California Enforces Arbitration Agreement with Staffing Agency in Favor of Worksite Employer

An employer successfully compelled arbitration under an arbitration agreement that the plaintiff-workers had with their staffing agency, even though the staffing agency was not a defendant in the lawsuit.

The plaintiffs sued the primary employer, but not the staffing agency with whom they had entered into an arbitration agreement. On January 3, 2019, a California appeals court ruled in an unpublished opinion that a “worksite employer” could compel enforcement of an arbitration agreement between plaintiffs and a staffing agency, even though the staffing agency was not named as a defendant in the lawsuit and the worksite employer was not a signatory to the arbitration agreement.

In this case, two workers had sued the worksite employer claiming they were not properly paid wages, given meal and rest breaks, provided wage statements, or timely paid after termination. The court ruled that because the worksite employer and the staffing agency were co-employers of the plaintiffs, and both were responsible for complying with state labor laws, the worksite employer could enforce the arbitration agreement. The court said it was “inconsequential” that the plaintiffs had not named the staffing agency. Plaintiffs could not avoid arbitration by only suing the worksite employer, which was not a party to the agreement.

Even though this case is unpublished and is not available for citation purposes, it reinforces the argument that arbitration agreements may be enforced through third party agreements (e.g., joint employers or agent relationships), even when the party is not a defendant or signatory to the agreement. Employers that are sued and use staffing agencies, will want to consider whether arbitration agreements with the staffing agency exist to compel arbitration.

California State Disability Insurance (SDI) Increases

It’s a new year, and California SDI benefits will be increasing. The SDI withholding rate continues to be 1.0% of wages. But, the taxable wage limit will increase from $114,967 to $118,371.

For new SDI claims (whether for short-term disability benefits or paid family leave benefits) the maximum weekly benefit will increase from $1,216 to $1,252 a week. Please find the rest of this article on our Disability, Leave & Health Management blog here.

Employer Successfully Defends Rounding Policy by Showing It Did Not Disfavor Employees

A California appellate court held an employer’s use of a rounding policy for its non-exempt employees complied with California law because it did not disfavor employees.  (Donohue v. AMN Services, LLC (Dec. 10, 2018) Case No. D071865.) 

AMN employed Donohue as a nurse recruiter who was non-exempt from California’s overtime requirements.  AMN tracked recruiters’ time with a computer-based timekeeping system, in which recruiters would punch in for the day, punch out when they took a meal break, punch back in when they returned from their meal break, and punch out at the end of the day.  AMN rounded recruiters’ punch times to the nearest 10-minute increment.  For example, all punch times between 7:55 a.m. and 8:04 a.m. would record as 8:00 a.m., and all punch times between 8:05 a.m. and 8:14 a.m. would record as 8:10 a.m.  Donohue brought a class action lawsuit alleging AMN’s rounding policy violated various California wage and hour laws.  The trial court granted summary judgment for AMN, and the court of appeal affirmed.

The court noted that California law permits employers to use a rounding policy if it is “fair and neutral on its face and it is used in such a manner that it will not result, over a period of time, in failure to compensate the employees properly for all the time they have actually worked.”  Under this standard, “an employer’s rounding policy is fair and neutral if on average, it favors neither overpayment nor underpayment; but such a policy is unacceptable if it systematically undercompensates employees because it encompasses only rounding down.” 

The court held AMN satisfied this standard as a matter of law based on expert testimony from a labor economist.  The economist analyzed 311 recruiters’ time records and determined that AMN’s policy resulted in a net surplus of 1,929 work hours in paid time for the recruiters, including a net surplus of 9.82 hours for the representative plaintiff herself.  The court rejected the plaintiff’s attempt to raise a triable issue based on expert testimony from a statistics professor.  Although the statistics professor found that the rounding policy resulted in AMN failing to pay certain employees for 2,631 hours worked, the court held his testimony was flawed because it focused solely on employees who happened to have a late or short meal period.  Because AMN’s rounding policy on the whole was neutral as to all class members, the policy was lawful.

Jackson Lewis wage and hour specialists are available to assist employers with designing and implementing rounding policies to ensure compliance with state and federal law.


California Supreme Court Rebuffs Plaintiffs’ Attempt to Undo Their Agreements Waiving Second Meal Period

The California Supreme Court has upheld the ability of California health care workers who work more than twelve hours a day voluntarily to waive their second meal period, rebuffing plaintiffs’ argument that their voluntary waivers were unenforceable.  (Gerard v. Orange Coast Memorial Medical Center (Dec. 10, 2018) Case No. S241655.) 

The Labor Code generally provides that employees who work more than five hours in one day must be provided with a 30-minute meal period, and that employees who work more than 10 hours must be provided with an additional 30-minute meal period.  The Labor Code provides further that an employee who works no more than six hours may waive the meal period (to permit him to earn more or work a shorter shift), and an employee who works no more than 12 hours may waive the second meal period if he has taken the first.  A wage order of the Industrial Welfare Commission (“IWC”), however, permits health care employees to waive the second meal period even if they have worked more than 12 hours.  Consistent with the wage order, the plaintiffs in Gerard had worked more than 12 hours and had voluntarily waived their second meal period.  However, they nonetheless sued for penalties and other remedies, contending that the wage order violated the Labor Code and their waivers were therefore unenforceable. 

