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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While the FTC was relatively quiet in 2023 on the non-compete front, California forged ahead with two amendments to its non-compete statute (Business and Professions Code section 16600) that, depending on how courts interpret them, could be one of the most significant developments in the California employee-mobility space in the last 10 years. One of the amendments (SB 699) extends California’s non-compete ban to those signed by out-of-state employees under out-of-state law and creates a private right of action. The other (AB 1076) makes it “unlawful” to enter into a non-compete with an employee and required employers to notify their current and former employees by February 14, 2024, that any such non-competes are void. Each raises at least as many questions as they answer, including the effect, if any, on the Private Attorneys General Act (PAGA), employee non-solicits, and extraterritoriality. New York state, meanwhile, made news for what it did not enact—a total ban on non-competes. But although New York’s governor vetoed the total-ban bill, the New York City Council introduced a non-compete bill of its own in February 2024 that would ban all non-competes in the city without exception. Below we survey the latest on the FTC’s proposed rule, California’s new non-compete amendments, the New York state ban that was vetoed, and the proposed ban that was recently introduced in the New York City Council.FTC UPDATERecent reporting indicates that while the FTC may vote on the final version of its rule as early as April 2024, for various reasons such a vote may not happen until later in the year.Commissioner Lina Khan touched on the proposed rule on a panel at the American College of Emergency Physicians last October 2023, stating that the FTC had received far more feedback from individuals who work in healthcare than any other individual sector and an “overwhelming” number of comments supported total ban: “We’re looking at all those comments very closely and figuring out where to land,” she said. “But I’ll be honest, the overwhelming number of comments are firmly in support of the FTC proposal to ban non-competes across the board. And so, we take that very seriously.”[1]The FTC and DOL also entered into a Memorandum of Understanding (MOU) in September 2023 in furtherance of the President’s Executive Order on Competition. According to the press release, “[t]he new agreement enables the FTC and DOL to closely collaborate by sharing information, conducting cross-training for staff at each agency, and partnering on investigative efforts within each agency’s authority.”[2] Among the areas of mutual interest for the two agencies, the MOU identifies “the imposition of one-sided and restrictive contract provisions, such as non-compete and training repayment agreement provisions.” Id.And of course, it is unclear how the election year will affect these plans.CALIFORNIAKey Legislative DevelopmentsSB 699 and AB 1076 both took effect on January 1, 2024.SB 699SB 699 added section 16600.5 to the California Business and Professions Code, rendering unenforceable any contract that is void under the California framework. In relevant part, the law takes California’s expansive non-compete framework and further extends it to contracts that are signed and executed under laws outside California: “An employer or former employer shall not attempt to enforce a contract that is void under this chapter regardless of whether the contract was signed and the employment was maintained outside of California.” Cal. Bus. & Prof. Code § 16600.5(b). The amendment also creates a civil cause of action for any employee against an employer that enters into or attempts to enforce a contract that is void under this law, entitling such employee to injunctive relief, actual damages, or both, as well as reasonable attorneys’ fees and costs.AB 1076Making direct reference to Edwards v. Arthur Andersen LLP (2008) 44 Cal. 4th 937, AB 1076 amended section 16600 of the Business and Professions Code to void the application of any non-compete agreement in any employment context regardless of how narrowly tailored it may be, unless it meets an existing exception under California state law. It also added section 16600.1 to the California Business and Professions Code, providing that:<ul><li>It is “unlawful” to include a “noncompete clause in an employment contract, or to require an employee to enter a noncompete agreement, that does not satisfy an exception in this chapter.”</li><li>Employers who have non-compete clauses in contracts with current employees or former employees employed after January 1, 2022, were required to notify those employees by February 14, 2024, that the non-compete clause is void.</li><li>A violation of this section is an act of unfair competition under California law (section 17200), allowing for the relief and penalty provided therein.</li></ul>Section 16600.1 otherwise is silent on relief. Unlike SB 699, AB 1076 does not expressly authorize attorneys’ fees or actual damages.Rejected BillThe California legislature was considering but ultimately did not advance <a href="https://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=202320240AB747" target="_blank">A.B. 747</a>, which would have imposed, in addition to actual damages, a $5,000 penalty per employee for entering into or attempting to enforce a non-compete.Open Questions and ConsiderationsExtraterritorialityCalifornia has a general presumption against extraterritorial application of its laws that has been recognized by its Supreme Court. Sullivan v. Oracle Corp., 51 Cal. 4th 1191, 1207 (2011). SB 699 did not purport to overturn, and did not even reference, Sullivan.SB 699 provides that “An employer or former employer shall not attempt to enforce a contract that is void under this chapter regardless of whether the contract was signed and the employment was maintained outside of California.” Cal. Bus. & Prof. Code § 16600.5(b).But language found in the preamble to SB 699 (enacting section 16600.5) suggests that the amendment was intended to protect employees who are performing work in California and thus should not be applied to employees outside California:<ul><li>“(e) The California courts have been clear that California’s public policy against restraint of trade law trumps other state laws when an employee seeks employment in California, even if the employee had signed the contractual restraint while living outside of California and working for a non-California employer.”</li><li>“(f) California has a strong interest in protecting the freedom of movement of persons whom California-based employers wish to employ to provide services in California, regardless of the person’s state of residence. This freedom of employment is paramount to competitive business interests.”[3]</li></ul>Thus, one question that arises is to what extent does California’s ban apply to employees who remain and work outside California and remain there?PAGAPAGA applies only to violations of the Labor Code. The statutes that prohibit non-competes, including the newly enacted statutes in sections 16600.1 and 16600.5, are in the Business and Professions Code, not the Labor Code.But cases have been filed by California employees under PAGA challenging non-competition agreements purporting to rely on a catchall in the Labor Code—Labor Code section 432.5—which prohibits any employer or manager from requiring an employee or applicant for employment to agree in writing to a term or condition that know by such employer or manager to be “prohibited by law.” Cal. Labor Code § 432.5.