arbitration agreements

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.

Quick video on the five things California employers need to pay attention to in 2017.

(Sorry for the wind noise in the video.)

I briefly discuss the following five issues:

1) Augustus v. ABM Security Services: A new California Supreme Court decision about whether rest breaks during which security guards were required to monitor a pager for a call actually counts as a rest break under California law.  Short answer: No.  The Court held that the guards had to be completely relieved of all duties during the rest break.  I’ll write more about this decision in the coming weeks.

2) Local ordinances banning criminal history inquiries, such as Los Angeles’ new prohibitions staring in 2017.

3) Local paid sick leave requirements (such as San Diego and Los Angeles).

4) Local minimum wage ordinances.

5) Arbitration agreements and class action waivers.

Happy holidays!

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.

Today’s Friday’s Five is a short video about five employment law considerations employers should review at the end of 2015.  As mentioned in the video, I will be conducting a webinar on December 2, 2015 for employers to understand and comply with new employment laws taking effect in 2016.  I will also discuss new case law developments from 2015 including paid sick leave and enforceability of arbitration agreements and class action waivers.  There will also be a discussion about businesses’ obligations under Proposition 65 postings at their establishments.

Registration and more information is here (http://elr.io/vtzyt2016).  Hope you can join us for the webinar.

With summer upon us, the California legislature is busy working on bills that could impact employers.  Here are five employment bills being considered by the state legislature that California employers should keep an eye on:

1. SB 3 – Increase in minimum wage and indexing to inflation

Currently, California minimum wage is set to increase from $9.00 per hour to $10.00 per hour on January 1, 2016.  This bill proposes to increase the minimum wage to $11 per hour on January 1, 2016, and then again to $13 per hour by July 1, 2017.  Then, beginning on January 1, 2019, minimum wage would be indexed to inflation and would be adjusted upward every January 1 thereafter.

2. SB 406 – Broadening scope of employees and employers covered by California Family Rights Act

Currently, the California Family Rights Act requires employers with 50 or more employees within a 75 mile radius to provide up to 12 workweeks of unpaid leave for certain medical issues.  This leave is job protected leave, so the employer must provide the same job to the employee upon their return from leave.  This bill would expand coverage of the law to employers with 25 or more employees.  It would also expand the employees covered and purposes for which leave is required to be provided (for example, removing any restrictions on age or dependent status in the definition of “child”).

3.  AB 359 – Employee retention mandate for grocery stores

This bill would require any purchaser of an existing grocery store to hire the employees of the previous owner and employ them for 90 days.  The bill prohibits the new owner from terminating any employees without cause during the 90-day period, and then “consider offering continued employment to those workers.”

4.  AB 465 – Prohibiting mandatory employment arbitration agreements

This bill would prohibit “any person from requiring another person, as a condition of employment, to agree to the waiver of any legal right, penalty, forum, or procedure for any employment law violations.”  The bill also shifts the burden of proof onto the employer enforcing the waiver to show that the waiver was “knowing and voluntary.”  The bill is seeking to limit the use of arbitration agreements in the employment context.  Should an employer violate this bill, the penalty is set at $10,000 per violation plus attorney’s fees to the prevailing employee.

5.  AB 67 – Double pay required on holidays

Bill would require an employer to pay at least two times the regular rate of pay to specified employees for work during Thanksgiving.