Federal Arbitration Act

Seyfarth Synopsis: Employment-related cases pending before the California Supreme Court concern various questions that sometimes seem technical, but the answers they elicit will have big consequences. Questions raised by the current crop of cases include standing to sue, the availability of certain claims and remedies, federal preemption of California laws, what counts as compensable time, and—that perennial favorite—how to interpret the infernal PAGA statute.

We expect the California Supreme Court in 2019 to issue decisions addressing many important issues in private employment. Some topics easily warrant their own article or blog post, and will receive that treatment as the Supreme Court’s decisions emerge. But it’s not too soon to highlight some coming attractions.

Anti-SLAPP and Alleged Employer Motive

  • Is an employer’s anti-SLAPP motion to strike an employee’s suit affected by the employer’s alleged discriminatory motive? In Wilson v. Cable News Network, Inc., the Supreme Court has agreed to decide “whether an employee’s claims for discrimination, retaliation, wrongful termination, and defamation arise from protected activity for purposes of a special motion to strike,” and “what is the relevance of an allegation that the employer acted with a discriminatory or retaliatory motive?”

Application of CA Wage-Hour Law to Out-of-State Employers

  • Does California employment law apply to non-California residents who work in California on a transitory basis? In Ward v. United Airlines and Oman v. Delta Air Lines, the Supreme Court has accepted the Ninth Circuit’s request to address five questions:
    • (1) “Does California Labor Code section 226 apply to wage statements provided by an out-of-state employer to an employee who resides in California, receives pay in California, and pays California income tax on her wages, but who does not work principally in California or any other state?”
    • (2) Does the exemption in Wage Order 9 for collective bargaining agreements (CBA) under the Railway Labor Act bar a wage statement claim brought under California Labor Code section 226 by an employee who is covered by such a CBA?
    • (3) “Do California Labor Code sections 204 and 226 apply to wage payments and wage statements provided by an out-of-state employer to an employee who, in the relevant pay period, works in California only episodically and for less than a day at a time?”
    • (4) “Does California minimum wage law apply to all work performed in California for an out-of-state employer by an employee who works in California only episodically and for less than a day at a time?”
    • (5) “Does the Armenta/Gonzalez bar on averaging wages apply to a pay formula that generally awards credit for all hours on duty, but which, in certain situations resulting in higher pay, does not award credit for all hours on duty?

Arbitration

  • When is an arbitration remedy broad enough to preclude an employee’s resort to a Berman hearing? Under existing law, employers cannot necessarily compel employees to arbitrate wage claims unless and until employees have had the chance to bring those claims before the Labor Commissioner in a “Berman hearing.” In OTO, L.L.C. v. Kho, the Supreme Court has agreed to decide these issues:
    • “(1) Was the arbitration remedy at issue in this case sufficiently affordable and accessible within the meaning of Sonic-Calabasas A, Inc. v. Moreno (2013) … to require the company’s employees to forego the right to an administrative Berman hearing on wage claims?
    • (2) Did the employer waive its right to bypass the Berman hearing by waiting until the morning of that hearing, serving a demand for arbitration, and refusing to participate in the hearing?”

Compensability

  • Does an employee engage in compensable work while waiting for the employer to inspect a bag the employee chose to bring to work? In Frlekin v. Apple, Inc., the Supreme Court has accepted the Ninth Circuit’s request to decide this issue: “Is time spent on the employer’s premises waiting for, and undergoing, required exit searches of packages or bags voluntarily brought to work purely for personal convenience by employees compensable as ‘hours worked’ within the meaning of California Industrial Welfare Commission Wage Order No. 7?”
  • Is walking to and from a time clock compensable hours worked? In Stoetzl v. State of California, the Supreme Court has agreed to decide this issue: “Does the definition of ‘hours worked’ found in the Industrial Wage Commission’s Wage Order 4, as opposed to the definition of that term found in the federal Labor Standards Act, constitute the controlling legal standard for determining the compensability of time that correctional employees spend after signing in for duty and before signing out but before they arrive at and after they leave their actual work posts within a correctional facility?”

Liability for Wage Payment

Preemption—By the FAA and the LMRA

  • Is a PAGA suit for unpaid wages immune from arbitration? In its 2014 Iskanian case, the California Supreme Court acknowledged that the Federal Arbitration Act (FAA) preempts state laws against class-action waivers in arbitration agreements, but also held that representative PAGA actions are not subject to mandatory arbitration. Now, in Lawson v. Z.B., N.A., the Supreme Court has decide to whether a representative action under PAGA, seeking recovery of individualized lost wages as civil penalties under Labor Code section 558, falls within the preemptive scope of the FAA.
  • Does federal labor law preempt a claim for termination wages? In Melendez v. San Francisco Baseball Associates, the Supreme Court has agreed to decide this issue: “Is plaintiffs’ statutory wage claim under Labor Code section 201 subject to mandatory arbitration pursuant to section 301 of the Labor Management Relations Act because it requires the interpretation of a collective bargaining agreement?”

