Employment Litigation

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In 2009, a tragic accident occurred at a manufacturing plant in Orange County when a water heater exploded and killed two employees. The incident was duly investigated by Cal OSHA, and criminal charges were eventually brought against two individuals. Then the Orange County District Attorney decided to seek huge civil penalties against the employer under California’s Unfair Competition Law (“UCL”). The trial judge was prepared to allow the case to go forward, but the Court of Appeal issued a writ of mandate dismissing the case on the grounds that  federal OSHA law preempted, and did not allow an exception for, claims under the state UCL. The District Attorney appealed.

The California Supreme Court will now decide whether workplace safety issues can properly be characterized and challenged as “unfair competition”,  and, in any event, whether federal law preempts and prohibits state prosecutors’ attempts to extract monetary fines outside of the traditional OSHA enforcement mechanism. The case will be argued on November 7, 2017 in Sacramento. Fox Rothschild LLP is representing the employer.

 

The California Legislature has completed its work for this session, and three bills concerning employment issues survived the process and have been sent to Governor Brown for his consideration and possible signature. All three of these prospective laws have been labeled “job killers” by the California Chamber of Commerce which is lobbying heavily against the bills. Opposing the Chamber on these issues are the state’s unions and the organized plaintiffs’ bar.

AB 1209 would require employers to report wage payments by gender. Such reporting would fuel the fires of lawsuits under the state’s recent Fair Pay Act under which a “pay gap” is presumed to be a result of illegal discrimination.

SB 33 would outlaw arbitration clauses in certain consumer agreements. This legislation is another example of the hostility of the California courts and legislature to arbitration agreements, including in the employment context. This new bill seems contrary to binding U.S. Supreme Court precedent, and would likely not survive a judicial challenge.

SB 63 would extend employee parental leave protections to employers with 20 or more workers. Currently the law applies only to employers with 50 or more workers. This law would obviously be a burden on smaller employers.

We can expect many of the bills that did not pass the legislature this year – such as required predictive scheduling for retailers and restaurants (SB 878), and universal health care — to reappear in the next session. This ever-vigilant blog, of course, will keep you posted.

All of this news about hurricanes and the tragic images of people losing their homes (and everything in them), takes me back to advice my father gave me years ago, which was:  You need insurance for things you can’t afford to replace.

The same is true for businesses.  They need insurance for losses they can’t afford to sustain.  Yet, employers often don’t spend enough time thinking about insurance, until of course they need it, and are disappointed with the scope of protections provided.

I often see this with clients with regard to EPLI (Employment Practices Liability Insurance).  Some employers think they have it, but get sued by a former employee and find out they don’t have coverage.  But even those who have EPLI are not strategic enough about the scope of coverage they need.  Which brings me to my list of considerations:

  • Deductibles: How much of a deductible can you afford?  And what incentive does that provide in litigation? EPLI deductibles often range between $25,000 and $250,000.  A $25,000 deductible means that the business can afford a lot of litigation (if it wants to make a point of fighting to deter other claims).  A $150,000 or higher deductible may just cover larger losses, and motivate early settlements to save on the deductible.  A $75,000 deductible can be a reasonable middle ground (to either encourage settlements or litigate).  That said, I have had more than one mediator suggest that a client just pay the $75,000 deductible to settle because they will pay that much anyway if litigation proceeds.
  • Choice of Counsel: Many EPLI policies require certain law firms be used.  Others suggest that firms can be waived in.  Whether an off-panel firm to can waive in will depend on the insurance carrier.  Many times I have seen clients unable to get a desired firm approved.
  • Attorney Rates: Just about all carriers limit the rates that attorneys can charge.  But some also limit the rates that the client can pay.  Years ago it was typical for an employer to pay its law firm one rate, and then get partial reimbursement from the carrier for the approved (lower rate).  But now, many carriers prohibit that practice.
  • Is Wage/Hour Covered?: Typically wage-and-hour coverage is excluded unless a separate rider is purchased.  And that separate rider is very much like earthquake insurance in California with a relatively high cost, high deductible, and limited coverage.  Many wage-and-hour riders have a $100,000 or higher deductible (that only covers defense costs and not damages).  And often defense costs are capped at some amount after the deductible as well.  For example, a policy may only cover $100,000 in defense costs after a $100,000 deductible; so the only real coverage is on the second $100,000 in attorneys’ fees.
The time to think about these issues, and negotiate them (to the extent you can), is before you purchase or renew the policy, not after.  And while it isn’t fun to think about insurance, remember what my father said, it is important for those losses you simply can’t afford.

Guest post by Charlie Nelson Keever:

Brace yourself.  Plaintiffs can now use representative PAGA actions as the basis for a statewide “fishing expedition” to discover alleged employer misconduct.

"Hello, I am suing you" nametag
Copyright: iqoncept / 123RF Stock Photo

Now, I’m a baby lawyer (or, more aptly, an almost baby lawyer) – I’m a Summer Associate trying to figure out what this means so I can tell you all about it. And while my brilliant and talented supervising attorney (Hey, Nancy Yaffe!) assures me that I’ve understood this correctly, this does not smell right to me.

