California Employment Law Update

September 2017 California Employment Law Notes

We invite you to review our newly-posted September 2017 California Employment Law Notes, a comprehensive review of the latest and most significant developments in California employment law. The highlights include:

It’s Time to Think About Arbitration Agreements Again Following Recent $15 Million+ Employee Verdicts

Jury panels in the Los Angeles Superior Court (which is often referred to as “The Bank” by the plaintiffs’ bar) have recently delivered multimillion-dollar verdicts to former-employee plaintiffs.  Many employers doing business in California already have insulated themselves from such disasters by adopting comprehensive arbitration regimes, which would require that such cases be heard by a retired judge or employment lawyer rather than a jury of the employee’s (not the employer’s) peers.

In one recent case involving alleged wrongful termination and racial discrimination, the jury awarded the former employee $16.6 million, which is the largest such verdict in California state history.  The verdict consisted of $373,514 in lost wages; $2.5 million in emotional distress damages; and $13.8 million in punitive damages.  Added to this will be another $1 million or so in prevailing-party attorney’s fees that will go to the former employee’s lawyer.  Another Los Angeles jury recently awarded $15 million to a former employee who claimed he was discriminated against on the basis of a disability.  That verdict consisted of $5 million in lost wages and emotional distress damages and $10 million in punitive damages.

The fact that such monster verdicts are stalking the land pushes up the settlement value of all cases — and the risk of not settling means the employer is subjecting itself to funding the winnings of those who play the California litigation lottery.  The best antidote?  Arbitration agreements.  Although arbitration is hardly a panacea and carries with it a number of significant limitations and disadvantages, the time has come for employers to shut down this game by choosing arbitration once and for all.

The top three reasons for adopting an employment arbitration agreement today are:

  1. Arbitrators generally provide reasonable awards that fairly compensate an employee who has actually suffered some form of discrimination, harassment or other wrongful treatment.  Unlike a jury, however, they generally do not get carried away and award gargantuan amounts of money for alleged emotional distress and punitive damages — both of which are basically unlimited under California law.
  2. The mere existence of an arbitration agreement functions as a form of “Wolfsbane” that wards off the most aggressive plaintiffs’ lawyers.  Once they find out their client signed an arbitration agreement, they know they have no chance of ever bamboozling a gullible jury into awarding them millions of dollars and they will usually drop the case or settle it on the cheap.
  3. The arbitration agreement can and should include a class-action waiver provision.  This means that any employee who signs such an agreement agrees not to lead or participate in a class action against the employer.  These provisions are perfectly legal (even in employee-friendly California) and alone justify the adoption of such an agreement.

July 2017 California Employment Law Notes

We invite you to review our newly-posted July 2017 California Employment Law Notes, a comprehensive review of the latest and most significant developments in California employment law. The highlights include:

San Francisco to Bar Employers from Seeking Disclosure of Salary History

San Francisco has become the latest jurisdiction to pass a law restricting employers from inquiring about prior salary history during the hiring process.  The ordinance, which will go into effect on July 1, 2018, will restrict employers from: (i) considering or relying on an applicant’s salary history as a factor in determining whether to make an offer of employment or what salary to offer; (ii) inquiring about an applicant’s salary history; (iii) refusing to hire or otherwise retaliating against an applicant based on failure to provide salary history; and (iv) releasing the salary history of a current or former employee to that person’s employer or prospective employer without written authorization from the current or former employee. 

Employers will, however, be able to: (i) consider voluntarily disclosed or authorized salary history in determining salary for an applicant and/or verify the salary history information the applicant has voluntarily disclosed; and (ii) without inquiring about salary history, engage in discussion about the applicant’s expectations with respect to salary, including unvested equity or deferred compensation or bonus that an applicant would lose or forfeit by virtue of leaving current employment. 

Employers will have a one year grace period (i.e., until July 1, 2019) during which San Francisco will issue written warnings and notices to correct but will not penalize employers for violation of the new ordinance. Thereafter, monetary penalties will be issued for violations.

San Francisco employers should review their applicant screening and hiring policies to ensure compliance with the new ordinance.

California Employee Required to Challenge Non-Compete Clause in Indiana

Despite California’s prohibition against non-compete agreements, a federal court in the Eastern District of California recently ruled that a California resident may be subject to the non-compete covenant in his employment agreement due to a provision in the agreement identifying Indiana as the parties’ choice of forum and that state’s law as the parties’ choice of law.  The lawsuit, Scales v. Badger Daylighting Corp. (Case No. 1:17-cv-00222-DAD-JLT), was (prior to removal to federal court) filed in California state court by the employee, Daniel Scales, after his employer, Badger Daylighting Corp., first filed a breach of contract action against Scales in Indiana state court.

