Monday, August 22, 2016

Ninth Circuit Holds Class Action Waivers in Employment Agreements Violate the National Labor Relations Act

A panel of the Ninth Circuit Court of Appeals held 2-1 that class action waivers in arbitration agreements violate the National Labor Relations Act.

In an opinion by Chief Judge Sidney Thomas, the divided panel's majority decided that the National Labor Relations Board correctly decided that class action waivers violate the National Labor Relations Act because they require employees to give up "concerted activity" - joining together in a group to address wages, hours, and other terms and conditions of employment.

The majority's rationale is that a class action waiver is a waiver of the right to act in concert - a substantive right under the NLRA. Therefore, the employee is not merely waiving the right to a class action; the employee is waiving the right to section 7 of the Act.  And that's not legal.  Because it's not legal, the arbitration provision is not enforceable, notwithstanding the Federal Arbitration Act.
The Court took special pains to emphasize that it was not holding that a class action waiver is illegal because it requires arbitration.  The opinion emphasizes that any class action waiver - even one that did not require arbitration at all - would be illegal.

So, never mind that
- Many employees who might be subject to an arbitration agreement with a class action waiver,  such as supervisors,  are not covered by the NLRA;
- Many employees who might be subject to an arbitration agreement with a class action waiver are former employees who are not engaging in protected, concerted activity to improve working conditions;
- There was no such thing as a class action in 1937 when Congress passed the NLRA;
- a class action is a procedural tool, the Supreme Court has held, not a substantive right;
- a class action is frequently asserted by one employee on behalf of a putative class, the members of which have no rights as parties and often do not even know someone filed the lawsuit;
- The Fifth, Second, and Eighth Circuits, and the California Supreme Court for that matter, have held that the NLRB got it wrong; and
- The Supreme Court has held that class action practice is incompatible with arbitration. 
None of that makes any difference. Judge Ikuta discussed some of these points and others in her dissent.

The court left open the possibility that the parties could arbitrate the class action if the employer desired.  The court also held that nothing in the decision limited arbitration of the claims asserted in the case.  The employees, however, would not be precluded from proceeding as a putative class if the district court decides to "sever" the class waiver.

So, the Supreme Court is going to have to take a look at this issue.  Until then, class action waivers are on shaky ground in the 9th Circuit.

Two things, however:

1. The California Supreme Court has held that the NLRB was wrong and the NLRA does not preclude class waivers.  So, state courts probably have to follow the California Supreme Court unless or until that Court changes its mind.

2. The Ninth Circuit held in Johnmohammadi v. Bloomingdale's, Inc. 755 F.3d 1072 (9th Cir. 2014), that an employer does not violate the NLRA when it gives employees the chance to opt-out of an arbitration agreement containing a class waiver.  Here's what the Court said:
We can quickly dismiss any notion that Bloomingdale’s coerced Johnmohammadi into waiving her right to file a class action. Bloomingdale’s did not require her to accept a class- action waiver as a condition of employment, as was true in In re D.R. Horton, Inc., 357 N.L.R.B. No. 184, 2012 WL 36274 (Jan. 3, 2012), enforcement denied in part, 737 F.3d 344 (5th Cir. 2013). Bloomingdale’s gave her the option of participating in its dispute resolution program, which would require her to arbitrate any employment-related disputes on an individual basis. As the district court found,
Johnmohammadi was fully informed about the consequences of making that election, and she did so free of any express or implied threats of termination or retaliation . . . 
Therefore, at least in the 9th Circuit, and at least for now, it is necessary to include an opt-out provision and to explain the consequences of the arbitration provision containing a class waiver.  Good drafting, therefore, can save the class waiver. 

This case is Morris v. Ernst & Young LLP and the opinion is here. 



Friday, July 01, 2016

Don't Wait for the $15 Minimum Wage - San Francisco's Goes Up to $13 Today!

If you know someone doing business in San Francisco, remember to let that special person know that the minimum wage goes up to $13.00 per hour effective today.  The SF minimum wage web page with access to the poster etc. is here.

As of today, you can hire someone in LA for just $10.50 per hour. (here).  But LA is going to increase that wage to $15.00 within the next few years.  And LA just doubled the statewide paid sick leave entitlement!

Happy July 4 everyone.



