California Employment Law Update

“Runaway Juries” And The Lure Of Arbitrating Employment Disputes Highlighted In Latest Podcasts

Labor & Employment Co-Chair Tony Oncidi was recently interviewed for the Lexis Practical Guidance podcast (links below):

  • In “Runaway Juries in Employment Litigation Podcast,” Tony discusses some astoundingly large jury verdicts (greater than $100 million!) in recent single-plaintiff California employment trials and provides cogent insights about how to avoid same.
  • As one solution to runaway juries, Tony describes both the pros and cons of adopting workplace arbitration agreements in “Is L&E Arbitration the Answer? Podcast.” He also addresses practical strategies for employers when implementing same.

California Supreme Court Expands Employee Whistleblower Protections

 

The California Supreme Court has held that an employee who makes a whistleblower complaint to his or her employer may bring a retaliation claim under the whistleblower statute (California Labor Code § 1102.5(b)) even if the subject of the complaint was already known.  Previous case law held that an employee whistleblower complaint regarding an alleged violation of the law that was already known to the employer that received the complaint was not protected by law.  It is now clear, however, that employers may not retaliate against an employee who has made a whistleblower complaint, regardless of whether the employer or agency already had knowledge or information about the alleged violation.

The Court’s decision in People ex rel. Garcia-Brower v. Kolla’s, Inc (May 22, 2023) arose from a complaint made by a bartender to her employer that she had not been paid wages owed to her for three shifts she had worked at Kolla’s Inc., a nightclub in Orange County, California.  Upon receiving the complaint, the owner of the nightclub responded by threatening to report the employee to immigration authorities, terminating her employment, and telling her never to return to the nightclub.  The employee then filed a complaint against the nightclub with the California Department of Labor Standards Enforcement (DLSE), and the DLSE concluded that the nightclub had unlawfully retaliated against the employee.  When the nightclub refused to pay damages, the California Labor Commissioner sued for various violations, including unlawful retaliation under Section 1102.5(b).

The trial court and a subsequent court of appeal ruled against the Labor Commissioner’s claim for retaliation after finding that the bartender’s complaint was not a protected “disclosure” under Section 1102.5(b).  Those courts reasoned that a “disclosure” required “the revelation of something new, or at least believed by the discloser to be new, to the person or agency to whom the disclosure is made.”  Because the nightclub presumably knew that it had failed to pay the employee the wages that were due, the employee’s complaint did not qualify as a “disclosure” as required by Section 1102.5(b).

The California Supreme Court saw it differently, relying upon a different interpretation of the statutory meaning of the word “disclosure.”  The Court found that the term “disclosure” under Section 1102.5(b) “includes protection for disclosures made to ‘another employee who has the authority to investigate… or correct the violation,’ without regard to whether the recipient already knows of the violation.”  Because it was immaterial whether the nightclub had knowledge of its failure to pay the employee for wages earned, the nightclub’s actions, including threatening to report the employee to immigration authorities, terminating her employment, and instructing her never to return to work, constituted unlawful retaliation under Section 1102.5(b).

In accordance with this new interpretation of “disclosure” under Section 1102.5(b), California employers must now ensure that they do not retaliate against employees who make a whistleblower complaint, even when the subject of the complaint is already known to the employer.

Employers Face New Accommodation Requirements For Nursing Mothers

In our recent blog post, we highlighted legislation that will impact employers this year related to nursing and pregnant employees: the Providing Urgent Maternal Protections for Nursing Mothers Act (the “PUMP Act”) and the Pregnant Workers Fairness Act (the “PWFA”).  As this legislation becomes effective—with the PUMP Act taking effect on April 28, 2023 and the PWFA set to become effective on June 27, 2023—the Department of Labor’s Wage and Hour Division (the “WHD”) released a new bulletin concerning enforcement of the PUMP Act.

In the bulletin, the WHD emphasizes the PUMP Act’s increased scope, noting that it now applies to 9 million more employees not previously covered under the FLSA.  The PUMP Act requires employers to provide nursing employees with unpaid, reasonable break time every time the employee has such a need for one year after the child’s birth.  Importantly, the employee must be completely relieved from duty for the break to be unpaid.  For teleworking employees, employers must provide break time as if those employees were working on-site.  The WHD offered several examples of what could constitute “reasonable break time,” including an example of an employee who takes four 25-minute breaks each day.

