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Employment Law E-Buzz

Easy-to-digest updates on emerging employer legal issues

Did You Know…California Supreme Court Holds That a Challenge to Independent Contractor Status Is Class Certifiable

Posted in Class Actions, Wage and Hour

In Ayala v. Antelope Valley Newspapers the California Supreme Court held that the critical factor in determining whether a worker is an employee or an independent contractor is “the degree of a hirer’s right to control how the end result is achieved.”  Notably, even if that right is not exercised, the hirer will be deemed the employer of the worker and will be subject to all California laws governing employment relationships.  The Supreme Court also held that with respect to class certification, the issue is whether there is a common way to show the employer “possessed essentially the same legal right of control” with each plaintiff.

The plaintiffs in this case worked as newspaper home delivery carriers for Antelope Valley Newspapers, Inc. and each carrier had signed an “Independent Contractor Distribution Agreement” with Antelope Valley.  The plaintiffs filed a class action against Antelope Valley alleging they had been misclassified as independent contractors and were entitled to damages because they had not been, inter alia, paid overtime and provided meal and rest breaks in violation of California wage and hour laws.

The trial court denied class certification on the basis that common issues did not predominate because determining the carriers’ employee status would require “heavily individualized inquiries” into Antelope Valley’s control over the carriers’ work.  The California Court of Appeal agreed with the trial court that the carriers had not shown that their claims for overtime pay and missed meal and rest periods could be managed on a class-wide basis, but reversed the trial court’s denial of class certification on the issue of whether the carriers had been misclassified as independent contractors.  The Court of Appeal noted that the key issue  – “how much right does Antelope Valley have to control what its carriers do” – could be addressed on a class-wide basis.

The California Supreme Court agreed with the Court of Appeal and held that the trial court will need to address whether Antelope Valley’s right of control over its carriers is “sufficiently uniform” such that the issue of the carriers’ employment status can be addressed on a class basis.

Specifically, the California Supreme  Court stated (1) whether a common law employer-employee relationship exists turns principally on the degree of a hirer’s right to control how the end result is achieved; (2) whether the hirer’s right to control can be shown on a class-wide basis will depend on the extent to which individual variations in the hirer’s rights concerning each putative class member exist, and whether such variations, if any, are manageable; and (3) the trial court in this case erred in rejecting certification based not on differences in Antelope Valley’s right to exercise control, but on variations in how that right was exercised.

Class certification of wage and hour related issues will continue to be a hotly debated topic.  Likewise, classifying workers as employees or independent contractors will also continue to be a closely monitored issue on a state and federal level.  Employers are encouraged to audit their worker classifications to ensure legal compliance.

Did You Know…California Supreme Court Holds Undocumented Workers Are Not Barred From All Relief

Posted in Court Decisions, Discrimination

In Salas v. Sierra Chemical Co. the California Supreme Court recently held that an undocumented worker who fraudulently obtained employment through use of someone else’s social security number may seek damages for employment discrimination and retaliation.  The Court reasoned that undocumented employees like Mr. Salas are entitled to pursue claims for retaliation and discrimination against their employers because preventing undocumented employees from seeking remedies when they are discharged due to discrimination or because they have applied for workers’ compensation would undermine the purpose of federal immigration law by making it less expensive for employers to hire undocumented immigrants than authorized workers, giving employers an incentive to violate federal law.  The Supreme Court rejected the employer’s arguments that the doctrines of after-acquired evidence and unclean hands barred the employee from any and all relief.  The Court held that although these doctrines may operate to reduce an employee’s damages and/or preclude reinstatement, they are not a complete bar/defense to an employee’s claims.  This means that these doctrines do not bar recovery of damages for the period of time prior to the employer’s discovery of the information (after- acquired evidence).  Here, the Court reasoned that an employer’s discovery that its employee was undocumented cannot provide a complete bar to a wrongful termination claim because permitting such a defense would eviscerate state law protections against discrimination and retaliation.

