Employers Cannot Consider Prior Salary History to Justify Wage Gap under the Federal Equal Pay Act

On April 9, 2018, the Ninth Circuit Court of Appeals issued its opinion in Rizo v. Yovino, holding that employers cannot consider an employee’s prior salary either alone or in combination with other factors to justify salary differentials between men and women for the purposes of the federal Equal Pay Act.

Aileen Rizo was hired by the Fresno County Superintendent of Schools (the “County”) as a math consultant. During the hiring process the County asked for Rizo’s recent, prior salary. When the County offered Rizo a position, it was about five percent higher than what she previously earned, but was the lowest rung of the county’s salary schedule. Rizo accepted the position, but later learned that she was being paid less than her male counterparts. She then sued under the federal Equal Pay Act.

The County argued at summary judgment that its pay schedule was determined solely by an applicant’s prior pay, not gender. Within the meaning of the federal Equal Pay Act, the prior pay was a “factor other than sex.” In denying summary judgment, the U.S. District Court warned that setting salary and wages based solely on prior pay carries a high risk of perpetuating the discriminatory wage disparity between men and women. Even if motivated by a non-discriminatory business consideration, such a practice cannot be allowed to continue.

The Ninth Circuit Court of Appeal, sitting en banc, affirmed the District Court’s ruling. Prior salary, the panel held, simply cannot be used solely or even as part of multiple other factors to justify differential pay between men and women. The Court reasoned that holding to the contrary would allow employers to benefit from the ongoing wage gap, enabling that gap to perpetuate indefinitely.

Judges Margret McKeown and Mary Murguia concurred with the panel’s decision that County’s sole reliance on Rizo’s prior pay was impermissible, but noted that the majority may have gone too far in holding that any consideration of prior pay as a factor in setting salary is not allowed under the Equal Pay Act. Likewise, Judges Consuelo Callahan and Richard Tallman agreed that prior salary cannot be the sole basis for setting salary, but stated there may be times when consideration of prior pay with other factors may be permissible. To hold otherwise, in their view, ignored the simple realities of business.

The State of California has already taken a similar approach with the 2015 amendments to the California Equal Pay Act (A.B. 1676), signed by Governor Brown, and effective January 1, 2016.  However, the Court’s decision here explicitly overturned the Court’s 1982 prior holding in Kouba v. Allstate Insurance Co., 691 F.2d 873 (9th Cir. 1982), which held that an employee’s prior pay was a factor other than sex for the purposes of the federal Equal Pay Act and can therefore be considered. This new ruling also contradicts the holdings of other federal circuits. Whether the U.S. Supreme Court will be called upon to reconcile the various holdings remains to be seen.

For the time being, employers within the Ninth Circuit may be in violation of both the federal Equal Pay Act and the California Equal Pay Act if any consideration is given to an employee’s prior salary.

If you have any questions about this case, please contact Shane Larsen or Dale Kuykendall in Jackson Lewis’ Sacramento office, or the Jackson Lewis attorney with whom you regularly work.

Balancing Client Needs with Employee Needs

A decision out of the Northern District of California serves as a reminder that service industries need to carefully balance their commitment to client care with wage and hour obligations. A case manager at a large medical facility filed a class action claim under the California Private Attorneys General Act (“PAGA”) against the facility for multiple violations of federal and California law, including failure to pay overtime wages and failure to provide meal and rest breaks.  The crux of her complaint was that she and other employees felt pressured to work off-the-clock in order to adequately tend to a larger number of patients after “cost-cutting measures” increased each employee’s workload.

The plaintiff alleged that the medical staff had to work through meal and rest periods and after their shifts ended to fulfill their duties for each patient. They would continue inputting patient notes and processing insurance claims after clocking out. According to the plaintiff, the defendant has electronic record systems that capture the time at which patient information is entered, showing that employees regularly enter patient notes and insurance claims after clocking out for the day. The plaintiff claimed that employees also regularly worked more than five hours without a meal because their performance reviews were largely dependent on dedication to timely patient care.

