New Labor Code § 925 Limits Contractual Choice of Law in Employment Contracts

Starting on January 1, 2017, Labor Code section 925 is in effect.  The statute limits the enforcement of contracts that would require California employees to litigate their disputes with an employer in a venue outside California, or under a different set of laws.    

The new law applies to employment contracts "entered into, modified, or extended on or after January 1, 2017."  And the law only applies to "an employee who primarily resides and works in California."  As to such covered disputes, however, any contract provision designating a non-California forum or choice-of-law, will "voidable" at the election of the employee.  

Employers and employees should also be aware, however, that such provisions may also be unenforceable on the separate ground that enforcement would require an employee to waive a California legal right that is explicitly made "non-waivable," such as minimum wage,overtime, or non-discrimination laws. 

In any event, the full text of Labor Section 925 is as follows:

§ 925. Prohibition against requirement that employee residing and working in California adjudicate claim outside of California or be deprived of substantive protection of California law as condition of employment; violations and remedies; exception
(a) An employer shall not require an employee who primarily resides and works in California, as a condition of employment, to agree to a provision that would do either of the following:
(1) Require the employee to adjudicate outside of California a claim arising in California.
(2) Deprive the employee of the substantive protection of California law with respect to a controversy arising in California.
(b) Any provision of a contract that violates subdivision (a) is voidable by the employee, and if a provision is rendered void at the request of the employee, the matter shall be adjudicated in California and California law shall govern the dispute.
(c) In addition to injunctive relief and any other remedies available, a court may award an employee who is enforcing his or her rights under this section reasonable attorney's fees.
(d) For purposes of this section, adjudication includes litigation and arbitration.
(e) This section shall not apply to a contract with an employee who is in fact individually represented by legal counsel in negotiating the terms of an agreement to designate either the venue or forum in which a controversy arising from the employment contract may be adjudicated or the choice of law to be applied.
(f) This section shall apply to a contract entered into, modified, or extended on or after January 1, 2017.
 

Class Certification is Proper Means for Testing the Adequacy of Employer's Meal and Rest Policies -- Lubin v. Wackenhut, Corp.

In Lubin v. The Wackenhut Corp., the plaintiffs were security guards who claimed they should be certified as a class because their employer maintained a consistent policy of requiring them to remain constantly on-duty throughout their shifts at certain job sites.  (The facts of the case were therefore basically similar to those in Augustus v. ABM Industries, Inc.) 

The 50-page opinion thoroughly reviews and synthesizes the recent state and federal authorities related to class certification and collective proof.  The opinion is worthy of several separate posts (which may be forthcoming).  For now, however, I wanted to highlight what may be the most important aspects of the opinion -- i.e., how class-wide liability may be properly based on an evaluation of the employer's general policy.     

The trial court in Lubin had determined that, even if Wackenhut's general policy was unlawful, it could still avoid liability by proving that "in practice" some individuals were nevertheless able to take legally compliant breaks.  The trial court further reasoned that, under the U.S. Supreme Court's Title VII decision in Wal-Mart v. Dukes, such individual instances of compliance would need to be separately adjudicated.  

The Appellate Court decisively rejected this liability standard.  Instead, it explained that proof of an unlawful policy will, by itself, establish the employer's liability.    

Throughout its order the court also found that individualized inquiries were necessary because, pursuant to Wal–Mart, Wackenhut was entitled to defend by proving that, even if plaintiffs presented evidence that it had a general policy of not providing valid meal or rest breaks, in practice some employees were afforded an off-duty meal or rest break. This rationale misapplies Wal–Mart. In Wal–Mart, the Supreme Court found that plaintiffs failed to present evidence establishing the existence of a common policy of discrimination. In this case, when it originally certified the class, the trial court found that plaintiffs had presented sufficient evidence that Wackenhut had policies and practices that violated wage and hour laws. Because plaintiffs met their burden of establishing a common policy, whether an individual was permitted to take a valid meal or rest break on any given day is a question of damages. 

In other words, once liability is established on the basis of an unlawful policy, any instances in which legally compliant meal or rest breaks might have occurred in spite of the unlawful policy will merely serve to reduce the employer's aggregate damages.

 

 

Employees Cannot be "On-Call" During Rest Breaks -- Augustus v. ABM Security Services, Inc.

