Recently, the California Court of Appeal reviewed an appeal regarding citations issued against a sheet metal company, Nolte Sheet Metal in Nolte Sheet Metal, Inc. v. Occupational Safety and Health Appeals Board.

One of the issues presented was whether Nolte freely and voluntarily consented to a Cal/OSHA inspection. Under the California Labor Code, Cal/OSHA is permitted to investigate and inspect any workplace after presenting appropriate credentials to the employer. If an employer refuses inspection, Cal/OSHA may seek to obtain a search warrant.

This matter began when a Cal/OSHA safety and compliance engineer came to Nolte to conduct an inspection with an entourage of California administrative representatives in tow. The Cal/OSHA representative was accompanied by representatives from the Contractors’ State License Board, the Employment Development Department, the Department of Labor Standards Enforcement, and the California Department of Insurance. According to the testimony, the California Department of Insurance representatives carried handguns and wore bulletproof vests.

The owner of the Company’s son faced with the barrage of officials testified that while he allowed the inspection to occur, based upon the circumstances, he did not believe he could refuse.

However, the Court of Appeal agreed with the administrative decision which found that the Cal/OSHA inspector asked for permission to conduct the inspection. And though the owner’s son testified he was intimidated by the presence of armed officials this alone was not enough to show a lack of proper consent.

While employers may deny entry, Cal/OSHA may seek to obtain a search warrant.  There may be instances where it is appropriate to deny entry, instead of consenting to inspection.  Generally, however, Cal/OSHA will have administrative probable cause to obtain a warrant which could trigger a more in-depth investigation and more serious citations. Employers may attempt to limit the scope of the inspection and should accompany the inspector while the inspection is conducted.

Contact a Jackson Lewis attorney if you have questions about how to handle a Cal/OSHA inspection or how to ensure your worksite will pass an inspection.

Earlier this week, the Southern District heard arguments regarding the grant of a preliminary injunction to prevent the enforcement of Assembly Bill 5 (“AB 5”) against motor carriers operating within California.

Judge Benitez granted the preliminary injunction and concluded in his order that “there is little question that the State of California has encroached on Congress’ territory by eliminating motor carriers’ choice to use independent contractor drivers, a choice at the very heart of interstate trucking.”

The preliminary injunction will remain in effect until trial in this matter unless the 9th Circuit decides differently. The preliminary injunction allows truck drivers to continue operating as independent contractors in California.

Jackson Lewis will continue to monitor the status of the Association’s case and other cases pertaining to the application of AB 5. Please contact a Jackson Lewis attorney with any questions.

 

Northrop Grumman has agreed to pay $12,375,000 to settle a class action brought under the Employee Retirement Income Security Act (“ERISA”) by participants in its 401(k) plan. The parties reached the initial terms of this settlement last year minutes before the start of the trial.

The plaintiffs alleged in their complaint that the company’s administration of the 401(k) plan harmed the plan’s participants by using a costly management strategy for a risky investment fund and by using plan assets to overpay for administrative services.

The long legal battle began in 2006 with a related lawsuit alleging that the plan was paying excessive administrative fees. That case was settled for $16,750,000 in 2017, but it limited the damages period to May 11, 2009. The participants of the 401(k) plan alleged that they continued to be charged excessive fees after the damages period in the first lawsuit ended and the current class action was brought in 2016 on similar claims. By August 2019, the only claim that remained in the case asserted that Northrop violated its fiduciary duties by choosing an active-management style for the emerging markets fund instead of a low-cost passive-management style. Northrop switched to a passive management style in 2014.

The proposed $12,375,000 settlement fund will be used to pay participants of the 401(k) plan, $25,000 incentive payments to each of the six named plaintiffs, attorneys’ fees and costs. The court has set a preliminary approval hearing for the settlement on January 31st.

The important take-away for employers who act as fiduciaries of their benefit plans is that they are obligated to act both substantively and procedurally prudent at all times. A fiduciary can aid its defense in a future lawsuit by documenting the processes used for all decisions connected to the administration of the plan. A plan administrator does not have to be omnipotent but must be able to show the processes leading to the ultimate decisions were prudent.

If you have questions about the administration of ERISA-governed benefit plans, contact a Jackson Lewis attorney to discuss.

On the eve of the Assembly Bill 5 (“AB 5”) effective date, Judge Roger Benitez granted the California Trucking Association’s (“Association”) request for a Temporary Restraining Order to prevent enforcement of the law which the Association argued requires truckers to be classified as employees instead of independent contractors.