Remedies

  • Can an employee seeking unpaid wages use the tort of conversion? In Voris v. Lampert, the Supreme Court has agreed to decide this issue: “Is conversion of earned but unpaid wages a valid cause of action?”

Rest Breaks & Meal Periods

  • Rest breaks for ambulance attendants on 24-hours shifts. In Stewart v. San Luis Ambulance, Inc., the Supreme Court accepted the Ninth Circuit’s request to decide these issues: (1) “Under the California Labor Code and applicable regulations, is an employer of ambulance attendants working twenty-four hour shifts required to relieve attendants of all duties during rest breaks, including the duty to be available to respond to an emergency call if one arises during a rest period?: (2) “Under the California Labor Code and applicable regulations, may an employer of ambulance attendants working twenty-four hour shifts require attendants to be available to respond to emergency calls during their meal periods without a written agreement that contains an on-duty meal period revocation clause? If such a clause is required, will a general at-will employment clause satisfy this requirement?” (3) “Do violations of meal period regulations, which require payment of a ‘premium wage’ for each improper meal period, give rise to claims under sections 203 and 226 of the California Labor Code where the employer does not include the premium wage in the employee’s pay or pay statements during the course of the violations?”

Standing for PAGA Claims

  • Can a PAGA plaintiff settle his individual wage and hour claims and still pursue his PAGA action as an “aggrieved employee”? In Kim v. Reins International California, Inc., the Supreme Court has agreed to decide whether an employee bringing an action under PAGA loses standing to pursue representative claims as an “aggrieved employee” by dismissing his or her individual claims against the employer.

Workplace solution. Some of the issues raised by the above cases may seem relatively minor, technical, or limited to particular industries. Yet many a significant class action has turned upon issues no more monumental. We will keep our eyes and ears on the Court’s progress and keep readers updated with the latest developments.

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. 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.

Seyfarth Synopsis: Several bills of concern to California employers failed to receive the house of origin blessing and passage by the June 1 deadline, including this year’s attempts at PAGA reform, criminal history inquiries, and medical marijuana accommodations, while a boatload of others, most notably sexual harassment-related bills, sail on. The measures being passed to their opposite house for consideration are described below. 

Friday, June 1, marked the deadline for the state Senate and Assembly to pass bills introduced in their respective houses to the other house. Several employment-related bills (see links at the end of this post) failed to make it out of the house of origin. Many others, detailed below, continue their onward progress toward possible enactment into law. Most notable in number and publicity are the many pending sexual harassment bills. Here’s what is still alive, that we are watching:

Sexual Harassment

AB 1867 would require employers with 50 or more employees to retain records of all internal employee sexual harassment complaints for ten years, and would allow the Department of Fair Employment and Housing (DFEH) to seek an order compelling non-compliant employers to do so. The bill, which would add Section 12950.5 to the Government Code, is scheduled for hearing in the Senate Labor and Industrial Relations Committee on June 13.

SB 1300 would amend the Fair Employment and Housing Act (FEHA) to require a plaintiff who alleges the employer failed to take all reasonable steps necessary to prevent discrimination and harassment to show: (1) the employer knew the conduct was unwelcome, (2) the conduct would meet the legal standard for harassment or discrimination if it increased in severity or became pervasive, and (3) the employer failed to take all reasonable steps to prevent the same or similar conduct from recurring.

This bill would also (a) prohibit an employer from requiring a release of claims or rights under FEHA, or a nondisclosure agreement or other agreement not to disclose unlawful acts in the workplace, in exchange for a raise or a bonus or as a condition of employment or continued employment, (b) require employers, with five or more employees, to provide two hours of sexual harassment prevention training, including bystander intervention training, within six months of hire and every two years thereafter to all California employees—not just supervisors, and (c) prohibit a prevailing defendant from being awarded fees and costs unless the court finds the action was frivolous, unreasonable, or totally without foundation when brought or that the plaintiff continued to litigate after it clearly became so.

SB 1343, which closely resembles SB 1300, would require employers with five or more employees—including temporary or seasonal employees—to provide at least two hours of sexual harassment training to all employees by 2020 and then once every two years thereafter. SB 1343 would also require the DFEH to develop (or obtain) and publish on its website a two-hour interactive online training course on prevention of sexual harassment in the workplace. The bill would also require the DFEH to make the training course, as well as posters, and fact sheets, available in multiple languages (i.e., English, Spanish, Simplified Chinese, Tagalog, Vietnamese, Korean and any other language spoken by “a substantial number of non-English speaking people”).

