California courts, like most federal courts, have historically held that a party does not waive its contractual right to compel arbitration unless the party opposing arbitration has been prejudiced by the moving party’s delay in seeking arbitration.  However, last term in Morgan v. Sundance, Inc., the U.S. Supreme Court clarified that the Federal Arbitration Act (FAA) and the federal policy favoring arbitration does not impose such a prejudice requirement.  Rather, under federal law, the party seeking to compel arbitration may waive its right to do so even if the opposing party has not been prejudiced by the delay.

The issue before the California Supreme Court in Quach v. California Commerce Club was whether California state law dictates a different result, specifically: Does the California Arbitration Act and state policy favoring arbitration nevertheless require a showing of prejudice to establish a waiver of the right to compel arbitration?   The California Supreme Court answered, “No.”        

Background

Peter Quach filed an employment-related lawsuit against his former employer, the California Commerce Club. When the California Commerce Club moved to compel arbitration based on an arbitration agreement Quach signed during his employment, he argued that the Commerce Club had waived its right to seek arbitration. Quach stressed that the California Commerce knew at the outset of the case that Quach had signed an arbitration agreement yet waited 13 months after the lawsuit was filed to move to compel arbitration and engaged in extensive discovery during that time.

The trial court initially sided with Quach, finding that the California Commerce Club waived its right to arbitration due to its delay and extensive discovery efforts (which included propounding written discovery and taking Quach’s deposition). However, the California Court of Appeal reversed the trial court’s decision, ruling that the California Commerce Club had not waived its right to arbitration. Relying on California’s multi-factor test for determining waiver of the right to compel arbitration under California law, which includes whether the party opposing arbitration has been prejudiced, the Court of Appeal emphasized that participation in litigation alone does not constitute a waiver of the right to arbitrate and found that Quach had not demonstrated sufficient prejudice from the delay to justify a waiver.

Notably, the Court of Appeal issued its decision before the U.S. Supreme Court issued its decision in Morgan.  In Morgan, the U.S. Supreme Court went on to hold that federal law does not impose any prejudice requirement when determining whether a party has waived the right to compel arbitration.  The U.S. Supreme Court held that the FAA and federal policy favoring arbitration requires that arbitration agreements be treated equally with other contracts; it does not mean that federal courts can develop arbitration-specific procedural rules that treat arbitration agreements more favorably than other contracts.  Federal courts therefore cannot graft an arbitration-favoring prejudice requirement to a finding of waiver.

The California Supreme Court Opinion

In the wake of Morgan, the California Supreme Court reversed the Court of Appeal and held that California law also does not impose a prejudice requirement when determining whether a party has waived the right to compel arbitration.  The California Supreme Court reasoned that California’s historical practice of requiring a showing of prejudice to establish a waiver of the right to compel arbitration arose out of federal case law, which the U.S. Supreme Court rejected and overturned in Morgan.  Moreover, nothing in the California Arbitration Act’s legislative history convinced the California Supreme Court that the California legislature intended to create an arbitration-specific prejudice requirement in the waiver context.

Accordingly, under California law, the test for determining whether a party has waived the right to compel arbitration is the same as determining waiver in the context of any other contract.  Specifically, to establish waiver, the party opposing arbitration must prove by clear and convincing evidence that the purported waiving party knew of the contractual right to compel arbitration and intentionally relinquished or abandoned it by acting inconsistent with the intent to arbitrate.  Critically, this is an objective test exclusively focused on the purported waiving party’s words and conduct, rather than a party’s subjective intent.

Takeaway

As a practical matter, the California Supreme Court’s decision means that employers seeking to compel arbitration need to promptly assert their right to arbitrate and avoid taking actions inconsistent with an intent to arbitrate the dispute.

If you have questions about this case or related issues, contact a Jackson Lewis attorney to discuss.

Castellanos v. State of California centered on the constitutionality of Proposition 22, the “Protect App-Based Drivers and Services Act,” which allowed app-based rideshare and delivery companies to hire drivers as independent contractors if certain conditions were met. 

