The U.S. Supreme Court heard oral arguments on October 2, 2017 in Epic System Corp. v. Lewis.  And while the case may not make headline news, it has very important ramifications for employers across the country.  At issue is whether employers can legally compel employees to enter into arbitration agreements which contain class action waivers.  The decision is likely to be decided by the U.S. Supreme Court this December.  Below are five issues regarding the Supreme Court’s decision and the impact it may have on employer’s businesses going into 2018:

1. There is a split in Circuit Courts regarding if arbitration agreements with class action waivers are enforceable

Many courts have been upholding arbitration agreements that contain class action waivers, including the California Supreme Court in Iskanian v. CLS Transportation Los Angeles, LLC.  That case held that class action waivers are enforceable, following the standards set forth by the U.S. Supreme Court in AT&T Mobility v. Concepcion.

However, the Ninth Circuit’s ruling in Morris v. Ernst & Young holding that a class action waiver in an arbitration agreement is unenforceable because the class action waiver is contrary to the rights provided to employees under the National Labor Relations Act (“NLRA”).  The arbitration agreements in the Morris case were mandatory, and they contained a “concerted action waiver” clause preventing employees from bringing a class action.  Plaintiffs claimed that the “separate proceedings” clause contravenes the NLRA, 29 U.S.C. §§ 151 et. seq.  The Ninth Circuit held:

This case turns on a well-established principle: employees have the right to pursue work-related legal claims together. 29 U.S.C. § 157; Eastex, Inc. v. NLRB, 437 U.S. 556, 566 (1978). Concerted activity—the right of employees to act together—is the essential, substantive right established by the NLRA. 29 U.S.C. § 157. Ernst & Young interfered with that right by requiring its employees to resolve all of their legal claims in “separate proceedings.” Accordingly, the concerted action waiver violates the NLRA and cannot be enforced.

This holding is contrary to the holdings in the Second, Fifth, and Eight Circuits that have concluded that the NLRA does not invalidate collective action waivers in arbitration agreements.  This split in circuit courts will be resolved by the U.S. Supreme Court’s holding in Epic System Corp. v. Lewis.

2. U.S. Department of Justice changed its position to support class action waivers

Under the Obama Administration, the DOJ supported the position taken by the NLRB that class action waivers found in arbitration agreements violated Section 7 of the NLRA.  However, under the Trump Administration, the DOJ has changed its view and in the summer of 2017 filed an amicus brief explaining it now does not believe class action waivers violate the NLRA.  This further adds to the split in authority that will be resolved by the U.S. Supreme Court’s ruling in Epic System Corp. v. Lewis.

3. Potential benefits of arbitration agreements for California employers

There are a number of benefits for California employers to have arbitration agreements.  One major benefit is the class action waiver discussed above.  For large employers this can be an effective bar from employees bringing class actions.  However, in California, employees still have rights to pursue “representative actions” under the Private Attorneys General Act (PAGA) as discussed below.  Moreover, the arbitration process can proceed faster than civil litigation, saving a lot of time and attorney’s fees in the process.  For example, often the discovery process moves faster in arbitration, and if there are any disputes, the parties can raise them with the arbitrator telephonically, instead of the lengthy and formal motion process required to resolve disputes in civil court.

The arbitration process is also confidential, so if there are private issues that must be litigated, these issues are not filed in the public records of the courts. The parties also have a say in deciding which arbitrator to use in deciding the case, whereas in civil court the parties are simply assigned a judge without any input into the decision. This is very helpful in employment cases, which often involves more complex issues, and it is beneficial to the parties to select an arbitrator with experience in employment law.

4. Potential drawbacks of arbitration agreements in California

While there are many benefits of arbitration agreements, they do not come without a few drawbacks. The primary drawback is that in California, the employer must pay all of the arbitrator’s fees in employment cases. Arbitration fees can easily be tens of thousands of dollars – a cost that employers do not need to pay in civil cases. However, if the company values the confidentiality and speed of process provided in arbitration, and potentially limiting class action liability exposure, this extra cost may well be worth it.

In addition, even if the U.S. Supreme Court rules in favor of employers in Epic System Corp. and upholds the use of class action waivers, the California Supreme Court held that employees may still bring representative actions under the Private Attorneys General Act (PAGA). Even though PAGA claims are limited to specific penalties under the law, and have a much shorter one-year statute of limitations than compared to potentially a four-year statute of limitations for most class actions brought for unpaid wages under the Labor Code, the potential penalties under PAGA can still be substantial for employers.

5. Impact on employers

Employers who utilize arbitration agreements will need to monitor the Supreme Court’s decision in Epic System Corp.  If the Supreme Court rules that class action waivers violate Section 7 of the NLRA, employers will need to review and potentially modify any arbitration agreements with class action waivers.  Such a ruling could spur many more class actions.  With that said, employers should always be auditing their wage and hour policies and practices to ensure compliance with Federal and state laws.

If the Supreme Court holds that arbitration agreements with class action waivers do not violate Section 7 of the NLRA, it is likely that employers can continue to implement the agreements with employees.  However, as mentioned above, California employers still must remain vigilant about their wage and hour practices, as there is still substantial liability under representative actions under PAGA.

Two cases decided in the last two months have further clarified the scope of discovery and plaintiff’s ability to pursue damages in addition to individual damages under California’s Private Attorneys General Act (PAGA).  The holdings are a bit of a mixed bag for employers, but they offer some clarification into PAGA.  This Friday’s Five is a summary of five issues employers need to understand about PAGA and the new decisions setting out the rights plaintiffs have to pursue representative actions under the statute:

1. PAGA representative actions are different than class actions.

California’s Private Attorneys General Act (PAGA) was designed by the California Legislature to offer financial incentives for private individuals to enforce state labor laws. At the time PAGA became law, the state’s labor law enforcement agencies did not have enough resources or staffing necessary to keep up with the rapid growth of California’s workforce. Therefore, PAGA allows aggrieved employees to sue as a proxy or agent of California’s state labor law enforcement agencies in collecting civil penalties for Labor Code violations. The employee must give 75 percent of the collected penalties to the Labor and Workforce Development Agency, and the remaining 25 percent is to be distributed among the employees affected by the violations.

First, because the plaintiff under PAGA is seeking penalties and not other forms of damages, a one year statute of limitations applies. This varies drastically from the four year statute of limitations that apply to most wage and hour class actions when a Business and Professions Code section 17200 cause of action is alleged.

Second, in Arias v. Superior Court, the California Supreme Court held that a plaintiff does not have to certify a class under PAGA to recover damages on behalf of all the other employees in the representative action.  However, as set forth below, courts are still deciding the scope of PAGA representative actions in terms of discovery rights and manageability issues.

2. Arbitration agreements with class action waivers are enforceable, but representative actions brought under the Private Attorneys General Act are not subject to arbitration and cannot be waived.

Many courts have been upholding arbitration agreements that contain class action waivers, including the California Supreme Court in Iskanian v. CLS Transportation Los Angeles, LLC.  That case held that class action waivers are enforceable, following the standards set forth by the U.S. Supreme Court in AT&T Mobility v. Concepcion.  However, in Iskanian, the California Supreme Court held that PAGA representative actions cannot be waived by employees and cannot be compelled to arbitration.  The Court held that, “we conclude that an arbitration agreement requiring an employee as a condition of employment to give up the right to bring representative PAGA actions in any forum is contrary to public policy.”

3. PAGA penalties are separate from individual damages.

In August 2017, a California appellate court held in Esparza v. KS Industries that PAGA representative actions can only seek “civil penalties” permitted by PAGA.  As set forth above, the civil penalties recovered by a PAGA claim 75 percent must be allocated to the Labor and Workforce Development Agency and 25 percent to the aggrieved employees in the representative action.  The court found that PAGA civil penalties do not include unpaid wages sought by the individual plaintiff.

4. Employers defending PAGA claims must require plaintiffs to explicitly state whether they are pursuing individual damages (which must be arbitrated) or PAGA civil penalties (which cannot be arbitrated).

As the court noticed in Esparza, PAGA representative claims for civil penalties are not subject to arbitration, but claims for unpaid wages based on Labor code section 558 are not civil penalties and can be compelled to arbitration.

If the employee wants to pursue both, the employer should compel arbitration of the plaintiff’s individual claims and stay the PAGA case pending the resolution of the individual claims.

5. Employers facing PAGA cases must consider filing a motion to sequence discovery early in the case.

In Williams v. Superior Court, a case decided in July 2017, the plaintiff sought to obtain the contact information for fellow California employees who worked for defendant, Marshalls of CA, LLC.  Defendant refused to provide the contact information for the other employees, and plaintiff filed a motion to compel.  The trial court limited the ability of plaintiff to obtain contact information to the store where the plaintiff worked, but denied it as to every other California store, subject to change after plaintiff sat for his deposition and made a showing of some merit to the underlying action.

The California Supreme Court reversed the trial court’s ruling and required defendant to provide the contact information for all California employees:

Our prior decisions and those of the Courts of Appeal firmly establish that in non-PAGA class actions, the contact information of those a plaintiff purports to represent is routinely discoverable as an essential prerequisite to effectively seeking group relief, without any requirement that the plaintiff first show good cause.  Nothing in the characteristics of a PAGA suit, essentially a qui tam action filed on behalf of the state to assist it with labor law enforcement, affords a basis for restricting discovery more narrowly.

The Court was clear, however, that upon a defendant’s motion showing good cause, a trial court can ordered sequenced discovery.   The Court explained:

Marshalls reasons instead that the trial court’s imposition of a merits requirement can be justified under Code of Civil Procedure section 2019.020.  That provision sets out the general rule that the various tools of discovery may be used by each party in any order, and one party’s discovery “shall not operate to delay the discovery of any other party.”  (Id., subd. (a).)  However, if a party shows “good cause,” the trial court “may establish the sequence and timing of discovery for the convenience of parties and witnesses and in the interests of justice.”  (Id., subd. (b).)  But Marshalls did not file a section 2019.020 motion, and we thus have no occasion to decide what showing might suffice to warrant a court order sequencing discovery.

In this Friday’s Five I discuss:

  • new case decision on vacation pay and policies (Minnick v. Automotive Creations)
  • PAGA decision allowing contact information for other employees (Williams v. Superior Court),
  • new Form I-9 released and employers must start using by September 17, 2017 (download here)
  • new Notice of Rights for Victims of Domestic Violence/sexual assault/stalking required to be provided to California employees effective July 1, 2017 (download here), and
  • new law signed by Governor Brown prohibiting inquiries into litigant’s immigration status.

In Augustus v. ABM Security Services, Inc., the California Supreme Court issued a ruling on employer’s obligations to permit employees to take “off-duty” rest periods.  The Court’s ruling ends 2016 with a major ruling on issues surrounding rest periods under California law.

The plaintiffs worked as security guards for defendant ABM.  The employer required to the guards to keep their pagers and radio phones on at all times, even during rest periods, and to potentially respond to calls when needed.   The guards’ duties included when a building tenant wished to be escorted to the parking lot, a building manager had to be notified of a mechanical problem, or the occurrence of emergency situations.

The trial court “reasoned that a rest period subject to such control was indistinguishable from the rest of a workday; in other words, an on-duty or on-call break is no break at all,” and granted Plaintiff’s motion for summary judgment.  The trial court awarded approximately $90 million in statutory damages, interest, and penalties.    ABM appealed the trial court’s ruling, and was successful in having the trial court overturned, but the California Supreme Court granted review of the case.

The company argued that it provided the required rest breaks under California law because it only required that the guards keep their radios and pagers on in case they were needed to respond to a call.  For the last Friday’s Five article of 2016, here are five key lessons for California employers from the Supreme Court’s decision:

1. Generally, what are employer’s obligations to provide rest breaks under California law?

Employer’s obligations to provide rest breaks is found in Labor Code section 226.7, enacted in 2000.  As enacted, subdivision (a) provided:  “No employer shall require any employee to work during any meal or rest period mandated by an applicable order of the Industrial Welfare Commission.”  The Wage Orders generally require that employers must provide a 10-minute rest period per every four hours worked and the break should, whenever practicable, fall in the middle of the work period. (See Wage Order 4, subd. 12(A).  The rest period must also be paid, and the law does not require that employers record when the employee takes the rest period (unlike an employer’s obligation to record when 30-minute meal breaks are taken).

