As discussed in the April 2012 newsletter there are presently a number of employment-related bills pending in the California legislature. Some of the more significant legislative developments are summarized below.
Bills that Passed the First Legislative Chamber:
Assembly Passes Bill Prohibiting Explicit Mutual Wage Agreements that Predetermine Overtime Compensation (AB 2103)
In Arechiga v Delores Press, Inc. (2011) 192 Cal.App.4th 567, a California court of appeal upheld an explicit written mutual wage agreement that pre-determined a non-exempt employee’s overtime compensation and included it as part of the employee’s salary. The Arechiga court concluded Labor Code section 515 did not specifically invalidate such agreements and declined to enforce the DLSE’s Enforcement Manual that held such agreements were impermissible following the enactment of Labor Code section 515 in 2000. This bill would overturn Arechiga by amending Labor Code section 515 to provide that “payment of a fixed salary to a nonexempt employee shall be deemed to provide compensation only for the employee’s regular, non-overtime hours, notwithstanding any private agreement to the contrary.”
This bill has recently passed the Assembly and now moves to the Senate where passage seems likely.
Assembly Passes Amendments Regarding Employee Rights to Inspect Personnel Files (AB 2674)
Labor Code section 1198.5 presently provides that an employee has the right to inspect the personnel records the employer maintains relating to the employee’s performance or to any grievance concerning the employee. This section presently requires the employer to permit inspection at “reasonable intervals” but does not specify whether former employees have inspection rights, and does not identify a particular time limit to comply or enumerate a specific penalty for non-compliance. This bill would specify that both current and former employees have inspection rights, as do their representatives, and require an employer to permit inspection no later than 30 days after receiving a written request (unless mutually extended to 35 days from the original request). This bill specifies that former employees would be entitled to one request per year to inspect or copy their records.
This bill would also require employers, upon an employee’s request, to provide copies of these records at a charge not to exceed the actual cost of reproduction within these same time frames. For former employees, the employer may mail a copy of the records if the employee reimburses the employer for actual postal expenses.
This bill also outlines the procedures for inspecting or copying personnel files, and requires employers to develop a form that shall be made available upon verbal request to the employee’s supervisor or employer’s representative. This bill also specifies that current employees will generally be permitted to inspect records where the employee works, whereas former employees may inspect at the location where the records are stored. This bill also specifies that employers will be required to maintain personnel records for a period of not less than three years after termination of employment.
This bill specifies that these inspection rights would cease during the pendency of any litigation by a current or former employee relating to a personnel matter. This bill would also provide alternative inspection/copying mechanisms involving former employees terminated for violations of law, or an employment-related policy involving harassment or workplace violence.
This bill would also permit a current or former employee or the Labor Commissioner to recover a penalty of $750 from the employer, and would further permit a current or former employee to obtain injunctive relief and attorneys’ fees.
This bill has passed the Assembly and is now headed to the Senate, and it does not appear to face much opposition.
Senate Passes Bill Invalidating Adhesion Contracts Precluding Consolidated or PAGA Actions (SB 491)
This recently-introduced and quickly passed bill would provide that any term in a contract of adhesion purporting to waive the right to join or consolidate claims, or to bring a claim as a representative member of a class or in a private attorney general capacity shall be deemed to lack the necessary consent to waive that right and be void. This bill would apply to such contractual provisions that are entered into on or after January 1, 2013. Since this bill was amended and passed the same day, there is presently no published committee analysis, but it appears fairly clear this bill is intended to sidestep recent judicial decisions upholding class action waivers in arbitration agreements.
This bill now heads to the Assembly.
Assembly Passes Bill Altering Wage Garnishment Amounts (AB 1775)
Presently, a levy of execution upon the earnings of a judgment debtor is made by service of an earnings withholding order upon the debtor’s employer, with federal law limiting the amount of an employee’s earnings subject to such withholding orders. This bill would amend these provisions to specifically enumerate in California’s Code of Civil Procedure the maximum amounts subject to such withholding orders, rather than requiring reference to federal law. If enacted, the amount of an individual judgment debtor’s weekly disposable earnings subject to a garnishment shall not exceed 25% of the employee’s weekly disposable earnings or the amount by which the individual’s disposable earnings exceed 40 times the state minimum hourly wage in effect at the time the earnings are payable.