In its recent decision, the California Supreme Court upheld the constitutionality of Proposition 22, affirming the Court of Appeal decision.

Background

Proposition 22, passed by California voters in November 2020, allowed app-based transportation and delivery companies to classify their drivers as independent contractors rather than employees if certain requirements were met.

The case of Castellanos v. State of California was brought forward by a group of app-based drivers arguing that Proposition 22 violates the California Constitution by limiting the legislature’s ability to enact laws that would grant app-based drivers the right to organize and access to the state’s workers’ compensation program.

In March 2023, the California Court of Appeal upheld the Proposition as mostly constitutional. The Court of Appeal held the Proposition did not intrude on the legislature’s authority. The Court of Appeal did find that the definition of amendment under the Proposition violated the separation of powers principle but could be severed from the rest of the Proposition.

California Supreme Court’s Opinion

The Court’s opinion made a lengthy review of the case law as it pertained to statutes that alleged to convey exclusive powers to the Legislature.

The Court stated that Proposition 22 did not conflict with the Constitution because nothing in the Constitution precluded the electorate from exercising its initiative power to legislate matters affecting workers’ compensation. The Court found that the Legislature was not conferred exclusive power as it pertains to workers’ compensation.

The Court declined to opine on whether the law improperly constrains the Legislature’s authority to enact future legislation.

If you have questions about the decision in this case or related issues, contact a Jackson Lewis attorney to discuss.

In June, the California Occupational Safety and Health Standards Board – unanimously adopted a new standard for Heat Illness Prevention in Indoor Places of Employment. The standard applies to all indoor work areas where the temperature equals or exceeds 82 degrees Fahrenheit.

At the time of its passage, it was unclear when the new standard would become effective, but the Standards Board had requested the Office of Administrative Law to expedite the regulation. Without any fanfare, Cal/OSHA indicated on its Frequently Asked Questions page that the standard took effect July 23, 2024.

The FAQ page covers 24 questions, from the basics of when the regulation applies, to more technical issues such as acceptable ways to measure the indoor temperature.

Some of the highlights are the FAQs are as follows:

  • Sufficient Access to Drinking Water: The FAQs specify that sufficient access means that water must be located as close as possible to areas where the workers are working and in indoor cool-down areas. It may require placing water strategically in multiple locations.
  • Emergency Response Procedures: The FAQs state that any worker must be allowed to call for emergency medical services when necessary. Moreover, employers must have specific procedures to ensure that supervisors and workers are trained to recognize the symptoms of heat illness, provide basic first aid such as cooling towels, and obtain medical services.
  • Evaluation of Training Programs: The FAQs state that Cal/OSHA evaluates training compliance by examining both content and how it is presented. To be considered effective, the training must be given in a language and at an educational level the workers understand. The FAQs also state several required topics:
    • Environmental and personal risk factors for heat illness.
    • The employer’s procedures for complying with this regulation.
    • The importance of frequent water consumption.
    • The importance and methods of acclimatization.
    • Signs and symptoms of the different types of heat illness.
    • The importance of workers immediately reporting to the employer signs and symptoms of heat illness in themselves or co-workers.
    • The employer’s procedures for responding to signs and symptoms of heat illness, such as first aid.
    • Emergency response procedures, including contacting emergency medical services with clear directions to the worksite.
    • Prior to supervising workers, the supervisor must be trained in all of the information listed above and how to monitor and respond to hot weather reports, if the work area is affected by outdoor temperatures.

If you have questions about Cal/OSHA’s Indoor Heat Standard or related issues, please contact a Jackson Lewis attorney to discuss.

The California Supreme Court issued its opinion in Ramirez v. Charter Communications, affirming in part that the arbitration agreement contained some substantive unconscionability but remanding the case to determine whether the agreement could be salvaged by severing the unconscionable provisions. In doing so, the California Supreme Court clarified its view on the enforceability of several common arbitration provisions – including those limiting discovery in arbitration – and the standard courts should apply when deciding severability.

The Case

Angelica Ramirez was hired by Charter Communications in July 2019 and signed an arbitration agreement as a condition of her employment. After her termination in May 2020, Ramirez sued Charter Communications for discrimination, harassment, and retaliation under the Fair Employment and Housing Act (FEHA).