First of all, there’s this thing called PAGA (The Private Attorneys General Act), that allows one employee to initiate a civil action against an employer on behalf of other allegedly aggrieved employees for Labor Code violations. Employees like representative PAGA actions because they don’t need to meet the rigorous requirements of traditional class actions. So basically, one employee having a problem at work – say, they’re not getting appropriate meal breaks – can use this super convenient tool to sue their employer. Not only that, they get to act the hero and say they’re suing on behalf of other “aggrieved” employees, even if they don’t know if anyone else is having the same problem. These lawsuits bring up a lot of questions like “Who is an ‘aggrieved employee’?” and “How much discovery should be allowed?” Conflicts over these issues make PAGA lawsuits particularly burdensome and expensive for defendant-employers to manage.

Last week, the CA Supreme Court answered one of those questions. In Williams v. Superior Court, Plaintiff-employee Michael Williams filed a representative PAGA action against Defendant-retailer Marshalls alleging that the company failed to provide him and other employees with proper meal and rest breaks, and that it failed to provide timely wage payments and accurate wage statements. To bolster his claims, Williams served interrogatories requesting contact information from 16,500 current and former non-exempt Marshalls’ employees throughout California – not just at the location where he worked. Marshalls objected on the grounds of relevance, scope, burden, and employee privacy. They essentially argued that Williams had no reason to believe that his issues at work were company-wide. So the trial court limited production of contact information to employees at the store where Williams worked.  The Court of Appeal agreed.

But the California Supreme Court disagreed, and found that nothing more than a mere allegation of a state-wide policy issue is necessary to compel preliminary discovery. So essentially, if one disgruntled employee says they have a problem, they’re entitled to contact information for employees all over the state to figure out if anyone else is having the same problem. While the Court held that this wasn’t an invasion of employee privacy, I’m willing to bet that a lot of employees would disagree. The Court also opposed the lower courts’ conclusions that discovery seeking statewide contact information was unduly burdensome to the defendant employer.

So What Can Employers Do?

While this might sound like all bad news for employers, the Court did shed some light on how employers might protect themselves and their employees by limiting the scope of discovery if they are unlucky enough to get sued in a PAGA action.

  • First, the Court noted that there might be “special reason[s] to limit or postpone” a PAGA plaintiff’s access to contact information (though the Court didn’t specify what those reasons might be). It will be up to employers to set forth specific facts that demonstrate undue burden and/or particular privacy concerns.
  • Second, the Court suggested that an employer might seek a protective order that would condition discovery on, for example, a confidentiality requirement or prohibition against using the information for purposes outside the confines of a specific lawsuit.
  • Finally, the Court indicated that an employer attempting to subvert such broad discovery might file a motion to “establish the sequence and timing of discovery,” although the mere availability of this measure may do more harm than good, as it tends to undermine the argument that the discovery is unduly burdensome.

Here’s my takeaway: even with these potential interventions, the best protection for employers is compliance with the Labor Code, and fixing any issues as soon as the PAGA notice is served. Now would be a good time for employers to review previous posts related to the PAGA from our blog.

Charlie Nelson Keever is a summer associate, based in the firm’s Los Angeles office.

We’ve discussed before how phishing scams target employers. A new scam focuses on defendants who have settled class-action claims. The scammers send wire transfer instructions that appear to come from reputable class-action claims administrators. If the defendant wires the funds though, it eventually discovers that it is the victim of a spear phishing attack and that the account it wired the funds do is fraudulent. It is unlikely to ever see that money again, but still owes the money it agreed to provide to the class-action plaintiffs and their attorneys.

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

We heard this cautionary tale from a LA Superior Court judge who wanted to get the word out about this new scam. Some poor company, which the judge understandably didn’t name, was out $500,000. This could obviously happen in any case, but is a bigger risk in cases where the settlement details and timeline for payment are readily available.

Consider yourself warned!

Employers doing business in California should know that the state takes a dim view of restrictive covenants. But what about the other 49 states? You can find the answer to that question in Fox Rothschild LLP’s newly updated National Survey on Restrictive Covenants. The Survey is provided by our Securities Industry Practice Group and the Labor and Employment Department. You can access a copy here.

Copyright: jorgophotography / 123RF Stock Photo
Copyright: jorgophotography / 123RF Stock Photo
Copyright: Poofy / 123RF Stock Photo
Copyright: Poofy / 123RF Stock Photo

The California Supreme Court has once again deviated from what many view as clear precedent of the U.S. Supreme Court concerning the enforcement of arbitration agreements. Last week, the California court decided McGill v. Citibank, N.A., holding that state “public policy” precludes the enforcement of arbitration agreements where a class sues for “public injunctive relief” under Business and Professions Code § 17200, California’s much abused “unfair competition” statute. This decision comes on the heels of Iskanian v. CLS, in which the California court held that a class waiver in an arbitration agreement was unenforceable to prevent a representative action under the Private Attorneys General Act, again citing “public policy.” The McGill and Iskanian decisions are at odds with recent SCOTUS opinions such as ATT Mobility v. Concepcion, and American Express Co. v. Italian Colors. In the Italian Colors case, the high court specifically rejected state “public policy” as any kind of exception to the sweeping preemption of the Federal Arbitration Act (“FAA”).

