In Epic Systems v. Lewis, the U.S. Supreme Court recently approved the use of arbitration agreements that include class action waivers. So this seems an opportune time to reassess the pros and cons for employers of using mandatory workplace arbitration agreements.

The Pros

  1. There are no runaway, emotion-fueled jury verdicts. Arbitration awards can be high, but they tend to be more closely rooted in reality.
  2. The procedures (including discovery) are more streamlined than cases in court.
  3. Although plaintiffs can still publicize what they want, arbitrations are generally more private than court trials.
  4. The cases settle more cheaply. 
  5. The cases usually resolve more quickly in arbitration than in court.
  6. The attorneys’ fees are usually lower.
  7. If you win, the other side’s opportunity to appeal is very limited.
  8. It is now clear that you can require employees to waive the right to pursue class actions.

The Cons

  1. It’s easier for unrepresented parties to bring weak claims.
  2. Forum and arbitrator costs are higher and, in California and many other jurisdictions, the employer bears the vast majority of those costs.
  3. While Epic Systems resolved the issue of class action waivers, the California Supreme Court has said “no” to mandatory arbitration of Private Attorney General Act claims. Eventually, the U.S. Supreme Court may need to address that issue. Also, there have been repeated efforts in Congress to outlaw the practice.
  4. Employees generally don’t like losing access to jury trials. Lately, there have been concerted attempts by some to argue that arbitration agreements protect sexual harassers. However, any remedy that an employee can recover in court against a harasser is available to the same extent in arbitration.
  5. If you lose at arbitration, your opportunity to appeal is very limited.
  6. It can be harder to get cases out on dismissal or summary judgment.
  7. While it hasn’t been my experience, some say that arbitrators tend to “split the baby.” (How I hate that cliche! I don’t like “throwing out the baby with the bath water” either. Leave the poor baby alone!)
  8. As our friends at Wage & Hour – Developments and Highlights point out, plaintiffs’ lawyers who previously filed class actions may now start filing multiple individual arbitrations for wage and hour violations, which could subject employers to burdens and expenses that rival class actions.

The Deciding Factor:

Having tried and arbitrated dozens of cases for employers over the years, I believe that – for most employers – the pros outweigh the cons. Most cases end up settling and cases subject to arbitration tend to settle more cheaply. The fact that there’s no risk of an emotion-fueled jury verdict changes the whole settlement calculation. Employees and their attorneys can’t base their negotiation position on the fact that, if they just get before a jury, they have a shot at a windfall. So if you’re an employer who doesn’t have arbitration agreements with your workers, seriously consider whether it’s time to develop one.

Digital On Air sign, indicating broadcastingOn Fox’s entertainment industry-focused Pay or Play blog, associate Laurie Baddon wrote a post covering recent reports on employment agreements signed by news anchors working at television stations owned by Sinclair Broadcast Group. Laurie breaks down the controversial elements of the agreements, and examines them in the context of California employment law.

To get a better sense of the legal aspects of this national news story, we invite you to read Laurie’s post on Pay or Play.

The Fair Labor Standards Act now permits back-of house employees to participate in mandatory tip pools, provided no tip credit is taken against minimum wage.  The Consolidated Appropriations Act, 2018 budget bill effectively amends the FLSA to clarify two important points: back of house employees MAY participate in certain tip pools however supervisor/manager/owners MAY NOT participate in tip pools.

How does that affect employers doing business in California?

Labor Code section 351 permits mandatory tip pooling for an employee who provides “direct table service” or who is in the “chain of service.”  In 2009, the court in Etheridge v. Reins International California, Inc. (2009) 172 Cal.App.4th 908, 922 held that kitchen staff contribute to the “chain of service” and could receive tips under section 351.

In 2011, the DOL issued a regulation prohibiting back of house employees from participating in tip pools regardless of whether a tip credit was taken.  There was litigation over whether the DOL had authority to issue such a regulation, however the Ninth Circuit in Oregon Restaurant and Lodging Association v. Perez, 816 F.3d 1080 (9th Cir. 2016) held that the DOL acted within the scope of their power, effectively invalidating Etheridge and Cumbie v. Woody Woo, Inc., 596 F.3d 577 (9th Cir. 2010).