 In its 2014 decision of Brinker v. Superior Court, the California Supreme Court explained that employees must be "relieved of all duties" during their statutorily required 30-minute meal periods.  Since that time, however, courts have struggled to define the exact status that employees are entitled to enjoy during the shorter 10-minute rest breaks which are also required by statute.   In particular, is it permissible for employees to remain "on-call" during their rest breaks?

For example, ABM Industries required its security guards to wear two-way radios and pagers and to remain "vigilant" and "available to respond" during their rest breaks.  The trial court entered a 90 million class action judgment on the ground that this "on-call" status was tantamount to requiring the employees to work during their rest breaks.  An appellate panel overturned this judgment on the ground that being on-call should not be considered the same as being required "to work."     

But the December 22, 2016 Supreme Court opinion in  Augustus v. ABM Industries, emphatically settled the issue.  The Supreme Court held that the same "relieved of all duty" standard for legally compliant meal periods also applies to rest periods. This means that during rest periods employees must be temporarily relieved of even the minimal duty to remain available to respond to radio or pager calls.  As a result, "state law prohibits on-duty and on-call rest periods."

 

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Fox News CEO Accused of Sexual Harassment and Retaliation -- Gretchen Carlson v. Roger Ailes

 Fox News host Gretchen Carlson has filed a  lawsuit in New Jersey Superior Court against  the network's CEO, Roger Ailes.  The unusual thing about the lawsuit is that it is brought  solely against Roger Ailes in his individual capacity rather than against Fox News as her employer.

The gist of the complaint is that Carlson's contract was not renewed in June 2016 as retaliation for complaints she made about the conduct of her male co-host, Steve Doocy, in September of  2009.  The objectionable conduct was that: 

12.  Doocy engaged in a pattern and practice of severe and pervasive sexual harassment of Carlson, including, but not limited to, mocking her during commercial breaks, shunning her off air, refusing to engage with her on air, belittling her contributions to the show, and generally attempting to put her in her place by refusing to accept and treat her as an intelligent and insightful female journalist rather than a blond female prop.

Carlson alleges that as retaliation for her complaining about Doocy Ailes proceeded to sabotage her career over the next seven years and that "In doing these things, Ailes did not act in the interests of Fox News, but instead pursued a highly personal agenda."  

Carlson does not allege that the 76-year old Ailes ever actually propositioned her.  However, in a September 2015 meeting he allegedly told her that "I think you and I should have had a sexual relationship a long time ago."

 

 

  

New Rule: California Appellate Opinions are Now Citable Pending Supreme Court Review

When the United States Supreme Court takes up a case the published Circuit Court opinion from which it arose remains on the books as binding authority unless, and until, it is reversed.

By contrast, under the traditional rule in California a previously published appellate decision was effectively de-published for good once the California Supreme Court elected to take the matter under review.  

Beginning on July 1, 2016, however, California Rules of Court, Rule 8.115 has been modified so that published appellate decisions will now remain citable after review is granted.  

While such opinions are under review, they will remain citable only as persuasive, but not binding authority.  Once the California Supreme Court has completed its review and issued its own opinion, the appellate decision will become binding again as to any point on which it was not overruled or rejected.

Finally, at any time after granting review the California Supreme Court can issue an order directing that some or all points of the appellate decision are binding, while others are not.

It will be especially interesting to see how this last part of the rule is implemented in practice.  It is conceivable that the Supreme Court will use this new authority as a convenient means to partially depublish and thus, in effect, selectively rewrite  lower appellate decisions.  

 

  

Seventh Circuit Holds that Class Action Waivers are Unenforceable under the NLRA -- Lewis v. Epic Systems Corporation

In Lewis v. Epic Systems Corp., the Seventh Circuit held that arbitration agreements that prohibit class or collective actions by employees are illegal and unenforceable under the National Labor Relations Act ("NLRA").  In particular, the May 26, 2016 decision explained that class lawsuits are a form of "protected concerted" activity under NLRA Sections 7 and 8.  Thus, the court reasoned that any purported contractual waiver of these statutorily protected rights is unenforceable:

The [class waiver] provision prohibits any collective, representative, or class legal proceeding. Section 7 provides that “[e]mployees shall have the right to ... engage in ... concerted activities for the purpose of collective bargaining or other mutual aid or protection.”  A collective, representative, or class legal proceeding is just such a “concerted activit[y.”  Under Section 8, any employer action that “interfere[s] with, restrain[s], or coerce[s] employees in the exercise of the rights guaranteed in [Section 7]” constitutes an “unfair labor practice.”  Contracts that stipulate away employees’ Section 7 rights or otherwise require actions unlawful under the NLRA are unenforceable.

