California Employers: Do You Know When Your Furlough is a Discharge?

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California Employers: Do You Know When Your Furlough is a Discharge?
To employers, it may seem like California regulates nearly everything about employment relations. Yet, surprisingly, statutes and courts in California never answered the question of when a temporary layoff becomes a “discharge” of furloughed employees. That is, until the Ninth Circuit Court of Appeals did so recently in Hartstein v. Hyatt Corporation, 82 F.4th 825. The implications of this new ruling for California employers and employees are considerable.

Under the new ruling, any temporary layoff or furlough of employees without a specific return-to-work date within the employees’ regular pay period is considered a “discharge” under California Labor Code Section 201. That in turn triggers an immediate obligation for employers to pay all laid off employees all of the wages they have earned, including any pay owed for accrued vacation or Paid Time Off (“PTO”). Failure to pay in full all accrued wages, vacation and PTO when due runs the risk of substantial “waiting time penalties” under Labor Code Section 203. That can be a huge burden and risk for employers, as the Hartstein case demonstrated.

Hartstein arose during the beginning of the COVID-19 pandemic, when many businesses were forced to greatly reduce or cease business operations without knowing when they would be able to reopen. In March 2020 Hyatt, like many employers, furloughed thousands of employees and was unable to provide any specific return-to-work date. Hyatt advised employees that vacation and PTO would not accrue during the temporary layoff, and Hyatt offered to pay any accrued vacation to employees upon request. A month later, in June 2020, Hyatt sent a letter advising employees that the temporary layoff had become permanent and employees would be paid their accrued vacation and PTO as required by Labor Code Section § 201 when a “discharge” occurs.

Hyatt employee Karen Hartstein filed a class-action and Private Attorneys General Act (PAGA) lawsuit, arguing that a “discharge” had occurred with the indefinite temporary layoff in March 2020, and not when employees were permanently laid off in June 2020. The key question was whether a temporary layoff, lacking a specified return date, constituted a “discharge” under Labor Code Section 201, which had no definition of “discharge.” No previous published case had addressed the issue.

The Ninth Circuit turned to the California Division of Labor Standards Enforcement (DLSE) for guidance in its previously-issued Opinion and its Policies and Interpretations Manual. DLSE had indicated that, when an employee is laid off without a specified return date within the regular pay period, the employer must immediately give the employee a final paycheck that includes vested vacation pay. DLSE reasoned that this interpretation best aligned with the statute’s purpose of protecting workers and ensuring prompt payment of earned wages.

The Ninth Circuit characterized Hyatt’s actions as “understandable given the uncertainty during the early period of the pandemic,” but remanded the case to the trial court to determine whether Hyatt’s failure to issue full final paychecks in March 2020 constituted a “willful” violation, which would expose Hyatt to waiting time penalties. That question remains open and will be watched closely by employment lawyers.

Hartstein v. Hyatt provides new guidance to California employers who may need to implement open-ended furloughs or temporary shutdowns. This decision has made clear that California employers who furlough or temporarily lay off employees without specifying a return-to-work date within the same pay period should immediately issue final paychecks that include each employee’s vested and unused vacation or PTO.

Hartstein v. Hyatt demonstrates again that employment law in California is constantly evolving, and outcomes may not be as predictable as employers would hope. California employers facing such issues are well-advised to consult with qualified employment counsel to stay up-to-date on these and other important employment issues. Conkle, Kremer & Engel’s attorneys can help advise employers in navigating these complex and evolving issues.

 

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NOV
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AB51, California’s Law Against Mandatory Employee Arbitration Agreements, is Invalidated

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AB51, California’s Law Against Mandatory Employee Arbitration Agreements, is Invalidated
California employers – especially those that required employees to sign arbitration agreements – have reason to celebrate. On February 15, 2023, the United States Ninth Circuit Court of Appeals in Chamber of Commerce v. Bonta, (Case No. 20-15291) 2023 WL 2013326 (9th Cir. Feb. 15, 2023), ruled that AB 51, a California law effectively prohibiting and criminalizing mandatory arbitration provisions in employment agreements, is invalid because it is preempted by the Federal Arbitration Act (FAA).

This development was not unexpected, as the U.S. Supreme Court has rendered a series of decisions supporting arbitration and striking down state laws prohibiting arbitration clauses in employment contracts as violations of the FAA. Yet despite this precedent, the California legislature has tried time and time again to enact anti-arbitration laws that creatively seek to avoid FAA preemption. AB 51 was the most recent attempt to circumvent the FAA.

AB 51 added California Labor Code Section 432.6, which prohibited employers from: (1) requiring employees to waive, as a condition of employment, the right to litigate certain claims in court; and (2) retaliating against applicants for employment or employees based on their refusal to waive such rights. Id. at (a) & (b). These two prohibitions by themselves would almost surely be preempted by the FAA but the California legislature sought to avoid that result by adding § 432.6(f), providing that nothing “in this section is intended to invalidate a written arbitration agreement that is otherwise enforceable under the [FAA].” To give the statute teeth, AB 51 also amended other codes to impose civil and criminal liability on an employer who violates Labor Code Section 432.6. Together, these provisions had the strange effect of imposing criminal and civil liability on employers who enter into arbitration agreements that are valid and enforceable.