This bill has passed the Assembly and is presently pending before the Senate Judiciary Committee.
Bills that Were Amended:
Bill Prohibiting Discrimination Against Unemployed Applicants Amended (AB 1450)
As discussed in prior newsletters, the California legislature is considering a bill that would limit an employer’s ability to take employment actions relating to an individual’s “employment status,” defined as an individual’s “unemployment.” Specifically, this bill would prohibit an employer, unless based upon a bona fide occupational qualification, from (a) refusing to consider an individual or offer employment because of the individual’s “employment status,” (b) publishing advertisements suggesting an individual’s current employment is a job requirement; or (c) directing an employment agency to take an individual’s employment status into account in screening or referring applicants for employment. This bill would impose similar prohibitions on employment agencies.
The proposed would not prohibit employers or employment agencies from publishing job advertisements setting forth the lawful qualifications for the job, including but not limited to the holding of a current and valid professional or occupational license. It would also not prohibit advertisements for job vacancies stating that only applicants who are currently employed by that employer will be considered. (so-called “internal” hiring). This bill would authorize civil penalties of $1,000 for the first violation, $5,000 for the second violation and $10,000 for each subsequent violation, enforceable by the Labor Commissioner. Lastly, “state contracts” entered into after January 1, 2013 shall require compliance with these requirements, and failure to do so would be grounds for cancelling, terminating, or suspending the contract and debarring the contractor from eligibility for future state contracts, as specified.
Recently adopted amendments clarify that employers would not be precluded from (a) obtaining information regarding an individual’s employment, the dates of employment, or the reasons for the separation from employment; (b) having knowledge of an employee’s employment status; (c) considering an employee’s employment history (as opposed to status) or the reasons underlying an employee’s employment status; (d) refusing to offer employment to a person because of the reasons underlying an individual’s employment status; or (e) otherwise making employment decisions pertaining to that individual.
This amended bill recently passed an initial vote in the Labor and Employment Committee and has been referred to the Committee on Judiciary.
Amendments Made to Bill Providing Additional Protections for Stalking Victims (AB 1740)
As originally proposed, this bill would have expanded FEHA’s discrimination, harassment and retaliation protections to include an employee’s status as a victim of domestic violence, sexual assault or stalking. As amended, this bill no longer amends FEHA but instead amends existing Labor Code provisions regarding victims of domestic violence or sexual assault (Labor Code sections 230 et seq.) and extends those protections to stalking victims. In addition to prohibiting discrimination or retaliation against an employee who is a victim or has asked for accommodation (discussed below), it would preclude employers from discriminating against the employee because of a workplace disruption caused by the person identified as the stalker or attacker. It would also require employers to provide reasonable accommodation to victims of domestic violence, sexual assault or stalking, which may include requiring employers to implement safety measures that include a transfer/reassignment or modified schedule, a changed work telephone or work station, installation of a lock, or assistance in documenting domestic violence, sexual assault or stalking that occurs in the workplace.
This bill recently passed the Labor and Employment committee and has been referred to the judiciary committee. A similar bill (SB 1745) passed in 2006, but was vetoed by then-Governor Schwarznegger.
Social Media Bills Amended (AB 1844 and SB 1349)
Consistent with the legislative trend at both the federal and state level, both these bills would prohibit employers from requiring applicants or employees to provide password or other information that would enable employers to access private social media maintained by the employee. (SB 1349 would impose similar prohibitions on educational institutions regarding students and applicants). Both bills respond to recent media reports that some schools and employers are requiring employees to divulge such information thus allowing the employer/educational institution access they could not otherwise obtain. As presently drafted, these bills would not affect other screening devices (e.g., credit checks, etc.), nor preclude employers/educational institution from accessing non-private social media.
Both bills appear to have fairly strong bi-partisan support and little opposition so passage of either or both seems likely, and both have recently been amended. For instance, SB 1349 has been amended to clarify that employers/educational institutions would not be precluded from requesting (but not requiring) the employee/student to provide access to aid in a formal investigation regarding specific allegations of harassment, discrimination, intimidation or potential violence. However, the employer/educational institution would not be permitted to discipline an employee/student who refused to disclose the requested information. AB 1844 has been amended to delete the language that specified an employer has no legal duty to access social media as part of its background check regarding employees.