2. Does California law require employers to authorize off-duty rest periods? 

Yes.  The Supreme Court held that employers must provide employees with a paid rest break in which the employee is relieved from all work-related duties and free from employer control.  The Court examined the wage order at issue in the case, Wage Order 4, which provides, “Every employer shall authorize and permit all employees to take rest periods…. Authorized rest period time shall be counted, as hours worked for which there shall be no deduction from wages.”

The Court ruled that:

The most reasonable inference we can draw from the wage order and its context is instead that we should give the term its most common understanding – a reading consistent with requiring that employers authorize off-duty rest periods…. So, ordinarily, a reasonable reader would understand ‘rest period’ to mean an interval of time free from labor, work, or any other employment-related duties.

We accordingly conclude that the construction of Wage Order 4, subdivision 12(A) that best effectuates the order’s purpose and remains true to its provisions is one that obligates employers to permit –– and authorizes employees to take –– off-duty rest periods.  That is, during rest periods employers must relieve employees of all duties and relinquish control over how employees spend their time.

3. Can employers satisfy the obligation to relieve employees from duties and control during rest periods if the employer requires the employee to remain on call? 

No.  The Court ruled that “one cannot square the practice of compelling employees to remain at the ready, tethered by time and policy to particular locations or communications devices, with the requirement to relieve employees of all work duties and employer control during 10-minute rest periods.”  The Court made clear that the employee must be “free from labor, work, or any other employment-related duties.  And employees must not only be relieved of work duties, but also freed from employer control over how they spend their time.”

4. If employees are required to carry a pager or phone during a rest break and must monitor the device during the rest break, is the employee provided a compliant rest break? 

No.  If an employee “must fulfill certain duties [such as] carrying a device or otherwise making arrangements so the employer can reach the employee during a break, responding when the employer seeks contact with the employee, and performing other work if the employer so requests,” the employee does not have the freedom to use the rest period for their own purpose.  The court used examples that employees should be permitted to take “a brief walk – five minutes out, five minutes back,” take care of personal matters like “pumping breast milk… or completing a phone call to arrange child care.”

5. Is there some flexibility for employers to reschedule rest breaks when needed?

Yes.  The Court provided, “[n]othing in our holding circumscribes an employer’s ability to reasonably reschedule a rest period when the need arises.”  However, the Court failed to provide any other clarification of what is reasonable in rescheduling a rest period.  The Court did explain, however, that employers have “several options” when employers find it burdensome to relieve their employees of all duties during rest periods.  As examples of these options, the Court stated that employers can provide employees with another rest period to replace the one that was interrupted, or pay the premium pay of one hour at the employee’s regular rate of pay for missing the rest period.

Looking for more information about California employers obligations to provide rest and meal periods?  See my prior post on five reminders about rest breaks here, and the timing of meal and rest breaks under California law here.

I hope everyone is having a great Thanksgiving weekend.  This Friday’s Five is about five common questions I’m receiving from California employers at the close of 2016.

1. Does the legalization of recreational use of marijuana in California with the passage of proposition 64 change employer’s rights to prohibit it in the workplace?

No.  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.

2. Does Trump’s win change any laws facing employers in 2017?

While it is hard to predict the effect President-elect Trump will have on California employers, I previously wrote about potential impacts in immigration and E-verify issues, paid family leave, and the expansion of even more additional local laws.

3. When is the new Form I-9 required to be used by employers?

Employers must begin using the new Form I-9 by January 22, 2017.  It is important to note that employees already hired with the older version of the Form I-9 do not have to complete the new version.  More information about the revised Form I-9 can be read here.

4. What new laws in California do employers need to understand for 2017?

New laws that will impact many California employers include:

  • Prohibition on asking or taking into consideration juvenile convictions when hiring
  • Expansion of wage discrimination laws based on gender, race or ethnicity.
  • Employers with 25 or more employees are required to provide written notice to employees about rights provided to domestic violence victims under California law.
  • Employers are prohibited from requiring employees who primarily reside and work in California to agree to adjudicate claims outside of California or apply another state’s laws in arbitration agreements.

My prior post contains more information about the laws facing California employers in 2017.