Now that the DOL regulations have been reversed by the recently passed budget bill and FLSA amendment, it seems as though the holdings of Etheridge and Woody Woo are back, clearing the way for back of house employee inclusion in tip pools.

But, we are exercising caution before advising clients to change their tip pools.  Still pending is an appeal to the Supreme Court in the Oregon Restaurant and Lodging Association case as well as a still valid DLSE Opinion Letter from September 8, 2005 that does not include kitchen staff as part of the “chain of service.”  Making changes to your California tip pool at this juncture seems premature as we don’t want you to be the test case.

Calculating the correct overtime pay rate in California has long been a complicated process.  The basic overtime rate is defined as one and a half times an employee’s “regular rate” of pay.  This purportedly “regular” figure may change from pay period to pay period when an employee earns shift differentials, different hourly rates for different jobs, or lump sum bonuses.  Such was the case in Alvarado v. Dart Container Corporation of California.

In Alvarado, the California Supreme Court considered the correct method of calculating overtime when an employee is paid a flat sum bonus.  The parties offered competing calculations to the Court.  The employer’s method spread the per-hour value of the bonus across all hours worked in a given pay period—including overtime hours.  The employee argued that the bonus should only be spread across the non-overtime hours worked.  In choosing between the two approaches, the Court emphasized California’s pro-employee policies:  “[W]e are obligated to prefer an interpretation that discourages employers from imposing overtime work and that favors the protection of the employee’s interests.”  The Court found that plaintiff’s version was “marginally more favorable to employees.”  Unfortunately, this doesn’t tell the whole story.  The opinion apparently requires employers to calculate the regular rate based on the “relevant pay period.”  This is inconsistent with established California and Federal principles that require regular rate calculations be performed on a weekly basis.  A “friend of the court,” or Amicus brief, was filed in this case on this very issue, and we are hopeful that the Court will issue an amended opinion, or other clarification.worker marking paper next to calculator

In the meantime, let’s look at an example. Suppose an employee works 90 hours in a two-week pay period (including ten hours of overtime), and the employee receives $15 per hour and a $100 bonus.  The value of the bonus must be calculated by dividing the $100 by the 80 non-overtime hours worked, which comes out to $1.25 per hour.  This would then be added to the employee’s straight time rate for an effective regular rate of $16.25 per hour.  Of course, the next step is to multiply the regular rate by 1.5 to obtain the basic overtime rate, and then multiply the number of overtime hours worked by the overtime rate.

The fun didn’t end there.  The Court drew a distinction between flat sum bonuses, like the one at issue in Alvarado, and bonuses that increase in rough proportion to the hours worked—such as piecework or commission bonuses.  In these cases, the Court stated “the payment of the bonus itself constitutes base compensation, including base compensation for overtime work, in which case one might be able to argue that only the overtime premium need be added.”  In other words, different bonuses require different overtime calculations.  Adding insult to injury, the Court proclaimed this interpretation is to be applied retroactively.

The big takeaway here is that employers must take a closer look at their bonus plans and overtime calculations to ensure compliance with the new standard.  Isn’t math fun?

It’s been five months since the #MeToo movement burst onto the scene. Since then, the headlines have been dominated with accusations of grossly inappropriate behavior by prominent politicians, entertainers, business people, and others. So it’s somewhat surprising that, according to acting EEOC Commissioner Victoria Lipnic (as reported in Law360 (subscription required)), the number of sexual harassment claims being filed with her agency hasn’t changed. Why is that?

One reason may be that employers are being more proactive. Those of us who do harassment prevention training are certainly doing more of it than in prior years. So perhaps (he said, trying to sound optimistic) employers are putting more emphasis on preventing harassment and those efforts are paying off.

Another explanation may be that employers are settling pre-litigation to avoid the devastating publicity that can accompany these claims, particularly with higher-profile defendants.

Also, many of the accusations that figure so prominently in the media involve conduct that occurred many years ago. Employees generally have no more than a year to bring these claims. So conduct occurring before then, no matter how offensive, will not be legally actionable.

Finally, it may be that the claims are working their way through the system. Before filing a lawsuit or a charge with a government agency, plaintiffs’ lawyers may be interviewing witnesses and lining up support for their clients’ claims. That process takes time.

