California Workplace Law Blog : California Employment Law Attorney & Lawyer: Jackson Lewis

The California Court of Appeal has held in a case under the California False Claims Act (FCA) that California’s Rules of Professional Conduct, generally prohibiting an attorney, directly or indirectly, from communicating with a represented party, including the party’s employees, did not apply to prohibit communications between two qui tam plaintiffs and the defendant-employer’s current employees. San Francisco United Sch. Dist. ex. rel. Contreras v. First Student, Inc., No. A134405 (Cal. Ct. App. Feb. 19, 2013). For details on Contreras, please see Plaintiffs Can Communicate with Defendant’s Employees in California False Claims Action, Court Rules.

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A positive development for employers. To establish liability in “mixed motive” employment discrimination cases under the California Fair Employment and Housing Act (FEHA), the employee must show that unlawful discrimination was a substantial factor motivating the adverse employment decision, the California Supreme Court ruled. Harris v. City of Santa Monica, No. S181004 (Cal. Feb. 7, 2013). However, if the employer proves that it would have made the same decision absent such discrimination, a court may not award damages, back pay, or order reinstatement. The employee could seek declaratory and injunctive relief, as well as attorney’s fees and costs. For the details, please see California Supreme Court Requires Discrimination as Substantial Motivating Factor in Mixed Motive Cases, Limits Damages Available to Employees.

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California employers should be prepared to welcome support dogs and other animals into the workplace as a reasonable accommodation for disabled workers requiring support under new disability regulations issued by the California Fair Employment and Housing Commission. The new regulations significantly expand protections for disabled workers and outline new requirements regarding reasonable accommodations, the interactive process, and proof of discrimination. For information on the key provisions, please see New California Disability Regs Allow Support Animals in Workplace, Mandate Broad Protections for Disabled Workers

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A California court of appeal has recently ruled that an employee is not protected by the Fair Employment and Housing Act (“FEHA”) for refusing to participate in or cooperate with a Company investigation into misconduct. McGrory v. Applied Signal Tech., Inc., (Cal Ct. App. No. H036597, 1/24/2013). In McGrory, California’s Sixth Appellate District rejected an employee’s claim that his employer committed unlawful retaliation by terminating the employee based on the employee’s uncooperative and deceptive behavior during a Company investigation into allegations of sex discrimination. The Court held that giving untruthful information in an investigation or failing to cooperate does not constitute “protected conduct” under the FEHA. Employers are not prohibited under the FEHA from taking action against employees on the basis of such conduct.

The Court reasoned that a company investigation does not meet the definition of a “proceeding” which is protected by the FEHA. Protected proceedings are those which are conducted by California agencies such as the Department of Fair Employment and Housing. The Court relied on analogous federal authority under Title VII to support its decision, as no California state authority addressed the issue. The Court also held that an employer’s honest communication to coworkers about the basis for the termination was not defamatory, as it met the standard for a privileged statement of opinion on a topic of mutual interest.

The Court acknowledged the limitation that uncooperative or deceptive conduct might be protected if it is in opposition to an unlawful practice. Absent such opposition, however, McGrory is a good case for employers dealing with belligerent employee witnesses. Employers are advised to consult with legal counsel to determine whether an employee’s conduct under such circumstances is protected and also to review how such a case would be viewed by the federal National Labor Relations Board under the National Labor Relations Act.

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The California Supreme Court has ruled that unions may continue to engage in “peaceful” picketing and other otherwise lawful union activities on an employer’s private property during a labor dispute and that two California anti-injunction statutes regarding labor activities do not run afoul of the First or Fourteenth Amendments of the U.S. Constitution. Ralphs Grocery Co. v. United Food & Commercial Workers Union, Local 8, No. S185544 (Cal. Dec. 27, 2012). The Court’s decision continues California jurisprudence favoring unions as a special interest group with the right to engage in what would be viewed in other states as an unlawful trespass. See our detailed article discussing the cases entitled, “Peaceful Union Picketing Permitted on Private Property, California High Court Rules, Upholds Labor Anti-Injunction Statutes”

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There are a number of new California  laws which could impact the workplace. We prepared a chart which lists the major pieces of employment legislation introduced in the California State Senate and Assembly during 2012 that were signed into law by Governor Jerry Brown. All of the bills listed become effective January 1, 2013. Please click here for a list of new laws.

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On November 13, 2012, the California Court of Appeal expressly rejected the viability of the “honest belief” defense in Richey v. Autonation, Inc.  In Richey, an employer terminated an employee who was on California Family Rights Act (“CFRA”) leave because, during that leave, the employee was allegedly working at a restaurant he owned.  Shortly thereafter, the employee initiated a lawsuit against the employer setting forth, among other things, claims for violation of CFRA.  After submitting the matter to arbitration, the employer successfully defended itself against the employee’s CFRA claims based upon the “honest belief” defense which states an employer who honestly believes that it is discharging an employee for misusing leave is not liable even if the employer is mistaken.  Objecting to the application of the “honest belief” defense under California law, the employee filed a motion to vacate the arbitration award.  The trial court denied the motion, confirmed the arbitrator’s decision and awarded costs. Plaintiff appealed.

The California Court of Appeal expressly rejected the viability of the “honest belief” defense and found it was contrary to established California law specifying an employer may not terminate an employee taking CFRA leave based solely on the fact the employee is working part time at another comparable job.  In further emphasis, the Court continued, “an employer may not, in terminating an employee who has been granted CFRA leave, defend a lawsuit from that employee based on its honest belief that employee was abusing his leave.”  Rather, the employer must present traditional evidence justifying its termination decision such as the employee’s employment would have otherwise ceased regardless of the CFRA leave.  Thus, the decision in Richey and the significant authority cited in support significantly weakens any discussion of the “honest belief” doctrine with respect to CFRA claims in California.

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Our colleague at the Workplace Privacy Blog has reported that the California Attorney General has started to enforce the state’s Online Privacy Protection Act.  Regardless whether a company is located in California, the Act requires any company that maintains a website that collects personal information about Californians to maintain a privacy policy on the site. Please read: California AG Begins Enforcing the State's Online Privacy Protection Act for Websites, Aps.

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In a case that could impact employers whose employees use their own vehicles for work, the California Supreme Court granted review to address whether an employer’s insurance policy covered a deadly automobile accident caused by an employee driving his own car. American States Ins. Co. v. Ramirez, No. S205073 (Cal. Oct. 24, 2012). Although this case is still pending, it should remind employers whose employees drive personal vehicles on company business to evaluate with their insurance brokers whether to obtain insurance coverage covering accidents that occur while the employees are working since the employer is likely to be sued. 

Employers should also recall that if an employer requires employees to insure their cars for more than the statutory minimum level of insurance, the California Division of Labor Standards Enforcement takes the position that employers must reimburse employees for those expenses under Labor Code Section 2802. We will continue to provide updates regarding the California Supreme Court’s review of the case as appropriate.

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A new case presents a mixed bag of results for California employers. As a general matter, California employers should be careful when classifying individuals as independent contractors, rather than employees. Reversing the denial of class certification in an action for various Labor Code violations, a California Court of Appeal held that whether newspaper delivery carriers were independent contractors or employees of the newspaper was amenable to class action treatment through common proof. Ayala v. Antelope Valley Newspapers, Inc., No. B235484 (Cal. Ct. App. Oct. 17, 2012). However, the Court affirmed the denial of class certification on the carriers’ claims for unpaid overtime and meal and rest period violations because such claims would require individual factual assessments.

