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California Employment Law Blog

Multiple PAGA Representative Claims Crumble As Federal Courts Continue To Reject Iskanian and Enforce Arbitration Agreements Containing PAGA Waivers

Posted in Arbitration Agreements, Class Actions, PAGA, Wage and Hour

When the California Supreme Court decided Iskanian v. CLS Transp. Los Angeles, LLC, 59 Cal. 4th 348 (2014), this June, some legal commentators assumed that employees could not waive pre-litigation claims under the Private Attorneys General Act (PAGA). Those assumptions may have been premature. As we noted here, at least one federal court refused to apply Iskanian forcing an employee’s individual PAGA claims to arbitration. The list seems to be growing. The Courts in Ortiz v. Hobby Lobby Stores, Inc. Case No. 13-CV 1619 (E.D. Cal. Oct. 1, 2014); Chico v. Hilton Woarldwide, Inc., Case No. 14-CV-5750 (JFW) (C.D. Cal. Oct. 7, 2014); Langston v. 20/20 Companies, Inc. Case No. 14-CV-1360 JGB (C.D. Cal.); Mill v. Kmart Corp., Case No. 14-CV-02749 (KA) (N.D. Cal. Nov. 26, 2014); and, Lucero v. Sears Holdings Mgmnt. Corp., Case No. 14-1620 (AJB) (S.D. Cal.) have all similarly rejected this holding in Iskanian and, as discussed more fully below, all but one court has forced the each plaintiff’s individual PAGA claims to arbitration.

In all five cases, the plaintiffs brought putative class actions and PAGA representative actions against their respective employers even though each Plaintiff had signed a valid arbitration agreement containing a waiver of class and representative claims. Despite this knowing waiver, the Plaintiffs argued that the California Supreme Court’s decision in Iskanian rendered the arbitration agreements unenforceable. Each court rejected the Plaintiffs’ argument, citing the U.S. Supreme Court’s decision in AT&T Mobility v. Concepcion, 131 S.Ct. 1740 (2010), which held that “when state law prohibits outright the arbitration of a particular type of claim, the analysis is straightforward: the conflicting rule is displaced by the FAA.” See e.g. Mill, at 10 and Lucero, at 5.

Notably, all of the courts recognized that they were not bound by the California Supreme Court’s interpretation of federal pre-emption law under the FAA. And, given the absence of any fraud or coercion in the formation of the arbitration agreements, the Courts found that the employees were bound by their contracts. The courts noted that the FAA reflects a liberal federal policy favoring arbitration and it is a “fundamental principle that arbitration is matter of contract.” See, e.g., Chico v. Hilton, at *5. More specifically, the Courts in Langston and Lucero found a significant flaw with the California Supreme Court’s reasoning in Iskanian barring PAGA waivers in arbitration agreements. As the Court in Langston put it:

[A]lthough the court asserts that the basis for holding representative PAGA claim waivers unconscionable is that an employee cannot waive a right that properly belongs to the government, the court nevertheless acknowledges that an employee may actually sometimes waive the government’s right to bring a PAGA claim. That inconsistency illuminates the fact that, it is not an individual’s ability to waive the government’s right that drives the court’s rule but rather the court’s disfavor for pre-existing agreements to arbitrate such claims individually.

Langson at 8-9.

Interestingly, while four of the Courts (implicitly and/or explicitly) required each plaintiff to arbitrate the PAGA claim on an individual basis, the Court in Ortiz did not compel the plaintiff’s individual PAGA claims to arbitration but instead, struck the PAGA claims entirely. The Ortiz court recognized that there was a split of federal authority as to whether a plaintiff who had waived his right to bring a representative action under PAGA could be compelled to arbitrate a purportedly individual PAGA claim. Siding with the view that PAGA can only be litigated on a representative basis, the court held that by waiving his right to bring any representative claims, Ortiz had waived his right to litigate any PAGA claim whatsoever irrespective of the forum. Ortiz at 21.

November 2014 California Employment Law Notes

Posted in Employment Law Notes

We invite you to review our newly-posted November 2014 California Employment Law Notes, a comprehensive review of the latest and most significant developments in California employment law. The highlights include:

PAGA Claims and Arbitration – A Federal Court Parts Ways With Iskanian

Posted in FAA, PAGA, Supreme Court

The California Supreme Court’s decision in Iskanian v. CLS Transp. Los Angeles, LLC, (discussed here), held that class action waivers in arbitration agreements are enforceable under the Federal Arbitration Act (FAA) except as to claims that were made pursuant to the Private Attorneys General Act (PAGA). PAGA allows aggrieved employees to represent other current and former employees and recover civil penalties on behalf of the State of California for purported Labor Code violations.

