In a recent pro-employer decision, the California Court of Appeals held that California’s exemption from overtime requirements for commissioned employees applied to a car sales consultant and the decision provided flexibility for employers when crafting commission plans. Areso v. Carmax, Inc., 195 Cal. App. 4th 996 (Cal. App. 2d Dist. 2011). In Areso, the plaintiff received a fixed dollar amount for each sale of a car and a percentage of the purchase price for accessories sold. The trial court granted summary judgment for defendant, holding that plaintiff was properly classified as exempt and the Court of Appeal affirmed.

The Carmax decision is significant because it rejects the California Division of Labor Standards Enforcement’s traditional guidance that a commission must be a percentage of the actual sales price. Rather, Carmax holds that compensation under fixed incentive systems, which provide a uniform dollar payment for each product or service sold, may constitute commission wages. For more information on this case and its impact on California wage and hour laws, please see “California Court of Appeal Upholds Applicability of State Commission Exemption to Sales Consultant.”

The following is a reminder about a wake-up call to employers. The California Fair Employment & Housing Commission (“FEHC”) issued a decision which held that an employer can be liable for failing to take all reasonable steps to prevent discrimination and harassment even if there is no underlying discrimination or harassment. Department of Fair Employment and Housing (DFEH) v. Lyddan Law Group, LLP. 

In this case, a paralegal alleged that her supervisor sexually and racially harassed her. The FEHC found that alleged conduct did not constitute sexual or racial harassment. However, the employer was found liable in failing to take all reasonable steps to prevent discrimination and harassment from occurring. The employer: (1) did not have a written anti-harassment policy; (2) did not conduct trainings for its managers or employees in harassment or discrimination prevention; and, (3) failed to investigate after the paralegal complained of the harassment.

The FEHC is a quasi-judicial administrative agency which enforces California civil rights and other laws regarding discrimination in employment, housing, and public accommodations. The FEHC conducts hearings and issues administrative decisions in cases prosecuted before it by the California DFEH. If it finds an unlawful practice occurred, it can order a range of remedies including back pay, compensatory damages, administrative fines and civil penalties, injunctive relief, and reinstatement. The FEHC’s decision can be appealed to California Superior Court for review.

What does this mean to employers? Employers may be liable for failing to take all reasonable steps to prevent discrimination and harassment, even if there is no underlying discrimination or harassment according to the FEHC. The administrative case further reinforces the importance of employers to maintain written anti-harassment policies, conduct trainings for managers and employees in harassment and discrimination prevention, and timely investigate claims of such conduct.

 

California based employers who send workers from other states into California must pay  the employees pursuant to California law, not the law of the state where those employees reside, according to the California Supreme Court ruling in Sullivan v. Oracle Corp. (SC  S170577 6/30/11).  The Supreme Court’s decision is a mixed bag of chocolates in that the Court went to great lengths to try to limit its holdings to employers headquartered in California but may have left the door open for litigation regarding employers headquartered in other states who send workers into California. The plaintiff’s bar may seize upon such statements by the Court as:

To permit nonresidents to work in California without the protection of our overtime law would completely sacrifice, as to those employees, the state’s important public policy goals of protecting health and safety and preventing the evils associated with over work . . . Not to apply California law would also encourage employers to substitute lower paid temporary employees from other states for California employees, thus threatening California’s legitimate interest in expanding the job market.

 

What is clear is if you are an employer headquartered in California and have employees residing in other states, you have to be sensitive that those employees must be paid pursuant to California law if they enter California for a full day or more.

This decision will affect perhaps thousands of workers sent from out of state to work on assignments in California for days or weeks. The greatest impact will be on non-exempt workers who will be entitled to daily overtime, a rarity in most other states.

Specifically, California’s highest court ruled that (1) the California Labor Code applies to overtime work performed in California for “a California-based employer” by out-of-state plaintiffs “in the circumstances of this case;” (2) California’s Business and Professions Code section 17200 (Unfair Competition Law) applies to such overtime work performed in California by out-of-state plaintiffs; and, (3) Section 17200 does not apply to overtime work performance outside of California for a California-based employer by out-of-state plaintiffs in the circumstances of the case if the employer failed to comply with FLSA overtime provisions.