This case provides employers with guidance regarding defending against wage hour class actions. Significantly, the appellate court held certain issues, such as payment of overtime or provision of meal or rest periods, are highly individualized since they depend on how many hours per day and week individuals work. The Court indicated such inquiries may render class certification inappropriate. Where the Court is being asked to examine the nature of a particular job and the employer’s control, the Court noted such issues may lend themselves to class treatment. There are many more issues in this case and employers should also be weary that the case could be appealed by either or both parties.

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Employers must carefully draft arbitration agreements and ensure the agreements are regularly updated for compliance with state and federal law. A California Court of Appeal held that owner-operator truck drivers were not required to arbitrate whether they were misclassified as independent contractors where the parties’ arbitration agreements applied to any dispute that arose “with regard to its application or interpretation.” Elijahjuan v. Superior Court, No. B234794 (Cal. Ct. App. Oct. 17, 2012).  The Court found that the misclassification claims fell outside the arbitration provision because it did not concern the application or interpretation of the Agreements; rather, the drivers sought to enforce their rights under the California Labor Code.  

The Court’s decision reiterates California’s hostility toward enforcing arbitration agreements and reminds employers that they need to make clear that all claims regarding the parties’ relationship are covered by the arbitration agreement. In light of this ever-changing legal climate, employers should continue to consult with their legal counsel when reviewing the enforceability of arbitration agreements. For a detailed discussion regarding this case, please see our article by clicking here

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Another arbitration case which is unfavorable to employers. A California Court of Appeal ruled that a human resources director who never signed the employer’s arbitration agreement, concealed that fact from her employer, and quit her job before doing so, could not be required to arbitrate her employment claims. Gorlach v. The Sports Club, No. B 233672 (Cal. Ct. App. Oct. 16, 2012). The Court rejected the employer’s equitable estoppel and implied contract theories and affirmed the denial of the employer’s motion to compel arbitration.

This case illustrates a pitfall for the unwary employer implementing an arbitration program. If an employer intends to require employees to sign an arbitration agreement as a condition of employment or continued employment, the employer needs to obtain a signed agreement. In addition, the employer should develop a system to audit that those signatures are obtained, including the signatures of members of management. There are also numerous other potential pitfalls with arbitration agreements so we suggest working with legal counsel prior to moving forward.

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On October 1, 2012, California enacted AB 1565, modifying certain rules for soliciting contractor bids under the California Public Contractor Code. Existing law permits school districts to request prospective bidders for public contracts to submit standardized questionnaires and financial statements to be verified under oath. AB 1565 adds section 20111.6 to the code, which now mandates the submission of such questionnaires and financial statements. School districts must also establish a uniform system of rating bidders on the basis of submitted questionnaires and statements. The law further requires that any standardized questionnaire cover the information listed in model guidelines provided by the Department of Industrial Relations (“DIR”).

The law also authorizes school boards to establish quarterly or annual prequalification procedures and does not preclude prequalification or disqualification of subcontractors. The new law does not apply to school districts with daily attendance of less than 2,500 students. The new law  applies only to certain kinds of public contracts and only those awarded between January 1, 2014, and January 1, 2019. Public school district boards should familiarize themselves with the new requirements and consult legal counsel to ensure compliance as to any public contracts.

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 Written by: Joseph Lazzarotti

Late last week, California Governor Jerry Brown "took to Twitter, Facebook, Google+, LinkedIn and MySpace to announce that he has signed two bills that increase privacy protections for social media users in California."

As discussed, one of the bills, A.B. 1844, updates California's Labor Code to significantly limit when employers could ask employees and job applicants for social media passwords and account information. However, the law permit employers to request an employee to divulge personal social media activity reasonably believed to be relevant to an investigation of allegations of employee misconduct or employee violation of applicable laws and regulations. This exception  applies so long as the social media is used solely for purposes of that investigation or a related proceeding.

The other bill, S.B. 1349, establishes a similar privacy policy for postsecondary education students with respect to their use of social media. While the bill prohibits public and private institutions from requiring students, prospective students and student groups to disclose user names, passwords or other information about their use of social media, it stipulates that this prohibition does not affect the institution’s right to investigate or punish student misconduct

The new laws take effect Jan. 1, 2013.

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California’s Third Appellate District has held that a violation of Labor Code section 132a cannot support a common law claim of wrongful termination in violation of public policy. In general terms, Labor Code section 132a states an employer may not discriminate against an employee for filing a workers' compensation claim or for having a work related injury. These kind of claims are adjudicated by the California Workers' Compensation Appeals Board. In Dutra v. Mercy Medical Center Mount Shasta, (C067169, Sept. 26, 2012), the Court found that Labor Code section 132a does not represent the sort of public policy which provides the basis for a common law wrongful termination in violation of public policy claim in civil court. In so ruling, the Court distinguished an earlier California Supreme Court case, City of Moorpark v. Superior Court, Cal. 4th 1143 (1998). In Moorpark, the Supreme Court acknowledged that Labor Code section 132a is not an exclusive remedy and plaintiffs may pursue parallel common law claims. The Dutra court agreed but held Moorpark did not specify which common law claims were appropriate following a Labor Code section 132a violation. Analyzing the underlying policy of Labor Code section 132a, the Court found that it is not a proper basis for a public policy wrongful termination claim. Accordingly, a plaintiff may not claim she was wrongfully terminated in violation of public policy in civil court merely because her termination allegedly violated Labor Code section 132a. Employers should consult with their legal counsel to determine how the decision may impact their operations, if at all. The case may also be appealed by a party.  

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California Governor Jerry Brown has signed into law a bi-partisan measure that seeks to curb rampant, frivolous Americans with Disabilities Act access lawsuits in the state and expand access to businesses for those with disabilities.  This is good news for California businesses.  The state reportedly has 12 percent of the country’s disabled population, but 40 percent of the nation’s ADA lawsuits. For a detailed article on the bill which has many different elements to it, please see our article entitled, "New California Law Targets Frivolous Disability Access Lawsuits."

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On August 29, 2012, California passed AB 1875. The Bill adds section 2025.290 to the California Code of Civil Procedure, which limits oral depositions in civil litigation to seven hours or less. However, the new law does not apply to cases brought by employees or applicants arising out of or relating to employment. The new law provides for exceptions where any circumstances or actions unfairly impede or delay the deposition. The law also makes exceptions for expert witness depositions, depositions in complex litigation, and depositions of “persons most qualified.”

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 A California Court of Appeal has issued a favorable opinion for employers regarding arbitration agreements. Specifically, the Court held that an employer did not waive its right to enforce an arbitration agreement by waiting to request arbitration until after the U.S. Supreme Court has issued a decision addressing the enforceability of class action waivers in arbitration agreements, the California Court of Appeal has ruled.  Reyes v. Liberman Broadcasting, Inc., No. B235211 (Cal. Ct. App. Aug. 31, 2012).  Significantly, the Court found the employer did not waive its right to arbitration because it had reasonably concluded it could not have enforce the agreement under the then-current state of California law and could have been subjected to class arbitration. For a detailed discussion of the case, please see our article, "Employer Did Not Waive Right to Compel Arbitration by Waiting for U.S. Supreme Court’s Decision on Class Action Waivers to File Its Motions"

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California AB 2396 was recently signed into law which amends existing law governing the employment of minors under 16 years of age in the entertainment industry. Specifically, the amendment addresses the employment of infants under the age of one month on a movie location or set. The bill clarifies that a temporary permit authorizing the infant’s employment will only be issued after the specific requirements of Labor Code § 1308.8 are met. For example, a pediatric physician must provide written certification that the infant is at least 15 days old; he/she must advise that the infant was carried to full term and was of normal weight; and, that the infant is physically capable of handling the stress of filmmaking. We will continue to provide updates regarding new California workplace legislation as finalized by the Governor.

