California Employment Law Update

California Enacts New Protections Against National Origin Discrimination

The California Office of Administrative Law recently approved new amendments to the California Fair Employment and Housing Act (“FEHA”), strengthening the protections afforded to applicants and employees, including individuals who are undocumented, on the basis of their national origin.  Although the FEHA already prohibits discrimination and harassment on the basis of national origin, these new regulations broaden the definition of “national origin.”  Originally defined to encompass “the individual’s or ancestors’ actual or perceived place of birth or geographic origin, national origin group or ethnicity,” these new regulations expand the definition to include an individual’s or ancestors’ actual or perceived:

(1)   Physical, cultural, or linguistic characteristics associated with a national origin group;

(2)   Marriage to or association with persons of a national origin group;

(3)   Tribal affiliation;

(4)   Membership in or association with an organization identified with or seeking to promote the interests of a national origin group;

(5)   Attendance or participation in schools, churches, temples, mosques, or other religious institutions generally used by persons of a national origin group, and

(6)   Name that is associated with a national origin group.

Additionally, the new regulations define what constitutes national origin discrimination to include the following:

(1)   Language restriction policies, including English-only policies, unless the restriction can be justified by business necessity and is narrowly tailored to further that business interest;

(2)   Discrimination based on an applicant’s or employee’s accent, unless the employer can show the accent materially interferes with the applicant’s or employee’s ability to perform the job;

(3)   Discrimination based on English proficiency, unless the employer can show that the proficiency requirement is justified by business necessity;

(4)   Height and weight requirements (as such may have a disparate impact on the basis of national origin), unless the requirement can be justified by business necessity and the purpose of the requirement cannot be met by less discriminatory means;

(5)   Recruitment, or assignment of positions/facilities/geographical area, based on national origin; and

(6)   Inquiring into an applicant’s or employee’s immigration status, or discriminating against an applicant or employee based on immigration status, unless required to do so under federal immigration law.

These new regulations are set to take effect on July 1, 2018.

Supreme Court Rules in Favor of Employers in Upholding Arbitration Agreements Containing Class Action Waivers

On May 21, 2018, the Supreme Court of the United States ruled in Epic Systems Corp. v. Lewis that employers can require employees to arbitrate disputes with the employer individually and waive their right to pursue or participate in class or collective actions against their employer. Ruling 5-4 in favor of an employer’s right to include class action waivers in its arbitration agreements, the Court rejected the National Labor Relations Board’s position in D.R. Horton that such class waivers violate employees’ rights to take collective steps for their “mutual aid and protection.” The decision puts to rest the NLRA-based objection to such agreements, and so is a significant victory for employers, but leaves open other challenges to such agreements.

The Court’s opinion, authored by Justice Neil M. Gorsuch for the majority, resolved three cases that were argued together—Epic Systems Corp v. Lewis; Ernst & Young LLP v. Morris; and National Labor Relations Board v. Murphy Oil USA—in all of which an employee who had signed an arbitration agreement containing a class action waiver sought to litigate Fair Labor Standards Act and related state law claims through class or collective actions in federal court.  The Seventh Circuit in Lewis and the Ninth Circuit in Morris had sided with the NLRB and the individual employees; the Fifth Circuit had rejected the NLRB’s view in Murphy Oil. Siding with the Fifth Circuit, the Court’s ruling requires employees who have signed arbitration agreements with their employers containing class action waivers to take their disputes to an arbitrator individually rather than as part of a putative class or collective action.  Chief Justice John G. Roberts Jr. and Justices Anthony M. Kennedy, Clarence Thomas and Samuel A. Alito Jr. joined the majority opinion.

The employees had argued that the “saving clause” of the Federal Arbitration Act, which allows courts to refuse to enforce arbitration agreements “upon such grounds as exist at law or in equity for the revocation of any contract,” precludes enforcement of class waivers because the National Labor Relations Act (“NLRA”) protected their right to act collectively in bringing a class action. The employers countered that the Federal Arbitration Act protects agreements requiring arbitration from judicial interference and that neither the saving clause nor the NLRA demands a different conclusion.

The Court’s opinion repeatedly acknowledged that “[a]s a matter of policy these questions are surely debatable,” but held that “as a matter of law the answer is clear.”  “In the Federal Arbitration Act,” the Court concluded, “Congress has instructed federal courts to enforce arbitration agreements according to their terms—including terms providing for individualized proceedings.”  Nothing contained in the NLRA overrides that requirement, the Court held, and in particular, the NLRA “does not express approval or disapproval of arbitration” and “does not mention class or collective action procedures.” Indeed, the Court held that the NLRA “does not even hint at a wish to displace the Arbitration Act—let alone accomplish that much clearly and manifestly, as our precedents demand.”