(NOTE: Maryland has recently enacted the first bill prohibiting employers from requiring employees divulge such social media access information (S.B. 433, effective October 1, 2012) and other states are expected to similarly pass such bills shortly. The Social Networking Online Protection Act (SNOPA) has also recently been introduced at the federal level.)
Assembly Amends Bill Prohibiting “Familial Status” Discrimination (AB 1999)
As originally introduced, this bill would have amended the Fair Employment and Housing Act (FEHA) to include “familial status” as an additional basis upon which the right to seek, obtain and hold employment cannot be denied. “Familial status” would have been defined as an individual who is, who will be or who is perceived to be a family caregiver, with “family” meaning a child, a parent, a spouse, a domestic partner, a parent-in-law, a sibling, a grandparent or a grandchild.
Responding to objections these definitions effectively covered every employee, this bill has been amended to prohibit discrimination against “family caregiver status” rather than “familial status.” In turn, “family caregiver status” is defined as “an individual who provides medical or supervisory care to a family member.”
Proposed Bill Adding “Breastfeeding” to FEHA’s Protections Deemed Declaratory of Existing Law (AB 2386)
The FEHA presently precludes discrimination based on sex, which is defined to include gender, pregnancy, childbirth and medical conditions related to pregnancy or childbirth. This bill would add “breastfeeding and related medical conditions” to the FEHA’s definition of “sex” as protected categories for unlawful employment discrimination under state law. In effect, this bill would supplement the lactation accommodation requirements contained in Labor Code sections 1030 through 1033, by prohibiting employers from discriminating or retaliating against female employees who express milk at work after they return from pregnancy disability or CFRA baby-bonding leave. A recent amendment declares these changes would be declaratory of existing law, meaning they would apply retroactively.
Bills that Failed Passage:
Several other bills failed initial passage suggesting, at least for now, they appear stalled this year, including:
- AB 196 (raising minimum wage to $ 8.50);
- AB 1789 (requiring review of all Industrial Wage Orders and imposing temporary moratorium on Private Attorney General Act claims);
- AB 1948 (extending wage and hour laws to apply to Legislature);
- SB 1114 and SB 1115 (providing more flexibility in alternative workweek schedules).
DLSE Issues (Again) Updated Wage Theft Prevention Act Template and Guidance
California's Wage Theft Prevention Act (AB 469) took effect January 1, 2013, and amongst other things, requires employers to provide written notice of certain statutorily-enumerated information to non-exempt employees upon hire and when such information changes, unless the changes are reflected in a subsequently issued wage statement. As legislatively directed, the Division of Labor Standards Enforcement (DLSE) has issued, in English and several other languages, sample Wage Theft Notice templates containing these statutorily-enumerated items as well as all information the Labor Commissioner deems "material and necessary." (www.dir.ca.gov/dlse/LC_2810.5_Notice.pdf). The DLSE has also periodically issued Frequently Asked Questions (FAQs) to answer questions employers may have regarding the Wage Theft Prevention Act's notice requirements. (www.dir.ca.gov/dlse/FAQs-NoticeToEmployee.html).
In April, the DLSE again issued a slightly revised template for employers to use going forward, as well as updated FAQs regarding both this updated template form and other questions that have arisen since these new notice requirements took effect. Fortunately, FAQ 27 specifically states that while employers must use the new template moving forward, employers need not re-issue the updated template to employees who previously received notice on the prior templates. While both the updated template and the revised FAQs are available on the DLSE website using the links identified above, a quick summary of some of these relatively non-substantial changes follows:
First, the template itself contains additional language to the question regarding whether a written agreement exists to clarify that it only applies to written agreements, "providing the rate(s) of pay." As discussed in FAQ 21, this modification as well as the deletion of the requirement that employers identify written "or oral" contracts was intended to address employer concerns that such responses may undercut the "at will" nature of the employment relationship. Thus, on the newly-issued template, employers need only identify whether a written agreement enumerates the rate of pay, and if so, the employer must further respond whether this written agreement contains all pay rates.
Second, FAQs 28 and 29 explain why the templates inquire whether the hiring employer is a staffing agency or business, and clarify that when the staffing agency hires an employee, it is the staffing agency and not the agency's client that provides the notice. FAQ 28 further clarifies that a recruiting service or simple payroll processing service is not a staffing agency or business for purposes of the notice.
