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

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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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New California Law to Classify Employees and Independent Contractors

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On September 11, 2019, California lawmakers passed California Assembly Bill 5 (AB 5), codifying and clarifying the California Supreme Court’s landmark 2018 decision in Dynamex Operations West, Inc. v. Superior Court of Los Angeles, which fundamentally altered the test for determining the classification of workers as employees or independent contractors in California. We previously blogged about the Dynamex decision, under which workers are presumed to be employees for purposes of claims for wages and benefits arising under Industrial Welfare Commission wage orders, and companies must meet a three-pronged “ABC” test to overcome this presumption and establish that an individual is an independent contractor. AB 5 would codify the ABC test into law.

AB 5 has been sent to Governor Gavin Newsom, who recently endorsed it in an op-ed for the Sacramento Bee, and he is expected to sign it into law.

Under AB 5, a new Section 2750.3 would be added to the California Labor Code. Section 2750.3, subsection (a)(1), will state that, for purposes of the Labor Code, the Unemployment Insurance Code, and the wage orders of the Industrial Welfare Commission, a person providing labor or services for remuneration shall be considered an employee rather than an independent contractor unless the hiring entity demonstrates that all of the following conditions are satisfied:
(A) The person is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact;
(B) The person performs work that is outside the usual course of the hiring entity’s business; and
(C) The person is customarily engaged in an independently established trade, occupation or business of the same nature as that involved in the work performed.

Under the new law, California workers can generally only be considered independent contractors if the work they perform is outside the usual course of a company’s business. Conversely, a company must classify workers as employees if the company exerts control over how the workers perform their duties, or if their work is part of a company’s regular business.

AB 5 has far-reaching implications for California businesses who classify their workers as independent contractors because it extends the scope of the Dynamex ruling from only Industrial Wage Commission Orders to include claims for wages and benefits under the Labor Code and Unemployment Insurance Code. The Dynamex decision applied only to rules governing minimum wages, overtime and meal and rest breaks, but under AB 5, individuals classified as employees must also be afforded workers’ compensation in the event of an industrial injury, unemployment and disability insurance, paid sick days and family leave.

However, AB 5 is also narrower than the Dynamex decision in that it exempts certain occupations from the new test. The new Labor Code section would provide limited exemptions for certain occupations, including direct sales salespersons, licensed estheticians, licensed electrologists, licensed manicurists (until January 1, 2022), licensed barbers and licensed cosmetologists from the application Labor Code Section 2750.3 and the holding in Dynamex, provided that the individual:
• Sets their own rates, processes their own payments, and is paid directly by clients;
• Sets their own hours or work and has sole discretion to decide the number of clients and which clients for whom they will provide services;
• Has their own book of business and schedules their own appointments;
• Maintains their own business license for the services offered to clients; and
• If the individual is performing services at the location of the hiring entity, then the individual issues a Form 1099 to the salon or business owner from which they rent their business space.

If a company can meet its burden of showing that the individual meets the above criteria, then the determination of proper classification for that individual would be governed by S.G. Borello & Sons, Inc. v. Department of Industrial Relations, the 1989 decision that has been the prevailing law for wage order cases in California prior to Dynamex. Borello established an 11-factor inquiry into the degree of control a company exerts over the worker’s performance of his or her duties: whether the hiring entity has the right to control the manner and means of accomplishing the result desired; the right to discharge at will, without cause; whether the worker is engaged in a distinct occupation or business; the kind of occupation and the skill required in the particular occupation; who supplies the instrumentalities, tools and the place of work for the person doing the work; the length of time for which services are to be performed; the method of payment; whether or not the work is part of the hiring entity’s regular business; and whether or not the parties believe they are creating an employer-employee relationship.

Another aspect of AB 5 worth noting is that it would not allow an employer to reclassify an individual who was an employee on Janaury 1, 2019 to an independent contractor due to the measure’s enactment.

With the law set to become effective on January 1, 2020, companies, particularly in the salon and beauty industry, would be wise to reassess the classification of their workers to ensure compliance with the new law. The attorneys at Conkle, Kremer & Engel have extensive experience advising businesses on best practices regarding proper worker classification, and will be continually monitoring developments related to AB 5 as they occur.

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Can Employers Ask, “So, What Did You Make?”

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A new law in California is squarely aimed at reducing historical wage disparity, particularly between male and female employees.  On January 1, 2018, a new law will take effect in California to prohibit employers from seeking “salary history information, including compensation and benefits, about an applicant for employment.”  The new law, Section 432.3 of the Labor Code, also requires employers to provide the pay scale of the position to the applicant upon reasonable request.

