A California Court of Appeal has issued a favorable opinion for employers regarding arbitration agreements. Specifically, the Court held that an employer did not waive its right to enforce an arbitration agreement by waiting to request arbitration until after the U.S. Supreme Court has issued a decision addressing the enforceability of class action waivers in arbitration agreements, the California Court of Appeal has ruled.  Reyes v. Liberman Broadcasting, Inc., No. B235211 (Cal. Ct. App. Aug. 31, 2012).  Significantly, the Court found the employer did not waive its right to arbitration because it had reasonably concluded it could not have enforce the agreement under the then-current state of California law and could have been subjected to class arbitration. For a detailed discussion of the case, please see our article, "Employer Did Not Waive Right to Compel Arbitration by Waiting for U.S. Supreme Court’s Decision on Class Action Waivers to File Its Motions"

 

 

California AB 2396 was recently signed into law which amends existing law governing the employment of minors under 16 years of age in the entertainment industry. Specifically, the amendment addresses the employment of infants under the age of one month on a movie location or set. The bill clarifies that a temporary permit authorizing the infant’s employment will only be issued after the specific requirements of Labor Code § 1308.8 are met. For example, a pediatric physician must provide written certification that the infant is at least 15 days old; he/she must advise that the infant was carried to full term and was of normal weight; and, that the infant is physically capable of handling the stress of filmmaking. We will continue to provide updates regarding new California workplace legislation as finalized by the Governor.

The California Governor signed into law AB 1964 which amends the Fair Employment & Housing Act (“FEHA”) to prohibit discrimination against individuals for the wearing of religious dress or the practice of religious grooming in the workplace. The FEHA already prohibits discrimination against “religious belief” or “observance.” However, the new amendment expressly states that religious dress and grooming practices qualify as a religious belief or observance.

Employers should “reasonably” accommodate religious belief and observance in the workplace. Under the new amendments, employers must provide some form of accommodation for religious dress and grooming unless doing so would be an undue hardship on the employer’s business. California employers should consider reviewing their employee handbooks and procedures to address this new change in the law and keep an eye out for additional legislation over the next couple of months.

A California Court of Appeal has ruled that a non-compete agreement executed as part of a business sale was unenforceable under California law because it was insufficiently related to the sale. Fillpoint, LLC v. Maas, No. G045057 (Cal. Ct. App. Aug 24, 2012). Non-compete agreements are generally unenforceable in California. A limited exception under Business and Professions Code section 16601 recognizes non-compete agreements in connection with the sale of a business. This allows buyers to protect the value of their purchases from the acts by the seller which could diminish that value after the sale.

In Fillpoint, the Court found that the non-compete provisions of an employment agreement were unenforceable even when executed in connection with a stock purchase agreement. Both agreements limited an ex-employee’s ability to compete with the purchaser. However, while the stock purchase agreement only limited some competitive activity and only for three years following the stock purchase, the employment agreement broadly restricted future employment following the employee’s separation from the buyer. The Court found the employment agreement unenforceable because it was too broad and not sufficiently related to the stock purchase. The Court contrasted this with the stock purchase agreement, which was held to be part of the purchaser’s attempt to protect the value of its purchase.

 

This is a reminder that California courts carefully scrutinize non-compete agreements under California law. For a more in-depth discussion of this case, please see our article, Non-Compete Related to Business Sale Not Enforceable, California Court of Appeal Rules

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.