The Supreme Court also held that Senate Bill 1818 (“SB 1818″) (codified as Labor Code section 1171.5; Civil Code section 3339; Government Code section 7286; Health and Safety Code section 24000) which extends state law protections and remedies to all workers “regardless of immigration status,” is not preempted by the Federal Immigration Reform and Control Act of 1986 (8 U.S.C. §1101 et seq.) (IRCA), except to the extent it authorizes an award of lost pay damages for any period after the employer discovers the employee’s inability to work in the United States.**

According to the Supreme Court:

“Even if permitting [unauthorized aliens who have used false documents to secure employment] to obtain state remedies for violations of the state labor and employment laws provides an incentive for such federal law violations, the practical effect of such incentive is minimal because the typical unauthorized alien wage earner is not familiar with the state law remedies available for unlawful termination and because job seekers rarely contemplate being terminated in violation of the law. Thus, it is highly unlikely that an unauthorized alien’s decision to seek employment in this country would be based in any significant part on the availability of lost wages as a remedy for unlawful discharge. . . . Furthermore, not allowing unauthorized workers to obtain state remedies for unlawful discharge, including prediscovery period lost wages, would effectively immunize employers that, in violation of fundamental state policy, discriminate against their workers on grounds such as disability or race, retaliate against workers who seek compensation for disabling workplace injuries, or fail to pay the wages that state law requires.”

**SB 1818 was enacted in 2002 to limit the United States Supreme Court decision in Hoffman PlasticCompounds, Inc. v. NLRB which held that the policies underlying the IRCA prohibited the National Labor Relations Board from awarding backpay to illegal immigrants, who, in violation of the National Labor Relations Act, were terminated because of their participation in the organization of a union.  Indeed, SB 1818 makes explicit California’s public policy with regard to the irrelevance of immigration status in enforcement of state labor and employment laws.  If an employer hires an undocumented worker, that employer will bear the burden of complying with all laws related to the actual employment of the employee.  Thus, California passed SB 1818 to ensure that undocumented workers remain covered by all the rights and protections given to other workers in California.

Did You Know…California Supreme Court Approves Class-Action Waivers, But Disapproves PAGA Representative Claim Waivers

Posted in Class Actions, Court Decisions, Litigation

The California Supreme Court has issued its highly-anticipated opinion in Iskanian v. CLS Transportation Los Angeles, LLC (“Iskanian”).

The decision is mixed for employers: the Court ruled that arbitration agreements with mandatory class action waivers generally are enforceable.  However, the Court also concluded that representative actions under the Private Attorneys General Act (“PAGA”) cannot be waived.

In Iskanian, an employee sought to bring a class action lawsuit on behalf of himself and similarly situated employees for his employer’s alleged failure to compensate its employees for, among other things, overtime and meal and rest periods. The employee had entered into an arbitration agreement that waived the right to class proceedings. The Court considered, in part, whether a state’s refusal to enforce such a waiver on grounds of public policy or unconscionability is preempted by the Federal Arbitration Act (“FAA”), and concluded that it is.

Highlights from the opinion are below:

  1. An arbitration agreement with a class action waiver is enforceable.  The Court overruled its prior holding to the contrary in Gentry v. Superior Court (2007) 42 Cal. 4th 443 (“Gentry”) on the basis that Gentry has been preempted by the United States Supreme Court in AT&T Mobility LLC v. Concepcion (2011) 563 U.S. __ [131 S.Ct. 1740] (“Concepcion”).
  2. A class action waiver is not unlawful under the National Labor Relations Act (“NLRA”).  The Court declined to follow the National Labor Relations Board’s position in D.R. Horton Inc. & Cuda (2012) 357 NLRB No. 184 [2012 WL 36274] that the NLRA generally prohibits contracts that compel employees to waive their right to participate in class proceedings to resolve wage claims.  Rather, the Court agreed with the Fifth Circuit’s opinion in D.R. Horton, Inc. v. NLRB (5th Cir. 2013) 737 F.3d 344, rejecting the NLRB’s opinion.  The Court held that “in light of the FAA’s liberal federal policy favoring arbitration, sections 7 and 8 of the NLRA do not represent a contrary congressional command overriding the FAA’s mandate.”
  3. A waiver of representative claims under PAGA is contrary to public policy and unenforceable as a matter of state law.  “An agreement by employees to waive their right to bring a PAGA action serves to disable one of the primary mechanisms for enforcing the Labor Code.”  Because such an agreement exempts an employer from responsibility for violations of the law, the Court reasoned, it is against public policy.  Further, PAGA was “clearly established for a public reason,” so a waiver of PAGA rights would harm the state’s interests in enforcing the Labor Code and in receiving the proceeds of civil penalties.  The Court distinguished the FAA and the U.S. Supreme Court’s decision in Concepcion by concluding that “the FAA aims to ensure an efficient forum for private disputes, whereas a PAGA action is a dispute between an employer and the state Labor and Workforce Development Agency;” PAGA lies outside the FAA’s coverage because it is not a private dispute between an employer and an employee, but a dispute between an employer and the state.

