On September 27, 2022, in an ongoing effort to combat gender-based pay inequity among California workers, Governor Newsom signed S.B. 1162, creating new pay disclosure and reporting requirements for employers. According to data from the U.S. Bureau of Labor Statistics, women in California make 88 cents for every dollar a man makes for the same work, and the wage gap is greater for women of color.
The new law requires employers with 15 or more employees to include a pay scale in any job posting and to provide a pay scale to current employees upon request. A pay scale is the “salary or hourly wage range that the employer reasonably expects to pay for the position.” The law also requires all employers to maintain records of job title and wage history for each employee until three years after the end of employment, and the Labor Commissioner has authority to inspect these records to determine if there is a “pattern of wage discrepancy.” If an employer fails to comply, an aggrieved party may file a complaint with the Labor Commissioner or a civil action seeking injunctive relief, and the Labor Commission may impose a civil penalty ranging from $100 to $10,000 per violation. The failure to maintain the required records creates a rebuttable presumption in favor of the aggrieved party’s claim.
S.B. 1162 also builds on an existing law that requires companies with more than 100 employees to provide annual reports to the Civil Rights Department (“CRD,” formerly the DFEH) containing pay data organized by establishment, job category, sex, race, and ethnicity. The new law expands the categories of information that companies must include in their annual reports. For instance, employers must now provide the mean and median hourly rates for each combination of race, ethnicity, and sex within each of ten job categories, such as executive-level employees, laborers, and service workers. The CRD can seek a court order requiring compliance, and a court may impose civil penalties of up to $100 per employee per violation, and up to $200 per employee for continual violations.
S.B. 1162 amends Labor Code section 432.3 and Government Code section 12999, and takes effect January 1, 2023.
Posted by Ally Girouard
See our article about SB 331, published in Law 360, available here.
On Monday, the California Supreme Court held that when an employee claimed she was denied a promotion for turning down sexual advances, the statute of limitations began to run when she knew or reasonably should have known that the promotion was denied, not when the promotion was given to someone else.
Plaintiff Pamela Pollock alleged that her employer passed her over for a promotion because she refused to have sex with an executive vice president. The promotion went to another employee, who received and accepted the offer in March 2017, with the promotion taking effect in May 2017. In April 2018, Ms. Pollock filed a claim with the Department of Fair Employment & Housing ("DFEH"), the agency that enforces California's discrimination laws ("Fair Employment and Housing Act," or "FEHA"). At the time, an employee seeking relief under FEHA had one year from the date when the unlawful practice “occurred” to file a claim with the DFEH (the Legislature has since extended that time-period to three years). For Ms. Pollock, this meant that if the failure to promote her had “occurred” in May 2017, as she argued, her claim was timely, but if it occurred in March 2017, as the employer argued, then the claim was time-barred. The state trial and appeals courts held that the claim was time-barred, concluding that the failure to promote “occurred” in March 2017 when the promotion was offered to and accepted by another employee.
The California Supreme Court disagreed with the lower courts’ and the parties’ framing of the issue. The Court held that the statute of limitations begins to run when an employee knows or reasonably should know of the employer’s refusal to promote the employee. The Court noted that its holding supports the purpose of FEHA, “to promote the resolution of potentially meritorious claims on the merits,” and that this approach “protect[s] defendants from the necessity of defending stale claims and require[s] plaintiffs to pursue their claims diligently.”
Because the record contained no evidence about the timing of Ms. Pollock’s knowledge of the promotion, the Court reversed and remanded the case for further proceedings. The decision, Pollock v. Tri-Modal Distribution Services, Inc., No. S262699 (July 26, 2021), is available here.
Posted by Ally Girouard
Employers’ “Rounding” of Time Entries Resulting in Shortened Meal Breaks Requires Premium Pay to Employees
On February 25, 2021, the California Supreme Court issued an important decision holding that employers cannot use “rounding” of time entries when providing mandatory meal breaks if the rounding results in less than the required break period. In California, employers generally must provide non-exempt employees with a 30-minute meal period for any work period of more than five hours. If the employer fails to do so, the employee is entitled to an additional hour of pay for each workday that a meal period is not provided. The Court's decision, Donahue v. AMN (available here), may require employers to change their use of rounding.