These new accommodation obligations affect not only non-exempt (so-called “hourly” employees) but exempt (“salaried”) employees as well.  The WHD explains that, like non-exempt employees, salaried employees must be given reasonable break time and an employer may not reduce a salaried employee’s pay because she is taking these breaks.  Employers must also provide a suitable and “functional” location (not a bathroom) for pump breaks shielded from view and free from intrusion as well as a place to safely store milk.  Generally, an employer must furnish a locked door or sign to ensure the employee’s privacy.

The WHD also addressed retaliation which is prohibited under the PUMP Act. For instance, the WHD described as retaliatory an employer that asks an employee to work additional hours on the weekend to make up time spent during their pump breaks.

Lastly, the WHD discussed the various exemptions applicable to small businesses, air carriers, rail carriers, and motorcoach services operators.  Notably, small businesses (50 or fewer employees) seeking an exemption must show that compliance will require an undue hardship.  The WHD explains that undue hardship is analyzed on an “individual employee basis,” i.e., that the specific employee’s needs would cause an undue hardship in light of the size, financial resources, nature, and structure of the employer.  Small businesses should exercise caution in seeking an exemption as they will bear the burden of proving undue hardship.

EEOC Releases Technical Document on AI and Title VII

On Thursday May 18, 2023, the Equal Employment Opportunity Commission (“EEOC”) released a new technical assistance document titled Assessing Adverse Impact in Software, Algorithms, and Artificial Intelligence Used in Employment Selection Procedures Under Title VII of the Civil Rights Act of 1964. The document was released as a part of the EEOC’s Artificial Intelligence and Algorithmic Fairness Initiative and outlines considerations for incorporating automated systems into employment decisions. EEOC Chair Charlotte A. Burrows called the technical assistance document “another step in helping employers and vendors understand how civil rights laws apply to automated systems used in employment.”

The document assesses whether an employer’s selection procedures (the procedures it uses to make employment decisions such as hiring, promotion, and firing) “have a disproportionately large negative effect on a basis prohibited by Title VII.” Essentially, whether the employment practice has a disparate impact on the basis of race, color, religion, sex, or national origin, as protected by Title VII.

The document encourages application of the Uniform Guidelines on Employee Selection Procedures (the “Guidelines”) to determine if any tests or selection procedures, including the use of an algorithmic decision-making tool, are lawful under Title VII’s disparate impact analysis.

The Questions and Answers section of the document provides interesting insight. The EEOC takes the position that use of an algorithmic decision-making tool that has an adverse impact will violate Title VII unless the employer can show the use is “job related and consistent with business necessity.” The EEOC states that an employer can be held responsible under Title VII for selection procedures that use an algorithmic decision-making tool if the procedure discriminates on a basis prohibited by Title VII, even if the tool is designed or administered by another entity, such as a software vendor. The EEOC affirms that if an outside entity has an employer’s authority to administer or use an algorithmic decision-making tool on its behalf, the employer may be held responsible for the actions. Therefore, employers are encouraged to ask vendors, before using an algorithmic decision-making tool, whether they have evaluated if the use of the tool causes a substantially lower selection rate for individuals with any characteristics protected by Title VII. However, even with the vendor’s assurance, the employer can still be held liable for any disparate impact or disparate treatment discrimination if the vendor is incorrect about its assessment. Further, the document explains that an employer developing a selection tool can take steps to reduce the impact or select a different tool to avoid violating Title VII. However, an employer may be liable if it fails to adopt a less discriminatory algorithm that was considered during the development process.

Notably, the EEOC does not address disparate treatment under Title VII or other stages of the disparate impact analysis including if an algorithmic decision-making tool can determine job-related traits or characteristics.

May 2023 California Employment Law Notes

We invite you to review our newly-posted May 2023 California Employment Law Notes, a comprehensive review of the latest and most significant developments in California employment law. The highlights include:

View PDF

Gig Workers: 2, California: 0 in Ongoing Fight for Independent Contractor Status

The long-running feud between California and the “gig economy” shows no sign of ending soon. On April 28, 2023, the State of California submitted a petition to the Ninth Circuit in Olson v. California, No. 21-55757 (9th Cir.), seeking review or a rehearing before a new panel of judges, after a Ninth Circuit panel in March unanimously held that the plaintiffs (Uber, Postmates, and individual drivers for those companies) had plausibly alleged that AB 5 (the union-backed law forcing gig workers to be employees rather than independent contractors) violated their rights under the Equal Protection Clause of the Constitution.