When the defendant medical center moved to dismiss the overtime and meal and rest break claims, the court denied the motion, repeatedly citing plaintiff’s allegations that the facility’s employees felt “required” to work off-the-clock. The defendant attempted to argue that the complaint failed to state why the plaintiff did not clock her overtime for the additional time she spent inputting patient data.  Although a plaintiff is not actually required explain exactly why she did not clock overtime, the court emphasized plaintiff’s allegations that employees felt required to do so after budget cuts resulted in a higher patient-to-employee ratio. When the medical facility also attempted to argue that the complaint failed to explain “how or why Plaintiff and the proposed class were deprived of meal breaks,” again the court referenced the plaintiff’s allegations regarding the budget cuts.  Additionally, the court cited the claims made about the facility’s policies, holding that the plaintiff sufficiently alleged that the defendant “discouraged taking rest and lunch breaks by emphasizing in performance reviews and policies that patient care should be the priority.”

It is important for employers to ensure that their employees are able to timely and successfully complete their duties, especially if considering reducing staff due to budgetary concerns. Employees in service-based industries such as healthcare may feel compelled to miss a meal or rest period or work off-the-clock to help a client or patient or for fear of poor performance reviews.

If you have any questions about this case, please contact Ashley Evans or Dale Kuykendall in Jackson Lewis’ Sacramento office, or the Jackson Lewis attorney with whom you regularly work.

California Appellate Court Rejects Legislative Attempt to Circumvent Federal Arbitration Act on Claims Involving the Ralph Act and Bane Act

In Saheli v. White Memorial Medical Center (B283217, Cal. Ct. App., March 14, 2018), the Court of Appeal for the Second Appellate District addressed for the first time whether restrictions on arbitration agreements contained in the Ralph Act and Bane Act are preempted under the Federal Arbitration Act (“FAA”).

“The Ralph Act broadly provides that all persons ‘have the right to be free from any violence, or intimidation by threat of violence, committed against their persons or property’ because of, among other things, the person’s race, religion, national origin, sex, sexual orientation, or position in a labor dispute.” The Bane Act, enacted 10 years after the Ralph Act, “was ‘intended to supplement the Ralph Civil Rights Act as an additional legislative effort to deter violence’” and “provides that if a person interferes, or attempts to interfere, by threats, intimidation, or coercion, with the exercise or enjoyment of the constitutional or statutory rights of ‘any individual or individuals,’” they may be “‘sue[d] for damages[.]’”

Those familiar with the Ralph Act and Bane Act know that they can provide a parallel remedy in harassment or discrimination cases in which the conduct alleged could also be construed as a “hate crime.”

After a careful analysis, which included an in-depth analysis of the California legislature’s hostility towards arbitration, the Court held that the Acts were preempted to the extent the enforceability of arbitration agreements were conditioned on special requirements not applicable to contracts generally.

In 2014, the Ralph Act and Bane Act were amended to limit the circumstances under which an individual could waive their rights under the Ralph Act or Bane Act, or waive their rights to bring such claims in a judicial forum. The amendments invalidated any agreements or waivers entered into on or after January 1, 2015 that did not meet certain requirements.

On June 7, 2016, plaintiff Gezel Saheli signed an arbitration agreement in connection with a medical residency program at White Memorial Medical Center. The agreement that did not meet the requirements set forth in the Ralph Act and Bane Act.  Less than a year later, Saheli filed a complaint that contained claims under the Ralph Act and Bane Act.  White Memorial Medical Center successful compelled all claims to arbitration with the exception of the Ralph Act and Bane Act claim, which the trial court denied because the arbitration agreement did not comply with the 2014 amendments to the Ralph Act and Bane Act.  White Memorial Medical Center appealed.

