if you plan to ask anyone to release claims, you should include the current language.

The goal of settlement from a defense perspective is to avoid the risks, disruptions, and expense of further litigation.  So what if you, the employer, settle claims with a plaintiff who takes the money but pursues further claims against you.  That would be, in technical legal jargon, "really bad."

One way this could happen is where the settlement attempts to resolve both civil litigation and pending workers’ compensation claims.  That was the situation in Steller v. Sears, Roebuck, a recent California Court of Appeal decision.  While the settlement purported to resolve all employment-related claims, it didn’t explicitly recognize the differences between resolving civil litigation and a workers’ comp action.  A settlement of a civil contract or tort claim is effective when the agreement is signed.  But according to California Labor Code sec. 5001, settlement of a workers’ comp claim requires approval by the Workers Compensation Appeals Board (WCAB).  Without that approval, the release of a workers’ comp claim is invalid.  Here, aside from some additional legal fees, things turned out all right from the employer’s perspective.  After considering extrinsic evidence as to the parties’ intent, the court determined that the settlement was intended to resolve the workers’ comp action, too, and that therefore, it was impliedly conditioned on approval from the WCAB.

But this case illustrates that crafting an effective settlement agreement is not simply a matter of changing the names and dollar amounts from the previous settlement agreement — at least not if you want it to actually dispose of all pending litigation.

Our Labor & Employment team has been busy this fall! As loyal readers, your inboxes have been filled with our updates on all the changes to California employment laws.  This legislative session ended on October 14th, so we thought it would be helpful to recap the changes you should have on your radars.   These new laws will take effect January 1, 2020, unless otherwise noted.  Here are some of the highlights, with links to more in-depth information as applicable:

10) Extension of Statute of Limitations for CA Discrimination Claims

AB 9 extends the time a complainant has to file a complaint under the Fair Employment and Housing Act (“FEHA”) from one year to three years.  While enacted in response to the #MeToo movement, this bill affects all claims of employment discrimination under FEHA, not just harassment claims.

9) Expansion of Race Discrimination to Include Hairstyles

SB 188 changes the definition of “race” in FEHA to include hair texture and protected hairstyles, specifically including “braids, locks and twists.” This prohibition, which is detailed here,  may impact policies on dress codes or grooming standards.

8) Prohibition on Mandatory Arbitration Agreements

AB 51 bars employers from requiring arbitration agreements as a condition of employment.  It also prohibits retaliation against an employee who refuses to sign an arbitration agreement.  My colleagues blogged in greater detail about AB 51 here, including the likelihood that it will be preempted by the Federal Arbitration Act.

7) Remedies for Breach of Arbitration Agreements

SB 707 provides both consumers and employees  remedies when a drafting party fails to pay arbitration fees and costs in a timely manner.  Drafting parties who neglect to pay fees owed within 30 days of the due date may lose the chance to compel arbitration or may be subject to monetary or evidentiary sanctions.

6) Prohibition on “No Rehire” Provisions

AB 749 prohibits parties to an employee settlement agreement from entering into an agreement to restrict the employee’s ability to work.  In the vein of non-compete enforceability, employers may no longer add a so-called “no rehire” provision to settlement agreements, unless the employer has made a good faith determination that the employee engaged in sexual harassment or assault. This bar applies to parent, subsidiaries and affiliates of the settling party.  Read more from our blog here.

5) Additional Paid Family Leave

SB 83 increases benefits under the state’s paid family leave program (“PFL) from 6 weeks to 8 weeks of subsidized time off, beginning July 1, 2020.   It also establishes a task force to review additional increased benefits for 2021.

4) Additional Training Requirements

AB 241 and AB 242 require implicit bias training for physician, nurses, surgeons, lawyers and court staff.  Medical staff training requirements would not take effect until 2023, whereas legal training becomes effective in 2022.  SB 778 gives employers a reprieve until January 1, 2021 for mandated sexual harassment training of all employees.

3) Detailed Lactation Accommodations

SB 142 mandates detailed lactation accommodations on all California employers.  Specifically, a lactation room must not be a bathroom and must contain a surface for breast pump and personal items, a place to sit, as well as electricity, extension and charging cords.  The employee must also have access to a refrigerator or cooler and a sink with running water.

2) California Consumer Privacy Act Changes

AB 25 exempts employers from compliance with many of the laws requirements regarding collection of personal data of employees and applicants through 2020. You can find more information about the CCPA here.

1)  Restrictions on Use of Independent Contractors

Last, but certainly not least, AB 5 significantly changes which workers or businesses can be classified as independent contractors under the Labor Code and Wage Orders.  We have reviewed the changes here, and will continue to update you on changes and issues as they arise in our practice.