Whatever the reason, employers shouldn’t let their guards down. They should continue to ensure that their harassment policies are legally compliant, that they appropriately investigate complaints of bad behavior, and that their managers are trained about their obligations in providing a harassment-free workplace. While there has not been a big upsurge in harassment claims yet, it only takes one to devastate your company.

 A disabled employee asks her employer for an accommodation. After engaging in the interactive process, it becomes clear that the accommodation requested is going to be challenging. At what point can the employer say “no” to an accommodation request because it creates an undue hardship?

If the accommodation is cost prohibitive, that can be enough to show undue hardship. But the question of undue hardship is not limited to financial burden. In other words, just because a company can monetarily afford to provide the accommodation requested, it is not necessarily required to do so.

Accommodations that are “unduly extensive, substantial, or disruptive” can create an undue hardship regardless of monetary cost. See US E.E.O.C. v. Placer ARC, 114 F. Supp. 3d 1048, 1058 (E.D. Cal. 2015). Maybe a requested accommodation would not financially break the company, but it would affect essential operational flexibility. That can be enough to show undue hardship. See Barth v. Gelb, 2 F.3d 1180 (D.C. Cir. 1993).

Of course, the law expects employers to accept certain costs, inefficiencies, and burdens to keep disabled employees working. Whether hardship is undue will depend on the employer’s size and resources.

Finally, remember that if no reasonable accommodation exists, and/or if the accommodation creates an undue hardship, the employer should consider reassigning the disabled employee to another vacant position. But that’s a blog post for another day.

Plaintiffs’ attorneys in California love making claims based on technical violations related to paystubs.  An employee will go see a lawyer complaining about wrongful termination or harassment or discrimination and the lawyer will say, “Let me see your paystub.”  Labor Code Section 226 lists at least 9 items that an employer must include on employees’ paystubs.  Even omitting one item (e.g., pay period dates on a “final” paycheck) can expose employers to extensive liability depending on the nature of the oversight, the number of affected employees, and how often the improper paystubs were issued.  Under the Private Attorneys General Act (“PAGA”) a single employee can bring a lawsuit on behalf of all affected employees, also known as “aggrieved employees,” regardless of whether those employees want to be included, and without having to go through the rigorous requirements of class certification.  [We told you about this in a 2009 California employment law newsletter,]

Up close of wage statementEmployees (or rather, the class action attorneys that bring these cases) do not have to prove that anybody was injured by the omission on the paystub because the code section provides an automatic penalty per paycheck in place of requiring employees to prove actual damages (which are typically non-existent).  Because employers have virtually no defense to these paystub cases, they are generally referred to as “gotcha” claims.

Recently a California Court of Appeal handed PAGA attorneys a “gotcha” of their own.  In Khan v. Dunn-Edwards Corporation, the appellate court upheld summary judgment dismissing Plaintiff Khan’s PAGA claims because he failed to comply with required administrative procedures.  Though Plaintiff’s regular paychecks appeared to be in order, his final paycheck failed to list the start date of the pay period.  On the basis of that single oversight on a single check, Khan and his attorneys filed their lawsuit seeking to recover penalties on behalf of a group of employees who may have received a similar final paycheck.  Khan’s notice and exhaustion letter to California’s Labor and Workforce Development Agency, however, was peppered with references to violations of his rights, and nowhere referenced any other employee other than himself.  The Court was not impressed.  It held that Khan’s use of the word “my” instead of “we,” or any other language indicating that he was seeking to claim penalties on behalf of anyone but himself, constituted a failure to give proper notice to the individuals involved, and a failure to comply with administrative requirements.  Thus, the Court upheld summary judgment in favor of the employer, and dismissed Khan’s PAGA claim.

If you are in the unfortunate position of having to defend yourself (or a client) against a PAGA action, make sure you take a very close look at the employee’s letter to the Labor Workforce and Development Agency to make sure the employee has followed every technical requirement of the law in giving notice to the employer and the Agency.  You might find a technical shortcoming in the letter on which to defend your client.  Or better yet, make sure that your employees’ paystubs contain the required information in advance.

Employees generally love Alternative Workweek Schedules. They prefer, for example, working four 10-hour days to working five eight-hour days. They work the same number of hours but they get an additional day off and less time commuting. The advantage to employers is that they can give employees the schedule they prefer without incurring additional overtime liability. But before California employers can implement an Alternative Workweek Schedule (or AWS), they need to jump through all sorts of hoops, including having secret ballot elections where two thirds of the affected employees approve the arrangement. All this is spelled out in Section 3 of the Wage Orders. Get it wrong and you risk employees coming back down the road and asking for years’ worth of unpaid overtime.

