We’ve been blogging about attacks on workplace arbitration for over ten years now. (See, for example, this October 2009 post.) AB 51 represents the latest attempts by plaintiffs’ attorneys to ensure that their clients have continued access to employee-friendly juries, rather than to arbitrators with experience understanding and applying the relevant law. We’ve written about what the law says, the economic motives behind the attacks on arbitration, and about how the law affects employers’ decision whether to implement or continue arbitration programs.

Throughout these discussions, we noted that the bill is of questionable legality. On December 6, 2019, a consortium of employer groups including the US Chamber of Commerce and the California Chamber of Commerce filed suit in the Eastern District of California to block the bill from taking effect. You can read the complaint here. Federal law protects arbitration agreements against attempts by courts and judges to weaken their protections. The suit argues, convincingly I think, that this latest effort contravenes federal law and that the law should be struck down.

We’ll continue to keep you posted as the story develops.

UPDATE: The employer groups bringing the suit have filed for a temporary restraining order.

UPDATE #2: As of December 30, 2019, a federal judge has issued a temporary restraining order blocking the law from taking effect on January 1, 2020.

UPDATE #3: On January 10, 2020, the court further enjoined the measure from taking effect.

If you were hoping that AB-5 (the CA statute codifying the ABC standard into widespread law) would be held invalid, enjoined, or would just fall off a cliff, it is time to face reality.  AB-5 is alive and well, and effective January 1, 2020.  That means any California employer who still relies on independent contractors as part of its workforce should be hustling to address that issue if they haven’t already.

Yes, some gig economy companies are planning a ballot initiative, but that won’t be on the ballot until November 2020.  Update:  On-demand companies also filed a lawsuit to allow workers to remain as independent service providers.

And there is a glimmer of hope for truck drivers, given that motor carriers and individual owner-operator truck drivers filed a motion for preliminary injunction to cease enforcement of AB-5 as to just them, which was temporarily granted on December 30, 2019, and is set for further hearings in USDC, Southern District.

Update:  And freelance writers and journalists also filed a lawsuit just before year end to address the limited exception written into the law capping content submissions to 35 per publisher per year.

But everyone else doing business in California is left with limited options, including:

  • Full compliance which may include:
    • Converting workers to employees
    • Taking steps to ensure that all contractors meet one of the funky enumerated exemptions and have an updated contractor agreement
    • Retaining a reputable staffing company to employ workers (especially for businesses that are not set up to do a proper payroll and handle the myriad of legal requirements necessary for employees
  • Taking the risk of misclassification and hoping your business won’t be a target
    • Note, if you have had any union activity, watch out – you are likely on the target list!
  • One of the first two options, along with a lobbying strategy to try to get your business listed as another exemption

My franchise partner, Tami McKnew, and I have been presenting a series of webinars on AB-5 and its impact on the franchise system.  Notably, there is no exemption in AB-5 for franchisees.  Also notably, many franchisees are women or minority owned, and actually like the freedom to be self-employed.  In fact, 35% of franchise owners are women.  So one of the points Tami and I have been stressing, is that if you are a franchise owner in California, and you’d like to retain that status, then contact your legislators and tell them!  The voices of business owners can hold a lot of weight. Indeed,  Assembly Member Gonzalez, AB-5’s author, appears open to such efforts come January (as she was before the bill passed), but only time will tell if any will be successful.

In the meantime, one thing is for sure.  AB-5 will keep us employment lawyers busy in the coming year.

Attention hospitality employers.  Is that charge you add to a guest check a service charge (typically a set amount added to a guest check in lieu of a tip)?  Or an automatic gratuity (such as a set amount for a party of 8 or more)?  Or a true tip/gratuity (an actual discretionary amount left by the guest for the service employees)?

In California, if it is a tip/gratuity, under California Labor Code Section 351, it belongs to the employees and the employer can’t keep any of it (even for managers working the event or party).  Plus, it is not included in the regular rate for overtime purposes.

However, if it is an automatic gratuity or a service charge, then it is considered a wage in California.  Accordingly, it is taxed, and is included in the regular rate for overtime purposes.  And if your guest facing documents are clear, the House or management can keep part of it, with some important exceptions.

One caveat applies to hotels covered under the LA Hotel Ordinance; for those Hotels (and associated restaurants and banquet facilities), 100% of the service charge must go to the service employees.