But even under this new law, employers can still access salary history information under certain circumstances.  Employers may review salary history information that is publicly available under federal or state law, including information that is obtainable under the California Public Records Act or the federal Freedom of Information Act.  Employers may also consider and rely on salary history information in determining the salary for that applicant, if the “applicant voluntarily and without prompting discloses salary history information to a prospective employer….”  But, even when employers can rely on voluntarily disclosed salary information to set a particular salary, job applicants are still protected by California’s Equal Pay Act.  Any prior salary information about the applicant still cannot be used as the sole justification for “any disparity in compensation” for employees of different sexes, races, or ethnicities for “substantially similar work.”

It seems likely there will be a challenge to the constitutionality of the new restriction, most likely on free speech grounds.  Other states and municipalities have passed similar laws restricting employers from inquiring about salary history.  Philadelphia has a similar ordinance passed earlier this year to prohibit employers from asking an applicant about prior salaries and from relying on salary information unless that information was voluntarily disclosed by the applicant.  The Chamber of Commerce for Greater Philadelphia filed a lawsuit, challenging the ordinance on several grounds, including “chilling” the protected speech of employers under the First Amendment, and violating the Due Process Clause of the Fourteenth Amendment because of the severe penalties employers risk incurring.  While this case is still pending, the Chamber of Commerce raises questions of constitutionality that could apply as well to California’s new law.

Employment laws change constantly at federal, state and local levels.  In preparation for the new year, employers should review the documents they use in the hiring process, including job applications and new hire documents, and remove questions pertaining to salary history.  Employers should also instruct any employees who may be interviewing applicants not to ask about an applicant’s salary history.  And, for each open position, employers should ensure pay scales are readily available to disclose in response to an applicant’s request.

Conkle, Kremer & Engel attorneys are experienced at helping employers navigate the shifting maze of laws and regulations they face, and resolving employment issues as they arise.

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California Employers’ Risks of PAGA Exposure

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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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Fire Your Employee for His Noxious Memo? Not So Fast.

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Is an employer free to fire an employee who circulates to co-employees a memo expressing ideas that are noxious to the employer’s efforts to avoid prohibited discrimination?  Perhaps surprisingly, the answer can be, “No.”

A good example is the recent event in which Google fired James Damore, an engineer, for circulating a memo, or “manifesto,” explaining a basis for gender bias among computer engineers.  His memo, entitled, “Google’s Ideological Echo Chamber – How bias clouds our thinking about diversity and inclusion,” purported to be a personal response to what he viewed as the shaming and silence of those in his field who have differing views about gender in the workplace, and whose views are inconsistent with Google’s “dominant ideology.”  In the memo, Damore provided what he called “biological” explanations for why there is a gender gap in technology, such as: women are more neurotic and thus tend to pick less stressful jobs; women are more “directed towards feelings and aesthetics rather than ideas;” and men have a higher drive for status.  Damore posted this screed to Google’s internal messaging board.  It was a message to his co-workers, and hostile to his employer’s position.

As Damore acknowledged, engineering at Google requires collaboration and teamwork.  Damore’s statement put Google’s management in a difficult place – how can Damore continue to work on any team that involves women? Further, Google’s employee review process emphasizes peer reviews, particularly by high-level engineers such as Damore.  Damore’s expressed biases could cause questions as to the fairness of his reviews, and his position as a supervisor could be argued to create a hostile work environment for the female minority with whom he works.  It is not surprising, then, that Google employees reacted by demanding Damore be disciplined or terminated.  Google agreed, and Damore was terminated.

But Damore seems to have anticipated that reaction, and took steps to protect his own interests.  As quoted by the New York Times, Damore included in his memo an unusually lawyerly statement:  “I have a legal right to express my concerns about the terms and conditions of my working environment and to bring up potentially illegal behavior, which is what my document does.”  After the termination, Damore submitted a complaint to the National Labor Relations Board (NLRB) claiming that Google’s upper management was “misrepresenting and shaming me in order to silence my complaints,” and reminding Google that it is “illegal to retaliate” against an NLRB charge.

Was Google’s action defensible?  The National Labor Relations Act Sections 7 & 8(a)(1) (29 U.S.C. Section 157 & 158(a)(1)) makes unlawful violating employees’ rights to engage in “protected concerted activities.” “Concerted activities” are broadly defined to include “the right to self-organization, to form, join or assist labor organizations, to bargain collectively through representatives of their own choosing, and to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection….” Most often, “concerted activities” are associated with union activity, but the NLRB protects activity that is not specifically union oriented.  This can include communicating with coworkers regarding wages and working conditions, and expressing preferences for political candidates who support favorable labor issues such as higher wages for hourly workers.  In doing so, employees are permitted to use company bulletin boards, both electronic and physical, and company email, on non-working time.

The effect of this protection is that, if Damore challenges his termination, he will likely argue that Google’s decision to terminate him curtailed his rights to discuss his political beliefs and to engage like-minded employees about his view that the hiring and promotions practices at Google are unfair to men.