In a unanimous opinion, the Supreme Court rejected the plaintiffs’ contention, concluding that the Legislature had authorized the IWC to depart from the 12-hour maximum for waiving the second meal period.  The Supreme Court relied in part on a fairly technical analysis of various versions of key Labor Code provisions.  However, the Supreme Court also noted that, after the court of appeal had initially held in favor of the plaintiffs, both employers and employee unions had successfully supported legislation purporting to reverse the decision.  For example, the Supreme Court noted that the United Nurses Association of California had urged the Legislature, “UNAC members have for years enjoyed the flexibility of alternate work schedules, which allows for greater staffing flexibility and better patient care.  Patient outcomes are dramatically improved in environments where the nurses and other health care professionals can place priority on the needs of their patients without interruption by an arbitrary meal period when the shift runs long.  (RNs are generally able to eat during work time in break rooms.)… [defeating the bill] will result in a severe disruption of the lives of our members, many of whom have built a schedule of work, child care, and other obligations around the ability to waive a second meal period.”

Accordingly, Gerard may indicate a broader willingness by the Supreme Court to view employee choice, in addition to mandatory commands and prohibitions, as conducive to the public interest in the field of workplace regulation.

Lawsuit Filed Against California’s Attorney General Alleging the Private Attorney General Act (“PAGA”) is Unconstitutional

On November 28, 2018, the California Business & Industrial Alliance (an association that represents the interests of small and mid-sized businesses in California and which was formed for the specific purpose of accomplishing the appeal or reform of the Private Attorney General Act (“PAGA”)) filed a lawsuit against Xavier Becerra in his official capacity as the Attorney General for the State of California for injunctive and declaratory relief in the Orange County Superior Court.

The Complaint alleges that PAGA is unconstitutional and requests that the state of California enforce its own laws – “rather than transferring the state’s powers to private attorneys who operate for their own personal gain.” The Complaint further asserts that PAGA has “become a tool or extortion and abuse by the Plaintiffs’ Bar, who exploit the special standing of their PAGA plaintiff clients to avoid arbitration, threaten business-crushing lawsuits, and extract billions of dollars in settlements, their one-third of which comes right off the top.”

The Complaint asserts nine causes of action for: (1) the violation of California’s Separation of Powers Doctrine; (2) the violation of the United States Constitution’s Fourteenth Amendment Procedural Due Process Protections; (3) the violation of the United States Constitution’s Fourteenth Amendment Substantive Due Process Protections; (4) the violation of California’s Constitutional Procedural Due Process Protections; (5) the violation of California’s Constitutional Substantive Due Process Protections; (6) the violation of the United States Constitution’s Eighth Amendment Excessive Fines and Unusual Punishment Protections; (7) the violation of California’s Constitution’s Excessive Fines and Unusual Punishment Protections; (8) the violation of the United States Constitution’s Fourteenth Amendment Equal Protection of the Laws Guarantee; and (9) the violation of California’s Constitution’s Equal Protection Clause. The Complaint seeks a temporary restraining order and preliminary and permanent injunctions enjoining the Attorney General from implementing or enforcing PAGA. The Complaint also requests that the court issue a judgment declaring that PAGA is unconstitutional and unenforceable.

This will be a closely watched case by employers as well as employment attorneys on both the defense and plaintiff’s side as the outcome of this case will have a lasting impact on how representative actions are being litigated and the penalties that are being awarded for PAGA causes of action through either judgments or settlements.

Closing the Unequal Pay Gap: California Releases Guidance to Employers on Complying with the California Fair Pay Act

Since passing the California Fair Pay Act (“CFPA”) on October 6, 2015, California has remained a trailblazer in its efforts to address and decrease gender pay inequity. The CFPA requires all employers pay employees performing “substantially similar work” the same wage regardless of gender, ethnicity or race. The CFPA also requires employers to provide the pay scale for a position to an applicant who makes a reasonable request for it, prohibits employers from requesting an applicant’s prior salary history and from relying on an applicant’s salary history alone to justify a disparity in compensation “based on sex, race or ethnicity.”

After enacting the CFPA, the California Commission on the Status of Women and Girls launched the California Pay Equity Task Force (“Task Force”) to monitor the implementation of the CFPA and facilitate dialogue on legislative modifications to California law. On September 10, 2018, the Task Force released written guidance for employees, employers and unions on how they may comply with the CFPA. The guidance includes, amongst other things, a myriad of tips and recommended practices for employers seeking to comply with the CFPA, including:

  • Regularly reviewing and updating job descriptions to ensure they accurately reflect a position’s duties and responsibilities (written job descriptions are pivotal in determining whether two employees are performing substantially similar work and serve as helpful evidence of an employer’s compensation decisions);
  • Educating managers on the factors they may rely upon in making decisions regarding an employee’s compensation;
  • Documenting any and all compensation decisions, the grounds for such decisions and the basis for any differences in compensation between two or more employees (any such documents should be retained by employers for at least four (4) years); and
  • Periodically auditing employee wage practices to identify any substantial differences in wages amongst employees who perform substantially the same work (if any such disparities are found, employers should immediately make the necessary adjustments to remedy them).