Another caveat applies to charges that aren’t clearly defined.  In a recent California case (O’Grady v. Merchant Exchange Productions) the banquet facility added a “service charge” to guest bills, and kept part of it for the House and management.  Allegedly, it was not clear on documents to guests that 100% of the service charge was not going to the employees, and that some went to management.  The attorneys representing the server (and the purported class) argued that the service charge was really a gratuity that should have gone entirely to the employees, and that none of it should have been retained by the House or management (because tips belong to employees in CA).  The Court of Appeal in California allowed a putative class action by servers to go forward on the issue of whether that service charge was actually a misnamed gratuity that was improperly distributed (and kept from employees) in violation of CA law.

As my partner, Jordan Pace, points out in this helpful Alert, the risks for treating the designation of the charge wrong are high.  That’s why all hospitality employers should make sure their categorization of charges is correct, and that all guest facing documents are clear and unambiguous.  Any lack of clarity could make you the next test case in litigation, which is great for us lawyers, but not so great for your business.

How will AB-5 impact franchise relationships in California?  What steps can franchisors take to best protect their interests in California in a post-Dynamex, post AB-5 landscape?  These are some of the questions Tami McKnew and I will be answering in a reprise of a webinar we first presented on October 28, 2019.  Join us on Wednesday, November 20, 2019.  It’s free and you can RSVP here.

The news on AB-5 has been fast and furious in the past couple of months.  First, was the summary of AB-5 and the new ABC standard to determine whether a worker is an independent contractor or employee.  Then were concerns about what the law did not say, and how it could be interpreted including in the franchise context.  Then came a bit of good news when the 9th Circuit ruled that the ABC test did not apply to a franchise employees, and did not create a joint employment relationship with the franchisor.

But there are still many unanswered questions.  Will any other businesses successfully lobby for an exemption to AB-5 before January 1st?  What will happen with the ballot measure set forth by technology companies?  How much of the law will be retroactive, and what exactly does that mean?  And strategically, what should businesses in California do given this legal landscape, especially if some or all of their California work force is comprised of independent contractors?

If you have a franchise in California or are a franchisor and operate in California, or you are just interested in this topic, please join me and Tami to delve into these issues on Wednesday, November 20th at Noon Pacific Time.  We hope to provide some clarity, or at least some viable options to mitigate risk.

The California Consumer Privacy Act (CCPA) takes effect in January, imposing strict new data privacy mandates on many companies with employees in California, whether they are headquartered inside or outside the state’s borders. Is your company among them?

Fox Rothschild’s Privacy & Data Security team has developed a free, easy-to-use online tool — CCPA Scope Adviser — that can help you answer this important question while there is still time to create a compliance plan.

The CCPA is scheduled to take effect in just two months.

Don’t assume you’re outside the scope. CCPA carries significant penalties for noncompliance and includes a private right of action that poses the threat of consumer lawsuits over data breaches.

For a thorough overview of the law, register for our free The Ten Commandments of CCPA  webinar, scheduled for Nov. 11.

Try CCPA Scope Adviser.

Register for our free The Ten Commandments of CCPA webinar.

The #MeToo movement is two years old this month, and what a profound cultural shift it has been.  Workplace conduct that just a few years ago was tolerated, ignored, overlooked, and even condoned, has now been forbidden.  The list of top executives, journalists, celebrities and others whose careers and reputations have been decimated gets longer each week (sometimes it feels like each day, depending on the news cycle).

I reflected on these changing norms in a Daily Journal article for its special #MeToo edition on October 17, 2019.  You can read it here.  The biggest joy of publishing in an old-fashioned newspaper is that you can make a photocopy for your parents (including a retired judge father), who think it is pretty big deal.

Happy reading, and as I say at the end of each sexual harassment prevention training, please behave!

Our Labor & Employment team has been busy this fall! As loyal readers, your inboxes have been filled with our updates on all the changes to California employment laws.  This legislative session ended on October 14th, so we thought it would be helpful to recap the changes you should have on your radars.   These new laws will take effect January 1, 2020, unless otherwise noted.  Here are some of the highlights, with links to more in-depth information as applicable:

10) Extension of Statute of Limitations for CA Discrimination Claims

AB 9 extends the time a complainant has to file a complaint under the Fair Employment and Housing Act (“FEHA”) from one year to three years.  While enacted in response to the #MeToo movement, this bill affects all claims of employment discrimination under FEHA, not just harassment claims.

9) Expansion of Race Discrimination to Include Hairstyles

SB 188 changes the definition of “race” in FEHA to include hair texture and protected hairstyles, specifically including “braids, locks and twists.” This prohibition, which is detailed here,  may impact policies on dress codes or grooming standards.

8) Prohibition on Mandatory Arbitration Agreements

AB 51 bars employers from requiring arbitration agreements as a condition of employment.  It also prohibits retaliation against an employee who refuses to sign an arbitration agreement.  My colleagues blogged in greater detail about AB 51 here, including the likelihood that it will be preempted by the Federal Arbitration Act.