Plaintiffs filed a class action lawsuit against AMN, a healthcare services and staffing company, alleging meal break violations under California law. Defendant had a time-keeping policy of rounding to the nearest 10-minute increment when employees clocked in and out for their shifts and lunch breaks. For example, if an employee clocked out for lunch at 12:04PM and clocked back in at 12:25PM, the entries would adjust to 12:00PM and 12:30PM, such that a 21-minute lunch would appear in the employer’s records as a 30-minute lunch not triggering a missed break premium.
The California Supreme Court held that rounding practices that deny an employee a full and timely meal break are inconsistent with legislative intent. The Court reasoned that the precision of the time requirements in California’s meal break laws – “not less than 30 minutes” and “five hours per day” or “ten hours per day” – is at odds with the imprecision of rounding. The Court noted that even small rounding errors are a “significant infringement” on the right to a 30-minute meal period.
Additionally, the Court held that records showing non-compliant meal periods raise a rebuttable presumption of meal period violations, applying to records that show missed meal breaks as well as shortened or delayed meal breaks. The presumption goes to the question of liability and applies at the summary judgment stage, not only at the class certification stage as Defendant had argued. The Court emphasized that uncertainty of proof caused by an employer’s failure to keep accurate records is a burden that falls on the employer, not the employee. Posted by Ally Girourd
On February 23, 2021, the Ninth Circuit tackled the difficult issue of when California’s labor laws apply to employees whose duties take them into other states. The case involved a class of California-based flight attendants alleging that Virgin had failed to pay them minimum wage and overtime, provide them with meal and rest breaks, and provide them accurate wage statements and pay them all wages due at the time of discharge. Although class members spent only an average of 31.5% of their time in California, the vast majority of Virgin’s flights (as high as 99% in some years) either took off from or landed in California, and the Company is based here. Defendant took the difficult position that California labor law did not apply, but that no other state’s law did either. The trial court certified the class, held that California law applied, rejected the argument that the Federal Aviation Act preempted the claims, and granted summary judgment in favor of the class.
The Ninth Circuit’s ruling was generally but not entirely favorable to the class. After affirming on the preemption issue, the Court applied a recent California Supreme Court decision involving United Airlines flight attendants and noted that each of the class’s claims had to be examined separately to determine whether California law applies. (This seems to present employers with the same daunting task in attempting to comply with the law.)
With respect to the minimum wage claim, the Court applied California law but held that Virgin’s pay methodology did not necessarily result in minimum wage violations, and reversed the grant of summary judgment. With respect to overtime and meal and rest breaks, the Ninth Circuit held that California law applied, given Virgin’s status as a California employer and “the circumstances of this case.” Citing the landmark decision in Sullivan v. Oracle Corp., 51 Cal. 4th 1191 (2011), the Court held that the public policy goals behind the overtime and break laws would be thwarted by holding that Virgin was not required to comply when sending its workers across the border. The Court also found that California’s law governing wage statements and payment of wages owed at time of discharge applied, noting that the connections between the class’s work and California sufficed under the prior United Airlines case.
Lastly, in a potentially important win for employers, the Ninth Circuit weighed in on the calculation of penalties under the Private Attorneys General Act (“PAGA”). PAGA, which allows employees to recover penalties on behalf of the state, couches penalties in terms of a smaller penalty (often $100) for each “initial violation” and a larger penalty (often $200) for each “subsequent violation.” The California Supreme Court has yet to rule on what constitutes an “initial” versus a “subsequent” violation. The Ninth Circuit held that because Virgin had not been found by a court or the Labor Commissioner to be subject to California law prior to the district court’s decision, all of the PAGA violations were “initial” violations. This potentially has a large impact on penalty exposure in PAGA cases generally, although in other factual circumstances there will be room to argue that employers were on notice of violations even if they had not been held to be in violation by a court or the Labor Commissioner.