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The California Governor signed into law AB 1964 which amends the Fair Employment & Housing Act (“FEHA”) to prohibit discrimination against individuals for the wearing of religious dress or the practice of religious grooming in the workplace. The FEHA already prohibits discrimination against “religious belief” or “observance.” However, the new amendment expressly states that religious dress and grooming practices qualify as a religious belief or observance.

Employers should “reasonably” accommodate religious belief and observance in the workplace. Under the new amendments, employers must provide some form of accommodation for religious dress and grooming unless doing so would be an undue hardship on the employer’s business. California employers should consider reviewing their employee handbooks and procedures to address this new change in the law and keep an eye out for additional legislation over the next couple of months.

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A California Court of Appeal has ruled that a non-compete agreement executed as part of a business sale was unenforceable under California law because it was insufficiently related to the sale. Fillpoint, LLC v. Maas, No. G045057 (Cal. Ct. App. Aug 24, 2012). Non-compete agreements are generally unenforceable in California. A limited exception under Business and Professions Code section 16601 recognizes non-compete agreements in connection with the sale of a business. This allows buyers to protect the value of their purchases from the acts by the seller which could diminish that value after the sale.

In Fillpoint, the Court found that the non-compete provisions of an employment agreement were unenforceable even when executed in connection with a stock purchase agreement. Both agreements limited an ex-employee’s ability to compete with the purchaser. However, while the stock purchase agreement only limited some competitive activity and only for three years following the stock purchase, the employment agreement broadly restricted future employment following the employee’s separation from the buyer. The Court found the employment agreement unenforceable because it was too broad and not sufficiently related to the stock purchase. The Court contrasted this with the stock purchase agreement, which was held to be part of the purchaser’s attempt to protect the value of its purchase.

This is a reminder that California courts carefully scrutinize non-compete agreements under California law. For a more in-depth discussion of this case, please see our article, Non-Compete Related to Business Sale Not Enforceable, California Court of Appeal Rules

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Written by Matthew D'Abusco

In a move intended to reduce spending and increase efficiency amid continuing budget difficulties, Governor Brown recently signed Senate Bill 1038 which will, among other things, eliminate the Fair Employment and Housing Commission effective January 1, 2013.  The duties of the Commission, primarily rulemaking and the administrative adjudication of discrimination claims, will be assumed in large part by the Department of Fair Employment and Housing (“DFEH”).  Starting in 2013, the DFEH will include a newly created Fair Employment and Housing Council.  The Council, which will be comprised of seven (7) members appointed by the Governor and confirmed by the Senate, will be responsible for the rulemaking and establishment of regulations formerly performed by the Commission.

The most notable change made by Senate Bill 1038  is the manner in which charges of discrimination can be pursued by the DFEH.  Under the current system, when the DFEH moves forward on a charge of discrimination against an employer, the matter is referred to the Commission and determinations are made following an administrative hearing.  Following the adoption of Senate Bill 1038, the DFEH is now authorized to file a case on behalf of a claimant directly in civil court and provide representation throughout the civil proceeding.  Prior to doing so, the DFEH will require both parties to participate in mandatory dispute resolution.  If the parties are not able to resolve the dispute, the DFEH will commence civil proceedings and, if successful, will be able to collect reasonable attorneys’ fees (at the Attorney General rate of $170.00 per hour) and costs.

In effect, the transfer of rulemaking responsibility from the Commission to the DFEH will not represent a noticeable change for California employers.  On the other hand, the ability of the DFEH to directly file claims in civil court, provide representation, and collect attorneys’ fees and costs could have a significant impact particularly with respect to how claims are investigated and resolved during the initial charge process.  While this will remain a developing issue, we will continue to monitor the situation and provide additional information when available.

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Written by: Mathew Bennett

The Ninth Circuit has recently requested the California Supreme Court to address the proper method of calculating employee commission payments to determine qualification for California’s commission salesperson exemption set forth in the Industrial Welfare Commission ("IWC") Wage Order Nos. 4 and 7. An employee generally can qualify for this exemption if: (1) they work for an employer who is covered by Wage Order Nos. 4 or 7; (2) the employee is paid more than one and one-half times the state minimum wage; (3)  more than half of the employee's compensation represents commissions; and,  (4) the employee is primarily engaged in the sales of a service or product. However, California law currently provides no guidance as to how commissions should be allocated across pay periods to determine whether employees meet the one and one-half times minimum wage requirement.

The Ninth Circuit faced this issue in Peabody v. Time Warner Cable, (9th Cir. 10-56846 8/17/12). Peabody, a former sales executive, sued the Company for unpaid overtime. Working approximately 45 hours per week, Peabody’s base salary amounted to approximately $8.55 per hour without commissions. Peabody alleged she met the one and one-half minimum for the exemption only for those pay periods in which she received commissions. However, Time Warner paid commissions based on a “broadcast month” schedule, a period of four to five weeks. Time Warner argued that it could average those commissions across the entire broadcast month to meet the one and one-half time minimum wage for all weeks worked. Peabody argued that commissions could only be allocated to the pay period in which they were paid. Accordingly, Peabody argued that she fell short of the one and one-half times minimum wage requirement for approximately half of her pay periods.

The Ninth Circuit acknowledged that California law provides little guidance on the proper calculation of compensation for the purposes of the commissioned sales exemption. Faced with two competing methods, the Court requested that the California Supreme Court determine “whether an employer can average an employee’s commission payments over certain pay periods” to satisfy California’s compensation requirement for the exemption.

The Ninth Circuit has agreed to accept the California Supreme Court's interpretation of the issue. The question is of particular importance to any employer under the two Wage Orders who are attempting to use the overtime exemption. Employers are also reminded that an employee must meet a state and federal overtime exemption in order for an employee to be exempt from both state and federal overtime requirements. There are potential situations where an employer could meet the California commission exemption but not meet the commission exemption under the Fair Labor Standards Act ("FLSA"), known as the Section 7(i) exemption. Also, employers who are not subject to Wage Order 4 or 7 should not attempt to utilize this commission exemption under California law. We will continue to provide updates on this issue as it develops.

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               Another California Court of Appeal provides employers with a victory with respect to the enforcement of arbitration agreements. Affirming an order compelling arbitration in a class action for California Labor Code violations, a California Court of Appeal ruled that the employee was required to arbitrate her individual wage and hour claims against her employer because the parties’ arbitration agreement was neither unconscionable, nor in violation of public policy. Nelsen v. Legacy Partners Residential, Inc., No. A132927 (Cal. Ct. App. Jul. 18, 2012).   Significantly, the Court rejected the employee's reliance on D.R. Horton, Inc., 357 NLRB No. 184 (2012) in which the National Labor Relations Board (“NLRB”) ruled that class action waivers in employment arbitration agreements violated the National Labor Relations Act (“NLRA). The Court noted it was not inclined to follow the NLRB decision, as it was not binding and went beyond the scope of the NLRB’s expertise. 

The Court’s decision provides employers with several positive developments, including the enforcement of an arbitration agreement and the Court’s well-reasoned critique of D.R. Horton.  Nevertheless, employers should be aware that arbitration agreements, including those with class action waivers, remain subject to challenge in California and in other forums, including before the NLRB.  At present, the NLRB appears committed to enforcing D.R. Horton and striking down class action waivers in arbitration agreements under its jurisdiction. As a result, employers should consult with their legal counsel when reviewing the enforceability of arbitration agreements.