On January 13th, Judge Benitez heard arguments regarding the Association’s request for a preliminary injunction.  Preemption based on the Federal Aviation Administration Authorization Act (“FAAAA”) is the Association’s primary argument supporting its request for the injunction.  The Association argued that AB 5 is an all-or-nothing law, in that it requires all trucking industry carriers to classify all truck drivers as employees. Defendants, and intervenors, including the International Brotherhood of Teamsters (“Teamsters”), argued in response that application of AB 5 provides a business-to-business (“B2B”) exception. The Association’s rebuttal included that B2B does not apply to the owner-operator contractual relationships between drivers and trucking companies.

Judge Benitez asked both sides to explain the practical impact of AB 5 on the delivery of goods, including how many industry carriers will be affected in state and out-of-state. His questions seemed to emphasize the position that enforcement of AB 5 on truck drivers will directly impact the interstate delivery of goods, including potential increased costs to industry and increased prices for consumers. The Teamsters insisted Judge Benitez consider a recent decision from the Ninth Circuit Court of Appeal in response to the Judge’s question regarding direct impact.  The reference to the Ninth Circuit case failed to answer the Judge’s question.  Despite Judge Benitez’s displeasure with the timing of the Association’s holiday filing requesting the Temporary Restraining Order, his disposition seemed to suggest he would decide in favor of the Association, largely due to the impact on interstate commerce.

Jackson Lewis will continue to monitor the status of the Association’s case and other cases pertaining to the application of AB 5. Please contact a Jackson Lewis attorney with any questions.

While the trucking industry waits for the federal court to hear arguments on the California Trucking Association’s request for an injunction against application of AB5, Judge William Highberger of the Los Angeles Superior Court ruled on January 8, 2020, that AB 5 runs afoul of the Federal Aviation Administration Authorization Act of 1994 (“FAAAA”).

The case is an enforcement action brought by the Los Angeles City Attorney’s office for misclassification of truck drivers. The trucking company had asked the court to decide whether AB 5, which codified the ABC test first applied in the California Supreme Court’s Dynamex’s decision, should be applied retroactively to the claims brought by the State.

Judge Highberger stated that the “‘ABC Test’ set forth in Dynamex Operations-West v. Superior Court and the recently enacted [A.B. 5] clearly run afoul of Congress’s 1994 determination in the [FAAAA] that a uniform rule endorsing use of non-employee independent contractors (commonly known in the trucking industry as ‘owner-operators’) should apply in all 50 states to increase competition and reduce the cost of trucking services.”

“After careful consideration, the court agrees with defendants that the currently operative legal requirements for determination of employee versus independent contractor status are preempted as to certain motor carriers and their drivers by an act of Congress,” the judge added.

Los Angeles City Attorney Mike Feuer has indicated that the city will appeal the decision.

Jackson Lewis will continue to monitor the application of AB 5 and the legal developments regarding its implementation. Contact a Jackson Lewis attorney if you have questions about independent contractors, AB 5, and related cases.

Earlier today, the U.S. District Court for the Eastern District of California heard oral arguments on whether the court should enter a preliminary injunction preventing the State of California (State) from enforcing AB 51 while the court resolves the underlying challenge to the new law on the merits. See Chamber of Commerce of the United States of America, et al. v. Becerra, E.D. Cal. Case No. 2:19-cv-02456-KJM-DB. AB 51 purports to bar California employers from requiring employees to sign arbitration agreements relating to claims under the Fair Employment and Housing Act and Labor Code.  (For Jackson Lewis articles chronicling the history of the embattled bill, please see California Bar on Mandatory Arbitration Agreements in Employment Temporarily Enjoined and New California Law Attacks Mandatory Arbitration Again … But Is It More Bark Than Bite?)

The U.S. Chamber of Commerce (Chamber) took the position that the injunction should be granted because AB 51 unlawfully seeks to apply different terms of contract law to arbitration agreements and therefore violates the Federal Arbitration Act (FAA). Citing Epic Systems Corp. v. Lewis, 137 S. Ct. 809 (2017) and Kindred Nursing Centers. Ltd. Partnership v. Clark, 137 S. Ct. 1421 (2017), the Chamber stressed that the State cannot hold arbitration agreements to higher standards than other contracts, including with respect to contract formation and consent.  Finally, responding to the State’s suggestion that there was no imminent threat that criminal penalties would be imposed under AB 51, the Chamber maintained that the State then had no reason to object to entry of a preliminary injunction.

Generally, the State argued that AB 51 only governs employers’ behavior with respect to agreements with employees generally and that AB 51 does not directly target arbitration agreements, as the law could also apply to nondisclosure agreements, forum selection clauses, and other types of agreements not governed by the FAA. Accordingly, in the State’s view, AB 51 does not unfavorably target arbitration agreements and evades preemption under the FAA.  The State also questioned the Chamber’s standing to bring a challenge to AB 51.