[4]Whether a violation of Business and Professions Code section 16600 can be pursued under PAGA and warrant penalties under Labor Code section 432.5 are additional questions that may need to be resolved.Relief under Business and Professions Code section 17200Business and Professions Code section 16600.2 (AB 1076) on its face limits relief to what is available under section 17200, i.e., restitution, including restoring money to any person from whom the money has been obtained through unfair competition, for any unjust enrichment of an employer, injunctive relief, and possibly attorneys’ fees (by way of California Code of Civil Procedure section 1021.5).  Courts have generally held that damages are not available under section 17200. Section 17206 does provide for a civil penalty of $2,500 per violation, but only in an action brought by a public prosecutor, such as the state attorney general, any district attorney, or certain city attorneys. Assuming a public prosecutor brought a case and was awarded civil penalties, the statute is silent on how the penalty would be assessed other than the penalty is for “each violation.”Employee Non-Solicits and Fixed-Term AgreementsEach amendment is silent on employee non-solicits and fixed-term employment agreements.The new statutory subdivision, as amended by AB 1076, also requires section 16600 to be “read broadly” and states that this “does not constitute a change in, but is declaratory of, existing law.” Whether courts interpret the amendments to apply to these agreements remains to be seen.Labor Code Section 925(e)Before enactment of SB 699, some courts had, as we <a href="/topics/recent-non-compete-trends-courts-continue-to-enforce-non-competes-while-politicians-seek-to-narrow-them" target="_self">reported</a> in 2023,[5] construed California Labor Code section 925(e) as an exception of sorts to section 16600 if the employee is represented by the individual counsel of their choice. While AB 1076 expressly referred to Edwards, neither amendment mentioned Labor Code section 925 or 925(e) at all.What, if any, effect section 16600.5’s prohibition—that “an employer or former employer shall not attempt to enforce a contract that is void under this chapter regardless of whether the contract was signed and the employment was maintained outside of California”—will have on this issue remains an open question.NEW YORKOn December 22, 2023, New York Governor Kathy Hochul vetoed a bill that would have had a wide-ranging impact on employment contracts in the state.The New York state legislature passed State Senate Bill 2023-S3100A in June 2023, broadly limiting post-employment non-compete clauses. The bill defined “covered individuals” as “any other person who, whether or not employed under a contract of employment, performs work or services for another person on such terms and conditions that they are, in relation to that other person, in a position of economic dependence on, and under an obligation to perform duties for, that other person,” expanding to all employees or contractors regardless of position or income.The bill would have prohibited the use of non-compete agreements for all employers of any type. A non-compete was defined in S3100A as “any agreement, or clause contained in any agreement, between an employer and a covered individual that prohibits or restricts such covered individual from obtaining employment, after the conclusion of employment with the employer included as a party to the agreement.” The bill went on to render void “[e]very contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.” S3100A had no express exceptions to the prohibition of post-employment non-compete agreements, but the ban would not have prohibited an employer from entering into a fixed-term employment agreement, prohibiting a “covered individual” from disclosing trade secrets and confidential or proprietary client information, or prohibiting solicitation of the employer’s clients that the former employee learned about during their employment.S3100A would have allowed “covered individuals” to bring a civil action to seek lost compensation, other damages, and reasonable attorneys’ fees and costs. Additionally, courts would have been directed to award liquidated damages of up to $10,000 per covered individual. In her veto memo, Governor Hochul expressed support for a restriction on non-compete agreements for middle-class and low-wage workers, likely signaling that she would sign a revised bill with a narrower scope into law.NEW YORK CITYThe New York City Council introduced a trio of bills on or around February 28, 2024, ranging from a total ban to a ban only for low-wage or freelance workers. The total-ban bill (Int. No. 140) includes a non-compete definition comparable to the New York state bill.[6] The same bill would prohibit New York City employers from entering into or maintaining a non-compete with a worker or representing to the worker that the worker is subject to a non-compete clause where the employer has no good-faith belief in its enforceability. It also would require covered employers to rescind any existing non-compete agreements. Unlike the New York state bill, New York City’s total-ban bill does not contain any exceptions (e.g., fixed-term employment agreements) on its face. Violators would be subject to a civil penalty of $500 per violation, enforced by the Office of Labor Policy & Standards. In its current form, it would not create a private right of action.[1] <a href="https://www.fiercehealthcare.com/regulatory/ftc-full-steam-ahead-sweeping-noncompete-ban-reinforcing-antitrust-chair-tells-docs" target="_blank">https://www.fiercehealthcare.com/regulatory/ftc-full-steam-ahead-sweeping-noncompete-ban-reinforcing-antitrust-chair-tells-docs</a>.[2] <a href="https://www.ftc.gov/news-events/news/press-releases/2023/09/ftc-department-labor-partner-protect-workers-anticompetitive-unfair-deceptive-practices?utm_source=govdelivery" target="_blank">https://www.ftc.gov/news-events/news/press-releases/2023/09/ftc-department-labor-partner-protect-workers-anticompetitive-unfair-deceptive-practices?</a>[3] Emphasis added. <a href="https://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=202320240SB699" target="_blank">https://leginfo.legislature.ca.gov/faces/bill</a>.[4] “No employer, or agent, manager, superintendent, or officer thereof, shall require any employee or applicant for employment to agree, in writing, to any term or condition which is known by such employer, or agent, manager, superintendent, or officer thereof to be prohibited by law.” Cal. Labor Code § 432.5.[5] <a href="https://elc.mofo.com/topics/recent-non-compete-trends-courts-continue-to-enforce-non-competes-while-politicians-seek-to-narrow-them?" target="_blank">https://elc.mofo.com/topics/recent-non-compete-trends-courts-continue-to-enforce-non-competes-while-politicians-seek-to-narrow-them?</a>[6] <a href="https://legistar.council.nyc.gov/LegislationDetail.aspx?ID=6557380&GUID=86B0DBB1-329A-46B9-9763-44062F71366C&Options=&Search=" target="_blank">The New York City Council - File #: Int 0140-2024 (nyc.gov)</a> (“The term “non-compete agreement” means an agreement between an employer and a worker that prevents, or effectively prevents, the worker from seeking or accepting work for a different employer, or from operating a business, after the worker no longer works for the employer.”).

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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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Cooper Spinelli is a member of the Litigation Department and part of the firm’s Employment & Labor Group. His practice focuses on trade secrets and restrictive covenants, employee mobility and executive disputes, whistleblower claims, and general business litigation.

Cooper J. Spinelli

Cooper Spinelli

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While the FTC was relatively quiet in 2023 on the non-compete front, California forged ahead with two amendments to its non-compete statute (Business and Professions Code section 16600) that, depending on how courts interpret them, could be one of the most significant developments in the California employee-mobility space in the last 10 years.

Non-Compete Q1 2024 Round Up - FTC, California, and New York

The California Supreme Court has issued its opinion in Estrada v. Royalty Carpet Mills, Inc. (S274340, Jan. 18, 2024), resolving a split of authority regarding whether claims brought under the Private Attorneys General Act (PAGA) may be stricken where there is no manageable way to try them.  Unfortunately for California employers, the answer is no.  This outcome is disappointing to those hoping that the Supreme Court might have done something more in Estrada to curb the abuse of PAGA, which too often becomes a vehicle through which overreaching, unmanageable claims are alleged in shakedown lawsuits in an attempt to extract windfall settlements.  The present state of affairs is a sober reminder that, now more than ever, PAGA is broken and needs to be fixed.Despite its holding, Estrada recognizes that PAGA manageability is a concern.  In particular, Estrada distinguishes a trial court’s inability to dismiss PAGA claims outright on manageability grounds from the various tools that remain available to courts to efficiently manage such claims.  Indeed, the opinion acknowledges the “challenges” presented by the complexities of PAGA actions, and it leaves “undisturbed” the various case management tools courts can and should use to ensure that such claims are “efficiently, fairly, and effectively tried.”  So, while motions to strike PAGA claims for unmanageability alone are no longer viable, the focus on PAGA manageability is far from over.  To the contrary, Estrada reminds plaintiffs of the need to be practical in bringing appropriately tailored claims capable of being effectively tried.  Nothing in Estrada prevents trial courts from insisting that plaintiffs provide a trial plan showing how their claims would be tried, and Estrada reminds courts that they may limit PAGA claims and/or testimony or other evidence offered at PAGA trials to ensure manageability.  Estrada even preserves the possibility of striking a PAGA action altogether where the claims are so unmanageable as to deprive a defendant of due process.  Going forward, we can expect trial courts to emphasize workable trial plans and the use of other case management tools to effectively and efficiently manage their PAGA dockets.

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The California Supreme Court has issued its opinion in Estrada v. Royalty Carpet Mills, Inc. (S274340, Jan. 18, 2024), resolving a split of authority regarding whether claims brought under the Private Attorneys General Act (PAGA) may be stricken where there is no manageable way to try them.  

Per the California Supreme Court: PAGA Claims May Not Be Stricken on Manageability Grounds

On July 17, the California Supreme Court issued its opinion in Adolph v. Uber Technologies, Inc. (S274671, Cal. Jul. 2023), holding that an employee who has been compelled to arbitrate claims under the Labor Code Private Attorneys General Act of 2004 (PAGA, Cal. Lab. Code § 2698, et seq.) that are “premised on Labor Code violations actually sustained by the [employee] maintains statutory standing to pursue ‘PAGA claims arising out of events involving other employees’ in court.”The Viking River DecisionThe California Supreme Court’s decision in Adolph follows in the wake of Viking River Cruises, Inc. v. Moriana, where—as <a href="https://www.mofo.com/resources/insights/220617-viking-river-paga-claim-arbitration" target="_blank">we previously reported</a>—the United States Supreme Court held that the Federal Arbitration Act (FAA, 9 U.S.C. § 1, et seq.) preempted California law as set forth in Iskanian v. CLS Transp. Los Angeles, LLC, 59 Cal. 4th 348 (2014), to the extent it precluded the division of PAGA actions into arbitrable individual claims and nonarbitrable non‑individual claims. Under Viking River, an employee’s agreement to arbitrate their individual PAGA claims may be enforced. The Supreme Court in Viking River also concluded that where the employee’s individual PAGA claims were no longer pending in court, the employee no longer had standing to maintain the remaining “non-individual” representative PAGA claims, warranting their dismissal. After Viking River, many trial courts have entered orders compelling individual PAGA claims to arbitration, with some courts electing to dismiss the remaining non‑individual PAGA claims consistent with Viking River, and several others choosing to stay the claims pending the individual arbitrations.Adolph: Procedural BackgroundErik Adolph initially filed a putative class action against Uber Technologies, Inc. (Uber) in October 2019, alleging that he and other individuals were misclassified as independent contractors when they signed up to be delivery drivers on the “Uber Eats” app, and that Uber purportedly failed to reimburse them for business expenses. Adolph later amended the complaint to add a claim for civil penalties under PAGA for various alleged Labor Code violations.As part of the Uber Eats sign-up process, Adolph signed an agreement that required him to resolve any disputes arising out of his contractual relationship with Uber in individual arbitration. The agreement contained class, collective, and representative (including PAGA) action waivers, with a severability clause requiring that if the PAGA waiver were to be found unenforceable, the representative PAGA claim must be stayed pending the outcome of any individual claims in arbitration.Uber successfully moved to compel Adolph’s individual claims to arbitration, dismiss the class claims, and stay the PAGA claims pending arbitration. Adolph then dismissed his individual claims and retained only the claim for civil penalties under PAGA. Uber moved to compel arbitration of Adolph’s alleged individual status and his standing to pursue a PAGA claim. The trial court denied the motion, and the Court of Appeal affirmed, finding that Adolph’s PAGA claim could not be split into individual arbitrable and non‑individual, nonarbitrable components under Iskanian. Uber petitioned for California Supreme Court review. The United States Supreme Court issued its decision in Viking River while Uber’s petition was pending. The California Supreme Court granted review to provide guidance on PAGA standing.Adolph: The California Supreme Court’s DecisionAdolph holds that an order compelling arbitration of an employee’s individual claims, including individual PAGA claims, does not strip the employee of standing to litigate non‑individual PAGA claims in court. In the Court’s view, its conclusion is consistent with the statutory text, PAGA’s purpose, and the legislative intent underlying PAGA. The Court noted that because the issue of PAGA standing was a matter of state law, it was not bound by the high court’s contrary interpretation in Viking River. Nor was the Court persuaded by several arguments explaining why a PAGA plaintiff loses standing to litigate non-individual claims in court when their individual PAGA claims are subject to arbitration.The Court acknowledged that under Viking River, the FAA preempts the Iskanian rule against dividing PAGA actions into individual and non-individual components and requires enforcement of agreements to arbitrate a PAGA plaintiff’s individual claims. It reversed the Court of Appeal’s decision, denying Uber’s motion to compel arbitration of Adolph’s individual PAGA claims, and remanded the case for further proceedings.Observations and TakeawaysAdolph offers some key takeaways for California employers.<ul><li>Non-individual PAGA claims should be stayed pending the outcome of the individual arbitration. In rejecting the argument that allowing Adolph to retain standing to litigate non-individual PAGA claims would permit him to relitigate his “aggrieved” status, Adolph explained that the trial court may stay the non‑individual PAGA claims pending arbitration of the individual PAGA claims pursuant to California Code of Civil Procedure Section 1281.4. The Court viewed this as a practical solution to managing the potentially “piecemeal” nature of concurrent litigation in different forums.</li><li>A PAGA plaintiff who loses at arbitration lacks standing to pursue non-individual PAGA claims. Adolph acknowledges that if a PAGA plaintiff loses their individual arbitration and is found not to have suffered any Labor Code violation, the individual loses standing to prosecute the remaining non‑individual PAGA claims.</li><li>Adolph advises that arguments about abuses of PAGA are properly directed to the Legislature. The Court recognized the arguments by several amici curiae that it should narrow PAGA’s standing requirements to curb abuses of PAGA but advised that such arguments are best directed to the Legislature. Such efforts are underway: In addition to reform efforts directed at the Legislature, an initiative to repeal and replace PAGA, the California Fair Pay and Employer Accountability Act, has qualified for the November 2024 ballot.</li></ul><ul><li>The United States Supreme Court may eventually have the last word. The California Supreme Court’s decision in Adolph is in tension with Viking River, suggesting that at some point down the road, the PAGA standing issue may end up back in front of the United States Supreme Court.</li></ul>We will continue to monitor these issues for further developments.

On July 17, the California Supreme Court issued its opinion in Adolph v. Uber Technologies, Inc. (S274671, Cal. Jul. 2023), holding that an employee who has been compelled to arbitrate claims under the Labor Code Private Attorneys General Act of 2004 (PAGA, Cal. Lab. Code § 2698, et seq.) that are “premised on Labor Code violations actually sustained by the [employee] maintains statutory standing to pursue ‘PAGA claims arising out of events involving other employees’ in court.”

The California Supreme Court Clarifies PAGA Standing

The U.S. Supreme Court’s decision in Viking River Cruises v. Moriana, 142 S. Ct. 1906 (2022), in June 2022 delivered a victory for California employers facing claims brought pursuant to the Labor Code Private Attorneys General Act of 2004 (PAGA), as we <a href="https://www.mofo.com/resources/insights/220617-viking-river-paga-claim-arbitration">previously reported</a>. Since then, the California state and federal courts have seen an influx of motions to compel arbitration of individual PAGA claims and to dismiss (or in the alternative stay) the non-individual PAGA claims.The first aspect of the Viking River decision – that individual PAGA claims can be compelled to arbitration – has been consistently followed by lower courts. And, despite various creative arguments by plaintiffs trying to distinguish Viking River’s holding from the specific facts and agreements in their cases, the vast majority of courts have granted motions to compel arbitration of individual PAGA claims.<a href="#_ftn1" id="_ftnref1">[1]</a> However, the second aspect of the Viking River decision – that the remaining non-individual PAGA claims should be dismissed because they now lack a PAGA plaintiff to pursue them – has been met with mixed results.Over the past nine months, many federal courts have followed the guidance from Viking River and have dismissed the non-individual PAGA claims after compelling the individual PAGA claims to arbitration.<a href="#_ftn2" id="_ftnref2">[2]</a> Likewise, some state courts have also followed suit, dismissing the non-individual PAGA claims.<a href="#_ftn3" id="_ftnref3">[3]</a>Most state courts, however, are staying, rather than dismissing, the non-individual PAGA claims after compelling the individual PAGA claims to arbitration. The stay is usually granted for one of two reasons (with some courts citing both reasons as grounds for a stay): (1) stay the non-individual PAGA claims pending arbitration of the individual PAGA claims; or (2) stay the non-individual PAGA claims pending the California Supreme Court’s anticipated decision in Adolph v. Uber Technologies, Inc., No. S274671 (Cal. Aug. 2022).<a href="#_ftn4" id="_ftnref4">[4]</a>For those courts that stay the non-individual PAGA claims pending arbitration of the individual PAGA claim, the purpose of the stay is to allow the arbitrator to decide if the plaintiff can prove any Labor Code violations.<a href="#_ftn5" id="_ftnref5">[5]</a> In other words, the arbitrator is tasked with determining if the plaintiff is an “aggrieved employee,” defined in the PAGA statute as “any person who was employed by the alleged violator and against whom one or more of the alleged violations was committed.”<a href="#_ftn6" id="_ftnref6">[6]</a> If the arbitrator finds for the employer, then the plaintiff would lack standing to pursue the non-individual PAGA claims because only “aggrieved employees” have standing to bring PAGA claims.<a href="#_ftn7" id="_ftnref7">[7]</a> This very issue was recently addressed by the California Court of Appeal in Rocha v. U-Haul Co. of California, 88 Cal. App. 5th 65, 76 (2023). Specifically, the Rocha court concluded that the arbitrator’s finding that the plaintiffs “did not suffer a section 1102.5 violation as alleged in the operative complaint precludes them from qualifying as ‘aggrieved employees’ based on that same alleged violation.” Rocha’s holding provides further support to courts for staying the non-individual PAGA claims pending the arbitration of a plaintiff’s individual PAGA claims.And for those courts that stay the non-individual PAGA claims pending the decision in Adolph, the expectation is that Adolph will shed light on PAGA standing.<a href="#_ftn8" id="_ftnref8">[8]</a> But, while Adolph is expected to address the issue raised in Viking River head-on (i.e. whether non-individual PAGA claims should be dismissed for lack of standing once the individual PAGA claims are compelled to arbitration), it may not address the issue of whether trial courts should stay the remaining non-individual PAGA claims pending arbitration of the individual PAGA claims. Only time will tell. In the interim before Adolph is heard and decided, we can expect to continue to see many state courts staying the non-individual PAGA claims when individual PAGA claims have been compelled to arbitration. And, while Adolph may give some clarity as to how courts should move forward, it may also leave some questions unanswered or create new questions, as seems to be the trend with the continuously developing case law surrounding PAGA over the past two decades.We’ll continue to keep a close eye and report on this developing trend.<a href="#_ftnref1" id="_ftn1">[1]</a> Courts have generally found the arbitration agreements to be enforceable, even without an explicit severability provision in the arbitration agreement.See, e.g., Valencia v. Bruce’s Prime Ribs & Spirits, Los Angeles Superior Court, Case No. 22STCV26952 (order dated Feb. 6, 2023) (finding that the agreement “impliedly allows the severance of unenforceable portions of the agreement”).<a href="#_ftnref2" id="_ftn2">[2]</a>See, e.g., Rainey v. A Place for Rover, Inc., No. 2:22-CV-01810-RGK-E, 2022 WL 16942840 (C.D. Cal. Sept. 1, 2022); Radcliff v. San Diego Gas & Elec. Co., No. 20-CV-1555-H-MSB, 2022 WL 4229305 (S.D. Cal. Sept. 12, 2022); Garcia v. LQ Mgmt., LLC, No. 2:20-CV-06306-FLA-JC (C.D. Cal. Sept. 12, 2022); Johnson v. Lowe’s Home Centers, No. 221CV00087TLNJDP, 2022 WL 4387796 (E.D. Cal. Sept. 22, 2022); Callahan v. Paychex N. Am. Inc., Case No. 21-CV-05670-CRB, 2022 WL 11902205 (N.D. Cal. Oct. 20, 2022)).<a href="#_ftnref3" id="_ftn3">[3]</a>See, e.g., Acosta v. Mad Engine Holdings LLC, San Diego Superior Court, Case No. 37-2022-000000095-CU-OE-CTL (order dated July 29, 2022); Jackson v. Wash Multifamily Laundry Systems, LLC, Los Angeles Superior Court, Case No. 22TRCV00039 (order dated Sept. 22, 2022); Huff v. Interior Specialists, Inc., San Diego Superior Court, Case No. 37-2021-00016138-CU-OE-CTL (order dated Oct. 21, 2022); Gutierrez v. Panera, LLC, Los Angeles Superior Court, Case No. 22TRCV00424 (order dated Jan. 10, 2023).Recently, however, some California Courts of Appeal have weighed in on this issue, finding that a dismissal of non-individual PAGA claims when the individual PAGA claims are compelled to arbitration is improper.See, e.g., Piplack v. In-N-Out Burgers, 88 Cal. App. 5th 1281 (2023) (holding that “plaintiffs retain standing to pursue representative PAGA claims in court even if their individual PAGA claims are compelled to arbitration,” but not addressing whether the representative claims should be stayed pending arbitration of the individual PAGA claims).<a href="#_ftnref4" id="_ftn4">[4]</a> As <a href="https://elc.mofo.com/topics/california-supreme-court-poised-to-address-the-issue-of-paga-standing-post-viking-river" target="_blank">previously reported</a>, the high court is set to address the question of whether an employee who has been compelled to arbitrate individual claims maintains statutory standing to pursue “PAGA claims arising out of events involving other employees.” In other words, Adolph is expected to address the second aspect of Viking River described above (although it is possible the high court will address more than that). The matter has been fully briefed, along with several amicus curiae briefs. Oral argument is expected to be set within the next few months.<a href="#_ftnref5" id="_ftn5">[5]</a>See, e.g., Gozzi v. Acadia, Los Angeles Superior Court, Case No. 19STCV39861 (order dated July 13, 2022); Adams v. Pacific Villa, Inc., Los Angeles Superior Court, Case No. 20STCV37260 (order dated July 27, 2022); Mendoza v. Laguna Cookie Company, Orange County Superior Court, Case No. 19-1107762 (order dated Aug. 12, 2022); Garcia v. St. Paul’s Episcopal Home, Inc., San Diego Superior Court, Case No. 37-2022-22641 (order dated Jan. 27, 2023).<a href="#_ftnref6">[6]</a> Cal. Lab. Code, § 2698 et seq.<a href="#_ftnref7" id="_ftn7">[7]</a> For example, in Hailey v. Specialty Restaurants Corp., Orange County Superior Court, Case No. 30-2022-01255938 (order dated Sept. 30, 2022), the court reasoned: “[T]he arbitrator may decide that Plaintiff hasn’t suffered any of the Labor Code violations complained of, meaning Plaintiff lacks PAGA standing regardless of what happens in Adolph. For these reasons, the proper course is to deny the request to dismiss the claims without prejudice to that request being renewed upon conclusion of Plaintiff’s individual arbitration.”<a href="#_ftnref8" id="_ftn8">[8]</a>See, e.g., Flores v. Amwest, Inc., Los Angeles Superior Court, Case No. 21STCV16066 (order dated Oct. 4, 2022); Kunsman v. Patriot Environmental Services, Sacramento County Superior Court, Case No. 34-2021-310042 (order dated Oct. 25, 2022); Castro v. Clay Lacy Aviation, Inc., Los Angeles Superior Court, Case No. 21VECV00304 (order dated Nov. 17, 2022); Mendoza v. Streamline Finishes, Inc., Orange County Superior Court, Case No. 30-2021-01207462-CU-OE-CXC (order dated Dec. 1, 2022); Lopez v. P.R. Perneky Management Corp., Los Angeles Superior Court, Case No. 22AHCV00578 (order datedFeb. 2, 2023) (staying the representative PAGA claims, finding it “reasonable to expect further judicial clarification on the standing issue”).

Cruising Down a Post-Viking River: A Look at Litigation Trends in the Nine Months Since the U.S. Supreme Court’s Decision in Viking River

The U.S. Supreme Court’s decision in Viking River Cruises v. Moriana, 142 S. Ct. 1906 (2022), in June 2022 delivered a victory for California employers facing claims brought pursuant to the Labor Code Private Attorneys General Act of 2004 (PAGA), as we previously reported.

Cruising Down a Post-Viking River: A Look at Litigation Trends in the Nine Months Since the U.S. Supreme Court’s Decision in Viking River

As we <a href="https://www.mofo.com/resources/insights/220617-viking-river-paga-claim-arbitration" target="_self">previously reported</a>, the United States Supreme Court in Viking River Cruises, Inc. v. Moriana, (2022) 142 S. Ct. 1906, delivered a victory for California employers. The high court held that employers can compel arbitration of a plaintiff’s individual claim under the Private Attorneys General Act of 2004 (PAGA), and with the individual PAGA claim compelled to arbitration, the remaining non-individual PAGA representative claims must be dismissed for lack of standing.A few weeks ago, the California Supreme Court agreed to review an appellate ruling about PAGA standing in light of Viking River. The high court is set to address the question in Adolph v. Uber Technologies, Inc. (S274671, Cal. Aug. 2022) of whether an employee who has been compelled to arbitrate claims under PAGA that are “premised on Labor Code violations actually sustained” by the employee maintains statutory standing to pursue “PAGA claims arising out of events involving other employees” in court or in any other forum agreed to by the parties. <div>Last week, the Court granted review to hear two more cases on the issue: Wing v. Chico Healthcare & Wellness Centre (S274939, Cal. Aug. 2022) and Sanchez v. MC Painting (S274780, Cal. Aug. 2022).</div>We will continue to follow the latest developments in this area.

California Supreme Court Poised to Address the Issue of PAGA Standing Post-Viking River

California Supreme Court Poised to Address the Issue of PAGA Standing Post-Viking River

As we previously reported, the United States Supreme Court in Viking River Cruises, Inc. v. Moriana, (2022) 142 S. Ct. 1906, delivered a victory for California employers. 

The United States Supreme Court’s decision in Viking River Cruises, Inc. v. Moriana, 142 S. Ct. 1906 (2022), is welcome news for California employers.  In short, employers can compel “individual” claims under the Labor Code Private Attorneys General Act of 2004 (PAGA) to arbitration.  With the “individual” PAGA claims compelled to arbitration, a court must dismiss the “non-individual” PAGA claims for lack of standing.To learn more, read our <a href="https://www.mofo.com/resources/insights/220617-viking-river-paga-claim-arbitration" target="_self">client alert</a>.

Viking River Is Victorious in Compelling Individual PAGA Claim to Arbitration

The United States Supreme Court’s decision in Viking River Cruises, Inc. v. Moriana, 142 S. Ct. 1906 (2022), is welcome news for California employers.  In short, e

Viking River Is Victorious in Compelling Individual PAGA Claim to Arbitration

California employers will be impacted by several new laws signed by Governor Newsom during this past legislative session. Employers should review their policies and procedures in light of these developments, most of which will be effective January 1, 2020. Minimum wages will also increase for California employers to $13.00 per hour for employers with 26 or more employees and $12.00 per hour for employers with 25 or fewer employees. A. AB 5 Codifies the “ABC Test” Set Forth in the Dynamex Decision AB 5 codifies the 2018 decision of the California Supreme Court in Dynamex Operations West, Inc. v. Superior Court of Los Angeles. Prior to Dynamex, California courts analyzed independent contractor misclassification under the test set forth in S.G. Borello & Sons, Inc. v. Department of Industrial Relations. Under the Borello test, whether an individual is properly classified as an independent contractor turns on various factors that focus primarily on whether the entity engaging the individual exercised control over the manner and means by which the work was performed.In Dynamex, the California Supreme Court announced a new “ABC Test” for determining whether workers were properly classified as independent contractors in claims under California wage orders. Under the test, employers must prove that workers meet all three of the following factors to classify workers as independent contractors:1. The worker was free from the control and direction of the hiring entities’ business in connection with the performance of the work, both under the contract for the performance of such work and in fact;2. The worker performed work that was outside the usual course of the hiring entity’s business; and3. The worker was customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity.AB 5 codifies the “ABC Test” and makes that test applicable to claims under California wage orders, unemployment insurance, and workers compensation. Given incorporation of the ABC Test into the California Labor Code, employers may now be subject to the Private Attorney General Act of 2004 (PAGA) representative actions brought by independent contractors claiming to be misclassified under the new law. Notably, workers in several industries, such as investment advisors, lawyers, and certain professional service providers are exempt from the reach of AB 5. Instead, those industries will remain subject to the Borello factors and other criteria included in the statute.  Claims under the California wage orders and unemployment insurance will be subject to AB 5 starting on January 1, 2020. Workers’ compensation claims will be covered by the new law starting on July 1, 2020. Businesses engaging independent contractors in California should review those relationships in light of this new law.B. SB 688 Expands the Labor Commissioner’s Authority on Unpaid WagesSB 688 expands the California Labor Commissioner’s authority to issue citations to an employer to recover restitution for failing to pay wages set by contract in excess of the minimum wage. Previously, the California Labor Commissioner could only cite employers for failing to pay at least the minimum wage set by law. As a result, employers should notify employees of any change in their compensation. C. AB 673 Permits Employees to Bring Actions for Statutory Penalties for Late Payment of WagesAB 673 provides employees with a private right of action to recover civil penalties for unpaid wages that were previously recoverable only by the California Labor Commissioner. Employees, however, are not permitted to recover civil penalties under both AB 673 and under PAGA for the same violation. Instead, employees can recover only under one of the statutes for a particular violation. Penalties under AB 673 include initial fines of $100 for each failure to pay each employee and fines of $200 and 25% of the amount unlawfully withheld for each subsequent violation or any willful or intentional violation.D. AB 51 Bans Employers From Requiring Arbitration of Employment Disputes as a Condition of EmploymentAB 51 seeks to ban employers from requiring applicants or employees to enter into mandatory arbitration agreements for employment claims under the California Fair Employment and Housing Act (FEHA) and the California Labor Code. Employers will no longer be able to require applicants or employees as a condition of employment, continued employment, or the receipt of any employment-related benefit to agree to waive any right, forum, or procedure, including the right to file or pursue a claim in court, for a violation of FEHA or other specific California statutes governing employment claims. An agreement requiring employees to opt out of a waiver or take any other action to preserve their rights is still deemed “a condition of employment.” Employers can face claims if they threaten, retaliate or discriminate against, or terminate “any applicant for employment or any employee because of the refusal to consent to the waiver of any right, forum, or procedure for a violation” of FEHA or the California Labor Code. In addition to other available remedies, plaintiffs who enforce their rights under AB51 can obtain injunctive relief and reasonable attorneys’ fees. A violation of AB 51 will also constitute a misdemeanor under Labor Code section 433.The law will not apply retroactively to existing arbitration agreements. Instead, it is limited to agreements entered into, modified, or extended on or after January 1, 2020. Post-dispute settlement agreements or negotiated severance agreements are also exempted from this new law. So AB 51 will not prohibit employers from having settlement or severance agreements with employees that require arbitration of employment claims. While AB 51 expressly states that it does not invalidate any agreement governed by the Federal Arbitration Act, a business coalition led by the U.S. Chamber of Commerce and the National Retail Federation filed a declaratory judgment action on December 6, 2019 seeking to invalidate the law on preemption grounds, arguing that the law penalizes employers by exposing them to criminal liability. Employers with mandatory arbitration programs will need to consider whether to suspend those programs in 2020 and wait until the current lawsuit is resolved or scale back their arbitration programs to exclude FEHA and Labor Code claims.E. SB 707 Treats an Employer’s Failure to Timely Pay Arbitration Fees as a Waiver of the Right to Compel ArbitrationSB 707 requires employers who draft arbitration agreements to pay the costs and fees associated with arbitration of employment claims. An employer’s failure to pay those costs and fees within 30 days of the due date constitutes a “material breach” and “waives its right to compel arbitration.” In addition, an employee can withdraw the claim from arbitration and file his or her claim in court. F. AB 749 Prohibits No-Rehire Provisions in Settlement AgreementsAB 749 provides that settlement agreements with employees entered into on or after January 1, 2020 can no longer prohibit the employee from working for the employer in the future. The law includes some notable exceptions, including where the employer has made a good faith determination that the individual engaged in sexual harassment or assault or “if there is a legitimate non-discriminatory or non-retaliatory reason for terminating the employment relationship or refusing to rehire the person.”G. AB 9 Extends the Statute of Limitations for FEHA ClaimsAB 9 extends the time an employee has to file an administrative complaint with the California Department of Fair Employment and Housing (DFEH) from one year to three years. Under current law, an employee seeking to bring an action against his or her employer for harassment, discrimination, or retaliation in violation of FEHA has one year to file a complaint with the DFEH. Although this law significantly extends the time limit for employees to file their administrative complaints, it will not revive claims that have lapsed under the current law. Employers should keep in mind that employees will continue to have one additional year to file a civil action in court after receipt of a right-to-sue letter from the DFEH. H. SB 188 Clarifies Race Discrimination Protections Include HairstylesSB 188, also known as the CROWN Act,<a href="file:///C:/Users/axr34/AppData/Roaming/OpenText/DM/Temp/SAN_FRANCISCO-#4145454-v10-Nov_ELC_2020_Legislative_Recap_DRAFT.docx#_ftn1">[1]</a> clarifies that the definition of “race” under FEHA is inclusive of traits historically associated with race, including, but not limited to, hair texture and “protective hairstyles,” which include hairstyles such as braids, locks, and twists. Employers should review their workplace dress code and grooming policies in light of this new law. I. SB 778 Establishes Harassment Training RequirementsSB 778 provides that employers with five or more employees (including temporary and seasonal workers) will now have additional time to comply with the statutory requirements under SB 1343 regarding bi-annual sexual harassment prevention training. Under SB 1343, the initial compliance deadline was January 1, 2020. SB 778 gives covered employers until January 1, 2021 to provide two hours of sexual harassment prevention training to supervisors and one hour of sexual harassment prevention training to other employees. Note that under current law, employers with 50 or more employees are already required to provide supervisors with two hours of sexual harassment prevention training. The new law does not extend the compliance deadlines for those obligations. However, the law clarifies that supervisors who were provided training in 2018 do not need to be trained again until 2020. J. SB 142 Expands Employer Lactation Accommodation RequirementsEmployers with 50 or more employees will have new obligations under SB 142 for providing lactation accommodations to employees. Employers were previously required to make reasonable efforts to provide employees with the use of a lactation room or other location (other than a bathroom) close to the employees’ work area to express breast milk in private. Under the new law, employers are required to provide a lactation room or other location for expressing breast milk that complies with the following requirements:1. Is safe, clean, and free of hazardous materials, as defined in Section 6382;2. Has a surface to place a breast pump and personal items;3. Has a place to sit; and4. Provides access to electricity or alternative devices, including, but not limited to, extension cords or charging stations, needed to operate an electric or battery-powered breast pump.Employers are also required to provide access to a sink with running water and a refrigerator suitable for storing milk close to the employees’ workspace. If a refrigerator cannot be provided, employers are permitted to provide another cooling device suitable for storing milk. Employers with fewer than 50 employees may be granted an exemption if they are able to show that they would suffer an undue hardship.  The new law also provides for additional penalties in the event of violations. For example, employers could be subject to a civil penalty of up to $100 per day for each day an employee is denied adequate space to express milk. Previously, the law permitted a $100 penalty per violation. <a href="file:///C:/Users/axr34/AppData/Roaming/OpenText/DM/Temp/SAN_FRANCISCO-#4145454-v10-Nov_ELC_2020_Legislative_Recap_DRAFT.docx#_ftnref1">[1]</a> The Create a Respectful and Open Workplace for Natural Hair Act.

California Issues A New Round Of Employment Laws

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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California Issues A New Round Of Employment Laws

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California employers will be impacted by several new laws signed by Governor Newsom during this past legislative session. Employers should review their policies

Whatever good intentions its proponents may claim, the Labor Code Private Attorneys General Act of 2004 (PAGA) created perverse incentives for plaintiff’s lawyers to file representative actions seeking civil penalties for violations of the California Labor Code on behalf of all “aggrieved employees” of the named plaintiff’s employer.  The named plaintiff often does not know she is being used for purposes of bringing a PAGA action.  The alleged violations are often hyper-technical or trivial, if a violation at all – “gotcha” claims, as plaintiff’s lawyers like to call them.  The “aggrieved employees” – who can number in the tens of thousands if the target is a large employer – most often have suffered no injury.  The employer, facing potentially business-destroying liability, too often settles for an amount of money bearing no relationship to the violations allegedly committed.  And the plaintiff’s lawyers pocket 30-35 percent of the settlement for themselves.This article addresses some of the pressing issues around PAGA, in three parts.  First, it provides an overview of salient aspects of PAGA and the case law interpreting it.  Next, it discusses a recently-filed lawsuit that seeks to have PAGA declared unconstitutional.  Finally, it offers suggestions for warding off a PAGA action or winning the action if brought.The takeaway:  In today’s climate, virtually every California employer is vulnerable to a PAGA attack and taking steps to avoid or defeat PAGA liability should be given high priority.PAGA:  An OverviewPAGA deputizes an “aggrieved employee” – any person employed “by the alleged violator and against whom one or more of the alleged violations was committed”[1] – to file suit as proxy for the State of California to recover civil penalties on behalf of himself and other “aggrieved employees” for alleged violations of the Labor Code.  Seventy-five percent of any penalties recovered in the action, whether by settlement or judgment, go to the State, and the remaining 25 percent go to the alleged aggrieved employees.[2]  While a single penalty for a single violation suffered by a single individual may be trifling, when aggregated across an entire workforce for multiple alleged violations, the amount of these penalties can be staggering.  And, attorneys’ fees are awardable to the plaintiff employee who prevails in the action, but not to the prevailing employer.[3]Starting in 2009, a number of court decisions eliminated several defenses theretofore available to employers defending PAGA actions.  Notably among them, in Arias v. Superior Court,[4] the California Supreme Court held that PAGA actions are not subject to state-law requirements for a case to be certified as a class action.  In Iskanian v. CLS Transportation Los Angeles, LLC,[5] the Supreme Court held that an arbitration agreement waiving representative PAGA claims is unenforceable as a matter of California public policy.  In light of Arias and Iskanian, plaintiff’s lawyers increasingly join class action claims with PAGA claims or solely allege PAGA claims in their complaints.  In the past year, two additional court of appeal decisions addressing the scope of PAGA have emboldened plaintiffs’ lawyers to interpret it even more broadly, resulting in increasingly expansive – and expensive – PAGA suits.[6]THE CONSTITUTIONAL CHALLENGEApparently deciding enough is enough, a recently-organized association holding itself out as representing California-based employers filed suit against the State of California on November 28, 2018, seeking to have PAGA declared unconstitutional on separation of powers, procedural and substantive due process, excessive fines and unusual punishment, and equal protection grounds.[7]  The association’s complaint is well-researched, thorough, and thoughtful.  The opening paragraphs sum up its position:“Are California business owners who inadvertently make a payroll error equivalent to the worst perpetrators of hate crimes?  That’s the twisted logic that, more than a decade ago, led the state legislature to pass a harmful law called the Private Attorneys General Act (PAGA).“PAGA was conceived as a means to help employees right workplace wrongs without further burdening the state bureaucracy.  Trial attorneys quickly discovered that they could use the law for their own benefit; today, thousands of PAGA complaints are filed annually against large and small businesses, nonprofit charities, and even labor unions.“PAGA, as written and practiced, is unconstitutional.  With this complaint, we’re asking the state to enforce its own laws – rather than transferring the state’s power to private attorneys who operate for their own personal gain.”[8]This author wishes the association success in overturning PAGA.  But best case, it will take years to achieve that result.  What does an employer do in the meanwhile?  That question is addressed next.AVOIDING OR DEFEATING A PAGA ACTIONThere are many things an employer can do to minimize the risk of getting sued in a PAGA action, and many ways to successfully defend itself if sued; surveying all of them is beyond the scope of this article.  Rather, we focus on two important issues.An Ounce of PreventionGiven the ever increasing number of new PAGA filings, it is critical that employers have policies and practices that comply with the Labor Code and the IWC Wage Order applicable to the employer’s business.  Periodically conducted audits to ensure that these policies and practices remain legally compliant are advised.  Human resource professionals must stay current on legal developments to address any needed updates.  PAGA makes unique the challenges a California employer faces, and these challenges should not be underestimated.  While perhaps trite, it is no less true:  an ounce of prevention is worth a pound of cure.Defeating a PAGA Action as UnmanageablePAGA empowers an “aggrieved employee” only to sue on behalf of other employees who are “aggrieved,” i.e., employees “against whom one or more alleged violations was committed.”[9]  California trial courts are increasingly striking PAGA claims where the experience of every allegedly aggrieved employee would be required to show that they were, in fact, aggrieved, rendering the claim unmanageable because countless mini-trials would be necessary before the aggrieved employees were known and the claim could proceed.[10]  So too are federal district courts striking PAGA claims when they cannot be manageably tried.[11]  Consistent with this emerging body of law, the California Supreme Court recently recognized the common-sense fact that PAGA actions must be “manageable.”[12]Unmanageability has thus emerged as a powerful weapon in defendants’ arsenal.  It is the plaintiff’s burden to show how her PAGA action can be manageably tried, and if she fails to meet her burden, the action cannot go forward.  While unmanageability may not apply in a particular case, it should at least be considered in every case, in the course of devising a winning strategy.[1] Cal. Lab. Code, § 2699, subd. (c).[2] Id., § 2699, subd. (i).[3] Id., § 2699, subd. (g)(1).[4] (2009) 46 Cal.4th 969.[5] (2014) 59 Cal.4th 348.[6] Atempa v. Pedrazzani (2018) 27 Cal.App.5th 809, review den. Jan. 16, 2019; Huff v. Securitas Security Services USA, Inc. (2018) 23 Cal.App.5th 745, rehg. den. June 13, 2018, review den. Aug. 8, 2018.[7] California Business & Industrial Alliance v. Becerra, Orange County Superior Court Case No. 30-2018-01035180-CU-JR-CXC (filed Nov. 28, 2018).[8] Id., Complaint at 2.[9] Cal. Lab. Code, § 2699, subd. (c).[10] See, e.g., Sanchez v. McDonald’s Restaurants of California, Inc. (Los Angeles Super. Ct., Dec. 15, 2016, No. BC499888) Court Ruling at pp. 4-5 [striking PAGA representative allegations]; and see Banta v. American Medical Response Inc. (Los Angeles Super. Ct., Apr. 25, 2018, No. BC393113) Order [same]; Martinez v. California Pizza Kitchen, Inc. and Hernandez v. California Pizza Kitchen, Inc. (Los Angeles Super. Ct., Mar. 30, 2015, Nos. BC373758, BC441231) Orders [same]; Bright v. 99 Cents Only Stores (Los Angeles Super. Ct., Dec. 7, 2011, No. BC415527) Order [same]; Munoz v. Acapulco Rest., Inc. (Los Angeles Super. Ct., Oct. 21, 2010, No. BC393912) Order [same].[11] See, e.g., Amiri v. Cox Communications California, LLC (C.D. Cal. 2017) 272 F.Supp.3d 1187, 1195 [striking PAGA claims as unmanageable where the alleged Labor Code violations were based on the plaintiff’s experience rather than on policies or practices common to “aggrieved employees,” and “liability determinations will require individualized inquiries”]; Salazar v. McDonald’s Corp. (N.D. Cal., Jan. 5, 2017, No. 14-cv-02096-RS) 2017 WL 88999, at *9 [granting defendant’s motion to strike representative PAGA claim]; Brown v. American Airlines, Inc. (C.D. Cal., Oct. 5, 2015, No. CV 10-8431-AG (PJWx)) 2015 WL 6735217, at *4 [“Court finds manageability issues exist regarding PAGA overtime claims here.  There appears to be too many individualized assessments to determine PAGA violations concerning overtime pay.”]; Raphael v. Tesoro Ref. and Mktg. Co. LLC (C.D. Cal., Sept. 25, 2015, No. 2:15-CV-02862-ODW) 2015 WL 5680310, at *3 [“Court would have to engage in a multitude of individualized inquires making the PAGA action unmanageable and inappropriate.”]; Bowers v. First Student, Inc. (C.D. Cal., Apr. 23, 2015, No. 2:14-CV-8866-ODW (Ex)) 2015 WL 1862914, at *4 [same]; Litty v. Merrill Lynch & Co. (C.D. Cal., Nov. 10, 2014, No. CV 14-0425 PA PJWx) 2014 WL 5904904, at *3 [same]; Ortiz v. CVS Caremark Corp. (N.D. Cal., Mar. 19, 2014, No. C-12-05859 EDL) 2014 WL 1117614, at *3-4 [same].[12] Williams v. Superior Court (2017) 3 Cal.5th 531, 559.

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PAGA: A Call To Arms

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

elcblog-may- 2018

Whatever good intentions its proponents may claim, the Labor Code Private Attorneys General Act of 2004 (PAGA) created perverse incentives for plaintiff’s lawye

PAGA:  A Call To Arms

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

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

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