The California Supreme Court issued its opinion in Ramirez v. Charter Communications, affirming in part that the arbitration agreement contained some substantive unconscionability but remanding the case to determine whether the agreement could be salvaged by severing the unconscionable provisions. In doing so, the California Supreme Court clarified its view on the enforceability of several common arbitration provisions – including those limiting discovery in arbitration – and the standard courts should apply when deciding severability.

The Case

Angelica Ramirez was hired by Charter Communications in July 2019 and signed an arbitration agreement as a condition of her employment. After her termination in May 2020, Ramirez sued Charter Communications for discrimination, harassment, and retaliation under the Fair Employment and Housing Act (FEHA).

Both the trial court and the Court of Appeal found the arbitration agreement to be procedurally and substantively unconscionable and ruled that these unconscionable elements could not be severed from the agreement. With respect to substantive unconscionability, the lower courts identified four provisions that, in their view, were unconscionable:

  1. The lack of mutuality in the covered and excluded claims provisions.
  2. A shortened limitation period for filing claims.
  3. The limited number of depositions.
  4. The potential for the employer to recover attorneys’ fees if it prevails on a motion to compel arbitration.

The California Supreme Court granted review, with a particular eye toward resolving a split in the Court of Appeal regarding the enforceability of an arbitration provision awarding attorneys’ fees to an employer that prevails on a motion to compel arbitration and ultimately held that three of the four provisions identified by the lower courts gave rise to substantive unconscionability:

  • Mutuality – The California Supreme Court agreed that the lack of mutuality in the covered and excluded claims gave rise to substantive unconscionability. The agreement excluded from its coverage claims mostly likely to be brought by the employer including claims related to intellectual property rights, noncompete agreements, theft, and disclosure of trade secrets. Meanwhile, the only excluded claims that an employee might bring were already not arbitrable as a matter of law, such as claims for workers’ compensation and unemployment insurance benefits.
  • Shortened Statute of Limitations – The California Supreme Court also agreed that the effective shortening of the statute of limitations for filing FEHA claims from three years to one year gave rise to substantive unconscionability.  The Court reiterated that while arbitration agreements may shorten the statute of limitations for filing claims, such must be “reasonable.”
  • Attorney Fee Shifting – The California Supreme Court also agreed that a provision allowing the employer to recover attorneys’ fees for prevailing on a motion to compel arbitration gave rise to substantive unconscionability.  The Court reasoned that such a provision imposed a potential expense on the employee that the employee would not have otherwise faced since employers ordinarily cannot recover attorneys’ fees in a FEHA action unless there is a finding that the action was frivolous, unreasonable, or groundless.
  • Discovery Limitations – The California Supreme Court disagreed, however, with the conclusion that the agreement’s limitation on depositions gave rise to substantive unconscionability. The Court reiterated that arbitration agreements may include limitations on discovery so long as the employee is afforded discovery “adequate” to vindicate statutory rights. Rejecting the employee’s assertion that she would need at least seven depositions to prosecute her FEHA claims yet the agreement only afforded her four, the Court stressed that unconscionability is determined at the time the agreement is entered, not in hindsight after claims are asserted. Moreover, four depositions were not unreasonable in light of the fact that the agreement could be construed as allowing the arbitrator to grant additional depositions if needed.

Having concluded that three of the four identified provisions were substantively unconscionable, the California Supreme Court remanded the matter for the lower court to determine if severance of the unconscionable provisions would be appropriate.

In doing so, the Court re-highlighted three principles that should guide a court’s severability analysis. First, the test for severability is qualitative, not quantitative: the key question is whether “the central purpose of the contract is tainted with illegality,” not whether one, two, three, or more provisions give rise to unconscionability.  Second, while an arbitration agreement can be cured by severing or limiting a provision, it cannot be cured through reformation, augmentation, or a rewriting of the agreement. Third, a court must consider whether severing the offending provisions and enforcing the balance of the agreement furthers the interests of justice.

Takeaway

California arbitration case law continues to evolve at a torrential pace.  Employers should carefully monitor developments in this area and routinely have their arbitration agreements reviewed to ensure enforceability.

If you have questions about this decision or issues related to employment arbitration agreements contact a Jackson Lewis attorney to discuss.

On July 15, 2024, Governor Newsom signed Assembly Bill (AB) 1870, which mandates that employers include information in their notices about an injured employee’s right to consult with a licensed attorney for advice about workers’ compensation law and that attorneys’ fees may be paid as part of the injured worker’s award.   

In California, employers have specific obligations to ensure their employees are well-informed about their rights and benefits under the workers’ compensation system. Employers must post a workers’ compensation informational poster in a conspicuous location frequented by employees.