Ultimately, the court requested supplemental briefing with respect to the State’s suggestion that the court lacks jurisdiction. By no later than January 17, 2020, the State must submit supplemental briefing raising any jurisdictional challenges (including challenges to standing), as well as the State’s position in the event the court grants the preliminary injunction in part. The Chamber’s response to the State’s submission is due by no later than January 24, 2020. In the meantime, the temporary restraining order precluding the State from enforcing AB 51 will remain in effect until January 31, 2020. The temporary restraining order has been modified to limit its application and protection to arbitration agreements covered by the FAA.

Jackson Lewis will continue to monitor developments under the law.  Please contact a Jackson Lewis attorney with any questions.

In Kim v. Reins International California, Inc. 18 Cal.App.5th 1052 (2017), the California Court of Appeal for the Second Appellate District held an employee-plaintiff that settled and dismissed his individual claims was no longer an “aggrieved employee” for purposes of standing to bring a claim for civil penalties under the Private Attorneys General Act (“PAGA”).

Under PAGA, an “aggrieved employee” may bring a representative action on behalf of him or herself and other “aggrieved employees” for civil penalties for various violations of the California Labor Code. (Cal. Labor Code §§ 2698, et seq.)  PAGA cases have become increasingly favored by plaintiffs’ attorneys for a number of reasons, including the fact that PAGA-claims cannot be compelled into arbitration.

On January 7, 2020, three years after the Court of Appeal’s ruling, the California Supreme Court heard oral argument in the case to determine whether an employee-plaintiff bringing an action under PAGA loses standing to pursue PAGA claims by dismissing his or her individual claims against the employer.

Counsel for the employee argued that the appellate ruling caused the plaintiff-employee and the State of California (which deputized him to prosecute PAGA claims) to be at odds.  He argued the plaintiff-employee would be faced with potentially choosing against his own settlement to protect the representative action.  In the underlying case, Plaintiff Kim was served with an offer to compromise to resolve his individual claims pursuant to Code of Civil Procedure § 998.  If Kim had not accepted the offer to compromise and failed to obtain a larger judgment on his individual claims pursuant to Section 998, Kim may not have been permitted to recover court costs as the prevailing party and may have had to pay Reins International’s costs.

The Justices seemed concerned that the argument to overturn the Court of Appeal meant that an employee who brought a PAGA claim and later wanted to abandon the claim would be unable to do so without judicial intervention.

However, the Justices seemed even more skeptical of Reins International’s position.  Justice Liu stated that it seemed employers could “pick off” employees until no PAGA claims remained.  In response, counsel for Reins International argued that enforcement actions by the State could still proceed, to which the Chief Justice retorted, “we all know that doesn’t work.”

The California Supreme Court could decide to restructure PAGA claims to be more like class actions by allowing for the substitution of a new plaintiff when the named employee-plaintiff is no longer an “aggrieved employee,” an option offered by the employee’s counsel.

We will continue to monitor the Kim v. Reins International California, Inc. case for the issuance of the California Supreme Court’s opinion.

The California Trucking Association (“Association”) challenges Assembly Bill 5 (“AB 5”) by arguing the Federal Aviation Administration Authorization Act (“FAAAA”) of 1994 preempts state laws “relating to a price, route or service of any motor carrier”. After the California Supreme Court decided Dynamex Operations West, Inc. v. Superior Court (“Dynamex”) in 2018, Governor Newsom signed into law, California State Assembly Bill 5, which clarified the Dynamex independent contractor test and codified the test into law.  As a result, truckers, and the positions of numerous industries historically classified as independent contractors which are not listed as exemptions, must re-classify from independent contractors to employees.

As California rang in the new year, the Association had a win, although temporary. While U.S. District Judge Roger Benitez considers imposing a permanent injunction, he granted a temporary restraining order preventing application and enforcement of AB 5 to truck drivers until he rules on the Association’s request for a preliminary injunction.

Judge Benitez’s order states that a required element of AB 5 is likely preempted by the FAAAA. This means that the court found that current federal law likely prevents at least a part of the state law, AB 5, from applying to truckers.  The order also states that granting the temporary restraining order is in the public interest. AB 5 will not apply to truckers while the temporary restraining order remains effective.

On January 13, Judge Benitez will consider the Association’s request for a preliminary injunction.  If the Association prevails by obtaining the preliminary injunction, truckers can continue to operate as independent contractors. Meanwhile, other groups affected by AB 5, including rideshare companies and freelance journalists, pursue their own court battles against the law which can disrupt numerous industries.

Jackson Lewis will continue to monitor the application of AB 5 and the legal developments regarding its implementation. Contact a Jackson Lewis attorney if you have questions about independent contractors, AB 5, and related cases.