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After previously denying class certification, a California district court recently dismissed an action against CVS Pharmacy seeking penalties under the Private Attorney General Act for failing to provide its retail clerks with suitable seating.   In Kilby v. CVS Pharmacies, Inc., the Court granted CVS’s motion for summary judgment and ruled that section 14(A) of the Wage Orders – requiring “[a]ll working employees … be provided with suitable seats when the nature of the work reasonably permits the use of seats” – did not apply to the CVS retail clerks at issue in the case.  The court explained that in evaluating whether the “nature of the work reasonably permits the use of seats,” the "nature of the work" performed by an employee must be considered in light of that individual's entire range of assigned duties, not particular duties an employee may perform throughout the day. 

The primary duty at issue in Kilby was the operation of the cash register, which plaintiff argued “reasonably permitted the use of seats” because the registers were in fixed locations and the duties could be performed while sitting.  The court rejected this piecemeal application of section 14(A), noting that many of the other duties of the CVS retail clerk required standing: “i.e., stocking shelves, assisting customers with locating items in areas of the store away from the cash registers, sweeping or other cleaning, retrieving items from high shelves, fetching photographs and cigarettes from other parts of the store, [etc.]”  The court also noted that Kilby was specifically trained to perform her job while standing, including operating the cash register, and that CVS trained its employees to stand in order to present an image of attentiveness.  In ruling on the issue, the Court specifically considered CVS’s business judgment in this regard, explaining it was “undoubtedly relevant to understanding the nature of a Clerk/Cashier's work.”

Although there is still time for an appeal, the important point from Kilby is to create reasonable expectations of the requirements of any position, including whether the overall nature of the position requires standing, and to communicate those expectations to employees.  If your job descriptions do not make these expectations clear, consider revising them, and, of course, consult your legal counsel when necessary.

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While likely subject to appeal by the plaintiff’s lawyer in the case, California employers received a welcome decision by a California Court of Appeal. The Court upheld a class action waiver in an arbitration agreement and also found the plaintiff could not bring claims under the California Private Attorney General Act (“PAGA”) in light of the arbitration agreement. The California Court of Appeal involved was the Second Appellate District, Division Two. See, Iskanian v. CLS Transportation etc. (CA2/2 B235158 6/4/12).

The Court followed the U.S. Supreme Court’s decision in AT&T Mobility LLC v. Concepcion (2011) __ U.S. __ [131 S. Ct. 1740] (Concepcion), which found that the Federal Arbitration Act (FAA) required arbitration agreements with class action waivers to be enforceable. The Court wrote:

Applying this binding authority, we conclude that the trial court properly ordered this case to arbitration and dismissed class claims

Importantly, the Court declined to follow D.R. Horton, 357 NLRB No. 184 (Jan. 3, 2012), where the National Labor Relations Board ("NLRB") held that “employers may not compel employees to waive their NLRA right collectively to pursue litigation of employment claims in all forums, arbitral and judicial.” The Court declared:

As the FAA is not a statute the NLRB is charged with interpreting, we are under no obligation to defer to the NLRB’s analysis. “[C]ourt’s do not owe deference to an agency’s interpretation of a statute it is not charged with administering or when an agency resolves a conflict between its statute and another statute.” (Association of Civilian Technicians v. F.L.R.A. (9th Cir. 2000) 200 F.3d 590, 592; see also Hoffman Plastic Compounds, Inc. v. N.L.R.B. (2002) 535 U.S. 137, 144 [“we have accordingly never deferred to the Board’s remedial preferences where such preferences potentially trench upon federal statutes and policies unrelated to the NLRA”]. . .

We decline to follow D.R. Horton. In reiterating the general rule that arbitration agreements must be enforced according to their terms, Concepcion (which is binding authority) made no exception for employment-related disputes.

Employers also received welcome news when the Court found that the plaintiff could not pursue the PAGA claims. The Court found that the FAA “preempts any attempt by a court or state legislature to insulate a particular type of claim from arbitration.” The Court’s decision provides employers with several positive developments. However, there are conflicting decisions regarding some of the issues in other California Court decisions and in other forums. As a result, employers should consult with their legal counsel when reviewing the enforceability of arbitration agreements.

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The Ninth Circuit Court of Appeals recently affirmed summary judgment in favor of an employer in an age discrimination case. However, not all news is good news regarding the Court’s decision in Schechner v. KPIX-TV, No. 11-15294 (9th Cir. May 29,2012). The Court “clarified” that the employees could use statistical evidence to establish a prima facie case of age discrimination even if the statistical evidence does not address the employer’s stated reasons for the adverse action. The Court stated:

Consistent with our precedents, we conclude that a plaintiff who submits statistical evidence that shows a stark pattern of age discrimination establishes a prima facie at step one of the McDonnell Douglas framework. We hold that statistical evidence does not necessarily fail to establish a prima facie case because it does not address the employer’s proffered non discriminatory reasons for the discharge. We do not hold that any statistical evidence of disparate treatment, regardless of its strength, will be sufficient to establish a prima facie case.

In a positive development for employers, the Court used the "same actor inference" when analyzing whether the employer’s reason for the discharge was a pretext for discrimination. The Count found that the employer was entitled to the favorable inference. The Court ruled against the employee finding:

“[W]here the same actor is responsible for both the hiring and the firing of a discrimination plaintiff, and both actions occur within a short period of time, a strong inference arises that there was no discriminatory motive.” Bradley v. Harcourt, Brace & Co., 104 F.3d 267, 270-71 (9th Cir. 1996).The same-actor inference is “a ‘strong inference’ that a court must take into account on a summary judgment motion.” Coghlan v. Am. Seafoods Co., 413 F.3d 1090, 1098 (9th Cir.2005) (quoting Bradley, 104 F.3d at 271). The inference applies to favorable employment actions other than hiring,such as promotion. Id. at 1097. It also may arise when the favorable action and termination are as much as a few years apart. Id.

Based on this inference and other factors, the Court found the employees failed to establish that the employer's reason for their lay-off was a pretext for discrimination. The case provides several lessons for employers when conducting layoffs and we suggest seeking advice from employment counsel to review potential issues.

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A good case for employers was recently issued with respect to the Personal Attendant overtime exemption. On May 14, 2012, the California Court of Appeal, Fourth Appellate District held that an individual who is exempt from overtime under the Personal Attendant overtime exemption with respect to Wage Order 15 is not disqualified from the exemption by performing routine health related tasks including, but not limited to: taking the temperature of the elderly resident; checking the pulse; assisting with an over the counter blood sugar test (applicable to diabetics); and, providing reminders and supervising the taking of medication by the elderly resident. See, Cash v. Winn (CA4/1 D0586575/14/12). The Court made clear that, as long as such duties are less than 20% of a Personal Attendant's job functions, the individual does not lose the protections of the overtime exemption.

Wage Order 15, Section (2)(j) defines a  "Personal attendant" as "baby sitters and means any person employed by a private householder or by any third party employer recognized in the health care industry to work in a private household, to supervise, feed, or dress a child or person who by reason of advanced age, physical disability, or mental deficiency needs supervision. The status of "personal attendant" shall apply when no significant amount of work other than the foregoing is required." The Court rejected the argument that a caretaker, who is not a licensed nurse, is disqualified from the Personal Attendant overtime exemption by performing "any form" of health care related services for an elderly client. While employers and families need to monitor if the case will be appealed by either party, it is a welcome clarification of the law for now.

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In a partial victory for employers, the California Supreme Court recently held in Kirby v. Immoos Fire Protection, Inc., S185827 (Cal. Apr. 30, 2012) that employees and employers may not recover their attorney's fees if they prevail in a lawsuit for meal or rest break payments under Labor Code § 226.7.

