Employment Litigation

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When you draft employment arbitration agreements, it’s not enough to know what the law is. You should also know what the law will be at the time that someone challenges the agreement. Since this area of law changes continuously, that’s pretty hard to do without a crystal ball.

For a while, some courts in California were refusing to enforce arbitration agreements that did not attach a copy of the arbitration provider’s procedural rules. More recent cases, including Baltazar v. Forever 21, Inc., decided by the California Supreme Court in March 2016, dismiss that requirement. Now that that issue is supposedly resolved, the issue du jour is whether arbitration agreements can require employees to waive the right to bring a class action.

Last week, the Ninth Circuit issued a split opinion in Morris v. Ernst & Young saying that class action waivers violate the National Labor Relations Act. According to the two-justice majority, class action waivers violate § 7 of the Act, which states that:

“Employees shall have the right to self-organization, to form, join, or assist labor organizations, to bargain collectively through representatives of their own choosing, and to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection.”

While the National Labor Relations Board has taken the position that arbitration agreements are unenforceable in the non-union employment context, most courts to consider the issue have rejected that position as just another example of the Board going rogue. These include the Second,  Fifth, and Eighth Circuit Courts of Appeal. Even the California Supreme Court, in Iskanian v. CLS Transportation, approved such waivers for class actions (but not for the seemingly analogous claims under California’s Private Attorneys General Act).

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

So employees can waive their right to present employment claims to a jury individually, but not on a class-wide basis? How can that be? More importantly, what should employers drafting arbitration agreements do about class action waivers?

The split between the circuits makes it increasingly likely that the U.S. Supreme Court will eventually address the issue. When that will happen and how the Court will be composed at the time is entirely unclear. So I plan to continue including class action waivers in arbitration agreements. But I will also include language inviting a court reviewing the agreement to strike any provisions that are inconsistent with applicable law as it exists at the time the agreement is being reviewed. My crystal ball says that’s the best way to go here.

Many people are saying that this California Employment Law Blog doesn’t spend enough time discussing Mississippi law. Well today that’s going to change.

On August 8, 2016, the Fifth Circuit Court of Appeals overturned a decision saying that a company can fire an at-will employee for having a firearm in his truck in the company parking lot. In Swindol v. Aurora Flight Sciences Corporation, the employer had a rule against bringing a firearm onto company property. When it learned that Swindol had a firearm locked in his truck in the company lot, it terminated his employment.

Swindol sued for wrongful termination relying on section 45-9-55 of the Mississippi Code. That statute generally prohibits employers from having a policy or rule that “has the effect of prohibiting a person from transporting or storing a firearm in a locked vehicle ….” So the court ruled that, under Mississippi law, terminating an at-wil employee for having a gun in his car is unlawful.

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

How does this affect California employers? It doesn’t! We have no such statute here. If an employer wants to prohibit employees from having guns in their cars on company property, it may do so. If an employee breaks that rule, the employer can discipline the person, including termination in appropriate situations. Or, you can transfer them to Mississippi. Take your pick.

Bridgeport Continuing Education will be hosting a seminar titled: “Wrongful Termination, Harassment and Discrimination Claims” on July 29, 2016 in San Francisco. I will be speaking about Litigating and Defending Discrimination Claims, along with Jocelyn Burton. The program offers 5 hours of Mandatory Continuing Legal Education. You can get details and register here.

I hope to see you there!

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

As we’ve blogged about before, many cities in California have increased their minimum wage effective July 1st.  July 1st has come and gone, and just when you think that it is impossible to have another local minimum wage ordinance to keep in mind (given how many there are already), San Diego announced its new minimum wage last Monday.  Here is a handy chart to help you keep track of all these increases (well, until the next minimum wage increase that is).

City Minimum Wage Rate
El Cerrito $11.60/hour
Emeryville $13/hour (55 or fewer employees); $14.82/hour (56 or more employees)
Los Angeles $10.50/hour (26 or more employees); Requirement for smaller employers delayed until 2017
Los Angeles County $10.50/hour (26 or more employees); Requirement for smaller employers delayed until 2017
Pasadena $10.50/hour (26 or more employees); Requirement for smaller employers delayed until 2017
San Diego $10.50/hour
San Francisco $13/hour
Santa Monica $10.50/hour (26 or more employees); Requirement for smaller employers delayed until 2017
Sunnyvale $11/hour

 

Exempt Employees

When we talk about minimum wage, we usually think of non-managerial hourly workers. We sometimes forget that there are minimum wage requirements for exempt employees in the “white collar” exemptions (executive, administrative, and professional employees) as well.  Those requirements are known as minimum salary thresholds under state and federal standards.  The current minimum salary threshold in California is $41,600, twice the state’s current minimum wage of $10 per hour. But effective December 1, 2016, the new minimum salary threshold will be $47,476 under the new Federal Overtime Rule.  In order to be exempt under the “white collar” exemptions, those employees must be paid at least $47,476 by December 1, 2016.

