California Employment Law Update

January 2022 California Employment Law Notes

We invite you to review our newly-posted January 2022 California Employment Law Notes, a comprehensive review of the latest and most significant developments in California employment law. The highlights include:

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Cal/OSHA’s COVID-19 Emergency Temporary Standards Survives its First Challenge

 

As we reported here, Cal/OSHA’s revised COVID-19 Emergency Temporary Standards (“ETS”) took effect on January 14, 2022. The controversial emergency regulations, which have caused employers countless headaches, survived their first major challenge when the Court of Appeal, in Western Growers Association v. Occupational Safety and Health Standards Board affirmed the trial court’s order blocking a preliminary injunction.

A coalition of agricultural business organizations argued that Cal/OSHA undermined existing workplace safety laws and regulations and exceeded its statutory authority when it implemented the ETS. They filed for a preliminary injunction in early 2021.  The trial court denied the petition, finding the Plaintiffs did not show a likelihood of success on the merits.

Last week, the Court of Appeal affirmed the trial court’s decision, agreeing that the regulations are a proper exercise of authority within Cal/OSHA’s “area of expertise,” and that they are a necessary immediate action because existing workplace safety regulations were insufficient to tackle the unprecedented risks of COVID-19 transmission.

Therefore, as burdensome as they may be, the ETS live to see another day.

California Voters May Deal a Fatal Blow to PAGA

Things aren’t looking so good for the long-term health of the Labor Code Private Attorneys General Act (“PAGA”).

On top of the U.S. Supreme Court’s granting review of a case challenging PAGA’s anti-arbitration rule (as we reported here) and a separate challenge brought by an association of California business owners currently pending before the California Court of Appeal, a new initiative is headed for the November 2022 ballot, which could deliver a fatal blow to the much-maligned law – and it couldn’t happen to a nicer statute!  (Former Governor Gray Davis unleashed this controversial measure on Californians shortly after he lost the recall election in October 2003.)

In its present form, PAGA authorizes allegedly “aggrieved” employees to bring representative actions to recover hefty penalties for purported Labor Code violations (many of which have resulted in absolutely no harm to a single employee).  More importantly, the engine that makes these lawsuits run is the recovery of attorneys’ fees.  Well over 6,000 PAGA lawsuits were filed in 2020 alone. The law has been criticized for enriching a small (but ever-growing) group of “bounty-hunting” plaintiffs’ lawyers who share but a fraction of the payouts with the “aggrieved” employees and the state, which is why we affectionately refer to PAGA as the “Prettymuch All Goes to the Attorneys” statute. (See also the California Chamber of Commerce’s take on PAGA (here)).

If passed by the voters in November, the Fair Pay and Employer Accountability Act (“FPEAA” – admittedly, not as catchy an acronym as “PAGA”) will take enforcement out of the hands of private “aggrieved” employees and their attorneys and give it back to the Labor Commissioner.  FPEAA bestows upon affected employees 100% of the penalties recovered, which is a major change from PAGA, which gives employees only 25% of the total penalty amount. The proposed law also would eliminate “stacking,” which allows penalties for multiple violations to add up quickly and reach astronomical amounts.

In addition, the FPEAA would establish a Consultation and Policy Publication Unit within the Department of Industrial Relations to publish information and provide confidential consultations to employers with compliance questions, and charges the California Legislature with ensuring the Department has the funding necessary for enforcement.

Stay tuned here as PAGA weathers the many challenges 2022 seems to have in store for it!