5. When are you conducting your next webinar?

Join me on December 13, at 11:00 a.m. Pacific time for a webinar: “Employment law update: Essential issues facing California employers in 2017.” (I had to throw this self-promoting question in the line-up.)  You can register for the webinar here.

Employers across the nation have been preparing to increase salary levels for managers to meet the higher salary level requirements implemented by the Department of Labor earlier this year under the Fair Labor Standards Act (FLSA).  The DOL rules were set to take effect on December 1, 2016, and require that employers must pay employees that qualify to be exempt executive, administrative or professionals (referred to as the “EAP” exemption) a minimum salary level of at least $921 per week or $47,892 annually.  21 states filed a lawsuit to prevent the DOL’s rule to take effect, arguing that in raising the minimum salary level, the DOL exceeded its delegated authority from Congress.  While not issuing a final ruling, the court determined that the plaintiff states have shown a likelihood of success on the merits justifying the preliminary injunction.  The merits of the case and a final determination will be made at a later date.

Therefore, the court issued an injunction preventing the DOL’s overtime rules from taking effect on December 1, 2016.  An issue addressed by the court was whether the injunction applied only to the 21 states involved in this case, or to all states.  The court’s opinion is unambiguous that the scope of the injunction applies to all states and all employers:

A nationwide injunction is proper in this case.  The Final Rule is applicable to all states.  Consequently, the scope of the alleged irreparable injury extends nationwide.  A nationwide injunction protects both employees and employers from being subject to different EAP exemptions based on location.

Now employers that started the process of raising salary levels for managers in order to comply with the DOL’s overtime rules must make a decision to continue with the raises or hold back on any implementation until there is further guidance from the courts.  It is also likely that President-elect Trump’s administration will not look favorably on the DOL’s overtime rules.  This adds further uncertainty about whether the increase in the salary level will ever go into effect once President-elect Trump takes office.

The opinion in State of Nevada, et al v. United States Department of Labor, can be read here.

Employers also need to remember that the minimum salary requirement is only one part of the exemption test, and California employers need to ensure that they are still complying with California’s requirements.

This Friday’s Five is a bit of everything: news, new California employment laws, and reminders about October 1 deadlines for the City of San Diego:

 1. House moves to delay DOL overtime rule implementation.

There is a great article by Lisa Jennings from Nation’s Restaurant News summarizing the House’s move to delay the overtime rule implementation, which is set to go into place on December 1, 2016.  The White House has already threatened to veto the bill if it makes it to the President’s desk.  For more information about the DOL overtime rules, visit my posts here.

2.  San Diego employers need to ensure they are in compliance with the October 1, 2016 deadline.

The City of San Diego’s new paid sick leave law (and its “implementing ordinance”) requires employers to provide written notice to employees about the paid sick leave law by October 1, 2016 (yes – that is tomorrow).  The Implementing Ordinance requires that every employer must also provide each employee at the time of hire, or by October 1, 2016, whichever is later, written notice of the employer’s legal name and any fictitious business names, address, and telephone number and the employer’s requirements under the law.  The notice must also include information on how the employer satisfies the requirements of the law, including the employer’s method of earned sick leave accrual.  The notice must be provided to employees in English and in each employee’s primary language, if it is a language if it is spoken by at least five percent of the employees at the employer’s workplace.  Employers may provide this notice through an accessible electronic communication in lieu of a paper notice.  The City published a form notice to comply with these requirements, which can be downloaded here.

3.  Governor signs law making it illegal for out-of-state employers to have their disputes heard outside of California.

Governor Brown signed S.B 1241 into law that restricts employers from requiring employees who primarily reside and work in California to adjudicate claims outside of California when the claim arose in California, or deprive employees of California law with respect of claims arising in California.

Employers should carefully review their arbitration agreements with California employees to ensure that the agreement does not have a choice of law provision that applies another state’s law to the agreement or require any claims be adjudicated outside of California.  The effective date for the law is January 1, 2017.