When determining exempt status, employers look at requirements such as whether the employee manages the business, exercises discretion and independent judgment, or whether (s)he has a special state license, and stop there. However, employers often forget to make sure that those employees are paid the minimum salary threshold.  Failing this requirement means that the employee is NOT exempt from overtime provisions, even if (s)he would otherwise be exempt.  In that case, employers will be liable for unpaid overtime, meal and rest breaks, failure to furnish itemized wage statements (Labor Code Sec. 226), and other Labor Code violations.

With the upcoming new minimum salary threshold, now is the time to review your pay policies for both exempt and non-exempt employees. Make sure non-exempt employees are paid minimum wage as set forth above, and that exempt employees are paid a salary of at least $47,476 to best guard against costly litigation.

I have been waiting for a gap in my practice with no pending claims about a layoff gone wrong.  Honestly, I have been waiting for over two years, and there has been no gap, so I am taking the plunge and writing this blog post now.

Why are there so many claims involving layoffs?  Because employers consistently think that having a legitimate business reason for a layoff is enough to avoid and ultimately win a legal claim.  Well, sorry to be the bearer of bad news.  It isn’t enough to have a good reason (even if it is the real reason) — you have to be in a position to prove it.

So, how do you prove that your layoff is legitimate?  Here are some tips:

  • First, have someone vet the decision to test whether it passes the “smell test.”  That person can be Human Resources, internal legal counsel, or outside counsel, but someone really has to dig into the facts and make sure that the proposed business justification is legitimate.  And by the way, digging into the facts is not just asking the manager; it is making sure that the manager’s reasons are complete and all risk factors are appropriately identified and considered.  I often ask clients:  “What do you expect the employee to say when you inform her of the layoff?” and “How will you answer that question?”
  • Second, document the reasons for the decision at the time the decision is made.  This becomes very important when the decision makers have left the company and taken the thought process behind the business justifications along with them.
  • Third, make sure all layoff documentation clearly states the legitimate business reason.  No subterfuge here.  Don’t say one thing in the layoff meeting and something else on the separation notice for goodness sakes.  Have a script and make sure everyone sticks to it.
  • Fourth, while performance often weighs into a layoff decision, remember this is not a performance based termination.  So, if there is good reason for termination (such as consistent poor performance, policy violations, or bad behavior) document that behavior and call the separation what it is – a termination, not a layoff.  I have been known to say “a pig in a prom dress is still a pig.”
A pig in a prom dress is still a pig
Copyright: niknikpo / 123RF Stock Photo
  • Fifth, always (and I mean every time) show the individual a list of open positions at the company, and ask if they are qualified for and interested in any of them.  I don’t care if the positions are for janitorial in San Diego and the person laid off is a manager in San Francisco, show the list.  If they indicate interest, explore that option.  If they decline, document that the position list was provided and they declined.  If you don’t want to do this, then refer back to tip #4 (and this is probably not a layoff and should be a performance based termination).
  • Finally, be kind and empathetic.  It stinks to be laid off.  It hurts to have to leave the office without notice.  Treat the person laid off as you would want to be treated (or how you would want your closest family member to be treated).  Period.  No exceptions.

Employers who follow this six simple steps will be well positioned to defend a layoff claim.  If not, well, more business for us lawyers.

We’ve written extensively about California’s Fair Pay Act, which requires equal pay for “substantially similar” work. (Think, I’m exaggerating? We wrote about it here, here, here, here, here, here, and here.) On July 20, 2016, we will be presenting a one-hour briefing on what employers should be doing to comply with the law. We’ll start at 8:30 a.m. at our offices at 345 California Street, 22nd Floor, San Francisco, CA 94104. You’ll hear from lawyers (Jade Buttman and me) and an economist (Dr. Hyowook Chiang of Welch Consulting) about concrete steps you can take to protect your company. 

