EEOC Found To Violate FLSA Overtime Law

An arbitrator held that the Equal Employment Opportunity Commission willfully violated the Fair Labor Standards Act on a nationwide basis with its own employees.  The issue arose from the EEOC's policy of providing "comp" time to employees instead of paying them overtime.  The Washington Post reports:

The ruling stems from a grievance filed by the [National Council of EEOC Locals] union in 2006 and involves overtime disputes dating to 2003. Wolf found that the EEOC's practice of paying compensatory time to any employee who worked extra hours did not satisfy the Fair Labor Standards Act.

"With rare exception in this record, the concept of 'requesting' compensatory time was a fiction," Wolf wrote. Employees were pressured to work extra hours but not offered extra pay, according to the arbitrator. "With rare exception in this record, the concept of 'requesting' compensatory time was a fiction," Wolf wrote. Employees were pressured to work extra hours but not offered extra pay, according to the arbitrator.

Apparently the EEOC case load has been steadily increasing the last few years.  But instead of hiring new employees to manage the increased work levels, the EEOC simply placed the burden on its existing employees.  The EEOC's press release on the arbitrator's ruling can be viewed at its website here

SEIU Picketed by Its Own Workers

Times are apparently so hard these days that, according to a story by the Associated Press today, even the unions are experiencing labor unrest. 

Dozens of employees of the Service Employees International Union picketed their own union Friday over its decision to lay off about 75 workers.

The staffers marched outside SEIU headquarters in Washington as they yelled into bullhorns, passed out flyers and chanted, "Justice for all, not just some."

"This union is supposed to be at the forefront of the progressive movement, but it can't seem to follow its own ideology," said Malcolm Harris, president of the Union of Union Representatives, which represents 210 SEIU organizers and field staff around the country.

The UUR has filed unfair labor practice charges and age and race discrimination claims against SEIU. Harris called SEIU leaders "hypocrites" for calling out corporations that shed workers, yet moving to lay off their own employees.

I frankly had no idea that their was a union of union employees, but I guess it makes sense.   (And I can't help wondering who represents the UUR workers).   But more than a few business owners will certainly enjoy seeing the SEIU get a small dose of its own tactics.   

Federal Service Contractors are Not Exempt from California Labor Code -- Naranjo v. Spectrum Security Services, Inc.

Employers who provide services under contract to the federal government are required to pay minimum wages and benefits set by the Department of Labor pursuant to the McNamara-O'Hara Service Contract Act of 1965 (the "SCA") (41 U.S.C. § 351 et seq.).   In Naranjo v. Spectrum Security Services, Inc. the Second District Court of Appeal held that being subject to the SCA  confers no exemption from the California Labor Code -- in other words, employers must comply with whichever regulatory scheme is the most favorable to the worker on any given issue. 

The opinion includes a useful explanation of how general preemption principles apply to the California Labor Code, especially the requirement to pay compensation for missed meal breaks.      

As our Supreme Court has explained, the additional compensation identified in subdivision (b) of this provision is not a penalty, but a form of “premium wage” paid to employees to compensate them for an adverse condition they have encountered during their work hours, namely, the potential hazard to their health and welfare from the denial of rest and meal breaks. ( Murphy v. Kenneth Cole Productions, Inc. (2007) 40 Cal .4th 1094, 1102-1111.) As such, the additional compensation is akin to overtime pay, which is another form of premium pay. (Id. at pp. 1109-1110.)

Thus, according to the Court, the purpose of California' s meal period legislation is in no way inconsistent with the goal of the SCA, which is  "to secure for employees minimum wages and benefits determined by the Secretary of Labor."

Another Arbitration Agreement Containing A Class Action Waiver Found To Be Unenforceable

[In the interest of full disclosure – my firm represents Western Pizza in this case. Because of this, we are expressing none of our own analyses about the Court’s opinion, but are simply reporting the court’s findings.]