The ruling follows another recent defeat for the State of California regarding whether rideshare drivers should be classified as employees or independent contractors. On March 13, 2023 in Castellanos v. State of Cal., the California Court of Appeal upheld the constitutionality of Proposition 22. Proposition 22, which was overwhelmingly approved by California voters (including Uber and Lyft drivers) in November 2020, exempts app-based taxi and food delivery companies from the onerous requirements of AB 5.

AB 5 codified the so-called “ABC test,” a worker classification test which makes it much harder for employers to classify workers as independent contractors. Since the bill’s enactment in 2018, the law has faced a number of challenges in court, and Proskauer has closely tracked how this ongoing saga has unfolded.

In March 2023 a Ninth Circuit panel determined that there was enough evidence to plausibly allege that AB 5 unfairly targeted companies like Uber and Postmates. The panel noted that what differentiated Olson from a similar case a year ago, in which the Ninth Circuit dismissed allegations that AB 5 unfairly targeted journalists, was that in this case there were allegations of animus from the legislator who sponsored AB 5, former California State Assemblywoman Lorena Gonzalez.

The panel pointed to tweets Gonzalez posted specifically criticizing Uber and Lyft, and an opinion piece in the Washington Post that Gonzalez wrote concerning alleged misclassification of workers in the gig economy.  The Court found that Gonzalez “repeatedly disparaged” the plaintiffs in this case, and thus there were plausible allegations of animus, and that a “legislative desire to harm a politically unpopular group cannot constitute a legitimate governmental interest.” The panel also found that the “piecemeal” nature of AB 5, adding exceptions for certain industries and not others, was evidence that Gonzalez and the California legislature potentially singled out rideshare and delivery companies.

It bears mentioning that Gonzalez was the CEO and Secretary-Treasurer of the San Diego and Imperial Counties Labor Council, AFL-CIO, before her stint in the California Legislature.  After sponsoring and working to pass numerous pieces of legislation that directly benefited the unions, Gonzalez resigned her legislative position last year and returned to the AFL-CIO as Chief Officer of the California Labor Federation.  During the pandemic, while still a member of the California Assembly, Gonzalez infamously tweeted, “F*ck Elon Musk” – to which Musk responded, “Message received!” not long before moving Tesla’s headquarters from California to Austin, Texas.

What Appellate Courts Are Missing About PAGA Standing After Viking River Cruises

The California Supreme Court has scheduled oral argument for May 9, 2023 in Adolph v. Uber Technologies, Inc., a closely watched case that concerns whether a Private Attorneys General Act (PAGA) plaintiff loses standing to pursue a representative claim when their individual PAGA claim is compelled to arbitration.  This question was left open by the blockbuster decision in Viking River Cruises, Inc. v. Moriana, 142 S. Ct. 1906 (2022), in which the U.S. Supreme Court held that PAGA claims may be compelled to arbitration on an individual basis.  Interpreting California law, the Court held that the plaintiff lacked standing to pursue a representative claim in court after being compelled to arbitration.  However, as Justice Sotomayor pointed out, if the Court’s “understanding of state law is wrong, California courts . . . will have the last word.”  Id. at 1925 (Sotomayor, J., concurring).

On July 20, 2022, a mere five weeks after Viking River Cruises, the California Supreme Court agreed to take up the question in Adolph.  In the meantime, the issue also bubbled up through California Courts of Appeal, and six appellate courts unanimously disagreed with Viking River Cruises.  Galarsa v. Dolgen Cal., LLC, 88 Cal. App. 5th 639 (2023); Piplack v. In-N-Out Burgers, 88 Cal. App. 5th 1281 (2023); Gregg v. Uber Techs., Inc., 2023 WL 2624590 (Cal. Ct. App. Mar. 24, 2023); Seifu v. Lyft Inc., 2023 WL 2705285 (Cal. Ct. App. Mar. 30, 2023); Nickson v. Shemran, Inc., 2023 WL 2820860 (Cal. Ct. App. Apr. 7, 2023); Quintero v. Dolgen Cal., LLC, 2023 WL 1878201 (Cal. Ct. App. Feb. 10, 2023).

In each of these cases, the court relied on the language of the PAGA statute, which confers standing on any “aggrieved employee,” defined as someone “who was employed by the alleged violator” and “against whom one or more of the alleged violations was committed.”  Cal. Lab. Code § 2699(c).  The appellate courts explained that whether a plaintiff’s individual PAGA claims have been compelled to arbitration is irrelevant to these criteria.  See e.g., Galarsa, 88 Cal. App. 5th at 653.  The courts also found support in Kim v. Reins Int’l Cal., Inc., 9 Cal. 5th 73 (2020), which held that a plaintiff does not lose standing to pursue a PAGA claim by settling non-PAGA claims for damages based on the same underlying violations.  See e.g., Piplack, 88 Cal. App. 5th at 1291.

