2018 Cal-Peculiarities

Seyfarth Synopsis: The California Department of Fair Employment and Housing issues a yearly report describing its complaint and litigation trends. Below is the Reader’s Digest™ version.

The DFEH recently issued its 2017 Annual Report covering its fifth year in active litigation. In 2013, the California Legislature authorized the DFEH to file lawsuits under the Fair Employment and Housing Act (“FEHA”), California’s stricter version of federal anti-discrimination law, as well as under the Unruh Civil Rights Act, the Disabled Persons Act, and the Ralph Civil Rights Act. Over the years, the DFEH’s operations have expanded to 220 fulltime employees, including attorneys, investigators, paralegals, and mediators, working from five California offices. (That is likely bigger than most California law firms and corporate legal departments.) The DFEH is presently the largest state civil rights agency in the country, with the power to launch state-wide representative actions for uncapped damages, attorney fees and costs, and injunctive relief, such as requiring new or revised policies and employee training.

Opening the Door to More Complaints. The DFEH over the last year launched a series of initiatives making it easier to file a civil rights complaint in California. The centerpiece of the effort was a new case filing and management system, called Cal Civil Rights System (CCRS). It allows employees and tenants to file a complaint and trigger a state-led investigation process using an online platform. Now individuals, from the comfort of their living rooms, can file a complaint, schedule appointments with investigators, check on case status, submit notes and documents, request right to sue letters, and even make public records requests.

Given this new ease of access, it is no surprise that DFEH filings increased during 2017. The DFEH received nearly 25,000 administrative complaints and inquiries. That is a 5% jump from 2016 and 2015 (which had roughly the same number) and substantially more than the 19,000 filed in 2014. About 90% of 2017 complaints were employment-related, 5% were housing matters, and the remainder fell under the Unruh, Ralph, and Disabled Persons Acts. Approximately 19,000 complaints resulted in formal charges filed with the DFEH. About one-half of complaints, or 12,872, requested an immediate right to sue, thereby bypassing any investigation or vetting by the DFEH before involving the courts.

What is striking about the DFEH’s report is the number of age discrimination and retaliation complaints made in 2017. Almost 20% of employment complaints in 2017 were for age discrimination (up from 11% in 2016). The largest portion of charges requesting a right-to-sue asserted age discrimination and retaliation—totaling 30% of the bases alleged. Disability was the next most commonly asserted basis in 2017; charges asserting disability exceeded the number of ancestry, religion, national origin, marital status, color, and sexual orientation discrimination charges combined.

Los Angeles County was the most litigious region in 2017. Employees and residents of the County of Angels filled out 30% of the DFEH’s total docket. Los Angeles County also ran the board in every type of complaint within the DFEH’s jurisdiction: 21% of employment, 22% of Ralph Act, 25% of Disabled Persons Act, and 30% of housing-related complaints. Orange and San Diego Counties were the second and third most active regions, with 8% and 6% of complaints, respectively. Sacramento County—not San Francisco, Santa Clara, or other more populated areas—has surprisingly been the source of the most DFEH complaints in Northern California, for three years running. Placer County’s 139 complaints in 2017 makes it the most charge-happy county in California by population size (it also won this top-honor in 2016).

The DFEH’s report provides some demographic information on the 2017 class of complainants. Over the last year, 52% of complainants disclosed their race and 35% stated their national origin when filing with the DFEH. The largest group of reporters identified as Caucasian (32.5%) and American (52%), which is consistent with 2016 figures. Individuals identifying as Hispanic or Latino brought 28% of charges in 2017, and those reporting as African American filed 23% (also tracking 2016 statistics). The DFEH has not to date elected to track other demographic data regarding complainants, such as age, sex, gender, marital status, household income, or religion.

Investigations and Settlement Revenues Spiked. The DFEH saw a 22% increase in investigations to 6,160 in 2017. Only 888 of these complaints settled, or 14%, which is a 7% drop from 2016. The remaining 5,000 plus charges, presumably, carried over into 2018, were withdrawn by the claimant, resolved through private negotiation, dismissed by the DFEH, or consolidated with an overlapping charge.

The DFEH had a fruitful year in terms of settlement revenues. It netted 12% more in 2017, bringing $12,984,367 to state coffers. Notably, this figure does not count monies generated through settling any of the 35 civil complaints filed by the DFEH in 2017. The DFEH’s most successful year in terms of pre-lawsuit settlement revenues appears to have been in 2013, with $13,433,922.