New Variants, New Regulations: Updates to the Emergency COVID Standards Take Effect January 14th

Last month, California’s Occupational Safety and Health Standards Board (“OSHSB”) readopted and revised the Cal/OSHA COVID-19 Prevention Emergency Temporary Standards (“ETS”).  By and large, OSHSB’s revised ETS retain most of the key requirements of the prior version, which had last been updated last June (as we reported here).  However, the revised ETS, which will take effect on January 14th, also aim to conform the existing rules to the latest requirements and recommendations from the California Department of Public Health (“CDPH”). We have summarized some of the more notable updated provisions below:

  • Clarified Exposure Notification Obligations. The revised ETS clarify the required procedures for employers to notify employees who were potentially exposed to COVID-19 at work. Employers are now required to provide a readily-understandable, written notification that the employee may have been exposed within one business day of the exposure, without revealing any personally identifying information of the underlying COVID-19 case. Employers may notify workers via personal service, email, text message, or any other method that ensures receipt within the one business day deadline.
  • Expanded Testing Requirements for Exposed Employees. Employers must also provide COVID-19 testing at no cost to employees during paid time to all employees who had a close contact with a COVID-19 case in the workplace—including to fully vaccinated and asymptomatic employees, which is a departure from the prior version of the ETS.  However, employers are not required to provide testing during paid time to employees who have returned to work following a confirmed COVID-19 case and who remained free of COVID-19 symptoms.
  • New Exceptions to Exclusion Rules for Some Employees. The updated ETS purport to revise the exclusion rules for employees who had a “close contact” with a COVID-19 case in the workplace; however, as explained below, the updated ETS’s timeframes are not controlling requirements.  The updated ETS provide that exposed employees who never developed symptoms may return to work:  (1) 14 days after the last known close contact; (2) 10 days since the last known close contact if the employees wear a face covering and maintain six feet of social distance from other employees until 14 days have passed since the contact; or (3) seven days after the last known close contact if the employees test negative for COVID-19 with a specimen taken at least five days after the last known close contact, and so long as such employees wear face coverings and socially distance for 14 days.  Similarly, the revised ETS provide that asymptomatic employees who recovered from COVID-19 within the last 90 days do not need to be excluded from work following a close contact if they wear a face covering and socially distance for 14 days.

Adding additional confusion into the mix is Governor Newsom’s Executive Order N-84-20 from December 14, 2020, which states that where the quarantine and isolation periods required by the ETS are longer than what is required by the CDPH’s isolation and quarantine guidance, the CDPH guidance prevails.  Thus, notwithstanding the revised ETS language, the CDPH’s guidance controls.  The latest CDPH guidelines on quarantine and isolation mandate that:

  • Employees who test positive should isolate for at least five days, regardless of vaccination status, previous infection, or lack of symptoms. They may end isolation after five days if they have no symptoms or resolving symptoms and they test negative on the fifth day following exposure. Otherwise, they must isolate for ten days.
  • Unvaccinated employees who are exposed to COVID-19 must stay home for five days, and can end isolation if they are asymptomatic and test negative on the fifth day (but must continue to wear a face covering for ten days following initial exposure). Otherwise, they must isolate for ten days.
  • Exposed employees who are vaccinated and booster-eligible but who have not yet received their booster shot can end isolation if they are asymptomatic and test negative three to five days from exposure (but must continue to wear a face covering for ten days following initial exposure). Otherwise, they must isolate for ten days.
  • Exposed employees who are boosted or who are vaccinated and not yet eligible for a booster (i.e., “up to date” employees) are advised to test on their fifth day following exposure and, if they remain asymptomatic, are not required to isolate so long as they continue to wear a face covering for ten days following exposure.

Employers should familiarize themselves with the changes and make sure they are ready to implement the new requirements.  Cal/OSHA likely will issue updated guidance in the coming weeks.

Los Angeles Employers Now Must Provide and Monitor Masks in the Workplace

The Los Angeles County Department of Public Health, which has responsibility for the County’s more than 10 million residents, kicked off the new year with a brand new Health Officer Order on January 5, 2022. Among other changes, the new Health Officer Order imposes significant requirements on employers with respect to face coverings (effective January 17, 2022).