Employers are required to provide new employees with a workers’ compensation pamphlet that outlines their rights and benefits. This must be done either at the time of hiring or by the end of the employee’s first pay period.

If an employee is injured, the employer must provide a Workers’ Compensation Claim Form (DWC 1) and a Notice of Potential Eligibility within one working day of learning about the injury.

AB 1870 expands these requirements to include notice of the employee’s right to consult a licensed attorney and that attorney’s fees may be paid from the injured worker’s award.

This requirement takes effect January 1, 2025.

If you have questions on AB1870 or related issues, contact a Jackson Lewis attorney to discuss.

California’s Governor signed Assembly Bill (AB) 2299 on July 15, 2024, which requires the state’s Labor Commissioner to develop a model list of employee rights and responsibilities under existing whistleblower laws. Employers will be required to post this notice beginning January 1, 2025. The notice must be written in a font larger than 14 point and contain the telephone number of the whistleblower hotline.

Under existing California law, employers are required to post certain workplace notices, including a list of employees’ rights and protections under whistleblower laws. However, the current law does not require employers to post a specific notice drafted by the Labor Commissioner outlining employee rights and responsibilities under whistleblower laws.

The Labor Commissioner previously issued a sample notice pursuant to the current law which includes the disclaimer that the Labor Commissioner does not guarantee its posting by employers fulfills the requirements of California law.

The new bill simply codifies the requirement for the Labor Commissioner to develop a model notice that complies with employers’ existing posting requirements so that employers posting the model notice shall be deemed in compliance with the law.

This requirement will take effect on January 1, 2025.

If you have any questions about AB 2299 or California posting requirements, a Jackson Lewis attorney is available to provide advice and counsel.

On June 29, 2024, California’s Governor signed Senate Bill (SB) 159, a budget bill pertaining to healthcare. Within this budget bill were revisions to California’s health care worker minimum wage, further delaying the implementation. On the last day of May, the Governor signed an urgency bill to delay the implementation of California’s health care worker minimum wage until July 1, 2024.  

SB 159 delays the implementation of the minimum wage until at least October 15, 2024.

The amendments put in place by SB 159, delay the implementation of the health care minimum wage until one of the following occurs:

  • The Department of Finance finds that the agency cash receipts for the period from July 1 through September 30, 2024, are at least three percent higher than projected at the time of the enactment of the 2024 Budget Act. If this occurs the health care minimum wage would be effective October 15, 2024.
  • The Department of Health Care Services has initiated the data retrieval necessary to implement an increase to the hospital quality assurance fee beginning January 1, 2025. If this notification occurs the health care minimum wage would be effective the earlier of January 1, 2025, or 15 days after the notification to the Joint Legislative Budget Committee.

As a budget bill, these amendments take effect immediately.

If you have questions about the changes made by SB 159 or the health care minimum wage, contact a Jackson Lewis attorney to discuss.

On June 20, 2024, the California Occupational Safety and Health Standards Board (Cal/OSHA) unanimously adopted a new standard for Heat Illness Prevention in Indoor Places of Employment. A prior attempt to pass the regulation failed on procedural grounds.

Covered Employers

The new standard will apply to all indoor work areas where the temperature equals or exceeds 82 degrees Fahrenheit when employees are present. However, the standard does not apply to employees who telework from a location of their choosing that is outside the employer’s control. In addition, the standard does not apply to “incidental heat exposures” of less than 15 minutes in any 60-minute period when the temperature is about 82 degrees Fahrenheit and below 95 degrees Fahrenheit.

Prisons and certain detention facilities are also exempted from the standard.

Additional requirements under the regulation may apply when the temperature equals or exceeds 87 degrees Fahrenheit.

Employer Obligations

For workplaces subject to the regulations employers will be required to do some or all of the following depending on the heat index at the workplace:  

  • Provide drinking water. Where drinking water is not plumbed or otherwise continuously supplied, employers shall provide sufficient quantities at the start of the shift to provide one quart per employee per hour of drinking for the entire shift.
  • Provide access to cool-down areas which are defined as an indoor or outdoor area that are blocked from direct sunlight and shielded from other high radiant heat sources.
  • Assess temperature and heat index and evaluate risk factors of heat illness.
  • Establish and maintain accurate records of either the temperature or heat index measurements.
  • Use control measures to minimize the risk of heat illness including engineering controls, and administrative controls.
  • Develop emergency response procedures and conduct employee training.

The Cal/OSHA Board has requested that the Office of Administrative Law (OAL) expedite its effective date. If this happens the standard will take effect in early August 2024. If the rule is not expedited, then it will take effect on October 1, 2024.

If you have questions about the Indoor Heat Regulation or related issues, contact a Jackson Lewis attorney to discuss.

On June 18, 2024, Governor Newsom announced a deal had been reached with the legislature and business groups to reform California’s Private Attorneys General Act (PAGA).