(Internal Citations omitted).

The Lewis Court further held that this result is not at odds with the Federal Arbitration Act ("FAA"), as the FAA's "savings clause" only requires enforcement of arbitration agreements which are lawful and otherwise enforceable according to general contract law.

As a general matter, there is no doubt that illegal promises will not be enforced in cases controlled by the federal law.  The FAA incorporates that principle through its saving clause: it confirms that agreements to arbitrate “shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” 9 U.S.C. § 2. Illegality is one of those grounds. The NLRA prohibits the enforcement of contract provisions like Epic’s, which strip away employees’ rights to engage in “concerted activities.” Because the provision at issue is unlawful under Section 7 of the NLRA, it is illegal, and meets the criteria of the FAA’s saving clause for nonenforcement. Here, the NLRA and FAA work hand in glove.

(Internal punctuation and citations omitted).

In striking down class action waiver agreements Lewis joins with the reasoning adopted by the NLRB itself.  However, it splits with the Fifth and Tenth Circuits, which have held that the pro-arbitration policy of the FAA takes precedence over the right to engage in "protected concerted" activity.  

Unless Lewis is overruled following a grant of en banc review, the circuit split regarding the legality of class action waivers will inevitably end up before the Supreme Court.  However, the Supreme Court's prior pro-waiver decisions have been sharply divided 5-4 decisions authored by the recently departed Justice Scalia.   As a result, time may be running out on employers' most effective technique for avoiding class action liability.  

 

 

Consumer Financial Protection Bureau Issues Proposed Rule to Prohibit Class Action Waivers in Arbitration Agreements

 The federal Consumer Financial Protection Bureau (CFPB) has issued a proposed regulation, 12 C.F.R. part 1040, that would ban the enforcement of class action waivers in most consumer financial contracts.

The new regulation does not apply to employment contracts.  Moreover, the new regulation will only apply prospectively to arbitration agreements formed more than 180 days after the regulation becomes effective.  However, it will inevitably stir up some interesting legal and political issues surrounding the enforcement of class action waivers.  

The new rule amounts to a regulatory reversal of the landmark 2011 U.S. Supreme Court decision in AT&T v. Concepcion, which held that the Federal Arbitration Act ("FAA"), requires states to enforce class action waivers even if they would be illegal under state law.  Indeed, the new regulation would prohibit states from enforcing class action waivers even if they would be legal under state law.

The elephant in the room, however, is whether the CFPB actually has the authority to do any of this.  Section 128(b) of the Dodd-Frank Act purportedly gives the CFPB authority to prohibit arbitration agreements containing class action waivers.  However, the FAA already contains a statutory mandate that private arbitration agreements are to be deemed “valid, irrevocable, and enforceable," and are to be enforced "according to their terms."  

Denying enforcement of class action waiver provisions is arguably a partial repeal of the FAA, at least as it was interpreted in AT&T v. Concepcion.   It is therefore dubious that Congress can constitutionally delegate this legislative function to an administrative agency.   

 

 

  

 

Workers Comp. Injuries May Support Civil Lawsuits -- Prue v. Brady Company, Inc.

Most employers and workers recognize that the "workers comp." system is entirely separate from the civil law courts, with its own special remedies and procedures.   Employers also generally understand that such workers comp. benefits are supposed to be the "exclusive remedy" for any workplace injury.  

But the recent case of Prue v. Brady Company, Inc., offers a timely reminder that an exception to this "exclusivity" doctrine may apply whenever a workplace injury also results in a "disability" covered by the California Fair Employment and Housing Act ("FEHA").  Indeed, most medical conditions that substantially limit an employee's ability to work -- such as the need to recuperate or take leave due to an injury -- will also qualify as a covered "disability."  This, in turn, triggers a number of statutory obligations including: the duty to engage in an "interactive process;" the duty to "reasonably accommodate" the employee's condition; and the duty to prevent any retaliation or discrimination.  