The decision, Bernstein v. Virgin America, No. 19-15382 (9th Cir. 2021), is available here.
Posted by Ally Girouard
New California Laws: DFEH Exhaustion Deadline Extended to Three Years, and a Landmark (Maybe?) Ban on Forced Arbitration
Two important new employment laws will hit the books in California on January 1, 2020.
Two Additional Years to Exhaust Discrimination-Based Complaints. First, the time limit for filing a claim of discrimination, harassment, and retaliation with the Department of Fair Employment and Housing ("DFEH"), which is a prerequisite to filing such a claim in court, has been extended from one year to three years. The one-year deadline was unusually short among deadlines for legal claims (for example, California wage claims typically go back at least three years, and breach of written contract claims go back four years). The amendment will allow employees more leeway to decide whether, how, and when to enforce their rights when they experience unlawful discrimination or harassment. What will happen to claims that are currently time-barred but would be timely under the new law? The act states that it "shall not be interpreted to revive lapsed claims." This appears to mean that any claim accruing less than a year prior to the law taking effect will have another two years in which it can be brought; and any claim accruing more than a year before the law takes effect will be time-barred if a DFEH complaint has not already been filed (whether that reading is correct will likely be taken up by the courts after this law goes into effect). The law also helpfully states that the filing of an intake form with the DFEH stops the clock from running (under prior law, the clock ran until the DFEH issued a "complaint," which sometimes put employees in the hazardous position of relying on DFEH employees to move quickly to ensure that the deadline was met). The bill, AB-9, is available here.
A Ban on Forced Arbitration Agreements... Maybe? Second, the Legislature has limited the ability of employers to require employees to arbitrate disputes (with a major caveat set forth below). The new law will add section 432.6(a) of the Labor Code, which reads: "A person shall not, as a condition of employment, continued employment, or the receipt of any employment-related benefit, require any applicant for employment or any employee to waive any right, forum, or procedure for a violation of any provision of [the non-discrimination provisions of the Fair Employment and Housing Act ("FEHA")] or [the Labor Code], including the right to file and pursue a civil action...." This provision is also incorporated into FEHA by reference, and violation of it now constitutes an unlawful employment practice under FEHA. The law goes further to prevent a technique known as "opt-out" provisions in arbitration agreements, which allow the employee to take affirmative steps to "opt-out" of the arbitration provision within a specified period, such as the first 30 days of employment, by for example sending a letter to the company's legal department saying that they wished to opt out. Such "opt-out" provisions, which employees could be expected almost never to exercise, allowed employers to argue that the arbitration provision was not "mandatory" because the employee had voluntarily chosen not to opt out. This loophole is closed by new Labor Code section 432.6(c): "For purposes of this section, an agreement that requires an employee to opt out of a waiver or take any affirmative action in order to preserve their rights is deemed a condition of employment." The law also provides for attorneys' fees. The new law applies to "contracts for employment entered into, modified, or extended on or after January 1, 2020."
However, the law includes an exception that may swallow the rule. In an effort to head off preemption by the Federal Arbitration Act ("FAA"), which has repeatedly been used over the past decade to shut down efforts by California and its courts to preserve access to certain types of class actions, the law states: "Nothing in this section is intended to invalidate a written arbitration agreement that is otherwise enforceable under the Federal Arbitration Act." This may succeed in avoiding preemption, but will the effect be that most arbitration agreements are untouched by the new law? Time will tell, but in the meantime, employers in California will have to decide whether to keep arbitration agreements in place in reliance on this exception. The bill, AB-51, is available here.
Today the Department of Labor (DOL) increased the minimum salary that employees must make in order to be exempt from overtime requirements under federal law. The increase -- to $35,568 in annualized salary -- is significantly lower than the minimum that the Obama DOL attempted to adopt several years ago.
