California

September 30, 2012, is the last day for Governor Brown to sign or veto bills passed by the Legislature before September 1.  Any newly enacted employment-related laws will be detailed in our October 2012 newsletter and discussed at our Annual Employment Seminar on November 14, 2012, at The Lodge at Torrey Pines.

AGENCY

Federal

NLRB Cautions against Confidentiality Instruction during Internal Investigations

On July 30, 2012, the National Labor Relations Board (NLRB) issued yet another controversial decision that affects how employers (both union and non-union) conduct workplace investigations.  It is a standard practice for human resources professionals to instruct employees to maintain confidentiality of investigations and ask them not to speak to other employees about the investigation while it is ongoing.  The common concern is that if employees talk to each other about an investigation, the employees would have an opportunity to align their stories, conceal evidence or potentially violate the privacy rights of those involved in the investigation.  InBanner Health Systems, the NLRB made it clear that a blanket confidentiality instruction likely violates the National Labor Relations Act, which protects employees' rights to engage in concerted activity.  It is anticipated that this controversial decision will face strong resistance from employers if appealed to the federal circuits.  In the meantime, the practical application of the NLRB ruling is that employers should assess the need for confidentiality on a case-by-case basis, and continue to give confidentiality instructions when warranted under the specific facts. (Banner Health Systems d/b/a Banner Estrella Medical Center and James A. Navarro, Case 28-CA-023438)

JUDICIAL

California

Second Appellate Court Upholds Class Action Waiver in Arbitration Agreements

As frequently discussed in this newsletter, one of the more contentious legal issues involves the enforceability of employment arbitration agreements generally, and more specifically, the enforceability of class-action waivers within such agreements.  The California Supreme Court’s decision in Gentry v. Superior Court (2007) 42 Cal.4th 443, had articulated a multi-factor test to assess the enforceability of such class action waivers involving unwaivable statutory rights (e.g., overtime, etc.)  However, the continued vitality ofGentry has been called into serious question by recent United States Supreme Court decisions suggesting that any state law rule requiring classwide arbitration based on public policy grounds rather than the parties’ arbitration agreement violates the Federal Arbitration Act (FAA).  (AT&T Mobility LLC v. Concepcion (2011) 131 S.Ct. 1740.)  The California Supreme Court has not yet examined Gentry in light of these decisions, but is likely to do so shortly.

In the interim, another California appellate court has suggested that class action waivers in the employment context will not necessarily violate federal or state law.  In this case, a property manager filed a putative class action in state court alleging various wage and hour claims under California’s Labor Code.  The trial court granted the employer’s motion to compel arbitration of the plaintiff’s individual claims only, and the court of appeal affirmed. 

The appellate court rejected the employee’s claim the agreement was unconscionable, holding that although the agreement had some indicia of procedural unconscionability (i.e., the agreement was presented on a take it or leave it basis and contained at the end of a 43 page handbook), the agreement did not contain any provisions that could be considered substantively unconscionable.

The appellate court next examined whether the particular agreement permitted class action arbitration in the first instance since, unlike in most agreements which expressly prohibit class actions, this agreement was silent regarding class actions.  The court looked to another recent U.S. Supreme Court decision, Stolt-Nielsen S.A. v. Animal Feeds Int’l Corp. (2010) 130 S.Ct. 1758 which had held parties may not be required to submit to class action arbitration unless there is a contractual basis for concluding the parties agreed to class action arbitration.  The court noted that while the absence of any language authorizing class action did not necessarily preclude a finding of intent to arbitrate on a class basis, the mere fact a party agreed to arbitrate similarly could not be interpreted as intent to do so on a class basis.  The appellate court concluded the language of this particular agreement, specifically its limiting arbitration to issues between the specifically named employee and employer, suggested the parties did not intend to arbitrate on a class basis. 

The court declined to resolve the crucial legal issue of whether Gentrysurvived post-Concepcion, although it noted that most recent decisions have suggested Gentry has implicitly been invalidated.  Instead, the court concluded it need not reach this issue because the employee had failed to present any evidence suggesting that requiring arbitration on an individual basis would implicate the various concerns noted in Gentry.  Following the lead of another California appellate court decision (Kinecta Alternative Financial Solutions, Inv. v. Superior Court (2012) 205 Cal.App.4th 506), this court declined to apply a recent NLRB decision which suggested class action waivers might violate the National Labor Relation Act’s (NLRA) provisions allowing for “concerted activity.”  The appellate court noted the NLRB’s decision in D.R. Horton, Inc. (2012) 357 NLRB No. 184 was issued by an improper subset of the NLRB’s board, it exceeded its area of expertise precluding any binding effect, and had been rejected by other federal and state decisions.  (Nelson v. Legacy Partners Residential, Inc. (2012) ___ Cal.App.4th ___, 2012 Cal.App.LEXIS ____.)

NOTE:  This appellate court decision is helpful for employers on multiple levels, including its rejection of D.R. Horton, its willingness to require arbitration on an individual rather than a class basis, and its observation that employees must present evidence, not simply allegations, to invalidate a class action waiver on unconscionability grounds.  The practical reality, however, is that employers will not have final clarity on these issues until the California Supreme Court grants review specifically to address Gentry’s viability post-Concepcion.  These recent appellate court decisions suggest this review should come soon.  In fact, yet another California appellate court has questioned the continuing validity of the Gentry standard to invalidate an express arbitration waiver contained in an employment arbitration agreement.  However, this court chose to apply Gentry factors until the California Supreme Court has an opportunity to review it in light of the U.S. Supreme Court’s rulings in Concepcion and Stolt-Nielsen.  (See, Truly America v. Superior Court, 2012 Cal.App. LEXIS 871, August 9, 2012.)

