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.

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.

               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.

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.

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.

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.

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.

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.

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.

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."