AB 3080 would prohibit (1) a person from, as a condition of employment or as a condition of entering into a contractual agreement, prohibiting a job applicant, an employee, or independent contractor from disclosing to any person instances of sexual harassment suffered, witnessed, or discovered in the work place; (2) mandatory arbitration of sexual harassment claims; and (3) retaliation against an applicant or an employee who refuses to sign an arbitration agreement. Governor Brown vetoed AB 465 in 2015, which would have prohibited the use of mandatory arbitration agreements as a condition of employment. In his veto message, Governor Brown said he was “not prepared to take the far-reaching step proposed by this bill” and that this sort of blanket ban on mandatory arbitration “has been consistently struck down in other states as violating the Federal Arbitration Act” (FAA). Supporters of AB 3080 have attempted to “preemptively” address such arguments: Floor Analyses cite the ACLU as citing the California Supreme Court’s 2000 Armendariz decision, as well as Civil Code sections 1668 and 3513, to argue that the FAA does not exempt arbitration clauses from general principles that apply to all contracts, and that contracts attempting to exempt people from fraud or illegal activity are unenforceable and against public policy.

AB 3081 would: (1) extend Labor Code prohibitions on discrimination against employees who are victims of domestic violence, sexual assault, or stalking to include employees who are victims of sexual harassment, as well as employees who take time off to assist a family member who is a victim of domestic violence, sexual assault, sexual harassment or stalking; (2) create a rebuttable presumption of unlawful retaliation against an employee if any adverse job action occurs within 90 days of reporting sexual harassment, participating in an investigation, or similar acts; (3) increase the time an employee has to file a complaint with the DLSE for violation of Labor Code section 230 (provides protected time off for jury duty and victims) from one year to three years; (4) require an employer, at the time of hiring and regularly on an annual basis thereafter, to provide to each employee a written notice that includes prescribed information about sexual harassment; and (5) require an employer with 25 or more employees to provide sexual harassment prevention training to all nonsupervisory employees at the time of hire and once every two years thereafter. The bill would also require the Labor Commissioner to create a means for employees to report sexual harassment or assault that occurs in the workplace.

AB 3082 would require the state Department of Social Services (DSS) to develop a policy addressing sexual harassment of in-home supportive services (IHSS) providers and to provide the Legislature with a summary by September 30, 2019. AB 2872 would require the DSS to adopt a peer-to-peer training course for IHSS providers and to ensure that every authorized provider has received at least two hours of peer-to-peer training by December 31, 2019. Beginning January 1, 2020, the bill would require all new or returning IHSS providers to receive at least two hours of peer-to-peer training within their first year of employment.

SB 1038 would make an employee who intentionally retaliates against a person who has filed a complaint, testified, assisted in any proceeding, or opposed any prohibited practice, under FEHA, jointly and severally liable, regardless of whether the employer knew or should have known of that employee’s retaliatory conduct. Previous versions of this bill would have extended personal liability for retaliation, similarly to the liability that already exists for harassment.

AB 2770 would include as “privileged” communications for: (1) complaints of sexual harassment made without malice by an employee to an employer based upon credible evidence; (2) communications between the employer and “interested persons” made without malice regarding the complaint; and (3) non-malicious statements made to prospective employers as to whether a decision to not rehire would be based on a determination that the former employee had engaged in sexual harassment. The bill is scheduled for hearing in the Senate Committee on Judiciary on June 12.

AB 1870 would extend the time an employee has to file an administrative charge with the DFEH alleging an unlawful practice under the FEHA, including, but not limited to, allegations of a sexual harassment, from one year to three years from the alleged incident.

SB 820, the “Stand Together Against Non-Disclosure” (STAND) Act, would make void as a matter of law and public policy provisions in settlement agreements, entered into on or after January 1, 2019, that prevent the disclosure of factual information related to cases involving sexual assault, sexual harassment, sex discrimination, and failure to prevent sex-based harassment and discrimination. The bill would, however, allow such a confidentiality provision to be included upon the request of the claimant unless the opposing party is a government agency or public official; and would allow a provision requiring the monetary settlement payment be kept confidential. Senator Leyva thanked her colleagues when this bill passed the Senate on May 21: “SB 820 shreds the curtain of secrecy that has forced victims to remain silent and empowers them to speak their truth so that we can hopefully protect other victims moving forward.” SB 820 would build on AB 1682, signed into law in 2016, which prohibits confidentiality provisions in settlement agreements in cases involving child sexual abuse or sexual assault against an elderly or dependent adult.

