In Adolph v. Uber Technologies, Inc., the California Supreme Court held that even when an employee enters into an arbitration agreement requiring the employee to arbitrate only their individual claims, the employee still has a right to continue to pursue remedies under California’s Private Attorneys General Act (PAGA), if they are able to win on their individual claims in arbitration.  The California Supreme Court was quick to overturn the U.S. Supreme Court’s decision in Viking River Cruises, Inc. v. Moriana issued last summer, which provided employers with some hope to limit PAGA litigation.  Here are five key issues California employers must understand about the issues in the Uber decision:

1. Quick refresher on the California’s Private Attorneys General Act (“PAGA”).

PAGA was enacted in 2004 to authorize aggrieved employees to file lawsuits against employers on behalf of themselves, other employees, and the State of California for Labor Code violations.  PAGA allows aggrieved employees to act as a “Private Attorneys General” to seek remedies against their employer not only for the violations committed against them, but also to recover any violations committed by their employer against other employees.  The plaintiff’s ability to bring claims on behalf of other employees is referred to as “non-individual claims.”

California’s PAGA was designed by the California Legislature to offer financial incentives to private individuals to enforce state labor laws to recover certain civil penalties. The issue regarding whether employers can implement arbitration agreements with PAGA representative waivers was addressed by the U.S. Supreme Court in June 2022 in Viking River Cruises, Inc. v. Moriana. 

2. U.S. Supreme Court’s Decision in Viking River Cruises, Inc. v. Moriana in June 2022 looked promising for California employers.

In June 2022, the U.S. Supreme Court held in Viking River, that California law (and the prior holding by the California Supreme Court in Iskanian v. CLS Transportation Los Angeles, LLC) “cannot condition the enforceability of an arbitration agreement on the availability of a procedural mechanism that would permit a party to expand the scope of the arbitration by introducing claims that the parties did not jointly agree to arbitrate.” Therefore, the U.S. Supreme Court found that the Federal Arbitration Act preempted California law and permitted employers to implement arbitration agreements that required employees to bring only their individual claims and not PAGA representative (non-individual) claims in arbitration.  The U.S. Supreme Court said that, as it understood PAGA, because the employee had to arbitrate their individual claims, the employee would not be entitled to continue with their non-individual PAGA claims because PAGA did not provide a method for the employee to continue with their non-individual claims on behalf of other employees in court.  Justice Sotomayor’s concurring opinion in Viking stated that “[o]f course, if this Court’s understanding of state law is wrong, California courts, in an appropriate case, will have the last word.”  Jumping on this opening, and only a few weeks after the Viking River decision, the California Supreme Court granted review in Adolph v. Uber Technologies to address this issue. 

3. In Adolph v. Uber, the California Supreme Court rejected the U.S. Supreme Court’s interpretation of PAGA, and held that even through employees may be required to arbitrate their individual claims, they still can potentially continue with a PAGA claim.

In Uber, the California Supreme court reviewed the issue of whether an employee who has been compelled to arbitrate his or her individual claims “maintains statutory standing to pursue non-individual ‘PAGA claims arising out of events involving other employees’ in court.” 

The California Supreme Court explained that in order to have standing to bring a PAGA claim as an “aggrieved employee,” the plaintiff must be “(1) someone who was employed by the alleged violator and (2) someone against whom one or more of the alleged violations was committed.”  The Court explained that this standing requirement is very easy to meet, and as it held in Kim v. Reins International California, Inc., a plaintiff that settled and dismissed his individual claims for damages, still had standing to proceed with his PAGA claims on behalf of other employees.  The Court in Uber continued to explain that PAGA does not require the plaintiff to have an ongoing injury, and that “post-violation events” do not “strip an aggrieved employee of the ability to pursue a PAGA claim…” and went even further in citing Johnson v. Maxim Healthcare Services, Inc., which held that even when a plaintiff’s individual claim may be time-barred as outside of the statute of limitations, this does not prevent the plaintiff from pursuing PAGA remedies. 

4. The Uber decision draws a roadmap for employers in litigating PAGA claims: (1) enforce arbitration agreement, (2) stay the non-individual PAGA claim during arbitration, and (3) a win against the plaintiff in arbitration can prevent the plaintiff from bringing the PAGA claim.

Despite disagreeing with the U.S. Supreme Court’s decision in Viking, the California Supreme Court clarified the roadmap for employers in litigating PAGA cases.  Employers who have arbitration agreements can enforce the agreement, and “the trial court may exercise its discretion to stay the non-individual claims pending the outcome of the arbitration pursuant to section 1281.4 of the Code of Civil Procedure.  Following the arbitrator’s decision, any party may petition the court to confirm or vacate the arbitration award under section 1285 of the Code of Civil Procedure.”  The Court continued to explain that, “If the arbitrator determines that [the plaintiff] is not an aggrieved employee and the court confirms that determination and reduces it to a final judgment, the court would give effect to that finding, and [the plaintiff] could no longer prosecute his non-individual claims due to lack of standing.” 

Even if the employer is not successful in winning on all claims in arbitration, the Uber decision nearly forces every employer to take the case through arbitration for the chance of a complete win, which would bar the employee from continuing in bringing a representative action on behalf of other employees in the PAGA case.  Even if the employer does not achieve a complete win in arbitration, the process will provide key discovery and binding testimony from the plaintiff, will likely expose how individualized resolution of the key issues is, and show how long and complicated a trial could potentially take to resolve issues for all employees across the workforce.  This could open potential arguments that the PAGA representative case has trial manageability issues that the plaintiff cannot overcome. 