Monday, June 20, 2016

Happy 10th Anniversary Shaw Valenza LLP

Yep, lil ol' Shaw Valenza LLP is now officially lil' AND 10 years old as of 6/19.

The blog is turning 10 in a week or so too. And that means it's time to thank you once again for reading and passing along to your colleagues and such.  Thank you!

Jennifer and Greg




Thursday, June 02, 2016

Ninth Circuit: Pay In Lieu of Benefits Is Included in the Regular Rate of Pay

for Overtime Purposes, Even.

Yes, this is what they call a "case of first impression." That means no court has decided the issue before.  The issue the Ninth Circuit Court of Appeals decided is this:

Although the value of benefits are obviously not included in the overtime calculation, the cash equivalents that employers sometimes pay "in lieu" of benefits count as wages that would be included.  This decision will apply in California because federal law applies everywhere.

So, let's back up. The City of San Gabriel had in place a "Flexible Benefits Plan" under which it allowed employees to take cash in lieu of certain health care benefits under certain circumstances, explained here:

The City provides a Flexible Benefits Plan to its employees under which the City furnishes a designated monetary amount to each employee for the purchase of medical, vision, and dental benefits. All employees are required to use a portion of these funds to purchase vision and dental benefits. An employee may decline to use the remainder of these funds to purchase medical benefits only upon proof that the employee has alternate medical coverage, such as through a spouse. If an employee elects to forgo medical benefits because she has alternate coverage, she may receive the unused portion of her benefits allotment as a cash payment added to her regular paycheck. 
The city designated these cash payments "benefits" and did not include them in the regular rate of pay for overtime purposes.

The city argued that these payments were excluded from overtime calculations and the regular rate under the Fair Labor Standards Act's section 207(e)(2), which excludes:

payments made for occasional periods when no work is performed due to vacation, holiday, illness, failure of the employer to provide sufficient work, or other similar cause; reasonable payments for traveling expenses, or other expenses, incurred by an employee in the furtherance of his employer’s interests and properly reimbursable by the employer; and other similar payments to an employee which are not made as compensation for his hours of employment.
The Ninth Circuit panel was concerned with the phrase "other similar payments to an employee which are not made as compensation for his hours of employment."  The court decided that the DOL's regulations and court's precedents did not include these payments in lieu of benefits.  Because pay in lieu of benefits did not fall within "other similar payments" they would be part of the regular rate.  

The court also noted that section 207(e)(4) expressly excludes the value of the benefits themselves from the regular rate. However, rather than treating the cash in lieu as a benefit equivalent, the court said that the payment "in lieu" meant that the cash was not a benefit at all.  Of note, the court found that the cash payments were made directly to the employees, whereas section 207(e)(4) requires payment of the benefit premiums to a third party such as a benefits trust. The regulation interpreting section 207(e)(4) actually permits payment of cash in lieu of benefits, but caps the amount at 20%.  The city's payment was more.

To add insult to injury, the court also found that the city's violation of the FLSA here was "willful" resulting in a 3-year statute of limitation and the availability of "liquidated" or double damages for the violation. The court believed the city did not do enough to research the law in the area, even though there was no case law on the subject (!).  This holding drew comment by two of the three judges that the court should re-examine its standards for finding "willfulness."

Cute disclaimer: I'm not an ERISA lawyer and I did not stay in a Holiday Inn Express last night. (No cookies).  Also, employers may or may not have discontinued these plans under the Affordable Care Act.  And the case might have come out differently if the pay-in-lieu were administered through a third party trust or administrator because it might have fallen within the section 207(e)(4) exemption. So don't panic until you check with qualified benefits counsel. 

However, this case is important if employers continue to offer pay in lieu of benefits, or if it did so within the past three years.  It also is important because it underscores the need for employers to consider whether payments to employees are properly included or excluded from overtime, and how overtime is calculated.  Again, although this is an FLSA case, it will have an impact in California. So heads up.

This case is Flores v. City of San Gabriel and the opinion is here. 








Monday, May 30, 2016

Arbitration Class Action Waivers - Trouble Brewing?

There are pros and cons associated with mandatory arbitration agreements.  Yes, everybody knows that.  One of the biggest "pros" is that an employer can insist that employees arbitrate only individual claims, not class claims.  Or can it?  That's what may be under re-consideration...

