California Employment Law Update

California Supreme Court Hands Employers A Rare Victory, Trims Bloated PAGA Claims

Yesterday, the California Supreme Court held that private litigants may not recover unpaid wages under the Labor Code Private Attorneys General Act (“PAGA”).  See ZB, N.A. v. Superior Court (Lawson) (Cal. S. Ct. Sept. 12, 2019).

In a rearguard effort to fight employment arbitration agreements, which usually include class action waivers, plaintiffs’ lawyers have been routinely filing PAGA representative actions in an effort to stay in court and out of arbitration.  Plaintiffs relied on Thurman v. Bayshore Transit Management, Inc., 203 Cal. App. 4th 1112 (2012), to argue that, in addition to obtaining the PAGA penalties, they also could recover underlying unpaid wages under Section 558 of the Labor Code.  Essentially, Plaintiffs have been seeking the same recovery they otherwise would have obtained through a class action.

By circumventing their class action waivers and seeking unpaid wages in the PAGA action, Plaintiffs have attempted to revive class action claims for unpaid wages and turned PAGA claims into “sloppy class actions.”  The result has been grossly inflated settlement demands—and higher potential verdicts.  Happily, Lawson forecloses this attempted end-run around class action waivers and the misinterpretation of Labor Code Section 558.

In yesterday’s ruling, the Supreme Court rejected Thurman’s conclusion and noted that “[d]eeming … unpaid wages … to be a civil penalty … cannot be squared with the understanding of that term under the PAGA.”  The Court held that “the civil penalties a plaintiff may seek under … [the Labor Code] through the PAGA do not include the ‘amount sufficient to recover underpaid wages.’”

Lawson therefore significantly reduces the amount of potential exposure employers face in lawsuits brought under the PAGA.  Although PAGA penalties often far eclipse the potential underlying wage liability, Lawson restricts recovery to actual civil penalties—not unpaid wages—and deprives plaintiffs’ lawyers of a workaround to class action waivers in arbitration agreements.

Uber, Lyft, and DoorDash Pledge $90 Million To Fund Voter Initiative To Overturn Assembly Bill 5

Assembly Bill 5, a proposed new law currently pending in the California legislature, would limit and codify last year’s California Supreme Court Dynamex opinion.  If passed and signed into law by Gov. Newsom (he’s already said he’ll sign it), AB-5 would make it nearly impossible for most California employers to hire an independent contractor and would convert such workers into “employees” in the eyes of the law.

Among the things the California legislature finds most enticing about the proposed new law is the prospect of collecting more than $7 billion each year in new payroll taxes, which apply to workers who are classified as employees instead of independent contractors. Further, the California legislature, which depends heavily on campaign donations from labor unions, likes the proposed law because it will increase the number of employees (and, therefore, the number of prospective dues-paying union members) in California. (Assemblywoman Lorena Gonzalez, the bill’s author, was the Secretary-Treasurer and CEO of the San Diego-Imperial Counties Labor Council, AFL-CIO, before being elected to office.)

In response to the legislative action, three titans of the “gig economy” (Uber, Lyft, and DoorDash) pledged a combined total of $90 million to fund a voter initiative in 2020 that would limit or overturn AB-5 and Dynamex.  A bruising ballot fight over this issue will be something to behold and will cost both sides a fortune in advertising and voter outreach efforts.

Employer Sues Its Law Firm for Malpractice and EPLI Insurer for Bad Faith

These days, more employers than ever are purchasing Employment Practices Liability Insurance (“EPLI”) to cover them in the event they get sued for employment-related claims. (See our earlier posting on that topic: “A Handy Guide for Choosing and Using Employment Practices Liability Insurance Coverage.”)

As we pointed out in that article, there are definitely some “cons” that go along with the perceived advantages of insurance coverage for employment claims. One of those “cons” is that the insurance companies usually insist that the employer use their lower-rate panel counsel to defend the case. Because the insurance-appointed counsel will be looking to the insurance carrier (not the employer) for their next case, the lawyers typically consider the insurer to be their “client” at least as much if not more than the employer is.

In a recently filed case in the Los Angeles Superior Court, an employer with EPLI coverage is suing its insurer-provided law firm (Gordon Rees Scully Mansukhani, LLP) for legal malpractice and the insurance company (Admiral Insurance Co.) for bad faith denial of the duty to defend its insured (the employer). Among other things, the employer alleges that the Gordon & Rees law firm “consistently treated Admiral as the ‘real’ client – consistently favoring Admiral’s interests while simultaneously ignoring its responsibilities to [the insured employer].”

The employer claims that the law firm defended the underlying lawsuit “in a manner which steered liability towards the ‘wage and hour’ claims (which were subject to a strict sublimit [of liability]) away from the fully covered Employment Practices claims thereby creating a conflict of interest with the [employer].” The employer further alleges that the law firm “acted consistently as if its sole duty was one of absolute fealty to the insurance carrier that was paying its bills, and remained silent as to its conflict of interest, the better to serve its insurance company masters.”

While all of these allegations are simply that (allegations and not facts), this lawsuit highlights some of the inherent risks and challenges created by EPLI. Should you have any questions about EPLI coverage generally or the issues that arose in this case in particular, our employment and insurance coverage lawyers are standing by to assist.

Los Angeles Jury Awards $15.4 Million To Former LA Times Columnist

 

Employers all over California are once again hearing the siren call of arbitration in the wake of a $15.4 million single-plaintiff verdict that a Los Angeles jury delivered to a former Los Angeles Times sports columnist on Monday.  T.J. Simers sued the paper for age and disability discrimination.  Simers quit his job in 2013 following an investigation into a possible ethical breach on his part, which resulted in a “final written warning” and a change of his position from columnist to senior reporter.  Although Simers was given an offer to return to his prior position as a columnist less than three weeks later, he declined because he “did not trust The Times“; instead, he accepted a new position at the Orange County Register.

Simers filed this lawsuit against The Times, alleging that he was forced to quit his job due to age and disability discrimination (shortly before he quit, Simers allegedly suffered a “neurological event” from which he quickly recovered).  In 2015, a jury awarded Simers $7.1 million based on the alleged discrimination, but the trial judge ordered a new trial on damages.  In this retrial, a new jury awarded Simers more than twice as much money ($15.4 million) for his noneconomic/emotional distress damages.  After the verdict, one of Simers’ lawyers boasted that after prejudgment interest and attorney’s fees were added to the award, it would exceed $22 million.

Public Employee Union Members Sue Over Forced Dues Payments

Five In-Home Supportive Service (“IHSS”) providers filed a class-action lawsuit last month challenging their union’s practice of deducting union dues despite their quitting the union. The workers allege their First Amendment rights are being violated by the union deducting dues from their paychecks and using it to subsidize union speech.  Just one year ago, the United States Supreme Court held that it is a violation of the First Amendment to require public sector employees who are not members of a union to pay any union dues, even when a portion of those dues is attributable to the costs of collective bargaining on behalf of all employees.

While an IHSS provider can resign from the union at any time, the employees allege that the union continues to deduct and collect union dues from them even after they have resigned from the union.  The employees seek to certify a class of IHSS providers from whom union dues can be deducted after the individual provided notice that he or she opposed paying dues.

The lawsuit requests declaratory judgment that deducting and collecting union dues from class members violates the First Amendment, as well as injunctive relief enjoining the union from deducting and collecting union dues from class members.

California Law Requiring Female Board Members Challenged In Court

Earlier this week, three taxpayers sued California Secretary of State Alex Padilla to prevent enforcement of Senate Bill 826.

Senate Bill 826, signed into law last year by former Governor Jerry Brown, requires that by the end of 2019, all publicly held foreign or domestic corporations whose principal executive offices are in California shall have at least one female director on their boards of directors. By 2021, such corporations are required to have at least two female directors if the board has five members or at least three female directors if the board has six or more members.

The lawsuit asserts that this “quota system” violates Article I, Section 31 of the California Constitution, which prevents discrimination based on sex.  The Plaintiffs ask for a judgment declaring illegal all expenditure of taxpayer funds and taxpayer-resources to enforce SB 826 as well as an injunction permanently prohibiting Padilla from enforcing SB 826.

The lawsuit was filed by Judicial Watch, Inc., a self-described “conservative, non-partisan educational foundation, [that] promotes transparency, accountability and integrity in government, politics and the law.”

This is the second lawsuit filed by Judicial Watch against California in the past week. Last week, Judicial Watch sued the state for its new law requiring presidential candidates to disclose their tax returns in order to appear on a primary ballot.

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