The data suggest that the cost to settle a complaint increases as the matter moves through the DFEH’s review process. Cases settled for $8,966 on average within the Enforcement Division, the DFEH’s investigative arm. Where the parties agreed to participate in the voluntary dispute resolution process, it took $14,122 on average to resolve it. Once the matter reached a pre-suit posture, in mandatory dispute resolution, it cost employers $42,513 on average to settle. And after the case was referred to the Legal Division and DFEH attorneys got involved, the average settlement figure was $42,860. Early resolution efforts evidently pay off.

The DFEH Hand-Picks Charges It Brings to Court. The DFEH filed 35 lawsuits in 2017. That is less than 1% of the 6,160 complaints investigated by the Enforcement Division. The DFEH then referred 140 of those charges, or 2%, to the DFEH’s attorneys in the Legal Division. Only one-quarter of these matters ended up in litigation.

Complaints referred to the Legal Division split almost evenly between housing and employment matters. Housing cases made up 40%, followed closely by employment complaints at 39%, and Unruh Act charges at 24%. No Disabled Persons Act claims were sent to legal in 2017. These figures are largely in line with the DFEH’s 2016 referrals, although notably there was a 21% increase in Unruh Act charges considered for litigation in 2017. In 2015, the DFEH gave much more priority to employment matters, making up 56% of charges passed on to its lawyers.

While age discrimination complaints picked up in 2017, the DFEH did not give such claims preference. None of its lawsuits asserted a claim for age discrimination. Disability discrimination continued to be the DFEH’s focus, as it was in 2015 and 2016. The theory was asserted in 11 employment, seven housing, and eight Unruh-related lawsuits–or roughly 74% of cases. Retaliation was a close second with 10 such civil actions. Sexual harassment complaints slightly increased year over year from four to six. Discrimination based on religion, ancestry, and national origin resulted in less than a handful of suits over the last three years.

Key Takeaways. Each year the DFEH’s focus appears to shift towards litigation. Referrals from its enforcement to legal divisions have crept up over the years from 98 in 2014 to 140 in 2017. Recent technological changes to the DFEH’s claims and investigation process have brought new efficiencies within the agency and freed staff to give more individual attention to cases.

As the DFEH steps up its game, so should employers. Well-written policies and regular trainings are two ways to curtail bad employee behavior, ensure compliance with the law, and stay off the DFEH’s radar altogether (not to mention boost morale and productivity in the workplace). Los Angeles and Sacramento employers, in particular, should make this a priority given the number of charges filed each year from their own backyards.

When a complaint is made with the DFEH, get counsel involved early. The 2017 data show that claims resolve for the least amount of dough at the investigation stage. Companies that drag their feet may end up dealing with the legal department, where the chance of getting sued rockets up from 1% to 25%. Given our recent experience, it would be no surprise if this figure increased further in 2018. We will report on that next Summer, as we did on the DFEH’s report last year. Seyfarth Shaw is ready to assist in the meantime on ways to proactively avoid complaints, timely address DFEH inquires, and defend charges and litigation.

Seyfarth Synopsis: In vetoing the California Legislature’s attempt to criminalize arbitration agreements (AB 3080), Governor Brown displayed common sense and the legal learning provided by recent U.S. Supreme Court authority.

Haven’t high courts already upheld mandatory arbitration agreements?

Yes, they have. The California and U.S. Supreme Courts have repeatedly ruled that employers may require employees to enter valid arbitration agreements (waiving the right to judge and jury trial). The most recent vindication of arbitration agreements was the U.S. Supreme Court’s May 2018 decision in Epic Systems, which upheld the enforceability of an arbitration agreement that waived participation in class waivers, against an argument that such a waiver violated employee rights to concerted activity under the National Labor Relations Act.

Hasn’t the California Legislature got the message?

Apparently not yet. The Legislature has tried again and again to outlaw arbitration agreements in ever more inventive ways, notwithstanding the clear authority to the contrary. Governor Brown, meanwhile, has learned that these efforts will not pass constitutional muster. In 2014, Governor Brown signed into law AB 2617, which outlawed mandatory arbitrations for goods and services; but a March 2018 appellate decision held that the law was preempted by the Federal Arbitration Act. Meanwhile, in 2015, Governor Brown vetoed AB 465, which would have outlawed mandatory arbitration as a condition of employment. In doing so, Governor Brown noted that bans on arbitration have been consistently struck down as violating the FAA, and that California courts have made arbitrations more employee-friendly by requiring certain protections (neutral arbitrator, adequate discovery, no limit on damages or remedies, written decision subject to some review, cost limits). He even questioned whether arbitration is really less fair than traditional litigation for employees.

While Governor Brown’s learning curve has progressed, the California Legislature’s has regressed, as evidenced by AB 3080

In August 2018—just three months after the Epic Systems decision—the Legislature passed AB 3080, which banned mandatory arbitration agreements, which outlawed “opt-out” provisions (allowing employees to refuse to enter into arbitration agreements), and which even criminalized employer conduct to implement such an agreement. The legislative committee analyses argued that there must be “consent and fairness” in entering into an agreement, that the Supreme Court “has never ruled that the FAA applies in the absence of a valid agreement,” that the FAA would not preempt AB 3080 because it “regulates behavior prior to an agreement being reach[ed],” and that AB 3080 does not “outright ban or invalidate arbitration agreements.”

The apoplectic reaction to the outrage that was AB 3080

The employer community reacted strongly to AB 3080. Leading law firms urged Governor Brown to veto AB 3080. They noted that the proponents were making old, tired arguments that the U.S. and California Supreme Courts have rejected. They protested the disingenuousness of saying that arbitration agreements could not be voluntary even where employees have the right to opt out. They reminded Governor Brown of his veto of AB 465 in 2015.

Most emphatically, they pointed out that criminalizing employer conduct that the FAA so clearly protects could coerce fearful employers into abandoning arbitration agreements until the courts clearly rule AB 3080 unconstitutional. In this respect the Legislature, ironically, was engaging in something that a private party could not do without engaging in an unfair business practice. After all, an unfair business practice occurs when a party inserts an obviously unlawful provision into a contract, aiming to intimidate the other party into abiding by the unlawful provision.

Governor Brown’s veto and what’s next

On September 30, 2018, Governor Brown vetoed AB 3080. His accompanying letter rejected the Legislature’s argument that AB 3080 only regulates behavior prior to an agreement being reached. The Governor pointed out that in a 2017 Supreme Court decision, even Justice Kagan (“an appointee of President Obama”) acknowledged that the FAA “cares not only about the ‘enforcement’ of arbitration agreements, but also about their initial ‘valid[ity].’ ” Governor Brown emphatically stated that AB 3080 “plainly violates federal law.”

So what does all this mean? The lesson is that our systems of checks and balances can still work, where a governor learns not to permit a legislature to flout federal law. Will this trend continue as our great state ushers in a new governor in 2019? Stay tuned.

Webinar Reminder

Don’t forget to sign up and attend our complimentary webinar on October 10, 2018 for a discussion of all of the newly-enacted employment-related laws, and implications for employers.

Seyfarth Synopsis: The Ninth Circuit, addressing how to prove exceptions under CAFA, reminds us that removal under CAFA might be an invitation for extensive preliminary discovery battles, and prolonged motion practice. The following post highlights some procedural realities of finding an appropriate venue for litigating class actions in California.  

United States District Courts in California oversee some of the largest caseloads in the country.[1] Understandably reluctant to see their dockets expand, these courts often look for grounds to remand cases to state court. Even seemingly airtight removals under the Class Action Fairness Act, which Congress enacted to facilitate access to federal court, have resulted in remands based on certain statutory exceptions. In King v. Great American Chicken, the Ninth Circuit Court of Appeals this month addressed the evidentiary requirements for proving two primary exceptions under CAFA. This decision presented an employer-friendly interpretation of plaintiff’s burden to remand a case under CAFA, but also provided the plaintiffs with an opportunity to engage in burdensome jurisdictional discovery and multiple rounds of remand briefing.

CAFA permits defendants to remove certain class actions from state court to federal court. Congress intended CAFA to be “interpreted expansively.”[2] Under CAFA, federal courts have original jurisdiction over class actions where the aggregate amount in controversy exceeds $5,000,000, if the putative class size exceeds 100 persons and if there is “minimal diversity” between the state citizenship of a member of the plaintiff and state citizenship of a defendant.[3]

Federal courts must decline jurisdiction, however, under the “local controversy” exception (one of the two exceptions mentioned above), which applies if the plaintiff can prove, among other things, that more than two-thirds of putative class members were California citizens when the case was removed to federal court.[4] When the plaintiff in King demanded discovery of class members’ addresses, the defendant resisted but sought to finesse the demand by stipulating that at least 67% of the last known addresses were in California. Hon. George Wu of the Central District of California resolved the discovery dispute by seizing upon the offered stipulation and remanded the wage and hour putative class action to the Superior Court of Los Angeles.

