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I was recently invited to contribute a chapter on employment law to the 2017 Israel Desk International Legal Guide. As more and more Israeli companies bring their operations to the U.S., they learn firsthand the intricacies of our employment laws. The chapter outlines six trends that I suggested that they pay attention to. They include wage and hour laws, equal pay, accommodating disabled workers, whistleblower claims, local regulations, and trade secrets.

Copyright: slidezero / 123RF Stock Photo

On the topic of trade secrets, I had the opportunity to give a presentation in Tel Aviv last month on Protecting Your Trade Secrets in Silicon Valley and Beyond to members of IATI (Israel Advanced Technology Industries – an industry group for high-tech and life science companies). You can read my chapter on legal trends and see a copy of my presentation on trade secrets.

Fox Rothschild LLP’s Israel Practice Group is adept at helping companies based in Israel with their U.S. legal needs.

Its almost July 1st and that means increased minimum wages in the City of Los Angeles as well as under the Citywide Hotel Worker Minimum Wage Ordinance.  Hotel workers covered under the Ordinance will see their hourly rate jump from $15.37 per hour to $15.66 per hour, as announced this morning.  Don’t shoot the messenger!

Remember, there are still ways for hotels to trim labor costs, as discussed here.

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!

Earlier this week, in Mendoza v. Nordstrom, the California Supreme Court clarified some ambiguous issues involving requirements under the California Labor Code involving when a “day of rest” must be provided to employees.

Woman laying on hammock during day of rest
Copyright: bialasiewicz / 123RF Stock Photo

The Court clarified:

  • That a day of rest is guaranteed for each workweek (as the workweek is defined by the employer).
  • There is an exception for employees who work shifts of six hours or less every single day in the workweek.
  • An employer can’t “cause” an employee to go without a day of rest, but an employee can “choose” to forgo that right as long as s/he is fully apprised of the entitlement.

What does this mean for California employers?

First, it means that there is no rolling seven day period in which a day off needs to be provided. Rather, if an employer defines its workweek as Monday through Sunday, one day off must be provided in that week. It can be Sunday one week, Tuesday the next week, and Friday the next. That is good news and avoids some scheduling nightmares.

Second, it means that part-time employees who consistently work short shifts of six hours or less can be scheduled to work seven days. But be careful, any shift over six hours in that week (even by a few minutes) will moot that exemption.

Third, there is still an open issue as to when an employer “causes” an employee to go without a day of rest. The Court was not as clear on this issue as many employers would have liked. To address this ongoing ambiguity, California employers should:

  • Add a provision to their employee handbooks advising employees of their right to one day of rest per workweek. They should also make sure the workweek is clearly defined.
  • Train managers not to pressure employees to work seven days, and to take shifts to cover other employees when they only have one day off.
  • Consider getting some sort of attestation from the employee who works a 7th day in any workweek that s/he is doing so by choice.

Finally, what this case has not changed is the commonsense advice that everyone should get one day of rest per week. It is certainly a better practice (whether required or not), to allow an employee one day off to rest, rejuvenate, and get some perspective away from work.

Earlier this week, I was advising a client on the termination of one of their spa employees. During the course of the conversation about his poor performance, the issue of his compensation came up. Turns out, while the termination was completely legitimate and non-discriminatory, we discovered liability for the client based on the employee’s commission-only salary structure and failure to provide meal and paid rest breaks. The next evening, while having my haircut, I raised this compensation structure with my stylist, also a massage therapist at a Southern California spa. Lo and behold, same arrangement.

Yesterday, a judge approved a nearly one million dollar settlement for the Sonoma Mission Inn’s posh Willow Stream Spa to settle a wage and hour, 103-member, class action lawsuit. That doesn’t sound relaxing at all.

Woman with face mask in a spa
Copyright: bds / 123RF Stock Photo

Here are some issues I have seen the past few months that can get spas and salons in trouble:

1) Paying by piecework (e.g. per treatment or service): this implicates AB 1513, which became effective January 2016, and requires compensation for all hours worked during a pay period, including breaks and other “non-productive” time. Many workers on a piece work plan are still not being paid for breaks as required by law. AB 1513 also requires a host of record-keeping obligations.