Octavio Sanchez works as a delivery driver for defendant. He filed a class action lawsuit alleging that the drivers not only are not adequately reimbursed for their expenses incurred in the performance of their job duties, but also as a result are paid less than the legal minimum wage. Sanchez signed an arbitration agreement that contained a provision that he would not participate in any class action litigation. Western Pizza filed a motion to enforce the arbitration agreement, which the trial court denied. Western Pizza appealed the lower court’s decision.

Western Pizza argued on appeal that:

  1. The enforceability of the arbitration agreement is a question for the arbitrator to decide;
  2. The Federal Arbitration Act (FAA) (9 U.S.C. § 1 et seq.) preempts California law to the extent that California law would prevent the enforcement of the agreement;
  3. The class arbitration waiver does not impermissibly interfere with the employees’ ability to vindicate their statutory rights, and therefore is enforceable;
  4. The terms of the arbitration agreement are neither procedurally nor substantively unconscionable.

The court, not the arbitrator decides the enforceability of the arbitration agreement

The court explained:

Accordingly, we conclude, consistent with the rule stated in Discover Bank, supra, 36 Cal.4th at page 171, that the question whether the arbitration agreement is enforceable based on general contract law principles, including the question whether it is unconscionable or contrary to public policy, is a question for the court to decide rather than an arbitrator, regardless of whether the FAA applies.


Federal Arbitration Act (FAA) does not preempt California law

The court held that under the FAA, the validity and enforceability of an arbitration agreement is governed by state contract law:

Under California law, the question whether an arbitration agreement is unenforceable, in whole or in part, based on general contract law principles is a question for the court to decide, rather than an arbitrator. (Discover Bank, supra, 36 Cal.4th at p. 171; Balandran v. Labor Ready, Inc. (2004) 124 Cal.App.4th 1522, 1530; see Cable Connection, Inc. v. DIRECTV, Inc. (2008) 44 Cal.4th 1334, 1365.) This includes the determination whether an arbitration agreement is unconscionable or contrary to public policy. (Discover Bank, supra, at p. 171.) Discover Bank concluded that the FAA, and particularly the opinion by the United States Supreme Court in Green Tree Financial Corp. v. Bazzle (2003) 539 U.S. 444 [123 S.Ct. 2402], did not conflict with California law on this point and that the California rule therefore governs.

The Enforceability of the Class Arbitration Waiver

The court set out the factors established in Gentry v. Superior Court to determine whether the class action waiver is unenforceable:

Gentry stated that a trial court determining whether a class arbitration waiver impermissibly interferes with unwaivable statutory rights must consider: “[(1)] the modest size of the potential individual recovery, [(2)] the potential for retaliation against members of the class, [(3)] the fact that absent members of the class may be ill informed about their rights, and [(4]) other real world obstacles to the vindication of class members’ right to overtime pay through individual arbitration.” Gentry continued: “If it concludes, based on these factors, that a class arbitration is likely to be a significantly more effective practical means of vindicating the rights of the affected employees than individual litigation or arbitration, and finds that the disallowance of the class action will likely lead to a less comprehensive enforcement of overtime laws for the employees alleged to be affected by the employer’s violations, it must invalidate the class arbitration waiver to ensure that these employees can ‘ vindicate [their] unwaivable rights in an arbitration forum.’

(citations omitted). The court found that these factors supports the lower court’s holding that the agreement was unenforceable: the amounts at issue for reimbursement are modest, retaliation against low wage earners is “significant,” and most of the drivers here are immigrants with limited English skills “who are likely to be unaware of their legal rights.”

Unconscionability Of The Agreement\

The court held that the arbitration agreement was distinguishable from the agreement used in Gentry:

The record here does not indicate a distorted presentation of the benefits of arbitration to the degree that was present in Gentry, supra, 42 Cal.4th 443. The arbitration agreement states that the purpose of the agreement is “to resolve any disputes that may arise between the Parties in a timely, fair and individualized manner,” but otherwise does not extol the benefits of arbitration. The arbitration agreement does not limit the limitations periods, the remedies available, or the amount of punitive damages. It states, “Except as otherwise required by law, each party shall bear its own attorney fees and costs,” and therefore incorporates any statutory right to recover fees rather than creating a presumption against a fee recovery. Thus, the arbitration agreement neither contains the same types of disadvantages for employees as were present in Gentry nor fails to mention such disadvantageous terms. Moreover, the arbitration agreement expressly states that that the agreement “is not a mandatory condition of employment.”