However, appellate courts have not yet considered whether their interpretation of the term “aggrieved employee” is consistent with other provisions of the statute.  In at least three other provisions, PAGA uses the term “aggrieved employee” in a way that is arguably inconsistent with an interpretation that would include a plaintiff with no personal stake in the court action.

First, PAGA requires the plaintiff to give pre-suit notice to the employer, and for many types of alleged violations, a lawsuit may not commence at all if the employer “cures the alleged violation within 33 calendar days.”  Cal. Lab. Code § 2699.3(c)(2)(A).  The employer “cures” the violation if it “abates each violation,” such that “any aggrieved employee is made whole.”  Id. § 2699(d) (emphasis added).  The obvious purpose of this provision is to allow an employer to avoid a lawsuit by ceasing the alleged conduct and compensating the employees at issue in the proposed lawsuit.  Interpreting the term “aggrieved employee” as broadly as the appellate courts did in the cases above arguably could require the employer to compensate employees who were never identified in the notice, thereby undermining the statute’s notice requirement.

Second, the maximum default penalty that may be imposed is based on the number of “aggrieved employee[s].”  Cal. Lab. Code § 2699(f) (maximum of $100 “for each aggrieved employee per pay period for the initial violation” and $200 “for each aggrieved employee per pay period for each subsequent violation) (emphasis added).  This provision makes sense only if “aggrieved employee” refers to an employee at issue in the lawsuit.

Third, PAGA also requires 25 percent of any penalties to be distributed to the “aggrieved employees.”  Cal. Lab. Code § 2699(i).  The obvious purpose of this provision is to allow the employees at issue in the court action to share in any recovery.  This provision makes no sense if “aggrieved employee” is interpreted to include employees who have no personal stake in the lawsuit.

The California Supreme Court could nevertheless attempt to reconcile these apparent contradictions by embracing a fiction that the court action and the arbitration are part of the same lawsuit.  See Piplack, 88 Cal. App. 5th at 1292 (“[P]laintiffs are pursuing a single PAGA action . . . albeit across two fora.”).  In that case, however, rulings by the arbitrator on issues of law would presumably bind the State in the court action—a result the California Supreme Court may not intend.

None of these arguments can reliably predict what the California Supreme Court will do in Adolph.  In interpreting the provision conferring standing on “aggrieved employees,” the Court could very well conclude, as did the six appellate courts to recently decide the issue, that a plaintiff does not lose standing to bring a non-individual PAGA claim when the individual PAGA claim is compelled to arbitration.  However, the statute’s text provides an argument for reaching a different result.

California Pay Data Reporting Deadline: May 10, 2023

As we previously reported (here), California requires private employers of 100 or more employees (with at least one employee in California) to report pay and demographic data to the California Civil Rights Department (“CRD”) (formerly the Department of Fair Employment and Housing).  Senate Bill 1162 (previously covered here) enhanced California’s reporting requirements by:

  • Changing the deadline to May 10, 2023 for the 2022 reporting year;
  • Adding the requirement that a private employer with 100 or more workers hired through labor contractors in the prior calendar year (with at least one worker based in California) must file a separate “Labor Contractor Employee Report;”
  • Requiring employers to calculate and report the mean and median hourly rate of their payroll employees and/or labor contractor employees, by establishment, pay band, job category, race/ethnicity, and sex; and
  • Permitting CRD to obtain a monetary penalty against (1) employers ($100 per employee against an employer who fails to file a required report, and $200 per employee for a subsequent failure), and (2) against any labor contractor that fails to supply necessary data to a client employer.

On April 18, 2023, CRD began accepting “enforcement deferral requests” from employers for their Labor Contractor Employee Reports due May 10, 2023.  If approved, CRD will defer – through July 10, 2023 – seeking an order of compliance for the employer to file its Labor Contractor Employee Report.  CRD will only consider employer requests if the employer is registered in CRD’s pay data reporting portal, and will only accept requests through the portal.

For further information and guidance related to the pay data reporting requirements, California employers may wish to consult the CRD’s FAQs and/or consult with counsel before submitting their reports by May 10, 2023.

AI is Here and So Are the New AI Rules for Employers

California is considering a new law (Assembly Bill 331), also known as the Automated Decision Systems Accountability Act.  Modeled after the Biden Administration’s Blueprint for an AI Bill of Rights (whitehouse.gov), AB 331 would control the use of machine-based systems in making “consequential” employment decisions such as compensation, promotions, hiring, termination, and automated task allocations.