The Court analyzed the relevant statutory language and legislative history for Labor Code § 1194 and 218.5, the two statutes governing the award of attorneys fees for prevailing parties.  It noted that Labor Code § 1194 was a “one-way fee-shifting statute” authorizing an award of attorney’s fees only to employees who prevail on their minimum wage or overtime claims.  Labor Code § 218.5 is a “two-way fee-shifting statute” permitting an award of fees to either employees or employers who prevail on an action for the “nonpayment of wages.”  Notably, the Court held that a claim alleging a failure to provide meal or rest breaks merely alleged the “nonprovision of meal and rest periods” rather than the “nonpayment of wages” necessary for an award under Labor Code § 218.5.  Thus, an employer who successfully defends against a Labor Code § 226.7 claim will not be entitled to attorney’s fees.  Similarly, an employee who prevails on his/her meal and rest break claims will also be denied attorney’s fees.  It remains to be seen whether the Kirby decision will stem the wave of meal and rest break class action lawsuits filed in recent years.

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At the end of 2011, the Department of Fair Employment and Housing (“DFEH”) released its Annual Report for 2010.  It identifies some statistics that may be useful for employers, comparing results in 2010 with the previous three years.  The numbers illustrate a clear effort by the DFEH to close cases as quickly and efficiently as possible.  For example, in 2007, there were approximately 17,700 complaints with just over $9 million in settlements.  In 2010, the number of complaints jumped to nearly 19,500, resulting in almost  $12 million in settlements.  At the same time, with less overall complaints, there were nearly 5,000 open cases at the end of 2007 compared to 3,805 by the end of 2010. 

Overall in 2010, the average pre-accusation case settled for over $7,000 and the average post-accusation case settled for over $40,000, which the DFEH notes is “significantly less than the average $250,000 it would have cost employers to defend such actions.”  The DFEH has also increased its media presence, now with active Twitter, Facebook and Youtube pages.  See 2010 Annual Report for further details.

While we do not have an Annual Report for 2011 just yet, the DFEH recently released its 2011 Fourth Quarter report, which outlines some of the awards issued in the agency’s favor.  For example, the Fair Employment and Housing Commission awarded $35,000 to the employee in connection with a sexual harassment accusation against an employer, along with a $10,000 administrative fine.  In a case under the California Family Rights Act, the matter resulted in settlement of $70,000 to a former employee of a supermarket.  See New Fairtimes Fourth Quarter 2011 for further details.

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Reversing a $15 million judgment against an employer in a class action for alleged unpaid overtime, the California Court of Appeal, First Appellate District, has held that the trial court’s trial management plan, which used sampling evidence to prove class liability, denied the employer due process by preventing it from defending against over 90% of class claims. Duran v. U.S. Bank Nat’l Ass’n, Nos. A125557 & A126827 (Cal. Ct. App. Feb. 6, 2012). The Court found the plan “was fatally flawed” and concluded the lower court’s adherence to it denied the employer due process. The Court reversed the judgment and ordered the class to be decertified.

This is the first decision to analyze thoroughly the employer’s due process rights in a class action. It provides employers and their counsel a guide to trial procedures that raise due process red flags and may be able to provide authority for employers (and courts) when developing trial management plans in class actions. However, the case does not necessarily preclude the use of statistical sampling or representative testimony as a way to try class action litigation. Duran’s significance may depend on its probable resolution by the California Supreme Court, and its interpretation by other California courts. For a detailed analysis of the case, please review, "Due Process Concerns Sinks Overtime Class Action against Employer, California Court Rules."

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Recently, a California appeals court ruled that a prevailing defendant can recover fees paid to a plaintiff’s expert witness, rejecting the argument that fees may only be recovered for payments made to the employer/defendant’s own expert.  The case, Chaaban v. Wet Seal, is the first California case to expressly rule on the issue.  In Chaaban, Wet Seal made an early statutory offer of compromise (commonly referred to as a “998 offer”) to the plaintiff, who declined.  Shortly before trial, Wet Seal sought to depose the Plaintiff’s expert, Miles Locker, and was forced to pay him $2,500 for time he spent testifying at deposition.  Mr. Locker, a former senior attorney at California's Division of Labor Standards Enforcement, is an oft-hired expert, particularly in wage/hour cases.  The jury returned a verdict for Wet Seal and the company filed a memorandum of costs for a total of $29,770.67, including the $2,500 expended on Mr. Locker, plus the cost of his deposition transcript.  The court awarded Wet Seal all of these costs. 

On appeal, the plaintiff argued Wet Seal was only entitled to recover fees it paid to its own expert, not to hers.  The appellate court disagreed, affirming the trial court’s ruling and pointing out that the language of section 998 does not limit recovery to a defendant’s own expert.  The court further emphasized that the purpose behind statutory offers of compromise is to encourage plaintiffs to settle, and allowing recovery of costs paid to a plaintiff’s expert is squarely in line with that purpose. 

The lesson here is this: In connection with any litigation, consider statutory offers of compromise early on, particularly when expert witnesses are likely to be called by either side.  Now that it is clear that an employer may recover hefty fees it is forced to cough up for a plaintiff’s expert, plaintiffs may be more likely to seriously consider these statutory offers (and the costs of their experts) than  in the past.    

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               The U.S. Supreme Court recently declined to review a California Supreme Court ruling that the National Labor Relations Act (“NLRA”) did not preempt a Los Angeles city (“City”) ordinance. Cal. Grocers Ass'n v. Los Angeles (2011) 52 Cal. 4th 177; cert. denied Cal. Grocers Ass'n v. Los Angeles, 2012 U.S. LEXIS 1016 (U.S., Jan. 23, 2012).  In Cal. Grocers Ass'n, the City enacted the Grocery Worker Retention Ordinance regulating the ability of grocery store owners of a specific size (15,000 square feet or larger) to summarily replace the workforce after a change in ownership. Plaintiff California Grocers Association (Grocers) filed a complaint against the City to enjoin enforcement of the ordinance on the grounds it was preempted by the NLRA and federal labor laws. 

The Court analyzed federal labor laws and explained that preemption was directed at the process of organizing and bargaining, not local employment laws setting substantive minimum labor standards for all employees. Next, the Court considered whether there was evidence of a clear and manifest congressional intent to bar at any level the regulation of employee retention during ownership transitions. The Court found that the NLRA was silent as to an obligation to hire the employees of a purchased business. In addition, the Court held that the retention ordinance should not have a meaningful impact on successorship obligations i.e., if a new employer is deemed a successor of the old employer and hires a majority of its employees from the predecessor's workforce, the new employer has a duty to recognize and bargain with the union representing the predecessor's employees.

The dissent argued the ordinance impermissibly intruded on federal labor laws and the NLRA by obstructing an employer's right to select its own workforce and “profoundly” interfering with the collective bargaining process. Further, the ordinance violates the “successorship doctrine” because it effectively binds the new employer to bargain with the union selected by the former employer’s employees. As a result, employers should consult with their legal counsel to determine what impact, if any, this ordinance has on future transactions.

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On January 24, 2012, California employers received a welcome victory regarding commission plans and the commission overtime exemption under Wage Orders 4 and 7. In Muldrow v. Surrex Solutions Corp., (CA4/1 Case No. D057955 1/24/12), the Fourth Appellate District of the Court of Appeal found that employment recruiters were eligible for the California commission exemption under Wage Order 7. The Court found that the recruiters “engaged in sales” duties and otherwise qualified for the overtime exemption in Section 3(D) of Wage Order 7. The case provides a good discussion for employers regarding what constitutes “sales duties.” Section 3(D) provides an overtime exemption:

. . . to any employee whose earnings exceed one and one-half (1 ½) times the minimum wage if more than half of that employee’s compensation represents commissions.