Federal overtime and minimum wage protections in the Fair Labor Standards Act presumptively extend to all employees. Thus, when an employee is told, "we're going to need you to come in and work on Saturday," the default rule is that those hours will be tracked, extra payment will be made for them, and hours worked over forty in a week (under federal law) will be paid at the overtime rate. There are several so-called "white collar" exceptions to this rule -- one for "professionals" who must undergo significant schooling or training (e.g., doctors and lawyers), one for "executives" with a certain degree of managerial responsibility, and one for "administrative employees" who have discretion to make key decisions for the business. To qualify for those exemptions, an employee must (a) make a minimum salary, and (b) have the type of job duties specified for the exemption in question. The general idea behind the salary requirement is that if an employee may be asked to work increased hours without any corresponding increase in pay, he or she should be making a relatively high amount to begin with.
From 2004 to 2016, the minimum salary was only $23,660. In 2016, the Obama DOL raised the minimum to about $47,000. Just before the rule went into effect, a judge in Texas struck it down, criticizing the process by which it had been adopted (even though the Department of Labor had spent two years working on it and reviewed nearly 300,000 public comments before adopting it).
Now, the Trump DOL has issued a new rule setting the minimum at $35,568. As a matter of policy, this is an improvement, but query whether someone making only $36,000 is paid so well that he or she can be required to work unlimited hours without any increase in pay.
In California, workers are also protected by state wage laws. The minimum salary for overtime exemptions in California is just under $50,000.
Today, Governor Newsom signed a bill that strengthens protection against misclassification of California workers as independent contractors. The bill - AB5 (available here) - will be codified as Labor Code 2750.3, among other amendments, beginning January 1, 2020. The effect of the bill is to expand the use of the so-called "ABC test" or "Dynamex" test for distinguishing an employee from an independent contractor. Under the ABC test, a person providing labor or services for pay (with narrow exceptions) is considered an employee, not an independent contractor, unless the hiring entity proves all of the following:
From the perspective of worker protection, AB5 was a necessary step to keep up with changes caused by smartphone technology. Smartphones and algorithms now allow companies to manage workforces remotely and allow workers to sign in and out of work at irregular, flexible intervals in a way that was not possible when most of the Labor Code was conceived of. That added degree of freedom does not change the fact that so-called "gig workers" are company workforces, and as such, they are meant to be protected by the Labor Code.
AB5 completes a job that the California Supreme Court started in its Dynamex decision, discussed previously in this blog. There, the Court adopted the ABC test for purposes of California's "wage orders," which contain requirements such as minimum wage, overtime, and meal- and rest-break requirements. However, the Dynamex decision did not adopt the ABC test for any other purpose, such as for provisions of the Labor Code not found in the Wage Orders, or for purposes of workers' compensation law. Therefore, a single worker's claim for overtime based on misclassification as an independent contractor would depend on the outcome of the ABC test, while the same worker's claim for unreimbursed business expenses would depend on the outcome of a different test. AB5 resolved these inconsistencies and provided Legislative confirmation of the Supreme Court's adoption of the ABC test. AB5 states that it generally applies retroactively to the maximum extent permitted by law.
AB5 has been strongly opposed by Uber and Lyft, which still classify their workers as independent contractors notwithstanding the Dynamex decision. How these companies, and other gig economy companies that rely on workforces made up of independent contractors, will react to the signing of AB5 remains to be seen.
Today, the California Supreme Court handed a significant victory to employers in the ongoing effort to use individual-only arbitration clauses to eliminate group wage claims. At issue was whether employees could seek to recoup underpaid wages under the California Labor Code's Private Attorneys General Act ("PAGA"). The decision, ZB, N.A. v. Superior Court (S246711), answered that question in the negative. It is available here.