You can register here.

The Fair Pay Act puts serious and, in some ways, unprecedented burdens on employers. Is your company protected?

We’ve made no secret of the fact that we’re not big fans of the Private Attorneys General Act (PAGA). Our gripes include the following:

  • PAGA drastically expands the ways that employers can be sued, because employees can sue for violation of statutes that previously provided no private right of action.
  • PAGA expands potential liability for employers, since employees can sue on behalf of themselves and other aggrieved employees.
  • PAGA claims are exempt from arbitration agreements.
  • The procedures that apply to PAGA actions are ill-defined. While a class action plaintiff has to satisfy specific requirements to represent a class, it’s unclear what, if anything, a PAGA plaintiff must show to bring a representative action.

PAGA is based on the pretense that employees are bringing these claims on behalf of the state of California, which lacks the resources to pursue every non-compliant employer. Keep in mind that non-compliant employers, in this context, includes those that don’t put the inclusive dates of the pay period on the wage statement or who put the employer’s address on the paycheck, but not on the attached pay stubs. Pretty heinous stuff, right?

In keeping with this pretense that plaintiffs are acting for the state, 75% of the penalties go to the Labor and Workforce Development Agency (LWDA) and 25% goes to the “aggrieved employees.” That means that, for every dollar an employer pays in PAGA penalties, an employee shares 25¢ with all other aggrieved employees. When it comes time to settle cases, the parties decide what part of the settlement to designate as PAGA penalties and what part goes directly to the employees. Invariably, plaintiffs want more to go to them directly because they and their attorneys get all of that. Employers will go along with that because they get more bang for their buck.

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

Now, as part of the state’s new budget:

  • The LWDA will take 60 days to review proposed PAGA claims to decide if it wants to bring an action itself (previously 30 days).
  • The plaintiff cannot file the action until 65 days after submitting information to the LWDA (previously 33 days).
  • Any proposed settlement needs to be sent to the LWDA and approved by the Court (previously, you only needed court approval).

The fact that the LWDA will be more active in reviewing proposed PAGA settlements means that more money will need to be earmarked for PAGA penalties. More money going to PAGA penalties, means less going to plaintiffs directly. Since employees see just a fraction of those penalties, it will be more expensive for employers to settle lawsuits that include PAGA claims. You can add that to our ever growing list of reasons why, for employers and their counsel, “PAGA” is a four-letter word.

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

In most issues, my San Francisco colleague, Jeff Polsky, and I are kindred spirits.  After all, his wife is a Nancy, and my guy is a Jeff.  Plus, we both have exceptional senses of humor (oh wait, maybe that’s just him).

In any event, there is one issue where we apparently have a professional difference of opinion.  In his blog post of yesterday, Jeff discusses the recent litigation involving Uber and its attempts to enforce arbitration agreements with class action waivers.  Jeff explains that unconscionability in California has two elements: procedural (the you have to sign this or you can’t work here approach) and substantive (terms that give an unfair advantage to the employer).  An opt out provision moots the “take-it-or-leave-it” aspect of these agreements.  In that context he posits the question:  Should employers allow their employees to opt out of their arbitration agreements?

Jeff concludes that he rarely puts opt out provisions in arbitration agreements for many legitimate reasons, including the fact that the employees most likely to sue will generally opt out.  If the goal is to avoid lawsuits, that goal is easily thwarted.

As a counterpoint, I almost always recommend clients strongly consider including an opt out in their arbitration agreements for three reasons.

First, very few employees actually opt out.  I don’t know why, but they just don’t.

Second, when you are trying to enforce the arbitration agreement in court (and as Jeff notes most courts are hostile to arbitration agreements), you want every advantage you can get, and I don’t want to concede procedural unconscionability.  Especially when substantive unconscionability is a constant moving target, and an otherwise valid arbitration agreement can be held unenforceable if the latest version of the JAMS rules aren’t attached, or it limits discovery too much, or some other relatively minor problem (or problems) render it substantively unconscionable.

Third, if a handful of employees do opt out, then it is a terrific argument to make that the agreement really was optional, especially if those employees weren’t immediately fired.  And by the way, firing employees who opt out is not recommended.

I love a healthy debate, especially with any Jeff.  So I say, in most circumstances it makes sense to include an opt out in your arbitration agreement.

