As we end May 2022 and break for Memorial Day weekend, there were some major case develops within the last week for California employers.  Here are five key highlights California employers need to know about:

1. Naranjo v. Spectrum Security Services, Inc. – Penalties just increased for non-compliant meal and rest breaks. 

This week, the California Supreme Court decided the issue of whether premium wages owed to employees for meal and/or rest break violations that are not paid when the break was missed, would also trigger penalties for wage statement violations under Labor Code section 226 and for waiting time penalties for unpaid wages for employees who leave employment under Labor Code section 203.  The Supreme Court held that the premium wages owed to employees also trigger these derivative penalties under the Labor Code.

Takeaway for California employers:  Ensure proper meal and rest break policies are established because the employees are not only entitled to the premium wages, but if the premium wages were not paid to employees when they did not receive a compliant meal or rest break, the employer will be liability for additional penalties under Labor Code section 226 and waiting time penalties under Labor Code section 203.

2. Pineda v. Sun Valley Packing, L.P. – Another decision invalidating arbitration agreements placed in employee handbooks.

Another California court refused to enforce an arbitration agreement contained in the employee handbook.  In Pineda v. Sun Valley Packing, L.P., the U.S. District Court for the Eastern District of California held that an employer could not enforce an arbitration agreement contained in the employee handbook.   In its ruling, the court quoted Sparks v. Vista Del Mar Child & Fam. Servs. (2021) explaining that:

[t]o support a conclusion that an employee has relinquished his or her right to assert an employment-related claim in court, there must be more than a boilerplate arbitration clause buried in a lengthy employee handbook given to new employees. At a minimum, there should be a specific reference to the duty to arbitrate employment-related disputes in the acknowledgment of receipt form signed by the employee at commencement of employment.

The court ultimately held that, “Here … there was no such reference to the arbitration provision in the acknowledgment form that plaintiff signed, and there was no indication in the handbook itself that by commencing and continuing employment, plaintiff was agreeing to be bound to arbitrate disputes.”

Just another reminder after the Mendoza ruling in February 2022, that California employers must be very careful when placing arbitration agreements in employee handbooks.  Handbooks are not the best mechanism for creating binding contracts with employees, and often times they have language setting forth that the handbook and nothing contained in the handbook creates a binding contract with the employer.

3. Morgan v. Sundance, Inc. – U.S. Supreme Court issues decision on standard to determine if an employer has waived its right to enforce an arbitration agreement by litigating the case too long before moving to compel arbitration. 

 On May 23, 2022, the U.S. Supreme Court issued a decision, Morgan v. Sundance, Inc., regarding the enforceability of arbitration agreements in the employment context (the opinion can be read here).  At issue in the case was the legal standard to decide if an employer has waived its right to compel arbitration if it litigates the case for too long.  In the case, the employer defended the initial lawsuit in court, filing a motion to dismiss and participated in a mediation.  After the motion to dismiss was unsuccessful and the mediation failed, eight months after the lawsuit was filed, the employer brought a motion to compel arbitration.  The employee argued that the employer had waived its right to compel arbitration by participating in the litigation and waiting for so long.  The Supreme Court held that in determining whether a defendant waived its right to compel arbitration, there is no need for the court to find that the actions of the defendant “prejudiced the other party by its inconsistent actions.”  All that would be required to establish waiver is that the party knew of its right to arbitration and acted inconsistently with that right.

The takeaway for employers is that if an arbitration agreement exists with an employee who files a lawsuit, it the employer should take action to enforce the arbitration agreement early in the lawsuit in order to avoid a potential argument that it waived its rights to do so by willingly participating in the lawsuit.

We are still awaiting the U.S. Supreme Court’s decision in Viking River Cruises, Inc. v. Moriana, (our analysis on Viking River Cruises is here) which will decide if a California employer may enter into an arbitration agreement that requires the employee to only bring his or her individual claims and cannot bring any representative claims under California’s Private Attorneys General Act (PAGA) on behalf of other employees.  The decision is likely to be issued in June or July of this year.

4. AB 257  – Bill proposed to create council to regulate California “fast food restaurants.”

AB 257, termed the Fast Food Accountability and Standards Recovery Act or FAST Recovery Act, proposes to establish a Fast Food Sector Council within the Department of Industrial Relations.  The council would be composed of 11 members appointed by the Governor.  The Council would define which fast food restaurants it would regulate, and would set standards for minimum wages, working hours, “and other working conditions related to the health, safety, and welfare of” fast food establishments.  As drafted, the bill defines “fast food chain” as “a set of restaurants consisting of 30 or more establishments nationally that share a common brand, or that are characterized by standardized options for decor, marketing, packaging, products, and services.”  The bill would add another layer of complexity for these restaurants in addition to the existing Labor Code.

5. AB 2188 – Bill being considered by California legislature that would make it illegal for California employers to discriminate against employees for using of cannabis.

AB 2188 proposes to amend Government Code section 12945 to make it illegal for employers to discriminate against employees who use cannabis off the job and away from the workplace.  The bill states that it does not create the right for the employee to be impaired while at work, does not apply to the building and construction trades, and does not preempt state or federal laws requiring employees to be tested.  If passed, this would change the current status of California law.

In 2016, California passed Proposition 64 legalizing marijuana.  Proposition 64 expressly provides that employers may prohibit marijuana in the workplace, and will not be required to accommodate an employee’s use of marijuana.  This is also consistent with the California Supreme Court’s holding in Ross v. Ragingwire Telecommunications, Inc.  In that case the court examined the conflict between California’s Compassionate Use Act, (which gives a person who uses marijuana for medical purposes on a physician’s recommendation a defense to certain state criminal charges and permission to possess the drug) and Federal law (which prohibits the drug’s possession, even by medical users).  The court held that the Compassionate Use Act did not intend to address the rights and obligation of employers and employees, and further noted that the possession and use of marijuana could not be a protected activity because it is still illegal under federal law.

If the bill makes it to the Governor’s desk, he will have until the end of September to sign or veto the bill. Be sure to subscribe to receive updates on this and other bills – we will have a webinar towards the end of the year summarizing the new California laws for 2023.

Have a great Memorial Day weekend!