Having concluded that the employer could not compel the waiver of Iskanian‘s representative PAGA claim, but that the arbitration agreement was otherwise enforceable according to its terms, the Court considered the parties’ next steps.  The Court noted that although the arbitration agreement could be read as requiring arbitration of individual claims but not of representative PAGA claims, neither party contemplated such a bifurcation.

Neither party got all that it wanted: although Iskanian sought to litigate all claims in court, the California Supreme Court required Iskanian to proceed with bilateral arbitration on his individual damages claims.  Although CLS sought to arbitrate the individual claims while barring the PAGA representative claim altogether, the Court required CLS to answer the representative PAGA claims in some forum.

The Court’s decision thus raises a number of questions: (1) Will the parties agree on a single forum for resolving the PAGA claim and the other claims? (2) If not, is it appropriate to bifurcate the claims, with individual claims going to arbitration and the representative PAGA claim to litigation? (3) If such bifurcation occurs, should the arbitration be stayed?  The Court invited the parties to address these issues on remand.

Due to the significance of the issues, it is anticipated that one or both parties will file a petition for certiorari in the United States Supreme Court.  Stay tuned………….

Did You Know…Compelled Public Employee Testimony May Be Protected By the First Amendment

Posted in Litigation

The United States Supreme Court’s recent unanimous decision in Lane v. Franks held that the First Amendment protects a public employee who provided truthful sworn testimony, compelled by subpoena, outside the course of his ordinary job responsibilities.  Although the Supreme Court did not hold that every public employee who testifies in court is entitled to First Amendment protection, it struck down the argument that a worker who testifies about things learned during the course of their public employment automatically falls outside the scope of constitutional free speech protections.  The Court found that the public employee’s speech was not only made as a citizen, but it also involved a matter of public concern because it dealt with public corruption and misuse of state funds, according to the high court.

Edward Lane, a former public employee, claimed he was fired for testifying, under subpoena, in corruption charges against Alabama State Representative Suzanne Schmitz.

As director of a youth program operated by the Central Alabama Community College (the “College”), Lane had audited the program’s expenses and discovered that Representative Schmitz appeared on the payroll, but had not been reporting for work.  Despite warnings from the College that terminating the State Representative could result in negative repercussions for Lane personally, Lane terminated Schmitz’s employment.  He later testified before a federal grand jury about his reasons for firing Schmitz.  Following his testimony, the College terminated Lane.  Lane sued the College’s former President, Steve Franks, claiming retaliation for protected speech.

As a general rule, to establish protected speech under the First Amendment, a public employee must show, among other things, that the speech was not pursuant to his or her “official duties” or, in other words, the speech was not part of the job for which the government paid the employee.  Garcetti v. Ceballos, 547 U.S. 410 (2006).  The Eleventh Circuit deemed Lane’s testimony part of his official duties as a public employee because it concerned actions taken within the scope of his job, and therefore the speech was not protected by the First Amendment.

The Supreme Court reversed this finding, holding that truthful speech by a public employee, rendered as sworn testimony, does not lose its First Amendment protection merely because it pertains to actions taken by the employee as part of his or her official duties.  To hold otherwise, the Court noted, would “place public employees who witness corruption in an impossible position, torn between the obligation to testify truthfully and the desire to avoid retaliation and keep their jobs.”

The Court, however, upheld the Eleventh Circuit’s ruling that Franks, in his individual capacity, was entitled to qualified immunity because Franks could have reasonably believed that a public employer could fire an employee for speech provided in sworn testimony outside the employee’s usual job duties.