5. Next steps for employers after the Uber decision.

Review current arbitration agreements and update terms:  California employers need to review their current arbitration agreements with counsel to ensure that they are (1) enforceable and (2) have the correct language to get the most out of enforcing arbitration of employment claims.  For example, employers should consider adding language the agreement will be enforced under section 1281.4 of the Code of Civil Procedure, whereby the trial court must stay the non-individual claims pending arbitration of the plaintiff’s own individual claims.  Employers should also review whether all or most of their workforce have signed the applicable arbitration agreement and review the agreement in place to see if employees who have worked for the company for a long time need to sign an updated agreement. 

Arbitration agreements are still beneficial for most employers in California:  The holding in Uber does not change the prior rule that employers may have employees waive their ability to bring a class action lawsuit, which still provides a huge benefit to employers.  For example, the applicable statute of limitations in a class action lawsuit can extend back four years, and the statute of limitations in a PAGA case is only one year.  Employers should be able to track which employees have not signed arbitration agreements, have a method of easily obtaining copies of all signed arbitration agreements, and periodically review if their arbitration agreements need to be updated and which employees need to sign the updated versions.  Of course, arbitration agreements are not right for all California employers, but companies should review their issue carefully with experienced employment counsel. 

As employers grow and hire new employees, it is important that employers and their authorized representatives are up to date on various on boarding requirements. One of these requirements come from the U.S. Citizenship and Immigration Services. The Form I-9 is required for all employers who hire employees in the United States. This Friday’s Five provides employers and their authorized representatives with answers to five questions about the Form I-9.

1. What is a Form 1-9?

Form I-9 is a federal requirement to verify the identity and employment authorization for all individuals hired for employment in the United States. This form requires the employee to provide their information and affirm that they are authorized to work in the United States, and the employer to review and verify the documentation provided by the employee. The Form I-9, including instructions, can be found here: https://www.uscis.gov/i-9

2. What are employers’ obligations regarding the Form I-9?

The employer, or authorized representative, should first review Section 1 to ensure that the employee completed it properly. Then, the employer should review the documents from the Lists of Acceptable Documents provided by the employee, in the presence of the employee. The employer should ensure that the document is an unexpired original (a certified copy of a birth certificate is acceptable). The employer should complete the information requested in Section 2 based on the information provided. The individual who physically examined the original document(s) and completed Section 2, must sign their name and attest that, to the best of their knowledge, the employee is authorized to work in the United States, and if the employee presented document(s), the document(s) they examined appear to be genuine and relate to the employee.

 Practice tip: An employer cannot specify which documents the employee can or cannot present from the list. Both California and Federal Law prohibit an employer from discriminating against employees on the basis of their citizenship status, immigration status, or national origin.

3. Do employers need to photocopy the documents presented?

No, unless the employer participates in E-Verify. If the employer chooses to photocopy any documents, then they should do so consistently for all new hires and retain them with the Form I-9. If the employer participates in E-Verify, you must photocopy all U.S. passports, passport cards, Permanent Resident Cards (Form I-551), and Employment Authorization Documents (Form I-766) and retain them with the Form I-9.

4. How to maintain Form I-9’s?

Completed Form I-9’s and any photocopied documents should be maintained together and, in a file, separate from the employee’s personnel file. Employers must retain these documents for three years from the date of hire, or one year after separation of employment. The documents should be maintained in a way that they can be produced within three business days of an inspection request from the Department of Homeland Security, the Department of Justice’s Civil Rights Division, Immigration and Employee Rights Section, or U.S. Department of Labor.

Employers may maintain these documents electronically by scanning and uploading the original and destroying the original. However, if they choose to do so, they must ensure they follow all of the electronic records security requirements outlined here. 

5. What if the employee does not speak English?

If an employee utilizes a preparer and/or a translator to assist them in completing Section 1, they must check the appropriate box at the end of Section 1 and complete the rest of the box, including the name and address of the preparer or translator. If the employee uses more than one preparer and/or translator, they must complete Form I-9 Supplement to list each preparer and/or translator that helped the employee.

I have published this post since 2015 recognizing the Fourth of July (one of my favorite holidays).  Hopefully I’ll be able to keep publishing it for many years to come.  Wishing you a great Fourth, and hope you have some time to put aside your work for a bit and enjoy some time with your family.  Happy Fourth of July!

Five things I’m thankful for this Fourth of July:

1.     For the great risk and sacrifice our Founding Fathers took to establish the country. 

When learning about the Founding Fathers in high school history class I did not have a perspective about the risks the Founders took in establishing the country.  Only now that I have a business, a family, and am relatively successful, can I realize the huge risks the Founders took.  By all means, they were the establishment, the elite of the American society, and if anyone had an interest in preserving the status quo, it was them.  Their sacrifices of life (theirs and their family members) and their fortunes helped build the foundation we benefit from today.

2.     The ability to speak freely and practice or not practice any religion I want.

It is great being able to freely speak your mind and believe in whatever you want.  It is also great be free to practice (or not) any religion you want.  We live in a very tolerant society, and it is even better when the government is not telling you how to live your life.  It is important to remember that throughout history, this is the exception for how a government normally behaves.

3.     Our Country’s ability to attract creative people.

People that like creating things and being productive want to practice their trade where the government will basically leave them alone and provide a good environment to protect their gains derived from their hard effort (see item #5 below).  The U.S. provides this environment, and that is why so many people come to the U.S. to create a business or to practice their trade.  It is also important to recognize how lucky we are to be in the U.S.