Third, the updated template has been modified to clarify that the "acknowledgement of receipt" in the notice is only optional. This change addresses employer concerns about potential employee refusal to sign the acknowledgements. FAQ 10 states that in situations where the employer wants to require such acknowledgment but the employee refuses to sign it, the employer should still give the notice to the worker and note the worker's refusal on its copy of the notice. FAQ 23 suggests that obtaining such signed acknowledgments may better protect the employer and employee, but such usage is optional.
Fourth, as discussed in FAQ 20, the template has been modified to indicate that the employee's start date is the latest time for providing the notice. This change is intended to address some ambiguity in prior language requiring the notice be provided "at the time of hiring." FAQ 20 explains that "the time of hiring" may differ depending on the circumstances, and employers can provide it earlier depending on those circumstances, but the "start date" is the final bright-line deadline to provide this notice.
Finally, FAQ 26 provides additional explanation and guidance regarding the template's inquiry about the employer's "legal name" and other "doing business as" Names.
NLRB and Federal District Court Delay Deadline for Employers to Display Union Rights Poster
In mid-April, the DC District Court of Appeals temporarily enjoined the National Labor Relations Board (NLRB’s) deadline requiring employers to display a poster notifying employees of their rights under the National Labor Relations Act. Shortly thereafter, the NLRB posted a notice confirming that this posting requirement, which had been scheduled to take effect on April 30, 2012, would not take effect until the legal issues are resolved. (See NLRB Press Release www.nlrb.gov/poster). There is no new deadline for the posting requirement at this time.
EEOC Issues Updated Guidance on Criminal Background Checks
The United States Equal Employment Opportunity Commission (EEOC) recently issued its "Enforcement Guidance on the Consideration of Arrest and Conviction Records under Title VII of the Civil Rights Act of 1964." This Guidance is available at www.eeoc.gov/laws/guidance/arrest_conviction.cfm, as is a set of Frequently Asked Questions at www.eeoc.gov/laws/guidance/qa_arrest_conviction.cfm. This Guidance does not prohibit the use of criminal background checks, but it does address the circumstances in which such checks may violate Title VII's disparate impact and disparate treatment provisions, and concludes with recommended "best practices" for employers.
This Guidance reaffirms that criminal background checks are not prohibited by Title VII, although an employer potentially violates Title VII's disparate treatment provisions if it treats criminal history information differently for different applicants based on their race or national origin.
The Guidance also reiterates that an employer's neutral policy excluding applicants based on criminal conduct may disproportionately impact some individuals protected under Title VII, and, thus, may violate the law if not job related and consistent with business necessity. On this point, the Guidance specifically distinguishes between arrests and convictions. The Guidance observes that an arrest does not establish that criminal conduct has occurred, and since some groups are disproportionately affected by arrests, an exclusion based on an arrest, by itself, is not job related and consistent with business necessity. However, although an arrest record standing alone cannot be used to deny an employment opportunity, the employer may make an employment decision based on the conduct underlying the arrest if the conduct makes the individual unfit for the position in question. In that instance, and as further highlighted by the examples contained in the Guidance, it is the conduct underlying the arrest and not the arrest that is relevant for employment purposes.
The Guidance notes that convictions are a much more reliable indicator of some underlying wrongful conduct (compared with arrests), but noted there remains considerable room for faulty reporting or outdated records, or disproportionate impact on particular groups. The Guidance also explains how the EEOC analyzes the "job related and consistent with business necessity" standard for criminal record exclusions, and provides hypothetical examples interpreting this standard.
The Guidance also notes that there are two circumstances under which employers may consistently meet the "job related and consistent with business necessity defense." First, the employer validates the criminal conduct exclusion for the position in question in light of the Uniform Guidelines on Employee Selection Procedures (if data about criminal conduct as related to subsequent work performance is available and such validation is possible). Second, the employer develops a "targeted screen" considering at least (1) the nature of the crime, (2) the time elapsed and (3) the nature of the job (the so-called Green factors used by the EEOC for nearly two decades) and the employer provides the opportunity for an "individualized assessment." This "individualized assessment" would provide notice to the individual of the potential exclusion based on criminal information uncovered, allow an opportunity for the individual to demonstrate that the exclusion should not be applied in his or her case, and require consideration by the employer whether this additional information provided by the applicant warrants an exception to the exclusionary policy. The EEOC reiterated that an "individualized assessment" may not always be required and that a "targeted screen" alone based on the Green factors may suffice, but such an assessment will assist employers in avoiding Title VII liability by allowing them to consider more complete information and conduct a more thorough examination of job-relatedness and business necessity.
The Guidance also discusses the impact of federal or state laws or regulations regarding criminal conduct exclusions. The Guidance reaffirms that Title VII does not preempt federally imposed restrictions, so an employer who complies with (but does not exceed) these federal restrictions will not violate Title VII. Regarding state law, the Guidance notes Title VII preempts contrary state law so compliance with state laws or regulations will not necessarily preclude Title VII liability, although such compliance may constitute a business necessity.
Finally, the Guidance provides a set of "Best Practices" for employers who are considering criminal record information when making employment decisions. For instance, the EEOC recommends employers not ask about convictions on job applications and that, if and when they make such inquiries, the inquiries be consistent with applicable state laws and limited to convictions for which exclusion would be job related for the position in question and consistent with business necessity.
(NOTE: in light of the bipartisan nature of this recently issued Guidance, and the EEOC's continued focus on systemic violations (which an across-the-board overly broad criminal records exclusion might satisfy) employers may wish to review their policies and procedures in light of this new Guidance).
California Supreme Court Primarily Sides with Employers In Historic Meal And Rest Period Decision
In April, the California Supreme Court issued its long-anticipated decision in the matter of Brinker v. Superior Court, a landmark case in California's wage and hour history. Although analysts and practicioners will doubtless wrestle for years over the implications of the opinion (written by Justice Werdegar and joined by Justices Cantil-Sakauye, Kennard, Baxter, Chin, Corrigan, and Liu), the opinion has settled a few long-standing questions in what appears to be a near-total victory for California employers. Here are the key holdings.
Employees are entitled to 10 minutes of rest for shifts from 3.5 to 6 hours in length, 20 minutes for shifts of more than 6 and up to 10 hours and 30 minutes for shifts of more than 10 hours up to 14 hours.
The wage orders require employers to "authorize and permit" rest periods at the rate of "ten (10) minutes net rest per four (4) hours [worked] or major fraction thereof." The Court held that the term "major fraction" in the rest period requirement refers to work period lengths of two hours or more, not the 3.5 hours advocated by the employer. Clarifying its interpretation, the Court held that "[e]mployees are entitled to 10 minutes' rest for shifts from three and one-half to six hours in length, 20 minutes for shifts of more than six hours up to 10 hours, 30 minutes for shifts of more than 10 hours up to 14 hours, and so on." The Court rejected the employees' contention that rest periods must be provided before meal periods. Instead, the Court held that employers are required to make a "good faith effort" to provide rest periods in the middle of work periods, but "may deviate from that preferred course where practical conditions render it infeasible." In reversing the court of appeal and upholding certification of the Rest Break subclass, the Court identified Brinker's common policy, which failed to give effect to the "major fraction" language of the wage order. This decision is likely unique to Brinker, but employers should review their rest period policies in light of this clarification of the law.
An employer's duty is to provide a meal period to its employees. The obligation is satisfied if the employer relieves its employees of all duty, relinquishes control over their activities and permits them a reasonable opportunity to take an uninterrupted 30-minute break, and does not impede or discourage them from doing so.
Must employers force employees to take meal periods, or can they simply make meal periods available to employees, leaving it to the employee's discretion whether to take a meal break?
The Supreme Court held that employers "must relieve the employee of all duty for the designated period, but need not ensure that the employee does no work." In so holding, the Court explicitly rejected the employees' contention that the employer must "ensure" that no work is done. In its footnote 19, the Court explained that premium pay is not owed if an employer relieves an employee of all duties but "knew or reasonably should have known that the worker was working through the authorized meal period." Instead, in that instance, only straight-time pay would be owed for the hours worked. The meal period premium is only owed if the employer "refuses to relinquish control over employees during an owed meal period." As a result, "employees cannot manipulate the flexibility granted them by employers to use their breaks as they see fit to generate...liability."