7) Remedies for Breach of Arbitration Agreements

SB 707 provides both consumers and employees  remedies when a drafting party fails to pay arbitration fees and costs in a timely manner.  Drafting parties who neglect to pay fees owed within 30 days of the due date may lose the chance to compel arbitration or may be subject to monetary or evidentiary sanctions.

6) Prohibition on “No Rehire” Provisions

AB 749 prohibits parties to an employee settlement agreement from entering into an agreement to restrict the employee’s ability to work.  In the vein of non-compete enforceability, employers may no longer add a so-called “no rehire” provision to settlement agreements, unless the employer has made a good faith determination that the employee engaged in sexual harassment or assault. This bar applies to parent, subsidiaries and affiliates of the settling party.  Read more from our blog here.

5) Additional Paid Family Leave

SB 83 increases benefits under the state’s paid family leave program (“PFL) from 6 weeks to 8 weeks of subsidized time off, beginning July 1, 2020.   It also establishes a task force to review additional increased benefits for 2021.

4) Additional Training Requirements

AB 241 and AB 242 require implicit bias training for physician, nurses, surgeons, lawyers and court staff.  Medical staff training requirements would not take effect until 2023, whereas legal training becomes effective in 2022.  SB 778 gives employers a reprieve until January 1, 2021 for mandated sexual harassment training of all employees.

3) Detailed Lactation Accommodations

SB 142 mandates detailed lactation accommodations on all California employers.  Specifically, a lactation room must not be a bathroom and must contain a surface for breast pump and personal items, a place to sit, as well as electricity, extension and charging cords.  The employee must also have access to a refrigerator or cooler and a sink with running water.

2) California Consumer Privacy Act Changes

AB 25 exempts employers from compliance with many of the laws requirements regarding collection of personal data of employees and applicants through 2020. You can find more information about the CCPA here.

1)  Restrictions on Use of Independent Contractors

Last, but certainly not least, AB 5 significantly changes which workers or businesses can be classified as independent contractors under the Labor Code and Wage Orders.  We have reviewed the changes here, and will continue to update you on changes and issues as they arise in our practice.

As always, our team is here for guidance (or just to commiserate) on these new laws.

One of the new bills recently passed (AB 749) prohibits standard “No Rehire” provisions in settlement agreements and general releases.  These provisions typically read something like this:

No Future Employment.  Employee agrees that she will not seek employment or any other remunerative relationship in the future with the Company, or with any of the Released Parties, nor will the Company or any related entity be obligated in any way to provide Employee with future employment.  Employee further agrees that she hereby waives any claim of retaliation or discrimination against the Company or any Released Parties in the event that she applies for employment at such entity in the future and is denied employment.  Employee also agrees that, in the event she is inadvertently employed by any entity that is related to the Company or any Released Parties, that she shall resign from said employment immediately upon request, and that should Employee fail or refuse to do so, Employee’s employment shall be terminated and Employee shall have no recourse against Company or any Released Party. 

Employers don’t want an employee who sued them to apply for work again, or to deal with a subsequent lawsuit or claim for failure to hire.  Employers want to pay for peace, and not have to deal with the employee ever again.  That desire for closure is now more complicated given AB 749.

So what can employers do?  Thankfully there are some options.

First, employers can still include the typical No Future Employment provision in separation agreements that are not based on any legal claims filed or initiated by an “aggrieved party.”  That term is defined as someone who has filed a claim against the employer in court, before an administrative agency, in an alternative dispute resolution forum, or through the employer’s internal complaint process.   Granted, the “internal complaint process” is a bit open-ended, so use caution.

Second, for agreements entered into on or after January 1, 2020, employers can amend the No Rehire provision to track the statutory language and clarify that the employee is not eligible for rehire due a legitimate non-discriminatory or non-retaliatory reason such as:

  • Documented misconduct; or
  • Documented poor performance; or
  • Because the employer has made a good faith determination that the person engaged in sexual harassment or assault

Third, require the employee to agree to accurately include all prior employment history with the Company (or any Released Party) in any future application, and acknowledge that failure to do so will be grounds for termination.  This will make it easier to check if the employee is eligible for rehire (if the file exists and includes appropriate documentation), and to terminate if a misrepresentation is made.

Plus, remember the updates from last year, including changes to the 1542 release language required for all California releases.

As of January 1, 2020, licensed cannabis companies in California with 20 or more employees will have 60 days to certify that they’ve entered into a “labor peace agreement” with a “bona fide labor organization.” Otherwise, they can lose their licenses. What does that mean?