As always, our team is here for guidance (or just to commiserate) on these new laws.

It’s that time of year again. Time for holiday parties, ugly sweaters, and summaries of legal developments.

The #MeToo movement has resulted in a slew of new bills addressing sexual harassment in the workplace. They include:

  • Assembly Bill (AB) 3109 prohibits language in contracts or settlement agreements that bars anyone from testifying in administrative, legislative or judicial proceedings concerning alleged criminal conduct or sexual harassment. I think that those provisions would have been void under prior law.
  • Senate Bill (SB) 820 prohibits non-disclosure provisions in settlement agreements related to civil or administrative complaints of sexual assault, sexual harassment, and workplace harassment or discrimination based on sex. The bill expressly authorizes provisions that (i) preclude the disclosure of the amount paid in settlement and (ii) protect the claimant’s identity and any fact that could reveal the identity, so long as the claimant has requested anonymity and the opposing party is not a government agency or public official. Settlement agreements signed after January 1, 2019 should be reviewed by counsel to ensure compliance with the new restrictions.
  • SB 1300 significantly expands liability under the Fair Employment and Housing Act.  The law lowers the burden of proof to establish harassment and provides stricter guidance on what constitutes “severe or pervasive” conduct that rises to the level of unlawful harassment (e.g. rejecting the “stray remark” doctrine that previously required more than one offensive remark to succeed on a claim).  It expands FEHA protection to any harassment by contractors, rather than just sex harassment.  It bars a prevailing defendant from being awarded attorney’s fees and costs unless the court finds the action was frivolous, unreasonable, or groundless. This bill also prohibits release of claims under FEHA in exchange for a raise or a bonus or as a condition of employment or continued employment, but presumably not in separation agreements.  These changes take effect at the start of the new year and we will monitor interpretations or guidance of these new and expansive provisions.
  • SB 1343 expands the requirements relating to sexual harassment training. Current law requires all employers with 50 or more employees to provide two hours of sexual harassment prevention training only to supervisors. The new law now mandates training for all employers with five or more employees and becomes effective in 2020.
  • The FEHA already protects employees and applicants from harassment in the employment relationship. SB 224 expands that reach to individuals who may not be employers, but hold themselves “out as being able to help the plaintiff establish a business, service, or professional relationship with the defendant or a 3rd party.” This would potentially include doctors, lawyers, investors, landlords, elected officials, lobbyists, directors, and producers.
  • Defamation laws make certain communications privileged. In other words they cannot support a slander or libel claim unless they’re made with malice. AB 2770 says that those privileged communications include complaints of sexual harassment by an employee to an employer that are made without malice and are based on credible evidence. This bill would also protect employers who (again, without malice) answer questions about whether they would rehire an employee and whether that decision is based on a determination that the former employee engaged in sexual harassment.

Other bills that address sex, gender, and pregnancy discrimination include:

  • AB 1976 deals with lactation accommodation. Employers were already required to provide a reasonable amount of break time to accommodate an employee desiring to express breast milk for her baby and make reasonable efforts to provide a private place for the employee to do so, in close proximity to the employee’s work area, other than a toilet stall. AB 1976 says its not enough that the location is not a toilet stall. Now it can’t be in a bathroom.
  • AB 2282 clears up lingering issues from last year’s ban on salary history inquiries in the interview process. Our own Nancy Yaffe explains it all in this post.
  • While not strictly employment-related, SB 826 requires public companies based in California to have at least one woman on their board of directors by the end of next year. The requirement rises to two female board members by 2021 if the company has five directors, or to three if the company has six or more directors.

There were even some new employment related bills that had nothing whatsoever to do with sex harassment or discrimination.

  • SB 970 requires 20 minutes of classroom or other interactive training regarding human trafficking awareness to hotel and motel employees whom the law deems “likely to interact or come into contact with victims of human trafficking.” This includes any “employee who has reoccurring interactions with the public, including, but not limited to, an employee who works in a reception area, performs housekeeping duties, helps customers in moving their possessions, or drives customers.”
  • AB 2610 creates an exception to the rule that meal periods must begin before the end of the fifth (or in certain conditions sixth) hour for certain drivers transporting nutrients and byproducts from a licensed commercial feed manufacturer to a customer located in a remote rural location.
  • In November California voters approved Proposition 11, which was a reaction to the California Supreme Court’s 2016 decision in Augustus v. ABM Security Services, Inc. As we explained at the time, the decision announced that employees were not “relieved of all duties” for meal and rest breaks if they were required to carry a communications device. Under Proposition 11, the Augustus decision won’t apply to emergency ambulance workers in the private sector. Toni Vranjes wrote an article for the Society of Human Resource Management about Prop 11 in which she interviewed me and other employment lawyers.