AB 3109 would make void and unenforceable a provision in a contract or settlement agreement, entered into on or after January 1, 2019 that: either (1) waives a party’s right to testify regarding an alleged criminal conduct or sexual harassment by the other party to the contract or agreement in an administrative, legislative, or judicial proceeding; or (2) substantially restrains a party’s right to seek employment or reemployment in any lawful occupation or industry, unless the other party to the contract or agreement is the current or prior employer (except for public employers and a private employer that “so dominates the labor market” so as to effectively restrict the employee from being able to secure employment). The bill is scheduled to be heard in the Senate Committee on Judiciary on June 17.

SB 224 would extend liability for claims of sexual harassment where a professional relationship exists between a complainant and an elected official, lobbyist, director, or producer. This bill (a two year bill introduced in February 2017) has been held at the Assembly desk since January 23, 2018. AB 2338 would require talent agencies to provide to employees and artists, and the Labor Commissioner to provide minors and their parents (prior to issuing the minor a work permit), training and materials on sexual harassment prevention, retaliation, nutrition, reporting resources, and eating disorders. This bill would authorize the Labor Commissioner to charge up to a $25 fee to train each minor, and to impose a $100 fine each time a talent agency fails to provide training, education, or fails to retain specified records. The bill would require a talent agency to request and retain a copy of the minor’s work permit prior to representing a minor.

AB 2079—the “Janitor Survivor Empowerment Act”—would: (1) prohibit the Division of Industrial Relations (DIR) from approving a janitorial service employer’s registration or a renewal that has not fully satisfied a final judgment for certain unlawful employment practices; (2) require the DIR to convene an advisory committee to develop requirements for qualified organizations and peer trainers that janitorial employers must use to provide sexual harassment prevention training; (3) require the DIR maintain a list of qualified organizations and qualified peer trainers and employers to use a qualified organization from the list; and (4) require employers, upon request, to provide an employee a copy of all training materials. AB 2079 builds upon AB 1978 (2016)—the Property Services Workers Protection Act, effective July 1, 2018—which established requirements to combat wage theft and sexual harassment for the janitorial industry.

AB 1761 would require hotel employers to: (1) provide employees with a free “panic button” to call for help when working alone in a guest room that the employee may use, and allow the employee to cease work, if the employee reasonably believes there is an ongoing crime, harassment, or other emergency happening in the employee’s presence; (2) post a notice on the back of each guestroom door informing guests of the panic buttons entitled, “The Law Protects Hotel Housekeepers and Other Employees from Sexual Assault and Harassment”; and (3) provide an employee subjected to an act of violence, sexual harassment or assault, upon request, with time off to seek assistance from law enforcement, legal or medical assistance, and/or reasonable accommodation. The bill would prohibit employers from taking action against any employee who exercises the protections afforded by this bill, and impose a $100 per day penalty, up to $1,000, for a violation of these proposed provisions.

Pay Equity

SB 1284, as presently drafted, is a less onerous version of last year’s effort to mandate annual reporting of pay data a la EEO-1. The bill would require, on or before September 30, 2019, and each year thereafter, that private employers with 100 or more employees submit a pay data report to the DIR. If enacted, the law would require employers to include in the report the following for each establishment, and a consolidated report for all establishments:

  1. The number of employees by race, ethnicity, and sex in the following categories: all levels of officials and managers, professionals, technicians, sales workers, administrative support workers, craft workers, operatives, laborers and helpers, and service workers; and
  2. The number of employees by race, ethnicity and sex whose earnings fall within each of the pay bands used by the US Bureau of Labor Statistics Occupation Employment Statistics Survey, determined by each employee’s total earnings for a 12-month look-back period, including total hours worked by each employee for part-time/partial-year employment.

Employers that are required to submit the EEO-1 Report could instead submit that report to the DIR. The DIR would maintain the reports for 10 years and make the report available to the DFEH upon request. Non-compliant employers would be subject to a $500 civil penalty for the initial violation and $5,000 for each subsequent violation as well as citation by the Labor Commissioner. The bill would prohibit the DIR and DFEH from publicizing any individually identifiable information obtained through this process but authorize the DIR or the DFEH to develop and publicize aggregate reports based on the information received that are reasonably calculated to prevent association of any data with any business or person.

This year’s Fair Pay Act bill, AB 2282, attempts to clarify some ambiguities in Labor Code sections 432.3 and 1197.5 created by prior pay equity legislation, AB 1676 (2016) and AB 168 (2017). AB 2282 would clarify that “pay scale” means a “salary or hourly wage range,” that “reasonable request” by an employee for a position’s pay scale means “a request made after an applicant has completed an initial interview with the employer,” and that “applicant” or “applicant for employment” means an individual who is seeking employment with the employer and is currently not employed with that employer in any capacity or position. The bill provides that nothing in section 432.3 prohibits an employer from asking an applicant about his/her salary expectation, and that nothing in section 1197.5 should be interpreted to prohibit an employer from making a compensation decision based on a current employee’s existing salary as long as any wage differential resulting from that compensation decision is justified by one or more of the factors specified in the statute. AB 2282 is scheduled for hearing in the Senate Committee on Labor and Industrial Relations on June 13.