The Court did caution employers against applying informal pressures that would make it difficult to take a meal period, for example, scheduling employees in a way that would make it difficult to take breaks or enforcing an "anti-meal-break policy...through 'ridicule' or 'reprimand.'"
Although its decision does leave open the question of what will suffice to "relieve employees of all duty," a question the Court acknowledges may vary from industry to industry, the Court has explicitly renounced the strict liability scheme that California employers have operated under for years.
Meal Period Timing and The So-Called "Rolling 5-Hour Rule"
There is NO Rolling 5-hour rule. Employers must provide a first meal period after no more than five hours of work and a second meal period after no more than 10 hours of work.
The "rolling 5" question has long plagued employers - does an employer need to provide a meal period for each five hours work period within the total shift, or can the employer engage in a practice known as "early lunching," in which the employer provides a meal period early in the shift and employees work the remaining six or seven hours without another meal period?
The Supreme Court held that a meal period must be provided during the first five hours of the shift, but rejected the employees' claim that an employer must provide a meal period for each five hour period of work within a shift. Second meal periods must be provided no later than the start of the 11th hour of work. In so holding, the Court upheld the "early lunching" practice and abandoned the cumbersome "rolling 5" rule advocated by the Plaintiff's bar.
The off-the-clock work class could not be certified where there was no systemic or common policy requiring off-the-clock work.
In deciding whether the employees' off-the-clock claims were amenable to class treatment, the Court upheld the court of appeal decision vacating certification. The Court held that, in light of Brinker's formal policy disavowing off-the-clock work and the lack of evidence demonstrating a systematic or common policy requiring off-the-clock work, no class could be certified. As a result, it appears future Plaintiffs will have an uphill battle in certifying off-the-clock claims, needing to convince a court that "substantial evidence...points to a uniform, companywide policy" of encouraging off-the-clock work before a class can be certified.
Although the Court appeared to wrestle with the question of whether its ruling would be retroactive, the ruling contains scant reference to its retroactive effect, containing only a single sentence that the ruling constitutes a "clarification of the law." The ruling therefore has retroactive effect and applies to each and every currently pending meal period case.
Certification of Meal Period Class Actions
Significantly, in a concurring opinion, Justices Werdegar and Liu offered "guidance" regarding certification of meal break claims. In it they opine that the question of why a given meal period was missed does not render a class "categorically uncertifiable." That is, if an employer's records show an employee did not clock out for a meal period, a rebuttable presumption arises that the employee was not relieved of duty. The employer's assertion that the employee was relieved of all duties remains an affirmative defense, and whether a class can be certified is an inquiry unique to each case.
"No Soup for You!!" California Supreme Court Limits Attorneys Fee Recovery in Meal and Rest Period Litigation
In a potentially significant ruling, the California Supreme Court unanimously denied an employer's request for attorneys' fees for successfully defending a rest break case, but its ruling may severely restrict the ability of both employees and employers to recover such fees in meal and rest period cases moving forward. In this case, the Court was asked to decide whether a party's ability to recover attorneys' fees for meal and rest period violations under Labor Code section 226.7 was governed by Labor Code section 1194 authorizing only employees to recover such fees, or Labor Code section 218.5 authorizing a "prevailing party" (including employers) to recover such fees.
The Court, however, concluded that neither provision applied, meaning there was no statutory basis to award attorneys' fees in this meal and rest period case under Labor Code section 226.7. The Court first rejected the employee's claims that Labor Code section 1194 governed the recovery of attorneys' fees in meal and rest period litigation under Labor Code section 226.7. The Court noted that the statutory text and legislative history suggested this section was intended to apply only to claims for unpaid minimum wages or overtime compensation, and it invited the Legislature to amend section 1194 if it intended it to apply to claims under section 226.7.
The Court next rejected the employer's claims that section 218.5 applied to claims under section 226.7. The Court noted that section 218.5 applies to actions involving "the nonpayment of wages, fringe benefits, or health and welfare or pension fund contributions," and concluded that claims involving the failure to provide a meal or rest period is not an action for "the non-payment of wages." The Court distinguished meal and rest period claims from claims involving an employer's failure to provide final wages under Labor Code sections 201 and 202, which would be governed by section 218.5. The Court observed that in the final wage context the employee is directly seeking unpaid wages, whereas in the meal period context, the employee was seeking legal damages (i.e., an additional hour of pay) for the non-provision of meal or rest breaks. According to the Court," "a section 226.7 action is brought for the non-provision of meal and rest periods, not for the nonpayment of wages." (italics emphasis in original).