The Court limited its holding to Labor Code provisions governing overtime and expressly stated California’s interest in the content of out-of-state pay stubs, or treatment of vacation time was not at issue.   All employers who send non-exempt, out of state employees to work in California should seek legal advice regarding the impact, if any, of this decision on the employer’s procedures. The decision also may be an ominous sign for employers with respect to how the Court may rule in the meal and rest break cases pending before the Court.

 

Cynthia Filla, Robert Pattison and Jonathan Siegel drafted this blog entry

Agricultural employers received a victory when Governor Brown vetoed SB 104, the controversial bill which would have made it dramatically easier for unions to organize employers subject to the California Agricultural Labor Relations Act (“ALRA”). SB 104 was patterned, in part, after the Employee Free Choice Act which has stalled in Congress. SB 104 would have permitted unions to be recognized as the exclusive bargaining representative of the targeted employees if the union provided the Agricultural Labor Relations Board (“ALRB”) with representation cards signed by a majority of the bargaining unit. The ALRB would have been required to certify the union as the exclusive bargaining representative for the employees without a secret ballot election or the ALRB could have provided the union 30 days to obtain additional cards if there was an issue regarding the cards submitted.

Although Governor Brown reminded the public that he signed into law the ALRA in a prior administration, the Governor acknowledged that SB 104 failed to balance the rights of employers. Specifically, the Governor stated:

 

SB 104 is indeed a drastic change and I appreciate the frustrations that have given rise to it. But, I am not yet convinced that the far reaching proposals of this bill–which alter in asignificant way the guiding assumptions of the ALRA—are justified. Before restructuring California’s carefully crafted agricultural labor law, it is only right that the legislature consider legal provisions that more faithfully track its original framework. The process should include all those who are affected by the ALRA. I am deeply committed to the success of the ALRA and stand ready to engage in whatever discussions—public and private—that will accomplish the appropriate changes.

 

See Governor Brown’s veto statement. Employers subject to the ALRA can celebrate during the Independence Day weekend knowing, at least for now, Sacramento recognized that there should be a fair balance between the rights of employers and employees.  

In a decision that many employers have been waiting for since the Ninth Circuit’s decision certifying a class of approximately 1.5 million women, the U.S. Supreme Court has rejected class action certification in “one of the most expansive class actions ever.” See Wal-Mart Stores v. Dukes, No. 10-277 (June 20, 2011). The case involved allegations of gender discrimination in pay and promotion decisions in violation of Title VII of the Civil Rights Act of 1964 made on behalf of all current and former female employees of Wal-Mart, estimated to number as many as 1.5 million. Reversing a Ninth Circuit decision that upheld the class certification, the Supreme Court found the lower courts had misapplied the federal rules governing the circumstances in which class certification should be accorded and the availability of damages as an incident of class injunctive or declaratory relief.

The plaintiffs alleged that Wal-Mart permits local managers to use broad discretion in making decisions regarding pay and promotion, that managers employ their own subjective criteria in making those decisions disproportionately in favor of men, and that Wal-Mart was aware of these results. In essence, the plaintiffs alleged that Wal-Mart’s “corporate culture” permitted bias against women to affect managers’ discretionary decisions regarding pay and promotion.

In a decision written by Justice Antonin Scalia, the Supreme Court disagreed with the lower courts’ conclusion that the plaintiffs had satisfied the class action requirements in Rule 23(a) and Rule 23(b)(2) of the Federal Rules of Civil Procedure. Justice Scalia observed at the outset that class actions are an “exception” to the general rule that litigation may be maintained only by named parties. While the courts’ role in keeping such actions within proper bounds may lead to class certification analyses touching the merits of the substantive claims, such overlap “cannot be helped,” he said, and must not cause courts to refrain from a “rigorous analysis” of whether plaintiffs have met the class certification standards. 