In order to meet the commission exemption, the Court found an employee must: (1) be principally involved in selling a product or service, not making the product or rendering the service; and, (2) the amount of their compensation must be a percent of the price of the product or service. The Court held that the recruiters were engaged in “sales” since their primary job duty was to recruit "candidates" for employers. The Court decided that the offering of a candidate's employment services in exchange for money satisfied the definition of the word "sell.”

The case is instructive for employers subject to Wage Order 4 since there is a similar commission overtime exemption in Section 3 of the Wage Order. The commission exemption from overtime does not exempt an employer from Sections 11 and 12 of the Wage Order regarding meal and rest periods. However, the Court found that the Employer “provided” employees with meal periods and, therefore, denied the plaintiff’s meal period claims. It is important to remember that the commission exemption is not contained in all 17 Wage Orders. Moreover, employers must also ensure that employees meet an overtime exemption under the Fair Labor Standards Act (“FLSA”) to avoid the payment of overtime under federal law. Employer should consult legal counsel before relying on a similar argument since such analysis is highly fact sensitive and the Muldrow v. Surrex Solutions Corp case could be subject to further legal challenge.

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Employers are reminded that the procedure by which they enter into arbitration agreements with their employees is as important as the agreement’s language.  A provision in an employment application requiring the applicant, but not the employer, to submit all disputes to arbitration was both procedurally and substantively unconscionable, and therefore unenforceable, the California Court of Appeal, Third Appellate District, has ruled.  Wisdom v. AccentCare, Inc., No. C065744 (Cal. Ct. App. Jan. 3, 2012). 

The agreement was procedurally unconscionable, the Court said, because the trial court found the plaintiff-applicants had no opportunity to negotiate its terms, the applicable arbitration rules were not provided, and the employer did not explain the agreement’s meaning.  The agreement also was substantively unconscionable because, unlike the applicant, the employer was not bound to submit claims to arbitration.  Consequently, the appellate court affirmed the order denying arbitration. For extensive analysis of this decision, please click on the following article: Arbitration Agreement in Employment Application Unconscionable, Unenforceable, California Court Rules

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The California Division of Labor Standards Enforcement ("DLSE") has released the form notice that is compliant with the new California Wage Theft Prevention Act of 2011 in six (6)  languages. The notices are now available in: (1) English; (2) Vietnamese; (3) Chinese; (4) Korean; (5) Spanish; and, (6) Tagalog.

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On December 21, 2011, a California appellate court made two important rulings regarding reporting time and split shift pay: First, non-exempt employees are not entitled to “reporting time pay” for attending scheduled meetings at work, even though no “usual” day’s work is performed, as long as the employee is paid for at least half of the time for which the meeting was scheduled. 

Second, non-exempt employees are not owed additional compensation for working “split shifts” when they earn at least minimum wage for all hours worked that workday, plus an additional one hour’s pay at the minimum wage rate. 

The case, Aleman v. AirTouch Cellular, is the first published California case on the two issues.  It involved former non-exempt employees of AirTouch who alleged, among other things, that the company violated two provisions of IWC Wage Order 4 (which are identical in all material respects to many of the Wage Orders), including failing to pay reporting time pay and failing to pay split shift compensation for days when employees attended a work meeting in the morning and then worked another shift later that same day. 

On the first issue, the Court focused on the language of the Wage Order, and in particular, the requirement that reporting time pay be paid only when the employee is required to report for work and “is not put to work or is furnished less than half said employee‘s usual or scheduled day‘s work.”   Cal. Code Regs., tit. 8, § 11040m subdv. 5(A) (emphasis added).  The Court noted that the requirement to pay reporting time pay is expressly conditioned upon the employee either not being put to work at all, OR being paid less than half his/her usual OR scheduled day’s work.  Importantly, because these meetings were actually “scheduled” in advance, and because the employees were paid for their time at the meetings, which was always at least half of the time for which the meetings were scheduled, the condition that triggers payment of reporting time pay did not occur and no reporting time pay was owed. 

With respect to the second issue, the Court looked to the language of the section at issue, and also to its placement within the section on  “Minimum Wage.”  Specifically, subdivision (C) of section “4. Minimum Wage.”  reads: “When an employee works a split shift, one (1) hour‘s pay at the minimum wage shall be paid in addition to the minimum wage for that workday, except when the employee resides at the place of employment. Cal. Code Regs., tit. 8, § 11040, subd. 4(C) (emphasis added). 

The Court held that if the employee receives at least minimum wages for all hours worked, plus an additional hour’s pay at the minimum wage rate, no additional or “split shift pay” was owed.  Thus, for example, an employee who works a split shift with total of 8 hours in the workday at $10 per hour for a total of $80 would not be owed any split shift pay because he/she received at least minimum wage for all hours of work ($8 x 8 = 64) plus an additional $8.  Had this employee been paid $8.15 per hour for a total of $65.20, he would be owed an additional $6.80 ($8 x 8 hours = $64 + $8 = $72; $72-$65.20 = $6.80) to bring him within the required amount. 

Although Aleman may be appealed, for now it provides employers with some valuable guidance: Schedule workplace meetings in advance, including the meeting’s likely duration, and for those employees working split shifts, no additional compensation is owed provided that the employee earns at least minimum wage for all hours worked, plus an addition one hour’s pay at the minimum wage rate.

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The California Division of Labor Standards Enforcement ("DLSE") has released a Frequently Asked Questions and a form notice that is compliant with the new California Wage Theft Prevention Act of 2011.  Effective January 1, 2012, the Act requires employers to provide many new employees with written notice that details their rates of pay, employer name and address, workers’ compensation carrier, and other information specified in the Act.  Since Governor Jerry Brown signed the law in October, California employers have struggled to develop notices that are compliant.

The Act required the DLSE to develop and publish a compliant notice.  The DLSE published the notice on its website on December 29.

Form notices in Word format and PDF format

DLSE's Frequently Asked Questions

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       California-based employers who send workers from other states into California must pay the employees pursuant to California law, not the law of the state where the employees reside, according to the Ninth Circuit Court of Appeals in Sullivan v. Oracle Corp. 06-56649 (9^th Cir. Dec. 13, 2011). 

In Sullivan, Oracle hired “Instructors” to train customers to use Oracle software. Oracle classified its Instructors as “teachers,” exempt from the overtime provisions of California’s Labor Code. Plaintiff instructors filed a class action against Oracle alleging: (1) Oracle failed to pay overtime to nonresidents for work performed in CA; (2) violations of the Unfair Competition Law (“UCL”) based on alleged violations in the first claim; and, (3) a UCL claim based on violations of federal law under the FLSA. The Court overturned a district court decision granting summary judgment to Oracle on plaintiffs’ putative class action.

The Ninth Circuit sought guidance from the California Supreme Court on several state law issues, including whether the California Labor Code applies to overtime work performed in-state for a California-based employer by out-of-state plaintiffs. The California Supreme Court concluded that California’s overtime law applies to work performed in-state by these nonresident employees since their company was headquartered in California. The Ninth Circuit adopted the California Supreme Court’s answers to hold that California’s overtime provisions applied to work performed in-state by nonresident plaintiffs. The Court rejected Defendant’s argument that the application of the California Labor Code to the nonresident plaintiffs’ work violated the Due Process Clause of the Fourteenth Amendment and the Dormant Commerce Clause of the U.S. Constitution.