CLS Transportation has since filed a writ to the US Supreme Court seeking review of this ruling arguing that an employee who signs an arbitration agreement is equally bound to litigate his or her PAGA claims in arbitration as he is with any other claim. Plaintiffs’ response is due on October 24, 2014.

In the interim, at least one federal court has rejected the California Supreme Court’s holding and ordered a claimant’s PAGA claims proceed in arbitration. In Fardig et al. v. Hobby Lobby Stores Inc., Case No. 8:14-cv-561-JVS-AN (C.D. Cal.), the putative plaintiffs all signed arbitration agreements including an arbitration clause with class and representative action waivers. Defendant filed a motion to compel arbitration, which Judge James Selna granted on August 11, 2014. The court held that the US Supreme Court’s decision in Concepcion v. AT&T preempted any state law rule invalidating class or representative waivers in arbitration agreements and noted that federal district courts are not bound by state courts on questions of federal law, such as FAA preemption. The Court expressly disapproved of the California Supreme Court’s holding in Iskanian on the PAGA issue and said, “[e]ven in light of Iskanian, the Court continues to hold that the rule making PAGA claim waivers unenforceable is preempted by the FAA.”

Lawful Shmawful: Ninth Circuit Ignores Lawful Written Policy and Uses Statistical Sampling to Certify Class Based on Alleged “Unofficial Policy”

Posted in Class Actions, Off-the-clock Issues, Overtime

On September 3, 2014, the U.S. Court of Appeals for the Ninth Circuit upheld certification of a class of approximately 800 nonexempt insurance claims adjusters who claimed they worked overtime without compensation despite the employer’s lawful written policy to pay nonexempt employees for all hours worked.

In Jimenez v. Allstate Ins. Co., the Ninth Circuit upheld certification after finding three common questions existed.  First, whether Allstate had an unofficial policy of discouraging employees from reporting overtime; second, whether the employees’ workload forced them to work in excess of eight hours in a day or 40 in a week; and third, whether Allstate’s timekeeping method caused an underpayment of overtime.

Specifically, the court found that the adjusters were not responsible for preparing time sheets or clocking in and out.  Rather, their time cards were set to a default of eight hours per day and 40 hours per week, and their supervisors could submit “deviations” or “exceptions” for hours worked outside of this schedule.  Accordingly, the Ninth Circuit determined that a common question existed regarding whether this timekeeping method led to the adjusters working unpaid overtime.

Notably, the Ninth Circuit held that liability on these issues, as well as the issue of whether the employer should have known that employees were working off the clock, could be resolved via statistical sampling.  Importantly, neither the Ninth Circuit nor the trial court orders specified how the proposed statistical sampling would actually resolve these issues.  Similarly, neither decision explains how the certified claims will be managed at trial.

Even so, the court held that statistical sampling could only get the plaintiffs so far.  Indeed, the court held that plaintiffs would be prohibited from utilizing representative testimony or statistical sampling during the damages phase of the case because a contrary finding would prevent the company from exercising its right to raise individualized defenses.

Based on the Jimenez decision, an employer’s lawful written policy is not enough to insulate it from class certification.  The Court’s decision deviates somewhat from the U.S. Supreme Court’s decisions in Walmart Stores v. Dukes and Comcast Corp. v. Behrend and the California Supreme Court’s decision in Duran v. Superior Court.  All of these decisions instruct trial courts to examine how any purportedly unlawful policy is applied to the putative class when deciding to certify the class and how any individualized issues surrounding this application will be managed at trial.  While the courts continue to sort these issues out, employers can help themselves by ensuring that employees accurately track and report their hours worked regardless of what the “official” policy may be.

Thou Shalt Not Bully – Employers Must Educate Supervisors about “Abusive Conduct”

Posted in Employee Discipline, Employer Liability for Worker's Actions, Employment Policies, Harassment, New and Proposed Laws and Legislation, News, Sexual Harassment, Workplace Violence

California businesses that have 50 or more employees are already required to train supervisors on legally prohibited sexual harassment. Following California Governor Jerry Brown’s recent signing of A.B. 2053, that training must now also include education on preventing “abusive conduct” in the workplace, even if the conduct is not based on a protected characteristic nor constitutes legally prohibited discrimination or harassment.