On the CAFA appeal, the Ninth Circuit reversed, holding that a plaintiff must show that more than two-thirds of the putative class members were California citizens, not simply residents, and observing that the stipulation “left very little cushion, if any” to account for former workers who, for example, might have moved out of the state by the time the case was removed.[5] The Ninth Circuit provided a math lesson, moreover: “two-thirds actually translates into 66 & 2/3 percent, not 67 percent.”[6]

In addition, the Ninth Circuit reasoned that there was little margin to cover employees who may have had last-known California addresses but who did not qualify as California citizens.[7] “There was no evidentiary basis for the district court to find that subtracting those groups would not reduce the fraction of class members that were California citizens at the time of removal to a level less than the required ‘greater than two-thirds.’”[8] Finally, the Ninth Circuit noted that a person’s “residential address in California does not guarantee that the person’s legal domicile was in California.”[9] In sum, “there was no evidence to support a factual finding that the proportion of California citizens was greater than two-thirds.”[10]

While up to this point the Ninth Circuit handed a victory to the defendant, the Ninth Circuit went on to direct the district court to permit plaintiff to engage in jurisdictional discovery and renew her motion to remand.[11] The defendant’s victory thus came with the price of an order directing it to engage in burdensome, invasive, and procedurally complicated discovery.

King reinforces the plaintiff’s evidentiary burden to remand a putative class action to state court, but also allows plaintiffs to engage in jurisdictional discovery to establish an exception to CAFA jurisdiction. Defeating a motion to remand might be small consolation in light of the resources needed to expend on class-wide discovery. Class action defendants should thus be aware of the probability that removal under CAFA sometimes can be an invitation to extensive preliminary discovery battles, and prolonged motion practice.


[1] See United States District Courts — National Judicial Caseload Profile, June 2018, http://www.uscourts.gov/statistics-reports/federal-court-management-statistics-june-2018.  In terms of average civil cases per judge, the Northern, Eastern, Central, and Southern District Courts rank 11th, 4th, 11th, and 76th nationally.
[2] Ibarra v. Manheim Invs., Inc., 775 F.3d 1193, 1197 (9th Cir. 2015).
[3] 28 U.S.C. §1332(d)(2)(A), (d)(5)(B); See Serrano v. 180 Connect, Inc., 478 F. 3d 1018, 1024 (9th Cir. 2007).
[4] The local controversy exception is set forth in 28 U.S.C. § 1332(d)(4)(A); Mondragon v. Capital One Auto Finance, 736 F.3d 880, 884 (9th Cir. 2013) (denying motion to remand where plaintiff submitted no evidence regarding putative class members citizenship beyond class definition in complaint).
[5] King v. Great Am. Chicken Corp, Inc., No. 18-55911, 2018 WL 4231847.
[6] Id. at *3.
[7] Id. at *4.
[8] Id.
[9] Id.
[10]  Id.
[11] Id . at *5.

We took a break this week, to wrap up loose ends and gear up for Labor Day. So we did not draft an original blog post. But we did retrieve, from the archives, a quick history of why we celebrate this holiday to honor the American worker. Here it is, as fodder for your contemplation over the weekend: https://www.dol.gov/general/laborday/history

Also, today (August 31) is the last day for the California Legislature to pass bills. So we have been laboring on our updated Cal-Legislative Update, coming your way next week. This piece will summarize the bills that have survived the legislative gauntlet and face review by Governor Brown.

We wish each of you a wonderful and safe holiday. Don’t work too hard.

Seyfarth Synopsis: Following a season of unprecedented outcry over persistent work-related sexual harassment, known best as the “#MeToo” movement, California lawmakers this session have considered a record number of bills that address the problem. One bill, AB 1867, recently passed by the Legislature and discussed below, will (if signed by the Governor) require large employers to keep records of all employee complaints alleging sexual harassment for at least five years. Other bills working their way through the process (as if to say “me, too”) also address this vital topic, as we briefly recap below.

Potential New Recording-Keeping Law

If signed by Governor Brown, AB 1867 will add Government Code section 12950.5 to the Fair Employment and Housing Act (FEHA). This bill would require employers of 50 or more employees to maintain internal records of complaints alleging sexual harassment for five years after the date the complainant or any alleged harasser leaves the company—whichever date is later.

AB 1867 would define an “employee complaint” as one filed through the employer’s “internal complaint process.” Existing law already requires California employers to maintain anti-harassment policies that inform employees of the complaint process available to them. The new law would permit the state Department of Labor to seek an order compelling any employer to comply with the record-keeping requirement.