2) Paying by commission: legally speaking, commission payments are a percentage of sales and should not be paid for services performed. With spa or salon employees, it is arguable whether they really “sell” anything, in which case, a commission structure doesn’t work. Payment by commission requires the terms to be in writing and paid in the pay period they are earned. Employers frequently confuse the piece-rate and commission concepts and wind up in non-compliance.

3) Failing to pay minimum wage or overtime: because of the issues above, some spa workers are not receiving proper minimum wage or overtime payments. At spas where the compensation is a hybrid of compensation schemes, employers must be careful to calculate the regular rate properly.

4) Misclassification: some employers are still classifying therapists and aestheticians as independent contractors in likely violation of CA law. Because these workers are working in the spas at the direction of management, it’s a tough argument to make that such workers are independent contractors and exempt from the issues above.

If you are thinking you need a massage (or stiff drink) after reading this, I’m sure you’re not alone.

California has the most stringent meal and rest break rules in the country. If an employee’s break is not taken within the proper time, is not long enough, or is interrupted, the employer is subject to a one-hour penalty. It’s one thing to impose a penalty on employers for not providing a mandated break. But imposing a penalty because the break is minutes late creates absurd situations.

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

Here’s just one example. Nonexempt employees get a 10-minute rest period every four hours or “major fraction thereof.” So an employee who works 10 hours gets two rest periods (plus a meal break). But if the employee works past 10 hours, she becomes entitled to a third rest period. If she isn’t offered it, the employer owes her a one-hour penalty. Suppose the employee goes to her supervisor and says that she worked a bit past the 10-hour mark and she’s ready to go home. The supervisor asks if she’s taken a third rest period and she says “No.” The supervisor then has to offer her a 10-minute rest period. The employee obviously doesn’t want or need a rest period. She’d rather just go home. But if the employer doesn’t offer her the break, it owes her for an additional hour.

Every other jurisdiction manages to see that employees receive breaks without these overly restrictive and punitive provisions. If anything, the situation is getting worse with the recent decision in Augustus v. ABM Security emphasizing that employers must not only “relieve their employees of all duties” during their breaks, but must also “relinquish any control over how employees spend their break time.” So don’t expect the number of class action lawsuits against California employers to decrease anytime soon.

Wages, salaries, and benefits make up a large proportion of costs for most businesses. One way to control these costs is to control how much overtime employees work. In California, nonexempt (i.e. hourly) employees are entitled to one and half times their regular rate of pay when they work more than eight hours in a workday or 40 hours in a workweek. They’re also entitled to time and a half for the first eight hours on the seventh day of work in a workweek. Any work in excess of 12 hours in one workday, or eight hours on the seventh workday in a workweek must be paid at twice the employee’s regular rate of pay.

Some businesses address excessive overtime by telling their workers that they need management approval to work overtime. If they work overtime without approval, however, you still need to pay them for that work. You can counsel them, or even take corrective action for their failure to follow instructions. But you still need to pay them. Employees who aren’t paid for all of their time can claim overtime violations, minimum wage violations (for time they weren’t compensated for), waiting time penalties (up to 30 days pay if they weren’t paid everything they were owed at termination), PAGA penalties, attorneys’ fees, and more. California has no shortage of exorbitant penalties for seemingly minor violations.

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

Similar problems arise if employees who are forbidden to work overtime feel pressured to work “off the clock.” Take the example of a new nurse who needs to finish charting on his patients before he leaves for the day, but who’s also prohibited from working overtime. If he clocks out to finish his work and the employer knows about it, or reasonably should know about it, the employer needs to pay him for that time. Again, it can counsel him or take corrective action for not following the rules, but it can’t withhold his pay.

Managers working to reduce overtime need to make clear to their workers that they may not work off the clock. And if the managers learn of employees doing so, they need to ensure that they are paid for that time. Controlling overtime is an effective way of controlling costs, but only if you do it right. Do it wrong and you risk losing any possible savings and then some defending wage and hour claims.

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.