The Chamber of Commerce of the United States filed a lawsuit seeking to declare that AB 51 was preempted by the FAA. In 2020, the trial court granted temporary injunctions against enforcement of AB51, because the court found that the Chamber of Commerce was likely to succeed in establishing that AB51 is preempted by the FAA. For that reason, employers did not feel the brunt of AB51 while the challenge made its way through appellate court.

The Ninth Circuit Court of Appeals (after some unusual twists, including a published decision that was later withdrawn by the Court) ultimately agreed with the trial court. The Ninth Circuit held that although AB 51 does not expressly prevent the formation of employment contracts containing an arbitration provision, it clearly disfavors the formation of arbitration agreements by placing civil and criminal liability on employers who require employees to sign arbitration agreements. That kind of penalty is an exception to generally applicable law that allows employers to require agreements, such as confidentiality agreements, as a condition of employment. The Ninth Circuit noted that the Supreme Court has held that “state rules that burden the formation of arbitration agreements stand as an obstacle to the FAA.” Kindred Nursing Centers Ltd. Partnership v. Clark, 137 S.Ct. 1421, 1423 (2017). In addressing AB 51’s strange mechanism of imposing liability for the formation of valid contracts, the Court held that that “[a] state rule interferes with arbitration if it discriminates against arbitration on its face or if it covertly accomplishes the same objective by disfavoring contracts that have the defining features of arbitration agreements.” Id. The Court held that “[b]ecause the FAA’s purpose is to further Congress’s policy of encouraging arbitration, and AB 51 stands as an obstacle to that purpose, AB 51 is preempted.” Id., at *10.

California employers should welcome this decision. The decision clarifies that businesses have broader freedom to contract as they see fit, and that it is permissible, even in California, to require employees to sign mandatory arbitration provisions as a condition of employment. The overall perception is that arbitration results in faster, less expensive resolution of employee-employer disputes, and keeps employment disputes out of California courts. Still, there are other schools of thought that believe that employment arbitrations can be more expensive for employers than the courts because private arbitrators often charge high hourly rates, the fees and costs of the arbitration must be advanced by employers, and dispositive motion victories (for example, a successful motion to dismiss a frivolous claim) are less common in arbitration. As well, even if arbitration is enforceable some employees may file their claims in court in the hope that the employer fails to take action to enforce arbitration.

Moreover, there are important limitations on employment arbitration agreements in California. In Armendariz v. Foundation Health Psychcare Services, Inc., 24 Cal.4th 83 (2000), the California Supreme Court held that employer-employee arbitration agreements may be “unconscionable” and unenforceable if they do not include provisions for: (1) a neutral arbitrator; (2) all remedies allowed under statutes; (3) adequate discovery procedures; (4) a written and well-reasoned arbitration decision; and (5) the employer’s payment of all costs unique to the arbitration process itself.

It is predictable that the same labor groups that supported AB 51 will continue to try to develop alternative measures to restrict employment arbitration agreements. Employers are well-advised to consult with well-qualified employment attorneys to stay on the right side of the rapidly changing laws. The attorneys at the Conkle firm stay abreast of developments and are well equipped to help your business navigate all aspects of wage & hour, discrimination, class actions, Private Attorney General (PAGA) claims and employment law, including the intersection of employment arbitration and litigation. Conkle, Kremer & Engel attorneys have many years of experience drafting arbitration provisions in conformance with California law and handling employment disputes—whether in arbitration or litigation.

Amanda Washton and Alec Pressly

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FEB
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Changing Messages from Courts on AB 51: Now Employers Cannot Require Arbitration Agreements

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Changing Messages from Courts on AB 51: Now Employers Cannot Require Arbitration Agreements
Note:  For updated developments on the long-running saga of AB 51, see our February 2023 blog post: “AB51, California’s Law Against Mandatory Employee Arbitration Agreements, is Invalidated”

For those employers who have been following the evolving history of Assembly Bill 51 (“AB 51”), which regulates California employers’ ability to have agreements to arbitrate any disputes with their prospective or hired employees, there is a new twist:  In a September 15, 2021 decision, Chamber of Commerce of the U.S., et al. v. Bonta, et al., Case No. 20-15291, the Ninth Circuit Court of Appeal reversed a District Court decision to conclude that the Federal Arbitration Act (“FAA”) did not preempt California AB 51’s ban on employment conditioned upon mandatory arbitration agreements. As explained below, this Ninth Circuit ruling may soon have a substantial impact on employers’ arbitration policies going forward.

In 2019, California passed AB 51, which added section 432.6 to the California Labor Code and section 12953 to the California Government Code to generally prohibit employers from requiring applicants or employees to agree to arbitrate as a condition of employment. AB 51 made it illegal for an employer to require applicants or employees, as a condition of employment, continued employment, or the receipt of any employment-related benefit, to waive any rights, forum, or procedure established by the California Fair Employment and Housing Act (“FEHA”) and the California Labor Code. The Conkle firm has written previously about the potential effects of AB 51.