In practice, this law would likely not add too much of an administrative burden to the larger employers covered by it. It is the rare—and foolhardy—California employer that does not already utilize an internal employee complaint process that takes seriously and investigates every complaint of harassment. This law would merely mandate that records of the complaints alleging sexual harassment must be maintained for the employment-plus-five-year period.

This bill raises other questions, though, for the thoughtful employer anticipating logistical issues: Would the law also mandate preservation of any investigation files? Who would have access to the preserved complaint records? What about the privacy rights of the parties involved? Would an applicant for employment at a company have a right to demand to see any complaints made alleging sexual harassment against the company? The answer to the last question should almost certainly be “No,” so long as California’s constitutional right of privacy remains intact. But it does highlight concerns about the potential use of the documents required to be maintained, which contains, by definition, only allegations of sexual misconduct.

Related Legislation

AB 1867 is not the only potential new law in this summer of #MeToo. Also heading to the Governor’s desk is AB 3109, which would void any contractual provision that waives a party’s right to testify about criminal conduct or sexual harassment by the other contracting.

Also being presented to the Governor is AB 3080—which we recently highlighted here. This bill would outlaw mandatory arbitration agreements between businesses and employees or independent contractors, and thus ensure that harassment complaints get aired in public lawsuits instead of private arbitrations. Further, AB 3080 would prohibit any contractual rule against disclosing instances of sexual harassment.

Nine other bills addressing workplace harassment are currently wending their way through the Legislature, their fates still unknown:

On the Assembly Floor:

  • The potentially onerous SB 1300 would (1) amend FEHA by expanding an employer’s potential liability, (2) prohibit a release of claims under FEHA or a nondisclosure agreement (with certain exceptions) in exchange for a raise or a bonus or as a condition of employment or continued employment, and (3) prohibit a prevailing defendant from being awarded fees and costs in certain circumstances.
  • SB 1038 would impose personal liability under FEHA for retaliating against a person who has filed a complaint against the employee, testified against the employee, assisted in any proceeding, or opposed any prohibited practice.
  • SB 1343 would expand sexual harassment prevention training requirements to employers with five or more employees and would require that Department of Fair Employment and Housing (DFEH) materials be made available in multiple languages.
  • SB 820 would void provisions in settlement agreements that prevent the disclosure of facts relating to sexual assault, sexual harassment, sex discrimination, and failure to prevent sex-based harassment and discrimination.
  • SB 224 would give additional examples of professional relationships where liability for claims of sexual harassment may arise and authorize the DFEH to investigate those circumstances.

On the Senate Floor:

  • AB 2079 would expand requirements when applying to register as a janitorial business and expand sexual harassment prevention training.
  • AB 1870 would extend the period to file an administrative charge with the DFEH alleging an unlawful employment practice under the FEHA. The current deadline is one year from the time the alleged incident. AB 1870 would extend the deadline to three years.
  • AB 2338 would require talent agencies to provide to adult artists, within 90 days of retention, educational materials on sexual harassment prevention, retaliation, nutrition, and eating disorders. Talent agencies would also have to retain, for three years, records showing that those educational materials were provided.
  • AB 3082 would require the state Department of Social Services to develop or identify educational materials addressing sexual harassment of in-home supportive services (IHSS) providers, develop or identify a method to collect data on the prevalence of sexual harassment in the IHSS program, and provide a summary of those items to the Legislature by September 30, 2019.

Stay tuned for updates on which, if any, #MeToo bill will make it over the enactment finish line, adding to the body of work that makes California employment law the peculiar wonder that it is.

Seyfarth Synopsis: As of August 30, 2018, California businesses must provide the public with more information about dangerous chemicals present at the business location. Many California employers will comply with the new requirements through the Cal/OSHA-required workplace hazardous communication program. For occupational exposures that do not meet the thresholds for HazMat communications, posting new signs will meet the requirements.

California’s ubiquitous Proposition 65 warnings, which warn the public at large of the presence of known cancer-causing chemicals, are receiving a makeover. Beginning August 30, 2018, regulations enacted by the Office of Environmental Health Hazard Assessment will require businesses to provide “clear and reasonable” warnings regarding Prop 65 listed chemicals. For businesses in general, this new requirement typically will mean displaying signs advising the public of known carcinogens on site. (Technically, California does not require the use of these signs, but they provide a safe harbor for businesses because they are deemed compliant with Proposition 65; it is more risky to rely on a homegrown Prop 65 sign.)