The court still found, however, that there were elements of unconscionability in the agreement:

We conclude, however, that the record indicates a degree of procedural unconscionability in two respects. First, as in Gentry, the inequality in bargaining power between the low-wage employees and their employer makes it likely that the employees felt at least some pressure to sign the arbitration agreement. Second, the arbitration agreement suggests that there are multiple arbitrators to chose from (“the then-current Employment Arbitration panel of the Dispute Eradication Services”) and fails to mention that the designated arbitration provider includes only one arbitrator. This renders the arbitrator selection process illusory and creates a significant risk that Western Pizza as a “repeat player” before the same arbitrator will reap a significant advantage. These circumstances indicate that the employees’ decision to enter into the arbitration agreement likely was not a free and informed decision but was marked by some degree of oppression and unfair surprise, i.e., procedural unconscionability. We therefore must scrutinize the terms of the arbitration agreement to determine whether it is so unfairly one-sided as to be substantively unconscionable.

(citations and footnote omitted).

The court also held that the agreement did not provide for a neutral arbitrator. This is despite the fact that the arbitration agreement contained a clause that both parties had to agree to the arbitrator before the arbitrator could bind the parties. The court explained that “it seems likely that an employee in Sanchez’s position would not feel free to reject the arbitration provider designated by his employer under the terms of the agreement even after a dispute had arisen.”

In conclusion, the Court stated:

The arbitration agreement here includes a class arbitration waiver that is contrary to public policy and an unconscionable arbitrator selection clause, as we have stated. These are important provisions that, if they were not challenged in litigation, could create substantial disadvantages for an employee seeking to arbitrate a modest claim. Although it may be true that neither of these provisions alone would justify the refusal to enforce the entire arbitration agreement (see Gentry, supra, 42 Cal.4th at p. 466; Scissor Tail, supra, 28 Cal.3d at p. 828), we believe that these provisions considered together indicate an effort to impose on an employee a forum with distinct advantages for the employer. As in Armendariz, supra, 24 Cal.4th at page 124, we conclude that the arbitration agreement is permeated by an unlawful purpose. Accordingly, the denial of the motion to compel arbitration was proper.

The opinion, Sanchez v. Western Pizza, can be viewed at the Court’s website for a short period of time in Word and PDF.

This opinion comes on the heels of others that have also rejected arbitration agreements with class action waivers. And while the California Supreme Court left open the possibility that waivers may be enforceable in Gentry v. Superior Court, the recent line of lower appellate decisions (see Franco v. Athens Disposal Co.), including the decision in Sanchez v. Western Pizza, seems to have all but closed the door on any such possibility.


Obama Administration Moves to Block Bonus Payments to AIG Employees

According to an article this morning in the Miami Herald the Obama administration will be attempting to block bonus payments to AIG executives and traders.  A number of other prominent politicians have also piled on with righteous indignation at the prospect of paying large bonuses to highly paid executives at a company that is, for all intents and purposes, nationalized.

''At a time when millions of Americans are losing their jobs and trying to make ends meet, it is outrageous that a company that has been bailed out by the taxpayers for its mistakes would turn around and pay its executives such a staggering sum of money,'' said Sen. Russ Feingold, D-Wis. Other lawmakers from both parties said much the same.

To the extent any of these executives worked in California, however, the administration's efforts to retract promised bonuses may run afoul of the Labor Code.  For example, case law has interpreted Labor Code section 221 to prohibit any retroactive deductions from wages that have already been earned.  In other words, an employee who is induced to work by an offer or promise of a bonus or other specified incentive has a vested right to receive the compensation.  It is irrelevant that the Company may experienced financial difficulties or changed circumstances in the meantime.

While we don't know the terms of the express or implied bonus agreements at issue, it is safe to say that the taxpayers may not save any money if AIG is pressured to incur the legal liability and ensuing litigation which will result from a retroactive cancellation of bonus wages.  