The agreement apparently comes after several months of negotiations between various business groups that had been pushing forward a ballot measure to repeal PAGA and labor advocates.

The following is an outline of the agreement:

Reform penalty structure

  • Encourages compliance with labor laws by capping penalties on employers who quickly take steps to fix policies and practices, and make workers whole, after receiving a PAGA notice, as well as on employers who act responsibly to take steps proactively to comply with the labor code before even receiving a PAGA notice.
  • Creates new, higher penalties on employers who act maliciously, fraudulently, or oppressively in violating labor laws.
  • Ensures that more of the penalty money goes to employees by increasing the amount allocated to employees from 25% to 35%.

Reducing and streamlining litigation

  • Expands which Labor Code sections can be cured to reduce the need for litigation and make employees whole quickly.
  • Protects small employers by providing a more robust right-to-cure process through the Labor and Workforce Development Agency (LWDA) to reduce litigation and costs.
  • Codifies that a court may limit the scope of claims presented at trial to ensure cases can be managed effectively.

Improving measures for injunctive relief and standing

  • Allows courts to provide injunctive relief to compel businesses to implement changes in the workplace to remedy labor law violations.
  • Requires the employee to personally experience the alleged violations brought in a claim.

Strengthening state enforcement

  • Give the Department of Industrial Relations (DIR) the ability to expedite hiring and fill vacancies to ensure effective and timely enforcement of employee labor claims.

While this reform is exciting for employers, legislation still needs to be passed and signed by the Governor for the changes to take effect. The groups pushing forward the ballot measure will withdraw the initiative if the measure passes the legislature and is signed by the Governor by June 27.

Jackson Lewis will continue to track these developments as the legislation takes shape. If you have questions about PAGA or related issues, contact a Jackson Lewis attorney to discuss.

Most California employers must adhere to both federal and state minimum wage laws.  Recent developments at the state and local level have ushered in new changes to California minimum wage laws. At the state level, California raised the minimum wage to $16.00, subject to certain industry- and locality-specific requirements.  This new minimum wage—which applies to most California employers—took effect on January 1, 2024

California also imposed two new industry-specific minimum wage requirements this year.  A new minimum wage requirement for the fast food industry took effecton April 1, 2024.  Another minimum wage requirement for healthcare workers takes effect July 1, 2024.  

Local entities such as cities and counties can establish higher minimum wage rates within their jurisdictions. When conflicting requirements arise, employers must follow the stricter standard, which is usually the standard that most benefits employees. Many localities follow California’s practice of adjusting their minimum wage at the start of the year, however, the following localities will raise their minimum wage on July 1, 2024:

LocalityCurrent Minimum WageNew
Minimum Wage
Alameda$16.52$17.00
Berkeley$18.07$18.67
Emeryville$18.67$19.36
Fremont$16.80$17.30
City of Los Angeles$16.78$17.28
County of Los Angeles (unincorporated areas only)$16.90$17.27
Malibu$16.90$17.27
Milpitas$17.20$17.70
Pasadena$16.93$17.50
San Francisco$18.07$18.67
Santa Monica$16.90$17.27
West Hollywood$19.08$19.61

Do you have any questions about California minimum wage compliance or related issues? Contact a Jackson Lewis attorney to discuss.

In 2019, California enacted Senate (SB) Bill 707, a law codified as California Code of Civil Procedure sections 1281.98 and 1281.99, that automatically deems an employer’s failure to pay fees required for the commencement or continuation of arbitration within 30 days of the payment’s due date a material breach of the arbitration agreement. A finding of material breach allows the employee to take unilateral action to move the case to court and seek sanctions against the employer.

Since SB 707’s enactment, California courts have consistently upheld the law as consistent with, and therefore not preempted by federal law. However, in a recent decision, Hernandez v. Sohnen Enterprises, Inc., the Second Appellate District of the California Court of Appeal concluded that an arbitration agreement governed by the Federal Arbitration Act (FAA) is not subject to California’s law requiring a finding of a material breach due to an employer’s failure to pay arbitration fees. In other words, when an agreement falls within the scope of the FAA and does not expressly adopt California arbitration laws, the FAA preempts the provisions that mandate findings of breach and waiver.

Underlying Action

Sohnen Enterprises and its employees executed arbitration agreements that specifically stated that the FAA governed the agreement and any arbitration proceeding conducted pursuant to the agreement. The agreement referenced the FAA and federal law in several areas and made no mention of California arbitration law. For example, the agreement stated that the agreement “is governed by the [FAA],” a party could “seek court appointment of an arbitrator pursuant to the FAA,” discovery and motions during the arbitration would be conducted in accordance with the Federal Rules of Civil Procedure, and the parties waived class actions “to the fullest extent permitted by the FAA.”

On July 16, 2021, Massiel Hernandez initiated a civil action against the company for alleged disability discrimination, Labor Code violations, and related claims.  However, four months later, the parties stipulated to arbitrate the claims pursuant to the arbitration agreement described above. Accordingly, the trial court entered an order consistent with the terms of the parties’ stipulation, including the statement that the company must pay the arbitration costs on or before any deadline specified by the arbitrator.

Hernandez subsequently initiated arbitration, and on April 7, 2022, the arbitration provider sent an invoice to the parties stating the filing fee ($1,750) was due upon receipt. The company paid the filing fees on May 13, 2022 – more than the 30 days allowed by SB 707.

Hernandez then filed a motion in the trial court to withdraw from the arbitration based upon the company’s failure to pay the arbitration fees timely. The trial court ruled that pursuant to California law, the company had breached the arbitration agreement and granted the motion to withdraw. The trial court held that the FAA did not preempt California’s law deeming an employer’s failure to pay fees timely as a material breach of the arbitration agreement. 

The Court of Appeal disagreed and reversed the trial court’s decision. The Court of Appeal held that SB 707 is preempted and invalidated by the FAA because California’s law treats arbitration agreements less favorably than other contracts.  Whereas a breach of a contract generally requires a factfinder to evaluate potential defenses such as “substantial compliance,” breaches of arbitration agreements under California law do not.  Rather, under California law, the breach is deemed automatic as a matter of law without any room for defenses. This, according to the Court of Appeal, “make[s] it harder to enforce arbitration agreements,” in violation of the FAA.

Notably, the Court of Appeal acknowledged that five other California appellate courts have reached the opposite conclusion – i.e., that the FAA does not preempt SB 707.  But the Court of Appeal was not persuaded by the reasoning of those courts and stressed its conviction that “[i]mposing a higher standard for enforcement of arbitration agreements in consumer and employee disputes is contrary to the FAA’s policy to ensure arbitration agreements are as enforceable as other contracts.”

Finally, the Court of Appeal held that the company did not violate the trial court’s stipulated order, which stated that the company must pay the arbitration costs on or before any deadline specified by the arbitrator.  The Court of Appeal held that the court order did not set a deadline for payment that the company violated, the arbitrator provider’s invoice itself was ambiguous as to the payment’s deadline, and the court order did not reasonably advise the company of the consequences for violating any payment deadline.

 Takeaway

This is potentially good news for employers. The consequences for failing to pay arbitration fees on time can be harsh, even if the untimely payment was unintentional or not otherwise the employer’s fault. This decision, however, is unlikely the final word on the issue.  As noted above, this decision splits with other appellate decisions on the issue and could be appealed now, or through a different case later, to the California Supreme Court. Therefore, employers should continue to follow developments in this area closely.

Jackson Lewis will continue to track developments related to arbitration agreements in California. If you have questions about this case or related issues contact a Jackson Lewis attorney to discuss.

On May 31, 2024, Governor Newsom signed Senate Bill (SB) 828, which delays the effective date of the healthcare minimum wage statute by one month.

Last October, Governor Newsom signed SB 525, which enacted a multi-tiered statewide minimum wage schedule for healthcare workers. However, in light of a significant budget shortfall, the Governor called for changes to the statute including a delay in the effective date.

Although the law was set to take effect June 1, the legislature only proposed a potential delay on May 20th, which was quickly moved through the legislature to the Governor.

Under SB 828, the initial effect date of June 1, is changed to July 1, 2024. And thereafter all increases would occur on July 1, instead of June 1.

The bill has an urgency clause and therefore takes effect immediately.

If you have questions about SB 828 or the health care minimum wage, contact a Jackson Lewis attorney to discuss.

With a state as large and diverse as California, it appeals to businesses. However, the state’s unique employment law requirements can pose challenges to employers new to the state. The following are some action items employers need to complete before their first employee starts working in California.

California Employer Identification Number (EIN)

All employers in California must obtain an EIN by filing a DE-1 Registration Form with the Employment Development Department (EDD). The EIN serves as the state equivalent of the federal tax identification number. The EIN is essential for reporting employment taxes and complying with other state requirements.

Workers’ Compensation Insurance Coverage

California requires that all employers either have workers’ compensation insurance or be authorized to self-insure. Failure to comply with this requirement may subject an employer to penalties. 

Required Registration, Certification, or Licensing for Certain Industries

In California, certain industries require employers to be registered, certified, or licensed through various state agencies prior to operating a business. The California Division of Labor Standards Enforcement provides licensing or registration for the following industries:

If you have questions about expanding into California as an employer, contact a Jackson Lewis attorney to help ensure you are taking all appropriate steps under the law.