The State of California has been temporarily enjoined from enforcing Assembly Bill 51’s prohibition on mandatory employment arbitration agreements. Chamber of Commerce of the United States, et al. v. Becerra, et al., No. 2:19-cv-2456 (E.D. Cal. Dec. 30, 2019). Enforcement of Assembly Bill 51 is enjoined until the court can decide the pending motion for a preliminary injunction, which is set for a hearing on January 10, 2020.The court ruled that the U.S. Chamber of Commerce and other business organizations have shown that there are serious questions regarding whether California’s law is preempted by the Federal Arbitration Act (FAA); that if enforced, California’s law could cause disruption to employment contracts, particularly in light of the potential for the imposition of criminal penalties on employers; and that the State of California will not be harmed by a temporary injunction on the enforcement of Assembly Bill 51.

Under Assembly Bill 51, employers are prohibited from requiring employees to sign new mandatory arbitration agreements concerning disputes arising under the California Fair Employment and Housing Act (FEHA) or California Labor Code. AB 51 applies only to contracts executed, modified, or extended on or after January 1, 2020. Recently enacted Labor Code section 432.6 bars mandatory employment arbitration agreements starting January 1, 2020. (For more on AB 51, see our article, New California Law Attacks Mandatory Arbitration Again … But Is It More Bark Than Bite?)

The U.S. Chamber of Commerce and other business organizations filed suit in federal court against the State of California to have Assembly Bill 51 declared preempted by the FAA. (See our article, California Bar on Mandatory Arbitration Agreements in Employment Challenged, Injunction Sought.) The lawsuit also seeks a declaration that Assembly Bill 51’s express FAA carve out provision, which protects mandatory employment arbitration agreements otherwise enforceable under the FAA, applies to both enforcement and formation of arbitration agreements.

Please contact a Jackson Lewis attorney with any questions about this case.

As 2019 comes to a close, here is a look ahead to some of the legislation going into effect on January 1, 2020, that affects employers in California.

Independent Contractors

Assembly Bill 5 codifies and clarifies the California Supreme Court’s 2018 Dynamex Operations West, Inc. v. Superior Court of Los Angeles County, 4 Cal. 5th 903. In Dynamex, the Court adopted the “ABC Test” for determining whether an individual should be classified as an independent contractor. Under the ABC Test, to establish that an individual is, in fact, an independent contractor, an employer must prove that the person: (A) is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact; (B) performs work that is outside the usual course of the hiring entity’s business; and (C) is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.

Arbitration Agreements

Assembly Bill 51 makes it unlawful for any person to require a job applicant or employee to waive California Fair Employment & Housing Act (FEHA) or Labor Code-based rights as a condition of new or ongoing employment or receiving any employment-related benefit — that is, if the Federal Arbitration Act (FAA) does not apply. Employers are prohibited from threatening, retaliating, discriminating against, or terminating any job applicant or employee because of their refusal to consent to the waiver of any FEHA or Labor Code-based rights. Moreover, under Senate Bill 707, companies that fail to pay required arbitration fees within 30 days after the due date are in material breach of their arbitration agreements.

Protective Hairstyles

Senate Bill 188 introduced the CROWN Act (Creating a Respectful and Open Workspace for Natural Hair), which clarifies the definition of race for the workplace and educational institutions to include hair texture and protective hairstyles. It also defines protective hairstyles.

Lactation Accommodations

Senate Bill 142 expands on existing California Labor Code requirements for employee lactation accommodations and adopts significant new consequences to employers for non-compliance. The law requires the following features for private lactation spaces: they be safe, clean, and free of hazardous materials; contain a surface to place a breast pump and personal items; contain a place to sit and have access to electricity or alternative devices (e.g., extension cords or charging stations) needed to operate a breast pump. SB 142 also requires employers to provide access to a sink with running water and a refrigerator (or cooler) to store milk, in close proximity to the employee’s workspace. Furthermore, employers must develop and implement a lactation policy that includes a statement concerning an employee’s right to request lactation accommodation.

Organ Donation

Assembly Bill 1223 extends the amount of leave an organ donor may take. In addition to paid leave already required under California law, private employers must provide a maximum of an additional 30 business days of unpaid leave.

Minimum Wage Increases

California’s stair-step minimum wage regulation raises the minimum wage again on January 1, 2020. For employers with up to 25 employees, the statewide minimum wage will increase to $12.00 per hour; employers with 26+ employees must pay at least $13.00 per hour.

This raise also affects the minimum salary requirements for exempt employees. For employers with up to 25 employees, the minimum salary requirement will increase to $49,920; for employers with 26+ employees, the minimum salary requirement will increase to $54,080.

Applicable local minimum wage ordinances may exceed the minimum wage statewide. Employers must comply with the higher rate.

For more information on these regulations and other changes to California employment law in the new year, check out https://www.californiaworkplacelawblog.com or contact a Jackson Lewis attorney to discuss your company’s compliance.