4.  New CA law prohibits employers from asking about juvenile convictions.

A.B. 1843, signed into the law by Governor Brown on September 27, 2016 prohibits employers from asking or taking into consideration juvenile convictions.  The law states, “employers [are prohibited] from asking an applicant for employment to disclose, or from utilizing as a factor in determining any condition of employment, information concerning or related to an arrest, detention, processing, diversion, supervision, adjudication, or court disposition that occurred while the person was subject to the process and jurisdiction of juvenile court law.”

5. NCAA and Pac-12 sued by former USC football player for unpaid wages.

An interesting class action lawsuit was filed by a former USC football player claiming that the NCAA and Pac-12 violated the Fair Labor Standards Act and California law by not paying football players minimum wage or overtime.  This is a different twist to the often debated issue of whether college athletes should be allowed to accept endorsement money.  It will be interesting to see how the lawsuit develops: on one side there is an argument that as the college sports programs have turned into huge profit generating centers sports, not academics could be seen as the primary focus for these athletes, but on the other hand the players are still students and many school programs do not generate huge revenues for the schools.

Recently, the NStanley Moskinth Circuit Court of Appeals issued an opinion in Morris v. Ernst & Young holding that class action waiver in an arbitration agreement were unenforceable because the class action waiver was contrary to the rights provided to employees under the National Labor Relations Act.  The ruling is contrary to the holdings in the Second, Fifth, and Eight Circuits that concluded that the NLRA does not invalidate collective action waivers in arbitration agreements, creating a split in the circuits.  Given this split in the circuits, the case may potentially be reviewed by the United States Supreme Court.  For now, however, what should California employers take away from the case?  This Friday’s Five answers five issues California employers should understand about this changing area of the law:

1. What is an arbitration agreement?

Employers can agree that they and any employees who enter into an arbitration agreement will resolve their differences before a private arbitrator instead of civil court. There are many different arbitration companies to choose from, but the American Arbitration Association and JAMS are two of the larger ones that are routinely appointed in arbitration agreements.

2.  Why would an employer want to implement an arbitration agreement?

There are a number of reasons. The arbitration process can proceed more quickly than civil litigation, saving a lot of time and attorney’s fees in the process.  For example, often times the discovery process moves more quickly, and if there are any disputes, the parties can raise them with the arbitrator telephonically, instead of the lengthy motion process required to resolve disputes in civil court. The arbitration process is also confidential, so if there are private issues that must be litigated, these issues are not filed in the public records of the courts. The parties also have a say in deciding which arbitrator to use in deciding the case, whereas in civil court the parties are simply assigned a judge without any input into the decision. This is very helpful in employment cases, which often times involve more complex issues, and it is beneficial to the parties to select an arbitrator that has experience in resolving employment cases.

While there are many benefits of arbitration agreements, they do not come without a few drawbacks. The primary drawback is that in California, the employer must pay all of the arbitrator’s fees in employment cases. Arbitration fees can easily be tens of thousands of dollars – a cost that employers do not need to pay in civil cases. However, if the company values the confidentiality and speed of process provided in arbitration, this extra cost may well be worth it.

3.  Are class action waivers enforceable in arbitration agreements?

That is the key issue raised in the Morris v. Ernst & Young case.  Many courts have been upholding arbitration agreements that contain class action waivers, including the California Supreme Court in Iskanian v. CLS Transportation Los Angeles, LLC.  That case held that class action waivers are enforceable, following the standards set forth by the U.S. Supreme Court in AT&T Mobility v. Concepcion.

However, the Ninth Circuit’s ruling in the Morris case creates some uncertainty about whether arbitration agreements that contain class action waivers can be enforced.  The arbitration agreements in the Morris case were mandatory, and they contained a “concerted action waiver” clause preventing employees from bringing a class action.  Plaintiffs claimed that the “separate proceedings” clause contravenes the National Labor Relations Act (“NLRA”), 29 U.S.C. §§ 151 et. seq.  The Ninth Circuit held:

This case turns on a well-established principle: employees have the right to pursue work-related legal claims together. 29 U.S.C. § 157; Eastex, Inc. v. NLRB, 437 U.S. 556, 566 (1978). Concerted activity—the right of employees to act together—is the essential, substantive right established by the NLRA. 29 U.S.C. § 157. Ernst & Young interfered with that right by requiring its employees to resolve all of their legal claims in “separate proceedings.” Accordingly, the concerted action waiver violates the NLRA and cannot be enforced.