On Appeal, the Court addressed two primary issues: (1) whether the parties intended to incorporate state law that are potentially preempted by federal law; and (2) whether the Ralph Act and Bane Act are preempted, in part, by the FAA. As to the first issue, the arbitration agreement provided that the parties agreed not to arbitrate claims that are not arbitrable under “applicable state law.”  Plaintiff argued that this phrase meant “applicable state law notwithstanding any preemptive effect of federal law.”  The Court rejected this argument, finding that the ordinary meaning of the phrase “applicable state law” would not encompass preempted state law.  As to the second issue, the Court noted that the 2014 amendments “represent a hostility to arbitration and their purpose is primarily, if not exclusively, to discourage arbitration of Ralph Act and Bane Act claims.”  The Court remarked in a footnote that the legislative history suggested the amendments were specially tailored to attempt to avoid federal preemption under the FAA.  However, since the FAA preempts state rules discriminating against or disfavoring arbitration agreements, the Court held that 2014 amendments were preempted to the extent they created special requirements that were not applicable to contracts generally.  The Court ordered the trial court to reverse its order and send all claims to arbitration.

This decision is positive news for employers who have arbitration agreements or are deciding whether to compel arbitration of a Ralph Act and/or Bane Act claim. This decision makes clear employers will not need to revise their arbitration agreements in order to comply with the Ralph Act or Bane Act’s special requirements.  This decision also provides controlling authority for trial courts asked to rule on a motions to compel arbitration concerning the Ralph Act or Bane Act.

If you have any questions about this case, please contact Dale Kuykendall or Evan Beecher in Jackson Lewis’ Sacramento office, or the Jackson Lewis attorney with whom you regularly work.

Sick Leave Entitlements on the Rise in CA? A Pending CA Bill Is Looking to Do Just That.

Just three years after the enactment of California’s paid sick leave law under the Healthy Workplace Healthy Family Act of 2014 (AB 1522), a new bill has been introduced seeking to increase the amount of sick leave employers must provide employees under California law. The bill, AB 2841, was introduced on February 16, 2018, by Assemblywoman Lorena Gonzalez Fletcher. Assemblywoman Gonzalez Fletcher authored California’s existing paid sick leave law. Please find the rest of this article in our Disability, Leave & Health Management blog here.

Southern District Court of California Affirms that Employees Are Not Entitled to Multi-Month, Indefinite Medical Leaves of Absences

California employers can breathe a sigh of relief in light of a recent decision from the Southern District Court of California. In Ruiz v. ParadigmWorks Group, Inc., the Court held that an employer is not required to extend an employee’s “multi-month” medical leave of absence where the employee is totally disabled and cannot provide a definite end date to her leave. The Ruiz decision comes just seven days after the Ninth Circuit ruled in Markowitz v. United Parcel Services, Inc. that an employer may discharge an employee “if the employee is unable to perform his or her essential duties even with reasonable accommodation.”

In Ruiz, Plaintiff worked as a student outreach and admissions counselor and became unable to perform her essential job duties following an accident at home. As an accommodation, the Company granted her three consecutive leaves of absences that totaled fourteen weeks. When Plaintiff requested an additional six weeks of leave without any assurance of her return-to-work date, the Company terminated her employment and invited her to apply to open positions when she fully recovered. Instead, six months later, when she was able to work again, Plaintiff sued the Company for disability discrimination under both federal and California law.

The Court found in the Company’s favor in entirety. In doing so, the Court rejected Plaintiff’s argument that she was entitled to any further accommodation in the form of an approved leave of absence. The Court emphasized that there was “no dispute” that Plaintiff was totally disabled and that “no accommodation would have allowed her to perform her job.” As a result, the Court explained, the Company was not required to extend Plaintiff’s medical leave indefinitely. Thus, termination of her employment was an appropriate and legitimate business decision.

Importantly, the Court’s ruling applied in federal and state contexts, respectively under both the Americans with the Disabilities Amendments Act of 2008 (“ADAAA”) and the Fair Employment and Housing Act (“FEHA”). See Ruiz v. ParadigmWorks Group, Inc., 16:CV-2993-CAB-BGS (February 22, 2018).