California has been in a running dog fight with the FAA since 1987. In that year, SCOTUS decided Perry v. Thomas, in which Justice Thurgood Marshal upheld the FAA under the Commerce and Supremacy clauses, and slapped down California’s attempt to undermine arbitration agreements. Thirty years later, California courts remain determined to block arbitration under PAGA and Section 17200 in the face of otherwise enforceable arbitration agreements.

Also, with today’s swearing in of Neil Gorsuch, SCOTUS returned to its full complement of nine justices. Look for the high court to grant review of California and Ninth Circuit cases that follow McGill and Iskanian in the next couple of years with an eye toward overturning those decisions. In the meantime, companies should continue to include waivers of class and representative actions in their arbitration agreements with consumers and employees, noting that the waivers are enforceable to the extent permitted by applicable law.

We recently updated a 15-page Employer’s Guide to Doing Business In California. The guide provides clear summaries of California’s unique requirements for meal and rest periods, the Fair Pay Act, paychecks and wage statements, the various leaves of absence, and more. If you subscribe to that whole “ounce of prevention” theory, this is a great way to see if your company is complying with California’s unique employment law requirements. You can download a pdf of the Guide here.

Spending a little time to determine if your company is sufficiently protected is a lot quicker and cheaper than waiting for a lawsuit and learning first hand why California ranks as the number one judicial hellhole.

Copyright: ibreaker213 / 123RF Stock Photo
Copyright: ibreaker213 / 123RF Stock Photo

Special thanks to Cristina Armstrong, Tyreen Torner, and Sahara Pynes for their work updating prior versions of the guide.

Last Friday, the US Supreme Court agreed to hear cases from the 9th,  7th, and 5th Circuits in which the courts are split on the issue whether class action waivers in employee arbitration agreements violate Section 7 of the National Labor Relations Act by inhibiting employees’ rights to engage in “concerted activity”.  The NLRB has been promoting this novel theory for the past few years, under which the arbitration agreement can be invalidated notwithstanding the fact that it is otherwise enforceable under the preemptive effect of the Federal Arbitration Act.  Readers of this blog will recall that the California Supreme Court rejected that theory in Iskanian v. CLS. The defendant in that case argued that a class action does not necessarily involve “concerted” action at all.  A class action merely requires one employee with a complaint and a lawyer to file the case.  Only in the world of legal fiction can such a case automatically constitute “concerted activity”.  That legal fiction is a far cry from the scenario — several employees standing around the water cooler griping about wages and talking about unions and strikes —  envisioned by Congress in 1935 when the phrase “concerted activity” was coined.

Now, the US Supreme Court will settle the issue, and the lower  courts and particularly the NLRB will finally be bound by the result.  The cases will be briefed and argued later in the year.  By then, there will likely be a full complement of nine Justices on the Court.  The current Court may be split 4-4 on this issue.  The new Justice, assuming she or he is confirmed over what  is likely to be fierce opposition in the Senate,  will thus probably  be the deciding vote in these cases.  The cases are Morris v. Ernst&Young (9th Cir.), Lewis v. Epic Systems (7th Cir.), and Murphy Oil v. NLRB (5th Cir.).  In these cases, and other employment cases likely to come before the Supreme Court in the near future, the stakes are high and the issues profound.  As we have said before, what a difference an empty chair makes.

With briefs due next week, we anxiously await the California Supreme Court’s review of the de minimis doctrine.  Under the doctrine, employers are not obligated to pay employees for small increments of off-the-clock time spent preparing for or ending a shift, provided such time amounted to approximately 10 minutes or less of work.

12350701 - blue clock face, close upWhile we wait to hear the CA Supreme Court’s take on this, it’s worth noting that even under the FLSA, courts nationwide have had varied results on what constitutes non-compensable time under the de minimis doctrine. Many of the recent cases involve minimal time spent checking e-mails or texts that are work-related. And while courts employ a fact-specific analysis of employment policies and practices, the following factors will weigh against a finding that the time is de minimis:

  1. If the time is a regular and necessary component of the work day or work week;
  2. Employer compulsion to complete the tasks at issue; and
  3. If the time can be recorded easily for payroll purposes

My colleague Mark Tabakman spoke about this topic today and offered the following advice to employers:

  • Consider eliminating or limiting access to work-related email and systems for non-exempt workers during non-work hours
  • Develop a comprehensive policy requiring non-exempt employees to record their after-hours time with a clear process for reporting such time
  • Train managers on how and when to communicate with non-exempt staff after hours
  • Pay for after-hours work performed, while utilizing disciplinary measures if the after-hours work was unauthorized

Until we have more consistent application from the courts, this issue continues to be a ticking time bomb for employers.