My colleague Brian Berkley in Philadelphia wrote a piece in today’s Law360 titled “Can Opt-Out Provisions Save Arbitration Clauses?” He focuses on recent litigation involving Uber and its efforts to enforce arbitration agreements (which include class action waivers) against employees seeking to litigate wage and hour claims in court. Brian explains that Uber has been able to enforce its arbitration agreement against plaintiffs claiming that it’s unconscionable by pointing out that workers had the opportunity to opt out of the agreement. It’s a thoughtful article and I encourage you to read it.

I absolutely agree that it’s harder for workers to argue that an arbitration agreement was forced upon them if they are given a fair opportunity to opt out of its terms. The harder question, from my perspective, is this: Is the advantage of being able to use that argument worth the disadvantage of not having your arbitration program cover all employees?

Before I offer my perspective, let’s briefly explain unconscionability. Unconscionability has a procedural aspect (one party’s lack of meaningful choice) and a substantive aspect (terms that give an unfair advantage to one party). Both procedural and substantive unconscionability must be present before a court will refuse to enforce a contract.

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

Any contract where one party presents the terms on a take-it-or-leave-it basis has an element of procedural unconscionability. An adult who is out in the modern world signs these boilerplate agreements all the time. We sign them with banks, service providers, retailers, and – yes – even employers. So, getting back to the topic at hand, if you allow employees to opt out of an arbitration agreement, it will be easier to argue that the agreement is not procedurally unconscionable.

What you lose, though, is the ability to have an arbitration program cover all your employees. In practice, few employees opt out. But those that do may be the ones that are most likely to sue. For that reason, I rarely include opt-out provisions in arbitration agreements. If the agreement is not overly one-sided, i.e. it gives the employee a fair chance to vindicate his or her claims, it will still be enforceable. It may be procedurally unconscionable, but since you need both procedural and substantive unconscionability to strike down the contract, it’s still enforceable.

In theory, I suppose you could give employees the chance to opt out (so it’s not procedurally unconscionable) and then not worry about whether the agreement is substantively unconscionable. In other words, make the agreement as one sided as you want. But I don’t recommend that. First, California employers have to comply with the California Supreme Court decision in Armendariz v. Foundation Health Psychcare Services, which articulated minimum requirements for employment arbitration agreements. Second, there are judges at all levels of our state and federal court system who remain hostile to the idea of mandatory workplace arbitration. Third, you’ll probably get a lot more employees opting out. Fourth, what reasonable employer wants to deprive its workers of a fair forum to resolve disputes?

If you have a different perspective on opt-out provisions, please share them in the comments.

A recently completed five-day arbitration with twenty-one witnesses, reminded me of the upsides of employment arbitrations (especially when I compare my situation to that of my colleagues who are preparing for jury trials in similar cases).

While we have written a lot here about the enforceability of class action waivers in such agreements, there are also many upsides to arbitration for single plaintiff actions, including:

  • There is a lot less litigation activity.  In our case, we handled discovery disputes with one conference call to the arbitrator.  No motions.  No extensive hearings.  Just a conference call and a ruling.
  • Witnesses did not need to appear at the arbitration in person.  Instead the parties agreed that many witnesses could appear by video, and we simply linked to them on a computer (often through the employer’s internal system or facetime), and projected them on a large TV monitor.  The witnesses could see us with a mobile camera.  This resulted in a lot of cost savings (no travel, no witness time waiting in the court’s hallway), and a lot less hassle for the witnesses (although we did have to coordinate to get them exhibits ahead of time).
  • The proceedings were a lot less formal, and in fact, the arbitrator (someone both sides selected based on her experience in employment litigation and her temperament) took extensive notes on her laptop.
  • During the arbitration hearing, motion practice was limited, and briefed by simple emails to the arbitrator with bullet point arguments, with a ruling by email the next morning.
  • There was no jury, which meant a lot less grandstanding and pandering, and a lot more focus on the disputed issues.
Arbitration in California
Copyright: alexskopje / 123RF Stock Photo

I don’t know what the outcome will be. And if it goes against my client it will be much harder to appeal.  That is certainly a risk.  But even so, the process was much more streamlined and efficient than litigation in the California court system.  I suspect the same case would have cost twice as much and lasted at least twice as long if it had been litigated in court.

All the more reason to consider arbitration agreements for your California workforce.