What lies ahead? Last April’s California Supreme Court decision in Dynamex Operations West Inc. v. Superior Court threw employers for a loop by announcing a new test for determining independent contractor status. Competing bills seek either to roll back the decision (AB 71) or codify it (AB 5). This is an issue where many workers who appreciate the flexibility of their freelance status have sided with employers in seeking to return to the earlier test.

What else lies ahead? More change, more surprises, more unpredictability. That’s what makes California employment law both aggravating and fascinating.

No lazy Sunday for Governor Jerry Brown!  Today he signed four new bills into law, taking major steps to combat sexual harassment in the wake of the #MeToo and #TimesUp movements. Here is a brief overview of the new laws and what they mean for California employers:

  • Senate Bill 820 prohibits non-disclosure provisions in settlement agreements related to civil or administrative complaints of sexual assault, sexual harassment, and workplace harassment or discrimination based on sex. The bill expressly authorizes provisions that (i) preclude the disclosure of the amount paid in settlement and (ii) protect the claimant’s identity and any fact that could reveal the identity, so long as the claimant has requested anonymity and the opposing party is not a government agency or public official. Settlement agreements signed after January 1, 2019 should be review by counsel to ensure compliance with the new restrictions.
  • Senate Bill 1300 significantly expands liability under the Fair Employment and Housing Act (“FEHA”).  The law lowers the burden of proof to establish harassment and provides stricter guidance on what constitutes “severe or pervasive” conduct that rises to the level of unlawful harassment (e.g. rejecting the “stray remark” doctrine that previously required more than one offensive remark to succeed on a claim).  It expands FEHA protection to any harassment by contractors, rather than just sex harassment.  It denies a prevailing defendant from being awarded attorney’s fees and costs unless the court finds the action was frivolous, unreasonable, or groundless. This bill also prohibits release of claims under FEHA in exchange for a raise or a bonus or as a condition of employment or continued employment, but presumably not in separation agreements.  These changes take effect at the start of the new year and we will monitor interpretations or guidance of these new and expansive provisions.
  • Senate Bill 1343 expands the requirements relating to sexual harassment training. Current law requires all employers with 50 or more employees to provide two hours of sexual harassment prevention training only to supervisors. The new law now mandates training for all employers with five or more employees and becomes effective in 2020.  In addition, employers must ensure similar training in multiple languages for all workers so they know what sexual harassment is and what their rights are under the law.
  • While not employment-related, Senate Bill 826 requires public companies based in California to have at least one woman on their board of directors by the end of next year. The requirement rises to two female board members by 2021 if the company has five directors, or to three if the company has six or more directors.

Governor Brown did veto one of the most high-profile sexual harassment measure of the year, Assembly Bill 3080, which would have banned mandatory arbitration agreements.  Brown vetoed similar legislation on 2015 and the law, if passed, likely would have faced challenges that it was preempted by the Federal Arbitration Act.

Stay tuned for more in-depth coverage of these new laws.

I read an article yesterday about a writer accused of sexual harassment.  So what, you are probably thinking? While articles like that are commonplace these days, what infuriated me was that the individual had been investigated multiple times for sexual harassment related misconduct.  The alleged harassment occurred at numerous companies, with prominent HR departments, yet each time he was fired or left for a new job, his new employer had no idea about his past behavior.  And I feel partly to blame for that.

As an employment lawyer, we advise our clients that best practices with regard to references is to establish a policy where the company simply confirms dates of employment and job title(s) held.  We used to allow salary confirmation upon request of the departed employee, but that is no longer advised under California’s Fair Pay Act.  So, we have inadvertently created a system where alleged harassers (and other terminated employees) get to move on and become someone else’s (client’s) problem. The primary concerns in opting not to give a substantive reference is fear of a defamation lawsuit or tortious interference with a business opportunity claim under Labor Code section 1050.  There are many resources on the intricacies of these claims, so I won’t get into them here.

While there is no duty to provide a reference and saying nothing is still the most conservative course of action, I think some employers will want to be more progressive in the #metoo era and I’d like to give some guidelines on how not to sweep this under the proverbial rug.