Once an employer in California adopts an AWS, different rules apply to (for example) sending employees home early, transferring them to different work units and locations, and changing their schedules. The following Q&A addresses many of these issues.

1.   What happens if an employee scheduled to work 12 hours as part of an AWS is asked to work a 12-hours shift on a different day?

Because they are not subject to an AWS that covers that day, all hours they work on that day would be considered overtime. The employee would get 1.5 times his regular rate of pay for the first 8 hours and double his regular rate of pay for the last 4 hours.

2.   What happens if an employee scheduled to work 10 hours as part of an AWS is sent home after 9 hours?

If you require the employee to work fewer hours in a day than they’re normally scheduled to work, you lose the advantage of the AWS. So in this case, you pay overtime (time and a half) after 8 hours on that day.

3.   What happens if an employee scheduled to work 10 hours as part of an AWS is sent home 10 or fewer minutes before their shift ends?

Pay them according to the AWS, but don’t make a habit of this.

4.   What happens if an employee scheduled to work 10 hours as part of an AWS is sent home between 10 and 30 minutes early?

Don’t do that. Keep them around until the shift ends. It’s cheaper to pay them to do nothing than to unnecessarily incur an hour and a half or more of overtime.

5.   What happens if an employee scheduled to work 10 hours asks to leave after 9 hours?

If the employee volunteers to work fewer hours than they’re scheduled as part of an AWS, there is no overtime liability. But have the employee put their request to leave early in writing (even e-mail) to avoid disputes later as to whether it was voluntary.

6.   What happens if an employee scheduled to work 10 hours as part of an AWS is required to work 12 hours on that day?

The additional 2 hours would be paid at time and a half. Any hours beyond 12 would be at double their normal hourly rate.

7.   What happens if an employee who is subject to an AWS is asked to work his normal shift, but at a different location that does not have an AWS?

This work would not be subject to the AWS and would be subject to normal overtime rules.

8.   What happens if an employee who is subject to an AWS volunteers to work his normal shift, but at a different location that does not have an AWS?

Same as paragraph 7.

9.   What happens if an employee who is not subject to an AWS is asked to work on a day she is normally scheduled, but at a different location that has an AWS?

This work would not be subject to the AWS and would be subject to normal overtime rules, unless (1) the employee is told that the different location has an AWS; and (2) the employee works at the different location for one or more full workweeks (as defined under the AWS). If both conditions are met, the employee’s overtime can be calculated the same as other employees who are subject to the AWS for each full workweek the employee works at that location. To avoid disputes later on, have the employee document that she was informed of the AWS.

For example, assume that (1) an employee is assigned from Monday, January 1st through Thursday, January 18th to a location with an AWS; (2) the employee is told in advance about the AWS; and (3) the location’s workweek under the AWS begins Monday at 12:01 a.m. The employee would be paid according to the AWS from Monday, January 1st through Sunday, January 14th and paid normal overtime (e.g. time and a half for 8-12 hours) for time worked between January 15th and 18th (since that is not a full workweek).

As another example, if the situation was the same as in the last paragraph, except the employee learned on January 2nd that the new location had an AWS, the employee would be paid according to the AWS from Monday, January 8th through Sunday, January 14th and paid normal overtime the rest of the time.

10. What happens if an employee who is not subject to an AWS volunteers to work on a day she is normally scheduled, but at a different location that has an AWS?

Same as paragraph 9.

11. What happens if an employee who is subject to an AWS works only at a location that is subject to a different AWS?

The employee would be treated the same as in paragraph 9. In other words, the employee would be paid according to the AWS at the location he was assigned to for each full workweek he worked there, as long as he knew about that AWS in advance.

12. What happens if an employee who is subject to an AWS works in the same workweek at his normal location and at a location that is also subject to an AWS?

The time the employee works at his normally assigned location would be paid according to the AWS at that location. The time he works at the second location would be treated as overtime (time and a half for the first eight hours in a workday, as long as the employee hasn’t yet exceeded 40 hours for the workweek and double time after eight hour in a workday or for all hours beyond 40 in a workweek). If the two locations have different workweeks, use the workweek at the location to which the employee is normally assigned.