Both the trial court and the Court of Appeal found the arbitration agreement to be procedurally and substantively unconscionable and ruled that these unconscionable elements could not be severed from the agreement. With respect to substantive unconscionability, the lower courts identified four provisions that, in their view, were unconscionable:

  1. The lack of mutuality in the covered and excluded claims provisions.
  2. A shortened limitation period for filing claims.
  3. The limited number of depositions.
  4. The potential for the employer to recover attorneys’ fees if it prevails on a motion to compel arbitration.

The California Supreme Court granted review, with a particular eye toward resolving a split in the Court of Appeal regarding the enforceability of an arbitration provision awarding attorneys’ fees to an employer that prevails on a motion to compel arbitration and ultimately held that three of the four provisions identified by the lower courts gave rise to substantive unconscionability:

  • Mutuality – The California Supreme Court agreed that the lack of mutuality in the covered and excluded claims gave rise to substantive unconscionability. The agreement excluded from its coverage claims mostly likely to be brought by the employer including claims related to intellectual property rights, noncompete agreements, theft, and disclosure of trade secrets. Meanwhile, the only excluded claims that an employee might bring were already not arbitrable as a matter of law, such as claims for workers’ compensation and unemployment insurance benefits.
  • Shortened Statute of Limitations – The California Supreme Court also agreed that the effective shortening of the statute of limitations for filing FEHA claims from three years to one year gave rise to substantive unconscionability.  The Court reiterated that while arbitration agreements may shorten the statute of limitations for filing claims, such must be “reasonable.”
  • Attorney Fee Shifting – The California Supreme Court also agreed that a provision allowing the employer to recover attorneys’ fees for prevailing on a motion to compel arbitration gave rise to substantive unconscionability.  The Court reasoned that such a provision imposed a potential expense on the employee that the employee would not have otherwise faced since employers ordinarily cannot recover attorneys’ fees in a FEHA action unless there is a finding that the action was frivolous, unreasonable, or groundless.
  • Discovery Limitations – The California Supreme Court disagreed, however, with the conclusion that the agreement’s limitation on depositions gave rise to substantive unconscionability. The Court reiterated that arbitration agreements may include limitations on discovery so long as the employee is afforded discovery “adequate” to vindicate statutory rights. Rejecting the employee’s assertion that she would need at least seven depositions to prosecute her FEHA claims yet the agreement only afforded her four, the Court stressed that unconscionability is determined at the time the agreement is entered, not in hindsight after claims are asserted. Moreover, four depositions were not unreasonable in light of the fact that the agreement could be construed as allowing the arbitrator to grant additional depositions if needed.

Having concluded that three of the four identified provisions were substantively unconscionable, the California Supreme Court remanded the matter for the lower court to determine if severance of the unconscionable provisions would be appropriate.

In doing so, the Court re-highlighted three principles that should guide a court’s severability analysis. First, the test for severability is qualitative, not quantitative: the key question is whether “the central purpose of the contract is tainted with illegality,” not whether one, two, three, or more provisions give rise to unconscionability.  Second, while an arbitration agreement can be cured by severing or limiting a provision, it cannot be cured through reformation, augmentation, or a rewriting of the agreement. Third, a court must consider whether severing the offending provisions and enforcing the balance of the agreement furthers the interests of justice.

Takeaway

California arbitration case law continues to evolve at a torrential pace.  Employers should carefully monitor developments in this area and routinely have their arbitration agreements reviewed to ensure enforceability.

If you have questions about this decision or issues related to employment arbitration agreements contact a Jackson Lewis attorney to discuss.

On July 15, 2024, Governor Newsom signed Assembly Bill (AB) 1870, which mandates that employers include information in their notices about an injured employee’s right to consult with a licensed attorney for advice about workers’ compensation law and that attorneys’ fees may be paid as part of the injured worker’s award.   

In California, employers have specific obligations to ensure their employees are well-informed about their rights and benefits under the workers’ compensation system. Employers must post a workers’ compensation informational poster in a conspicuous location frequented by employees.