Attorneys Fees May Only Be Awarded For Unsuccessful Appeal of California Labor Commissioner’s Decision Where Superior Court Has Jurisdiction Over the Appeal

Labor Code section 98.2(c) provides that if a party files an appeal in superior court seeking review of a California Labor Commissioner decision and is “unsuccessful in the appeal,” the opposing party may recover their reasonable attorneys’ fees and costs in challenging the appeal.  An employee is deemed successful on appeal if the court awards an amount greater than zero.

In this case, an employee filed an appeal with the superior court, but her appeal was untimely.  The superior court considered the employee’s appeal “unsuccessful” and assessed attorneys’ fees and costs in favor of the employer.  The court of appeal reversed, holding that section 98.2(c)’s attorneys fees provision does not become operative unless the superior court has jurisdiction to conduct a trial on the merits of the employee’s wage claim.  (Arias v. Kardoulias (2012) ____ Cal.App.4th ____, 2012 Cal. App. LEXIS 838.)

California Court of Appeal Finds Insurance Claims Adjusters to be Non-Exempt

On remand from the California Supreme Court, a court of appeal determined that based on the facts of this case, insurance claims adjusters are non-exempt employees entitled to overtime pay under the Industrial Wage Orders. 

Plaintiffs filed a class action against their employer, claiming they were misclassified as exempt administrative employees under Wage Order 4-1998 (and as amended in 2001).  The Wage Order states that persons are employed in an administrative capacity if their duties and responsibilities involve office or non-manual work “directly related to management policies or general business operations of their employer or the employers’ customers.”  Work qualifies as “directly related” if it satisfies two components: (1) it must be qualitatively administrative, meaning the employee is engaged in running the business itself, or determining its overall course or policies, not just engaged in the day-to-day carrying out of the business affairs and (2) it must be quantitatively administrative, meaning the work must be of substantial importance to the management or operations of the business. 

The court held that the employer could not satisfy the qualitative test, as it was undisputed that the primary duties of claims adjusters was to run day-to-day tasks in adjusting individual claims, including investigating claims, making coverage determinations, setting reserves, negotiating settlements, and making settlement recommendations.  The employer had submitted declarations establishing that some adjusters served on policy making committees or worked on certain task forces to develop adjuster policy and procedure, but the court determined this was not sufficient to show the adjusters were “primarily engaged” (meaning more than half their work) was administrative.  (Harris v. Superior Court, (2012) __ Cal.App.4th___, 2012 Cal.App. LEXIS 830.)

Court of Appeal Holds Misappropriating Company Property Not Sufficient to Constitute “Misconduct” in Unemployment Insurance Matter

The California court of appeal issued its second decision in the past two months providing guidance on what constitutes “misconduct” under Unemployment Insurance Code section 1256.  In this case, an employer had terminated an employee for using his clothing allowance to buy shoes for a friend against company policy.  The EDD originally denied the employee’s claim for unemployment insurance because he “broke a reasonable employer rule” and misappropriated employer property, which was conclusive evidence of misconduct.  The court of appeals reversed, holding that an employee’s unequivocal refusal to comply with the employer’s rule, without more, is not misconduct within the meaning of section 1256.  Rather, the employer must show substantial evidence of deliberate, willful, and intentional disobedience.  In this case, the employee had not tried to hide his behavior, and his stated intent was to help a friend in need, not to steal from the company.  The court found that at most, the employee was guilty of a good faith error in judgment, not misconduct under section 1256 of the Unemployment Insurance Code. (Robles v. Employment Development Dept. (2012) ___ Cal.App.4th ___, 2012 Cal.App. LEXIS 812.) 

(NOTE:  In last month’s newsletter, we reported on the other decision,Paratransit, Inc. v. Unemployment Ins. Appeals Bd. (2012) 206 Cal. App. 4th 1319, which  held that refusing to sign a disciplinary notice where the collective bargaining agreement required all disciplinary notices be signed by employees constituted “misconduct” under the Unemployment Insurance Code.)

Court Holds Arbitration Agreement Located Within Employee Handbook Unenforceable

This appellate court decision addressed whether an arbitration agreement located within an employee handbook was enforceable against the employee.  Plaintiff filed suit against his employer for wrongful termination, alleging he was terminated in retaliation for reporting violations of federal and state compensation laws.  The employer moved to compel arbitration.  The employee opposed the petition, arguing that he had never agreed to an arbitration provision. 

The court of appeal agreed with the employee and held the arbitration agreement was not enforceable.  The arbitration agreement was contained on two separate pages within the employee handbook, in the same type and size as all other provisions in the handbook.  The provision was not highlighted or distinguished in any way. The employee signed an acknowledgment of the handbook generally, but he did not sign any acknowledgment of the arbitration provision specifically.  The court noted that language in the handbook suggested the handbook was meant to be informational, rather than contractual.  Thus, because the employer failed to call attention to the arbitration requirement, plaintiff was not be bound to arbitrate.  The court concluded that an employer must, at a minimum, provide a specific reference to the duty to arbitrate in the acknowledgment of receipt form signed by the employee. 

The court also suggested that even if the agreement had been valid, it could also have been struck down based on unconscionability.  First, the court noted that the employer’s failure to provide a copy of the arbitration rules to which the employee would be bound supported a finding of procedural unconscionability.  In addition, burying the arbitration agreement in a handbook distributed to all employees, not subject to negotiation, would also support a finding of procedural unconscionability.  Finally, the court suggested that where the rules of arbitration give the arbitrator discretion to deny any discovery entirely, the provision for discovery is insufficient, and the clause is substantively unconscionable.  (Sparks v. Vista Del Mar Child and Family Services (2012) ___ Cal.App.4th ___, 2012 Cal. App. LEXIS 844.)