AB 51 had been set to take effect on January 1, 2020, but on December 30, 2019, U.S. District Court Judge Kimberly Mueller issued a preliminary injunction, preventing AB51 from taking effect. Judge Mueller concluded that “AB 51 placed agreements to arbitrate on unequal footing with other contracts and also that it stood as an obstacle to the purposes and objectives of the FAA.” Bonta, No. 20-15291 at 12. In other words, Judge Mueller decided that AB 51 discriminated against arbitration agreements in a manner that is prohibited by the superseding federal law of arbitrations, the FAA.

California appealed Judge Mueller’s ruling.  On September 15, 2021, the U.S. Court of Appeals for the Ninth Circuit issued a split (2-1) decision partially reversing the District Court’s order. The Ninth Circuit held that the FAA did not preempt AB 51 with respect to its prevention of conditioning employment on the signing of an arbitration agreement. On this basis, the Ninth Circuit vacated the preliminary injunction that had stopped AB 51’s enforcement, so at present there is nothing stopping AB 51 from taking effect very soon.

For employers, this means that, unless there are further decisions by the Ninth Circuit or the United States Supreme Court, AB 51’s mandate that employers cannot condition employment or continued employment on the signing of an arbitration agreement will shortly go into effect. However, employers should be aware that AB 51 does not apply retroactively, which means that arbitration agreements previously signed by employers before AB 51 can still be enforced.  ([Proposed] Labor Code §432(f).)

A common question Conkle, Kremer & Engel attorneys are receiving is whether, even under AB 51, an employer is allowed to request that employees or prospective employees sign an arbitration agreement. The answer is yes. However, because the Ninth Circuit’s decision is somewhat muddled on this point, there is no clear answer to the natural follow up question, “What can I do if the employee refuses?”

The Ninth Circuit reasoned that the enforcement provisions of AB 51 are preempted “to the extent that they apply to executed arbitration agreements covered by the FAA.” Bonta, No. 20-15291 at 29. The dissent in Bonta attacks the majority’s reasoning as illogical:

In case the effect of this novel holding is not clear, it means that if the employer offers an arbitration agreement to the prospective employee as a condition of employment, and the prospective employee executes the agreement, the employer may not be held civilly or criminally liable. But if the prospective employee refuses to sign, then the FAA does not preempt civil and criminal liability for the employer under AB 51’s provisions.

Bonta, No. 20-15291 at 47. As the dissent argues, the majority’s reasoning could result in liability to the employer where the employer fails while attempting to engage in the prohibited conduct of forcing an employee or prospective employee to sign an arbitration agreement, but the employer would not have liability when the employer succeeds in engaging in that same prohibited conduct.

What does this ultimately mean for employers? We expect the Ninth Circuit’s ruling to be challenged by a request for an en banc review by a larger panel of the Ninth Circuit’s justices, or by a writ to the U.S. Supreme Court (which has recently been quite hostile to Ninth Circuit rulings that it has chosen to review).  Such a challenge could result in yet another “stay” that would effectively restore the injunction issued by Judge Mueller and preclude AB 51 from taking effect. However, unless a stay is issued, AB 51 is set to go into effect in the near future.

While much uncertainty remains as a result of the Ninth Circuit’s ruling, AB 51 will increase potential liability for employers that condition employment on arbitration agreements, as well as provide more power to employees who do not wish to arbitrate. Employers that currently have policies conditioning employment or continued employment on the signing of an arbitration agreement should continue to monitor the status of AB 51, should prepare for the possibility that it will not be able to require arbitration agreements going forward and should reevaluate the benefits and risks related to conditioning employment on the signing of an arbitration agreement.

CK&E attorneys keep updated on developments in the law that affect employers in California, including their rights to arbitrate disputes with applicants and employees.  Stay tuned for additional developments in this saga of AB 51.

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What California Employers Must Know About Coronavirus and COVID-19

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What California Employers Must Know About Coronavirus and COVID-19

Federal, California and other state and local governments continue to grapple with responding to and reducing the spread of Coronavirus (severe acute respiratory syndrome coronavirus 2 
(SARS-CoV-2)) and the disease caused by it, COVID-19. In addition to grappling with the personal and family effects, employers must ensure that they have a response plan in place to address Coronavirus’ impact on their business. In doing so, employers must be conscious of responding appropriately in light of the legal and business implications. In some ways, employers are in uncharted territory, but there are guideposts in existing laws and regulations. Here are some of the important considerations for employers to keep in mind in responding to Coronavirus:

Stay Up to Date on Government Guidance

In order to make an educated decision regarding what course of action will best protect employee safety, employers need to stay informed about the latest developments regarding the spread of the virus and adhere to government guidance for responding to the virus.