Employers are required to provide new employees with a workers’ compensation pamphlet that outlines their rights and benefits. This must be done either at the time of hiring or by the end of the employee’s first pay period.

If an employee is injured, the employer must provide a Workers’ Compensation Claim Form (DWC 1) and a Notice of Potential Eligibility within one working day of learning about the injury.

AB 1870 expands these requirements to include notice of the employee’s right to consult a licensed attorney and that attorney’s fees may be paid from the injured worker’s award.

This requirement takes effect January 1, 2025.

If you have questions on AB1870 or related issues, contact a Jackson Lewis attorney to discuss.

California’s Governor signed Assembly Bill (AB) 2299 on July 15, 2024, which requires the state’s Labor Commissioner to develop a model list of employee rights and responsibilities under existing whistleblower laws. Employers will be required to post this notice beginning January 1, 2025. The notice must be written in a font larger than 14 point and contain the telephone number of the whistleblower hotline.

Under existing California law, employers are required to post certain workplace notices, including a list of employees’ rights and protections under whistleblower laws. However, the current law does not require employers to post a specific notice drafted by the Labor Commissioner outlining employee rights and responsibilities under whistleblower laws.

The Labor Commissioner previously issued a sample notice pursuant to the current law which includes the disclaimer that the Labor Commissioner does not guarantee its posting by employers fulfills the requirements of California law.

The new bill simply codifies the requirement for the Labor Commissioner to develop a model notice that complies with employers’ existing posting requirements so that employers posting the model notice shall be deemed in compliance with the law.

This requirement will take effect on January 1, 2025.

If you have any questions about AB 2299 or California posting requirements, a Jackson Lewis attorney is available to provide advice and counsel.

On June 29, 2024, California’s Governor signed Senate Bill (SB) 159, a budget bill pertaining to healthcare. Within this budget bill were revisions to California’s health care worker minimum wage, further delaying the implementation. On the last day of May, the Governor signed an urgency bill to delay the implementation of California’s health care worker minimum wage until July 1, 2024.  

SB 159 delays the implementation of the minimum wage until at least October 15, 2024.

The amendments put in place by SB 159, delay the implementation of the health care minimum wage until one of the following occurs:

  • The Department of Finance finds that the agency cash receipts for the period from July 1 through September 30, 2024, are at least three percent higher than projected at the time of the enactment of the 2024 Budget Act. If this occurs the health care minimum wage would be effective October 15, 2024.
  • The Department of Health Care Services has initiated the data retrieval necessary to implement an increase to the hospital quality assurance fee beginning January 1, 2025. If this notification occurs the health care minimum wage would be effective the earlier of January 1, 2025, or 15 days after the notification to the Joint Legislative Budget Committee.

As a budget bill, these amendments take effect immediately.

If you have questions about the changes made by SB 159 or the health care minimum wage, contact a Jackson Lewis attorney to discuss.

On June 20, 2024, the California Occupational Safety and Health Standards Board (Cal/OSHA) unanimously adopted a new standard for Heat Illness Prevention in Indoor Places of Employment. A prior attempt to pass the regulation failed on procedural grounds.

Covered Employers

The new standard will apply to all indoor work areas where the temperature equals or exceeds 82 degrees Fahrenheit when employees are present. However, the standard does not apply to employees who telework from a location of their choosing that is outside the employer’s control. In addition, the standard does not apply to “incidental heat exposures” of less than 15 minutes in any 60-minute period when the temperature is about 82 degrees Fahrenheit and below 95 degrees Fahrenheit.

Prisons and certain detention facilities are also exempted from the standard.

Additional requirements under the regulation may apply when the temperature equals or exceeds 87 degrees Fahrenheit.