4.     My right to practice any profession and access to unlimited resources to learn the required skills.

No one is dictating what students need to be after they graduate high school or college.  Everyone is free to pursue their interest, and the market decides the value of the effort.  With basically any information freely available on the Internet, anyone can learn almost any skill, and like no other time in human history individuals have an almost free method to sell their services or products over the Internet.  In your mid-40’s and want to make a career change?  Perfect, and you don’t even need to go back to school as the information is freely available on the Internet.  Didn’t finish college and are 20 years old with an idea?  Perfect.  Venture capitalists don’t care about your pedigree, they are only interested if you work hard and don’t give up.

5.     Our legal system.

Yes, it sounds trite.  But while I don’t think our legal system is perfect by any means, it is the best system established in the history of mankind.  Everyone living in the U.S. presently is very lucky to have this benefit.  It is a foundation for many of the items I mentioned above.  Because people have a good basis for predicting the outcomes of their actions, such as being able to retain property legally obtained, and knowing if someone breaches a contract there will be repercussions, it creates an environment that attracts hard effort and the best talent from around the world.  This is why the U.S. has been the leader in ideas and new businesses.  However, just because the system is established does not mean our work is done.  We have to be vigilant not to lose the fairness, reasonableness, and lack of corruption in the legal system.

Happy Fourth of July!

It is a common argument by plaintiff’s counsel in wage and hour class actions: The employer’s policy that requires the employee to remain on the company premises during 10-minute rest breaks facially violates California law.  Because the employer has a facially invalid rest break policy, it is a company wide policy that is uniform, and is an issue that should be certified as a class action or entitle the Plaintiff to penalties under the Private Attorneys General Act (PAGA).

However, there are many cases that support the position that an on-premises rest break policy is not facially invalid, and that such a policy, alone, is not sufficient to establish that the employer did not relinquish control as to how the employees spent their rest breaks. The key factor is whether the employer controlled how the employee spent their rest break time, in addition to requiring the employee to remain on premises, such as limiting the employees to stay close to their work area for example. Here are five key cases discussing on-premises rest break policies under California law:

1. Augustus v. ABM Security Services Recognized There Exist Practical Limitations Where an Employee Can Go During a 10-minute Rest Break.

In Augustus v. ABM Security Services (2016), the California Supreme Court held that by requiring employees to remain on call by monitoring a pager during a 10-minute rest break violated California law.  Our prior analysis on Augustus can be read here.  However, the Supreme Court was clear that because the 10-minute rest breaks are only 10-minutes, there are “practical limitations on an employee’s movement.”  The Court continued, “Thus, one would expect that employee will ordinarily have to remain on site or nearby.  This constraint, which is of course common to all rest periods, is not sufficient to establish employer control.”  It was the additional requirement in the Augustus case were the employees had to carry a pager and respond to the employer’s calls during the break that provide the facts for the Supreme Court to hold that the employer violated the 10-minute rest break obligations.

Many Courts have acknowledged the California’s Supreme Court’s holding in Augustus regarding on premises rest breaks.

2. Hubbs v. Big Lots Stores (C.D. Cal., July 11, 2018): A United States District Court for the Central District of California rejected the argument that a policy requiring employees to remain on the premises during the 10-minute rest break reflects the exercise of employer control that qualifies the time as on-duty work. The Court noted that an employer may not require employees to remain “on call” during a ten-minute rest period, Augustus nevertheless recognized that an employer may require an employee to remain “on premises” during such rest periods. The Court stated that Augustus acknowledged that “employers must . . . relinquish any control over how employees spend their break time” and that “compelling employees to remain at the ready, tethered by time and policy to particular locations or communication devices” imposes job-related duties and constitutes employer control because employees are not “free[] to use rest periods for their own purposes.” That requiring employees to remain “on site or nearby” during a ten-minute break was “not sufficient to establish employer control.”  The Court stated that Augustus concluded that these were short breaks, and this restriction was a “practical limitation[] on an employee’s movement” permitted under California law.

3. Schmidtberger v. W. Ref. Retail (C.D. Cal., Sep. 28, 2021): In Schmidtberger the court rejected Plaintiff’s contention that a policy of requiring employees stay on the premises during rest breaks is invalid facially. The Court stated that in Augustus, the California Supreme Court explained that “[b]ecause rest periods are 10 minutes in length . . . one would expect employees will ordinarily have to remain on site or nearby.”  This restriction “which is common to all rest periods, is not sufficient to establish employer control.” The Court also noted that multiple federal courts have implemented a straightforward interpretation of California law established in Augustus, and have dismissed arguments establishing liability on an employer’s policy of prohibiting off-premises rest breaks.

4. Ritenour v. Carrington Mortg. Servs. (C.D. Cal., Sept. 12, 2018): Plaintiffs alleged that the rest break policy was “facially unlawful” under Augustus v. ABM Security Services, Inc., and guidance from the California Division of Labor Standards Enforcement (“DLSE”). After Augustus, the DLSE’s website page of Frequently Asked Questions directly addressed the issue of whether an employer can require an employee to stay on the worksite during a rest period. Citing to Augustus, the DLSE stated, “No, your employer cannot impose any restraints not inherent in the rest period requirement itself.” (See DLSE FAQ #5 here).

The Court held that Plaintiffs failed to show that Defendant’s rest period policy requiring employees to remain on site is facially invalid. The Court held that the policy did not conflict with Augustus and that the California Supreme Court never stated that an employer cannot require an employee to remain on the premises during a rest period. Moreover, the court held that the DLSE’s expansive interpretation of Augustus in a Frequently Asked Questions page is neither binding on nor persuasive to the court. Indeed, the DLSE’s FAQ even notes that “[a]s a practical matter,” when an employee receives a 10-minute rest period, “the employee can only travel five minutes from a work post before heading back to return in time.”