On this point, the Court's observation that the additional hour of pay under section 226.7 is a form of "damages" rather than "wages" (at least for purposes of section 218.5) may strike some as interesting given its fairly recent determination that this premium pay was "wages" rather than a "penalty" for statute of limitations purposes (See e.g., Murphy v. Kenneth Cole Productions, Inc. (2007) 40 Cal.4th 1094, 1102.) Anticipating this objection, the Court observed that its prior conclusion that a section 226.7 remedy is a wage for statute of limitations purposes does not mean that the legal violation triggering the remedy is nonpayment of wages; rather, the legal violation is the nonprovision of meal or rest breaks. The Court also noted the Legislative history, which included prior amendments specifically omitting attorneys' fees recovery under section 226.7 during the drafting process, further suggested the Legislature did not intend meal and rest break claims to be subject to section 218.5's two-way attorneys' fee-shifting provision. Accordingly, the Court concluded that section 226.7 claims for meal and rest break violations are governed by the "default American rule" that each side bears its own attorneys' fees. Kirby v. Immoos Fire Protection, Inc. (2012) ___ Cal.4th ___, 2012 Cal.LEXIS ____.)
(NOTE: Although this particular employer could not recover its attorneys fees, this ruling may be good news for employers generally as it may further remove the incentive for plaintiff's attorneys' to initiate meal and rest period class actions. However, it remains to be seen whether the California Legislature will accept the Court's invitation to amend the Labor Code provisions to authorize attorneys' fee recovery in meal and rest period claims under section 226.7.)
Class Action Not Permitted in Arbitration Absent Arbitration Agreement Provision Authorizing Class Action
There have been several high-profile decisions discussing the enforceability of class-action waivers in arbitration agreements. In Discover Bank v. Superior Court (2005) 36 Cal.4th 148, the California Supreme Court held class action waivers in consumer contracts of adhesion are, in certain circumstances, unconscionable and unenforceable. In Gentry v. Superior Court (2007) 42 Cal.4th 443, the California Supreme Court outlined four factors for courts to consider when analyzing the enforceability of class action waivers of statutory claims in the employment context. However, in AT&T Mobility LLC v. Concepcion (2011) 131 S.Ct. 1740, the United States Supreme Court overruled Discover Bank on the grounds the Federal Arbitration Act (FAA) preempts state laws targeting arbitration, and suggesting class arbitration was inconsistent with the FAA. Notably, while Concepcion expressly overruled Discover Bank, it did not mention Gentry, raising questions about whether Gentry's test for evaluating class action waivers in employment arbitration agreements remains good law in California.
A recent California appellate court decision sidesteps the larger issue of Gentry's viability and, by citing to a second United States Supreme Court decision (discussed below), suggests employers can avoid both class action arbitration and the debate about whether class action waivers are enforceable by not including such provisions in the first instance. In this case, a bank branch manager filed a class action complaint on behalf of all other branch managers for various wage and hour violations, despite the fact she had signed an arbitration agreement requiring her to arbitrate any future employment disputes. The trial court granted the employer's motion to compel arbitration, but it refused to dismiss the class action allegations, resulting in the employer being forced to arbitrate a wage and hour class action. The appellate court reversed this determination concluding there was no contractual basis to impose class action arbitration since the arbitration agreement did not contain any provisions authorizing class action arbitration.
The court first noted the unsettled legal questions about Gentry's continued viability post-Concepcion, but observed it need not decide that larger legal issue and instead assumed that Gentry remains binding law in California since not expressly abrogated or overruled (unlike Discover Bank.) Accordingly, the appellate court noted that the enforceability of class action waivers in an employment agreement involving unwaiveable statutory claims (such as overtime under the Labor Code) must still be examined under the four Gentry factors: (1) the modest size of potential individual recovery; (2) the potential for retaliation against class members; (3) the fact that absent class members may not be informed about their rights; and (4) the existence of other obstacles to the vindication of class members' rights to overtime pay through individual arbitration. However, the appellate court concluded that even if Gentry still applies, this plaintiff had failed to meet her burden of introducing evidence demonstrating this particular agreement would be invalid under Gentry.