The U.S. Supreme Court supposedly settled this issue some years ago in AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 333, 131 S. Ct. 1740, 1742 (2011).  There, the Court, in a nutshell, held:
the overarching purpose of the FAA, evident in the text of §§ 2, 3, and 4, is to ensure the enforcement of arbitration agreements according to their terms so as to facilitate streamlined proceedings. Requiring the availability of classwide arbitration interferes with fundamental attributes of arbitration and thus creates a scheme inconsistent with the FAA.
The Supreme Court in Concepcion expressly invalidated a line of California precedent, in which the California courts had held that class action waivers in arbitration agreements were unconscionable and void against public policy.

The California Supreme Court recognized Concepcion's rule in its landmark Iskanian ruling:
Concepcion held that the FAA does prevent states from mandating or promoting procedures incompatible with arbitration. The Gentry rule runs afoul of this latter principle. We thus conclude in light of Concepcion that the FAA preempts the Gentry rule.
Iskanian v. CLS Transp. L.A., LLC, 59 Cal. 4th 348, 366, 173 Cal. Rptr. 3d 289, 299, 327 P.3d 129, 137 (2014)

Why are we walking down memory lane?  Hang in there...

Because the National Labor Relations Board waded into this issue and decided in a case called D.R. Horton, 357 N.L.R.B. 2277 (2012), that class action waivers are unlawful under the National Labor Relations Act, even if the Federal Arbitration Act preempts state laws prohibiting them.  The Federal Arbitration Act, a federal law, does not preempt the National Labor Relations Act, a federal law.  The NLRB's rationale is that a class action is a form of "protected concerted activity" and that requiring employees to waive the right to sue as a class is an unlawful waiver.  

The Court of Appeals for the Fifth Circuit disagreed with the Board and did not enforce its opinion in D.R. Horton. That means the decision was not binding and could not be used as precedent.  The California Supreme Court also rejected the Board's rationale in Iskanian
We thus conclude, in light of the FAA's “‘liberal federal policy favoring arbitration’” (Concepcion, supra, 563 U.S. at p.___ [131 S. Ct. at p. 1745]), that sections 7 and 8 of the NLRA do not represent “ ‘a contrary congressional command’ ” overriding the FAA's mandate (CompuCredit Corp. v. Greenwood, supra, 565 U.S. at p. ___ [132 S. Ct. at p. 669]). This conclusion is consistent with the judgment of all the federal circuit courts and most of the federal district courts that have considered the issue.
So, the NLRB thing was a big yawn, and no one cares because everybody is non-union, right?  Well, no. The NLRB's rules apply to non-union employers too, but D.R. Horton wasn't getting a lot of play.  Until now.

The Seventh Circuit has just come down in favor of the NLRB's position, in a case involving a non-union employer's motion to compel arbitration in federal court.  In Lewis v. Epic Sys. Corp., No. 15-2997, 2016 U.S. App. LEXIS 9638, at *1 (7th Cir. May 26, 2016), the court of appeals refused to enforce Epic Systems's arbitration agreement because it contained a class action waiver.  

The court held that the waiver violated the National Labor Relations Act:
Epic's clause runs straight into the teeth of Section 7. The provision prohibits any collective, representative, [12] or class legal proceeding. Section 7 rovides that "[e]mployees shall have the right to ... engage in ... concerted activities for the purpose of collective bargaining or other mutual aid or protection." 29 U.S.C. § 157. A collective, representative, or class legal proceeding is just such a "concerted activit[y]." See Eastex, 437 U.S. at 566; Brady, 644 F.3d at 673; D. R. Horton, 357 N.L.R.B. 2277, at 2278. Under Section 8, any employer action that "interfere[s] with, restrain[s], or coerce[s] employees in the exercise of the rights guaranteed in [Section 7]" constitutes an "unfair labor practice." 29 U.S.C. § 158(a)(1). Contracts that stipulate away employees' Section 7 rights or otherwise require actions unlawful under the NRLA are unenforceable.
Lewis v. Epic Sys. Corp., No. 15-2997, 2016 U.S. App. LEXIS 9638, at *11-12 (7th Cir. May 26, 2016)

The Seventh Circuit's decision sets up a circuit split and a chance for the U.S. Supreme Court to consider whether class action waivers violate the NLRA or not.  The Seventh Circuit's decision also gives the NLRB the impetus to bring unfair labor practice charges against employers that maintain class action waivers in their arbitration agreements, which could result in invalidation of those agreements down the road. 