The new signs will display the name of at least one chemical that prompted the warning; convey more directly the risk of exposure for consumer products (e.g., saying the product “can expose you to” a listed chemical, rather than that the product “contains” a chemical); and refer to a website that will provide additional, relevant information.

For employers, however, not much will change. Employers already must warn employees of hazardous exposures, as defined by Cal/OSHA standards, occurring at the workplace. Most employers satisfy that duty by implementing a hazardous communication program that complies with Cal/OSHA standards. Employers may continue to do so under the revised Prop 65 regulations. In that sense, a compliant HazCom program (which already requires information about present hazards, employee training, and the availability of safety data sheets) will continue to provide a safe harbor to employers.

Some occupational exposures to listed chemicals do not trigger HazCom threshold requirements but nonetheless are covered by Prop 65. In those cases, Cal/OSHA still permits employers to use their HazCom program to comply. Employers may choose instead to use the new Prop 65 warning signs.

Seyfarth Synopsis: California enacted its Immigrant Worker Protection Act (IWPA) to make it more difficult for federal immigration enforcement agents to access nonpublic areas of employer worksites and private employee records. The U.S. Justice Department, however, recently persuaded a federal district court to issue a preliminary injunction against IWPA provisions that bar employers from voluntarily providing immigration enforcement agents with access to nonpublic worksites and employee records unless federal authorities present a judicial warrant (to access nonpublic worksites) or an administrative or judicial subpoena (to access employee records). In a recent post on Angelo A. Paparelli’s personal blog, the immigration expert extensively analyzes this development and proposes a response that California might pursue.

Angelo argues that the California Attorney General should try to persuade the Federal Court to lift the injunction against these IWPA provisions. He points out that Congress – when passing the Homeland Security Act of 2002 (HSA) – never authorized the relevant civil and criminal immigration enforcement activities. Instead, the HSA requires the relevant agency to focus solely on adjudicating requests for immigration benefits such as work and visitor visas, asylum status, green cards, and U.S. citizenship. Angelo maintains that the U.S. Citizenship and Immigration Services should respect its lack of enforcement authority and stop sending its investigators to California worksites and stop disrupting businesses and workers in the state.

Seyfarth Synopsis. Pending California legislation would make a mandatory arbitration agreement an unlawful practice under the Fair Employment and Housing Act, and a crime. How could that be consistent with the Federal Arbitration Act?

Under current law, California businesses can insist that employees and contractors enter valid agreements to resolve disputes in front of a neutral arbitrator instead of a judge and jury. These agreements also may waive employee participation in class actions.

California is a repeat offender in making unconstitutional attacks on arbitration agreements. The FAA declares that arbitration agreements are entitled to judicial enforcement to the same extent that contracts generally are. Because federal law thus protects arbitration agreements from discrimination, state laws hostile to arbitration are preempted under the U.S. Constitution’s Supremacy Clause.

Yet California officials have continued to defy this constitutional reality. On no fewer than five occasions the United States Supreme Court has found it necessary to strike down California statutes or judicial decisions that have discriminated against arbitration agreements. California lawmakers nonetheless remain hostile to these agreements and—like Don Quixote tilting at windmills—continue to sally forth against an invincible foe.

The latest quixotic effort comes in the form of Assembly Bill 3080, sponsored by Assembly Member Lorena Gonzalez Fletcher. AB 3080 would forbid businesses to require arbitration in any agreement with an employee or independent contractor entered into on or after January 1, 2019. The bill would prohibit even those agreements that permit an individual to opt out. And the bill has bite: it would amend the FEHA to authorize discrimination lawsuits against businesses that require arbitration agreements, and it would place its substantive provisions within an article of the Labor Code that subjects any violator to criminal prosecution.

Now, we know what you’re thinking: how could such a measure possibly pass constitutional muster, and isn’t the bill so ridiculous that it would never pass in the first place? Take the second question first: Assembly Member Gonzalez Fletcher has repeatedly authored bills that have become law over strenuous objections of the California Chamber of Commerce. Her legislative track record is impressive. And her colleagues in Sacramento are not known for rebuffing the entreaties of the plaintiffs’ bar—who have never much liked arbitration.