The court then concluded that there was no basis for ordering class action arbitration since this particular agreement did not contain any provisions authorizing class action arbitration. Citing the United States Supreme Court decision in Stolt-Nielsen v. Animalfeeds Int'l Corp. (2010) 130 S.Ct. 1758, the court held a party may not be compelled to submit to class action arbitration unless there is a contractual basis for concluding the party agreed to do so. In this case, while there was no express disclaimer prohibiting class action arbitration, there was also no language authorizing such class action arbitration; rather, the agreement simply stated this employee and this employer would arbitrate their disputes. (Kinecta Alternative Financial Solutions, Inc. v. Superior Court (ex rel Malone) (2012) ___ Cal.App.4th ___, 2012 Cal.App.LEXIS ____.)
Arbitration Agreement Found Illusory and Unenforceable Because Employer's Ability to Modify Not Limited to Future Claims
A recent appellate court decision underscores the importance of carefully drafting arbitration provisions to insulate against attack by plaintiffs or close judicial scrutiny. In this FEHA discrimination case, the court refused to enforce an arbitration agreement that included a provision allowing the employer to amend, modify or revoke the agreement upon 30 days written notice, except against claims that had already been "filed" with the American Arbitration Association. Applying Texas law (as required in the agreement utilized by this Texas-based national employer), the appellate court concluded the modification provision rendered the agreement illusory because it did not expressly state that such modifications would not apply to any claim that has arisen or is known to the employer. Because the modification did not limit itself only against future claims, the court concluded the employer could potentially unilaterally decide to revoke the agreement to protect itself against claims that had been accrued, but not yet "filed." As such, the employee was bound to arbitrate all potential claims but the employer could decide whether to arbitrate potential claims.
The court observed that although California law differed slightly, it would compel the same result in this particular case. Under California law, the court may imply a restriction that the modification agreement will apply prospectively only, but only if the arbitration agreement is silent on this issue. The appellate court concluded it could not imply such a limitation that it would not apply to any claims that had arisen or which were known to the employer given the express contractual provision that it would only not apply to "filed" claims. Lastly, the court declined to apply the provision expressly delegating authority to the arbitrator to resolve any enforceability disputes because another provision used the word "court" rather than "arbitrator" when discussing future enforcement. (Peleg v. Neiman Marcus Group, Inc. (2012) ___ Cal.App.4th ___, 2012 Cal.App.LEXIS ___.)
Ninth Circuit Concludes Regular Attendance is Essential Job Function for Neonatal Intensive Care Nurse
A neonatal intensive care nurse who was terminated for poor performance sued for disability discrimination and failure to accommodate disability, contending the hospital should have modified its attendance policy. The nurse alleged her ongoing chronic condition (fibromyalgia) caused muscle pain with resulting fatigue and sleeplessness, thus prompting unscheduled absences which exceeded the five unscheduled absences permitted every twelve months under the hospital’s attendance policy. The district court granted summary judgment finding plaintiff unqualified as a neonatal nurse as she was unable to perform the essential job functions because she could not adhere to the attendance policy.
The Ninth Circuit Court of Appeals agreed, holding that on-site regular attendance was an essential job function of a neo-natal nurse and that allowing this nurse an open-ended schedule with unlimited number of unplanned absences could be fatal given her responsibilities for the emergency care of infants. The court noted that the job description for Plaintiff's position required strict adherence to the attendance policy and attendance was listed as an essential function. In addition, declaration testimony indicated the specialized training required for Plaintiff's position made it difficult to find replacements for unscheduled absences. Given the critical nature of this employee’s duties, the Court distinguished this case from the Humphrey v. Memorial Hospital Ass'n case where it previously held "regular and predictable attendance is not per se an essential function of all jobs."
The court also rejected the employee’s accommodation claim noting that accommodations excusing an employee from essential job functions (i.e., regular attendance) are not reasonable. The court also noted that the fact this employer had previously been very flexible and accommodating and potentially even exceeding its FEHA obligations, did not obligate it to continue to do so indefinitely or to provide accommodations that compromise performance quality. (Samper v. Providence St. Vincent Medical Center (9th Cir. OR 2012) ___ F.3d ___, 2012 U.S.App.LEXIS 7278.)