The Center for Disease Control (“CDC”) has provided Interim Guidance for Business and Employers  meant to help prevent workplace exposures based on the information currently known about the virus. Given the rapidly evolving nature of this situation, employers should check the CDC’s website frequently for updates.

Employee Education to Prevent the Spread of COVID-19 in the Workplace

Some basic steps employers should take to help prevent the spread of Coronavirus and protect workers’ health and safety include:

  • > Educate employees on Coronavirus signs and symptoms and precautions to take to minimize the risk of contracting the virus
  • > Encourage employees to wash hands frequently with soap and water for at least 20 seconds, and avoid touching their mouth, nose, and eyes with unwashed hands
  • > Practice social distancing, including minimizing non-essential travel, meetings and visitors
  • > Provide employees who continue to work in the office with hand sanitizer, flu masks, disinfecting wipes and paper towels, instruct them on proper use, and direct them to diligently clean frequently touched surfaces and objects (such as doorknobs, telephones, keyboards and mice)
  • > Actively encourage employees who show any symptoms of the disease caused by Coronavirus (COVID-19) or are close to others who have, to stay home and not come to work

Formulate a Response Plan

Employers should move quickly to implement workplace policies to prevent the spread of the virus and protect employees. Some examples of potential elements of an employer’s response plan may include:

  • > Establish processes to communicate information to employees and business partners on your infectious disease outbreak response plan
  • > Review human resources policies to make sure that policies and practices are consistent with public health recommendations and existing state and federal workplace laws
  • > Increase the frequency and thoroughness of worksite cleaning efforts, particularly in common areas such as bathrooms, break rooms and kitchens
  • > Seriously consider new policies and practices to reduce congregations and increase the physical distance between employees, customers, vendors and others, to reduce the chances for exposure – for example, staggered break times, phone or video conferences instead of meetings
  • > To the extent feasible, ensure that employees have the requisite computer, phone and other technological capabilities to perform their work from home
  • > Formulate plans for suppliers and workers whose jobs cannot be performed remotely, such as staggered schedules and breaks, off-hours deliveries, or having some tasks performed by outside contractors
  • > Encourage employees who are feeling sick to stay home or work remotely, even if they are not showing Coronavirus symptoms
  • > Prepare to respond to employees who may be nervous or concerned about contracting COVID-19. Employers should be understanding of  employees’ concerns and evaluate each request or issue based on the individual employee’s specific circumstances.

Legal Implications of Workplace Strategy

Although there is currently no California law or regulations addressing an employer’s legal obligations relating specifically to Coronavirus, workplace safety and health regulations in California require employers to protect workers exposed to airborne infectious diseases. Therefore, it is important for employers to understand the legal issues implicated by Coronavirus and the guiding legal principles which will inform the employer’s response to the virus.

OSHA Standards for Maintaining a Safe Workplace

Employers have a legal obligation to provide a safe workplace for employees, and the best way to prevent infection is to avoid exposure. The General Duty Clause, Section 5(a)(1) of the OSH Act of 1970, 29 U.S.C. 654(a)(1) requires employers to provide workers with working conditions free from recognized hazards that are causing or are likely to cause death or serious physical harm, to receive information and training about workplace hazards; and to exercise their rights without retaliation, among others.

Cal/OSHA Requirements

The Aerosol Transmissible Diseases (ATD) standard (California Code of Regulations, title 8, section 5199) requires employers to take certain actions to protect employees from airborne diseases and pathogens such as Coronavirus. The regulations apply only to specific industries, such as health care facilities, law enforcement services and public health services, in which employees are reasonably expected to be exposed to suspected or confirmed cases of aerosol transmissible diseases.

The ATD requires such employers to protect employees through a written ATD exposure control plan and procedure, training, and personal protective equipment, among other things. However, the requirements are less stringent in situations where the likelihood of exposure to airborne infectious diseases is reduced. For more information, Cal/OSHA has posted guidance to help employers comply with these safety requirements and to provide workers information on how to protect themselves.

Medical Leave, Paid Sick Leave Issues and Disability Discrimination

If an employee is forced to miss work due to the need to be quarantined or the need to care for a family member for similar reasons, employers must determine whether the Family and Medical Leave Act (FMLA) or other leave laws apply to an employee’s absence. If the employee has exhibited symptoms and is required to be away from work per the advice of a healthcare provider or is needed to care for a family member, leave laws may apply to the absence.

The FMLA regulations state that the flu ordinarily does not meet the Act’s definition of a “serious health condition,” it may qualify if it requires inpatient care or continuing treatment by a health care provider. In addition, eligible employees might be entitled to FMLA leave when taking time off for examinations to determine if a serious health condition exists, and evaluations of the condition, under the FMLA definition of “treatment.”

In contrast, if the employer itself implements health and safety precautions that require the employee to be away from work, an employer should proceed with caution before designating any time away from work as leave under a specific law. Doing so may require that the employee provide such leave when it otherwise would not be required to do so.