5. Bowen v. Target Corp. (C.D. Cal., Mar. 27, 2020):  The Court assessed whether Plaintiffs could state a viable claim based on an “on-premises rest period theory” — the theory that employers who force their employees to remain on-premises for the duration of a rest period effectively fail to provide a rest period at all.  In concluding that Plaintiffs had failed to state a claim, the Court observed that a “rest period” was defined in the Wage Order as “time during which an employee is relieved from all work-related duties and free from employer control.” After the Court defined rest periods, it turned to the California Supreme Court’s opinion in Augustus v. ABM Sec. Servs. to determine whether an on-premises rest period policy constituted sufficient “employer control” to deprive employees of a rest period. Focusing on language in Augustus that practical and temporal constraints common to all rest periods meant that “employees will ordinarily have to remain on site or nearby” and that “this constraint… is not sufficient to establish employer control,” the Court held that Target’s alleged on-premises rest period policy did not constitute sufficient “employer control” to deprive employees of a rest period. As a result, the Court dismissed Plaintiffs’ claims to the extent they relied on an on-premises rest period theory.

While there is case law supporting on-premises rest breaks, this type of policy is routinely challenged by plaintiffs in California, and employers need to review these types of policies with employment counsel.  This issue is a good example on how a simple sentence in an employee handbook could potentially create huge amounts of liability for the employer. 

As we enter the summer and employees looking to take time off during the upcoming summer holidays, it is a good time to review employer’s obligations to accommodate requests for time off for holidays and best pay practices during holidays.  This Friday’s Five covers five reminders for employers about holiday leaves and pay:

1. California employers are not required to provide employees time off for holidays.

There is no requirement that California employers provide time off (except for religious accommodations – see below) for holidays. California’s DLSE’s website states the following:

Hours worked on holidays, Saturdays, and Sundays are treated like hours worked on any other day of the week. California law does not require that an employer provide its employees with paid holidays, that it closes its business on any holiday, or that employees be given the day off for any particular holiday.

2. California employers are not required to pay for time off for holidays, nor are they required to pay additional wages if employees work on holidays.

Likewise, there is no requirement that employers pay employees extra pay or “holiday pay” for work performed on holidays. Employers can voluntarily agree to pay employees extra pay for work that is required during holidays, but these terms would be governed by policy set forth by the employer. Therefore, employers are urged to make sure their holiday pay policies are clearly set forth.

California’s legislature has proposed bills that would require certain employers to pay employees double time for work done on Thanksgiving, but none of these bills have become law.  For example, the “Double Pay on the Holiday Act of 2016” proposed to require an employer to pay at least 2 times the regular rate of pay to employees at retail and grocery store establishments on Thanksgiving. None of these attempts by the legislature have been successful (yet) in requiring California employers to pay any extra “holiday pay.”

3. Employers must provide reasonable accommodations for employees who cannot work on certain holidays due to religious observances.

Employers need to be aware of any religious observances of their employees since employers need to provide reasonable accommodations for employees due to religious reasons. The analysis of reasonable accommodation is on case-by-case basis depending on the company’s type of business and the accommodation requested by the employee. If the employer’s operations require employees to work during normally recognized holidays, such as a restaurant, then this should be communicated to employees in the handbook or other policies and set the expectation that an essential function of the job requires work during normal holidays.

4. If an employer pays for time off during holidays, the employer does not have to allow employees to accrue holiday paid time off.

If an employer pays for time off during certain holidays and an employee leaves employment before the holiday arrives, the employer is not required to pay the employee for the day off.  But the employer’s policy regarding holiday pay must clearly set forth that this benefit does not accrue to employees and that they must be employed during the specific holidays to receive the holiday pay.  Often employers will also require employees to work the days leading up to and following the holiday in order be eligible for the holiday pay.

5. If a pay day falls on certain holidays, and the employer is closed, the employer may process payroll on the next business day.

If an employer is closed on holidays listed in the California Government Code, then the employer may pay wages on the next business day.  The DLSE’s website sets forth this requirement, and other considerations, regarding the timing obligations for payroll.  The holidays listed in the Government Code section 6700 are as follows:

  • Every Sunday
  • January 1 — New Year’s Day
  • Third Monday in January — Martin Luther King Jr. Day
  • Second new moon following the winter solstice – Lunar New Year
  • February 12 — Lincoln’s Birthday
  • Third Monday in February — Washington’s Birthday
  • March 31 — Cesar Chaves Day
  • Good Friday from 12 noon to 3 p.m.
  • Last Monday in May — Memorial Day
  • June 19 —  Juneteenth
  • July 4 — Independence Day
  • First Monday in September — Labor Day
  • September 9 — Admission Day
  • Fourth Friday in September — Native American Day
  • Second Monday in October — Columbus Day
  • November 11 — Veterans Day
  • Fourth Thursday in November — Thanksgiving
  • December 25 — Christmas
  • Other days appointed by the governor for a public fast, thanksgiving or holiday

Wishing all of our readers a great summer!

By Pooja Patel and Anthony Zaller

A new proposed law, AB 1228, called the Fast Food Franchisor Responsibility Act, that targets the franchise business model is making its way through California’s legislature.  At first glance, the Fast Food Franchisor Responsibility Act seems to benefit franchisees – it requires franchisors to take responsibility for complying with employment laws and share the liability of violations with franchisees. However, a deeper review reveals that this Act is not that straightforward.   