Pay Statements: SB 1252 would amend Labor Code section 226 to grant employees the right “to receive” a copy of (not just inspect) their pay statements. This bill is scheduled for hearing on June 20 in the Assembly Committee on Labor and Employment.

Port Drayage Carriers: SB 1402 would require the DLSE to create and post a list on its website of “bad actor” port drayage motor carriers, i.e., companies with any unsatisfied judgments or assessments, or any “order, decision, or award” finding illegal conduct as to various wage/hour issues, including independent contractor misclassification and derivative claims. This bill would extend joint and severable liability to those companies’ customers for future wage violations of the same nature by those drayage motor carriers. This bill is part of a very broad and multi-pronged attack on port drayage motor carriers serving the LA and Long Beach ports, mainly regarding alleged independent contractor misclassification of drivers.

Lactation Accommodations: AB 1976 would ensure employers’ already-required reasonable efforts to provide a room or location for lactation consists of providing something other than a toilet stall or bathroom (by deleting “toilet stall” and inserting “bathroom” in the statute). This bill is scheduled for hearing in the Senate Committee on Labor and Industrial Relations on June 13. SB 937 would more substantively change existing lactation accommodation requirements, by requiring a lactation room to be safe, clean, and free of toxic or hazardous materials, contain a surface to place a breast pump and personal items, contain a place to sit, and have access to electricity. The bill would exempt employers with fewer than 50 employees that can show that the requirement would impose an undue hardship by causing significant expense or operational difficulty when considered in relation to the employer’s size, financial resources, or structure.  SB 937 would allow employers to designate a temporary lactation location, instead of providing a dedicated room, due to operational, financial, or space limitations. SB 937 would require employers to develop and implement a new lactation accommodation policy describing an employee’s right to a lactation accommodation, how to request an accommodation, the employer’s obligation to respond to the request, and the employee’s right to file a complaint with the Labor Commissioner. The bill would also require employers to maintain accommodation request records for three years and to allow the Labor Commissioner access to the records. The bill would require the DLSE to create and make available a model lactation policy and model lactation accommodation request form on the DLSE website, as well as lactation accommodation best practices. The bill would deem a denial of reasonable break time or adequate lactation space a failure to provide a rest period in accordance with Labor Code section 226.7.

Paid Family Leave: 2017 legislation effective January 1, 2018, removed the seven-day waiting period before an eligible employee may receive family temporary disability benefits (under the paid family leave program, which provides wage replacement benefits to workers who take time off work to care for a seriously ill family member or to bond with a minor child within one year of birth or placement). AB 2587 would remove the requirement that up to one week of vacation leave be applied to the waiting period, consistent with the removal of the seven-day waiting period for these benefits.  This bill is scheduled for hearing in the Senate Committee on Labor and Industrial Relations on June 13.

Criminal History: SB 1412, the sole criminal history bill of four still alive, would allow employers to inquire into a job applicant’s particular conviction, regardless of whether that conviction has been judicially dismissed or sealed, under these specified conditions: (1) the employer is required by federal law, federal regulation, or state law to obtain information about the particular conviction, (2) the job applicant would carry or use a firearm as part of the employment, (3) the job applicant with that particular conviction would be ineligible to hold the position sought, or (4) the employer is prohibited from hiring an applicant who has that particular conviction.

Mediation Confidentiality: SB 954 would require that, except in the case of a class action, before engaging in a mediation or mediation consultation, an attorney representing a client participating in a mediation or a mediation consultation must provide the client with a written disclosure containing the mediation confidentiality restrictions provided in the Evidence Code. The bill would require the attorney to obtain a written acknowledgment signed by the client stating that the client has read and understands the confidentiality restrictions. However, an agreement prepared during a mediation would remain valid even if an attorney fails to comply with the disclosure requirement. The bill would also add to the mediation privilege of Evidence Code section 1122 any communication, document, or writing that is to be used in an attorney disciplinary proceeding to determine whether an attorney has complied with the above requirements, and does not disclose anything said or done or any admission made in the course of the mediation.

Immigration Status: AB 2732 would make it illegal—and subject to a $10,000 penalty—for an employer to knowingly destroy or withhold any real or purported passport, other immigration document, or government identification, of another person, in the course of committing trafficking, peonage, slavery, involuntary servitude, a coercive labor practice, or to avoid any obligation imposed on the employer by the Labor Code. This bill would require an employer to post a workplace notice stating the rights of an employee to maintain custody of the employee’s own immigration documents, that the withholding of immigration documents by an employer is a crime, and “If your employer or anyone is controlling your movement, documents, or wages, or using direct or implied threats against you or your family, or both, you have the right to call local or federal authorities, or the National Human Trafficking Hotline at 888-373-7888.”. Further, the bill would require an employer to provide employees with the “Worker’s Bill of Rights,” to be developed by the DIR by July 1, 2019, which would inform employees of the same rights.  Employers would be required to have employees sign the “Worker’s Bill of Rights” and maintain the records for at least three years.

SB 785, which the Governor signed and went into effect immediately May 17, 2018 (to sunset on January 1, 2020), prohibits the disclosure of an individual’s immigration status in open court in a civil or criminal action unless the party wishing to disclose the information requests a confidential in camera hearing and the judge deems the evidence relevant and admissible.

Bills that failed… for now:

The following bills did not survive the house of origin deadline or were struck down prior to the deadline. See our prior legislative update for summaries of these bills.

AB 2016 (PAGA); AB 2482 (Flexible Work Schedules); AB 2946 (DLSE Complaints extension); AB 2366 (Victims of Sexual Harassment); AB 1938 (Familial Status Inquiries); AB 2223 and AB 2613 (Wage Statements); AB 2069 (medical marijuana reasonable accommodation); AB 2841 (paid sick leave increase); AB 2680, SB 1298, AB 2647 (criminal history inquiries).

Stay tuned for our next Legislative update coming around the August 31st deadline for bills to pass both houses and make their way to the Governor’s office.

On October 11—his very last day to sign or veto bills—Governor Brown vetoed the much-feared Assembly Bill 465. AB 465 would have banned mandatory agreements to arbitrate Labor Code claims as a condition of employment. At least for now, employers with such arbitration programs can breathe a sigh of relief. We previously reported about AB 465 in more detail here.

Not only did Governor Brown veto the bill, he sent a strong, thoughtful message explaining the reasons for his decision.

Brown observed:

  1. The bill was far-reaching as it would make California the only state in the country to have such a prohibition.
  2. Existing California law already has protections addressing the issue of unfairness in employment arbitration agreements—as the bill’s opponents had pointed out (thank you Armendariz).
  3. The bill’s provisions likely violated the Federal Arbitration Act (“FAA”), as recent California and U.S. Supreme Court decisions have invalidated state policies that unduly impede arbitration—as the bill’s opponents also pointed out (thank you Concepcion).

As to the last point, Brown expressed concern that enacting such broad legislation would surely result in years of costly litigation and legal uncertainty—yes, he actually said that. Brown supported that concern by noting that the U.S. Supreme Court is already considering two cases arising out of California law that involve preemption of state policies under the FAA. Before signing an anti-arbitration bill, Brown wanted to see the outcome of those cases.

And with good reason! Several employer groups, anticipating the bill’s passage, had already been considering bringing legal challenges under the FAA. That fight will now have to await another day.

Notably, Brown did not foreclose the possibility of signing more pointed legislation in the future. He expressed concerns about fairness in employment disputes and noted that there is conflicting evidence about whether arbitration is fair to employees.

For now, employers can relax. But bills such as this are like those zombies on October 31: we can expect them to rise from the dead and haunt future legislative sessions.

Tearing contract sheetOn August 31, the California Legislature passed AB 465, aiming to “ensure that a contract to waive any of the rights, penalties, remedies, forums, or procedures under the Labor Code”—such as an arbitration agreement—is “a matter of voluntary consent.” This bill, now before Governor Brown for his approval, raises two big questions: (1) will the Governor sign the bill, and, if he does, (2) to what extent would the new law be enforceable?

The proposed bill would add Section 925 to the California Labor Code, to

  • prohibit companies from conditioning employment offers (or renewals) on the waiver of any Labor Code-related right,
  • require that any waiver of Labor Code protections be knowing, voluntary, and in writing,
  • deem any waiver of Labor Code rights conditioned on employment to be “involuntary, unconscionable, against public policy, and unenforceable,”
  • prohibit retaliation against any person who refuses to waive Labor Code-related rights, and
  • authorize attorneys’ fees recovery for a plaintiff who enforces rights under Section 925.

The bill would not affect the enforceability of other provisions in an agreement that contains an unenforceable arbitration provision. And it would not apply to employees who are represented by counsel in negotiating the terms of such an agreement.

What? Why? How?