PAGA claims can be brought by plaintiffs as representatives of the state of California to seek penalties for Labor Code violations suffered by groups of aggrieved employees. Unlike class actions, PAGA group claims cannot be eliminated through "individual-only" arbitration agreements. One of the key penalties employees have sought to recover through PAGA is found in Labor Code section 558, which deals with unpaid overtime wages, among other things. That section provides for a "civil penalty" consisting of a small fine for each violation "in addition to an amount sufficient to recover underpaid wages." Whereas most PAGA penalties are split 75/25% with the State, wages recovered under Section 558 are "paid to the affected employee" in full. Until today, employee advocates relied on PAGA and Section 558 to recover underpaid wages for groups of employees in various situations, including where arbitration agreements had eliminated other methods of enforcement.
Today's ruling will end that practice. In a detailed exercise in statutory interpretation, the Court concluded that Section 558's reference to an "amount sufficient to recover underpaid wages" was not part of the "civil penalty" in Section 558, and therefore not something that employees can collect via PAGA. This was a surprise. In the employment law trenches, there had been debate about whether a PAGA claim for underpaid wages under Section 558 could be compelled to arbitration, but it had generally been viewed as clear from the language of Section 558 that such wages were part of the "civil penalty" described in that section. If the Court misunderstood the Legislature's intent, the remedy at this point is an amendment to Section 558.
The most obvious ramification of the Court's decision is that arbitration agreements will be even more effective at preventing enforcement of the wage laws on a group basis. But there are other effects. Previously, PAGA cases could be brought to recover wages when a class action was not an appropriate vehicle for various reasons -- for example, if the numerosity requirement could not be met. In such cases, collecting wages through PAGA fulfilled the purpose of PAGA, which is to deputize citizens to enforce the wage laws on behalf of groups of aggrieved employees when the Labor Commission lacks the resources to do so. As of today, such wages can no longer be recovered through PAGA.
The Lamps Plus Decision: U.S. Supreme Court Closes Another Door for Class Challenges to Employment Practices
Today the Supreme Court in Lamps Plus v. Varela, a 5-4 decision along partisan lines, again interpreted the Federal Arbitration Act (FAA) to limit the ability of employees to pursue legal grievances as a group. The case holds that when an arbitration agreement is ambiguous about whether or not the employee has the right to bring class claims in arbitration (i.e., some language in the agreement suggests that class proceedings are available, but other language suggests the contrary), the employee is prohibited from bringing class claims. The Ninth Circuit Court of Appeals had reached the opposite conclusion.
The Supreme Court’s stated rationale was that although the corporate defendant's arbitration agreement had required its employee to bring all claims in arbitration, the agreement had been ambiguous about whether the employee would have the right to bring class claims in arbitration; therefore, the Court could not be certain that the defendant had intended to consent to the employee having the right to bring anything other than individual claims in arbitration. Thus, the employee was foreclosed from bringing a class claim in any venue -- court or arbitration. Although the employee was challenging a single action by the Company that had allegedly harmed 1,300 employees, under the Court's ruling, every employee who had signed the arbitration agreement would be able to challenge the action only if he or she was willing to pursue an individual arbitration against the Company.
The practical impact of this particular decision may be limited because arbitration agreements drafted since 2011, when the Supreme Court decided AT&T Mobility v. Concepcion, tend to explicitly prohibit class proceedings in arbitration, rather than being ambiguous on that point. The Concepcion decision -- also a 5-4 decision along partisan lines -- struck down the ability of states to preserve access to class actions for their citizens in certain contexts.
From the perspective of defendants, the Lamps Plus ruling further cements the ability of arbitration agreements to eliminate class challenges by employees in any forum – even ambiguous agreements that some courts had previously held allowed class arbitration claims. From the perspective of employee advocates, the conservative majority of the Supreme Court has, over the past decade, expanded the FAA beyond Congress’s purpose in enacting that law in 1925, and in doing so has created a major barrier to enforcement of the laws protecting employees. Justice Ginsburg’s dissents in recent arbitration cases, including Lamps Plus, have called for legislative action: “Congressional correction of the Court’s elevation of the FAA over the rights of employees and consumers to act in concert remains urgently in order.”
William Jhaveri-Weeks is the founder of The Jhaveri-Weeks Firm, a San Francisco-based civil litigation practice for individuals and organizations.