For example, in Prue v. Brady, the employee alleged that his supervisor terminated him rather than allow him to return to work with restrictions after he suffered a hernia at work.  The lower court had granted summary judgment based on the employer's argument that this was really a glorified workers comp claim for which no additional remedy should be allowed.  

The Appellate Court reversed, explaining that the legal duties imposed by the FEHA would support not only a statutory claim under that law itself, but also a common law claim for "termination in violation of public policy."  

This is a cautionary tale for employers who may have a tendency to be complacent about workers comp. claims.  Likewise, workers should be aware that the FEHA's reinstatement and non-retaliation rights are also likely to protect their right to return to employment following a workplace accident or injury.   

 

Requiring Employees to Pay Back Training Costs May be Illegal Under California Law -- In Re Acknowledgement Cases

Employers obviously benefit from a well-trained workforce.  On the other hand, why invest in training when an employee can just quit (or be fired) and take his improved skills elsewhere.  To avoid this scenario, many companies have instituted policies that require employees to pay back the cost of their training if their employment terminates.

The problem, however, is that such training pay-back programs may be illegal under California Labor Code Section 2802, which generally prohibits employers from passing on the costs of their business operations to employees.      

For example, in In re Acknowledgement Cases, the plaintiffs challenged a Los Angeles Police Department (LAPD) policy that required new recruits to agree that if they left employment within 60 months of graduating from the Police Academy they would pay back a corresponding portion of their training costs. 

As a matter of first impression, the Second District Court of Appeal held that Section 2802 requires that employers must remain financially responsible for all training costs, except for those costs incurred by the employee to obtain a legally required license. 

 [T]he broad purpose of Labor Code section 2802 is to require an employer to bear all of the costs inherent in conducting its business and to indemnify employees from costs incurred in the discharge of their duties for the employer’s benefit.  It is consistent with this purpose to require that where an individual must, as a matter of law, have a license to carry out the duties of his or her employment, the employee must bear the cost of obtaining the license. It is also consistent with this purpose to require an employer to bear the cost of training which is not required to obtain the license but is intended solely to enable the employee to discharge his or her duties.

The record below established that the LAPD required 644 hours of training directly related to meeting statutory licensing requirements, as well as an additional 420 hours of non-statutory "department required" training.  

The Court declined to decide whether, in such a hybrid program, it would be permissible to apportion the training costs between the employer and employee.   

Rather, the case below had been tried by the parties under an "all-or-nothing" theory in which the pay-back policy would either be fully enforceable or entirely void.  Any equitable apportionment defense had therefore been waived.  And because the program purported to require employees to repay some training costs in violation of Labor Code Section 2802, the entire repayment program was therefore properly found to be unenforceable as "null and void."

 

California Minimum Wage Rate Increase to $10.00 Per Hour Also Impacts Overtime Exemptions

Beginning on January 1, 2016, California's minimum wage increased from $9.00 to $10.00 per hour.

Whenever the baseline minimum wage is increased, however, it is also important to remember that it creates a "ripple effect" on various minimum compensation thresholds pegged to the minimum hourly rate.  These include:

  • The minimum salary for exempt executive, professional, and administrative employees.  To remain exempt from overtime, such "white collar" employees must be paid a salary equal to twice the minimum wage based on a 40-hour work week.   As of January 1, this minimum exempt salary level therefore increased from $720 to $800 per week.
  • The minimum weekly compensation for exempt inside "commissioned sales" employees.  To remain exempt from overtime, an employee who regularly earns over half his income in commissions must also be paid no less than 1.5 times the minimum wage in each exempt pay period.   As of January 1, this minimum threshold (assuming a 40 hour workweek), therefore increased from $540 to $600 per week.
  • The minimum hourly rate for exempt employees covered by a CBA.  To remain exempt from statutory overtime, an employee covered by a CBA which contains its own alternative overtime premium provision must be guaranteed a minimum regular rate of pay that is at least 30% over the statutory minimum.  As of January 1, this minimum hourly wage due under a CBA therefore increased from $11.70 to $13.00 per hour.

These compensation thresholds are bright-line rules.  The employer either pays the minimum, or it doesn't.  And there is no "close enough" or "excusable negligence" defense.  Thus, an employer who fail to maintain these minimum  thresholds will be unable to claim the exemption and will be liable for all overtime hours worked by the under-compensated employees.