Employers should review their hiring and compensation practices to ensure compliance with the CFPA, implement the practices recommended above and consult with counsel regarding any questions or concerns they may have.

The Changing Landscape of Sexual Harassment Claims and Mandatory Arbitration Agreements

The year 2018 has seen significant shifts in the landscape of gender equality and sexual harassment. Complaints of sexual harassment in California nearly doubled in the first three months of 2018. From January through March 2018, the California Department of Fair Employment and Housing received 939 complaints of sexual harassment. This reflects an increase of 86% in comparison to the same period in 2017.

Against this backdrop, some California companies have recently modified their sexual harassment policies such that employees will no longer be required to resolve such claims in private arbitration. These changes come primarily in response to the #MeToo movement.

Historically, companies have preferred to keep workplace disputes out of the court system and in arbitration. This is because the parties have the ability to mutually agree upon an arbitrator (typically someone with subject matter expertise who may also have handled other matters favorably for the company); arbitration proceedings are generally private; the results are kept confidential; the matter proceeds more expeditiously; and there is a limited ability to appeal.

However, in light of mounting pressure to shine a light on the issue, to prevent serial harassers from continuing to engage in inappropriate and possibly unlawful conduct, and to send a strong message to employees that companies take these matters seriously, more and more California companies are carving out sexual harassment claims from mandatory arbitration proceedings.

Whether more corporations will follow and whether other forms of discrimination or harassment will be encompassed by this growing trend is not yet clear, particularly in light of the recent Epic Systems decision by the United States Supreme Court.

New California Law Creates Narrow Rest Break Exemption at Petroleum Facilities

On September 20, 2018, California Governor Jerry Brown signed into law Assembly Bill 2605. This new law provides that unionized employees at petroleum facilities who hold safety-sensitive positions are exempt from the requirement that employees be relieved of all duties during rest periods. The bill went into effect immediately and will remain in effect until January 1, 2021 with the ability to be extended.

Notably, this narrow exemption applies only to employees who meet the following criteria:

  1. Are employed at a petroleum facility in a “safety-sensitive position” (i.e., a job in which the employee’s job duties reasonably include responding to emergencies) and are required to carry and monitor a communication device such as a radio or pager or are required to remain on the premises to monitor and respond to emergencies;
  2. Are subject to Industrial Welfare Commission Wage Order No. 1; and
  3. Are covered by a valid collective bargaining agreement that expressly provides for, among other things, a regular hourly rate of pay of not less than 30% more than the state minimum wage rate, premium wage rates for overtime hours, rest periods, and binding arbitration of disputes concerning rest periods.

In the case that a nonexempt employee meeting the above criteria is required to interrupt his or her rest period to address an emergency, the law provides that another rest period shall be authorized and permitted in a reasonably prompt manner after the emergency has passed. If circumstances do not allow the employee to take a rest period, the employer must pay the employee one hour of pay at the employee’s regular rate of pay for the missed rest period.

Assembly Bill 2605 addresses concerns that requiring employees in safety-sensitive positions at petroleum facilities to take rest breaks in order to comply with state law could create a potential public safety or security hazard by preventing the facilities from being able to effectively respond to or prevent emergencies such as leaks, fires or explosions. Although the law is limited to a narrow category of employees, it is an example of the legislature’s willingness to balance the needs of both employers and employees to protect the public health and welfare.

California Expands Upon Lactation Accommodation Requirements

California Governor Jerry Brown signed into law Assembly Bill 1976, expanding California employer obligations respective to employee lactation accommodation. Under preexisting California Labor Code section 1031, an employer was required to make available a private location, other than a toilet stall, for an employee to express milk for an infant child, and provide employees with a reasonable amount of break time to do so. Recently signed Assembly Bill 1976 amends Labor Code section 1031 providing that the private location be a place other than a bathroom, when reasonable. Please find the rest of this post in our Disability, Leave and Health Management blog here.

Expanded Paid Family Leave Benefits Coming to California Employees

Under the Family Medical Leave Act, eligible employees are entitled to take time off for due to a “qualifying exigency” arising from the deployment of the employee’s spouse, parent, or child for active military duty to a foreign country. Examples of “qualifying exigencies” include attendance at military events, making childcare arrangements arising from a military member’s covered active duty, making or updated financial and legal arrangements to attend a military member’s absence on covered active duty, and accompanying the military member during a rest and recuperation leave during deployment.

Currently California employees who wish to receive pay during leave for a qualifying exigency would need to use their own accrued vacation or paid time off hours. However, beginning January 1, 2021, an employee can apply for wage replacement benefits from the State of California Paid Family Leave insurance program during such a leave. Employees applying for benefits may be required to provide a copy of any active duty orders or other documentation issued by the military to support a request for benefits.