As amended by A.B. 2053, Section 12950.1 of the Government Code defines abusive conduct as malicious conduct “that a reasonable person would find hostile, offensive, and unrelated to an employer’s legitimate business interests.” Although A.B. 2053 provides that a single act is not abusive “unless especially severe and egregious,” its list of conduct that may be abusive is expansive:

  • infliction of verbal abuse, such as the use of derogatory remarks
  • insults
  • epithets
  • verbal or physical conduct that a reasonable person would find threatening, intimidating, or humiliating
  • gratuitous sabotage or undermining of a person’s work performance

Supervisory employees must receive at least two hours of this enhanced anti-harassment training in an interactive format every two years.

Unpaid Interns Are Now Protected Against Discrimination and Harassment

Posted in Disability, Discrimination, Employment Policies, FEHA, Harassment, New and Proposed Laws and Legislation, News, Reasonable Accommodation, Religion, Retaliation, Uncategorized, Wage and Hour

On September 9, 2014, California Governor Jerry Brown signed A.B. 1443, which extends the state’s anti-harassment and anti-discrimination protections to unpaid interns.

Employers are now prohibited from discrimination based on protected characteristics in the “selection, termination, training or other terms” of unpaid interns. A.B. 1443 also prohibits harassment of unpaid interns based on protected characteristics, and it makes employers liable for sexual harassment of unpaid interns by non-employees if an employer knew or should have known of the conduct but failed to promptly take appropriate corrective action.

In addition, employers may not take adverse actions against unpaid interns based on their religious beliefs and must provide reasonable accommodations for religious observance unless doing so would pose an undue hardship.

Update: California Employees Entitled to Paid Sick Leave Starting July 2015

Posted in Disability, Employee Benefits, Employment Policies, New and Proposed Laws and Legislation, News

On September 10th, California became the second state in the country to require businesses to provide employees with paid sick leave, following Governor Jerry Brown’s signing of A.B. 1522, which goes into effect on July 1, 2015, and will be known as the Healthy Workplaces, Healthy Families Act of 2014.


Click here to read our detailed post about A.B. 1522.

September 2014 Employment Law Notes

Posted in Employment Law Notes

We invite you to review our newly-posted September 2014 California Employment Law Notes, a comprehensive review of the latest and most significant developments in California employment law. The highlights include:

California Employees May Soon Be Entitled to Paid Sick Leave

Posted in Client Alerts, Employee Benefits, Employment Policies, Leaves of Absence, Payroll, Wage and Hour

California Governor Jerry Brown has until September 30th to sign or veto A.B. 1522, a recently passed bill that would require businesses employing at least one person in California to provide employees with paid sick leave and to comply with new recordkeeping and informational requirements. If signed by the governor, the bill will become effective on July 1, 2015.

Most employees would accrue one hour of paid sick leave for every 30 hours worked.

Employees may use accrued sick leave for the treatment of their own or a family member’s existing health conditions, as well as for preventive care. In addition, employees may use sick leave to recover from crimes such as sexual assault and domestic violence. Employers must compensate time off at the employee’s regular rate of pay.

Employers would have limited compliance flexibility and exemptions.

For example, employers may set minimum sick leave use increments, albeit not greater than two hours. Yearly use may be limited to 24 hours (or three days) total. Although unused leave will carry over to the following year, accrual may be capped at 48 hours (or 6 days) total. Employees are not entitled to receive pay for unused leave upon separation; but those who are re-hired within one year must have their previously accrued leave balances reinstated.

Employers whose paid leave policies already comply with the bill’s requirements do not need to provide additional sick leave. Similarly, employers need not give sick leave to certain employees, such as those who provide in-home supportive services or are unionized under collective bargaining agreements that meet enumerated requirements.

Employers would face new recordkeeping and informational requirements.

At the time of hiring, employees must receive notice about their right to accrue and use sick leave free from retaliation. Employees would again receive notice of their rights under the bill through posters that the Labor Commissioner will create to be conspicuously displayed at the workplace. In addition, employees must receive written notice of accrued sick leave amounts on either their itemized wage statements or on separate documents provided with their wages on payday.

Employers must keep records of hours worked, as well as of accrued and used sick leave, for at least three years.

Beware the bill’s sharp enforcement teeth.

Not only does the bill prohibit retaliation, but also imposes a rebuttable presumption against employers who take adverse action against employees within 30 days of their exercise of their right to take sick leave. The Labor Commissioner, tasked with enforcing the bill, may levy fines against employers who violate the bill. Both the Labor Commissioner and the Attorney General are also empowered to bring civil suits on behalf of aggrieved employees.

July 2014 California Employment Law Notes

Posted in Employment Law Notes

We invite you to review our newly-posted July 2014 California Employment Law Notes, a comprehensive review of the latest and most significant developments in California employment law. The highlights include: