Businesses are constantly challenged by the ever-evolving landscape of labor and employment law, with new legislation and judicial developments occurring almost daily fueling a seemingly never-ending stream of litigation. For companies operating in multiple states, complying with this patchwork of federal, state, and local laws and developments can be daunting. Knowing these issues are a top concern for management and in-house counsel, Morrison Foerster keeps pace with this rapidly evolving landscape. MoFo ELC equips our clients with the most up-to-date and relevant information on employment and labor law issues covering key judicial, litigation and legislative developments, their implications for employers, and strategies to ensure compliance and avoid lawsuits.<h2>ABOUT MORRISON FOERSTER</h2>Morrison Foerster is a leading global law firm that transforms complexity into advantage for its clients. Our clients include some of the largest financial institutions, banks, consulting and accounting firms, and Fortune 100, technology, and life sciences companies. Highlighting the firm’s commitment to client service, leadership in market-changing deals and impact litigation, and values-based culture, Morrison Foerster has been repeatedly recognized as one of the top 10 firms on The American Lawyer’s A-List. Year after year, the firm receives significant recognition from Chambers and The Legal 500 across their various guides, including Global, USA, Asia‑Pacific, Europe, UK, Latin America, and FinTech Legal. Our lawyers passionately care about delivering legal excellence while living our values. Morrison Foerster has a long-standing commitment to creating a culture that respects and celebrates differences, while providing an inclusive environment. The firm has achieved Mansfield Certification Plus since 2018 as a result of successfully reaching at least 30 percent women, communities of color, and LGBTQ+ lawyer representation in a notable number of current leadership roles and committees. The firm also has a long history of commitment to the community and society through providing pro bono legal services, including litigating for civil rights and civil liberties, improving public education and fostering the wellbeing of children, advocating for veterans, promoting international human rights, enforcing the right to asylum, and safeguarding the environment.

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Andrew Turnbull represents companies on a broad range of labor and employment litigation and counseling matters. He has successfully defended clients in complex employment litigation before federal and state courts and administrative agencies. A primary focus of his practice involves helping companies navigate the unique employment issues that arise when doing business with the federal government, including advising on all aspects of OFCCP compliance, creating and implementing affirmative action plans, defending OFCCP audits and onsite investigations, conducting mock pay equity audits, drafting and developing business ethics policies and programs, and complying with the Service Contract Act, E-Verify, and the Drug Free Workplace Act.

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MoFo ELC equips our clients with the most up-to-date and relevant information on employment and labor law issues, covering key judicial, litigation, and legislative developments, their implications for employers, and strategies to ensure compliance and avoid lawsuits. To learn more about our capabilities, please visit the <a href="https://www.mofo.com/capabilities/employment-labor" target="_blank">Employment + Labor</a> practice page and read about our <a href="https://www.mofo.com/people?practices=Employment%20%2B%20Labor" target="_blank">Team</a>.

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The “Preventative Duty”: New Law Places Active Duty on Employers in the UK to Prevent Sexual Harassment in the Workplace

Good News for Employers: Texas Court Blocks FTC’s Non-Compete Ban

Potential Exceptions Under FTC’s Non-Compete Ban

FTC Issues Final Rule Banning Non-Competes

Maryland Poised to Continue Trend of Jurisdictions Mandating Pay Transparency in Job Postings

When Donald Trump took office in 2017, the members of the NLRB (Board) were predominantly appointees of President Obama.  During the Obama presidency, the Board issued decisions that were mostly favorable to the interests of organized labor and its employee-members.  Those decisions reversed years of Board precedent that had been relied upon by employers as they formulated company policies and made decisions about their relationships with employees and the unions representing them. The changes in the law made during this period have been described as “radical.”  These new decisions changed what employers were allowed to put in their employee handbooks, took away employers’ rights to restrict employees’ use of their email systems, and forced employers into joint employer relationships with the independent contractors performing work for them. The union movement was pleased.In 2017, President Trump named Peter B. Robb as the new General Counsel to the Board, replacing the former Obama appointee and beginning the Trump transformation of the Board. The General Counsel has significant responsibilities at the Board, including determining which cases will be prosecuted by the agency, and what theories of law will be advanced. In December 2017, Robb issued a memo to Board offices around the nation, instructing the offices to send certain cases to Washington, D.C. for advice on how they should be handled.In his memo, Robb advised the offices that it was mandatory that they seek his office’s advice on matters involving “cases over the last eight years that overruled precedent,” an undisguised announcement that he intended to undo eight years of Obama-inspired NLRB law.At the same time, as the terms of Obama-appointed members expired, Trump appointed new members to the Board who had a vision different than that of their predecessors.Trump appointees now dominate the Board and are guided by a General Counsel with a clear agenda to undo the work of the Obama Board.  The employer community is excited.Is the Trump Board and its General Counsel living up to employers’ expectations?  As the following sections of this article demonstrate, it would seem so.Employee Handbooks and Work RulesA number of decisions issued by the Obama Board strictly applied a standard developed in 2004 that held that, when judging the legality of provisions of employee handbooks or work rules,  either will be found to be illegal if employees could “reasonably construe” the policy or rule to somehow prevent them from exercising their rights under federal labor law. That very “flexible” definition was taken to its extremes by the Obama-appointed General Counsel at the time. It seemed that almost no handbook or work rule was safe from attack because some employee might “reasonably construe” it to interfere with his or her rights. During that period, many employee handbook policies were found illegal, including, for example, rules that forbade camera-enabled devices such as cell phones on an employer’s property, rules that prohibited criticizing an employer on social media, and rules restricting the making of recordings in the workplace.In December 2017, the new Trump Board issued a decision in The Boeing Company, 365 NLRB No. 154 (2017). Boeing had a long-held policy that prohibited the taking of pictures on its property. The purpose of the policy was to maintain the security of Boeing’s facilities and its proprietary information. Specifically overruling prior decisions, the Trump Board held that it would no longer judge employee handbook rules by the very fluid standard of finding a policy unlawful if an employee could “reasonably construe” a rule as somehow unlawfully restrictive of lawful conduct. In doing so, the Board noted that “over the past decade and one/half, the Board has invalidated a large number of common sense rules and requirements that most people would reasonably expect every employer to maintain.” In Boeing, the Board said that, in the future, it would consider the “nature and extent” of a challenged rule’s “potential impact on [employee legal rights]” and the “legitimate justification associated with the rule.” The Board then laid out three categories the Board would use in future analysis of workplace rules.Boeing makes it possible now for an employer to determine if a rule is legal, without the need to speculate if an employee could “reasonably construe” the rule to be illegal. The Boeing decision brings enormous relief to human resource directors across the nation who had been spending an inordinate amount of time trying to decide if any of its company’s rules were unlawful and litigating over rules that the Board considered a violation of employee rights.Micro UnitsIn another Obama-era decision, the Board held that if a union petitioned for an election among a specific group of employees, no matter how small the group, and those employees shared a “community of interest” among themselves, the Board would let an election proceed in that specific unit unless the employer could prove that other employees, not included in the unit shared an “overwhelming” community of interest with the petitioning group, an almost impossible standard to meet. The harm of allowing these “micro-units” to be formed is that some employees, working for an employer in the same location, sometimes even if they are working with another like group, could be represented by a union and their coworkers would not be represented.  Micro units create divisions in the workplace, undermine retail operations, and limit opportunities for employees who need to move easily across various aspects of an employer’s operations to gain advancement. The Trump Board, in PCC Structurals, Inc.,  365 NLRB No. 160 (2017), ended this foolishness and returned to the traditional community of interest standard that had been the rule during most of the Board’s history. Joint EmployersThe most reviled decision of the Obama Board was its decision in Browning-Ferris, 362 NLRB No. 186 (2015),  which loosened the standard for determining whether two separate employers should be considered “joint employers” and thus share each other’s labor law liability and bargaining obligations to a union.  Under Browning-Ferris, an employer could be considered a joint employer with one of its contractors or franchisees even if it merely had “indirect and unexercised control over the other party.” The traditional standard before Browning-Ferris required that an employer have “direct and immediate” control over the employees of another employer, such as setting the wages, hours, and working conditions of a franchisee’s employees, to be covered as a joint employer. The Obama Board’s revision of the standard to “indirect and unexercised” control put most national fast food chains at risk for liability for the acts and conduct of their franchisees, even those located thousands of miles from corporate headquarters. After a couple of false starts involving issues of whether the Trump Board’s members should hear a particular case that would have served as the vehicle for reversing Browning-Ferris and returning to the traditional standard, the Board decided to change the law through Rule Making, a process of issuing rules governing a certain issue rather than a decision following litigation. Not surprisingly, the Board’s proposed rule returns the law on joint employer to its traditional form.Use of Employer EmailIn Purple Communications, 361 NLRB No. 126 (2014), the Obama Board determined that employees should be allowed to use their private employer’s email system to discuss and further unionization. The U.S. Chamber of Commerce and other business groups argue that the decision takes away an employer’s right to control its own email systems.This issue is currently up for consideration in Caesars Entertainment Corp, 28-CA-060841. The Board has invited the public’s input on this issue and has set an October deadline for comments before it decides the case. Because of recent comments submitted in a footnote to a brief by the General Counsel in another case, it is expected that he will argue to the Board that Purple Communications should be reversed because the decision ignores the facts of the workplace and because there are First Amendment concerns about forcing an employer to pay for speech on its own email systems that it might oppose.More to Come? Of course there is.  There are many other cases and policies viewed by the employer community as improper and disruptive. For example, employers are hoping that the Trump Board will revise a Rule established by the Obama Board that created “quickie” or “ambush” elections,” requiring that elections be held almost immediately after a petition is filed, effectively denying an employer the time necessary to inform its employees of the consequences of unionization. The Board, of course, will wait for cases raising issues to come before it will address other Obama-era decisions.Ever since the Regan Administration there have been reversals of decisions by Democratic and Republican administrations alike. However, nothing before compares to what the Obama Board did and, of course, the Trump Administration is determined to undo much of the Obama Board’s work.

Boomerang: The Trump NLRB Supplants the Obama NLRB

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Boomerang: The Trump NLRB Supplants the Obama NLRB

Boomerang: The Trump NLRB Supplants the Obama NLRB

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When Donald Trump took office in 2017, the members of the NLRB (Board) were predominantly appointees of President Obama.  During the Obama presidency, the Board

On July 26, 2018, the California Supreme Court issued another highly anticipated opinion in Troester v. Starbucks Corp., clarifying application of the federal de minimis doctrine, to claims for unpaid wages under California law. Federal courts have long applied the de minimis doctrine to excuse the payment of wages for small amounts of otherwise compensable time upon a showing that the bits of time are administratively difficult to record.The California Supreme Court held that California’s wage and hour statutes and regulations do not adopt the federal de minimis doctrine and that California’s de minimis rule was not applicable in the context of an alleged policy requiring employees to work minutes off the clock routinely. The court left open the question of whether there might be wage claims involving employee activities that were so irregular or brief in duration that it would not be reasonable to require employers to compensate employees for the time spent on such activities.The Federal De Minimis DoctrineThe de minimis doctrine is an application of the maxim de minimis non curat lex, which means, “[t]he law does not concern itself with trifles.” Federal courts have applied the doctrine in some circumstances to excuse the payment of wages for small amounts of otherwise compensable time upon a showing that the bits of time are administratively difficult to record. “When the matter in issue concerns only a few seconds or minutes of work beyond the scheduled working hours, such trifles may be disregarded.” Furthermore, “[i]t is only when an employee is required to give up a substantial measure of his time and effort that compensable working time is involved.” The Ninth Circuit has explained that, in determining whether otherwise compensable time is de minimis under the Fair Labor Standards Act (FLSA), courts should consider: (1) the practical administrative difficulty of recording the additional time; (2) the aggregate amount of compensable time; and (3) the regularity of the additional work. The Ninth Circuit has noted that “[m]ost courts have found daily periods of approximately 10 minutes de minimis even though otherwise compensable.”California’s Division of Labor Standards Enforcement (DLSE), the entity charged with the administration and enforcement of the state’s wage and hour laws, has applied the de minimis doctrine for decades. Specifically, the DLSE has issued opinion letters explicitly adopting the de minimis rule, and concluding that employers are not obligated to pay employees for work time if “it is de minimis.” The “DLSE’s opinion letters, while not controlling upon the courts by reason of their authority, do constitute a body of experience and informed judgment to which courts and litigants may properly resort for guidance.” The de minimis doctrine also appears in the Enforcement Policies and Interpretations Manual published by the DSLE.BackgroundThe plaintiffs in Troester were nonmanagerial California Starbucks employees who performed store closing tasks. In their putative wage and hour class action lawsuit, the plaintiffs alleged that Starbucks failed to compensate them for hours worked and, as a result, violated various provisions of the Labor Code and wage orders. The named plaintiff, Douglas Troester, worked for Starbucks as a shift supervisor. He submitted evidence that, during the alleged class period, Starbucks’ computer software required him to clock out on every closing shift before initiating the software’s “close store procedure,” which transmitted daily sales, profit and loss, and store inventory data to corporate headquarters, on a separate computer terminal in the back office. After completing this task, he activated the alarm, exited the store, and locked the front door. In compliance with Starbucks policy, he then walked his coworkers to their cars. He also occasionally reopened the store to allow employees to retrieve items they left behind, waited with employees for their rides to arrive, or brought in store patio furniture mistakenly left outside. Troester estimated that, on a daily basis, he spent 4-10 minutes performing these closing tasks. He sought payment for 12 hours and 50 minutes of compensable work over a 17-month period, amounting to $102.67 at a wage of $8 per hour.Starbucks moved for summary judgment on the ground that Troester’s uncompensated time was so minimal that Starbucks was not required to compensate him. The district court concluded that the de minimis doctrine applied and granted summary judgment against Troester. Troester appealed, arguing that the district court erroneously applied the standard generally reserved for federal FLSA claims to his state law wage and hour claims. Recognizing that the California Supreme Court had never addressed whether the federal de minimis doctrine applied to wage claims brought under California law, the Ninth Circuit certified this question to the California Supreme Court.California Supreme Court DecisionThe California Supreme Court considered two questions. First, it considered whether California’s wage and hour statutes or regulations adopt the de minimis doctrine found in the FLSA. Second, the Supreme Court considered whether the de minimis principle, which has operated in California in various contexts, applies to wage and hour claims, and to the specific facts of the case.The Supreme Court first concluded that California has not adopted the de minimis doctrine, as there is no indication in the text or history of the relevant California Labor Code statutes or the governing Industrial Welfare Commission (IWC) wage order of such adoption. The applicable wage order defines hours worked as “the time during which an employee is subject to the control of an employer, and includes all the time the employee is suffered or permitted to work, whether or not required to do so[.]” California case law has clarified that the time during which the employee is “suffered or permitted to work” encompasses the time during which the employer knew or should have known that the employee was working on its behalf. The wage order further provides that wages must at least be paid to an employee “for all hours worked.” Similarly, the California Labor Code obligates an employer to pay an employee additional compensation for “[a]ny work” beyond eight hours in any workday or 40 hours in any workweek. Against this backdrop, the Supreme Court concluded that the federal de minimis rule was less protective than the California rule establishing that employees must be compensated for “all hours worked” or “[a]ny work” beyond eight hours a day. Further, the Supreme Court determined that nothing in the language of the wage orders or the Labor Code demonstrated any intent to incorporate the de minimis rule.The Supreme Court then concluded that, although California has a de minimis rule that is a background principle of state law, the rule was not applicable to the specific facts of the case, where Starbucks required Troester to work “off the clock” several minutes per shift.  The Supreme Court determined that applying the de minimis rule would fly in the face of the statutory purpose of the governing wage order and Labor Code statutes, which require liberal construction and demand that employers compensate employees for all hours worked. For example, the Supreme Court observed that the wage orders expressly concern themselves with small amounts of time, as demonstrated by the fact that they demand strict adherence to the requirement to provide most nonexempt employees two daily 10-minute rest breaks. “[T]he strict construction of a law prohibiting any interference with or reduction of a 10-minute rest break is difficult to reconcile with a rule that would regard a few minutes of compensable time per day as a trifle not requiring compensation if too inconvenient to record.” The Court also noted that the IWC regulations have been more expansive than the FLSA in defining the time for which an employee must be compensated, therefore militating against application of the federal de minimis doctrine. The Supreme Court discounted the fact that the DLSE has applied the de minimis rule for decades on the ground that neither the manual nor the opinion letters are binding.Notably, the decision left open the question of whether there might be wage claims involving employee activities that are so irregular or brief in duration that it would not be reasonable to require employers to compensate employees for the time spent on them.  Briefs on behalf of Starbucks invoked various hypothetical scenarios of potential de minimis activity in an attempt to illustrate that abolishing the de minimis rule would lead to undue burdens and absurd results for both employers and employees. For example, if, after an employee clocks out, a customer approaches the employee and asks for the location of a product and the employee spends five seconds pointing the customer in the right direction, should the employer be held liable for not capturing or paying the employee for that time? If, before clocking in to the employer’s computerized timekeeping system, the employee pushes the wrong button and accidentally turns off his or her computer, should the employer be held liable for not paying the employee the two minutes it took to reboot the computer? If an employee reaches to “punch in” or “punch out” with a time card, sneezes, drops the time card, and must first pick it up, must the employer pay the employee for the extra seconds “worked”? The Supreme Court recognized that there are a “wide range of scenarios” in which the de minimis principle may arise, thereby impliedly acknowledging that there may be limited circumstances in which application of the de minimis doctrine is appropriate.  However, the Court expressly declined to “prejudge[] these factual permutations,” and “decide[d] only whether the de minimis rule is applicable to the facts of this case as described by the Ninth Circuit.”In sum, in light of “the wage order’s remedial purpose requiring liberal construction, its directive to compensate employees for all time worked, the evident priority it accorded that mandate notwithstanding customary employment arrangements, and its concern with small amounts of time,” the Supreme Court concluded that the de minimis doctrine had no application under the circumstances of this case.Implications for California EmployersThe Troester ruling reaffirms that employers should diligently track all time spent by nonexempt employees and should ensure that all working time is compensated.  The Court noted that “employers are in a better position than employees to devise alternatives that would permit the tracking of small amounts of regularly occurring worktime,” and proposed several alternative ways to track such time.  Whether any of these alternatives will be suitable for a particular workplace will depend on the circumstances of the workplace.While the Troester opinion may trigger a rise in lawsuits seeking to recover for uncompensated time spent by employees before clocking in or after clocking out, it is important to note that the decision is limited in its application. Specifically, the Supreme Court did not decide “whether there are circumstances where compensable time is so minute or irregular that it is unreasonable to expect the time to be recorded.” Entities that engage nonexempt employees should consult with legal counsel to determine how the Troester opinion will impact their businesses, and how best to implement any steps they may take in response. In particular, employers should consult legal counsel before implementing any of the time-tracking alternatives proposed by the Court.

Troester v. Starbucks Corp. – What Is A Trifle, Anyway?

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Troester v. Starbucks Corp. – What Is A Trifle, Anyway?

Troester v. Starbucks Corp. – What Is A Trifle, Anyway?

elcblog-august2018

On July 26, 2018, the California Supreme Court issued another highly anticipated opinion in Troester v. Starbucks Corp., clarifying application of the federal d

“Employees leaving an organization might be replaced physically, however, their skill-sets and knowledge cannot be exactly replaced by the person replacing them… the skill of employees, account for 85% of a company’s assets.”“[W]e are going to aggressively protect our intellectual property. Our single greatest asset is the innovation and the ingenuity and creativity of the American people. It is essential to our prosperity and it will only become more so in this century.”“Half of employees who left or lost their jobs in the last 12 months kept confidential corporate data, according to a global survey… 40% plan to use it in their new jobs.”A company’s intellectual property and employees are indisputably of its most important assets.  Ironically, there is an inner tension because they also pose grave threats to each other. This article will examine recent initiatives by the U.S. Department of Justice Antitrust Division to prosecute (including potentially criminally) anti-poaching pacts between companies that improperly limit employee mobility on the one hand, and what employers can still lawfully do within the bounds of antitrust and other laws to protect their people investments. Antitrust EnforcementYou’ve invested a lot in your employee base.  At considerable cost, you’ve found the right people, developed and trained them, and disclosed to them some or all of your treasured IP. Now you want to keep some other company from reaping the benefits of your investment. And you know which other companies would be most interested in your employees and would like to protect their investments rather than engage in a bidding war over employees.  STOP THERE!  That last thought can lead to disastrous consequences. Even if you have no products that compete with another company, that other company can be your competitor for employees. And competition triggers the antitrust laws.A change in the policy against no-poach (i.e., employee non-solicitation) agreements of the Antitrust Division of the Department of Justice surprised some executives and HR staff, who did not have antitrust on their radar. The Division followed its civil enforcement actions against nine prominent high tech Silicon Valley companies by creating the Antitrust Guidance for Human Resource Professionals (Guidance), along with the Federal Trade Commission, in October 2016. The Antitrust Division’s continued focus is expanding further the depth and scope of the antitrust risk related to agreements about employees.  Agreements not to compete can subject a company to criminal fines of up to $100 million or double the loss or gain from the agreement. Individuals involved in such agreements face a statutory maximum of 10 years in jail per agreement. The Guidance explicitly notes the availability of such criminal sanctions. The antitrust laws also provide for victims to sue for treble damage and recover their attorneys’ fees. Shareholder suits have challenged boards and executives that do not implement adequate compliance programs or misstate earnings reports due to antitrust violations. The speed of follow-on consequences from government enforcement is swift. On April 3, 2018, the Antitrust Division announced a civil settlement regarding a no-poach agreement that had come to light in the context of a merger review. Only 13 days later the first of a number of follow-on antitrust treble damage class actions was filed on behalf of the relevant employees. To give some sense of the expectation of the lawyers bringing these claims, $604 million in civil settlements from the earlier follow-on civil cases involving the Silicon Valley companies garnered two of the biggest payouts in class counsel attorneys’ fees and costs in federal courts in California in the last eight years, according to Bloomberg Law’s Class Action Settlement Tracker. Those fees present a significant incentive to bring class civil cases.Recognizing that until recently many companies had not appreciated the consequences of no poach agreements, the Antitrust Division explained that it had chosen to proceed civilly, rather than criminally, in this recent matter because the conduct had ended prior to the October 2016 Guidance release. For conduct that continues past that time, the Antitrust Division may not be as generous and will target for criminal sanctions.Most importantly, in announcing this settlement, the Antitrust Division reiterated, as its officials have done on numerous occasions since last fall, that “it intends to bring criminal, felony charges against culpable companies and individuals” and that the Antitrust Division has instituted “a broader investigation into naked agreements not to compete for employees.”Employee Mobility and IP ProtectionThe Antitrust Division’s current focus on anti-poaching agreements is consistent with a growing movement across the country to limit the use of non-competition agreements and restrictions on employee mobility. On April 26, 2018, Congress announced the introduction of a package of bills in both the House and Senate, that included the Workforce Mobility Act of 2018, H.R.5631 (WMA) and the End Employer Collusion Act, S.B. 2480 (EECA) and a couple of others. The WMA would make it unlawful for an employer to enter into a covenant not to compete with an employee and create a private right of action allowing a prevailing employee to collect damages, including punitive damages, and reasonable attorneys’ fees and costs. The WMA contains a carve out that expressly permits agreements between an employer and employee barring the employee from disclosing trade secrets. The EECA would be similar to the WMA, except the EECA would bar any agreement between two employers that prohibits or restricts one employer from soliciting or hiring another employer’s employees or former employees. The EECA would offer the same remedies as the WMA but, in its current version, does not include any exceptions whatsoever. In several states, including New Hampshire, New Jersey, Pennsylvania, Vermont, and Washington, similar bills have been proposed and are being considered as well. This is not the first time bills of this nature have been proposed in Congress or state legislatures, and the likelihood of any of these bills passing into law is, at best, uncertain. But whether or not they ultimately pass into law, they serve as further examples of a greater interest in lessening potential restrictions on employee mobility in the United States.Massachusetts, which just passed sweeping changes to its laws on non-competition agreements, is a prime example.  On July 31, the Massachusetts Legislature passed legislation for the first time codifying Massachusetts’ law on non-competition agreements. If signed by the Governor, which is expected, the new law will be effective and apply to non‑competition agreements entered into on or after October 1, 2018. Going forward, therefore, non-compete agreements in Massachusetts will only be valid for 12 months after termination of employment. Employers will need to pay 50% of the employee’s annualized base salary during the non-compete period. An employer will need to present the non-compete agreement to a new employee within ten (10) days of the employee starting work and specifically advise the employee of his or her right to consult a lawyer before signing.  And non-competes will not be permissible for non-exempt employees or any employees who are terminated without cause or laid off, although such employees can still enter into non-competes as part of separation agreements. It remains to be seen what impact the new law has on business and innovation in Massachusetts. But the new Massachusetts legislation only confirms the business and societal interest and scrutiny of non-competition agreements.Courts also appear to be applying greater scrutiny to non-competition agreements. For example, in Delaware, a state long known for having some of the most supportive laws favoring corporations in the nation, recent decisions by state courts may suggest a greater recognition for employee mobility considerations. In Ascension Insurance Holdings v. Alliant Insurance and Roberts Underwood, 2015 Del. Ch. LEXIS 19 (January 28, 2015), for instance, a Delaware company sought to enforce a non-competition provision in an agreement that it had signed with a California employee in which the parties had consented to Delaware venue and application of Delaware law for any disputes. The Delaware Chancery Court, however, declined to enforce the Delaware choice of law provision, holding that California had a greater interest in the action, and California public policy would be violated if Delaware law were applied under which the non-competition provision would be enforceable. More recently, another Delaware Chancery Court in EBP Lifestyle Brands Holdings v. Boulbain, 2017 Del. Ch. LEXIS 143 (August 4, 2017), refused to enforce against a California employee a non-competition provision in an agreement where the parties had similarly agreed that Delaware law would apply to disputes. Many employers have been left to ask the question, can we lawfully do anything to protect our significant investments in our people who, by the way, often carry with them our most competitively sensitive IP? The answer is YES.The vast majority of states in the United States still enforce against employees non-competition agreements that are reasonable in scope. Restrictive covenants with individual employees less than non-competition agreements, e.g., employee non-solicitation agreements, still appear to be universally enforceable. Employers everywhere are still free to require employees to sign confidentiality and non-disclosure agreements to protect employers' most sensitive information. The UK concept of Garden Leave seems to be slowly making its way to United States.Further, it is worth noting that even the Antitrust Division has recognized (as reflected in the <a target="_blank" href="https://www.justice.gov/atr/case-document/final-judgment-0">excerpt from its 2011 Consent Decree</a> with several high tech companies in the Silicon Valley) that there are situations where employee non-solicitation provisions are permissible, including when:<ol><li>Contained within existing and future employment or severance agreements with an employer;</li><li>Reasonably necessary for mergers or acquisitions, consummated or unconsummated, investments, or divestitures, including due diligence related thereto;</li><li>Reasonably necessary for contracts with consultants or recipients of consulting services, auditors, outsourcing vendors, recruiting agencies, or providers of temporary employees or contract workers;</li><li>Reasonably necessary for the settlement or compromise of legal disputes; or </li><li>Reasonably necessary for (i) contracts with resellers or OEMs; (ii) contracts with providers or recipients of services other than those enumerated in paragraphs 1-4 above; or (iii) the function of a legitimate collaboration agreement, such as a joint development, technology integration, joint ventures, joint projects (including teaming agreements), and the shared use of facilities.</li></ol>Terms such as “reasonably necessary” may leave room for interpretation, but to date, the Antitrust Division has not focused on challenging employee non-solicitation agreements in any of the above areas. Indeed, the Antitrust Division mentions in its October 2016 advisory guidance that no‑poaching agreements that are reasonably necessary to a larger legitimate collaboration between employers, including legitimate joint ventures, are not considered per se illegal under the antitrust laws.In sum, while employers need to tread carefully lest they fall into the cross-hairs of the DOJ Antitrust Division, all is far from lost for employers increasingly concerned about how to retain their most prized people and IP assets. Takeaways<ul><li>Non-disclosure, non-compete, and non-solicitation agreements with individual employees are aspects of an effective IP protection program and are enforceable in most states.</li></ul><ul><li>But don’t assume that courts will reflexively enforce restrictive covenants simply because an employer and employee agree to them in a contract or that you can avoid antitrust problems just because you explain to the affected employees what you are doing, even if they agree to it.</li></ul><ul><li>Beware that employee wages may be considered akin to prices for products and services, so entering into non-solicitation and similar agreements (particularly about setting wage rates) with other companies may violate antitrust law.</li></ul><ul><li>Look at your compliance program to be sure it covers HR issues; include HR personnel in the training and consider whether written materials need updating.</li></ul><ul><li>Continuing competition won’t stem prosecution if there is an agreement on some phase of the process that is not ancillary and required for a legitimate, procompetitive purpose.  For example, with agreements to avoid use of certain types of benefits or to set benefit levels, the companies may be vigorously competing for employees, but the conduct could still be criminal. </li></ul><ul><li>If you find a problem that was not terminated before October 2016, you may want to consider an application under the Antitrust Division’s Leniency Policy, which provides for criminal amnesty for the first to disclose an antitrust violation (https://www.justice.gov/atr/leniency-program).</li></ul>

Protecting Investments in People and IP While Avoiding Criminal Sanctions

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Co-chair Global Antitrust Law Practice Group


Lisa M. Phelan, former Chief of the National Criminal Enforcement and Washington Criminal I Sections of the Antitrust Division of the U.S. Department of Justice (DOJ), is a partner and Co-Chair of Mo

Lisa Phelan

Lisa M. Phelan

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Eric Akira Tate co-chairs the firm’s Global Employment and Labor Group. He represents technology and other companies in bet-the-company trade secrets and employee mobility cases.

Eric Akira Tate

Eric Tate chairs the firm’s Global Employment and Labor Group. He has represented technology and other companies in the biggest and most highly-publicized trade secrets and employee mobility cases across multiple industries. Eric also represents companies in whistleblower, wage and hour, and other employment litigation.

Eric Tate

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Protecting Investments in People and IP While Avoiding Criminal Sanctions

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“Employees leaving an organization might be replaced physically, however, their skill-sets and knowledge cannot be exactly replaced by the person replacing them

What began as a hashtag trending on Twitter may spur major change in the legislative arena in California. #MeToo not only brought global attention to the magnitude of sexual harassment and assault, but also sparked a much-needed conversation about how to combat the problem outside of cyberspace. In the workplace, issues regarding sexual harassment, sex discrimination, and retaliation have moved to the forefront of the California Legislature, as it attempts to address perceived shortcomings posed by mandatory arbitration. One bill getting particular attention is Assembly Bill 3080, introduced by Assemblywoman Lorena Gonzalez Fletcher. It specifically aims to ban employers from requiring workers to agree to arbitration as a condition of employment. Although the bill has passed the Assembly, challenges regarding preemption and significant employer opposition may ultimately send the Legislature back to the drawing board. In this article we provide an analysis of the history of #MeToo, the aim of the pending legislation, and the conflicts with federal and case law that may well derail the legislation.BackgroundOn October 15, 2017, American actress Alyssa Milano urged women to write “Me Too” as a social media status if they had ever been victims of sexual assault. The call went viral on Twitter and elsewhere, as over 1.7 million tweets responded from 85 countries. On Facebook, the hashtag was used more than 12 million times. The phrase was originally coined in 2006 by Tarana Burke, mainly as a movement to help survivors of sexual assault find healing. The social media hashtag has since expanded the movement, encompassing not only healing, but awareness and a call for social responsibility through change. The movement has spurred conversations that touch all sectors of life, identifying sexual assault and harassment as a rampant problem that needs addressing. One such area is in employment, as numerous women shared stories about workplace harassment and subsequent blacklisting, particularly in the wake of the Harvey Weinstein sexual assault allegations. As the conversation has expanded, the California Legislature has taken steps to address the problem, although its solutions will be difficult to implement.Major LegislationProposed California legislation involves a broad range of approaches to mandatory arbitration agreements and sexual harassment to further the goals of #MeToo advocates. These range from an attempt to extend the current one-year statute of limitation on sexual harassment and discrimination to three years (SB 1300), to a proposal making it illegal for sexual harassers to condition a settlement on confidentiality (SB 820). The main one, however, is Assemblywoman Fletcher’s AB 3080. The purpose of the act is both “to ensure that individuals are not retaliated against” for refusing to consent to arbitration agreements with their employers and to preclude agreements making claims or settlements of sexual harassment confidential. In essence, this bill aims to limit what an employer can require as a condition of employment by making it illegal to prohibit potential and current employees from disclosing any instance of sexual harassment they may “suffer, witness or discover” in the workplace. In addition, regarding mandatory arbitration, Section 4 of the bill provides:A person shall not, as a condition of employment…require any applicant for employment or any employee to waive any right, forum, or procedure for a violation of any provision of the California Fair Employment and Housing Act…including the right to file and pursue a civil action or a complaint with, or otherwise notify, any state agency… or any court or other governmental entity of any alleged violation.In describing the problem, Assemblywoman Fletcher writes, “[r]equiring workers to waive their basic rights as a condition of employment is fundamentally unfair. All contracts must be voluntary, not the result of coercion, and denying a worker a livelihood if they do not sign is anything but voluntary.” The counterargument points to the high costs of litigation for both parties if arbitration is discouraged, emphasizing the studies which support the notion that “access to civil courts is not a realistic option for low wage employees.” Opponents of this bill include the California Chamber of Commerce, the California Manufacturers and Technology Association, and the Civil Justice Association of California.ConflictNotable obstacles face AB 3080.  Judicial approval of arbitration, federal preemption, and past failed attempts at similar restrictions are all factors stacked against the bill.First, federal preemption will pose a stiff challenge to this bill. Proponents of AB 3080 recognize that the Federal Arbitration Act (FAA) as currently interpreted prevents state legislatures from discouraging or discriminating against arbitration either directly or indirectly. The proponents argue against preemption by the FAA, however, by narrowly reading their proposed bill and its impact. The argument goes:[T]here is a reasoned case to be made that the author and sponsor of this bill have carefully crafted a statute that responds to preemption doctrine by taking the U.S. Supreme Court’s admonition seriously: that consent is the touchstone of arbitration agreements. [Citation omitted.] In this way, this bill would ensure employees may choose to waive their rights in order to keep a job, but they are never forced to.Thus, the reasoning remains that the proposed legislation does not seek to outlaw arbitrations, but instead, it simply aims to ensure that all arbitrations are entered into voluntarily. Putting an end to what proponents characterize as “forced arbitrations” is the goal, with the reasoning that making something a condition of employment is a type of coercion that renders the decision involuntary. The reasoning seems weak at best, as it still seems to ignore the “obvious preemption elephant” in the room. It probably rests on a hope that by the time the bill, if enacted, reaches the U.S. Supreme Court, the court will have new justices who will reconsider – if not overturn – the current decisions.On October 11, 2015, Governor Brown rejected a similar bill, AB 465, which purported to outlaw the use of mandatory arbitration agreements as a condition of employment. Governor Brown explained that he was returning the bill without his signature because it was a “far-reaching step,” and it would likely be struck down as a violation of the FAA. He also pointed to the protections provided to ensure fair arbitrations and called on lawmakers to make specified changes to combat any abuses, rather than a “blanket prohibition.” This leaves substantial uncertainty as to whether Governor Brown will sign AB 3080. Will it suffer the same fate as its predecessors in the courts, or will the new climate of #MeToo pave the way for its acceptance?  Conclusion#MeToo has shown us that social media can have effects that reach far beyond the computer screen. Women in positions of power have mobilized to argue for laws they believe reflect the core goals of the movement, one of which is to extinguish sexual harassment in the workplace. Whether a limitation on required arbitration agreements effectively achieves this goal is up for debate. On the one hand, the proponents of AB 3080 argue that the bill would outlaw an unfair process cloaked in secrecy by giving employees the flexibility to choose their forums. On the other hand, its opponents argue that AB 3080 is an impermissible hindrance to a mutually effective and fairly structured process. Regardless of the position one takes, however, one thing is clear: This conversation is far from over.

From Social Media to Social Change: Will #MeToo Alter California Arbitration Law?

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Of Counsel

Lloyd W. Aubry, Jr. is a member of our Employment and Labor Group. Lloyd’s practice encompasses all aspects of employment and labor law, including litigation and counseling.

Lloyd Aubry

Lloyd Aubry’s practice encompasses all aspects of employment and labor law, including litigation and counseling. He represents public and private clients in a variety of matters relating to wage and hour law, employment discrimination, wrongful discharge, safety and health issues, and National Labor Relations Act (NLRA) issues. Mr. Aubry represents clients before administrative agencies and in state and federal court. A significant part of his practice involves expert testimony and consulting on issues relating to the Department of Industrial Relations. In this capacity, he has served for both employers and employees.

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From Social Media to Social Change: Will #MeToo Alter California Arbitration Law?

From Social Media to Social Change: Will #MeToo Alter California Arbitration Law? 

elcblog-june-2018

What began as a hashtag trending on Twitter may spur major change in the legislative arena in California. #MeToo not only brought global attention to the magnit

On May 21, 2018, the United States Supreme Court issued its decision in Epic Systems Corp. v. Lewis, holding that waivers of class and collective actions in arbitration agreements are enforceable under the Federal Arbitration Act (FAA).  The Supreme Court’s decision resolves a circuit split that has been brewing for several years on whether such waivers contained in pre-dispute employment arbitration agreements violate the National Labor Relations Act (NLRA) by preventing employees from acting in concert to pursue claims against their employers.  Writing for the majority in a 5-4 decision, Justice Neil Gorsuch found that arbitration agreements requiring employees to arbitrate their claims individually are enforceable under the FAA and the NLRA. This decision marks a significant win for employers who have arbitration agreements with these waivers as it reduces their risk of having to litigate employment claims on a class and collective basis.  Although these waivers are now enforceable, employers must still review their arbitration agreements and programs to ensure they are carefully crafted to avoid contractual challenges, such as finding the agreements are unconscionable, and be mindful that not all class claims will be covered.  Employers who do not currently use pre-dispute arbitration agreements should consider whether it makes sense for them to adopt such agreements in light of this ruling. BackgroundMany companies require their employees, as a condition of employment, to enter arbitration agreements that require them to arbitrate any future claims against the company, rather than litigate those claims in court.  As part of these arbitration agreements, companies also commonly require employees to arbitrate their employment claims individually and prohibit arbitration on a class or collective basis.  Such waivers have long been enforced pursuant to the FAA.  In 2012, however, the National Labor Relations Board (the “Board”) ruled in D.R. Horton Inc., 357 NLRB No. 184 (2012), that employers violate the NLRA when they require employees to enter pre-dispute arbitration agreements containing class or collective action waivers.  The Board essentially reasoned that such waivers contravened employees’ rights under Section 7 of the NLRA to engage in “concerted activities” in pursuit of “mutual aid or protection.”  In 2013, the Fifth Circuit Court of Appeals rejected the Board’s position in D.R. Horton and later confirmed that same ruling in Murphy Oil USA, Inc. v. NLRB.  In 2016, the Seventh Circuit Court of Appeals in Lewis v. Epic Systems Corp. and the Ninth Circuit Court of Appeals in Morris v. Ernst & Young, held that class action waivers in mandatory, pre-dispute arbitration agreements between employers and employees violate the NLRA by restraining employees’ right to engage in concerted activity.  Those courts found that the FAA’s savings clause—which provides arbitration agreements are unenforceable if grounds exist at law or in equity for their revocation—rendered the agreements unlawful because they violate the NLRA. To resolve this circuit split, the Supreme Court granted certiorari and consolidated Epic, Murphy Oil, and Ernst & Young to determine whether an employment arbitration agreement containing a class and collective action waiver violates the NLRA or is permitted by virtue of the FAA.The Supreme Court’s DecisionThe Supreme Court majority held that class action waivers are enforceable.  The Court found that the FAA has a strong policy in favor of arbitration that requires enforcement of arbitration agreements, including enforcing the terms selected by the parties.  Although the FAA’s savings clause allows courts to refuse to enforce arbitration agreements “upon such grounds as exist at law or in equity for the revocation of any contract,” the Court reasoned that the savings clause only recognizes “generally applicable contract defenses, such as fraud, duress, or unconscionability.”  The Court rejected the employees’ position because they were challenging the agreements on procedural terms in the agreements requiring their claims be heard on an individual basis rather than attacking the agreements on contractual grounds, such as asserting the agreements are unconscionable.The Court also held that the NLRA did not preempt the FAA to render class and collective action waivers unlawful.  While recognizing the NLRA provides employees with the right to engage in “concerted activities,” the Court found that right did not include a right to engage in class or collective action procedures.  The Court reasoned that Congress could not have intended the NLRA to address class and collective waivers as the NLRA was enacted well before class action procedures had been adopted in the Federal Rules of Civil Procedure and even several years before the Fair Labor Standards Act codified its collective action provision.  As Justice Gorsuch noted, “[i]t’s more than a little doubtful that Congress would have tucked into the mousehole of Section 7’s catchall term an elephant that tramples the work done by these other laws. . . .” The Court also found that it did not need to defer to the Board’s position on class and collective waivers.  The Board had to interpret not only the NLRA, but also the FAA to find that such waivers were unlawful.  Because the NLRB has no power to interpret or administer the FAA, it was due no deference.  Deference was also particularly unwarranted in the Court’s view because the Board and the U.S. Department of Justice took opposing views on the issue.Writing for the dissent, Justice Ginsberg contended that class and collective waivers were protected by the NLRA.  Noting that Congress enacted the NLRA to protect employees’ right to engage in concerted activity, she found that class and collective action waivers illegally subvert that right by barring employees from banding together to seek mutual aid and protection.  Accordingly, the dissent found the waivers to be unenforceable under the FAA’s savings clause.Practical TakeawaysIn light of this decision, employers should review their arbitration agreements and consider modifying them to include class action waivers if they are not already included.  Companies operating in multiple jurisdictions that have created different versions of their arbitration agreements to address the uncertainty caused by the circuit split should now consider standardizing the waiver language in their arbitration agreements. Despite this significant victory, arbitration agreements are still subject to challenge.  For example, as the Supreme Court found, traditional contract defenses, such as unconscionability, can make a class or collective waiver unenforceable.  Consequently, it is critical to ensure arbitration agreements and programs are carefully crafted to avoid enforceability issues on these grounds.In addition, some states have laws expressly precluding class waivers.  For example, class action waivers are not allowed under California’s Private Attorneys General Act (PAGA).  Courts have found that PAGA is not preempted by the FAA and is procedurally distinct from many other class claims as it is a representative action where an employee acts as the state’s proxy.  In addition, some federal laws prohibit certain types of claims from being arbitrated, such as retaliation claims under the Sarbanes-Oxley Act of 2002 and certain contractors of the Department of Defense cannot have pre-dispute arbitration agreements covering sexual harassment or assault claims.  Given recent attempts by state legislatures to attack arbitration agreements covering sexual harassment and assault claims in light of the MeToo movement, some states may seek to revise their laws to circumvent the Supreme Court’s decision.  Although these state laws would be susceptible to FAA preemption challenges, employers should pay close attention to these developments and might consider preemptively limiting their arbitration programs to cover only certain types of claims, such as wage and hour claims.Employers without pre-dispute arbitration agreements may be encouraged by the Supreme Court’s decision to adopt an arbitration program or mandate that certain employees sign arbitration agreements as a condition of employment.  Although arbitration has a number of benefits, it is not right for all companies. The benefits of arbitration generally include that it can be a less costly forum than litigating in court, leads to faster resolutions than court actions, and provides a confidential forum out of the public purview.  Despite these benefits, arbitration has several drawbacks that companies should consider before implementing mandatory arbitration agreements or programs.  In some instances, arbitration can be more expensive.  Most arbitration agreements require the employer to pay both the employer’s and the employee’s share of the arbitrator’s expenses and fees, including initial filing fees and hourly billing rates of the arbitrator, to avoid the risk of a court invalidating the arbitration agreement on unconscionability grounds for imposing a cost or fee splitting requirement.  Employers can also face increased costs and fees associated with having to move in court to compel arbitration or defend challenges to the enforceability of the arbitration agreement.  Another possible drawback is that some arbitrators are less likely than courts to grant dispositive motions.  The right to file dispositive motions is not guaranteed in arbitration like it is in court.  And, unlike court judges who have an interest in eliminating cases that lack merit from their docket, arbitrators are paid by the hour and may be more disinclined to grant dispositive motions.

What the Supreme Court’s “Epic” Decision Means for Employers

Andrew co-chairs the firm’s Global Employment and Labor Group. He represents companies on a broad range of labor and employment litigation and counseling matters, successfully defending clients in number complex matters before federal and state courts and administrative agencies.

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What the Supreme Court’s “Epic” Decision Means for Employers

What the Supreme Court’s “Epic”  Decision Means for Employers

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On May 21, 2018, the United States Supreme Court issued its decision in Epic Systems Corp. v. Lewis, holding that waivers of class and collective actions in arb

On April 30, 2018, the California Supreme Court issued its highly anticipated opinion in Dynamex Operations West, Inc. v. Superior Court, clarifying the standard that applies to determine whether a worker is properly classified as an independent contractor for purposes of the Industrial Welfare Commission (IWC) wage orders. Dynamex rejects application of the multi-factor test set forth in S.G. Borello & Sons, Inc. v. Department of Industrial Relations, and instead adopts a three-part “ABC test” for evaluating whether a worker is an independent contractor or an employee covered by the wage orders. Unless the hiring company establishes all three requirements of the ABC test, the worker is an employee.The first requirement of Dynamex’s ABC test (that the worker must be free from the hiring company’s control and direction in connection with the performance of the work, both under the contract and in fact) aligns with the common law “right to control” standard and is not a novel concept. However, the second requirement (that the worker must perform work that is outside the company’s business) and the third requirement (that the worker must be customarily engaged in an independently established trade, occupation, or business of the same nature as the work being performed for the company) will make it more difficult for businesses to classify workers as independent contractors in California.BackgroundDynamex provides on-demand pick-up and delivery services to individual and business customers.  Before 2004, Dynamex classified its California drivers as employees. In 2004, Dynamex converted its drivers to independent contractors after determining the conversion would be economically advantageous.The plaintiffs were former drivers who had independent contractor agreements with Dynamex to provide delivery services.  In their putative wage and hour class action lawsuit, the plaintiffs alleged Dynamex misclassified its California drivers as independent contractors and violated various provisions of the Labor Code and wage orders as a result.Dynamex obtains its own customers and sets the rates to be charged to customers for deliveries. Generally, Dynamex drivers are expected to wear Dynamex shirts and badges when making deliveries, and they are sometimes required to attach a customer’s decals to their vehicle if making a delivery on behalf of a Dynamex customer. Dynamex drivers are generally free to set their own schedules, but they need to notify Dynamex of the days they intend to work. Drivers are assigned deliveries at Dynamex’s sole discretion.  Drivers must complete all deliveries on the date assigned. Typically, drivers are hired for an indefinite period of time, with Dynamex reserving the right to terminate the agreement without cause, on three days’ notice.Dynamex drivers are permitted to hire other individuals to make deliveries Dynamex assigns. Drivers are also free to make deliveries for other delivery companies or on their own behalf, when not making deliveries for Dynamex. Drivers use their own vehicles to make deliveries. Drivers are generally free to determine the routes they take and the sequence in which they make deliveries, unless a customer requires otherwise. Dynamex negotiates driver compensation on an individual basis, and the amounts and manner in which drivers are paid varies from driver to driver.The trial court certified a modified class of Dynamex drivers who were classified as independent contractors, who used their personally owned or leased vehicles that weigh less than 26,000 pounds (Basic Class C License), and who had timely returned a questionnaire sent by the parties. The class specifically excluded (1) drivers for any pay period in which the driver provided services to Dynamex as either an employee or subcontractor of another person or entity or through the driver’s own employees or subcontractors, and (2) drivers who provided services concurrently for Dynamex and for another delivery company that did not have a relationship with Dynamex or for the driver’s own personal delivery customers.In granting the plaintiffs’ motion for class certification, the trial court noted that the parties disagreed regarding the proper legal standard for determining whether a worker is an employee or an independent contractor for purposes of the wage orders. Dynamex argued for the application of the Borello factors. The plaintiffs argued the trial court should apply the broad definition of “employ” articulated in Martinez v. Combs, a case assessing whether an entity that had a relationship with a primary employer was a joint employer under the wage orders. The trial court agreed with the plaintiffs.Dynamex petitioned to the Court of Appeal for a writ of mandate. The Court of Appeal denied the writ petition in part, concluding that the trial court had properly relied upon the Martinez standard with respect to plaintiffs’ claims that fell within the scope of the applicable wage order. The Court of Appeal also granted the writ petition in part, finding that the Borello standard properly applied to claims falling outside the scope of the wage order. Dynamex petitioned to the California Supreme Court for review.The California Supreme Court’s DecisionThe California Supreme Court granted review to consider whether, in a wage and hour class action involving claims that the plaintiffs were misclassified as independent contractors, a class can be certified based on the IWC definition of “employ” as construed in Martinez, or whether the common law Borello test controls.The 82-page unanimous opinion authored by Chief Justice Tani Cantil-Sakauye meticulously reviews the relevant IWC wage order provisions (which define “employ” as meaning “to engage, suffer, or permit to work”) and decades of history of the key California cases evaluating independent contractor classification, including pre-Borello cases, Borello, Martinez, and Ayala v. Antelope Valley Newspapers, Inc.Dynamex interprets Borello as “call[ing] for application of a statutory purpose standard” rather than embodying the common law test or standard for distinguishing employees and independent contractors in California. The Supreme Court concluded that the statutory purpose of the wage orders was best served by adopting the ABC test, which it considered to be a “simpler, more structured test” for determining whether the “suffer or permit to work” standard has been met. The Court viewed the ABC test as offering the advantages of avoiding uncertainty and unpredictability with respect to the classification of workers, and preventing abuse by entities seeking to evade responsibilities under the wage and hour laws.The ABC test has been applied in other jurisdictions, primarily (though not exclusively) in the unemployment insurance context. Under the ABC test, the worker is presumed to be an employee, and the hiring entity bears the burden to establish that (A) the worker is free from the control and direction of the hirer in connection with the performance of the work, (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. Only where the hiring entity establishes all three of these factors will the worker be an independent contractor, rather than an employee, for purposes of the wage orders.The Supreme Court emphasized that its interpretation of the “suffer and permit to work” standard does not expand the reach of the wage orders to “the type of traditional independent contractor who has never been viewed as an employee of a hiring business and should not be interpreted to do so.” The Court agreed with Dynamex that the trial court’s literal interpretation of the “suffer and permit to work” language of the wage orders was too broad and “could potentially encompass the type of traditional independent contractor — like an independent plumber or electrician — who could not reasonably have been viewed as the hiring business’s employee.”Notwithstanding, the Supreme Court concluded that under the B and C parts of the ABC test, the trial court did not abuse its discretion in determining that there was a well-defined community of interest sufficient to certify a class. Under part B of the test, the Court found common issues of fact and law predominated, because the question of whether the work performed by the delivery drivers was within the scope of Dynamex’s business is “clearly amenable to determination on a class basis” and “Dynamex’s entire business is that of a delivery service.” Under part C, the Court determined that the question of whether the drivers in the certified class were “customarily engaged in an independently established trade, occupation, or business” was an issue that could be resolved on a class basis.  Dynamex had reclassified its drivers from being employees to independent contractors in 2004, and the certified class excluded drivers who performed delivery services for another delivery service or for their own personal customers, and who had employees of their own. The Court suggested that in many cases, factors B and C are easier to determine and should be considered first.Implications for Businesses in CaliforniaThe Dynamex ruling has significant implications for all entities that engage independent contractors in California.Businesses should carefully examine each of their independent contractor relationships and review the language of each of their independent contractor agreements to determine whether the relationships meet the ABC test articulated in Dynamex.  Part A (whether the worker is free from the control and direction of the hiring entity, both under the contract and in fact) aligns with the common law “right to control” standard. Thus, many businesses will want to pay particular attention to parts B (whether the work performed is outside the hiring entity’s business) and C (whether the worker is customarily engaged in an independently established trade, occupation, or business), which had previously been relevant considerations in assessing independent contractor status under Borello, but are now strict requirements under Dynamex.In a footnote, Dynamex states there is “no question” that the “suffer and permit to work” standard is intended to cover joint employer relationships, where an entity has a relationship with a worker’s primary employer, such as larger businesses that contract out some of their operations but retain substantial control over the work. However, Dynamex also makes clear that this does not mean that the larger business is prohibited from entering into subcontractor relationships or from obtaining benefits that may result from outsourcing certain services to a separate entity. So long as it is authorized by contract, the larger business can seek reimbursement for any such liability from the subcontractor. Accordingly, in reviewing their independent contractor agreements, businesses should look closely at indemnification provisions, to ensure they are appropriately protective.While the Dynamex opinion may trigger a rise in wage and hour class actions alleging independent contractor misclassification, it is important to note that the decision is limited in subtle, but important, ways:<ul><li>The ABC test adopted in Dynamex applies only with respect to the IWC wage orders.  The Supreme Court specifically declined to extend its reach to other contexts, including other provisions of the Labor Code that are not dependent on the wage orders, such as Labor Code section 2802.</li></ul><ul><li>Dynamex argued that both the “exercise control over wages, hours or working conditions” and “suffer and permit to work” standards articulated in Martinez are applicable only in determining whether an entity is a joint employer.  Because it found that the “suffer and permit to work” standard applies to determine worker classification and supported the trial court’s certification order, the Supreme Court specifically declined to consider whether the exercise of control over wages, hours, or working conditions applies outside of the joint employer context.</li></ul><ul><li>The certified class in Dynamex contained several key exclusions that significantly narrowed the size and scope of the class and addressed issues that might otherwise have prevented certification.  Even under the ABC test, a plaintiff seeking to certify an overly broad putative class of allegedly misclassified independent contractors might still not be able to establish the community of interest required for class certification, if individualized issues predominate each of the three parts of the test.</li></ul>Entities that engage independent contractors should consult with legal counsel to determine how the standard articulated in Dynamex will impact their business, and how best to implement any steps they may take in response.

Dynamex v. Superior Court: California Supreme Court Clarifies Standard for Independent Contractor Classification Under California Wage Orders

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Dynamex v. Superior Court: California Supreme Court Clarifies Standard for Independent Contractor Classification Under California Wage Orders

Dynamex v. Superior Court: California Supreme Court Clarifies Standard for Independent Contractor Classification Under California Wage Orders

elcblog-april- 2018

On April 30, 2018, the California Supreme Court issued its highly anticipated opinion in Dynamex Operations West, Inc. v. Superior Court, clarifying the standar

The increasingly polarized political climate has placed California employers in the middle of the dispute between the federal and California governments over immigration policy.  On October 5, 2017, Governor Jerry Brown of California signed the Immigrant Worker Protection Act (AB 450) into law.  The new statute, which took effect on January 1, 2018, imposes various prohibitions and requirements on California employers with regard to federal immigration enforcement actions in the workplace.  For example, whereas employers could previously consent to federal agents’ inspection of the workplace and review of employee records, this is no longer true in California under state law.  Violation of AB 450 could result in thousands of dollars in penalties for an employer.  As discussed below, the federal government is currently challenging AB 450 on preemption grounds.  While the future of AB 450 is uncertain, it remains in effect for now.Potential Preemption Of AB 450 By Federal LawThe federal government filed a lawsuit on March 6, 2018 against California, asking for AB 450 and other recently enacted California “sanctuary” laws to be declared constitutionally invalid and seeking injunctions against the enforcement of these laws.  The federal government has already moved for a preliminary injunction, arguing that these laws obstruct the enforcement of federal law, including the Immigration Reform and Control Act of 1986, in violation of the Supremacy Clause of the U.S. Constitution.  In its court filings, the federal government has cited to Arizona v. United States, a 2012 U.S. Supreme Court case in which certain provisions of Arizona law that criminalized undocumented presence and work and authorized warrantless arrests of aliens believed to be removable from the United States were held to be preempted by federal law.  The hearing on the federal government’s preliminary injunction motion is currently set for June 20, 2018 in federal court in Sacramento, California. The scheduling of the hearing, which was set recently on March 29, 2018, was delayed in part by the filing of defendants’ motion to transfer the lawsuit from Sacramento to San Francisco, where a lawsuit by California against the federal government regarding new immigration-related conditions for federal funding is being heard. The court denied defendants’ motion to transfer on March 29, 2018.AB 450 Prohibitions And RequirementsAB 450 applies to all public and private employers in California.  It contains three types of prohibitions on employers.  Recent guidance from the California Labor Commissioner and California Attorney General has confirmed that the application of these prohibitions is a “factual, case-by-case determination” that depends on the totality of circumstances in each specific situation.(1)  AB 450 prohibits employers from providing “voluntary consent” to an “immigration enforcement agent” to enter any “nonpublic areas of a place of labor.”  None of the quoted terms has been defined in the statute.  The prohibition here is inapplicable if the agent provides a judicial warrant (a warrant signed by a judge upon a finding of probable cause).  It also does not prevent employers from taking the agent to a nonpublic area where employees are not present for the purpose of verifying whether the agent has a judicial warrant.According to the recent official guidance on AB 450, an example of providing “voluntary consent” to enter a “nonpublic” area could be freely asking or inviting an immigration enforcement agent to enter that area.  The law does not require physically blocking or physically interfering with the entry of an immigration enforcement agent in order to show that voluntary consent was not provided.  A “nonpublic” area is one that the general public is not normally free to enter or access, for example, an office where payroll or personnel records are kept, or an area that an employer designates (for instance, by posting signs or keeping doors closed) as restricted to employees or management of the business.  AB 450’s prohibition against voluntary consent does not apply to a public place of labor—an area that the general public is normally free to enter and access—such as the dining room of a restaurant or the sales floor of a store during business hours.  The definition of “immigration enforcement agent” continues to remain unclear, however.  No doubt it refers to U.S. Immigration and Customs Enforcement (ICE) agents, but the California Attorney General’s office has identified an ICE agent only as an example of an “immigration enforcement agent.” Accordingly, it is possible that AB 450 extends to officials of other federal agencies with immigration-related functions, such as those in the U.S. Department of Labor, which may at times review I-9 forms, and the U.S. Citizenship and Immigration Services.(2)  AB 450 prohibits employers from providing voluntary consent to an immigration enforcement agent to access, review, or obtain the employer’s employee records without a subpoena (which can be issued under the authority of a government agency or an attorney without the need for prior court approval) or judicial warrant.  This prohibition is inapplicable where an immigration agency has issued a “Notice of Inspection” of “I-9 Employment Eligibility Verification forms and other documents,” in which case employers would be entitled to at least three business days to produce the demanded I-9 forms.(As discussed below, an employer’s receipt of a Notice of Inspection triggers certain notice obligations for the employer.)  Of course, federal officials may instead use judicial warrants to get around the three day notice period.The penalty for violating the first or second prohibition under AB 450 is $2,000 to $5,000 for the first violation and $5,000 to $10,000 for each subsequent violation.  AB 450 provides both the California Labor Commissioner and the California Attorney General with the authority to enforce the first two prohibitions through civil action.  Any penalty collected is to be deposited in the Labor Enforcement and Compliance Fund, a source of funding for the California Labor Commissioner’s Office.(3)  AB 450 prohibits employers from re-verifying the employment eligibility of a current employee unless specifically required by federal law.  The penalty for violating this prohibition is up to $10,000. This penalty is recoverable only by the California Labor Commissioner.AB 450 also imposes two notice requirements on employers regarding record inspections by federal immigration agencies.  (1)  AB 450 requires employers to provide each current employee (and the employee’s authorized representative, such as a union, if any) with a notice of any inspection of I-9 forms or other employment records by an immigration agency within 72 hours of receiving notice of the inspection.  (A simple visit by an immigration enforcement agent would not presumably by itself, absent receipt of a Notice of Inspection, trigger this notice obligation.)  Employers must post the notice in the language normally used to communicate employment information to employees.  The notice must contain the following information:  (a) the name of the immigration agency conducting the inspection; (b) the date that the employer received notice of the inspection; (c) the nature of the inspection to the extent known; and (d) a copy of the Notice of Inspection.  Upon reasonable request, employers must also separately provide a copy of the Notice of Inspection to any affected employee. The California Labor Commissioner’s office has made a <a href="https://www.dir.ca.gov/DLSE/LC_90.2_EE_Notice.pdf">notice template</a> available online.(2)  Within 72 hours of receiving written notice from the immigration agency of the results of the inspection of I-9 forms or other employment records, employers must also provide to each affected employee (and the employee’s authorized representative, such as a union, if any) with a notice regarding the results.  The term “affected employee” in this context means “an employee identified by the immigration agency inspection results to be an employee who may lack work authorization, or any employee whose work authorization documents have been identified by the immigration agency inspection to have deficiencies.”  The notice to the affected employee must be delivered by hand at the workplace if possible or, if hand delivery is not possible, by mail and email (if addresses are known).  The notice must contain the following information:  (a) a description of any and all deficiencies or other items identified in the written immigration inspection results notice related to the affected employee; (b) the time period for correcting any potential deficiencies identified by the immigration agency; (c) the time and date of any meeting with the employer to correct any identified deficiencies; and (d) notice that the employee has the right to representation during any meeting scheduled with the employer.  Employers that fail to provide the required notices are subject to penalties of $2,000 to $5,000 for a first violation, and $5,000 to $10,000 for each subsequent violation.  These penalties are recoverable only by the California Labor Commissioner.  The penalties need not be imposed, however, if an employer fails to provide required notice to an employee at the “express and specific direction or request of the federal government.” Practical Steps For EmployersThere are several steps employers can take to minimize the risk of unintentionally violating AB 450:(1)  Develop written guidelines to inform employees (especially frontline employees) about the appropriate person to contact or actions to take in case immigration enforcement agents appear at the workplace unannounced. (2)  Designate certain individuals in a workplace to handle communications with immigration enforcement agents and provide training on AB 450’s prohibitions and requirements to these individuals.  For example, designated individuals will need to know the difference between a judicial warrant, a subpoena, and a Notice of Inspection.  Only a judicial warrant is acceptable to allow agents to enter nonpublic places in a workplace, whereas either a judicial warrant or a subpoena is acceptable to allow agents to inspect employee records.  The prohibition regarding the inspection of I-9 forms and other documents is inapplicable where a Notice of Inspection has been issued, but the receipt of a Notice of Inspection triggers notice obligations.(3)  Because employers’ own designation of certain areas in a workplace as “public” or “nonpublic” would not be dispositive, employers should preemptively identify which areas of the workplace are not normally accessible to the general public.The impact and validity of AB 450 are expected to continue receiving press coverage as the lawsuit in Sacramento develops and ICE and other federal agencies step up immigration enforcement in California.  As AB 450 is still in effect, however, employers should continue proactively addressing potential compliance issues with AB 450 until they have heard otherwise from a court.

Employers Caught In Crosshairs Of Immigration Debate – Understanding And Complying With The California Immigrant Worker Protection Act

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Kwan Park’s practice focuses on employment and labor litigation.
Kwan’s entire legal career has focused on representing employers. He seeks to understand each client’s unique business needs and objectives and relentlessly works to achieve them, whether in employment and labor litigation or in addressing novel legal issues.











Kwan Park

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Employers Caught In Crosshairs Of Immigration Debate – Understanding And Complying With The California Immigrant Worker Protection Act

elcblog-march- 2018

The increasingly polarized political climate has placed California employers in the middle of the dispute between the federal and California governments over im

As companies begin to think about their summer internship programs, they may want to consider the recent change in the legal landscape surrounding unpaid internships. For good reason, companies have generally been concerned about the legality of unpaid internships, given the U.S. Department of Labor’s (“DOL”) hard stance on the issue and several class actions brought on behalf of unpaid interns over the last ten years.  However, just last month, after the Second Circuit once again refused to adopt the DOL’s hardline stance, the DOL has moved off of its position and has recognized the “primary beneficiary test,” which takes a much more flexible, totality of the circumstances approach to analyzing whether unpaid interns should be paid as employees. The main question under the primary beneficiary test is whether the benefit the intern gets from the internship, such as skills training and professional development, outweighs any potential benefit the company receives. This move by the DOL follows a line of case law rejecting the DOL’s previous standard as too rigid and often finding that the unpaid interns, based on the circumstances of each particular case, are not employees. With this changed landscape in mind, companies may want to revisit the possibility of offering unpaid internships to students. But, before hastily doing so, companies should carefully review and structure their internship program to ensure that the intern is the “primary beneficiary” in the relationship. The Courts Repeatedly Found the DOL’s s Six-Factor Test Was Too RigidThe federal Fair Labor Standards Act (“FLSA”) defines an employee as “any individual employed by an employer,” and defines employ as “to suffer or permit to work.” Under federal law, a distinction has developed between interns or trainees on the one hand and employees on the other. If an individual is determined to be an employee, he or she must be compensated for his or her services in accordance with federal and state minimum wage and overtime laws. More than 70 years ago, the U.S. Supreme Court decided the seminal case on the issue – Walling v. Portland Terminal Co., 330 U.S. 148 (1947) (“Portland Terminal”). Portland Terminal involved unpaid railroad trainees who worked alongside railroad employees. The DOL sought an injunction against Portland Terminal for failing to pay its trainees the minimum wage under the FLSA. The Supreme Court was tasked with interpreting the relatively thin provisions of the FLSA to determine whether the trainees should be considered employees. After reviewing a number of factors, the Court ruled that the trainees were not employees. In reaching its decision, the Court compared the trainees to students in an educational setting and noted that the FLSA’s definition of employer cannot be read so broadly that it includes all students as employees of the schools they attend.Based on the factors considered in Portland Terminal, the DOL identified six criteria for deciding whether trainees or unpaid interns are employees under the FLSA. Under the DOL’s six-factor test, an individual will cross the line from “intern” or “trainee” to “employee” unless all of the following factors are met:<ol><li> The internship, even though it includes actual operation of the facilities of the employer, is similar to training that would be given in an educational environment;</li><li>The internship experience is for the benefit of the intern;</li><li>The intern does not displace regular employees, but works under close supervision of existing staff;</li><li>The employer that provides the training derives no immediate advantage from the activities of the intern, and on occasion its operations may actually be impeded;</li><li>The intern is not necessarily entitled to a job at the conclusion of the internship; and</li><li>The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.</li></ol>The difficulty with the DOL’s six-factor test was that it was too rigid and too dependent on the facts in Portland Terminal, especially the fourth factor—the employer derives no benefit from the intern. In applying the test, many courts have concluded that the six criteria are relevant but not conclusive and have rejected the mechanistic application of the test.The New Primary Beneficiary Test Provides a Fluid and Flexible ApproachRecognizing that the DOL’s six-factor test was too rigid, the Second Circuit in Glatt v. Fox Searchlight Pictures, Inc. sought to provide guidance for a more appropriate “primary beneficiary test” that would provide more flexibility. The Second Circuit articulated a list of seven non-exhaustive factors to aid courts in determining whether an intern is an employee for purposes of the FLSA, which are:<ol><li>The extent to which the intern and the employer clearly understand that there is no expectation of compensation.  Any promise of compensation, express or implied, suggests that the intern is an employee—and vice versa.</li><li>The extent to which the internship provides training that would be similar to that which would be given in an educational environment, including the clinical and other hands-on training provided by educational institutions.</li><li>The extent to which the internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit.</li><li>The extent to which the internship accommodates the intern’s academic commitments by corresponding to the academic calendar.</li><li>The extent to which the internship’s duration is limited to the period in which the internship provides the intern with beneficial learning.</li><li>The extent to which the intern’s work complements, rather than displaces, the work of paid employees while providing significant educational benefits to the intern.</li><li>The extent to which the intern and the employer understand that the internship is conducted without entitlement to a paid job at the conclusion of the internship.</li></ol>In applying these factors, courts should consider the totality of the circumstances. No one factor is dispositive, every factor need not point in the same direction, and other factors beyond this list may be considered.The touchstone of the primary beneficiary test recognized by the Second Circuit is that it weighs the tangible and intangible benefits provided to the intern against the intern’s contribution to the company’s productivity. The test has three salient features. First, it focuses on the benefit the intern gets from the internship. By focusing on the educational aspects of the internship, the test better reflects the role of internships in today’s economy. Second, it provides courts with the flexibility to examine the economic realities as they exist between the intern and the company. The test acknowledges that the company may get some benefit from the internship program; indeed, students want to engage in projects and tasks that contribute to the professional work of the organization. But, the totality of the circumstances approach allows courts to sniff out employers that exploit unpaid interns by using their free labor without providing the interns with an appreciable benefit in education or experience. Third, the test acknowledges that the intern‑employer relationship is different and should not be analyzed in the same way as the standard employee-employer relationship.Other courts have followed suit, rejecting the DOL’s stringent six-factor test and instead applying the flexible primary beneficiary test.  Recently, on December 8, 2017, the Second Circuit applied the primary beneficiary test and found that unpaid interns of various magazines owned by the Hearst Corporation were not employees under the FLSA. On December 19, 2017, the Ninth Circuit similarly applied the primary beneficiary test and found that cosmetology students who provided services in the school’s salon clinics did not qualify as employees under the FLSA, Nevada law, or California law.In response to the move away from the DOL’s six-factor test, on January 5, 2018, the DOL issued a new release, replacing its prior guidance, indicating that the test for unpaid interns and students working for “for profit” employers should be the primary beneficiary test. The DOL recognized that the test is a flexible test with no single factor being determinative and stated that the analysis will necessarily depend on the unique circumstances of each case.Based on the affirmative acknowledgement of the primary beneficiary test by both courts and the DOL, it is safe to say that this test should be applied when analyzing unpaid internship programs going forward.        Is California Law Regarding Unpaid Interns Different?Although no California state court has affirmatively applied the primary beneficiary test, it is likely that a California court would do so, or at the very least, apply a similar test appropriate for the occupational training setting. California federal courts have recognized that “although California law defines the scope of the employment relationship more broadly than the FLSA, there is no indication that California courts have or will depart from federal law on this issue.” Moreover, in a 2010 opinion letter, the California Division of Labor Standards Enforcement (“DLSE”) stated that it “has historically followed federal interpretations which recognize the special status of trainees and interns who perform some work as part of an educational or vocational program” as falling outside of California’s minimum wage laws if there is “a sufficient showing that the intern/trainee is enrolled in a bona fide internship or training program.” The opinion letter stated that “it is reasonable and appropriate for the DLSE to look to the factors used by the DOL in determining the exemption for purposes of coverage ofState minimum wage coverage for trainees/interns in the absence of a State statute or regulation on the matter.” With the DOL’s recent adoption of the primary beneficiary test in January 2018, it is expected that the DLSE and California courts will do the same. The Importance of Classifying an Intern ProperlyIn considering whether to provide an unpaid internship program, companies should understand the potential liability they may face if an unpaid intern is found to be an employee. In addition to the potential exposure to unpaid wages, including overtime, under state and federal labor laws, an adverse ruling could also implicate other laws in the employee-employer context, such as discrimination laws, immigration laws, employee benefits, workers’ compensation coverage, unemployment benefits, and tax issues. For this reason, it is important for California employers to ensure that their unpaid internship programs are in compliance with federal and state laws.Considerations for Structuring an Unpaid Internship ProgramCompanies with unpaid internship programs or companies seeking to establish an unpaid internship program should take a moment to reassess the program under the primary beneficiary test. Based on the non-exhaustive factors articulated by the Second Circuit, some useful considerations include: <ol><li>Requiring that the intern receive academic credit from their academic institution for the internship so that it is tied to the intern’s formal education program.</li><li>Incorporating substantive trainings and other educational, classroom-like components into the internship program.</li><li>Including additional benefits for the intern, such as a mentorship program and shadowing opportunities.</li><li>Limiting the internship program to a specified length of time, such as a semester, so that it corresponds to the intern’s academic calendar and is not so long that the intern is no longer provided with beneficial learning.</li><li>Ensuring that interns understand from the beginning that the internship is unpaid and that they should not have any expectation of employment with the company following the conclusion of the internship.  It may be useful to have interns acknowledge their understanding in writing.</li><li>Keeping tabs on the work performed by the interns to ensure that the work provides significant educational benefits to the intern and keeping a record of the work performed.</li></ol> And, of course, the underlying purpose of the primary beneficiary test should always be kept in mind, so companies should ask this question of their programs: Does our internship program primarily benefit our interns?

A Changing Landscape:  Unpaid Internships Under the DOL’S New Primary Beneficiary Test

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A Changing Landscape: Unpaid Internships Under the DOL’S New Primary Beneficiary Test

elcblog-february- 2018

As companies begin to think about their summer internship programs, they may want to consider the recent change in the legal landscape surrounding unpaid intern

Managing employees’ leaves of absence is a tricky business for employers. While laws like the Family and Medical Leave Act (FMLA) and the California Family Rights Act (CFRA) provide a set amount of leave protection and are generally easy to follow, courts and agencies have said that anti-discrimination statutes such as the Americans with Disabilities Act (ADA) and the disability provisions of the California Fair Employment and Housing Act (FEHA) may require an employer to provide additional leave beyond the full extent of the leave laws as a reasonable accommodation of an employee’s disability. This result is paradoxical; courts have consistently held that attendance is an essential job function, which an employee on an extended leave obviously cannot perform. Nonetheless, the law has generally been that an extended leave may be a reasonable accommodation if it would likely be effective in allowing the employee to return to work at the end of the leave. To terminate employment under these circumstances could thus expose an employer to liability for disability discrimination, failure to accommodate and failure to engage in the interactive process, unless the employer can make the arduous showing that extending the leave would pose an undue hardship or that the leave is essentially open-ended, either explicitly or implicitly.In a welcome development for employers in Illinois, Indiana and Wisconsin, the Seventh Circuit reached a different result in the second half of 2017. It held that an employee on an extended leave of absence is beyond the protection of the ADA and that leaves of absence are the province of the FMLA, not the ADA. At the end of the year, however, the Ninth Circuit reminded us that this is not the law in California.  Employers here still need to consider extending leaves well beyond the FMLA and CFRA entitlements in order to avoid running afoul of the ADA and FEHA.The Seventh Circuit:  “The ADA is an antidiscrimination statute, not a medical-leave entitlement.”The Seventh Circuit caused ripples last September with its Severson v. Heartland Woodcraft, Inc. opinion, concluding that a multi-month leave of absence was beyond the scope of a reasonable accommodation under the ADA.The relevant facts are straightforward. The plaintiff had been employed by a wood fabricator since 2006 in various physically demanding positions. He had suffered from back pain since 2005 and, in 2010, was diagnosed with a chronic back condition, which did not hamper his ability to work except when he experienced severe “flare-ups.” In June 2013, the plaintiff wrenched his back at home, which aggravated his preexisting condition and caused him to miss work. He requested and received FMLA leave and, throughout the summer, underwent treatment that proved generally ineffective. The plaintiff remained in touch with the defendant’s human resources (HR) manager and submitted periodic doctor’s notes explaining his continued inability to work and requesting leave extensions, which were approved.  In mid-August, the plaintiff told the employer that he had scheduled back surgery on what was the last day of his 12-week FMLA leave. He needed an additional two months to recover after surgery and requested an extension of his leave during this time. In late August, just a day before the plaintiff’s scheduled surgery date, the HR manager informed the plaintiff his employment would end when his FMLA leave expired and invited him to reapply after he recovered from surgery and was medically cleared to work. The plaintiff had the surgery as planned and, when he was cleared to work without limitations three months later, sued the employer for ADA discrimination for failing to accommodate his disability by refusing to allow a two- or three-month leave of absence.The district court granted the employer summary judgment on the ground that the plaintiff’s proposed accommodation was not reasonable.  The plaintiff appealed, and the U.S. Equal Employment Opportunity Commission (EEOC) filed an amicus brief in support of reversal.The Seventh Circuit affirmed the award of summary judgment for the employer.  In affirming the judgment, the court noted that “[t]he ADA is an antidiscrimination statute, not a medical-leave entitlement.” For this reason, “[a] multimonth leave of absence is beyond the scope of a reasonable accommodation under the ADA.” The court explained that a reasonable accommodation, by its statutory definition, is one which allows a disabled employee to perform the essential functions of his position. A long-term leave of absence cannot be a reasonable accommodation because it does not give a disabled individual the means to work but rather excuses his not working. Unlike intermittent time off or a short leave of absence, “a medical leave spanning multiple months does not permit the employee to perform the essential functions of the job” and removes the employee from the class of persons protected by the Act.The Seventh Circuit specifically rejected the EEOC’s argument that a long-term medical leave should qualify as a reasonable accommodation when it is (1) of a definite, time-limited duration, (2) requested in advance and (3) likely to enable the employee to perform the essential job functions when he returns. Such a rule would effectively transform the ADA into a medical-leave statute and would amount to an “open-ended extension of the FMLA.” That can’t be the law, the Seventh Circuit concluded, because the ADA applies only to those who can do the job and long-term medical leave is the domain of the FMLA.The Ninth Circuit:  “A leave of absence can constitute a reasonable accommodation.”Of course, the Seventh Circuit’s Severson opinion is not the law in California. A decision at the end of the year, Villalobos v. TWC Administration LLC, is a timely reminder of that unfortunate fact.As in Severson, the relevant facts in Villalobos are not complicated. The plaintiff was employed by defendant for 24 years as a direct sales representative.  In May 2013, the plaintiff initiated a leave of absence based on a claimed disability, which he identified as stress, anxiety and insomnia. He exhausted his protected medical leave in late July but requested (and received) an extension of this leave until early September as an accommodation of his claimed disability. When this extension expired, the plaintiff’s doctor sent a note requesting a second extension of his leave until early October. The employer approved this request too but noted that it might be unable to accommodate a further extension. The plaintiff returned to work in early October and worked for approximately five weeks before initiating another leave of absence due to his alleged insomnia, depression and anxiety. The employer sent ADA paperwork to the plaintiff in mid-November, who returned it about a month later requesting a leave of absence until late January 2014.  The employer granted the request but noted that any further extension would need to be evaluated. In early February, the plaintiff requested yet another extension of his leave, until mid-March. This time, the employer determined it could no longer accommodate the plaintiff’s continuing leave requests and terminated his employment in late February.The plaintiff sued the employer, in relevant part, for disability discrimination, failure to reasonably accommodate and failure to engage in the interactive process, all in violation of FEHA. He also alleged wrongful termination derivative of these claims.  The district court granted the employer’s motion for summary judgment.The Ninth Circuit reversed. The court opined that the plaintiff was not outside of FEHA’s protection simply because he was unable to work at the time of his termination, “because one form of reasonable accommodation can be an extended leave of absence that will, in the future, enable an individual to perform his essential job duties.” More specifically, a leave of absence can be a reasonable accommodation “‘where it appears likely that the employee will be able to return to an existing position at some time in the foreseeable future.’” Although courts consider whether a requested leave was finite or indefinite in evaluating reasonableness, the plaintiff’s planned return to work in March 2014 meant there was a triable issue of fact as to whether the requested leave was finite. The plaintiff’s multiple extension requests might prove dispositive in determining whether the plaintiff’s request for yet another extension was reasonable, but this too was a factual issue for trial and not summary judgment, per the Ninth Circuit. There was likewise a triable issue as to whether granting the requested further extension would pose an undue hardship because the employer had allegedly allowed at least two other employees to take similar extended leaves. The Villalobos decision does not address the Seventh Circuit’s Severson decision in any way. But the starting point in Villalobos—supported by a body of Ninth Circuit and California authority—is that an extended leave of absence may be a form of reasonable accommodation. This is completely inconsistent with the Seventh Circuit’s rationale in Severson. What lessons can California employers learn from the Severson and Villalobos decisions?The Severson and Villalobos decisions point to several lessons for California employers seeking to manage leaves of absence without violating the ADA and FEHA:<ul><li>An extended leave of absence, beyond the time provided under the FMLA and CFRA, may be a reasonable accommodation in California. Of course, this is not a new legal development, but it is the most important takeaway for employers from the Severson and Villalobos decisions. Even after an employee has exhausted his protected leave under the FMLA and CFRA, the ADA and FEHA may nonetheless require a California employer to provide additional leave as an accommodation for an employee’s disability.</li><li>Even in California, indefinite leaves of absence are not reasonable. As a general matter, an employer is not required to wait indefinitely for an employee’s condition to improve. However, Villalobos teaches that an employee’s repeated requests to extend an ongoing leave is not the same thing as an indefinite leave, at least for purposes of summary judgment. If it includes a proposed return-to-work date, an employee’s request is most likely not a request for “indefinite” leave as a matter of law. Relatedly, an employer generally need not provide repeated leaves of absence for an employee with a poor prognosis of recovery, but the mere fact that a medical leave has been repeatedly extended does not mean that it would continue indefinitely.</li><li>Whether an extended leave of absence is reasonable depends in part on the employee’s prognosis. According to Villalobos, an extended leave of absence is not a reasonable accommodation under FEHA if it is not “likely” the employee would be able to return to an existing position at some point in the foreseeable future.  Other case law suggests a less rigorous standard. In Humphrey v. Memorial Hospitals Association, for example, the Ninth Circuit noted that “the ADA does not require an employee to show that a leave of absence is certain or even likely to be successful to prove that it is a reasonable accommodation.” Rather, the employer must attempt an accommodation so long as it “could have plausibly enabled a handicapped employee to adequately perform the job.” Under either standard, however, it is relevant to an employer’s reasonableness determination how likely or plausible are an employee’s post-leave chances of being able to return to an existing position. If the employer is not certain about an employee’s prognosis for recovery, the employer should seek clarification from the employee or the employee’s medical provider.</li><li>Even Severson says that intermittent time off or short-term leaves can be reasonable accommodations.  The Seventh Circuit noted that intermittent time off or short-term leaves may be analogous to part-time or modified work schedules, which are statutory examples of what a reasonable accommodation may include under the ADA. These statutory examples are equally operative in the Ninth Circuit, and California employers should recognize that intermittent time off or short-term leaves may be forms of reasonable accommodation.</li><li>The employer’s duty to engage in the interactive process is continuing. In finding triable issues of fact as to the employer’s alleged failure to engage in the interactive process, the Villalobos court emphasized employers’ “affirmative” duty to engage in the interactive process on a “continuing” basis, “which is not exhausted by one effort.” Despite granting all of the plaintiff’s earlier requests to extend his leave of absence, the employer in Villalobos was denied summary judgment because it denied the employee’s final request. The court also faulted the employer for not communicating with the employee between the date of his final extension request and the date he was terminated and for not telling him he would be terminated if he failed to return to work by the end of his most recent accommodation. The lesson here appears to be that employers should never stop communicating with employees on leave and that the interactive process requires the employer to keep considering additional potential accommodations throughout the process. A corollary observation is that extended leaves of absence are often just one of many potential accommodations an employer and employee should consider as they engage in the interactive process. </li><li>Arguing that a requested leave would pose an undue hardship can be undermined by evidence that other similar leaves have been granted. The employer in Villalobos was denied summary judgment of its undue hardship defense because of evidence it had provided similar extended leaves to other employees. In determining whether to grant a requested leave extension, employers should consider how it compares to other leave requests they have granted or denied.</li><li>Talk to your lawyer. This last lesson is the most important.  Employers should always consult counsel when managing extended leaves of absence and determining whether proposed accommodations would be reasonable. In this evolving and fact-intensive area of law, seemingly minor differences between two situations can be outcome determinative.</li></ul>ConclusionThe Seventh Circuit’s Severson opinion is not the law of the Ninth Circuit. Unless the Ninth Circuit reconsiders, the likeliest route for relief for California employers is review by the U.S. Supreme Court, which often takes cases where the Circuit courts are split on an important point of law. Meanwhile, California employers must continue to consider extended leaves of absence as potential reasonable accommodations under the ADA and FEHA, separate and apart from an employee’s leave entitlement under the FMLA or CFRA. We can help as you navigate the challenging issues that abound in this area.

Whatever the Seventh Circuit Says, Extended Leave
May Be a Reasonable Accommodation in California

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Whatever the Seventh Circuit Says, Extended Leave May Be a Reasonable Accommodation in California

Whatever the Seventh Circuit Says, Extended Leave May Be a Reasonable Accommodation in California

elcblog-january- 2018

Managing employees’ leaves of absence is a tricky business for employers. While laws like the Family and Medical Leave Act (FMLA) and the California Family Righ

It was another busy year in the California Legislature with regard to employment and labor issues. Of particular note for California employers are the new laws related to employee hiring practices with the prohibitions on requesting an employment applicant’s salary history information, limitations on the use of an employment applicant’s criminal conviction history, and the New Parent Leave Act, which provides 12 weeks of unpaid parental leave for employees of small employers (20 or more). Discussed in detail below are the most significant new laws pertaining to private employers in California that are effective January 1, 2018, unless otherwise noted. California employers should review their policies and procedures, especially those related to employee hiring, to ensure compliance with these new laws in 2018.While California is busy providing additional protections for employees, the U.S. Department of Labor and the National Labor Relations Board under the Trump administration are busy undoing various Obama-era decisions and regulations in a pro-employer shift likely to continue throughout 2018.AB 1008: Ban The Box – Criminal Conviction HistoryEmployers of five or more employees are prohibited from (1) including on a job application, prior to making a conditional offer of employment, any questions regarding an applicant’s criminal conviction history; (2) inquiring into or considering an applicant’s criminal conviction history prior to making a conditional offer of employment; or (3) considering, distributing, or disseminating information about arrests not resulting in a conviction, referral to or participation in a post-trial diversion program, or convictions that have been sealed, dismissed, expunged, or statutorily eradicated. (Government Code § 12952.) In addition, where an employer plans to deny an applicant employment solely or in part because of an applicant’s criminal conviction history, the employer must first undertake an individualized assessment of whether the applicant’s criminal history has a direct and adverse relationship with the specific job position. This assessment must include consideration of: (1) the nature and gravity of the offense or conduct; (2) the time that has passed since the offense or conduct and completion of the sentence; and (3) the nature of the job held or sought. The employer is not required to put the results of the individualized assessment in writing.If the employer makes a preliminary decision that the criminal conviction history disqualified an applicant, the employer must provide the applicant with written notice, which may but is not required to explain the reasons for its decision. The notice to the applicant must include the following information: (1) notice of the disqualifying conviction(s); (2) a copy of the conviction history report (if any); and (3) explanation of the applicant’s right to respond to the notice before the preliminary decision becomes final, which may include submission of evidence challenging the accuracy of the conviction history report and evidence of rehabilitation and mitigating circumstances. The applicant has five business days to respond to the notice. If within those five days the applicant informs the employer in writing that the applicant is taking specific steps to obtain evidence to dispute the accuracy of the criminal history report, the applicant is entitled to an additional five business days to respond to the notice. The employer must consider the information submitted by the applicant before making a final decision.If the final decision is to deny employment, then the employer must provide written notice to the applicant which includes: (1) the final denial or disqualification; (2) any existing procedure of the employer to challenge the decision or request reconsideration; and (3) the right of the applicant to file a complaint with the Department of Fair Employment and Housing (DFEH).Please note that certain limited exceptions apply, including where state, federal, or local law required the employer to conduct criminal background checks and restrict employment based on criminal history.AB 168: Employee Salary History BanWith the addition of Labor Code § 432.3, employers are prohibited from relying on the salary history information of an applicant as a factor for determining whether to offer an applicant employment or what salary to offer an applicant. Employers are also prohibited from seeking salary history information, including compensation and benefits, about an applicant. Further, upon request, employers must provide an applicant the pay scale for the position. However, if an applicant voluntarily and without prompting discloses the applicant’s salary history to an employer, the employer is not prohibited from considering and relying on that information in determining the salary for the applicant.California is not the only jurisdiction banning salary history inquiries as an effort to combat pay inequities. New York City recently enacted its own salary history ban, as detailed below. In doing so, New York City joins California, Delaware, Massachusetts, Puerto Rico, Oregon, Pittsburgh, New Orleans, and San Francisco (Philadelphia has passed a law, but it is presently being challenged; New York has a bill pending before the Senate).New York City's Employee Salary History BanNew York City Local Law No. 2017/067 prohibits employers from inquiring about the salary history of an applicant for employment or relying on the salary history of an applicant in determining the salary, benefits, or other compensation for such applicant during the hiring process, including the negotiation of a contract. However, employers may discuss an applicant’s expectations with respect to salary, benefits, and other compensation. If an applicant voluntarily and without prompting discloses salary history to an employer, the employer may consider salary history in determining salary, benefits, and other compensation for such applicant and may verify such applicant’s salary history. Salary history may also be considered for current employees seeking an internal transfer or promotion. Penalties for non-compliance resulting in unlawful discrimination under the city Human Rights Law could be as much as $125,000 for an unintentional violation or $250,000 for a willful violation. This law went into effect on October 31, 2017.SB 63: New Parent Leave ActEmployers who employ at least 20 employees now must provide employees working at a worksite with at least 20 employees within a 75-mile radius who have more than 12 months of service and have worked at least 1,250 hours in the prior 12 months with 12 weeks of parental leave to bond with a new child within one year of the child’s birth, adoption, or foster care placement. (Government Code § 12945.6.) The employer must guarantee employment in the same or a comparable position upon return. Leave is unpaid, but employees may use vacation, paid sick time, or other accrued paid time off during leave. Employers must maintain and pay for health care coverage during parental leave at the level and under the conditions that coverage would be provided if the employee continued to work. If both parents are employed by the same employer, the employer is not required to grant leave to the parents of more than 12 weeks, and may but is not required to provide these parents with simultaneous leave. Further, it is unlawful for employers to refuse to hire, discharge, fine, suspend, expel, or discriminate against employees for exercising their right to leave or giving information or testimony as to the employee’s own or another person’s leave during an investigation or proceeding related to New Parent Leave Act rights, as well as interfering with or denying an employee’s right to leave.The New Parent Leave Act does not apply to employees entitled to leave under the California Family Rights Act or the federal Family and Medical Leave Act. However, to the extent the California Family Rights Act regulations are within the scope and do not conflict with the New Parent Leave Act, the Fair Employment and Housing Council will incorporate those regulations by reference. In addition, through January 1, 2010, the DFEH, upon receiving necessary funding, must create a parental leave mediation pilot program. The pilot program allows employers to request that all parties participate in the DFEH’s Mediation Division Program within 60 days of receipt of a right-to-sue notice issued by the DFEH for a violation of the New Parent Leave Act. If an employer makes a timely request for mediation, an employee may not pursue any civil action until the mediation is complete. The employee’s statute of limitations, including for all related claims not under the New Parent Leave Act, will be tolled upon receipt of the employer’s request to participate in the DFEH’s Mediation Division Program until the mediation is complete. A mediation will be deemed complete when, at any time after the employer’s request, either party notifies the DFEH’s Mediation Division Program and all other parties that it is electing not to participate in, or is withdrawing from, the mediation or the DFEH notifies the parties that it believes further mediation would be fruitless.AB 450: Emplpyment Regulation – Immigration Worksite Enforcement ActionsThis law prohibits employers from voluntarily consenting to an immigration enforcement agent entering any nonpublic areas of a workplace unless the agent has a judicial warrant. (Government Code §7285.1.) Employers also may not voluntarily consent to an immigration enforcement agent accessing, obtaining, or reviewing employee records without a judicial warrant or subpoena. (Government Code §7285.2.) Violations subject employers to a penalty of $2,000 to $5,000 for a first violation and $5,000 to $10,000 for a subsequent violation. In addition, employers must provide employees notice in the language in which the employer regularly communicates employment-related information with any inspections of the I-9 Employment Eligibility Verifications forms or other employment records by an immigration agency within 72 hours of the employer receiving notice of the inspection. The posting must contain the following information: (1) the name of the immigration agency conducting the inspection; (2) the date the employer received notice of the inspection; (3) the nature of the inspection to the extent known; and (4) a copy of the Notice of Inspection of I-9 Employment Eligibility Verification forms for the inspection to be conducted. (Labor Code § 90.2.) The Labor Commissioner is required to provide a template for the required posting by July 1, 2018. Employers are further required to provide employees who are identified through the inspection as lacking work authorization or having deficiencies in their work authorization documents individual notice of the results of the inspection.AB 1701: Labor-Related Liabilities For General Contractor All direct contractors making or taking contracts for the execution, construction, alteration, or repair of a building, structure, or other private work must assume and are liable for any debt owed to a wage claimant (or a third party acting on their behalf) incurred by a subcontractor. The direct contractor’s liability includes unpaid wages, fringe and other benefit payment, and contributions and interest, but not penalties or liquidated damages. The new law will apply to all contracts entered into on or after January 1, 2018.AB 2337: Employment Protections – Victims Of Domestic Violence, Sexual Assault, Or StalkingThe Labor Commissioner has published a notice available on its website as required by Labor Code § 230.1 to notify employees of their rights in regards to protections against discrimination and retaliation and the availability of time off and use of vacation, personal leave, or compensatory time off due to their status as victims of domestic violence, sexual assault, or stalking. Employers must provide this notice (or a notice with substantially similar content) to new employees or to other employees upon request. This requirement went into effect when the notice was posted on the Labor Commissioner’s website earlier this year.AB 2899: Minimum Wage ViolationsLabor Code § 1197.1 provides that an employer or other person who pays less than minimum wage is subject to a civil penalty, restitution of wages, liquidated damages, and penalties under Labor Code section 203. It further allows an employer or other person to appeal a Labor Commissioner’s finding of a violation by a writ of mandate to the superior court. The new amendment to Labor Code § 1197.1 requires an employer or person challenging the Labor Commissioner’s finding of a violation to post a bond with the Labor Commissioner equal to the total amount of any minimum wages, liquidated damages, and overtime compensation due and owing before filing a writ of mandate. The bond is forfeited to the employee to whom wages are owed if payment is not made to the employee where ordered by the Court, if the writ of mandate is dismissed, or if a settlement agreement is executed.SB 306: Retaliation Actions – Complaints, Administrative ReviewLabor Code § 98.7 has been amended to give the Division of Labor Standards Enforcement authority to initiate an investigation into an employer whom it suspects has discharged or discriminated against an individual in violation of any law under the Labor Commissioner’s jurisdiction without first receiving a complaint. This includes suspected retaliation occurring during the course of the adjudication of a wage claim, a field inspection, or certain immigration-related threats. Once an investigation is complete, a report will be provided to the Labor Commissioner or a designee. The Labor Commissioner may hold an investigative hearing to fully establish the facts. Labor Code § 98.7 now also permits the Labor Commissioner, during an investigation, to petition the superior court for temporary or preliminary injunctive relief. If an employee has been discharged or otherwise faced adverse action for raising a retaliation claim, the court must order appropriate injunctive relief on a showing that reasonable cause exists to believe that an employee was discharged or otherwise retaliated against. However, temporary injunctive relief does not prohibit an employer from terminating an employee for conduct unrelated to the claim of retaliation.SB 396: Employment – Gender Identity, Gender Expression, And Sexual OrientationGovernment Code § 12950.1 was amended to require that the mandatory two-hour sexual harassment training for supervisors include training inclusive of harassment based on gender identity, gender expression, and sexual orientation. The training must include examples of harassment based on gender identity, gender expression, and sexual orientation, and must be presented by trainers with knowledge and expertise in those areas. This training must be completed within six months of a supervisor assuming the supervisory positon, and employers must provide this training to all supervisors at least once every two years. In addition, Government Code § 12950 was amended to require employers to post a poster developed by the DFEH regarding transgender rights in a prominent and accessible location in the workplace.Under Trump, The DOL Is Shifting Its Regulations To Favor EmployersThe federal Department of Labor (DOL) under the Trump administration is busy withdrawing Obama-era administrative guidance and proposing new rules in a pro-employer shift within the DOL. For example, in June, the DOL withdrew 2015 and 2016 informal guidance on joint employment and independent contractor status. The informal guidance made it easier to find that two or more entities were joint employers under the FLSA and therefore liable to employees for FLSA violations and also increased the likelihood that independent contractors were misclassified and therefore entitled to wages under the FLSA.The Overtime Final Rule, which was published by the Obama DOL in May 2016, would have raised the minimum salary requirement for exempt employees under the FLSA to $47,476. Then in August of that year, the Rule was invalidated by the U.S. District Court for exceeding the DOL’s authority by setting any salary threshold. In July of this year, the Trump DOL issued a request for information regarding what changes should be made to the Rule. The DOL plans to appeal the decision on the lack of authority to set a salary threshold and then move to stay the action and engage in further rulemaking to determine what the minimum salary for exempt employees should be. It is expected that the minimum salary level will be significantly lower than the amount in the 2016 Rule.On December 5, the DOL issued a Notice of Proposed Rulemaking regarding tip pooling. The new rule would allow employers to share tips amongst employees who do not traditionally receive direct tips such as cooks and dishwashers. The proposed rule applies to employers who pay tipped employees the federal minimum wage and do not take advantage of a tip credit under the Fair Labor Standards Act (FLSA).NLRB Taking Advantage Of Its Republican Majority Before Chairman Miscimarra’s Term EndsThe National Labor Relations Board (NLRB) is having a busy end of the year, dismantling Obama-era board decisions seen as pro-union and pro-employee. The Republicans are taking advantage of their first majority status in a decade through the end of the year when Republican Chairman Phillip Miscimarra’s term ends. It is not known who President Trump will nominate to be the next chairman. Until a new chairman joins the board, there is likely to be a stalemate with a two-Republican, two-Democrat Board.The Board’s recent activity includes 3-2 decisions on party lines overturning the 2015 Browning-Ferris decision, which set forth a more expansive test for joint employment; the 2011 Specialty Healthcare decision allowing micro-units of workers to organize; the 2004 Lutheran Heritage Village-Livonia decision regarding the standard to be applied in evaluating whether employee handbook policies violate the National Labor Relations Act by infringing on employees’ rights, which had been used in recent years to invalidate numerous employers’ policies; and the 2016 DuPont ruling requiring employers to bargain with unions before implementing changes to employment conditions even where those changes are consistent with the employers’ past practice.In addition, in September 2017, Peter Robb was confirmed as the new general counsel to the Board. It is expected that he will also play a key role in overturning Obama-era board decisions and instituting a pro-management shift within the board under the Trump administration based on the complaints he chooses to issue and the general counsel memoranda he issues to regional directors regarding his positions on current labor issues.ConclusionWith these conflicting forces at work, it promises to be another busy year in employment law in 2018.

The California Legislature and The Trump Administration: Different Directions

elcblog-december-_2017.jpg

The California Legislature and The Trump Administration: Different Directions

The Era of Comprehensive Federal PFAS Regulation Has Arrived:  Industry Braces First for EPA’s Expansive Retroactive Reporting and Recordkeeping Requirement 

elcblog-december- 2017

It was another busy year in the California Legislature with regard to employment and labor issues. Of particular note for California employers are the new laws 