Employers must understand that if you are headquartered in California and have employees residing in other states, those employees must be paid pursuant to California law if they enter California for a full day or more. This decision will affect perhaps thousands of workers sent from out of state to work on assignments in California for days or weeks. The greatest impact will be on non-exempt workers who will be entitled to daily overtime, a rarity in most other states. All employers who send non-exempt, out of state employees to work in California should seek legal advice regarding the impact, if any, of this decision on the employer's procedures.  The decision also may be an ominous sign for employers with respect to how the Court may rule in the meal and rest break cases pending before the Court.

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San Francisco’s Health Care Security Ordinance has been amended to require additional obligations for covered employers with workers in the City and County of San Francisco.  The amendments will take effect January 1, 2012. The Ordinance requires many employers to spend a specified minimum amount toward certain health care expenses for their employees working in the City and County of San Francisco. See a detailed discussion regarding the changes at Employers Must Comply with Changes to San Francisco Health Care Mandate

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                On October 7, 2011, Governor Brown signed AB 1396. The new law requires all employers doing business in California to draft written contracts for any agreements with employees that involve commissions as a method of payment for services. Commission wages are defined as compensation paid to any person for services rendered in the sale of an employer’s property or services and based proportionately upon the amount or value thereof.

               The deadline for employers to reduce all commission agreements to writing is January 1, 2013. In addition, employers must provide a signed copy of the contract to every employee covered by the commission agreement and obtain a signed receipt for the contract from each employee. There are no penalties associated with a violation of the new statute but presumably it could be a basis for suit under California’s Private Attorneys General Act (PAGA) and Unfair Competition Law.  

In addition to the new law, California already regulates the payment of commissions, the calculation of commissions and what happens with a commission upon termination/resignation. Ultimately, employers must draft written commission agreements by the deadline above and carefully review the terms of the documents to ensure they are clear and lawful.

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California’s Supreme Court will issue its long-awaited decision in its Brinker Restaurant Corporation meal and rest period case within the next four months. The Court will hold oral arguments in the case on November 8, according to an announcement the Court issued on October 4. The Court granted review in the case in October 2008.

The oral argument date sets the 90-day period within which the Court must issue a decision. Under California law, Supreme Court justices will not be paid when a case has been “submitted” for more than 90 days without a ruling. A case is deemed “submitted” as of the close of oral argument – meaning a decision must issue by the end of January 2012.

The Court will decide in Brinker Restaurant Corp. the meaning and requirements of California’s rules on meal and rest periods. The eventual decision also likely will have a significant impact on class certification rules in the state.

Most California employers know they must provide meal periods for employees who will work more than five hours. Most understand California law dictates that when a meal period is required, the meal break must be at least 30 uninterrupted minutes long, with the employee relieved of all duty. And most California employers know state law also calls for them to give employees opportunities to rest during the work day.

But just when during the work day should the meal break be given? Is there any flexibility in the timing of the meal period? What if an employee prefers to take her break earlier, or later – or maybe not at all? And must the employer force employees to stop working for meal periods, even where an hourly employee prefers to work through lunch?  

California’s Supreme Court is set to address these questions in the Brinker Restaurant Corp. case. The court of appeal in that case vacated a trial court order certifying a class of restaurant workers who contended their employer had caused them to take meal periods too early or too late in the work day, misplaced the timing of rest breaks, and made employees work “off the clock” – working time without getting paid for it. See Jackson Lewis article describing the case and the issues entitled, Special Report: Have Your Meal and Time to Eat It, Too! California Courts and the Law on Meal and Rest Breaks: 

The Brinker Restaurant Corp. case has received considerable attention from the business community and from the labor and employment bar. Its outcome will affect every employer of workers in California, and most employees as well. Stay tuned - we will continue to provide updates regarding this important development.

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For the first time, a California appellate court has addressed when paid leave offered as a sabbatical is considered “paid vacation.” The distinction is important because California has long held that separating employees must be paid for any accrued “paid vacation," whereas leave granted as part of a true sabbatical may be forfeited if not used prior to separation.

In Paton v. Advanced Micro Devices, Inc. No. H034618 (6^th App. Dist., Aug. 5, 2011), the appellate court emphasized that a sabbatical is more than additional vacation time. To qualify as a sabbatical, the paid leave must be “intended to retain the most experienced or valued employees or to enhance their future service to the employer.” Altering the Labor Commissioner’s test for a sabbatical, Paton found four factors distinguish a sabbatical from regular paid vacation:

1.      A sabbatical is granted infrequently (noting that once every seven years is the traditional frequency);

2.      The length of the leave is sufficient to achieve the purpose of the sabbatical—and when no conditions are set regarding how an employee spends his or her sabbatical, the length of leave should also be longer than that normally offered as vacation;

3.      A sabbatical is granted in addition to regular vacation; and

4.      The sabbatical program incorporates a feature that demonstrates the employee is expected to return to work after the leave is over.

Paton makes clear that employers must carefully consider whether sabbatical programs meet the new test. Any employer with a sabbatical program should document the purpose(s)/goals of the program and administer the program consistent with the identified purposes, noting that sabbaticals with no conditions on how the employee uses the leave (similar in nature to vacations) must meet additional standards. While general guidance can be gleaned from the specific facts in Paton, the court noted that the validity of each sabbatical program "will have to be decided on its own facts." Thus, employers should carefully review all of the circumstances associated with their particular sabbatical programs to ensure they are true sabbaticals.

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In a recent pro-employer decision, the California Court of Appeals held that California’s exemption from overtime requirements for commissioned employees applied to a car sales consultant and the decision provided flexibility for employers when crafting commission plans. Areso v. Carmax, Inc., 195 Cal. App. 4th 996 (Cal. App. 2d Dist. 2011). In Areso, the plaintiff received a fixed dollar amount for each sale of a car and a percentage of the purchase price for accessories sold. The trial court granted summary judgment for defendant, holding that plaintiff was properly classified as exempt and the Court of Appeal affirmed.

The Carmax decision is significant because it rejects the California Division of Labor Standards Enforcement’s traditional guidance that a commission must be a percentage of the actual sales price. Rather, Carmax holds that compensation under fixed incentive systems, which provide a uniform dollar payment for each product or service sold, may constitute commission wages. For more information on this case and its impact on California wage and hour laws, please see “California Court of Appeal Upholds Applicability of State Commission Exemption to Sales Consultant.”

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California based employers who send workers from other states into California must pay  the employees pursuant to California law, not the law of the state where those employees reside, according to the California Supreme Court ruling in Sullivan v. Oracle Corp. (SC  S170577 6/30/11).  The Supreme Court’s decision is a mixed bag of chocolates in that the Court went to great lengths to try to limit its holdings to employers headquartered in California but may have left the door open for litigation regarding employers headquartered in other states who send workers into California. The plaintiff’s bar may seize upon such statements by the Court as:

To permit nonresidents to work in California without the protection of our overtime law would completely sacrifice, as to those employees, the state’s important public policy goals of protecting health and safety and preventing the evils associated with over work . . . Not to apply California law would also encourage employers to substitute lower paid temporary employees from other states for California employees, thus threatening California’s legitimate interest in expanding the job market.

What is clear is if you are an employer headquartered in California and have employees residing in other states, you have to be sensitive that those employees must be paid pursuant to California law if they enter California for a full day or more.

This decision will affect perhaps thousands of workers sent from out of state to work on assignments in California for days or weeks. The greatest impact will be on non-exempt workers who will be entitled to daily overtime, a rarity in most other states.