So, employers with class action waivers, be aware that challenges to these agreements may come as a result of the NLRB's position in D.R. Horton, especially given the Seventh Circuit's recent endorsement.  We will have to see if the Seventh Circuit's decision is taken up for review by the U.S. Supreme Court.   The court already decided not to hear it en banc.



Monday, May 23, 2016

Shaw Valenza's Employment Law Pot Pourri / Quick Takes

Here are some quick takes to catch you up on a bunch of recent developments.

Rounding Time to the Quarter Hour

The Ninth Circuit upheld a neutral policy under which an employer rounded time to the nearest quarter-hour.

The time clock system would automatically round back for 7 minutes or less of time worked in the 15-minute period, and would round ahead for 8 or more minutes.  The rounding mechanism was not allowed to be edited by managers.

On that basis, the Court held that the rounding system was neutral on its face.  And as applied to the plaintiff, he lost just $15.00 in pay over the 13 months of punches that he made.  That's how neutral rounding is supposed to pan out.

The Court found that this practice was lawful under both the federal Fair Labor Standards Act and the  California Labor Code.  The case is Corbin v. Time Warner Entertainment etc. and the opinion is here.

California Fair Employment Agency to Revise Gender Regulations

The FEHC is beginning the process of revising its regulations regarding gender identity.   You can read the proposed revisions here.  The proposed additions include a new provision on bathroom / locker facilities:
(A) Employers shall permit employees to use facilities that correspond to the employee’s gender identity or gender expression, regardless of the employee’s assigned sex at birth.

(B) To balance the privacy interests of all employees, employers shall provide alternatives if no individual facility is available, such as, locking toilet stalls, staggered schedules for showering, shower curtains, or other method of ensuring privacy. However, an employer or other covered entity may not require an employee to use a particular facility.

(C) Transitioning employees shall not be required to undergo, or provide proof of, any particular medical treatment to use facilities designated for use by a particular gender.

(D) Employers and other covered entities with single-occupancy facilities under their control shall use gender-neutral signage for those facilities, such as “Restroom,” “Unisex,” “Gender Neutral,” “All Gender Restroom,” etc.
There also is a proposed regulation regarding pronouns and names:
(h) Recording of Gender and Name

(1) It is unlawful to require an applicant or employee to state whether the individual is transgender.

(2) If a job application form requires an individual to identify as male or female, designation by the applicant of a gender that is inconsistent with the applicant’s assigned sex at birth or presumed gender shall not be considered fraudulent or a misrepresentation for the purpose of adverse action based on the applicant’s designation.

(3) If an employee requests to be identified with a preferred gender, name, and/or pronoun, an employer or other covered entity who fails to abide by the employee’s stated preference may be liable under the Act, except as noted in subdivision (4) below.

(4) An employer may use an employee’s gender or legal name as indicated in a government-issued identification document only if it is necessary to meet a legally- mandated obligation.

Here's a proposal about dress and grooming standards:

(g) Physical Appearance, Grooming, and Dress Standards. It is lawful for an employer or other covered entity to impose upon an applicant or employee physical appearance, grooming or dress standards that serve a legitimate business purpose, so long as any such standard does not discriminate based on an individual’s sex, including gender, gender identity, or gender expression.
However, if such a standard discriminates on the basis of sex and if it also significantly burdens the individual in his or her employment, it is unlawful.  It is unlawful to require individuals to dress or groom themselves in a manner inconsistent with their gender identity or gender expression.
And, finally, something about requiring proof of gender identity:


(1) It is unlawful for employers and other covered entities to inquire or require documentation or proof of an individual’s sex, gender, gender identity, or gender expression as a condition of employment, unless the employer or other covered entity meets its burden of proving a BFOQ defense, as defined above, or the employee initiates communication with the employer regarding any requested adjustment to the employee’s working conditions. 

Attorney's Fees for Prevailing Employers Under Federal Anti-Discrimination Law?