Review your sick leave, PTO (paid time off), or vacation policies. Consider reminding workers that the use of paid sick leave (PSL) is available to help workers who are sick to stay home. However, the employer cannot require that the worker use PSL – that is the employee’s choice. Employers may require employees use their vacation or PTO benefits before they are allowed to take unpaid leave, but cannot mandate that employees use PSL.

Employees in California at worksites with 25 or more employees may also be provided up to 40 hours of leave per year for specific school-related emergencies, such as the closure of a child’s school or day care by civil authorities (Labor Code section 230.8). Whether that leave is paid or unpaid depends on the employer’s paid leave, vacation or other PTO policies.

Paying Workers During a Pandemic

Depending on your organization’s business, some employees may be directed to work from home, temporarily furloughed, or work a reduced schedule.

Furloughs and Layoffs

Short-term layoffs or furloughs are generally permitted as long as the criteria for selection are not protected classes such as race, national origin, gender, etc. Exempt employees generally should continue to receive their full salary for each workweek in which they perform work. In contrast, hourly workers need not be paid for time not worked. A short-term layoff or furlough of less than six months should not implicate notice obligations under the Federal Worker Adjustment and Retraining Notification (“WARN”) Act, but may require advance notice under the California WARN Act, which was recently interpreted as having been triggered by certain short-term furloughs.

If non-exempt employees’ work schedules are reduced due to a temporary closure, they need not be paid according to their regular schedule under the Fair Labor Standards Act (FLSA). However, they may be eligible for state Disability Insurance (“DI”), and Paid Family Leave (“PFL”) benefits for caring for themselves or their family members. Employees receiving reduced hours because of the effects of COVID-19 may be eligible for unemployment insurance (“UI”). In California, the Governor’s Executive Order waives the one-week unpaid waiting period for DI and UI, so workers can collect those benefits for the first week out of work.

Resources for Additional Information about Coronavirus from the CDC

For more information about the Coronavirus and how businesses and individuals should best respond, refer to the below resources provided by the CDC and California’s Employment Development Department:

CDC: About Coronavirus and COVID-19

CDC: What You Need to Know About Coronavirus

CDC: Interim Guidance for Businesses and Employers

CDC: Frequently Asked Questions and Answers

EDD: Coronavirus 2019 and COVID-19

CK&E Can Help

During these uncertain and rapidly changing developments, employers need to be proactive and careful as to the steps they take to protect their businesses, employees, customers and vendors. Lawyers at Conkle, Kremer & Engel have decades of experience advising California employers and companies doing business in California about labor, regulatory, consumer and contract concerns. We remain available and ready to help our clients navigate these difficult times. Please contact John Conkle, Amanda Washton or any of our attorneys to discuss your concerns.

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14
MAR
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AB 51 at a Crossroad: Can California Employers Still Compel Employees to Arbitrate Disputes?

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AB 51 at a Crossroad: Can California Employers Still Compel Employees to Arbitrate Disputes?

California Assembly Bill 51 (“AB 51”) has been in the news because it imposes a far-reaching ban on California employers requiring employees to arbitrate employment disputes. AB 51 was set to take effect on January 1, 2020, but its effect was temporarily stopped by a court injunction issued by U.S. District Judge Kimberly Mueller on December 30, 2019, in a lawsuit filed by the U.S. and California Chambers of Commerce. A fuller hearing on whether the court will extend the injunction is set for January 10, 2020. If the injunction is extended, AB 51 will remain in limbo as long as that case remains pending, and very possibly permanently.

AB 51, if it is allowed to take effect, would have far-reaching implications for California employers who use arbitration agreements for resolution of disputes with employees. AB 51 was signed into law by Governor Gavin Newsom on October 10, 2019, and applies to “contracts for employment entered into, modified, or extended on or after January 1, 2020.” The law prohibits any person from requiring applicants and employees, as a condition of employment, continued employment, or the receipt of any employment-related benefit, to waive any rights, forum, or procedure established by the California Fair Employment and Housing Act (“FEHA”) and the California Labor Code.

The Impact of AB 51
Although AB 51 was originally promoted to target the #MeToo movement and was characterized as a anti-sexual harassment law, because many sexual harassment claims against employers have been kept from public view by resolutions in private arbitrations rather than public court proceedings. But the new law covers much more than just sexual harassment claims. In practical effect, AB 51 would prohibit most employers from requiring employees to sign mandatory arbitration agreements for nearly all types of employment law claims, including any discrimination claims covered under FEHA and for any claims brought under the California Labor Code. AB 51 also precludes employers from threatening, retaliating or discriminating against, or terminating any job applicant or employee for refusing to consent to arbitration or any other type of waiver of a judicial “right, forum, or procedure” for violation of the FEHA or the Labor Code.

Nor can employers avoid AB 51 by having a standard arbitration agreement that requires applicants or employees to “opt out” to avoid. The law effectively prohibits employers from using voluntary opt-out clauses to avoid the reach of the bill. New California Labor Code Section 432.6(c) states that “an agreement that requires an employee to opt out of a waiver or take any affirmative action in order to preserve their rights is deemed a condition of employment.”