  • California employers are protected by a qualified “common interests” privilege against defamation claims as a result of giving reference checks. So long as statements are based on credible evidence and are made without malice, employer references are given a special privilege that forms the basis of a defense against defamation.  California courts have regularly supported this employer privilege in the interest of public policy, which is now more prominent than ever.
  • If you have an existing policy on references, be consistent in following it, or change it to something you are comfortable with.
  • Designate one person to handle all references so the conduct and statements of individual managers don’t become a liability for the company.
  • If you opt to provide a substantive reference, the reference should not be misleading. Don’t give a glowing reference for an employee terminated for misconduct or there could be liability for fraud or misrepresentation, plus the potential for a wrongful termination suit from the alleged harasser.  The best bet is to be truthful, without providing too many unnecessary details.
  • Some examples of how to give a negative reference without disclosing details include: ineligible for rehire, investigated for policy violations or was the subject of complaints by coworkers.
  • While the fear (and fear of the expense) of being sued is enough to chill employers into keeping their mouths shut, and consequently perpetuating a cycle of harassment or other bad behavior, the reality is there are very few published cases on this in California, leading me to believe that while the risk is real, this isn’t likely to be a money-maker for the plaintiff’s bar.

Finally, while there is pending California legislation in the form of SB 820 that would prohibit confidentiality clauses in any sexual harassment settlement agreements, so far there are no added protections for employers providing substantive references.

The decision of how much, if any, information to provide, involves an individualized risk assessment, but I can see California’s public policy interest as a strong driving force in changing the current “no comment” practices of many employers.

How employers will need to defend California employment lawsuits, Labor Commissioner actions and even arbitrations must evolve come the New Year due to changes in the law that become effective January 1, 2021. In this post, I identify and explain five important developments that businesses and their employment defense counsel need to be aware of and prepare for.

Managing a New Risk: Attorney’s Fees Awards to Whistleblowers

California Labor Code section 1102.5 sets out a broad basis for employees and former employees to sue their employers for alleged retaliation. Specifically, the statute authorizes employees to sue their employer for allegedly having suffered retaliation for complaining of the employer’s violation of a federal or state statute or a failure to comply with a federal, state or local legal requirement. The statute also allows employees to sue where they allege they suffered retaliation for refusing to participate on the job in a violation or noncompliance with the law.

Until now, section 1102.5 did not provide for prevailing employees to be awarded their attorney’s fees. That has now changed. Effective January 1, 2021, the court may award employees who win section 1102.5 claims their reasonable attorney’s fees, in addition to the employee’s potential recovery of penalties and being awarded reinstatement, back pay and damages.

The ability of 1102.5 plaintiffs to seek and potentially recover their attorney’s fees is a sea change in California retaliation litigation. First, in 1102.5 cases that are strong on the merits, plaintiffs’ ability to seek attorney’s fees awards, which, alone, may total six figures, may alter how the employer and its counsel assess the risk of such lawsuits and influence their litigation and settlement strategy. In short, particularly in strong retaliation cases, whatever risk of loss the employer feels it has will carry a greater price tag given the exposure to a fees award.

Secondly, retaliation cases with relatively smaller damages potential or that are tenuous on the merits may be viable cases for contingency fee plaintiff’s counsel given a premium to the case value they may feel the threat of recovering fees adds. In other words, potential 1102.5 cases that plaintiff’s counsel may have turned down in prior years may be cases plaintiff’s counsel now take and prosecute given the potential recovery of attorney’s fees.

Notably, employers who succeed in defeating 1102.5 lawsuits are not permitted by the new provision to be awarded their attorney’s fees against the plaintiff.

All things considered, we will see more 1102.5 actions brought because of this new prevailing plaintiff attorney’s fees provision, as well as employers and their litigators altering, in some cases, their risk assessment and strategy for resolving the cases.

The new attorney’s fees provision is added by an amendment to California Labor Code section 1102.5 made by Assembly Bill 1947 found here.

Claimants Involved in Arbitration will be Represented by the Labor Commissioner

As of January 1, 2021, where the employer files a petition to compel arbitration of claims pending before the California Labor Commissioner, the Labor Commissioner “shall have the right to represent the claimant in proceedings to determine the enforceability of the arbitration agreement,” regardless of whether the enforceability will be determined by a court or in arbitration. The new provisions require, of course, that the claimant ask for representation by the Labor Commissioner. The Labor Commissioner’s representation will be at no cost to the claimant.