Court Refuses to Enforce Class Arbitration Waiver -- Franco v. Athens Disposal Company, Inc.

In Franco v. Athens Disposal Company, Inc. the Court refused to enforce a class action waiver in an arbitration agreement which the employer was attempting to use to thwart class claims for missed meal periods.  The case vividly illustrates how attempting to enforce such an agreement will likely result in an early ruling on the desirability of class certification.   

This is because the California Supreme Court's 2007 decision in Gentry v. Superior Court generally disapproved of arbitration agreements that purport to prohibit class-wide arbitration. The Court's rationale was that the procedural obstacles to enforcing small claims individually would typically be prohibitive -- so that waiving the class remedy would have the same effect as an "exculpatory" waiver of substantive rights.  It thus left the door open just a sliver by allowing employers to try to prove a class-wide remedy is not necessary to ensure effective enforcement of the statutory rights of employees.

At such an early stage, however, the deck is stacked against the employer.  And trying to meet the standard set by Gentry may amount to a trap that can prejudice any later attempt to avoid class certification.    For example, just in the context of denying the motion to compel arbitration the Franco court concluded that: "Here, class treatment would be more practical than individual actions, regardless of whether the claims are adjudicated through arbitration or in the trial court."

When deciding to enforce an arbitration agreement employers will have to think carefully if precipitating such a ruling at the outset of the case is ultimately in their best interests.    


Obama Tells AFL-CIO He Will Pass The Employee "Free Choice" Act

Although candidate Obama supported the Employee “Free Choice” Act during the campaign, he had yet to declare whether he would support that bill as president and – if so – when he would press for its passage in Congress. President Obama removed all doubt regarding his position this week as he informed AFL-CIO leaders that “we will pass the Employee Free Choice Act” and supporters are expected to introduce that act in the Senate within the next few weeks. As we previously posted, the “Free Choice” Act would make it easier to form unions as employees could simply sign cards signaling their support for union formation rather than actually conduct an election through secret-ballot elections. For more information on President Obama’s decision to push the Employee Free Choice Act this year, click here

Bartenders May Participate in Mandatory Tip Pools Even If They Do Not Provide "Direct Table Service" -- Budrow v. Dave & Busters

California confers a special legal status on employee tips.  Under California Labor Code section 351, tips are not considered part of the wage paid by the employer, but are rather treated as a direct payment from the patron to the employee.  As a result, they are the property of the server from the very beginning and the employer is not permitted to take a "cut."   

Courts have recognized, however, that more than one employee often contributes to the service. And customers presumably expect that their tips will be fairly apportioned among these employees.  Thus, opinions such as the 1990 decision in Leighton v. Old Heidelberg, held that employers may require servers to "split tips" with busboys, hosts, and others.  As that court explained:

[T]he restaurant business has long accommodated this practice which, through custom and usage, has become an industry policy or standard, a ‘house rule and is with nearly all Restaurants,’ by which the restaurant employer, as part of the operation of his business and to ensure peace and harmony in employee relations, pools and distributes among those employees, who directly provide table service to a patron, the gratuity left by him, and enforces that policy as a condition of employment.

But Old Heidelberg's reference to employees "who directly provide table service to a patron," created uncertainty as to which employees may qualify.  What about cooks, bartenders and others whose work does not bring them into direct contact with the customer's table?

The Second District Court of Appeal decision in Budrow v. Dave & Busters has seemingly laid this particular issue to rest by declaring that the Labor Code cannot be read as creating a distinction between "direct" and "indirect" table service when it comes to eligibility for tip pooling.  Instead, the court held that the touchstone must be the intent of the customer under the totality of the specific circumstances.

It is in the nature of a tip pool that it is based on the general experience of each particular establishment, that it is only broadly predictive of the reasons for and the patterns of tipping in that particular restaurant and that, in the final analysis, this is the best that anyone can do. It is simply not possible to devise a system that works with mathematical precision and solomonic justice in each one of the millions of transactions that take place every day.