In addition, new Government Code Section 12953 states that any violation of the various provisions in AB 51 will be an unlawful employment practice, subjecting the employer to a private right of action under FEHA. Although this will presumably require an employee to exhaust the administrative remedy under FEHA, this provision would nevertheless lead to further exposure for California employers who utilize arbitration agreements with their employees. Importantly, however, AB 51 explicitly does not apply to post-dispute settlement agreements or negotiated severance agreements.

Federal Preemption of AB 51?
Generally, the Federal Arbitration Act, 9 U.S.C. § 1, et seq., (“FAA”) preempts state laws like AB 51 that attempt to regulate or restrict arbitration agreements. Under the FAA, a state may not pass or enforce laws that interfere with, limit, or discriminate against arbitration, and state laws attempting to interfere with arbitration have repeatedly been struck down by the U.S. Supreme Court as preempted by the FAA. AB 51, however, expressly states that it does not invalidate a written arbitration agreement that is otherwise enforceable under the FAA. Proponents of AB 51 argue that it is not preempted by the FAA because it only impacts “mandatory” arbitration agreements and does not affect “voluntary” agreements.

Impending Court Challenges
Many questions surrounding the validity and application of AB 51 remain unanswered. Therefore, legal challenges on the ground that AB 51 is preempted by the FAA were inevitable. On December 6, 2019, the U.S. and California Chambers of Commerce filed a complaint in the U.S. District Court for the Eastern District of California, alleging that AB 51 is preempted by the FAA. The complaint seeks a permanent injunction to halt enforcement of AB 51 until its legality is determined. The January 10, 2020 hearing of the preliminary injunction may give strong indication which way the Court will turn on the issue for the time being, but the ultimate determination will likely take years to wend its way through the Ninth Circuit Court of Appeal and perhaps the U.S. Supreme Court.

What Should Employers Do In Response to AB 51?
As this challenge to AB 51 makes its way through the courts, employers with ongoing arbitration agreements (or those interested in implementing arbitration programs) face a difficult choice starting in 2020: Play it safe and strike all mandatory arbitration agreements, or maintain the status quo until the litigation plays out. There is no one-size-fits-all approach that will work for every employer.

Employers currently using arbitration agreements should consider either staying the course based on the assumption that AB 51 will be held preempted by the FAA and therefore unenforceable, or suspending their arbitration programs until more clarity on AB 51 is provided. Employers implementing arbitration programs after January 1, 2020 should consider including in their arbitration agreements specific language to conform with Labor Code 432.6 and emphasizing the voluntary nature of the agreement.

The attorneys at Conkle, Kremer & Engel remain vigilant on employment law developments to advise businesses on all aspects of employee legal relations, including updates on the use of arbitration agreements as uncertainty looms.

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JAN
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What do Goop, Sexual Energy, Jade Eggs and CBD Have in Common?

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What do Goop, Sexual Energy, Jade Eggs and CBD Have in Common?

Answer: Unproven Health Claims

Goop, a life-style branding company founded by Gwyneth Paltrow, was recently fined $145,000 by a consortium of California Counties for making exaggerated and false advertising claims about its products.  The makers and distributors of everything from clothes to perfume, and face cream to condoms, Goop has a well-documented history of over-the-top marketing claims.  In the action brought by the County District Attorneys, the government took exception to the claim made by Goop regarding its Jade Egg product.  Goop claimed among other things that the egg product, when inserted into the vagina, prevented uterine prolapse and improved sex.  In the parlance of the regulators, this was an unsubstantiated or unapproved new drug claim.

In similar fashion, cannabidiol oil or “CBD” products are at the forefront of aggressive (sometimes overly aggressive) health and medical claims. Everyone knows about “medical” marijuana, and CBD is one of several “active” ingredients found in marijuana and hemp plants which is often associated with the beneficial effects of the plant: pain relief, stress or anxiety relief, anti-nausea, and anti-inflammatory.  This phenomenon has lead to a budding market in consumer products featuring CBD, accompanied by assertive health claims.  The CBD market already covers a wide range of products, including cosmetics (skin creams), food products  (edibles), and even CBD laced beer.  To add to the confusion, a compound found in marijuana was recently approved by the FDA for treatment of a rare seizure disorder.

And this highlights the problem, especially for marketers of cosmetics.  The only FDA-approved medical claim for marijuana compounds is directed to a rare seizure disorder, and this is a tiny market. To make a valid advertising claim that a  skin cream product treats, for example, eczema, psoriasis or a rash, the company or brand would need to have FDA approval of the active ingredient for that particular disease or condition at issue.  Absent such approval, the marketing claim would likely be regarded as an unapproved new drug and subject to regulatory fines and seizure.  Thus, for example, if you want to make a skin-protectant claim for your product, you would need to use one of the FDA approved ingredients for such claims, and limit the claim to the language approved in the FDA monograph for skin protectants.  To illustrate the point, witch hazel is one of the FDA approved skin protectant active ingredients. If you use witch hazel as an ingredient in your product, in the correct percentage, it would allow you to make the claim “[r]elieves minor skin irritations due to either i) insect bites, ii) minor cuts, and/or iii) minor scrapes”.