Badger’s Indiana lawsuit claims that Scales violated the non-compete clause in his employment agreement when he quit his employment with Badger in California and began working for one of the hydrovac excavation company’s California competitors. Scales’ employment agreement contains Indiana choice of law and choice-of-forum clauses.  Trial for the Indiana action is set for January 23, 2018.

In Scales’ later-filed California action, he seeks a declaratory judgment “that [his] respective Non-Competition Agreement [is] an unlawful and unenforceable restraint of trade, in violation of section 16600 of the California Business and Professions Code.” Badger removed the case to federal court in the Eastern District of California based on diversity of citizenship and immediately filed a motion to dismiss based on the agreement’s Indiana forum-selection clause.

U.S. District Judge Dale A. Drozd granted Badger’s motion to dismiss on June 1, 2017, holding that the forum-selection clause was valid because it did not deprive Scales of his day in court and it did not contravene public policy.  Judge Drozd reasoned that Scales has the financial means and opportunity to challenge the non-compete provisions of the employment agreement in the matter pending in Indiana state court – thus consigning Scales to the Indiana court for a determination of the enforceability of the non-compete.

Judge Drozd also rejected Scales’ argument that enforcing the forum-selection clause would violate recently enacted California Labor Code § 925.  The new law (which became effective this year) provides that an employer shall not require an employee who primarily resides and works in California to agree to a provision that would either: (1) require the employee to adjudicate a claim outside of California that arose in California; or (2) deprive the employee of the substantive protection of California law with respect to a controversy arising in California.  The statute also requires that a provision of a contract that violates § 925 is “voidable by the employee” and “the matter shall be adjudicated in California.” The recently enacted law also awards attorneys’ fees to employees seeking its protection. However, Judge Drozd correctly noted that § 925 applies only to contracts “entered into, modified, or extended on or after January 1, 2017.” Scales signed his employment agreement in August 2014, and, therefore, is not covered by the protections of § 925.

Although non-California forum-selection clauses may sometimes save a non-compete from near-certain-death before a California court, Judge Drozd recognized that going forward, § 925 will generally preclude the enforcement of forum-selection clauses contained in agreements entered into on or after January 1, 2017, thus defeating out-of-state employers’ attempts to evade California’s non-compete restrictions.

Employers should review their employment agreements going forward to ensure compliance with § 925 and can begin by visiting the helpful FAQ we published earlier this year regarding the new law.

 

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Special thanks to Samuel Kronenberg, Summer Associate, for his assistance in preparing this alert.

New Notice Requirement For Domestic Violence Victims’ Rights To Go Into Effect (July 1, 2017)

As we previously blogged, Assembly Bill 2337 (approved by the Governor last fall) will go into effect on July 1, 2017, and California employers will be required to give written notice of workplace rights that must be provided to victims of domestic violence, sexual assault, and stalking. The Labor Commissioner has just posted a form that employers may elect to use to comply with these provisions.

Employers should ensure that they give new hires written notice of all the workplace rights set forth in AB 2337 by at least providing new hires with this form.

 

New Transgender Identity and Expression Regulations (July 1, 2017)

In May 2017, the California Department of Fair Employment and Housing (DFEH) approved new regulations regarding transgender identity and expression in the workplace. The regulations become effective July 1, 2017.

The new rules further expand the Fair Employment and Housing Act’s (FEHA) role in preventing discrimination in employment and housing on the basis of gender identity. In addition, the regulations describe some new policies that employers must implement, including the following:

Restroom Facilities

Employers are now required to provide equal access to facilities regardless of the sex of the employee. Employees must be permitted to use facilities that correspond to the employee’s gender identity or gender expression. Employers must use gender-neutral signage for single-occupancy facilities under their control. They cannot require any proof of sex or gender for an employee to use a particular facility.

Transitioning

The new regulations add a definition of “transitioning” and prohibit discriminating against an individual who is transitioning, has transitioned, or is perceived to be gender transitioning. Transitioning is defined as a process in which an individual begins living as the gender with which they identify and can include changes in name usage, participation in employer-sponsored activities, undergoing hormone therapy, etc.

Dress Standard

An employer cannot impose a dress standard that is inconsistent with an employee’s gender identity or expression in the absence of a business necessity.

Preferred Name and Identity

The new regulations require employers to abide by an employee’s request to be identified by a certain name or a certain gender identity. Employers can only insist on using an employee’s legal name or gender if it is otherwise required to meet a legally-mandated obligation.

Documentation

An employer cannot inquire or require documentation on sex, gender, gender identity, or gender expression as a condition of employment.

Employers should ensure their policies comply with these new regulations regarding transgender identity and expression before July 1, 2017. Employers should also review their employee handbooks to make sure any policies contained therein comply with the new regulations.

 

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Special thanks to Cole Lewis, Summer Associate, for his assistance in preparing this alert.

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