The case is significant in light of the recent increase in class actions based on protected categories in California. See a more detailed analysis by Jackson Lewis at "Supreme Court Reverses Certification of Nationwide Class of 1.5 Million Female Workers"

In 2009, companies who classified certain unlicensed accountants, engineers and other professions as exempt from overtime under the California Learned Professional Exemption were dealt a broadside by a federal District Court when it held that unlicensed accountants were categorically ineligible for the Learned Professional Exemption. The decision lead to numerous employers revaluating the Learned Professional Exemption involving certain positions and it likely triggered significant exempt status litigation in California. See Campbell v. PricewaterhouseCoopers, LLP, 602 F. Supp. 2d 1163, 1185 (E.D. Cal. 2009).

On June 15, 2011, the Ninth Circuit reversed, in part, and remanded the lower court’s controversial decision and breathed new life into the California Learned Professional Exemption. See Campbell v. PricewaterhouseCoopers LLP, 9th Cir., No. 09-16370, 6/15/11.

The case involves approximately two-thousand unlicensed junior accountants at PricewaterhouseCoopers LLP. The court found that unlicensed accountants were not categorically barred from being classified as exempt from overtime based on the Learned Professional Exemption. The Court held that the employer could present evidence to establish the exemption to a jury.

 

Although not likely to receive as much attention, the Ninth Circuit also remanded to the jury certain important questions regarding the Administrative Exemption. For example, the jury must review whether the audit work performed by the junior accountants could be classified as work of “substantial importance” to the management of the clients’ operations. The issue of whether work is of a “substantial importance” under the Administrative Exemption is a critical element under the exemption which many employers struggle with interpreting. As a result, employers may also receive additional help in clarifying a problematic area under the Administrative Exemption. The Court noted:

 

While we recognize Plaintiffs are on the low end of PwC’s hierarchy, we see no authority that would bar their audit work from meeting this test as a matter of law. The former federal regulations incorporated by the administrative exemption include several examples of administratively exempt white collar employees, including tax consultants, wage-rate analysts, analytical statisticians, claim agents, and “many others.” Id. § 541.205(c)(3), (5). In contrast, the examples of nonexempt employees are predominately clerical—bookkeepers, secretaries, messengers, and other “clerks of various kinds.” Id. § 541.205(c)(1)-(2). Whether Plaintiffs are more comparable to the former category or the latter will depend on how the jury resolves the numerous factual disputes discussed above . . .

 

This case represents a well timed victory for employers with the end of the story still to be written by the jury which has the job to deliberate the factual issues in the case. However, employers should consult with their legal counsel regarding the implications, if any, of this decision for their organizations.

Rest and meal period cases continue to make headlines in California while employers await the California Supreme Court’s decision in Brinker Restaurant v. S. C., (review granted Oct. 22, 2008 (Brinker), and Brinkley v. Public Storage, (review granted Jan. 14, 2009 (Brinkley)).

In another positive decision for employers, the Second Appellate District Court upheld the lower court’s decision to deny class certification with respect to meal and rest break, Labor Code 203 penalties, and inaccurate itemized wage statement claims against Lamps Plus, Inc., et al. (“Lamps Plus”) on May 10, 2011. See, Lamps Plus Overtime Cases (CA2/8 B220954 5/10/11). The Court ruled that employers are not required to force employees to take meal periods. Rather, the employer should provide the employee an opportunity to take their meal periods. The Court held:

Consistent with the purpose of requiring employers to provide employees with meal breaks, the Labor Code and the IWC use mandatory language precluding employers from pressuring employees to skip breaks, declining to schedule breaks, or establishing a work environment discouraging or preventing employees from taking such breaks. (See, e.g., Lab. Code, § 226.7, subd. (a) [“No employer shall require any employee to work during any meal or rest period . . .”].) This mandatory language does not mean employers must ensure employees take meal breaks. Rather, employers must only provide breaks, meaning, make them available. Our interpretation of the meal break requirement is supported by the definition of the word “provide” as used in Labor Code sections 226.7, subdivision (b), and 512, subdivision (a) (“providing”), as well as California Code of Regulations, title 8, section 11070, subdivisions 11 and 12. (See fns. 5 & 6, ante.) “Provide” means “to supply or make available.” (Webster‟s Tenth Collegiate Dictionary (1993) p. 937.) The language regarding rest breaks is more permissive. An employer need only “authorize and permit” rest breaks. (Cal. Code Regs., tit. 8, § 11070, subd. 12, italics added.)