1. How did the Fast Food Franchisor Responsibility Act come about?

    After multiple amendments, Governor Newson signed the Fast Food Accountability and Standards Recovery Act (“FAST Recovery Act”) (AB 257) into law in September 2022. The FAST Recovery Act was supposed to go into effect on January 1, 2023, and create a 10-member Council whose purpose is to establish minimum standards on wages, working hours, and other working conditions. Notably, the Council would have the power to raise the minimum wage of fast food employees up to $22 per hour in 2023 and by up to 3.5 percent annually after that. However, a Sacramento Superior Court Judge granted a preliminary injunction preventing the FAST Recovery Act from going into effect. As a result, the FAST Recovery Act will now be on the 2024 ballot for voters to approve or deny.  

    One of the key amendments to the FAST Recovery Act, was the removal of the provision which imposed joint employer liability on a fast food franchisor for the employment violations of the fast food franchisee. This previously withdrawn provision is precisely what is proposed by the Fast Food Franchisor Responsibility Act.  

    2. What does this have to do with the Fast Food Franchisor Responsibility Act?

    The main component of the Fast Food Franchisor Responsibility Act would require fast food franchisors to share in civil legal responsibility and liability for the franchisee’s violations. An employee, or former employee, would be able to bring an administrative charge or civil lawsuit against not only the franchisee, but also the franchisor for violation of various employment laws, including:  

    • Unfair Competition Law; 
    • The Fair Housing and Employment Act; 
    • California Labor Code provisions regarding working conditions, hours worked, payment of wages, immigration status;  
    • CalOSHA rules; 
    • Private Attorneys General Act (PAGA);
    • Emergency and executive orders issued by the Government regarding employment standards, worker health and safety, or public health and safety; and  
    • Orders issued by a county or municipality regarding employment standards, worker health and safety, or public health and safety. 

    3. Contracts by franchisor and franchisee to indemnify each other are void under the bill.

    A franchisor and franchisee cannot contract around this provision: an agreement by the franchisee to indemnify the franchisor for liability under this section would be against public policy and be considered void and unenforceable.  

    4. The bill provides limited rights to franchisors and franchisees.

    Prior to filing any civil action, the employee must give notice to the franchisor of the alleged violation(s). If after 30 days, the violation(s) are not corrected, the employee may continue with their civil lawsuit. However, the franchisor can make a written request for additional time, for up to 60 days, to complete their investigation. If the franchisor corrects the violation within the time period, then the franchisor will not be liable under a civil action.  

    Additionally, the Fast Food Franchisor Responsibility Act creates a right of action against the franchisor by the franchisee: if the franchisor prevents or creates a substantial barrier in the franchisee’s compliance of these regulations, then the franchisee may file an action against the franchisor for monetary or injunctive relief.  

    5. AB 1288’s future and potential impact on California fast food businesses.

    AB 1288 was approved by the California Assembly on May 31, 2023, and is now being reviewed by the state Senate.  Although the Fast Food Franchisor Responsibility Act still needs to be approved by the Senate, its ramifications are significant and California employers need to understand the implications of the law if passed. Fast Food Franchisor Responsibility Act places the franchisor in a de facto employer relationship with the franchisee by imposing liability for the actions of the franchisee on the franchisor. If passed, the Fast Food Franchisor Responsibility Act would likely force franchisors to play a larger role in the day to day management of fast food restaurants, and take decision-making authority away from franchises. This could significantly impact franchisees autonomy and ability to conduct business independently. Finally, the bill would likely drive the fast food franchise model out of California due to the increased liability for franchisors. 

    California employers need to review their practices and policies to ensure compliance with the various local minimum wage increases taking effect across California on July 1, 2023.  Here are five items employers should consider prior to the July 1 deadline:

    1. Ensure the company understands which city and county they are located within.

    Many cities and counties provide resources to help companies determine which city or county’s jurisdiction they are located within. For example, the City of Los Angeles provides this resource.

    2. Ensure employees who travel and work in other cities and counties are paid the appropriate minimum wage.

    Many of the local ordinances that require a higher minimum wage than the state minimum wage specifically state when that city or county law will cover an employee who works within that jurisdiction.  For example, Santa Monica and the City of Los Angeles assert jurisdiction over employees who work within their jurisdiction for a minimum of two hours a week:

    • Santa Monica:  Law applies to any employee working a minimum of two hours within Santa Monica in a given week (even if employer is located outside of Santa Monica).
    • City of Los Angeles: Ordinance applies to “[a]n employee … who performs at least two hours of work in a particular week within the City of Los Angeles….”

    Employers should review the various jurisdictions that their employees may travel into to ensure compliance with those requirements.

    3.Ensure pay stubs reflect the increased minimum wage (as well as all other requirements).

    The DIR provides an example of a pay stub for an hourly employee the meets all of the required items under Labor Code section 226:

    Ensure that all employees earning minimum wage who are covered by a local minimum wage increase on July 1, 2023 are updated to reflect the increased minimum wage.

    4. Update posters to ensure the compliant posters are being used in the workplace.

    Many local cities and counties have issued updated posters to reflect the increased minimum wage as of July 1, 2023.  Employers should review to ensure they are using the most current versions of the posters as of July 1, 2023.  Here are a few links to city and county posters in Southern California:

    County of Los Angeles:

    The County of Los Angeles’s minimum wage is increasing to $16.90 per hour on July 1, 2023.  The County’s required notices can be found here:

    City of Los Angeles:

    The City of Los Angeles’s minimum wage is increasing to $16.78 per hour on July 1, 2023.  The City of Los Angeles’s required notices can be found here:

    Pasadena:

    Pasadena’s minimum wage is increasing to $16.93 per hour on July 1, 2023. 