That reference to precedent included the Court’s several arbitration decisions in the last ten years, particularly AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011), which had upheld class action waivers against state-law challenges.

The Court’s decision should also abrogate some state-court decisions that had followed the NLRB’s analysis, such as the New York Appellate Division’s decision in Gold v. New York Life Ins. Co. (1st Dept. 2017). It may also preempt municipal prohibitions on class waivers, such as in the administrative rules promulgated under New York City’s Freelance Isn’t Free Act.

Notably, the Court’s opinion discussed Congress’ ability to pass new legislation to reach a different result.  In fact, Justice Ruth Bader Ginsburg, reading her dissent from the bench, urged Congress to address the matter.

Even if Congress does not act, the Court’s rejection of the NLRA-based challenge does not mean that class action waivers will now be enforced uniformly. The Court acknowledged the FAA’s statutory exception, which permits arbitration agreements to be invalidated “upon such grounds as exist at law or in equity for the revocation of any contract.” The Court held that exception inapplicable here because it includes only defenses that apply to “any contract” (such as duress or fraud), and the NLRA’s arguable attack only on class action waivers does not offer a general defense to contract enforcement. But general state-law contract doctrines such as procedural and substantive unconscionability have played a greater and greater role in disputes over arbitration agreements, and the Court’s decision does not affect those debates.

Two Recent Jury Verdicts Award $6 Million and $7.97 Million To Wrongfully Terminated Employees

Two recent verdicts from California Superior Court juries have awarded former employees $6 million and $7.9 million, respectively, in compensatory damages after a finding of wrongful termination.

Martinez v. Rite Aid Corp.

On March 27, 2018, a Los Angeles County Superior Court jury found Rite Aid Corporation liable for just over $6 million after deciding that it had wrongfully terminated a 23-year employee. Plaintiff Maria Martinez had worked for Rite Aid as a licensed pharmacy technician. In 2004, Plaintiff suffered an incident at work which caused her to have an emotional reaction and be transported to the hospital.  After returning to work following medical leave, Rite Aid transferred Martinez to four different stores over a 2-1/2 year period.

In 2007, Martinez filed an administrative charge with the U.S. Equal Employment Opportunity Commission alleging workplace discrimination and harassment.  Specifically, she alleged that her direct supervisor had directed derogatory remarks toward her, calling her “crazy,” “psycho,” and “too old,” and threatened that he would “take care of her.”  Plaintiff also sent a letter to Rite Aid’s CEO detailing the alleged workplace discrimination and harassment. Four days later, Plaintiff was suspended by the company and then terminated shortly thereafter for her alleged poor work performance and attitude.

The case was originally tried in August 2010 with a jury awarding Plaintiff $3.4 million in compensatory damages and $4.8 million in punitive damages. Rite Aid appealed the verdict and the court of appeal reversed the judgment, ordering a new trial. In 2014, the jury ruled for Plaintiff again but with an award of only $321,000 in compensatory damages. Plaintiff appealed that verdict and the court of appeal again reversed the judgment and ordered a new trial on a finding that the special verdicts were inconsistent as a matter of law. The final trial resulted in this judgment from March of 2018.

Ortiz v. Chipotle Mexican Grill

On May 10, 2018, a Fresno County Superior Court jury found Chipotle Mexican Grill Inc. liable for wrongfully terminating one of its former general managers, awarding her $7.97 million in compensatory damages.  Plaintiff Jeanette Ortiz had been terminated in January 2015 for allegedly stealing $626 from the restaurant’s safe.  Chipotle claimed it had video evidence proving the theft, but when Ortiz asked to see the video, Chipotle declined to produce it – in fact, the video evidence had been taped over.  Further, there was conflicting testimony at trial as to when Ortiz allegedly stole the money with one former Chipotle employee claiming he saw the money in an envelope a day after the alleged theft took place.

After deliberating for less than one day, the jury found that Ortiz was a victim of a scheme by Chipotle to terminate her as a result of her having filed a workers’ compensation claim for a job-related wrist injury one month earlier.  Ortiz’s termination occurred while she was on medical leave for her injuries.  (By the way, this was the fourth workers’ compensation claim Plaintiff had filed while employed with Chipotle.)

The jury awarded Ortiz $1.97 million for lost past and future earnings and $6 million for alleged emotional distress damages.  Ortiz alleged that she suffered from anxiety, humiliation, loss of sleep, and a general feeling of worthlessness as a result of the termination.

Notably, the parties are scheduled to return to court on Monday, May 14, 2018, to conduct the punitive damages stage of the trial.  Plaintiff may recover punitive damages following the jury’s determination that managing agents of Chipotle acted with malice in terminating her employment.  Plaintiff was earning $70,000 annually at the time of her termination.  Chipotle has already announced plans to appeal the ruling.