The U.S. Supreme Court decided - 8-0 - that a prevailing defendant in a Title VII discrimination case (and that means ADA, ADEA and section 1988, too), may recover attorney's fees without winning "on the merits."  That means, for example, if a plaintiff insists on bringing a frivolous case that is obviously barred by the statute of limitations, the employer can apply for attorney's fees even though the statute of limitations defense is not proof of non-discrimination.  As Justice Thomas already points out, the defense already has to establish that the plaintiff's case was 'frivolous, unreasonable or groundless" because of an earlier Supreme Court case (that invented that standard).  So requiring a win "on the merits" would have been a whole new burden and the Court wasn't having it.  So, the EEOC owes CRST at least $4 million for its frivolous pursuit of CRST if that ruling holds up on remand.  Wet blanket moment: Where will the EEOC get the money to pay those fees?  Oh. Right.  Us.

That case is CRST Van Expedited, Inc. v. EEOC and the opinion is here.

Statute of Limitations for Constructive Discharge Under Federal Law

The U.S. Supreme Court in an 7-1 decision decided that a "constructive discharge" or forced resignation claim is considered timely or untimely based on the date that the employee gives notice of resignation.

The Post Office in Green v. Brennan, opinion here, argued that the limitations clock begins to run when the employer performs the "last discriminatory act."  But the Court disagreed and reversed the Tenth Circuit:

Ordinarily, a “ ‘limitations period commences when the plaintiff has a complete and present cause of action.’” Ibid. “[A] cause of action does not become ‘complete and present’ for limitations purposes until the plaintiff can file suit and obtain relief.” Bay Area Laundry and Dry Cleaning Pension Trust Fund v. Ferbar Corp. of Cal., 522 U. S. 192, 201 (1997).
 Applying this general rule to the case before it, the Court ruled:

the “matter alleged to be discriminatory” in a constructive-discharge claim necessarily includes the employee’s resignation for three reasons. First, in the context of a constructive-discharge claim, a resignation is part of the “complete and present cause of action” necessary before a limitations period ordinarily begins to run. Second, nothing in the regulation creating the limitations period here, §1614.105, clearly indicates an intent to displace this standard rule. Third, practical considerations confirm the merit of applying the standard rule here.
Of note, the Court made clear that the limitations period begins to run when the employee gives notice of the resignation, not on the date of the resignation.

Tuesday, May 17, 2016

U.S. DOL Issues New White Collar Exemption Regulations, But

The U.S. DOL is only (substantially) increasing the salary test for the time being. That's right. No changes to the duties tests for now.

Unless Congress acts (and overrides a veto I'm sure would be coming), the base salary for an exempt executive, administrative or professional employee will rise from its current $23,660 to $47,476 on December 1, 2016.    That's a federal law.  So, that means that if you have exempt manager employees who make less than $47,476 on December 1, they are non-exempt as of that date unless you give them a raise.

Now this change does not affect outside sales, or retail commission exempt employees. Only the ones who require a salary to be exempt.

In California, the minimum wage is currently $10.00  an hour. So, the minimum salary test is $20 X 2080 = $41,600.  That means that everyone in California who is exempt must be making at least $47,476 base salary on 12/1/16 or they will lose the exemption.

One issue that will help satisfy the federal test but may not help in California.  Under the new regulations, it will be OK to count bonuses, commissions, or other variable compensation towards up to 10% of the minimum salary requirement.  Only certain types of bonuses etc. apply so read the regulations. That may not work in California, where salary is supposed to be a fixed sum.  We shall see if state law follows the new rule.

And let's not forget that on 1/1/17, the California minimum wage goes up to $10.50 an hour. The California minimum exempt salary will then be $43,680.  That's still lower than the federal minimum!

Another major change affects the federal "high compensation" exemptions - which don't apply in California. These are relaxed duties tests for people who make more than $100,000 per year.  That $100,000 threshold goes up to $134,004, again on 12/1/16.

The federal salary test will increase every three years, too.  So, look for a $51,000 minimum salary in 2020.

I know this is not welcome news. But it's a whole lot better news than the proposed regulations, which were going to make it very tough to qualify people as exempt under federal law.  As it is, the DOL estimates that some 4.2 million workers will become eligible for overtime under the new regulations, (presumably unless the employers increase their salaries).

The U.S. DOL has put out some FAQs that you can review here.  

Don't blow this. Overtime liability comes with serious penalties.