Section 351 provides that the tip must have been "paid, given to, or left for" the employee.  Given that restaurants differ, there must be flexibility in determining the employees that the tip was “paid, given to or left for.” A statute should be interpreted in a reasonable manner.  Ultimately, the decision about which employees are to participate in the tip pool must be based on a reasonable assessment of the patrons' intentions. It is, in the final analysis, the patron who decides to whom the tip is to be “paid, given to or left for.”  It is those intentions that must be anticipated in deciding which employees are to participate in the tip pool.

This "customer intent" standard is consistent with the purpose of the statute.  However, it also raises more thorny issues than it answers.  For example, if some customers intend to benefit only the waitress and not the cook, can their tips be thrown into the general pool?  Should surveys or opinion polls be used to determine how customers wish to apportion their tips between different categories of workers?   

Perhaps most importantly, who bears the burden of proving that a restaurant's tip splitting scheme reflects a "reasonable assessment of the patrons' intentions?"  The Budrow Court seems to have implicitly placed the burden on the non-bartender employees because it upheld the grant of summary judgment against them despite the apparent absence of any admissible evidence of customer intent. 




Can An Employer Be Liable For Not Googling A Job Applicant?

I’ve written and spoke a lot during the last year on the topic of using the Internet (primarily Google) to conduct background research on job applicants and employees. I have always maintained that employers are permitted to use the Internet to conduct these “background checks.”

There were a number of attorneys out there who recommended that employers not do this, and there probably attorneys who still are maintaining this position. But a job applicant, or employee, would have a very hard time claiming that they have a privacy interest in anything posted on the Internet for everyone else to see. For example, individuals who do not take careful steps to protect their Facebook information, would have a hard time arguing that because they did not limit access to their information that it would still be private information.

I think the bigger concern these days is if employers do not search out potential applicants on the Internet. As Seth Godin recently noted, a friend of his found some very interesting information through Google about three people he thought would be a good housekeeper.

I could easily see a case made against an employer for negligent hiring when a simple and free Google search would have put the employer on notice that the individual has a criminal record or might pose a threat to other employees or customers. Now, employers still need to be careful about the information they are relying upon: it goes without saying that everything you read on the Internet is not true and some information found in the Internet cannot be used for employment purposes. For example, California’s Megan’s Law website that provides information about registered sex offenders clearly sets forth the information cannot be used for employment purposes.

When Are Releases of Wage Claims Valid? -- Chindarah v. Pick Up Stix, Inc.

The California Labor Code contains a number of provisions that prohibit employees from waiving their rights to receive all wages due.  For example, Section 206.5 states that "an employer shall not require the execution of a release of  a claim or right on account of wages due . . . unless payment of those wages has been made."   Any release in violation of this requirement is declared "null and void."

It would plainly defeat the paternalistic objectives of the Labor Code if employees could simply contract away their entitlement to minimum wages, overtime, or other minimum protections.  For example, if an employer did not pay overtime but required its workers to sign a release in order to receive each bi-weekly paycheck, it is pretty clear the agreement would not be enforced. 

On the other hand, if a formal lawsuit or administrative claim has been filed, there would be no end to the dispute if the parties could not enter into a binding compromise.   Practitioners have always operated on the presumption that this type of settlement is enforceable.      

In between these two extremes, however, lies a vast gray area of factual scenarios in which a release of claims might, or might not be enforceable.   

The Fourth District Court of Appeal decision in Chindarah v. Pick Up Stix, Inc. casts some additional light on the analysis.   In Chindarah, the employer entered into individual settlement and release agreements with a number of employees who were also members of a putative class that was suing for unpaid overtime wages.    The lower court held that the releases were valid, and the Appellate Court affirmed.

In the process the Appellate Court seemingly created a new rule that Section 206.5 will not bar a release of wage claims so long as: (a) all wages that are "concededly"  due have already been paid; and (b) whether any additional wages are owed is the subject of a "bona fide dispute."  

As authority for this rule, the Court relied on a combination of dicta from cases that had rejected various release agreements as well as its conception of sound "public policy."   In practice, however, the holding may be problematic as an employer is essentially empowered to negate the protections of Section 206.5 by merely refusing to "concede" that anything is due.