As mentioned above, this holding is contrary to the holdings in the Second, Fifth, and Eight Circuits that have concluded that the NLRA does not invalidate collective action waivers in arbitration agreements.  For California employers, the Morris holding creates a strange current state of the law where arbitration agreements with class action waivers may be enforceable in state courts under the Iskanian ruling, but may not enforceable in federal court under the Morris v. Ernst & Young ruling.

4.  Should every employer implement arbitration agreements with its employees?

No. The decision to implement an arbitration agreement should be reviewed with an employment lawyer to discuss the positives as well as the negatives of arbitration agreements.

5.  Are arbitration agreements enforceable in California?

Generally speaking, if the agreement is drafted and implemented properly, it is enforceable.  The holding in Morris v. Ernst & Young does not change the enforceability of arbitration agreements, but rather focuses on the issue of whether a class action waiver contained in an arbitration agreement is enforceable.  In addition, arbitration agreements are routinely struck down by courts if they are not properly drafted. For example, a California court held in Ajamian v. CantorCO2e, that an arbitration agreement was not enforceable because it required the employee to waive statutory damages and remedies.  In addition, the agreement in that case only allowed the employer to recover its attorney’s fees if successful, not the employee.  This flaws in the arbitration agreement were fatal to the enforceability of the agreement.  Therefore, as a good lawyer always says, it is critical that employers considering implementing arbitration agreements review the pros and cons of the decision, and receive assistance in drafting the arbitration agreement.

Douglas Troester filed suit alleging that Starbucks violated the California Labor Code by failing to pay him for short periods of time he spent closing the store.  He alleged that Starbucks failed to pay him for time spent walking out of the store after activating the security alarm, for the time he spent turning the lock on the store’s front door, and for the time he spent occasionally reopening the door so that a co-worker could retrieve a coat.  Based on these allegations, Plaintiff filed a class action under the California Labor Code for failure to pay minimum and overtime wages, failure to provide accurate written wage statements, and failure to timely pay all final wages.

Starbucks filed a motion for summary judgment asking the court to dismiss Plaintiff’s case based upon the de minimis doctrine.  The trial court agreed with Starbucks and dismissed the case, but now the California Supreme Court has agreed to review the ruling based on Plaintiff’s argument that the de minimis doctrine is not applicable to California law.  The Supreme Court’s decision could have major ramifications for California employers.  For today’s Friday’s Five, here are five issues about the de minimis doctrine employers should understand:

1. The de minimis doctrine: What is it?

In granting Starbucks motion for summary judgment, the trial court explained:

Under this doctrine, alleged working time need not be paid if it is trivially small: “[A] few seconds or minutes of work beyond the scheduled working hours … may be disregarded.” Anderson v. Mt. Clemens Pottery Co., 328 U.S. 680, 692, 66 S.Ct. 1187, 90 L.Ed. 1515 (1946), superseded by statute on other grounds as stated in IBP, Inc. v. Alvarez, 546 U.S. 21, 25–26, 126 S.Ct. 514, 163 L.Ed.2d 288 (2005).

2. What factors do courts look to in determining whether time is de minimis?

The factors courts look to in determining whether time is de minimis include (1) the practical administrative difficulty of recording the additional time; (2) the aggregate amount of compensable time; and (3) the regularity of the additional work.  The trial court noted that numerous courts have concluded that daily periods of about 10 minutes are de minimis.

3. What does “administrative difficulty” mean when applying the de minimis doctrine?

The trial court held that the “administrative difficulty of recording the additional time” also supported Starbucks’ de minimis defense.  The court explained that “this factor weighs in favor of the defense when the employer’s timekeeping system cannot be practically configured to capture the alleged off-the-clock work.”  The court cited cases holding that time employees spent submitting to bag checks upon leaving store was de minimis, rejecting plaintiff’s argument that employer should endeavor to record that time by “repositioning the time clock close by the exit door”), and case that held time spent waiting for computer to boot up in order to log into time clock software was de minimis, and that the employer was not required to capture this time by installing a time clock at front door.