    Santa Monica:

    Santa Monica’s minimum wage is increasing to $16.90 per hour on July 1, 2023. 

    • July 1, 2023 Legal notice (English) (Spanish) (note that employers in Santa Monica are required to post both English and Spanish notices, even if they do not employ any Spanish speaking employees)
    • Posters in other languages can be downloaded here

    Malibu:

    Malibu’s minimum wage is increasing to $16.90 per hour on July 1, 2023.  As of June 2, 2023, Malibu has not issued an updated minimum wage poster, but the City has stated the updated poster will be available at this link prior to July 1, 2023:

    City of San Diego:

    The City of San Diego’s minimum wage in adjusted on January 1 of each year, so there will be no increase for the City’s minimum wage on July 1, 2023.  However, it is important to review the City’s poster requirements:

    5. Update notices to employee who are hired on or after July 1, 2023.

    Notices to Employee required under Labor Code section 2810.5 must be issued to all nonexempt employees when they start work.  The wage information section must reflect the higher minimum wage for minimum wage workers as of July 1, 2023.  Accordingly, the overtime rates of pay section of the Notice must also be updated to reflect the higher rates as a result of the higher minimum wage requirements.

    Enacted in 2004, California’s Private Attorneys General Act (PAGA) was designed by the California Legislature to offer financial incentives to private individuals to enforce state labor laws by recovering certain civil penalties.  Aggrieved employees can seek recovery of civil penalties for Labor Code violations they suffered, in addition to penalties for all Labor Code violations suffered by other employees in a representative action, as long as the employee suffered by at least one violation.  PAGA permits the aggrieved employees to collect civil penalties for Labor Code violations previously recoverable only by the Labor Commissioner.  PAGA claims are representative actions, which are distinct from class actions. 

    1. Average PAGA settlement: $1.1 million

    With penalties adding up to potentially huge amounts for small technical violations, employers are often times faced with choosing between the uncertainty of litigation or settling PAGA claims.  A report, California Private Attorneys General Act of 2004, Outcomes and Recommendations by Baker & Welsh, LLC, states that the average settlement of a PAGA case is over $1 million.  In addition, Los Angeles County and the rest of the Los Angeles Basis make up 46.4% of all PAGA case settlements.  The Bay Area is second, with about 16% of PAGA case settlements based on location. 

    2. Potential penalties for employer with just 100 employees: $4 million

    PAGA provides penalties on a per pay period basis for each aggrieved employee.  The employee may recover the penalty specified by the Labor Code, and if the Labor Code does not specify a penalty, PAGA sets default penalties of $100 per employee per pay period for the first violation, and $200 per pay period per employee for a subsequent violation. 75% of the collected penalties must be distributed to the Labor and Workforce Development Agency, and the remaining 25% is to be distributed among the employees affected by the violations, and a prevailing plaintiff is entitled to their attorney’s fees and costs. 

    3. Amount of insurance coverage for PAGA claims: likely zero

    Many employers believe that they have protection from PAGA and other wage and hour claims through purchasing employment practices liability insurance (EPLI).  However, most, if not all insurance companies exclude coverage of PAGA and wage and hour cases from coverage.  Some insurance companies may provide a small amount to pay to defend PAGA cases, but the liability for these types of claims usually falls directly on the employer.

    4. Number of PAGA notices are on the rise: forecasted to exceed 7,000 in 2023

    As this chart sets forth, the number of PAGA notices filed with the Labor & Workforce Development Agency (LWDA) are climbing:

    Number of PAGA Letters filed with the LWDA 2016-2023

    As the trend line indicates, the number of PAGA filings will likely continue to increase unless there is a significant development in the case law or the initiative that will appear on the November 2024 ballot passes that would replace PAGA. 

    5. Average PAGA case length: 2 years

    On average, it takes nearly 2 years for PAGA cases to be resolved given the complexity of the issues raised in PAGA cases and the shear number of employees that are implicated as the named plaintiff can bring claims for all employees who worked for the employer for one year from the date of the filing.  See California Private Attorneys General Act of 2004, Outcomes and Recommendations.

    What can California employers do to protect themselves? 

    Employers should consider implementing arbitration agreements with class action and PAGA waivers that would require the employee to bring any claim against the employer in their individual capacity, and not as a class action or a PAGA representative action.  The issue of whether employers can implement arbitration agreements with PAGA waivers is currently being reviewed by the California Supreme Court in Adolph v. Uber Technologies, Inc., and it is expected that the Court will issue a decision before the end of June 2023.  In addition, our prior article discusses steps employers can take to defend against PAGA cases here.

    Artificial Intelligence (AI) has rapidly emerged as a transformative force across various industries, revolutionizing the way we work and live.  As we have previously written about here, AI has huge potential benefits for employers.  However, as the technology continues to advance, its impact on the workforce raises important questions about discrimination, privacy, and accountability. Acknowledging the significance of these concerns, the state of California, as well as the federal government, has started to consider what potential regulations would need to look like to effectively govern the use of AI by employers.  Here are five issues California employers need to understand about the proposed regulations as well as the existing laws that already govern an employer’s use of AI:

    1. California proposed legislation to regulate employers’ use of AI.

    AB 331 is a proposed California bill to regulate employers’ use of AI in making employment decisions (among other non-employment determinations as well).  The bill would require a developer of the AI to perform an impact assessment for any automated decision tool that would set forth the purpose of the tool, potential adverse impacts from the deployer’s use of the tool, and the safeguards implemented to address “reasonable foreseeable risks of algorithmic discrimination” from the use of the tool.  The proposed law also would require notification to the employee that the AI is used to make the decision and provide the employee an option to opt out of the automated decision.  Among other reporting requirements that must be made by the developer of the software, the law also prohibited “algorithmic discrimination” by the user of the software.  The bill set forth that anyone discriminated against because of the use of the AI would be entitled to compensatory damages, declaratory relief, and attorneys fees and costs.  This proposed bill raises many concerns, as addressed below. 