 

In addition to Brinker and Brinkley cases, there are several additional meal and rest break cases pending before the California Supreme Court. Employers should continue to monitor these cases with the hope the Supreme Court will finally provide some clarity regarding the debate over the State’s meal and rest period laws.

While courts have generally avoided finding members of management individually liable for claims of discrimination under California Fair Employment and Housing Act (“FEHA”) and the California Family Rights Act (“CFRA”), plaintiff attorneys have attempted several different tactics to achieve this end especially where the employer is owned by a sole shareholder. In Leek et. al. v. Cooper, No. C061510 and C063152 (3rd Appellate District April 15, 2011), the Court held that whether a sole shareholder is liable as an employer for discrimination under the FEHA and the CFRA  should be determined by using the alter ego doctrine. 

Plaintiffs alleged that Jay Cooper (“Cooper”), the sole shareholder of a company, was liable for age discrimination as their employer since individuals are not personally liable for discrimination under FEHA or CFRA.  To show he was an employer, Plaintiffs argued the Court should considering using such analysis as: (1) a test similar to determining if an individual is an employee or independent contractor; (2) whether a shareholder is an employee under the Americans with Disabilities Act; and/or (3) whether two corporations should be considered a single employer. The Court rejected the Plaintiff’s arguments. The Court held that when seeking to hold a shareholder liable as the employer under the FEHA and the CFRA, the alter ego test is the appropriate test, not whether the sole shareholder exercises control over employees. In this case, the Court upheld summary judgement for the employer and found insufficent evidence to establish the sole shareholder as the alter ego of the employer.

The Ninth Circuit held today that the whistleblower provision of the Sarbanes-Oxley Act, 18 U.S.C. § 1514A(a)(1) (“SOX”), protects employees of publicly-traded companies who disclose certain information to three recipients: (1) federal regulatory and law enforcement agencies; (2) Congress; and, (3) employee supervisors. These three recipients are specifically enumerated in the law. The Court held that “leaks to the media are not protected.” See, Tides v. Boeing Co., 9th Cir., No. 10-35238, (5/3/11)

The plaintiffs alleged that their disclosures of perceived SOX violations to a newspaper were protected under § 1514A(a)(1) because reports to the media may inevitably “cause information to be provided” to Congress, federal law enforcement or regulatory agencies. The Ninth Circuit refused to adopt such an inevitable disclosure doctrine under SOX. Rather, the Court relied on the plain language of the statute when it wrote:

If Congress wanted to protect reports to the media under § 1514A(a)(1), it could have listed the media as one of the entities to which protected reports may be made.

The decision is a victory for publically-traded employers since plaintiffs’ arguments could have lead to a significant expansion of SOX. Employers should continue to monitor the case to see if the Ninth Circuit’s decision will be appealed.

Continuing to uphold the enforcement of arbitration agreements, the U.S. Supreme Court has struck down the California courts’ refusal to enforce class action waivers in consumer arbitration agreements on the ground that the state law is preempted by the Federal Arbitration Act. AT&T Mobility LLC v. Concepcion, No. 09-893 (Apr. 27, 2011). The ruling would appear to apply to arbitration agreements in the employment context as well. The Court reversed the decision of the Ninth Circuit Court of Appeals, which had held that AT&T’s arbitration clause was unconscionable and unenforceable under California law.

Although AT&T Mobility involved a consumer contract, the principles and rationale of the decision appear to be fully applicable to arbitration clauses in employment contracts. Based on the Supreme Court’s decision in Concepcion, it would appear that such clauses are valid and enforceable.  Employers who utilize arbitration agreements should seek legal advice in the preparation of class action waiver provisions and for the drafting of arbitration clauses generally. Employers that do not utilize arbitration may want to consider whether such a policy is right for them and, if so, what type of alternative dispute resolution program would work for their organization. For a detailed analysis, please see Supreme Court Strikes Down California’s Prohibition of Class Action Waivers in Arbitration Agreements