Because Damore works in California, there are additional considerations under state law.  California Labor Code §1101 provides that “No employer shall make, adopt, or enforce any rule, regulation, or policy: (a) Forbidding or preventing employees from engaging or participating in politics or from becoming candidates for public office; or (b) Controlling or directing, or tending to control or direct the political activities or affiliations of employees.”  While this may not control an adverse employment decision by an employer against a single individual, once coworkers learn that an employee was fired based on his speech or political activities, those coworkers may perceive that action as a threat or policy.  As the Supreme Court has recognized, employees’ economic dependence on the employer can reasonably lead them to pick up even subtle signals when their jobs are at stake.  NLRB v. Gissel Packing Co., 395 U.S. 575, 617 (1969).  Here, Damore’s like-minded coworkers could interpret his firing as a threat to their employment should they express views similar to his.

The unfortunate upshot for Google is that Damore’s termination seems like a retaliation claim ripe for filing.  Though many may personally disagree with Damore’s views on gender in the workplace, and he may have absolutely no factual or evidentiary basis for his position, he could argue in an action against Google that he was attempting to organize a group of like-minded workers to oppose what he believes are Google’s gender biases or an unfair reverse discrimination policy. His “manifesto” appears to structured for this very argument.

It is ironic that the policies of the NLRB and California Labor Code, which protect political organization and prohibit retaliation, are what may ultimately force Google to suffer legal liability for Damore’s termination for expressing disagreement with Google’s anti-discrimination policies.

As these events demonstrate, the application of employment law and policies in real world situations can be challenging.  Protection of one worthwhile policy can seemingly conflict with others, and well-meaning employers can find themselves having to make very difficult choices.  Employers should consult counsel experienced in the sometimes complex issues that can arise in many different employment circumstances.

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California’s new Paid Sick Leave Law goes into effect July 1, 2015: Are you ready?

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Starting July 1, 2015, virtually all California employers – regardless of size – will be required to provide employees with paid sick leave.

The new “Healthy Workplaces, Healthy Families Act of 2014” (AB 1522), California Labor Code Section 245 et seq., requires that all employees – full-time, part-time, temporary and seasonal – who have worked for 30 or more days within a year from the beginning of employment, must be given paid sick leave.

Employees who are providers of in-home support services, and employees of air carriers are excluded from the new law. Also excluded are employees who are covered by a collective bargaining agreement that expressly provide for wages, paid sick leave, or hours.

The Healthy Workplaces, Healthy Families Act may have been passed with good intentions, but the Act’s complex and seemingly contradictory accrual, carryover and use requirements and broad scope of permitted use has left many employers feeling ill as they prepare for compliance before the July 1, 2015 effective date.

The paid sick leave accrues at the rate of one hour of paid leave for every 30 hours worked. Thus, a full-time employee working 2,080 hours per year can accrue up to 69.3 hours, or 8.67 days, of paid sick leave. However, under the new law, employers can limit an employee’s use of paid sick days to 3 days or 24 hours in each year of employment. And, while the law requires accrued paid sick days to carry over to the following year of employment, an employer has no obligation to allow an employee’s total accrual of paid sick leave to exceed 6 days or 48 hours.

Fortunately, there appears to be a simple solution for employers wishing to avoid the accrual and carryover requirements. An employer can provide employees with 3 paid sick days (24 paid sick hours assuming eight-hour work days) at the beginning of each calendar year, anniversary date of employment or twelve-month basis.

The new paid sick leave law allows employees to use paid sick days for broad purposes, beyond that employee’s medical care. An employee can take paid sick days for the diagnosis, care or treatment of an existing health condition or preventive care of the employee or a family member. In addition, an employee who is a victim of domestic violence, sexual assault or stalking can use paid sick days for specified purposes, including to obtain a restraining order or to obtain services from a domestic violence program.

An employee can take paid sick days either upon oral or written request. The law provides that if the need for paid sick leave is foreseeable, the employee shall provide reasonable advance notification. If the need for paid sick leave is unforeseeable, the employee shall provide notice of the need for the leave as soon as practicable.

California employers will need to take specific action before July 1, 2015 to ensure that they will be fully compliant with the Act on July 1, 2015.

Employers must provide written notice of the new law to all employees. The California Department of Industrial Relations, Division of Labor Standards Enforcement provides electronic copies of the mandatory workplace postings for employer use on its website.

Employers are also required to provide employees with written notice that sets forth the amount of paid sick leave available, for use on either the employees’ itemized wage statement or in a separate writing provided on the designated pay date with the employees’ payment of wages.

Finally, the Act requires employers to keep for at least three years records documenting the hours worked and paid sick days accrued and used by an employee, and allow the Labor Commissioner to access these records.

Conkle, Kremer & Engel attorneys provide employers with practical guidance and legal expertise to ensure compliance with ever-changing labor laws, including wage and hour issues and successful development and implementation of a sick leave policy that complies with the Healthy Workplaces, Healthy Families Act of 2014.

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