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.

 

The Private Attorneys General Act (PAGA) allows plaintiffs to sue for violations of California Labor Code provisions that don’t provide a private right of action. Why? According to the Act’s legislative history, as the state supreme court noted in Iskanian v. CLS Transportation, “there was a shortage of government resources to pursue enforcement.” Thus, the state needs private litigants to bring these claims.

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

Employees who sue on PAGA claims can’t be required to arbitrate, even if they agreed to arbitrate all employment-related claims. And even if they agreed to waive class or collective actions, they still get to bring a collective action under PAGA. Why? Because the state didn’t agree to arbitrate or waive class actions and it depends on these “Private Attorneys General” to bring these claims on its behalf.

What’s wrong with that? First, according to some reports, 2.4 million government employees work in California. Second, as we reported before, the state has plans to add additional employees just to focus on PAGA claims. So the idea that PAGA claims require special treatment because the state needs private litigants to bring them on its behalf is just wrong.

I will, however, admit that the state benefits from PAGA claims in the sense that the employees get to keep only 25% of the penalties they recover. The other 75% goes to the state. Their lawyers get to keep 100% of their fees. But what’s wrong with that? After all, they’re the ones who came up with this scam.

We asked nearly 4 years ago if Armendariz (the key California Supreme Court case from 2004 on employment arbitration) was on a collision course with Concepcion (the US Supreme Court case from 2011). Concepcion said that the Federal Arbitration Act preempts state laws that “stand[] as an obstacle to the accomplishment and execution of the full purpose and objectives of [the FAA].” Armendariz, however, created numerous requirements that seem to violate that prohibition. (Can you say “modicum of bilaterality”?)

Given the number of issues facing the U.S. Supreme Court, it’s striking how often it finds it necessary to correct California’s interpretation of the FAA. It ended the last term doing so in DIRECTV Inc. v. Imburgia and appeared intent on doing the same near the start of this next term in MHN Government Services Inc. v. Zaborowski.

Copyright: luna123 / 123RF Stock Photo
Copyright: luna123 / 123RF Stock Photo

At the request of the Daily Journal (subscription required), I wrote an opinion piece about Zaborowski. In that case, the petitioners complain that California law since Armendariz applies a different standard to arbitration agreements in deciding whether to strike unlawful provisions and enforce the rest of the agreement or whether, instead, to strike the entire agreement. Oral argument in the case was set for February.

So, are Armendariz and Concepcion on a collision course? It sure looked that way. But the collision has been postponed. As of January 7th, the argument has been removed from the court’s calendar. It looks like the parties may have settled. (While that collision is no longer imminent, I like this image too much to change it.)

Rather than coming up with New Year’s resolutions for myself, I find it much easier to come up with resolutions for others. Here are my suggested resolutions for California HR professionals:

Copyright: filmfoto / 123RF Stock Photo
Copyright: filmfoto / 123RF Stock Photo
  1. Be fair. Evaluate your company’s payroll in preparation for California’s Fair Pay Act. Some may think that we’ve beaten this dead horse to the point where PETA needs to get involved. But the new legal requirements, vague standards, double damages, and burdens of proof imposed by this legislation could be a game changer.
  2. Do more than the minimum. Make sure all workers are paid according to the new California minimum wage. This increase to $10 on January 1st affects not just entry level employees, but even exempt employees who must be paid a multiple of the minimum wage. There’s also a new minimum salary for exempt computer professionals.
  3. Stay out of court. If you don’t already have arbitration agreements with your employees, consider implementing them. I discussed the pros and cons here.
  4. Trust, but verify. If your company uses the E-Verify system to confirm that workers are authorized to work in the US, make sure that your use conforms with the new legal requirements.
  5. Be accommodating. Ensure that your managers understand their obligations to accommodate disabled applicants and employees or at least to notify you when situations arise. You can find a list of possible accommodations here.
  6. Think globally/Act locally. Whether it’s San Francisco’s $12.25 minimum wage, a local paid sick leave ordinance in Oakland, or Los Angeles’s Citywide Hotel Worker Minimum Wage Ordinance, pay attention to local requirements where you operate.

If those don’t work for you, you can always go back to the standard, boring New Year’s resolutions — things like working out more or losing weight. And no, I’m not suggesting that you need to lose weight. You look terrific.