The trial court in Starbucks concluded:

The brief moments that Plaintiff spent in and around the store after clocking out are an inevitable and incidental part of closing up any store at the end of business hours. There will always be some unaccounted-for seconds spent on setting an alarm, physically leaving the store, locking the door, and walking out at the end of a closing shift. But not every second can be or need be recorded and compensated. Through the de minimis defense, the law recognizes that “[s]plit-second absurdities are not justified by the actualities of working conditions.” Anderson, 328 U.S. at 692.

4. Generally, how much time can be considered de minimis?

The Plaintiff testified that his time spent conducting closing activities after he clocked out generally amounted to less than four minutes, and was almost always less than 10 minutes.  The court therefore held that the time Plaintiff complain he was not paid for was de minimis.

The trial court in Starbucks noted that in applying these standards, “numerous courts have held that daily periods of approximately 10 minutes are de minimis.”  The court cited cases holding the following:

  • Court concluding that five minutes daily spent passing through security clearance on way to lunch break was de minimis (Busk v. Integrity Staffing Solutions, Inc., 713 F.3d 525, 532–33 (9th Cir.2013)
  • Court rejecting a plaintiff’s claim for unpaid wages because the six minutes that it took each day to log in to a computer program was de minimis and would be “arduous” to monitor and record) Gillings v. Time Warner Cable LLC, 2012 WL 1656937, at * 1, 4 (C.D.Cal. Mar.26, 2012)
  • Court holding that the plaintiff was not entitled to compensation for time spent waiting for security checks at the end of closing shifts because the “several minutes” that the plaintiff had to wait to be let out of the building was de minimis) Alvarado v. Costco Wholesale Corp., 2008 WL 2477393, at *3–4 (N.D.Cal. June 18, 2008)
  • “Here, it is undisputed that donning and doffing protective gear … takes less than 10 minutes…. Therefore, time spent donning and doffing safety gear is de minimis and non-compensable as a matter of law.”) Abbe v. City of San Diego, 2007 WL 4146696, at *7 (S.D.Cal. Nov.9, 2007)

5. The California Supreme Court will review if Starbucks’ de minimis defense is applicable under California law.

Plaintiff has filed an appeal, and the California Supreme Court has agreed to review the lower court’s application of the de minimis doctrine in the case.  Plaintiff argues that the trial court’s reliance on the de minimis doctrine was inappropriate because that doctrine is based on federal law and does not apply to California wage claims.  However, courts have routinely applied the de minimis doctrine to California wage claims.  In Corbin v. Time Warner-Advance/Newhouse, the Ninth Circuit applied the de minimis doctrine and upheld a dismissal of employees’ wage case alleging that the company’s timekeeping system failed to pay them for all time worked because it rounded to the nearest quarter of the hour.  Similarly, the California Court of Appeal Fourth Appellate District in See’s Candy Shops, Inc. v. Superior Court applied a federal standard permitting employers to round employee’s time entries to the nearest 5 minutes, one-tenth, or quarter of an hour as long as that the result over a period of time results in a failure to pay the employees for all of their work.  While the court in See’s Candy Shops did not specifically apply the de minimis doctrine, the court applied a similar federal legal doctrine to California law.  The California Supreme Court’s decision in the Starbucks case could provide clarification on whether the de minimis doctrine (and potentially other federal wage and hour doctrines) have any place in interpreting California law.

I wanted to share an opportunity for readers to attend my seminar conducted by the Restaurant Advisory Group on September 13, 2016.  The topics I’ll cover include the top five pitfalls facing California employers and how to comply with the new minimum wage increases taking effect at the local levels throughout Southern California.  The cost is waived for any of my readers of the blog (plus my clients/contacts) to attend the event.  Click here to register.

Robert Sea, a 30 year restaurant veteran as an owner/operator and who is currently with the Press Telegram will also be speaking about new digital marketing trends for restaurants.

While the event is focused on restaurants, any California employer will learn a lot from the presentations and are welcome to join.

Date: September 13, 2016gla-logo-o_swurh3_16053
8:45 a.m. to 11:00 a.m.

Location: Gladstone’s – Long Beach
330 S. Pine Ave.
Long Beach, CA 90802

Cost: Free for any of my contacts and restaurant owners – click here to register.

Light pastries will be served.

Hope you can join us at the event!