Specifically, California’s highest court ruled that (1) the California Labor Code applies to overtime work performed in California for “a California-based employer” by out-of-state plaintiffs “in the circumstances of this case;” (2) California’s Business and Professions Code section 17200 (Unfair Competition Law) applies to such overtime work performed in California by out-of-state plaintiffs; and, (3) Section 17200 does not apply to overtime work performance outside of California for a California-based employer by out-of-state plaintiffs in the circumstances of the case if the employer failed to comply with FLSA overtime provisions.

The Court limited its holding to Labor Code provisions governing overtime and expressly stated California’s interest in the content of out-of-state pay stubs, or treatment of vacation time was not at issue.   All employers who send non-exempt, out of state employees to work in California should seek legal advice regarding the impact, if any, of this decision on the employer's procedures. The decision also may be an ominous sign for employers with respect to how the Court may rule in the meal and rest break cases pending before the Court.

Cynthia Filla, Robert Pattison and Jonathan Siegel drafted this blog entry

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In a decision that many employers have been waiting for since the Ninth Circuit's decision certifying a class of approximately 1.5 million women, the U.S. Supreme Court has rejected class action certification in “one of the most expansive class actions ever.” See Wal-Mart Stores v. Dukes, No. 10-277 (June 20, 2011). The case involved allegations of gender discrimination in pay and promotion decisions in violation of Title VII of the Civil Rights Act of 1964 made on behalf of all current and former female employees of Wal-Mart, estimated to number as many as 1.5 million. Reversing a Ninth Circuit decision that upheld the class certification, the Supreme Court found the lower courts had misapplied the federal rules governing the circumstances in which class certification should be accorded and the availability of damages as an incident of class injunctive or declaratory relief.

The plaintiffs alleged that Wal-Mart permits local managers to use broad discretion in making decisions regarding pay and promotion, that managers employ their own subjective criteria in making those decisions disproportionately in favor of men, and that Wal-Mart was aware of these results. In essence, the plaintiffs alleged that Wal-Mart’s “corporate culture” permitted bias against women to affect managers’ discretionary decisions regarding pay and promotion.

In a decision written by Justice Antonin Scalia, the Supreme Court disagreed with the lower courts’ conclusion that the plaintiffs had satisfied the class action requirements in Rule 23(a) and Rule 23(b)(2) of the Federal Rules of Civil Procedure. Justice Scalia observed at the outset that class actions are an “exception” to the general rule that litigation may be maintained only by named parties. While the courts’ role in keeping such actions within proper bounds may lead to class certification analyses touching the merits of the substantive claims, such overlap “cannot be helped,” he said, and must not cause courts to refrain from a “rigorous analysis” of whether plaintiffs have met the class certification standards. 

The case is significant in light of the recent increase in class actions based on protected categories in California. See a more detailed analysis by Jackson Lewis at "Supreme Court Reverses Certification of Nationwide Class of 1.5 Million Female Workers"

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In 2009, companies who classified certain unlicensed accountants, engineers and other professions as exempt from overtime under the California Learned Professional Exemption were dealt a broadside by a federal District Court when it held that unlicensed accountants were categorically ineligible for the Learned Professional Exemption. The decision lead to numerous employers revaluating the Learned Professional Exemption involving certain positions and it likely triggered significant exempt status litigation in California. See Campbell v. PricewaterhouseCoopers, LLP, 602 F. Supp. 2d 1163, 1185 (E.D. Cal. 2009).

On June 15, 2011, the Ninth Circuit reversed, in part, and remanded the lower court’s controversial decision and breathed new life into the California Learned Professional Exemption. See Campbell v. PricewaterhouseCoopers LLP, 9th Cir., No. 09-16370, 6/15/11.

The case involves approximately two-thousand unlicensed junior accountants at PricewaterhouseCoopers LLP. The court found that unlicensed accountants were not categorically barred from being classified as exempt from overtime based on the Learned Professional Exemption. The Court held that the employer could present evidence to establish the exemption to a jury.

Although not likely to receive as much attention, the Ninth Circuit also remanded to the jury certain important questions regarding the Administrative Exemption. For example, the jury must review whether the audit work performed by the junior accountants could be classified as work of “substantial importance” to the management of the clients’ operations. The issue of whether work is of a “substantial importance” under the Administrative Exemption is a critical element under the exemption which many employers struggle with interpreting. As a result, employers may also receive additional help in clarifying a problematic area under the Administrative Exemption. The Court noted:

While we recognize Plaintiffs are on the low end of PwC’s hierarchy, we see no authority that would bar their audit work from meeting this test as a matter of law. The former federal regulations incorporated by the administrative exemption include several examples of administratively exempt white collar employees, including tax consultants, wage-rate analysts, analytical statisticians, claim agents, and “many others.” Id. § 541.205(c)(3), (5). In contrast, the examples of nonexempt employees are predominately clerical—bookkeepers, secretaries, messengers, and other “clerks of various kinds.” Id. § 541.205(c)(1)-(2). Whether Plaintiffs are more comparable to the former category or the latter will depend on how the jury resolves the numerous factual disputes discussed above . . .

This case represents a well timed victory for employers with the end of the story still to be written by the jury which has the job to deliberate the factual issues in the case. However, employers should consult with their legal counsel regarding the implications, if any, of this decision for their organizations.

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The Ninth Circuit held today that the whistleblower provision of the Sarbanes-Oxley Act, 18 U.S.C. § 1514A(a)(1) (“SOX”), protects employees of publicly-traded companies who disclose certain information to three recipients: (1) federal regulatory and law enforcement agencies; (2) Congress; and, (3) employee supervisors. These three recipients are specifically enumerated in the law. The Court held that “leaks to the media are not protected.” See, Tides v. Boeing Co., 9th Cir., No. 10-35238, (5/3/11)

The plaintiffs alleged that their disclosures of perceived SOX violations to a newspaper were protected under § 1514A(a)(1) because reports to the media may inevitably “cause information to be provided” to Congress, federal law enforcement or regulatory agencies. The Ninth Circuit refused to adopt such an inevitable disclosure doctrine under SOX. Rather, the Court relied on the plain language of the statute when it wrote:

If Congress wanted to protect reports to the media under § 1514A(a)(1), it could have listed the media as one of the entities to which protected reports may be made.

The decision is a victory for publically-traded employers since plaintiffs’ arguments could have lead to a significant expansion of SOX. Employers should continue to monitor the case to see if the Ninth Circuit’s decision will be appealed.

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Continuing to uphold the enforcement of arbitration agreements, the U.S. Supreme Court has struck down the California courts’ refusal to enforce class action waivers in consumer arbitration agreements on the ground that the state law is preempted by the Federal Arbitration Act. AT&T Mobility LLC v. Concepcion, No. 09-893 (Apr. 27, 2011). The ruling would appear to apply to arbitration agreements in the employment context as well. The Court reversed the decision of the Ninth Circuit Court of Appeals, which had held that AT&T’s arbitration clause was unconscionable and unenforceable under California law.

Although AT&T Mobility involved a consumer contract, the principles and rationale of the decision appear to be fully applicable to arbitration clauses in employment contracts. Based on the Supreme Court’s decision in Concepcion, it would appear that such clauses are valid and enforceable.  Employers who utilize arbitration agreements should seek legal advice in the preparation of class action waiver provisions and for the drafting of arbitration clauses generally. Employers that do not utilize arbitration may want to consider whether such a policy is right for them and, if so, what type of alternative dispute resolution program would work for their organization. For a detailed analysis, please see Supreme Court Strikes Down California’s Prohibition of Class Action Waivers in Arbitration Agreements

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