Calculating Overtime Value of Flat-Sum Bonus Must Be Based on Actual Non-Overtime Hours Worked, California High Court Holds

The California Supreme Court has held that, under state law, when an employee earns a flat sum bonus during a pay period, the overtime pay rate will be calculated using the actual number of non-overtime hours worked by the employee during the pay period. Alvarado v. Dart Container Corp., 2018 Cal. LEXIS 1123 (Cal. Mar. 5, 2018).

In so holding, the Court reversed a lower court of appeal decision that had rejected policy guidance issued by the California Department of Labor Standards Enforcement (DLSE). Please find the rest of this article in our Publications page here.

Plaintiffs Cannot Bring PAGA Claims If They Fail to Give Notice of a Representative Action

In Hamid H. Khan v. Dunn-Edwards Corporation (January 4, 2018), the California Court of Appeal for the Second Appellate District held that the plaintiff failed to comply with required administrative procedures prior to bringing a claim under the California Private Attorneys General Act (“PAGA”) because he failed to provide sufficient notice to the California Labor and Workforce Development Agency (“LWDA”) and the employer that he sought to bring the PAGA claim on behalf of, not only himself, but on behalf of a group of “aggrieved employees.”  Accordingly, based on the Khan decision, plaintiff employees are foreclosed from pursuing PAGA claims against employers if they fail to provide adequate notice of a representative action.

The PAGA provides aggrieved employees with the ability to file suits and recover civil penalties on behalf of themselves and other current or former employees in a representative action against their employers.  Before doing so, the aggrieved employees must comply with administrative procedures and provide written notice of the intent to pursue a PAGA case by providing notice of the claim to the LWDA and the employer.  The employee must state, “the specific provisions of [the Labor Code] alleged to have been violated, including the facts and theories to support the alleged violation.”  Labor Code § 2699.3(a)(1)(A). By providing the requisite notice, the employee thereby provides the LWDA with an opportunity to determine whether to investigate the claim further and likewise provides the employer with an opportunity to cure the alleged violations.

In Khan, Plaintiff’s PAGA notice stated: “This correspondence shall constitute written notice under Labor Code § 2699.3 of my claims against my former employer. . .” (emphasis added). Plaintiff made no reference to any other current or former employees, and thus failed to provide the LWDA and the employer with sufficient notice of the extent of his claim.

Finally, the court also barred the plaintiff from continuing with his PAGA claim on an individual basis, opining that: “Permitting pursuit of only individual penalties appears inconsistent with PAGA’s objectives.” Plaintiff filed an appeal with the California Supreme Court on February 13, 2018, Case No. S246979.  

California Transportation Industry Waives Goodbye to Enforcement of Federal Arbitration Act Provisions in Employment Contracts

In a loss for the California transportation industry, the Court of Appeal for California’s Fourth Judicial District recently found in Muro v. Cornerstone Staffing Solutions, Inc., that the Federal Arbitration Act (“FAA”) is unenforceable in employment contracts regarding employees who are engaged in transporting goods in interstate or foreign commerce, regardless of whether the employer itself is in the transportation industry.

Defendant Cornerstone Staffing Solutions, Inc. (“Cornerstone”), a staffing firm dedicated to the transportation and logistics industries, hired Plaintiff Tony Muro (“Muro”) as a truck driver for Team Campbell, a Cornerstone client in California. The employment contract between Cornerstone and Muro included a provision requiring that all disputes arising out of Muro’s employment with Cornerstone be resolved in arbitration.  The contract also incorporated a separate provision in which Muro waived his right to pursue class actions, either in court or arbitration.

In response to Muro’s action – styled as a proposed wage and hour class action – Cornerstone moved to compel arbitration and dismiss the class claims. In denying Cornerstone’s petition, the court found that Section 1 of the FAA exempts “contracts of employment of . . . any other class of workers engaged in foreign or interstate commerce” and that it was immaterial whether Cornerstone itself was engaged in the transportation industry for the exemption to trigger.  Identifying that Muro regularly engaged in interstate commerce by transporting goods throughout the western United States, the court noted that “[a] transportation worker does not forfeit the benefit of the exemption merely because the employer has other divisions or segments devoted to nontransportation activities.”