Employer Obligations

For workplaces subject to the regulations employers will be required to do some or all of the following depending on the heat index at the workplace:  

  • Provide drinking water. Where drinking water is not plumbed or otherwise continuously supplied, employers shall provide sufficient quantities at the start of the shift to provide one quart per employee per hour of drinking for the entire shift.
  • Provide access to cool-down areas which are defined as an indoor or outdoor area that are blocked from direct sunlight and shielded from other high radiant heat sources.
  • Assess temperature and heat index and evaluate risk factors of heat illness.
  • Establish and maintain accurate records of either the temperature or heat index measurements.
  • Use control measures to minimize the risk of heat illness including engineering controls, and administrative controls.
  • Develop emergency response procedures and conduct employee training.

The Cal/OSHA Board has requested that the Office of Administrative Law (OAL) expedite its effective date. If this happens the standard will take effect in early August 2024. If the rule is not expedited, then it will take effect on October 1, 2024.

If you have questions about the Indoor Heat Regulation or related issues, contact a Jackson Lewis attorney to discuss.

On June 18, 2024, Governor Newsom announced a deal had been reached with the legislature and business groups to reform California’s Private Attorneys General Act (PAGA).

The agreement apparently comes after several months of negotiations between various business groups that had been pushing forward a ballot measure to repeal PAGA and labor advocates.

The following is an outline of the agreement:

Reform penalty structure

  • Encourages compliance with labor laws by capping penalties on employers who quickly take steps to fix policies and practices, and make workers whole, after receiving a PAGA notice, as well as on employers who act responsibly to take steps proactively to comply with the labor code before even receiving a PAGA notice.
  • Creates new, higher penalties on employers who act maliciously, fraudulently, or oppressively in violating labor laws.
  • Ensures that more of the penalty money goes to employees by increasing the amount allocated to employees from 25% to 35%.

Reducing and streamlining litigation

  • Expands which Labor Code sections can be cured to reduce the need for litigation and make employees whole quickly.
  • Protects small employers by providing a more robust right-to-cure process through the Labor and Workforce Development Agency (LWDA) to reduce litigation and costs.
  • Codifies that a court may limit the scope of claims presented at trial to ensure cases can be managed effectively.

Improving measures for injunctive relief and standing

  • Allows courts to provide injunctive relief to compel businesses to implement changes in the workplace to remedy labor law violations.
  • Requires the employee to personally experience the alleged violations brought in a claim.

Strengthening state enforcement

  • Give the Department of Industrial Relations (DIR) the ability to expedite hiring and fill vacancies to ensure effective and timely enforcement of employee labor claims.

While this reform is exciting for employers, legislation still needs to be passed and signed by the Governor for the changes to take effect. The groups pushing forward the ballot measure will withdraw the initiative if the measure passes the legislature and is signed by the Governor by June 27.

Jackson Lewis will continue to track these developments as the legislation takes shape. If you have questions about PAGA or related issues, contact a Jackson Lewis attorney to discuss.

Most California employers must adhere to both federal and state minimum wage laws.  Recent developments at the state and local level have ushered in new changes to California minimum wage laws. At the state level, California raised the minimum wage to $16.00, subject to certain industry- and locality-specific requirements.  This new minimum wage—which applies to most California employers—took effect on January 1, 2024. 

California also imposed two new industry-specific minimum wage requirements this year.  A new minimum wage requirement for the fast food industry took effecton April 1, 2024.  Another minimum wage requirement for healthcare workers takes effect July 1, 2024.  

Local entities such as cities and counties can establish higher minimum wage rates within their jurisdictions. When conflicting requirements arise, employers must follow the stricter standard, which is usually the standard that most benefits employees. Many localities follow California’s practice of adjusting their minimum wage at the start of the year, however, the following localities will raise their minimum wage on July 1, 2024:

LocalityCurrent Minimum WageNew
Minimum Wage
Alameda$16.52$17.00
Berkeley$18.07$18.67
Emeryville$18.67$19.36
Fremont$16.80$17.30
City of Los Angeles$16.78$17.28
County of Los Angeles (unincorporated areas only)$16.90$17.27
Malibu$16.90$17.27
Milpitas$17.20$17.70
Pasadena$16.93$17.50
San Francisco$18.07$18.67
Santa Monica$16.90$17.27
West Hollywood$19.08$19.61

Do you have any questions about California minimum wage compliance or related issues? Contact a Jackson Lewis attorney to discuss.