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 casesThe 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.

Let’s pick up where we left off. In our last post of 2016, I was complaining about the California Supreme Court’s decision in Augustus v. ABM Security Services, Inc. The majority opinion in that case said that employees who were required to carry phones or pagers on their rest breaks, even if they didn’t get called or paged, were deprived of their statutory breaks and were therefore owed a one-hour penalty. While I found plenty to complain about in that decision (I’m good that way), there’s another issue I want to address.

Copyright: bruno135 / 123RF Stock Photo
Copyright: bruno135 / 123RF Stock Photo

The third sentence of the decisions says: “During required rest periods, employers must relieve their employees of all duties and relinquish any control over how employees spend their break time.” The language comes from Brinker Restaurant Corp. v. Superior Court, which dealt with meal periods. But what does it mean? Are employees exempt from substance abuse, dress code, firearm possession, and harassment prevention policies during breaks? Stated differently, is the employer powerless if workers use their break time to get drunk, strip off their clothes, and chase co-workers around the workplace with guns demanding sexual favors? I’d like to think that the answer is “no,” but Augustus, in interpreting the wage orders, urges us to give language its “plain and commonsense meaning,” If that’s what we’re supposed to do, it would be nice if the courts chose their words with a little more care. The penalties for not complying with wage and hour laws are draconian enough without the laws being too vague for employers to know what’s expected.

The worst aspect of California employment law is the way it combines unclear requirements with exorbitant penalties for noncompliance. So employers can’t necessarily tell what the law requires and, if they get it wrong, face crippling financial penalties. The latest illustration of that principle comes from the California Supreme Court’s December 22, 2016 opinion in Augustus v. ABM Security Services, Inc.

The plaintiffs in this consolidated class action worked as security guards and were required to keep their pagers and radio phones on during their 10-minute rest periods and to respond when needs arose. ABM argued that it was providing a sufficient rest period. But the trial court disagreed and decided on plaintiffs summary judgment motions that they were not relieved of all duty and that they were therefore entitled to $90 million in damages, interest, and penalties (the penalty for missing a 10-minute rest period being an hour of pay).

ABM appealed and the Court of Appeal reversed, holding that being on call does not constitute performing work. Then the California Supreme Court granted review and reversed the Court of Appeal, reinstating the $90 million judgment.

The Industrial Welfare Commission Wage Orders clearly state that employees must be “relieved of all duty” during meal periods. But there is no corresponding language in the rest period requirement. Instead, the majority opinion intuited that employees must be relieved of all duties during rest periods from analyzing the definition of “rest.” The court also looked at Labor Code §226.7, which prohibits employers from requiring employees to work during rest periods. Finally, the court focused on the fact that the Wage Orders make provisions for on-duty meal periods, but not for on-duty rest periods. That being the case, it reasoned, on-duty rest periods must not be allowed.

Copyright: twinsterphoto / 123RF Stock Photo
Copyright: twinsterphoto / 123RF Stock Photo

All of this begs the question whether being required to carry a radio or pager constitutes work. The majority opinion states that employees are not relieved of all duties if they’re required to be on call. This conclusion, it notes, is the most consistent with its interpretation of the Wage Orders and Labor Code and with the axiom that those sources should be construed in a manner to protect employees.

A two-justice dissenting opinion explained that the “the bare requirement to carry a radio, phone, pager, or other communication device in case of emergency does not constitute ‘work’ in any relevant sense of the term.” This was especially true, the dissent noted, given the lack of any evidence that any guards’ rest breaks ever were, in fact, interrupted. The dissent also explained that the majority opinion creates further ambiguity by saying that the employees in question were deprived of their rest periods where they were required to “remain on call, vigilant, and at the ready during their rest periods.” If requiring employees to be “vigilant” and “at the ready” is part of what made these rest periods inadequate, the dissent asked, shouldn’t the court explain what that means? Or do we need another decade’s worth of class-action litigation to sort that out, too?

Here are steps employers should take now to comply with this decision:

  • Prohibit employees from carrying employer-provided pagers, radio phones, or similar communication devices at work.
  • In most situations, you should not prohibit employees from using their personal mobile phones on rest breaks, since the time is their own and they must be free from employer control. But you should not require them to monitor their phones.
  • If an employee’s rest period is interrupted with work requirements, either provide a different uninterrupted 10-minute rest period (you could start the 10 minutes running again after the interruption) or pay the penalty.
  • If, as the employer, you exercise any control over what employees can do during their rest periods, consult counsel as to whether that practice is still defensible.

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.

The U.S. Department of Labor, among other things, enforces federal wage and hour laws. These include the overtime provisions of the Fair Labor Standards Act. When it believes employers have violated those laws, the DOL can pursue litigation on behalf of employees. Employers that don’t have the resources to litigate against the federal government frequently end up settling. But it’s not like settling with a private party, where the parties can agree to keep the settlement confidential. The DOL will issue a press release and post the settlement on its website.

Copyright: aga7ta / 123RF Stock Photo
Copyright: aga7ta / 123RF Stock Photo

Last week, the DOL agreed  to pay $7 million in back overtime to a union representing a range of white-collar employees (the American Federation of Government Employees, Local 12). For some reason, I can’t find anything about this settlement on the DOL website. Maybe I’m looking in the wrong place. Perhaps I should look under the definition of irony.

Click here to read what our friends over at the Wage & Hour Developments and Highlights have to say about the case.

Copyright: belchonock / 123RF Stock Photo
Copyright: belchonock / 123RF Stock Photo

The Fair Pay Act (codified at Labor Code § 1197.5) has been in effect in California for almost six months. Despite the fact that it has the word “Fair” prominently in the title, I think the statute is decidedly unfair. The problem with this new law isn’t that it prohibits discriminatory wage practices. Paying someone less because of gender is unquestionably offensive.

But while other laws require the employee to prove discrimination, the Fair Pay Act puts the burden on the employer to disprove discrimination. The plaintiff just has to point to two people in similar (not identical) jobs who earn different amounts and the employer then has prove that the difference is based on one or more legitimate factors, that the factors relied on are applied reasonably, and that those factors account for the entire wage disparity.

To make matters worse, in many cases, employers will need expert testimony to meet this burden. I don’t know how you show that legitimate factors account for the entire wage disparity without a statistician or economist. This is more than just a significant expense. It also means the cases will be harder to defeat short of trial. Because if the employer gets an expert to opine on what causes a wage disparity, you know the plaintiff can find an expert to give a contrary opinion. So winning on demurrer or summary judgment becomes that much less likely.

In almost every other type of lawsuit, the burden of proof is placed on the plaintiff. If you’re going to succeed in claiming that you’re entitled to damages, it’s on you to prove by a preponderance of the evidence that the defendant has wronged you. Putting the burden on the employer to prove that it didn’t discriminate is fundamentally unfair. Requiring employers to hire experts to meet that burden makes matters worse.

We’ll be conducting a breakfast seminar where we’ll offer concrete advice on steps employers can take to protect themselves. Here are the details.

Seven months ago, Governor Brown vetoed a bill (AB 1017) that would have prohibited California employers from asking applicants about their salary history. Now a new bill that contains some of the same language, AB 1676, is before the legislature. Under both AB 1676 and its predecessor:

Copyright: liravega258 / 123RF Stock Photo
Copyright: liravega258 / 123RF Stock Photo

An employer shall not, orally or in writing, personally or through an agent, seek salary history information, including, but not limited to, compensation and benefits, about an applicant for employment.

The new bill hasn’t made it very far and there’s no reason to believe it will fare better than AB 1017. But even if it doesn’t pass, should employers ask applicants about their prior earnings? I can think of three good reasons not to.

  • First, under California’s Fair Pay Act, salary history is not a proper justification for a pay disparity. So you can’t use that as a basis for paying one worker more than a co-worker who is performing “substantially similar” work. It’s easier to argue that you didn’t rely on this impermissible factor if you didn’t seek out the information.
  • Second, there seems to be growing sentiment that the question is improper and overly intrusive. For example, Alison Green, who writes the Ask a Manager blog, wrote this piece for US News giving tips on how to avoid answering the question directly.
  • Third, if you’re looking to fill a position, you should have some idea what people in that position make and what the value is to your organization. If you genuinely have no idea, maybe the benefits of asking the question outweigh the risks. But in most situations, asking for information that you’re prohibited by law from relying on is a bad idea.

Of course, if the legislature passes the measure prohibiting salary history inquiries, the issue will be moot.

Here’s another fun aspect of AB 1676. It says that: “an employer, upon reasonable request, shall provide the pay scale for a position to an applicant applying for employment.” I’ve never heard of such a requirement before. Even if you make applicants sign nondisclosure agreements, isn’t it just a matter of time before your competitors know what you’re paying your workers? While we may get into this in more detail in a later post, I’ll say now that I think it’s a very bad idea. I also think the legislature knows that, since they’ve had the foresight to specifically exempt themselves from that requirement.

UPDATE: On June 2, 2016, the Assembly passed AB 1676. It now heads to the Senate.

With the same clarity as the Sacramento River delta at high tide, the California Supreme Court ruled yesterday that employers must provide suitable seating for all employees in California when it is “reasonable” to do so.

Copyright: gonewiththewind / 123RF Stock Photo
Copyright: gonewiththewind / 123RF Stock Photo

In Kilby v. CVS Pharmacy, Inc. (pdf),*  the Court was called upon to interpret language in the Industrial Welfare Commission wage orders saying that: “working employees shall be provided with suitable seats when the nature of the work reasonably permits the use of seats.” That language was largely ignored for decades until the Private Attorneys General Act created a vehicle for plaintiffs to bring representative actions for enforcement. The cases have worked their way up in the appeals process, and we now have what purports to be  the final word:

If the tasks being performed at a given location reasonably permit sitting, and provision of a seat would not interfere with performance of any other tasks that may require standing, a seat is called for.

The Court says that whether seating is “reasonably required” is always a question of fact involving a “totality of the circumstances approach.” The result in any given case will thus be entirely unpredictable, and summary judgment will be nearly impossible. To make things worse, “[a]n employer seeking to be excused from the requirement bears the burden of showing that compliance is infeasible….” This burden presumably also applies to “whether the physical layout [of the workplace] may reasonably be changed to accommodate a seat.” This amounts to “reasonable accommodation” to an entire class of employees (e.g., cashiers and bank tellers) who now have a “right” to sit.

The employer’s “business judgment as to whether a job requires standing” is but one factor to be considered, and it “does not allow employers unlimited ability to arbitrarily define certain tasks as ‘standing’ ones, undermining the protective purpose of the wage order.”

California employers must now brace for what may be an onslaught of class-like cases under PAGA, demanding “suitable seats” under the IWC wage orders, with potentially massive civil penalties, and, of course, attorneys’ fees awards. Few employers will be able to sit this one out.

*In the interests of full disclosure, Fox Rothschild LLP filed an amicus brief in this case on behalf of the California Retailers Association and the Retail Industry Leaders Association.

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.

For lawyers who defend wage and hour cases in California, “PAGA” is a four-letter word. The Private Attorneys General Act allows private employees to sue to recover penalties that the state labor commissioner could have collected. Employers and their attorneys dislike PAGA for these reasons:

  • It 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.
  • It expands the potential liability, 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, no one knows what, if anything, a PAGA plaintiff must show to bring a representative action.

Now comes word that Governor Jerry Brown’s budget proposal for the 2016-2017 budget year seeks “to stabilize and improve the handling of PAGA cases, largely to the benefit of workers, employers, and the state.” It intends to do this by adding additional positions to the Department of Industrial Relations and the Labor and Workforce Development Agency and have those agencies be more involved in reviewing incoming cases, pursuing them administratively, and approving PAGA settlements.

Copyright: romastudio / 123RF Stock Photo
Copyright: romastudio / 123RF Stock Photo

The idea that having the state involved in this process is going to somehow benefit employers is absurd. These agencies are bureaucracies premised on the belief that employers are inherently evil “wage thieves.” Their involvement in the process will only add greater levels of expense and uncertainty to a process that already has plenty of both.

Takeaways: PAGA is a mess that seems likely to get messier. The only way to “win” is not to get sued in the first place. A thorough wage and hour compliance audit can quite literally save even a medium-sized employer millions of dollars.