Seyfarth Synopsis: AB 1654 provides a PAGA exemption for certain employees covered by a collective bargaining agreement. While AB 1654 is limited to the construction industry, its underlying rationale applies much more broadly, and may augur further thoughtful restrictions on PAGA’s broad scope.

California’s Private Attorneys General Act, imposing draconian penalties for even relatively trivial

Defense and attack .fatBy David Kadue

The traditional posture of California employers apprehensive about “gotcha” wage and hour claims is to hunker down and wait for the next lawsuit. But a few brave souls have taken the offensive. We celebrate two examples here. We cannot guarantee the success of their efforts, but we applaud their courage.

Declaratory relief action against California Labor Commissioner

One annoying peculiarity of California employment law is the Bluford doctrine, announced in a 2013 Court of Appeal decision called Bluford v. Safeway Inc. The Bluford case announced that truck drivers—already paid handsomely by mileage rates and by hourly rates for specified tasks and situations—were entitled to additional, separate pay for each rest period, under a notion that “employees must be compensated for each hour worked at either [1] the legal minimum wage or [2] the contractual hourly rate.” The court found it immaterial that the truck drivers earned, on an hourly average, far more than the minimum wage. Although Bluford was a controversial decision, the California Supreme Court declined to grant the employer’s petition for review.

OK. Fair (or unfair) enough. Then came the California Labor Commissioner and the Division of Labor Standards Enforcement, to rub salt in the Bluford wound. The DLSE determined that employers who pay on a piece-rate basis not only must separately pay for rest periods, but also must pay for those periods at a rate higher than the minimum wage or a contractual wage. According to the DLSE, an employer must pay piece-rate workers for rest periods at a rate equal to their average hourly piece-earning rate (which would vary on a continuous basis and which could greatly exceed the minimum wage). The DLSE announced this determination in a November 2013 internal memorandum, developed without the benefit of a rule-making process. The resulting “underground regulation” robs piece-rate paying employers of the certainty of paying rest periods at a fixed, pre-determined hourly rate.

Certain agricultural employers, heavily reliant on piece-rate labor, got mad as heck and decided not to take it anymore. In April 2015, in a case entitled Ventura County Agricultural Association v. Su, employer associations sued the government. They brought a petition for writ of mandate and a complaint for declaratory and injunctive relief in Sacramento County Superior Court. They argue that the DLSE has issued an unlawful regulation and one that is contrary to Bluford. We wish them well.

Making a federal case out of compelling a plaintiff to arbitrate PAGA claims
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By David Kadue

On Tuesday, January 20, 2015, the Court declined to take the case of CLS Transportation Los Angeles, LLC v. Iskanian, in which an employer asked the Court to reverse a ruling of the California Supreme Court. At issue was whether an employee who has agreed to submit all employment-related claims to arbitration, and who has also agreed to waive participation in class and representative actions, can evade that agreement and sue the employer under California’s Private Attorney General Act (“PAGA”). The California Supreme Court in June 2014 had sided with the suing employee.

Many observers expected that the case would be the latest episode in a drama that features a complicated relationship between two supreme courts. To simplify a bit, the U.S. Supreme Court traditionally has read the Federal Arbitration Act (“FAA”) to require the enforcement of private arbitration agreements by their terms. The California Supreme Court, meanwhile, has often searched creatively for some Cal-centric reason to deny enforcement to arbitration agreements.

Recent examples of the contrasting supreme viewpoints have occurred in the context of arbitration agreements that waive the procedural right to proceed or participate in a class action. The California Supreme Court once held, in both the consumer-claim context and in the employee-claim context, that a class-action waiver in an arbitration agreement is unenforceable, because any such waiver offends the California public policy favoring class actions. But then the U.S. Supreme Court, in Concepion v. AT&T Mobility, ruled in 2011 that the FAA preempts the California ban on class-action waivers. Concepion involved a consumer complaint. For several years, California courts resisted the clear implication that Concepcion also applies to employee complaints. Finally, in Iskanian, the California Supreme Court relented, acknowledging that, under the FAA, class-action waivers in arbitration agreements are enforceable, even in California.
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Our readers will be happy to see the end of 2014, from an employment law point of view. With the exception of the Iskanian case, in which the California Supremes finally agreed that most workplace disputes can be subject to mandatory arbitration, employers had little to cheer about. This past year the Golden State brought us a new crop of employee entitlements—also known as employer mandates—requiring significant changes in how companies hire, schedule labor, monitor hours of work, and give employees time off.

Clothed in the language of worker rights and positive societal goals (e.g., the “Healthy Workplaces/Healthy Families Act”), the new laws increasingly cover areas that traditionally have been the subject of collective bargaining (e.g., mandatory paid time off and rates of pay). There is also a trend toward preventing job loss that might result from personal life circumstances, such as requiring paid time off for an employee to seek help for domestic violence, and forbidding questions about an applicant’s criminal or credit history. In short, government protectionism is alive and well in California.

What were the biggest headlines of the year?  Let’s focus on three:
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By David D. Kadue and Simon L. Yang

Remember the Black Knight in Monty Python and the Holy Grail? The overconfident fellow who refuses to desist, even after losing four limbs in combat? Some lawyers are like that.

Although the California Supreme Court in Iskanian (June 23, 2014) upheld employer efforts to force waivers of class-action claims in mandatory arbitration agreements, some plaintiffs’ lawyers say that the real take-away from Iskanian is its holding that those agreements cannot be used to waive an employee’s right to bring representative PAGA actions. Moreover, say these lawyers, PAGA actions are particularly potent for plaintiffs because they are categorically unremovable to federal court, thus permitting the plaintiff to remain in more favorable state court.

So does this mean that Iskanian really was a disaster, signaling a new reign of terror for hapless employers who now must confront “gotcha” claims of obscure wage and hour violations while being subject exclusively to the tender mercies of California Superior Court?

Well, perhaps there are a couple of chinks in the Black Knight’s armor.

First, how solid is the dogmatic view about categorical unremovability of PAGA claims? PAGA cases once were routinely removed to federal court under diversity-of-citizenship jurisdiction, where the defendant employer was a non-California citizen and the amount in controversy exceeded the jurisdictional threshold ($75,000 in an individual action or $5,000,000 in a class action, although PAGA claims need not be brought as class actions). The amount in controversy was often easy to establish, as PAGA penalties mount rapidly: $100 per employee per pay period, even if one counts only the 25% of the penalties that go to the employees (75% go to the State of California).

But recent Ninth Circuit decisions dropped flies in the removal ointment. They rejected the efforts of removing defendants, in calculating the amount in controversy, to aggregate the potential individual recoveries of all the employees the plaintiff purported to represent. These decisions now suggest that one should consider only the PAGA plaintiff’s individual recovery, which would be well below $75,000. And the Ninth Circuit has stated, rather elliptically, that the State of California is not a citizen, suggesting that this observation precludes a finding of diversity of citizenship. Hence the basis for a new conventional wisdom that PAGA claims are categorically unremovable. But is this necessarily so?
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