Finding the FAA provision void, the court applied California precedent to conclude that the class waiver constituted an unlawful exculpatory clause and that the trial court had properly denied Cornerstone’s petition to compel arbitration. While the Muro Court’s decision represents novel California State precedent, the United States Supreme Court may soon end the debate nationwide, having recently granted review of a decision from the United States Court of Appeals for the First Circuit (New Prime Inc. v. Oliveira), interpreting the scope of the FAA’s transportation workers’ exemption.

California Court of Appeals Holds Labor Code § 558 Claims Are Indivisible Claims and Not Arbitrable

In Lawson v. ZB, N.A. (2018) 18 Cal.App.5th 705, California’s Fourth District Court of Appeal recently ruled that the two elements comprising damages under Labor Code § 558 – (a) underpaid wages and (b) denominated assessments – are indivisible. Because a claim under Labor Code § 558 is indivisible and it is a civil penalty encompassed by the California Private Attorneys General Act (“PAGA”), the entire claim under Labor Code § 558 is not subject to any arbitration agreement between an employee and an employer, even if the employee waived his or her right to bring a class or representative claim against his or her employer.  The rationale behind this holding is that, in bringing a PAGA claim, “an employee is not acting on his or her own behalf, but on behalf of the state and the state is not bound by the employee’s prior agreement, including any waiver of his or [her] right to bring a representative action.”

In Lawson, the plaintiff employee filed a putative class action complaint alleging various wage and hour claims and seeking penalties and underpaid wages under Labor Code § 558. The defendant employer moved to compel arbitration on the plaintiff employee’s individual claims pursuant to an arbitration agreement whereby the plaintiff had waived her right to bring a class or representative action. The trial court granted the defendant’s motion to compel arbitration, but rather than compelling only the underpaid wages portion of the Labor Code § 558 claim to arbitration, the trial court ordered that the entire claim – including penalties – be compelled to arbitration. On appeal by the defendant employer, the court in Lawson dismissed the appeal, issued a peremptory writ of mandate commanding the trial court to vacate its order bifurcating the Labor Code § 558 claim and enter a new order denying the defendant employer’s motion to arbitrate. Of note, the Lawson court disagreed with Esparza v. KS Industries, L.P. (2017) 13 Cal.App.5th 1228 decided last year, which held that Labor Code § 558 claims are divisible.

Specifically, in Esparza, the Fifth District Court of Appeal held that the underpaid wages portion of a claim under Labor Code § 558 is subject to arbitration pursuant to the terms of the parties’ arbitration agreement and the Federal Arbitration Act. In short, the Esparza court held that a plaintiff can pursue relief under Labor Code § 558 in his or her own right.

In light of Lawson, there is now a split in authority between the district courts of appeal; and employers and employees alike will have conflicting authority in support of and against their respective positions.

Employers Required to Post Transgender Rights in the Workplace Posters

Effective January 1, 2018, the California Department of Fair Employment and Housing (DFEH) requires employers with 5 or more employees to post Transgender Rights in the Workplace Posters which may be accessed here. The posting obligation is not met by prior versions of the poster.

The Transgender Rights in the Workplace poster provides information regarding transgender rights, including: (1) definitions of terms such as “transgender”; (2) the right of employees to use restrooms, locker rooms and other similar facilities corresponding to their gender identity; and (3) the procedure for filing a complaint with the DFEH.

The poster must be conspicuously displayed where they can be easily seen and read by all employees and job applicants. The poster must also be legible enough, and it must be displayed in the following locations:

  • At each location where a company has employees (e.g., offices, stores, warehouses, branches)
  • At employment agencies, hiring offices and union halls
  • On computers as long as the posters are posted electronically in a conspicuous place where employees will tend to see it.

If 10 percent or more of a company’s workforce speaks a language other than English, the poster must also be displayed in that language. The DFEH provides translated posters in several languages which may be accessed here.

This poster is one of four mandatory posters that all California employers are required to display.

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