Lane v. Franks provides important guidance on free speech rights of public employees.  The Supreme Court, however, did not address how its decision might affect police officers, crime scene technicians, or laboratory analysts whose jobs often require them to testify about their official activities.

Did You Know…California Supreme Court Issues Favorable Decision for Employers in Duran v. U.S. Bank

Posted in Class Actions, Court Decisions, Litigation, Wage and Hour

The California Supreme Court has issued its long-awaited decision in Duran v. U.S. Bank.  In a significant victory for employers, the Court unanimously agreed to overturn a $15 million judgment in a wage and hour class action based on the trial court’s improper use of statistical sampling.  The opinion is likely to guide how wage and hour class actions and representative actions are tried in state court for the foreseeable future.

In Duran, loan officers sued the U.S. Bank National Association (USB), claiming they had been misclassified as exempt employees under the California Labor Code and thus were owed overtime wages.  After certifying a class of 260 plaintiffs, the trial court devised a plan to determine the extent of USB’s liability to all class members by extrapolating from a random sample.  The trial proceeded in two phases: in the first phase (liability), the court heard testimony about the work habits of 21 plaintiffs.  USB was not permitted to introduce evidence about the work habits of any plaintiff outside the sample.  Nevertheless, based on testimony from the sample group of 21, the trial court found that the entire class of 260 individuals had been misclassified.  In the second phase (damages), the court heard testimony from statisticians and extrapolated the average amount of overtime reported by the sample group of 21 to the entire class, resulting in a verdict of approximately $15 million against USB.

The Supreme Court rejected the statistical model used by the trial court, finding it “profoundly flawed.”  Here are highlights from the opinion:

1. A workable trial plan needs to be developed prior to class certification and should be considered by the court in assessing whether certification is appropriate.  “If statistical evidence will compromise part of the proof on class action claims, the court should consider at the certification phase whether a trial plan has been developed to address its use.”  While predominance of common questions is an important factor, a trial court also has to determine that individual issues can be effectively managed in the ensuing litigation.

2. Employers have a constitutional due process right to litigate their affirmative defenses.  The class action is a procedural device that may not be used to abridge a party’s substantive rights.  “If a defense depends upon questions individual to each class member, the statistical model must be designed to accommodate these case-specific deviations.  If statistical methods are ultimately incompatible with the nature of plaintiffs’ claims or defendant’s defenses, resort to statistical proof may not be appropriate.”  Defendant must have an opportunity to present proof of affirmative defenses.

3. Statistical sampling may be an appropriate means of proving liability or damages in a wage and hour class action, but in Duran, the statistical model was intolerably flawed for the following reasons: (a) the sample size was too small.  The court chose a sample size that was not “sufficiently large to provide reliable information about the larger group,” and instead chose a size that would be convenient and manageable at the expense of the parties’ ability to litigate their case; (b) the sample size was not random.  A sample must be randomly selected for its results to be fairly extrapolated to the entire case.  In Duran, numerous rulings undermined randomness and gave class counsel the ability to influence the cases selected to be tried in the sample group; (c) there was an intolerably large margin of error; plaintiff’s statistician expert calculated a margin of error of 43.3 percent.

4. If a trial proceeds with a statistical model of proof, a defendant must be given a chance to impeach that model or otherwise show that its liability is reduced.

The Supreme Court’s decision in Duran provides an important affirmation of defendants’ due process rights in class litigation, and provides employers with helpful guidance on the limitations of statistical sampling in such matters.

 

Did You Know…Depression Does Not Automatically Qualify An Employee For FMLA Leave

Posted in Court Decisions, Disability Discrimination, Discrimination, Leave Laws

In recent years, employers have been bombarded by increasing numbers of lawsuits by employees with mental disabilities alleging discrimination and retaliation.  These lawsuits are based on a variety of theories including alleging being denied federal and/or state protected medical leave.  In a small blow to this growing trend, however, the Eleventh Circuit recently vacated a $1 million plaintiff’s judgment holding that depression and anxiety is not a “serious health condition” for FMLA purposes where the employee cannot show he or she was also incapacitated by the condition.