You wonder why this legislation is necessary (um, Armendariz)? Or how it is legal (FAA, anyone)? You’re not alone. While the bill’s supporters call it essential for worker protection, its opponents call it unnecessary, unenforceable, and counterproductive.

The bill’s author, Assembly Member Roger Hernández (D-West Covina), introduced the bill with this explanation: “No worker should be forced to choose between a job and giving up core labor rights and procedures. Existing labor laws are meaningless if workers are forced to sign away enforcement of those rights.”

Opponents, including the California Chamber of Commerce, say the bill is unnecessary in light of current law, unenforceable as preempted by the Federal Arbitration Act, and counterproductive because, as a matter of public policy, arbitration is a fair, low-cost avenue to resolve labor disputes: “AB 465 will only serve to increase litigation costs of individual claims, representative actions and class action lawsuits against California employers of all sizes until such legislation can work through the judicial process to be challenged once again.”

Hardly a Boon to Employees

The law hardly seems essential to workers’ rights. Current California law on mandatory, pre-dispute, arbitration agreements already provides these safeguards:

  • a neutral arbitrator, who is to make a written award subject to judicial review,
  • allowance of adequate discovery,
  • the remedies that would be available in court, and
  • the employee relieved of any obligation to pay any more costs than what the employee would have to pay in court.

Nor have proponents of AB 465 shown that arbitration subjects employees to worse outcomes. The bill’s opponents, meanwhile, have pointed to studies showing that arbitration offers better outcomes for employees in less time than traditional litigation.

A cynic might wonder, then, if the bill primarily serves the interests of trial lawyers.

A Textbook Case of Conflict Preemption?

Should the Governor approve AB 465, new Labor Code section 925 would face judicial challenges on preemption grounds. The Federal Arbitration Act declares that contractual agreements to arbitrate disputes are “valid, irrevocable, and enforceable.” And the U.S. Supreme Court has often reminded California about the pesky Supremacy Clause, while invoking the FAA to trump California rules that were hostile to arbitration.

In fact, one anti-arbitration rule the Supreme Court has struck down appears in a predecessor of AB 465—Labor Code section 229. Section 229 purports to invalidate arbitration agreements involving wage claims. After the Supreme Court’s 1987 ruling that the FAA preempts Section 229, that section is now a nullity except in that rare case in which the arbitration agreement does not involve transactions affecting interstate commerce.

The language of AB 465 directly contradicts Supreme Court pronouncements on FAA preemption: the bill (1) would outlaw mandatory agreements to arbitrate Labor Code claims, such as wage and hour disputes, unless that agreement is negotiated by the employee’s attorney, and (2) states that all mandatory agreements to arbitrate Labor Code claims are “unconscionable, against public policy, and unenforceable.” It’s like the Legislature has already written the preemption decision for the Court!

Workplace Solutions

AB 465 is just one step away from becoming California law. Should Governor Brown sign it, its validity will almost certainly be challenged. But with this bill closer to reality, employers should consider its potential implications on their arbitration programs, especially if they are made a condition of employment (as many are).

With that in mind, it is worth pondering:

  • Since AB 465 requires the employer to prove that the employee entered into the arbitration agreement “knowingly and voluntarily,” and that it was not a condition of employment, can the employer establish that proof simply by including a recital that the parties are voluntarily waiving the right to sue in court, and that this waiver is not a condition of employment?
  • Must the employer offer additional consideration to ensure that the arbitration agreement is truly voluntary?
  • Must employers reconsider the methods by which employees enter into arbitration agreements altogether? Is including arbitration agreements in handbooks now completely dead? Is there anything that would make clear that the employee has read and agreed to the arbitration terms?
  • What other policies, e.g., electronic signatures, opt-out methods, etc. can be used to most effectively ensure that employers can make a strong case for knowing and voluntary waiver?

If you are struggling with finding answers to these or other questions, we encourage you to consult a friendly Seyfarth attorney near you.

Edited by Julie Yap

By Christopher Crosman

Navigating the shoals of California law on arbitration agreements has been exceedingly difficult.  The California Supreme Court has maintained a long tradition of general antipathy to mandatory arbitration, and has been particularly hostile to arbitration agreements that limit a plaintiff’s ability to pursue a class action.  For example, Discover Bank v. Superior Court, 36 Cal. 4th 148 (2005), invalidated class action arbitration waivers contained in consumer contracts, and Gentry v. Superior Court, 42 Cal. 4th 443 (2007), set forth a stringent test for determining whether class action waivers should be upheld in the employment context. 

So does that mean not to bother with class action waivers in California?  That remains unclear.  The U.S. Supreme Court held in AT&T Mobility LLC v. Concepcion that the Federal Arbitration Act (FAA) preempts any state law that burdens the right of the parties to agree to arbitrate.  Concepcion overruled Discover Bank, but did not specifically address Gentry. Whether Gentry was also overruled by Concepcion is one of the issues currently before the California Supreme Court in the Iskanian case, discussed below. 