Secondly, where a “wage claimant [is] unable to have their claim” decided by the Labor Commissioner because a court has ordered the claim to be arbitrated, “the Labor Commissioner shall represent the claimant” in the arbitration. Two conditions must be satisfied before the Commissioner is obligated to represent the claimant in arbitration, namely, the claimant must be “financially unable to afford counsel” and, secondly, the Labor Commissioner “determines, upon conclusion of an informal investigation, that the claim has merit.”  The new provisions do not otherwise limit the Labor Commissioner’s obligation to represent claimants in arbitration, whether by a minimum dollar sum in dispute or otherwise.

The COVID-19 pandemic continues to delay the Labor Commissioner’s processing of cases, with the Commissioner not yet burdened by the obligation to represent claimants involved in arbitration. There is certainly a question as to how effectively the Labor Commissioner will be able to meet its new arbitration-related obligations, at least so long as the pandemic hinders operations. Eventually, however, claimants’ right to counsel provided by the Commissioner could have the consequence of employers and their counsel confronting more capable opposition to petitions to compel arbitration and prosecution of claims in arbitration, particularly where claimants would not be able to hire private counsel.

The changes summarized above are amendments to California Labor Code section 98.4 made by California Senate Bill 1384 found here.

Claimants Gain More Time to File Claims with the Labor Commissioner

The time in which claimants will have to file claims with the California Labor Commissioner for having been “discharged or otherwise discriminated against in violation of any law” under the Commissioner’s jurisdiction is extended from six months to one year effective January 1, 2021. As a consequence, in some number of cases, employers will not receive notice of such claims and their need to garner evidence for a longer period after the firing or other adverse action.

The extension of time is an amendment to California Labor Code section 98.7 that authorizes, in brief, the Commissioner to investigate such claims and file suit against the employer for relief including reinstatement. The amendment is made by California Assembly Bill 1947 found here.

The Sleeper! Successor Businesses will Face Liability for Unpaid Wage and Hour Judgments

Come January 1, 2021, businesses that take over the facilities, workforce, management or other features of an earlier business, or retain managers or owners from the earlier business, “shall be liable for any wages, damages, and penalties owed to any of the (earlier business’s) former workforce” pursuant to a final judgment, along with the earlier business remaining liable, as well, on the judgment. This new statute has received little or no public attention from other leading California employment defense practices. I am confident, however, that this development will prove to be enormously important.

Under the new statute, a second business is a “successor” to the earlier business (the “judgment debtor”) and will be subjected to liability on wage and hour judgments against the earlier business where the successor:

  1. “Uses substantially the same facilities or substantially the same workforce to offer substantially the same services” as the judgment debtor.
  2. “Has substantially the same owners or managers that control the labor relations as the judgment debtor.”
  3. “Employs as a managing agent any person who directly controlled the wages, hours, or working conditions of the affected workforce of the judgment debtor.”

Or,

4.  “Operates a business in the same industry and the business has an owner, partner, officer, or director who is an immediate family member of any owner, partner, officer, or director of the judgment debtor.”

To be clear, this means that the successor business will be liable on a judgment entered in a lawsuit in which the successor was not a defendant and did not have the opportunity to defend itself. The new provision is obviously intended to prevent employers from avoiding liability for wage and hour violations by transferring the business operation into another corporation, selling the assets of the business, passing the business off to a family member, etc.

For businesses that may have been inclined to consider such transfers, the new statute may, first, dissuade them and, secondly, influence how they defend and, potentially, resolve significant wage and hour lawsuits.

In transactions involving the purchase and sale of businesses or their assets, the new statute will make all the more critical conducting exhaustive due diligence in order to ensure the prospective buyer identifies all wage and hour judgments against the prospective seller and resolving the liabilities before purchasing the seller’s assets.

The statute is new California Labor Code section 200.3, which is added by Assembly Bill 3075 found here.

The Trap! Expansion of the California Family Rights Act

The California Family Rights Act (CFRA) will expand in respects of historic magnitude effective January 1, 2021. Employers large and small are at risk of not keeping up with the changes and finding themselves in litigation.

CFRA provides eligible employees up to 12 weeks of job-protected, unpaid family care and medical leave each 12 months. Effective January 1, private sector employers with as few as five employees will be subject to CFRA, as opposed to CFRA applying to only employers of 50 or more employees as has been the law. Smaller employers are at risk of not fully understanding the scope and intricacy of their new obligations before the changes take effect.

CFRA will also require that eligible employees be given leave to care for ill grandparents, grandchildren and siblings for the first time as of January 1.

A more thorough explanation of the changes coming to CFRA effective with the New Year is provided in my post found here.

Closing

Being aware of simply the upcoming changes in California employment law is one thing. Appreciating how those changes should influence risk assessment and strategy in litigation is a different dimension. I hope these illustrations are helpful as you prepare for the New Year.