As to the federal constitutional issue, however, your question is powerful, as the defenses offered for AB 3080 are unsound. The first defense is that the bill would affect only mandatory agreements (though the bill, in an Orwellian twist, would consider an agreement mandatory even if it provides for an opportunity to opt out of it). This defense ignores the point that courts routinely have invoked the FAA to protect arbitration agreements imposed as a condition of employment. Contracts presented on a take-it-or-leave-it basis—and accepted either formally or through continued employment—are fully enforceable so long as they are not unreasonably one-sided, and arbitration agreements can meet that test. FAA preemption thus applies regardless of whether the arbitration agreement is called “mandatory” or “voluntary.”

The second defense of AB 3080 is likewise disingenuous. This defense notes that AB 3080 does not expressly declare arbitration agreements unenforceable, and suggests that judicial enforceability really is all that the FAA is about. And, this defense continues, “What would be the harm of the new law, anyway? Couldn’t we just wait to see how a court rules on it?”

This defense disregards Supreme Court teaching, which holds that the FAA preempts any state law that “stands as an obstacle” to enforcing arbitration agreements. (It was this rationale that the Supreme Court invoked to foil California’s attempt to ban class-action waivers in arbitration agreements.) AB 3080 would threaten to turn employers into criminals—and to subject them to discrimination lawsuits—merely for making arbitration a condition of employment. How could creating that in terrorem effect for businesses not be creating an obstacle to enforcement of arbitration agreements?

And why should a business be required to risk criminal sanctions or a lawsuit, or both, if it wants to insist that employees and independent contractors agree to a fair form of dispute resolution that is cheaper and quicker than formal litigation?

One might think that persons threatened by encroachments upon their federally protected rights would have the full-throated support of the entire legal community. But not so here, even though AB 3080 would create for California businesses the prospect of civil and criminal actions that would chill the exercise of a federally guaranteed freedom to contract. The constitutional demise of AB 3080—should it become law—is inevitable, once the matter reaches a court. But would the new law’s threats to contracting businesses so discourage arbitration agreements that the issue never gets there?

Perhaps it’s too soon to fret. Recall that Governor Brown, in 2015, vetoed a bill that would have made California the first state to ban arbitration agreements imposed as a condition of employment. He noted that employees in arbitrations enjoy “numerous protections” and that the Legislature’s “far-reaching approach” was one of the sort that courts had struck down in other jurisdictions. He also wanted to await the wisdom of arbitration cases then pending before the United States Supreme Court.

Events since 2015 have only confirmed the view that state laws discriminating against arbitration agreements are unconstitutional. It remains to be seen whether Governor Brown, if presented with a passed version of AB 3080, will use his veto again or will instead leave the defense of mandatory arbitration agreements in the hands of California businesses that are principled and hardy enough to risk civil and criminal sanctions while defending their federal right to contract.

Non-California employers with non-exempt workers who work in California will be interested in the following piece, originally posted on Seyfarth’s Wage Hour Litigation Blog.

Seyfarth Summary: On July 12, 2018, the California Supreme Court agreed to address questions posed by the Ninth Circuit about whether California Labor Code provisions apply to an out-of-state employer whose employees work part of their time in California. Nationwide employers with employees jetting in to work temporarily in California need to return their seats to an upright position and follow this developing story.

Is your business flying high in the current economy? Profits reaching new altitudes? Maybe you have employees residing in one state while working in another. If some work occasionally in California, prepare to fasten your seatbelts for a potentially rough landing. Even if your employees work in California only intermittently (think partial days), and even if your company is not headquartered in the Golden State, the California Supreme Court may soon bring you down to earth.

Background

Traditionally, employers in paying their employees have applied the wage and hour law of the state where the employee sides or most often works, even if the employee occasionally works in another state. In California, however, the rules are peculiar.

In a 2011 decision, Sullivan v. Oracle, the California Supreme Court held that non-California residents working in California for a California-based employer were subject to California daily overtime laws if they performed their in-state work for whole days. Oracle left employers up in the air as to whether California law would apply in other contexts, such as (a) when non-California residents work partial days of work in California, (b) when the employees worked for non-California based employers, or (c) when the wage and hour provisions at issue were something other than the cal-peculiar rules on daily overtime.

The Certified Questions

Which brings us to the current Ninth Circuit cases. Specifically, in three airline cases raising California issues in federal court (two cases against United Airlines, one against Delta), the Ninth Circuit requested the California Supreme Court to address five questions, paraphrased below:

(1) Does the federal Railway Labor Act exemption found in Wage Order 9 bar a wage-statement claim (Labor Code § 226) by an employee who is covered by a collective bargaining agreement?

(2) Does Section 226 apply to wage statements that an out-of-state employer provides to an employee who resides in California, who receives pay in California, and who pays California income tax on her wages, but who does not work principally in California?