This year, the California high court spoke again on the subject of enforcement of arbitration agreements. In Sonic-Calabasas A, Inc. v. Moreno (No. S17445, Oct. 17, 2013), the high court reminded us that, even after Concepcion, arbitration clauses may be invalidated if they are unconscionable, and suggested that the same facts a court might have cited before to argue that state public policy invalidates an arbitration agreement might still be cited to argue that the agreement is unconscionable, without running afoul of the FAA.  (Sonic-Calabasas and its shadow-boxing with Concepcion is discussed in more detail here.)

Have state courts clarified the issue?  Nope.  The California Court of Appeal has hopped on the confusion bandwagon by issuing inconsistent rulings concerning the arbitrability of representative claims brought under the Labor Code Private Attorneys General Act (“PAGA”).  In Brown v. Ralphs Grocery Co., 197 Cal. App. 4th 489 (2011), a Court of Appeal ruled that PAGA claims are not subject to arbitration, in that the FAA governs only private arbitration, while PAGA claims are brought on behalf of state labor law enforcement agencies, with the plaintiff acting as the state’s “proxy or agent.” But then in Iskanian v. CLS Transportation Los Angeles, 206 Cal. App. 4th 949 (2012), review granted, another division of the Court of Appeal held that the FAA, as interpreted Concepcion, does apply to representative PAGA claims, and preempts any state law rule that would invalidate an otherwise valid arbitration agreement. Unfortunately for employers, the California Supreme Court has granted review in Iskanian, but has declined to review Brown.

My head hurts and I’m back to square one with no enforceable class action waiver, right?  Don’t toss that waiver in the trash just yet.  One California Court of Appeal, not content to wait for the California Supreme Court’s ruling in Iskanian, has tackled the PAGA question itself in Goss v. Ross Stores (No. A133895, October 31, 2013)In this (unfortunately) unpublished opinion, the court held that Concepcion does indeed apply to representative PAGA claims, and  overturned the trial court’s holding that such a waiver was unenforceable under Brown.  In doing so, the Goss court rejected Brown’s reasoning as being incompatible with Concepcion.  The Goss court also decided that the plaintiff’s claims for injunctive relief under the California Unfair Competition law were likewise subject to arbitration.  In doing so, the Goss court rejected the trial court’s reliance on Cruz v. PacificCare Health Systems, Inc., 30 Cal. 4th 303 (2003) (holding UCL claims not arbitrable because they were brought to prevent harm to the public), asserting that Cruz was invalidated by Concepcion, as recognized in Nelson v. Legacy Partners Residential, Inc., 207 Cal. App. 4th 1115 (2012).

Goss, though unpublished, signals that the very muddy tide is turning in favor of employers in regard to enforcement of class action arbitration waivers. While the California Supreme Court continues to push back against Concepcion, and may do so again when it releases its decision in Iskanian, it has been forced to do so on narrower and narrower grounds. 

Workplace Solutions:  Class action waivers in the employment arena remain potentially viable, although obstacles to clear sailing remain (including the unresolved issues raised by the NLRB in the D.R. Horton case, 357 NLRB No. 184). Under the guidance of the U.S. Supreme Court, one can look forward to the day when properly crafted arbitration agreements containing class action waivers will be generally enforceable in California.  In the meantime, employers utilizing mandatory arbitration agreements should consult with their counsel regularly to ensure these agreements are up to date and reflect the latest developments in the law.

By Jeff Berman, David Kadue and Colleen Regan

Continuing to push back against the federal policy in favor of arbitration contained in the Federal Arbitration Act, the California Supreme Court has handed down its long-awaited decision in Sonic-Calabasas, Inc. v. Moreno.  A copy of the decision can be accessed here

The California Supreme Court had earlier ruled that an employer cannot require employees to arbitrate disputes while waiving their right to a “Berman hearing” (an administrative proceeding to settle wage disputes). In today’s decision, responding to instructions from the U.S. Supreme Court, the California Court acknowledges that the FAA preempts its earlier ruling. But now a majority of the Court holds that state courts can continue to invalidate arbitration agreements under unconscionability rules that do not interfere with “fundamental attributes of arbitration.” The Court has thus remanded the case to the trial court to determine whether the arbitration agreement in this case was otherwise so unconscionable as to be unenforceable. Justice Chin, joined by Justice Baxter, has written a strong dissent that effectively invites the U.S. Supreme Court to revisit the work of the California Supreme Court.

A Seyfarth One Minute Memo analyzing the 104-page decision will be distributed and posted on this blog shortly.