May 2018 California Employment Law Notes

We invite you to review our newly-posted May 2018 California Employment Law Notes, a comprehensive review of the latest and most significant developments in California employment law. The highlights include:

California Abandons 30-Year-Old Test For Determining Independent-Contractor Status, Broadens Definition Of “Employee”

On April 30, 2018, the California Supreme Court issued its unanimous ruling in Dynamex Operations West, Inc. v. Superior Court, making it even harder for companies to classify workers as independent contractors (rather than employees). The previous standard used for classifying workers as employees or independent contractors had been in place since 1989 and was based upon a multifactor test that considered, among other factors, the worker’s skill, the method of payment by the hirer, and the nature of the business to determine the level of control exercised over the worker.  Companies such as Dynamex had classified their delivery drivers as independent contractors, arguing their drivers had significant control over their own working conditions by being able to set their own hours and drive for multiple companies.

The new standard adopted by the Supreme Court (dubbed the “ABC test”) requires hirers to establish three factors in order to properly classify a worker as an independent contractor – and in the process greatly expands the definition of “employee” under California law:

A.  The worker is free from the control and direction of the hirer in connection with the performance of the work, both under contract for the performance of such work and in fact; and

B.  The worker performs work that is outside the usual course of the hiring entity’s business; and

C.  The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity.

Per the Court’s ruling, workers in California are presumed to be employees and, therefore, are accorded the myriad protections they enjoy, and it is the employer’s burden to satisfy these three “ABC” factors in order to lawfully classify the worker as an independent contractor instead of an employee.  As an example, the court stated that a plumber hired by a retail store to repair a bathroom leak is not performing work that is part of the store’s usual business and would therefore be considered an independent contractor of that store.  However, seamstresses sewing at home using materials provided by a clothing manufacturer would probably be considered employees of the manufacturer.

As a result of this opinion, employers are likely to see fresh challenges by current and former workers, challenging their classification as independent contractors.  If a worker should properly be classified as an employee, the employer bears the responsibility for paying federal Social Security and payroll taxes, unemployment insurances taxes and state employment taxes, providing workers’ compensation insurance, and complying with federal and California regulations governing the wages, hours, and working conditions of employees.  Employers are encouraged to review their current contracts with those whom they have classified as independent contractors to ensure they can meet the requirements of the new “ABC test.”

California Legislature Mulls New Package Of “Job Killer” Bills

By Anthony J. Oncidi and Nayirie Kuyumjian

The California Chamber of Commerce has just identified a new raft of recently introduced “job killer” bills that have been proposed in the California Legislature.

This year’s list of 27 proposed laws includes measures that would impose additional penalties for an employer’s failure to pay wages; increase the personal income tax for the highest earners in California; ban settlement agreements for claims arising under the Fair Employment and Housing Act (FEHA) and the California Labor Code; and prohibit arbitration of claims arising under FEHA and the California Labor Code.

As in years past, these bills are being pushed by the special interest groups that have the greatest sway in Sacramento: Labor unions and plaintiffs’ lawyers.  CalChamber President and CEO Allan Zaremberg said, “Each bill on this year’s job killer list poses a threat to certainty for employers and investors in our state.”