    2. Other state and federal regulations regarding employer’s use of AI.

    On May 18, 2023, the EEOC released a “technical assistance document” entitled, “Assessing Adverse Impact in Software, Algorithms, and Artificial Intelligence Used in Employment Selection Procedures Under Title VII of the Civil Rights Act of 1964.”  EEOC guidance explains that employers’ use of automated systems, such as AI, “may run the risk of violating existing civil rights laws.”  The document discusses whether an employer’s “’selection procedures’—the procedures it uses to make employment decisions such as hiring, promotion, and firing—have a disproportionately large negative effect on a basis that is prohibited by Title VII.”  A “disparate impact” or “adverse impact” under Title VII is illegal, as is intentional discrimination which his referred to as “disparate treatment.”  The EEOC notes that it adopted the Uniform Guidelines on Employee Selection Procedures under Title VII in 1978.  These Guidelines provide guidance to employers on how to determine if their selection procedures are “lawful for purposes of Title VII disparate impact analysis.”  The EEOC’s technical assistance is well thought out and relies upon guidance that is nearly a half a century old, well developed in the courts, and easily understood by employers.  As discussed below, the EEOC’s guidance is much more rational than California’s proposed AB 331. 

    In October 2022, the White House published the “Blueprint for an AI Bill of Rights, Making Automated Systems Work For the American People.”  The document is only a white paper that has no legally binding effect on employers or their obligations.  It sets forth five principles that should be protected: 1) safe and effective systems, 2) algorithmic discrimination protections, 3) data privacy, 4) notice and explanation, and 5) human alternatives, consideration, and fallback.  The draft of California’s AB 331 is based largely on the concepts put forth in the White House’s white paper. 

    On February 10, 2023, the California Civil Rights Council (CRC), has continued in conducting hearings and published revisions to draft regulations concerning automated decision-making systems used by employers and agents of employers, such as recruiters, payroll, and staffing agencies.  The draft regulations state that “[i]t is unlawful for an employer or other covered entity to use selection criteria (including a qualification standard, employment test, automated-decision system, or proxy) if such use has an  adverse impact on or constitutes disparate treatment of an applicant or employee or a class of applicants or employees on a basis protected by the Act,” unless the employer can show job-relatedness and is a business necessity and there are no less discriminatory policies or practices that could serve the same purpose. 

    3. Are more laws already prohibiting that which is prohibited necessary? 

    I’m confused, and concerned, about the draft of California’s proposed legislation in AB 331 stating that an employer’s use of artificial intelligence is subject to anti-discrimination laws that are already on the books.  Is there any question that the anti-discrimination laws already governing employers would not apply if an employer used software or artificial intelligence when making employment related decisions?  As noted by the EEOC in its technical assistance document discussed above, I fail to see how an employer would be able to abdicate their responsibilities to follow existing law by simply stating that they made the decision based on what some software told them to do.  This would be tantamount to arguing that an employer is not responsible for any of their decisions made, and therefore could escape liability by outsourcing all decisions to a third-party, such as a recruiter, or worse, their 8-year-old son.  This would be a very easy way to escape liability for discrimination claims. 

    The proposed legislation, such as AB 331, might do more harm than good in the workplace.  The Digest of AB 331 explains the purpose of the proposed bill:

    This bill would prohibit a deployer from using an automated decision tool in a manner that contributes to that results in algorithmic discrimination, which the bill would define to mean the condition in which an automated decision tool contributes to unjustified differential treatment or impacts disfavoring people based on their actual or perceived race, color, ethnicity, sex, religion, age, national origin, limited English proficiency, disability, veteran status, genetic information, reproductive health, or any other classification protected by state law.  

    This raises a problematic question: If this law being proposed, is it currently legal for employers to use “an automated decision tool” in a manner that results in “algorithmic discrimination?”  It seems clear that employers are held accountable for their decisions, and it does not matter if they relied upon a third-party, software, or any other tool to make that decision.  Indeed, the EEOC made this point in its technical guidance issued on May 18, 2023 – that employers can be held responsible for a selection process that has a disparate impact, even if it was developed by an outside vendor or a software vendor that is an agent of an employer.  But it does raise the question about why California legislature is proposing a new law if it is already prohibited by current law.  One may counter that California is simply making it abundantly clear that this type of activity is illegal by passing this legislation.  But I would argue this is only adding more complexity and confusion to regulate an already illegal practice.

    4. Concerns about what public data is being relied upon in the employment context. 

    While I believe the proposed bill AB 331 is problematic on different levels, there are concerns about which data AI is using the make its decision, who controls this data, and who is in charge of telling the AI which data to use in decisions.  There are already laws that require employers to give notice to employees about background checks, obtain authorization to conduct the background check in certain circumstances, and disclosure to the employee about what information was obtained in the background check: federal Fair Credit Reporting Act (FCRA), California Investigative Consumer Reporting Agencies Act (ICRAA), the California Consumer Credit Reporting Agencies Act (CCRAA) (see our prior article here for more information about the ICRAA and CCRAA).  In addition, local governments, such as Los Angeles and San Francisco have implemented their own prohibitions on criminal history checks, and employers must also comply with these local requirements.

    However, background checks and the use of AI in making employment decisions is vastly different.  Background checks show the data that is being used in the decision, unlike the potential use of AI, which is using multiple data sets in determining an ultimate outcome.  It may not be clear which data AI is using when making decisions, and this could be problematic if there is an error in the data being used.  This could result in individuals not being able to obtain employment because of an error in data being used by AI, and the individual and employer would never know of that error. 

    5. Data leaks and privacy concerns by using AI software. 

    Also, a major concern regarding the use of AI for employers and employees is data privacy.  As recently widely reported, ChatGPT and other AI software do not treat search queries as private, and any information put into the AI software is available for that company to review.  This raises concerns for both employers and employees.  If employers are using AI to make hiring decisions, can competitors see who their competition are interviewing?  If so, this would be a strategic advantage.  If in putting confidential employee information into an AI software that is not private, does this constitute a privacy breach?  Likely. 

    Unless an employer can secure the data being entered into the AI system and the AI system itself, it is unlikely that AI software will be widely used because of the risk that competitors could be viewing strategic decisions being considered.  This is exactly Apple’s concern, and why it moved to ban ChatGPT by its employees. 

    As an employer in the Golden State, it is crucial to have a clear understanding of the protections granted to employees by state law. California is known for its progressive stance on worker rights and its complex set of regulations facing employers. In this article, we will delve into the intricacies of unwaivable employment law rights, shedding light on these rights and how to navigate these regulations effectively. Whether you are a seasoned employer or just starting out, this overview covers which employment law right that cannot be negotiated.

    1. Minimum wage
    Labor Code Section 1194 provides a private right of action to enforce violations of minimum wage and overtime laws.  The statute voids any agreement between an employer and employee to work for less than minimum wage.

    2. Overtime
    California employees cannot waive their rights to overtime.  In Gentry v. Superior Court, the Supreme Court explained:

    [Labor Code] Section 510 provides that nonexempt employees will be paid one and one-half their wages for hours worked in excess of eight per day and 40 per week and twice their wages for work in excess of 12 hours a day or eight hours on the seventh day of work. Section 1194 provides a private right of action to enforce violations of minimum wage and overtime laws.
    …
    By its terms, the rights to the legal minimum wage and legal overtime compensation conferred by the statute are unwaivable. “Labor Code section 1194 confirms ‘a clear public policy . . . that is specifically directed at the enforcement of California’s minimum wage and overtime laws for the benefit of workers.’”

    3. Expense reimbursement
    Labor Code section 2802 requires employers to reimburse its employees for “necessary expenditures or losses incurred by the employee” while performing his or her job duties. Labor Code section 2804, provides that an employee cannot waive this right to be reimbursed for or liable for the cost of doing business. Section 2804 provides, “Any contract or agreement, express or implied, made by any employee to waive the benefits of this article or any part thereof, is null and void….”

    4. Right to receive undisputed wages
    Under Labor Code section 206.5 employers and employees may not enter into agreements that waive the employee’s right to receive wages that are undisputed. Labor Code section 206.5 also provides that an employer may not require “as a condition of being paid, to execute a statement of the hours he or she worked during a pay period which the employer knows to be false.”

    5. Right to participate in Private Attorneys General Act (PAGA) representative actions?
    Initially, the California Supreme Court held that employees may not waive their right to bring a representative action under the PAGA (even though the Court held that class action waivers in arbitration agreements are enforceable). The Court held in Iskanian v. CLS Transportation 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.”

    Overruling Iskanian, in Viking River Cruises, Inc. v. Moriana, the U.S. Supreme Court held that the FAA preempts California’s prohibition on the employer’s ability to implement arbitration agreements with PAGA waivers.  In so holding, the U.S. Supreme Court upheld arbitration agreements wherein employees waived their ability to bring PAGA claims on behalf of other individuals.  However, Justice Sotomayor’s concurring opinion in Viking made it clear that this ruling would not be the last decision regarding PAGA waivers.  Justice Sotomayor stated that “[o]f course, if this Court’s understanding of state law is wrong, California courts, in an appropriate case, will have the last word.  Alternatively, if this Court’s understanding is right, the California Legislature is free to modify the scope of statutory standing under PAGA within state and federal constitutional limits.”

    The California Supreme Court was quick to act in response to the Viking decision, and in August 2022, granted review of Adolph v. Uber Technologies, Inc., and will decide the following issue:

    Whether an aggrieved employee who has been compelled to arbitrate claims under the Private Attorneys General Act (PAGA) that are “premised on Labor Code violations actually sustained by” the aggrieved employee (Viking River Cruises, Inc. v. Moriana (2022) 596 U.S. __, __ [142 S.Ct. 1906, 1916] (Viking River Cruises); see Lab. Code, §§ 2698, 2699, subd. (a)) maintains statutory standing to pursue  PAGA claims arising out of events involving other employees” (Viking River Cruises, at p. __ [142 S.Ct. at p. 1916]) in court or in any other forum the parties agree is suitable.

    We are anticipating the California Supreme Court’s decision in Adolph by June or July 2023.  Therefore, employers will need to continue to monitor this case for developments.

    On another front, PAGA is being challenged by the voters of California.  California Fair Pay and Employer Accountability Act seeks to replace PAGA.  The initiative gathered enough signatures to qualify to be on the November 2024 ballot.  If passed, the initiative would provide employees with 100% of the penalties collected, instead of only 25% that is currently provided to the employees, prohibit attorneys’ fees from being awarded in these cases, and double the penalties against employers who willfully violate the law.  More information about the initiative can be found at Californians for Fair Pay and Accountability here.