13. If an employee is repeatedly asked to deviate from the approved AWS, can the employer lose the benefits of the AWS?

Yes, if the deviations are more than “occasional.”  As a general rule, an alternative workweek must be “regularly scheduled.”

Takeaway: How typical of California law! Employers offering a schedule that employees prefer have to negotiate a maze of complex requirements and face serious exposure for even an accidental misstep. California employers wishing to implement an Alternative Workweek Schedule should get guidance from qualified counsel in doing so. Those with one in place should ensure that their managers understand the consequences of deviating.

Illustration of a fox with sunglassesWe often blog about how different California employment laws are when compared to the rest of the US.  Whether it is the minimum wage, mandatory harassment prevention training requirements, or that funky law called PAGA, find out how to comply with laws in what we fondly refer to as the United Republic of California with this handy guide to Doing Business in California.

Many thanks to Sahara Pynes for her assistance in updating this informative guide.  Check it out on the Fox Rothschild website.

The California state flag

It’s time once again for the annual roundup of new California employment laws. Since we’ve discussed many of these laws when they were enacted, I’m including links to those earlier discussions.

  • Stop asking about salary history – AB 168 bars employers from asking job applicants about their previous salary. The legislation’s goal is to narrow the gender gap by preventing employers from basing offers on prior salary and thus, presumably, perpetuating historical discrimination. This will also remove the perceived gap in negotiating power between an employers and employees who must disclose their prior salary. Employers should ensure that their job applications don’t seek prohibited information and that those interviewing applicants know not to ask these questions.
  • More employers must offer parenting leave – SB 63, officially titled the Parental Leave Act, requires employers with between 20 and 49 employees to offer parenting leave that mirrors the Family Medical Leave Act. The new Act allows employees who work for a covered employer to take 12-weeks of unpaid, job-protected leave if they have worked a minimum of 1,250 hours in the 12-months prior to taking leave.  Employees can take leave only for the purpose of bonding with a newborn child, adopted child or foster child within a year of the birth or placement. Covered employers will also need to maintain health coverage under the same terms as an active employee. The Act also prohibits discrimination and retaliation against an employee for taking parental leave.The Parental Leave Act does not require employers to pay any portion of the leave but requires that employees be able to use accrued sick and vacation time. Employees can apply to have a portion of the parental leave paid for through the state’s Paid Family Leave program.  As we’ve previously explained, San Francisco requires some employers to pay a remaining portion of parental leave.
  • Expanded harassment training – California requires at least biannual harassment training for supervisors in companies with 50 or more employees. Having given a dozen sessions of the  training in the last month, I can assure you that there’s no shortage of material to talk about. But as of January 1, 2018, SB 396 requires that the training include information on gender identity, gender expression, and sexual orientation. If your handbook doesn’t specifically prohibit discrimination and harassment on those bases, you’re overdue for a revision.
  • Ban the box – Following the leads of San Francisco and Los Angeles, AB 1008 prohibits employers with five or more employees from:
    • Asking on employment applications about criminal convictions;
    • Asking applicants about criminal convictions before making a conditional offer of employment;
    • When conducting background checks on applicants, considering, distributing, or disseminating information about prior arrests not leading to conviction, participation in diversion programs, or convictions that have been sealed, dismissed, expunged, or otherwise nullified.

Employers who wish to rely on criminal conviction information to withdraw a conditional job offer must notify the applicant of their preliminary decision, give them a copy of the report (if any), explain the applicants right to respond, give them at least five business days to do so, and then wait five more business days to decide when an applicant contests the decision. There are exceptions for employers who operate health facilities hiring employees who will have regular access to patients or drugs.

  • Minimum wage increases – On January 1, 2018, the California state minimum wage goes up to $11.00 per hour for businesses with 26 or more employees and $10.50 per hour for smaller companies. The inimitable Sahara Pynes discusses which cities are raising their minimum wages here.

Takeaway: The burdens of employing people in California continue to increase. As a result, it becomes increasingly important for employers to be proactive in determining before they get sued where they’re vulnerable. In terms of time, expense, stress, disruption, and damage to a company’s reputation, an audit of HR practices is way cheaper than a lawsuit.

Takeaway 2: Happy 2018!