In Hurley v. Kent of Naples, Inc., Case No. 13-10298 (11th Cir. March 20, 2014), plaintiff, who suffers from depression, alleged he was wrongfully denied unpaid FMLA leave and terminated.  Although the jury did not find that plaintiff had been wrongfully terminated, the jury did decide that the employer improperly denied FMLA leave.  The jury found that the plaintiff successfully showed he suffered from a serious health condition and gave proper notice under FMLA.  The jury made its finding despite the fact that the plaintiff’s doctor testified that although plaintiff’s condition was chronic, plaintiff was not incapacitated or unable to work.  The doctor added that there was no way to predict future periods of incapacity.  Based on this testimony, the employer moved for a judgment as a matter of law on grounds that plaintiff failed to prove his burden that he qualified for protection under FMLA.  Despite the weight of this evidence, the district court denied the motion.

However, the Eleventh Circuit’s three judge panel overturned what it deemed a “puzzling” verdict.  The Eleventh Circuit sided with the employer.  Plaintiff tried to argue that under the FMLA, it was only necessary for an employee to show he “potentially” qualifies for protection.  The Eleventh Circuit said no.  It found nothing in the FMLA or case law supporting plaintiff’s interpretation.  The Eleventh Circuit held that an employee must “actually” qualify for FMLA, requiring the employee to show that he or she is unable to work as a result of the employee’s serious health condition.

It is not yet known whether plaintiff will appeal this decision and whether other circuits may come up with similar decisions.  However, given that here in California we look to federal cases for much of our guidance on ADA issues, this is an issue we will continue to monitor.  Check back here for updates.

Did You Know…Background Checks – Buyer [Employer] Beware!

Posted in Class Actions, Discrimination, Forms, Litigation, Privacy

As we recently reported at our annual employment law seminar and discussed in “Did You Know…New Informal Guidance From EEOC & FTC Re Background Checks,” background checks are not only the focus of the EEOC and FTC, but also plaintiff class action attorneys.  Underscoring this point is the recent putative class action filed against UBS Financial Services, Inc.

The Plaintiff alleges, on behalf of a class of potentially thousands of members, that UBS violates the Fair Credit Reporting Act, 15 U.S.C. §§ 1681 et seq. (“FCRA”) by systematically (1) procuring consumer reports about current or prospective employees and, inter alia, deceptively embedding improper release language, in the consumer consent and disclosure document that UBS requires prospective and current employees to sign prior to ordering a background check; and (2) using employment background checks to make adverse employment decisions without providing the consumer job applicants who are the subjects of the background checks a copy of the report used, along with a summary of his or her rights.  The plaintiff seeks, inter alia, class certification, punitive damages and statutory damages between $100 to $1,000 per violation per class member.

It is critical for employers to be knowledgeable about and compliant with federal, state and local laws/regulations regarding background checks to avoid being the target of such lawsuits.

Did You Know…New Informal Guidance From EEOC & FTC Re Background Checks

Posted in Disability Discrimination, Discrimination, Privacy

As we recently reported at our annual employment law update, additional restrictions are being placed on the use of background checks in light of the potential for disparate impact and invasion of the right to privacy.

Recently, the EEOC and FTC** issued joint informal guidance concerning the issues employers may face when consulting background checks into a worker’s criminal record, financial history, medical history or use of social media. You can access the guidance here for employers and for employees.

Some key points underscored in the guidance:

  1. It is not illegal for an employer to ask questions about an applicant’s or employee’s background except with respect to certain restrictions related to medical and genetic information or to require a background check.
  2. When an employer uses a background check, the employer must be sure to remain in compliance with laws prohibiting discrimination based on the protected categories; i.e., race, color, national origin, sex, religion, disability, genetic information, and age.
  3. When an employer gets a background report from an outside agency it must comply with the Fair Credit Reporting Act [and in California also with the Investigative Consumer Reporting Act].
  4. Employers should ensure that they are seeking the same background information from all individuals, rather than only checking the background of employees or applicants of a certain race or background.
  5. Employers should not request an applicant’s or employee’s genetic information which includes family medical history. And if they do have that information, they should not use it to make an employment decision.
  6. Employers are not to ask any medical questions before a conditional job offer has been made, and only to ask current employees medical questions if there is objective evidence that the employee is unable to do the job or poses a safety risk because of a medical condition.
  7. The EEOC requires employers to preserve records created for one year after the records were made, or after a personnel action was taken, whichever comes later.