(3) Does Section 226 and Labor Code § 204 (governing timely wage payments to current employees) apply to payments that an out-of-state employer makes to an employee who, in the relevant period, works in California only episodically and for less than a day at a time?

(4) Does California minimum wage law apply to out-of-state employers for the California work that their employees perform in California only episodically and for less than a day at a time?

(5) Does California’s peculiar rule preventing pay-averaging for employees paid by commission or piece rate apply to a pay formula that generally awards credit for all hours on duty, but that does not always award pay credit for all hours on duty?

In the underlying lawsuits, United pilots and Delta flight attendants claim that the airlines violated California Labor Code provisions on wage statements, minimum wage, and the timing and completeness of wage payments. United (based in Chicago) and Delta (based in Atlanta) both won at the district court level, successfully arguing that de minimis work within California does not trigger California law, especially when (i) the employers are not based in California, (ii) the employees work only limited amounts of time in the state, and (iii) the employees mostly work in federal air space and in multiple jurisdictions during a single pay period or even a single day.

Why Does This Matter to Employers Based Outside California?

The guidance that the California Supreme Court will issue may ensnare non-California employers in a complex web of Labor Code laws for employees who work in California only sporadically, or who merely stop in California on their way to other work locations. It remains to be seen whether the Supreme Court will stretch to apply California’s peculiar rules on wage statements, daily overtime, and minimum wage to such transitory California work. Or whether California rules on meal and rest beaks, or paid sick time, might also be implicated.

Based on recent emanations from our high court, we would not be surprised to see another extension of California’s employee-protective laws. Any such extension would be highly problematic in light of California’s robust civil and statutory penalties for Labor Code violations. The state’s Private Attorneys General Act authorizes penalty lawsuits brought on a representative basis on behalf of all “aggrieved employees or former employees.” While we do not predict that California will attempt to regulate employment of individuals who merely fly through California airspace, all employers with employees having feet on the ground in California need to sit up, return their tray tables to their original position, and be alert to these pending decisions.

Workplace Solution: The California Supreme Court’s opinion regarding the certified questions will not come down for many months. In the meanwhile, sit back, enjoy the flight, and watch this space for further developments. Feel free to contact your favorite Seyfarth attorney if you would like to discuss.

We are pleased to cross-post with our sister blog, Pay Equity Microblog, the following important and timely blog post regarding the latest in California pay equity legislation.

Seyfarth Synopsis: California Governor Brown signed into law yesterday Assembly Bill No. 2282 to clarify previously passed legislation that prohibits inquiries into an applicant’s salary history. Read on for a recap of Assembly Bill No. 2282.

When AB 168 was signed into law in October 2017, California prohibited employers from asking job applicants for “salary history information.” Under this legislation, California employers must provide “applicants” with the “pay scale” for a position upon “reasonable request.” The law was rather unclear, however, about what each of these three terms meant. On July 18, 2018, Governor Brown signed new legislation, Assembly Bill 2282, designed to clarify those terms and other items in AB 168.

For example, under AB 168, it was not clear whether the term “applicant” meant only external applicants for a position or also current employees applying for the position. AB 2282 clarifies that an “applicant” is an individual who seeks employment with the employer, not a current employee.

Next, it was not clear what information an employer would have to supply when a reasonable request was made for the “pay scale” of a position. AB 2282 defines “pay scale” as a salary or hourly wage range and clarifies that the definition of “pay scale” does not include bonuses or equity ranges.

AB 2282 also clarifies what constitutes a “reasonable request” for pay scale information. A “reasonable request” is defined as a request made after the applicant has completed the initial interview.

Additionally, AB 2282 clarifies that although AB 168 prohibits employers from asking for the applicant’s salary history information, employers may ask about an applicant’s salary expectations for the position.

The new legislation addresses aspects of the California Equal Pay Act as well. It was unclear under what circumstances an employer could use prior salary to justify a disparity in pay. The new legislation attempts to clarify this: “Prior salary shall not justify any disparity in compensation. Nothing in this section shall be interpreted to mean that an employer may not make a compensation decision based on a current employee’s existing salary, so long as any wage differential resulting from that compensation decision is justified by one or more of the factors listed in this subdivision.” Those factors are (1) a seniority system, (2) a merit system, (3) a system that measures earnings by quantity or quality of production; and (4) a bona fide factor other than race or ethnicity, such as education, training, or experience.

For Seyfarth’s full 2018 California Legislative Update, please click here.