While Los Angeles County already had an indoor mask mandate, until now employers could allow their employees to wear both cloth and medical/surgical face coverings. However, under the new Health Officer Order, employers are not only required to provide medical-grade surgical masks or respirators (e.g., N95 or KN95 masks), but they also must ensure that these more protective face coverings are worn by all employees “who work indoors and in close contact with other workers or the public . . . at all times while indoors at the worksite or facility.”

As in the past, the nation’s most populous county may be the harbinger of changes to come elsewhere. With growing data indicating that cloth masks are less effective against new COVID-19 variants like Omicron, other jurisdictions soon may follow in Los Angeles’ footsteps.

Heightened PAGA Penalties Are Inapplicable For Most Wage Statement Claims

Christmas came early this year for California employers.  Bucking the trend of unrelentingly bad news for employers in the state, the California Court of Appeal has held that the default (lower) penalties found in the Labor Code Private Attorneys General Act (“PAGA”) and not the heightened penalties set forth in Labor Code section 226.3 (“Section 226.3”) apply to a run-of-the-mill PAGA claim involving allegedly incomplete or inaccurate wage statements.  In so ruling, the court in Gunther v. Alaska Airlines, Inc. expressly declined to follow an earlier decision by another panel of the same court in Raines v. Coastal Pacific Food Distributors, 23 Cal. App. 5th 667 (2018).  This conflict between the panels now sets the table for intervention by the California Supreme Court, which will have to decide which court got it right.

In Gunther, the trial court found Alaska Airlines liable for approximately $25 million in PAGA penalties stemming from wage statements that allegedly failed to contain all of the information required under Labor Code section 226(a) (“Section 226(a)”).  Relying on Raines, the trial court held that the proper measure of PAGA penalties for any violation of Section 226(a) is set forth in Section 226.3, which provides, in relevant part:  “Any employer who violates subdivision (a) of Section 226 shall be subject to a civil penalty … of two hundred fifty dollars ($250) per employee per violation in an initial citation and one thousand dollars ($1,000) per employee for each violation in a subsequent citation, for which the employer fails to provide the employee a wage deduction statement or fails to keep the records required in subdivision (a) of Section 226.”

However, the appellate court in Gunther held that “[u]nder the plain meaning of the[] words [in Section 226.3], the heightened penalties under [S]ection 226.3 apply only where the employer either fails to provide a wage statement or fails to keep required records as required by [S]ection 226(a).”  Accordingly, because it was undisputed that Alaska Airlines had provided wage statements (albeit allegedly noncompliant ones) to the “aggrieved employees” at-issue, the court reversed the trial court’s imposition of the heightened PAGA penalties based on Section 226.3 and held that any deficiencies in the wage statements would trigger only the “default” PAGA penalties of $100 per employee per pay period and, if a court or the Labor Commissioner previously notified Alaska Airlines of violations, $200 for subsequent violations.

As most employers who have faced such PAGA claims know, it is often the case that wage statement violations and their related penalties represent a substantial component of alleged liability in PAGA actions.  Accordingly, Gunther should provide valuable assistance to employers in keeping settlements reasonable in the face of absurdly inflated plaintiffs’ demands based on mere technical violations of Section 226(a).

Volunteers May Work For Nonprofits Without Compensation

The California Court of Appeal has definitively resolved an issue that was until now somewhat ambiguous:  Can volunteers in fact volunteer their time for nonprofit organizations without receiving pay or other forms of compensation?  The answer is YES.  Woods v. American Film Institute, Case No. B307220 (Cal. Ct. App. Dec. 17, 2021).

Laurie Woods worked for four days as a volunteer at the American Film Institute’s (“AFI”) annual Film Festival in Los Angeles.  (AFI is a 501(c)(3) nonprofit organization dedicated to celebrating excellence and creating educational initiatives in film.)