The point of all this is to make sure that your advertising claims are reviewed and approved by experienced legal counsel.  This is a common area for regulatory action, as well as private class actions.  The FDA routinely polices the internet looking for unsubstantiated and unapproved new drug claims. When the FDA finds a violation, it sends out a warning letter that will look something like this.  You do not want to be the first one on your block to own one of these.  Consult your CK&E attorney before you put a label on your product, make an advertising claim on your website, press send on an email blast promotion, or even drop a product catalog in the mail.  Yes, even old school mailers can get you in trouble.

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1
OCT
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Advertising and Labeling, Beauty Industry, California Trade Regulations, Class Actions, Fashion, Food, Craft Beer and Nutrition, Personal Care Products, Regulatory Compliance

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California Employers’ Risks of PAGA Exposure

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California Employers’ Risks of PAGA Exposure
If you’re a California employer, you may have heard people refer to “PAGA” and wondered what it’s all about.  PAGA is a legal device that employees can use to address Labor Code violations in a novel way, in which employee representatives are allowed to act as if they are government enforcement agents.

The California Labor and Workforce Development Agency (CLWDA) has authority to collect civil penalties against employers for Labor Code violations.  Seems simple enough.  But in an effort to relieve an agency with limited resources of the nearly impossible task of pursuing every possible Labor Code violation committed by employers, the California legislature passed the Private Attorney General Act of 2004 (“PAGA”).  PAGA grants aggrieved employees the right to bring a civil action and pursue civil penalties against their employers for Labor Code violations, acting on behalf of the State of California as if they were the CLWDA.  If the aggrieved employees prevail against the employer, the employees can collect 25% of the fines that the state of California would have collected if it had brought the action.

Penalties available for Labor Code violations can be steep – for some violations, the state of California can recover fines of $100 for an initial violation to $200 for subsequent violations, per aggrieved employee, per pay period.  These penalties can add up to serious money, especially if the aggrieved employee was with the company for some time.  But what makes PAGA particularly dangerous for employers is the ability of employees to bring a representative action (similar to a class action), in which they can pursue these penalties for violations of the Labor Code on behalf of not only themselves, but also all others similarly situated.  Under this scheme, an aggrieved employee can bring an action to pursue penalties on behalf of an entire class of current and former employees, thereby multiplying the penalties for which an employer can be on the hook and ballooning the risk of exposure.  That risk is further amplified because PAGA also permits plaintiff employment attorneys to recover their fees if their claim is successful.

There is an upward trend in use of PAGA against California employers.  A July 2017 California Supreme Court decision, Williams v. Superior Court, exacerbated the problem for employers:  The California Supreme Court decided that plaintiff employment attorneys can obtain from employer defendants the names and contact information of potentially affected current and former employees throughout the entire state of California.  This means the PAGA plaintiffs can initiate an action and then pursue discovery of all possible affected employees and former employees throughout California, which can greatly expand the pool of potential claimants and ratchet up the exposure risk for employers.

Employers in California need to be attuned to Labor Code requirements and careful in their manner of dealing with employees, so that they avoid exposure to PAGA liability to the extent possible.  Conkle, Kremer & Engel attorneys are familiar with the latest developments in employment liability and able to assist employers avoid trouble before it starts, or respond and defend themselves if problems have arisen.

 

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Banking and Finance, Beauty Industry, Class Actions, Contracts, Business and Finance, Employment Law, Fashion, Food, Craft Beer and Nutrition, Industries Represented, Manufacturing, Real Estate & Construction, Regulatory Compliance, Sales, Technology

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At Critical Juncture, CK&E Defeats Consumer Class Action Against Charity

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At Critical Juncture, CK&E Defeats Consumer Class Action Against Charity
On October 13, 2016 Conkle, Kremer & Engel attorneys Eric S. Engel and Zachary Page successfully defended a charitable organization faced with an attempted consumer class action.  In Delgado v. Cars 4 Causes, a charity that accepted donations of vehicles was charged with fraud, false advertising, unfair competition and violation of the California Consumer Legal Remedies Act (CLRA).  Plaintiff Delgado had donated a boat and trailer to Cars 4 Causes, and later complained that Cars 4 Causes did not adequately disclose its fees before providing a portion of the net proceeds from sale of the donation to Delgado’s designated third party charity.

In a class action, a critical juncture is reached when the plaintiff files a motion to ask the court to certify a class.  Without a class certification, the action is just an individual claim, often with little value on its own.  In Delgado v. Cars 4 Causes, CK&E was able to present compelling evidence and legal arguments that the claims of the prospective class members did not have sufficient common issues of fact, and that the proposed class members were not sufficiently ascertainable, to permit class certification.  When class certification is denied, courts often allow the plaintiff a second or third chance to modify his class definition or otherwise amend his claims in order to meet the class certification requirements.  But in Delgado v. Cars 4 Causes, CK&E was able to present such solid evidence and legal argument that the court was convinced of the futility of any such additional chances for the plaintiff.  As a result, the court denied Delgado’s motion for class certification
“with prejudice.”  This permanent denial of class certification ended the plaintiff’s effort to pursue a class action against Cars 4 Causes.

CK&E attorneys have substantial experience and success in defending class actions ranging from consumer unfair competition, false advertising and CLRA claims, to employment wage and hour claims.

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15
OCT
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Advertising and Labeling, Class Actions, Consumer Legal Remedies Act, Unfair Competition

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The Conkle Firm Participates in ICMAD Regulatory Forum

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The Conkle Firm Participates in ICMAD Regulatory Forum
Conkle, Kremer & Engel attorney Eric S. Engel attended the ICMAD Regulatory Forum in Newport Beach, California on February 17, 2016.  The Forum has been an annual event for more than a decade, and offers CK&E an opportunity to meet with professionals in the personal care products industry to discuss important legislative and regulatory issues affecting the industry.  Among the topics of concern to the beauty industry, on which CK&E stays current through participation in the Forum and otherwise, include labeling and advertising claims, EU labeling and regulatory compliance, and California regulatory compliance, including Prop 65 issues, California Safe Cosmetics Act and California Air Resources Board (CARB), California Safer Consumer Products regulations, and the potential for class action liability.  One topic that generated particular industry interest was the pending “Personal Care Products Safety Act” introduced by Senators Feinstein and Collins.

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17
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Beauty Industry, Class Actions, Personal Care Products, Proposition 65, Regulatory Compliance, Safe Cosmetics Act, Safer Consumer Products Regulations

Hot Yoga and Cold Law: Employment Retaliation Claims Can Arise Anywhere

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Hot Yoga and Cold Law: Employment Retaliation Claims Can Arise Anywhere
Most people would agree that working in a government office that supervises lawyers is quite different than working in a 104 degree “hot yoga” studio. But recent matters involving these two very different work environments show that employment retaliation claims can be asserted against any employer – whether you’re a yoga master or the master of all lawyers in California.

The California State Bar has the staid mission of regulating the admission of attorneys and investigating assertions of attorney misconduct. Yet in November 2015, the State Bar found itself charged with wrongful employment retaliation after it fired one of its top managers, John Noonen. Noonen asserted that the termination was retaliatory because, just a few weeks earlier, he submitted a 40-page internal complaint against the State Bar’s top attorney for allegedly failing to properly investigate complaints against the president of the State Bar. The State Bar has denied Noonen’s retaliation allegations and has said that Noonen’s position was eliminated as part of a cost-saving effort.

Less than two months later, the same types of claims led to a sizeable jury verdict against a completely different business run by famed yoga guru Bikram Choudhury. Choudhury made his fortune teaching yoga instructors his techniques and allowing graduates to operate yoga studios that feature a specific yoga sequence performed in a 104-degree room. In January 2016, a Los Angeles jury found that Choudhury sexually harassed his former legal advisor and wrongfully fired her for investigating others’ claims of sexual discrimination and assault against him. Choudhury asserted he had good cause to fire his legal advisor because she was not licensed to practice law in California. The jury first ordered Choudhury and his yoga business to pay $924,000 in compensatory damages, and the next day the jury upped the ante with a further award of $6.4 million in punitive damages.

In each of these recent cases, employees alleged that their bosses improperly “retaliated” against them for investigating workplace misconduct. Most employers and employees know that laws exist to protect employees from wrongful discrimination and harassment. The same laws also provide that employers cannot punish or “retaliate” against employees for making complaints about other potentially wrongful employment conduct, such as discrimination or harassment, or for participating in workplace investigations about such potential wrongful employment conduct.

“Retaliation” is prohibited by the same federal laws that prohibit employment discrimination based on race, color, sex, religion, national origin, age, disability and gender. “Retaliation” can take many forms, including termination, demotion, suspension or other employment discipline against the employee for engaging in protected activity, such as reporting perceived employer discrimination or other misconduct. Owing to its broad scope, retaliation is a claim commonly raised by disgruntled or terminated employees. In fact, according to the federal Equal Employment Opportunity Commission (“EEOC”), retaliation is the most common basis of discrimination claims in EEOC cases.

These cases illustrate some of the many circumstances in which employment issues can lead to litigation against a wide variety of employers. Conkle, Kremer & Engel regularly advises employer and individuals on workplace issues and the ramifications of retaliation and harassment claims so that all involved can take steps to resolve conflicts in a meaningful, efficient way. When circumstances do not do not allow a non-litigated solution, CK&E attorneys litigate and arbitrate employment disputes including retaliation claims, whether the claims are asserted individually or as a class action.

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Banking and Finance, Beauty Industry, Class Actions, Contracts, Business and Finance, Discrimination, Employment Law, Fashion, Food, Craft Beer and Nutrition, Manufacturing, Real Estate & Construction, Sales, Technology

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