It is critical to be certain that as employers you are compliant with both federal, state and local laws regarding obtaining background information with respect to employees and applicants.

**The EEOC enforces the anti-discrimination laws and the FTC addresses background checks under the Fair Credit Reporting Act.

Did You Know…San Francisco “Bans the Box”: Are Your Job Applications Up to Snuff?

Posted in Forms, Legislation, Privacy

San Francisco recently “banned the box” by adopting the Fair Chance Ordinance, which prohibits the popular criminal history check box on employment applications.  Last year, the California Legislature passed Senate Bill 530 and Assembly Bill 218, further limiting the type of information employers may ask job applicants regarding their criminal history.  San Francisco’s Fair Chance Ordinance, however, takes these limitations a bit further.  Under the ordinance, employers with 20 or more employees in San Francisco are prohibited from inquiring into an applicant’s criminal history during the first interview.  Even once employers may inquire into criminal history, they may ask only about misdemeanor and felony convictions that occurred in the last seven years.  Any inquiry into an applicant’s criminal history, whether conducted by the employer or a background check agency, must be disclosed to the applicant.

In light of these changes, make sure to audit and update your job application forms and consult counsel to ensure compliance.

Did You Know…Update Re California Family Rights Act (CFRA) – Proposed Pending Amendments

Posted in Leave Laws

As you know in the past we have provided updates regarding changes with respect to the leave laws. Now on February 21, 2014, California’s Department of Fair Employment and Housing Council published proposed amendments to the CFRA regulations. These regulations are intended to clarify some aspects of the existing regulations and also to adopt many of the recent amendments to the Family Medical Leave Act (FMLA) regulations to make the two acts more consistent. Notwithstanding, there remain some differences between CFRA and FMLA administration. The proposed amended regulations touch on almost every aspect of the CFRA process, addressing, among other things, length of service/eligibility issues, the certification process and timeframes for responding to employee requests for CFRA leave, computation of amount of leave entitlements, key employee issues, clarification of reinstatement rights, maintenance of health and other benefits during leave, retroactive designation of leave, and the interplay between CFRA leave and California pregnancy disability leave. [The proposed amendments cover 11 sections with the following titles/subjects: 1. Definitions, 2. Right to CFRA Leave: Denial of Leave; Reasonable Request; Permissible Limitation, 3. Right to Reinstatement: Guarantee of Reinstatement; Rights Upon Return; Refusal to Reinstate; Permissible Defenses, 4. Computation of Time Periods: Twelve Workweeks; Minimum Duration, 5. Requests for CFRA Leave: Advance Notice; Certification; Employer Response, 6. Terms of CFRA Leave, 7. Relationship between CFRA Leave and Pregnancy Disability Leave; Relationship between CFRA Leave and Non-Pregnancy Related Disability Leave, 8. Retaliation and Protection from Interference with CFRA Rights, 9. Notice of Right to Request CFRA Leave, 10. Relationship with FMLA Regulations, and 11. Certification Form.]

For example, the proposed regulations make it clear that (1) same-sex spouses are covered under CFRA and the FMLA regulations apply to CFRA leave “to the extent not inconsistent” with the CFRA regulations, and (2) a California employer is required to maintain the employee’s group health benefits for the entire time an employee is on pregnancy disability leave and FMLA/CFRA leave, not just during the latter [12 week].

If you have any concerns regarding the proposed amendments, now is the time to speak up. There is a public comment period through June 2, 2014. Comments can be submitted via email to FEHCouncil@dfeh.ca.gov. There will also be two public hearings on the proposed amended regulations: 10:00 a.m. on April 7, 2014 at UC Irvine School of Law, and 10:00 a.m. on June 2, 2014 at the California Public Utilities Commission Main Auditorium in San Francisco. More on the DFEH website.

Stay tuned for further updates……………..