After the Festival, Woods filed a putative class action against AFI for wage and hour violations, seeking compensation for unpaid wages and meal and rest breaks, arguing that she and other similarly situated volunteers were in fact employees. The trial court denied Woods’ motion for class certification on the ground that common questions would not predominate over individual issues for the claims that Woods sought to certify for class treatment. The Court of Appeal affirmed the trial court’s ruling.

Woods argued that AFI is not the kind of nonprofit organization that is permitted to use volunteers under California law on the theory that only religious or charitable organizations dedicated to helping the poor, needy or suffering may enlist the support of unpaid volunteers. The Court of Appeal rejected Woods’ position:

Under Woods’ interpretation, local community theatre organizations, community orchestras, and other cultural nonprofit entities would be required to treat all their workers as employees, even if those workers were dedicated to the mission of the organization and wished to volunteer their time. Such a rule would have unforeseen and potentially devastating financial implications for such groups.

In light of this ruling, it is now clear in California that volunteers may donate their time and assistance to civic, charitable, and humanitarian nonprofit organizations without compensation or any other form of remuneration other than the satisfaction of supporting an organization they want to help.

Court Rejects Netflix’s Challenge to Poaching Injunction

In the latest blow against Netflix’s aggressive recruiting practices, a California appellate court has affirmed a trial court’s injunction against Netflix and in favor of Twentieth Century Fox Film Corporation (“Fox”), thus permanently barring the streaming giant from poaching Fox executives by inducing them to breach their fixed-term employment contracts.

Netflix challenged the injunction, which was issued two years ago under California’s Unfair Competition Law (“UCL”), on two grounds. Netflix argued that there are triable issues of fact as to whether: (1) Fox had suffered damages; and (2) Fox’s employment contracts were void as against public policy. The Court of Appeal rejected both arguments, finding that the extent of damages to Fox was not relevant to its UCL claim. The Court also rejected Netflix’s public policy arguments, noting that there is well-settled law that fixed-term contracts are beneficial to both employers and employees and that, in any event, the challenged contractual provisions can be severed, even if they are in any sense unenforceable or unlawful.

The Court of Appeal also rejected Netflix’s challenges to the trial court’s permanent injunction, which barred Netflix from soliciting employees who are subject to fixed-term employment contracts with Fox or inducing such employees to breach their fixed-term employment contracts. Specifically, the Court rejected the argument that the injunction was vague or overbroad because Netflix had failed to explain the basis for the objection at the summary judgment hearing, despite having been given ample opportunity to do so. The Court also rejected Netflix’s argument that the injunction resulted in specific performance of personal services contracts, pointing out that the injunction only applied to Netflix’s tortious conduct—and did not bind any current or former Fox executives.

This decision follows a similar ruling late last year, when a trial court ruled in favor of our client Viacom in its anti-poaching lawsuit against Netflix.

A holding the other way for Netflix could have upended the way California employers solicit and retain employees, especially in the entertainment industry, where fixed-term employment agreements are relatively commonplace. Although the recent Court of Appeal decision is unpublished, it presumably sends a strong message to those who would poach the employees of a competitor who are subject to fixed-term employment agreements.

Good Tidings for the Holidays! The U.S. Supreme Court Finally Will Review (and May Bury) PAGA’s Anti-Arbitration Rule

While the California Supreme Court has repeatedly upheld arbitration agreements with class action waivers (as they must under the Federal Arbitration Act), in a now infamous (and controversial) decision from 2014, the court held that an arbitration agreement could not include an enforceable waiver of an employee’s right to bring a “representative” action under the California Labor Code Private Attorneys General Act of 2004 (“PAGA”).  The court’s decision rested largely on the theory that a PAGA claim is filed by an employee on behalf of the State (and California has never agreed to arbitrate such claims) even though the employees and, especially, their lawyers generally recover more than the state doesSee Iskanian v. CLS Transp. Los Angeles, LLC, 59 Cal. 4th 348 (2014).

This is the reason we affectionately refer to PAGA as the “Prettymuch All Goes to the Attorneys” statute.