  • Assembly Bill 2613 (Reyes; D-Grand Terrace) New Wage Statement Penalties — would revise the California Labor Code to impose additional penalties (above what is already imposed under the Private Attorneys General Act) payable to each affected employee per pay period on an employer or other individual acting as an agent or employee of another who fails to pay or causes a failure to pay specific wages of employees. In short, the bill could impose individual liability on managers and employees for the non-payment of wages.
  • Assembly Bill 2069 (Bonta; D-Oakland) Medical Marijuana in Employment — creates a new protected category under FEHA for the use of medical marijuana.
  • Assembly Bill 2351 (Eggman; D-Stockton) Targeted Tax on High Earners — increases the personal income tax rate from 13.3% (already the highest rate in the country) to 14.3% for the highest earners in the State (the top 1% already pay half of all income taxes in the State of California).  This increase in income taxes could lead to a further loss of high-income taxpayers.
  • ACA 22  (McCarty; D-Sacramento) “Middle Class Fiscal Relief Act” – more than doubles California’s 8.84% corporate tax rate (already one of the highest rates in the nation) to 18.84%.
  • Assembly Bill 2765  (Low; D-Campbell) Portable Benefits For The “Gig Economy” — seeks to add “digital marketplace” companies to be covered under FEHA and thereby expand the reach of the anti-discrimination statute to workers in the “gig economy” (i.e., contractors typically hired for on-demand single projects). The bill also includes “familial status” as a new protected classification under FEHA for workers in the digital marketplace. In addition, the bill adds uncertainty to the classification of independent contractors by providing that marketplace contractors will be treated as independent contractors for purposes of the bill, but leaving open how those contractors would be classified for other state/federal laws.
  • Assembly Bill 3080 (Gonzalez Fletcher; D-San Diego) Ban on Settlement Agreements and Arbitration Agreements — bans settlement agreements related to claims arising under FEHA and the California Labor Code and prohibits arbitration agreements as a condition of employment for any claims arising under FEHA or the California Labor Code, including class action waivers. (If enacted, this law will certainly be attacked on federal preemption grounds under the Federal Arbitration Act.)
  • Senate Bill 1284  (Jackson; D-Santa Barbara) Disclosure of Company Pay Data — requires California employers to submit pay data to the state Department of Industrial Relations. A number of factors are associated with pay criteria, which would not be reflected in the data submitted to the Department, thus subjecting employers to a potential of increased litigation, including baseless allegations related to discrimination or unequal pay.
  • Senate Bill 1300  (Jackson; D-Santa Barbara) Removes Legal Standing and Prohibits Release of Claims — removes the requirement that a plaintiff must prove standing in alleging claims related to failure to prevent harassment or discrimination. Thus, a plaintiff would not be required to demonstrate that he or she suffered from sexual harassment or discrimination prior to bringing a lawsuit. In addition, the bill prohibits a general waiver or release of claims in exchange for a bonus, raise, or condition of continued employment and also prohibits the inclusion of non-disparagement provisions in settlement or employment agreements.

We will continue to track the progress of these and any other “job killer” bills as they move through the Legislature. For more information on how these proposed bills may impact you, contact your Proskauer relationship attorney.

Ninth Circuit Changes Federal Pay Equity Rules

By Anthony J. Oncidi and Nayirie Kuyumjian

 

 

 

 

 

On Monday, the Ninth Circuit issued a significant opinion, Rizo v. Yovino, 2018 WL 1702982 (9th Cir. April 9, 2018), authored by the late “liberal lion” Judge Stephen Reinhardt, holding that an employer’s consideration of prior salary information cannot serve as a justification for sex-based wage differentials under the federal Equal Pay Act.

The lawsuit was brought by Aileen Rizo, a California math consultant who alleged that the Fresno County Superintendent of Schools violated the Equal Pay Act by improperly setting the salary of employees based on adding 5% to new hires’ prior salary. In its 52-page decision, the Court focused on the catchall exception to wage differentials under the Equal Pay Act—“a differential based on any other factor other than sex.”  Through interpreting the statutory text and legislative history of the Act, the Court concluded that prior salary does not fall under the catchall exception by emphasizing that the exception only applies to legitimate job-related factors (e.g., experience, educational background, ability, prior job performance) and does not apply to factors “that are simply good for business.”

The Court explained that prior salary “is not a legitimate measure of work experience, ability, performance, or any other job-related quality” and that it had an attenuated relationship with “legitimate factors other than sex such as training, education, ability, or experience.” The opinion rejects a 2017 decision of a three-judge panel of the Ninth Circuit in the same case and overrules Kouba v. Allstate Ins. Co., 691 F.2d 873 (9th Cir. 1982), in which the Court had found that past salary information is a factor employers could consider in setting a salary structure.  In their concurrence, Judges Callahan and Tallman stated that the majority “unnecessarily ignores the realities of business and, in doing so, may hinder rather than promote equal pay for equal work.”

The Ninth Circuit issued the Rizo decision less than two weeks after the California Superior Court in San Francisco refused to dismiss a putative class action, Kelly Ellis et al. v. Google, LLC, Case No. CGC-17-561299 (Mar. 27, 2018), in which former female employees of Google claim that the company does not compensate women as highly as men in violation of the California Equal Pay Act.  The Complaint alleges that Google has a policy of connecting women’s pay to their past salary and places and keeps women in lower paying job positions.

These rulings come at a time when states across the nation are enacting new laws to bolster pay equity protections for employees consistent with California’s Equal Pay Act.   That law already prohibits employers from relying on information regarding past pay to justify sex-based pay difference.  Cal. Lab. Code § 1197.5(b)(3) (“Prior salary shall not, by itself, justify any disparity in compensation”).  California also recently enacted a statewide salary history inquiry law  prohibiting employers from asking applicants about salary history information. Cal. Lab. Code § 432.3.

In light of the increasing focus on pay equity as it relates to prior salary history, employers should take immediate steps to address pay equity issues in the workplace, including conducting internal audits (preferably with the assistance of counsel so that the attorney-client privilege may be invoked) and analyzing pay practices and policies with a focus on specific categories of positions and job levels.

LexBlog