If passed and signed into law, AB 331 would impact employers who use AI, even through third-party vendors, in three major ways:

  1. Mandating Disclosure Before AI is Used

AB 331 would require companies to disclose not only their use of automated decision tools, but also explain their purpose and how AI is being used.  Where a consequential decision is being made solely on an automated decision tool, individuals may have the ability to opt out and request an alternative selection process or accommodation.

  1. Requiring Annual Impact Assessments

Under the proposed legislation, employers would have to conduct annual impact assessments to identify and mitigate potential biases in their AI systems.  The impact assessment would have to include a statement of purpose for the AI and its intended benefits, a summary of the data collected, the extent the tool is consistent with from the developer’s statement of use, an analysis of the potential adverse impact on protected categories (e.g., sex, race, or English proficiency), a description of the safeguards implemented to mitigate risk, and how the AI will be evaluated for validity or relevance.

The outcome of these impact assessments would have to be reported to the California Civil Rights Department (formerly known as the Department of Fair Employment and Housing).  Failure to do so could result in a $10,000 fine for every day AI is used and a company has not submitted the assessment.

  1. Allow Suits Against Employers for discriminatory impact of AI tools

The most recent proposed revisions to AB 331 also provide for a private right of action such that employees and applicants suffering a discriminatory impact on the basis of a protected category could file a lawsuit against companies using AI in their employment decisions.  Unsurprisingly, the bill would establish yet another one-sided attorneys’ fees award for prevailing plaintiffs, incentivizing individuals and their attorneys to bring lawsuits against California-based employers.

While the bill is still in the early stages of the legislative process and could face significant changes along the way (or even be scrapped altogether), as AI becomes more integrated into our everyday lives, employers should be prepared for laws like AB 331 to appear on the horizon with significant and complex restraints on employers in the coming years.  We’ll provide updates as they unfold.

The Fate of PAGA Representative Action Waivers in Arbitration Agreements will be Decided by August

As we reported (here), on June 15, 2022, a near unanimous U.S. Supreme Court held that the Federal Arbitration Act (“FAA”) preempted the California Supreme Court’s controversial decision in Iskanian v. CLS Transportation Los AngelesLLC, 59 Cal. 4th 348 (2014), which held that actions brought under the California Labor Code Private Attorneys General Act (“PAGA”) could not be divided into individual and representative claims through an agreement to arbitrate.  See Viking River Cruises, Inc. v. Moriana, 142 S. Ct. 1906, __ U.S. __ (2022).  Not only did the Viking River majority opinion hold that individual PAGA claims could be compelled to arbitration on an individual basis (i.e., to recover penalties for violations allegedly suffered by the plaintiff alone), it also held that the residual “representative” component of any PAGA claim (i.e., the portion of the claim seeking penalties for Labor Code violations experienced by other employees) should be dismissed once the individual PAGA claim is compelled to arbitration.  See id. at 1925 (“When an employee’s own dispute is pared away from a PAGA action, the employee is no different from a member of the general public, and PAGA does not allow such persons to maintain suit.”).

In the weeks and months following Viking River, plaintiffs’ lawyers and several courts seized on Justice Sotomayor’s concurring opinion in Viking River and held that the plaintiff whose individual PAGA claim is compelled to arbitration does not lose standing thereafter to continue to pursue representative penalties in court.  See, e.g., Piplack v. In-N-Out Burgers (discussed here).  And, on July 20, 2022, the California Supreme Court granted review in Adolph v. Uber Technologies, Inc., a case that will decide whether an aggrieved employee who has been compelled to arbitrate claims under the PAGA that are premised on Labor Code violations actually sustained by the aggrieved employee maintains statutory standing to pursue PAGA claims arising out of events involving other employees in court or another forum.

Following the California Supreme Court’s grant of review in Adolph, dozens of trial courts began staying motions to compel arbitration and/or requests to dismiss non-individual PAGA claims pending Adolph’s outcome.  And, despite all briefing having been submitted for some time, it looked like a decision in Adolph was not going to be coming any time soon, at least until last week.

On April 19, 2023, the California Supreme Court set oral argument in Adolph for May 10, 2023.  Thereafter, the California Supreme Court must issue its decision within 90 days of oral argument.  Accordingly, employers will know the outcome of Adolph and the fate of PAGA representative action waivers by August 7, 2023—just a few months after Viking River’s one year anniversary.

Stay tuned for updates.

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