Over the years, the U.S. Supreme Court declined time and again to review the California Supreme Court’s decision despite repeated cert petitions—in 2015, 2017, and 2018.  (After all, it’s a big country, and the Supreme Court can only spend so much time extricating California from its many follies!)  As a result, there emerged a trend of plaintiffs’ lawyers completely abandoning class claims in favor of PAGA-only actions, which were believed to be forever immune from representative action waivers.  Until now, maybe…

On December 15, 2021, the U.S. Supreme Court granted cert in Viking River Cruises, Inc. v. Moriana, a 2020 California Court of Appeal decision that reaffirmed Iskanian’s holding.  In addition to Viking River, there were a number of other cert petitions challenging Iskanian’s holding before the Supreme Court.

While there is, of course, no way to predict the ultimate outcome in Viking River, many believe that recent changes in the composition of the Supreme Court as well as the Court’s generally pro-arbitration jurisprudence over the past decade (even among liberal justices) suggest that Iskanian’s days may be numbered.  And, although the Supreme Court has yet to schedule oral argument in the case, we should have an answer on Iskanian’s fate by the end of the current Supreme Court Term in late June 2022.

In the interim, Iskanian remains the law of this land.  But, employers who want to take immediate advantage of a potentially favorable outcome in Viking River should consult with counsel about what steps they should take right now.  Certainly, employers should reconsider whether to accept as a foregone conclusion that PAGA claims are and shall always be immune to arbitration/waiver agreements – there is now light at the end of that tunnel.  So, employers may consider filing motions to compel arbitration, relying on the Federal Arbitration Act; even if they are initially unsuccessful, Viking River likely will be decided before any appeal could be adjudicated.  Further, employers should closely reexamine their arbitration agreements to ensure that the language is sufficiently broad to take advantage of a favorable decision in Viking River.

Los Angeles Jury Hands $155 Million Holiday Gift to Fired Insurance Executive

As we recently reported, California juries continue to award massive verdicts to employees with alarming regularity.  And, just in time for the holidays, a Los Angeles Superior Court jury upped the ante on Thursday, handing a fired insurance company executive a verdict totaling $155.4 million – including $150 million in punitive damages.

Plaintiff Andrew Rudnicki worked for Farmers Insurance Exchange as a senior executive and lawyer in its Claims Litigation division.  Farmers claimed it terminated Rudnicki’s employment after he made sexist and inappropriate remarks (e.g., using terms like “girlish figure” and “lesbian quota”); failed to escalate concerns raised by female employees about underrepresentation of women in management roles; and did not respond appropriately to one of his reports’ failure to adhere to document preservation protocols.  For his part, Rudnicki claimed his termination was discriminatory based on his age, gender, and disability, and in retaliation for his participation in the investigation and defense of a pay equity class action against Farmers, which ultimately settled for over $4 million.

While Farmers successfully secured summary adjudication on a number of Rudnicki’s claims, several causes of action remained for the jury to decide.  And, although they unanimously rejected Rudnicki’s discrimination allegations, the jury found in his favor on his retaliation allegations, awarding him $5.4 million in compensatory damages, including $4.4 million for lost past and future wages and $1 million for emotional distress (he testified that he experienced “shock, depression, and embarrassment” over the termination and that he “endured fitful sleep and a loss of appetite for at least three or four months”).

Not to be outdone by the San Francisco jury that recently awarded $130 million in punitive damages against Tesla to a short-term employee, the Los Angeles jury in this case assessed $150 million in punitive damages against Farmers.

Fast math:  That is almost a sixth of a billion dollars for the firing of one person!

Setting aside the likelihood that this unconstitutionally high punitive damages award will be reduced through post-trial motions or on appeal, this verdict is just another example of the very real dangers that await those employers who blithely trust their fate to a California jury and further proves what we have preached time and again. There is only one way for California employers to insulate themselves from such catastrophes:  Arbitration, arbitration, arbitration!

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