First, some background. In 2017, California enacted the Medicinal and Adult-Use Cannabis Regulation and Safety Act. MAUCRSA spells out the requirements for cannabis companies wishing to become licensed by the state. This includes companies applying to sell for medical or recreational use and companies doing laboratory testing. Among many other things, MAUCRSA required that “an applicant with 20 or more employees, provide a statement that the applicant will enter into, or demonstrate that it has already entered into, and abide by the terms of a labor peace agreement.”

MAUCRSA defined a “labor peace agreement” as an agreement between a licensee and a “bona fide labor organization” that, at a minimum:

  • prohibits picketing, work stoppages, boycotts, and similar interference with the applicants business;
  • allows the bona fide labor organization to  to communicate with, and attempt to organize and represent, the applicant’s employees; and
  • gives the bona fide labor organization access to the workplace, at reasonable times, to meet with employees and discuss their right to be represented, their rights under state law, and the terms of their employment.

While a “bona fide labor organization” sounds a lot like a union, and unions strongly supported the bill, there’s no requirement that the organization be a union. Nor does the bill mandate a particular method of electing or certifying the organization. So the employees don’t get to decide if they want to be represented. The state simply requires that they be represented. (Before we leave our discussion of MAUCRSA, I’m able to debunk rumors that the term comes from the Michael Jackson song “Wanna Be Startin’ Something.” The lyrics starting around the 5 minute mark in the linked video are not, as some claim, “Ma ma se, ma ma sa, ma ma maucrsa.”)

On October 12, 2019, Governor Newsom signed AB 1291, which expanded on the requirement for “labor peace agreements.” Under AB 1291, any company with 20 or more employees applying for a license from California’s Bureau of Cannabis Control must “provide a notarized statement that [it] will enter into, or demonstrate that it has already entered into, and abide by the terms of a labor peace agreement.” Any such company with fewer than 20 employees applying for a license must provide a notarized statement that it “will enter into and abide by the terms of a labor peace agreement within 60 days of employing its 20th employee.” AB 1291 goes on to state that the BCC, the Department of Food and Agriculture, and the State Department of Public Health can revoke or suspend a cannabis companies license for failure to comply.

Both MAUCRSA and AB 1291 specify that “supervisors” don’t count toward the 20-employee threshold. Moreover, supervisor is defined broadly. Under MAUCRSA, a supervisor is anyone who has authority to “to hire, transfer, suspend, lay off, recall, promote, discharge, assign, reward, or discipline other employees, or responsibility to direct them or to adjust their grievances, or effectively to recommend such action, if, in connection with the foregoing, the exercise of that authority is not of a merely routine or clerical nature, but requires the use of independent judgment.” If workers have authority to do any one of those things (e.g. recommend assigning work), they fall within the definition of supervisor. So employers may be able to avoid meeting the 20-employee threshold by assigning one or more duties that the law deems “supervisory” to workers who would not typically be considered supervisors. (But that should not involve trying to characterize workers as independent contractors unless they can satisfy the ABC test, discussed here.)

While the law does not take effect until January 1, 2020, now is the time for licensed cannabis companies, and those planning to apply for licenses, to talk to their lawyers about their staffing plans, how to comply (and certify compliance), how to prepare for union efforts to organize their workers, and how to negotiate and document a “labor peace agreement.” That’s a lot to do in a relatively short period of time. It will require advice from attorneys who know the cannabis industry, licensing, and labor and employment law. Unions didn’t support this bill without expecting that they had something significant to gain. It’s high time to start getting ready.

We’ve been talking a lot about employment arbitration since the passage of AB 51. We’ve discussed the bill itself, and we’ve reassessed the pros and cons of workplace arbitration since its passage. But what’s all the fuss about? It seems that every legislative session in California, we get a new bill attempting to do away with pre-dispute arbitration agreements. Sometimes similar measures come from the Senate.

The lawyers who represent employees have been fighting to do away with workplace arbitration for years. Some have reported that this is an offshoot of the #MeToo movement. But the battle began well before then. The reasoning has nothing to do with arbitrators being biased (they are certainly better at applying the law to the facts than juries) or plaintiffs not having an effective way to vindicate their rights (they can bring the same claims for the same remedies). Nor are arbitration proceedings secretive, as some have argued. Nothing prevents employees in arbitration from publicizing their claims or the outcome.

The issue here is money. Everyone knows that, because juries are more likely to be swayed by emotion than arbitrators, a jury is more likely to grant a windfall verdict. A corollary of that is that cases that are heading to a jury trial (with the greater possibility of an emotion-fueled verdict) tend to settle at a higher dollar amount than cases that are headed to arbitration. Sure there are other arguments for and against arbitration. But it would be naive to underestimate the financial motives behind this battle — on both sides.