Employment Law News – October 2014
Federal Regulatory and Agency Update
Department of Labor Issues Final Regulations on Executive Order 13658 Regarding Minimum Wage for Certain Federal Workers
On February 12, 2014, President Obama signed Executive Order 13658 which raises the minimum wage to $10.10 for certain workers on Federal construction and service contracts and directed the Department of Labor (DOL) to issue regulations regarding the implementation of the Executive Order. On October 1, 2014, the DOL issued its final regulations regarding implementation of Executive Order 13658. The key provisions are as follows:
The final rule also notes that Executive Order 13658 does not apply to contracts for the manufacturing or furnishing of materials, supplies, articles, or equipment to the Federal Government.
California Case Law Update
Both the Industrial Welfare Commission’s and the Common Law Definition of “Employee” Can Apply When Determining Whether to Certify a Class of Employees Claiming They Were Misclassified
Prior to 2004, the employer classified its drivers as employees. In 2004, the employer converted the drivers to independent contractors, despite none of the drivers’ job duties changing. In 2005, an employee filed a class action lawsuit, seeking to represent approximately 1,800 drivers engaged by the employer as independent contractors. When its second motion to decertify was denied, the employer appealed, arguing that the superior court had improperly adopted the definition of “employee” found in the Industrial Welfare Commission wage orders (the Martinez test) to ascertain the status of class members, and failed to use the common law test (the Borello test) for distinguishing between employees and independent contractors.
The IWC defines “employ” as “to engage, suffer, or permit to work.” In Martinez v. Combs (2010) 49 Cal.4th 35, the California Supreme Court concluded that the IWC’s definition of employ has three alternative definitions. It means: (1) to exercise control over the wages, hours or working conditions, or (2) to suffer or permit to work, or (3) to engage, thereby creating a common law employment relationship.” In Borello (pre-Martinez), the Supreme Court held that as a matter of fairness to an employer, liability was premised on the extent to which the employer had the right to control the details of the employee’s service.
Here, according to the employer, if the Borello common law test, rather than the Martinez test was applied, individual issues relevant to that test would make it infeasible to litigate the claims as a class action. The court of appeal concluded that the trial court correctly allowed the plaintiff to rely on the IWC definition (the Martinez test) for purposes of those claims failing within the scope of Wage Order No. 9, but with respect to those claims falling outside the scope of the wage order, the common law definition of employee (the Borello test) would apply. The court then left it to the trial court to reevaluate those claims calling for the common law test in light of the Supreme Court’s recent decision in Ayala v. Antelope Valley Newspaper Inc. (2014) 59 Cal.4th 522, in which the Court decided that courts must wrestle with the “differences in [the defendant’s] right to exercise control” rather than “variations on how that right was exercised.”
(Dynamex Operations West, Inc. v. Superior Court (October 15, 2014) Los Angeles Superior Court Case No. B249546.)
A Broad Agreement to Submit “All Claims” to Arbitration is Not Sufficient to Compel Class Arbitration
At the start of the employment relationship, an employee and his employer entered into an Arbitration Agreement requiring that any dispute that either party had against the other would be determined under the Federal Arbitration Act. A few years into employment, the employee served a demand for class arbitration alleging several wage and hour claims and, later amending his demand to include a claim under the California Labor Code Private Attorneys General Act of 2004 (PAGA). Shortly thereafter, the employer filed a declaratory relief action, seeking to enjoin the employee’s class arbitration and request an order limiting the arbitration to claims raised on an individual basis. The employee challenged the lawsuit and filed a motion contending the broad language in the Arbitration Agreement mandated the arbitrator, not the court, decide whether the agreement permitted class arbitration. The trial court denied the employee’s motion concluding it must decide whether the arbitration agreement authorized class arbitration, and in doing so found the Arbitration Agreement did not allow class arbitration. The employee challenged both these conclusions on appeal.
Upon its review, the Fourth District of the California Court of Appeal agreed with the trial court and held U.S. Supreme Court “precedent requires courts to decide which claims are covered by an arbitration agreement unless the parties clearly and unmistakably agree to have the arbitrator decide that question.” The appellate court concluded the trial court properly determined whether the arbitration agreement authorized class arbitration because the agreement lacked terms “clearly and unmistakably” delegating that judgment to the arbitrator. The appellate court further held that U.S. Supreme Court precedent establishes a party cannot be compelled to submit to class arbitration absent a party “clearly and unmistakably” agreeing to class arbitration. The Arbitration Agreement’s broad terms which require “all claims, disputes, and controversies” to be resolved by arbitration was not enough to demonstrate a clear agreement by the parties to arbitrate class claims.
(Network Capital Funding Corp. v. Papke (2014) 2014 Cal. App. LEXIS 907.)
Employment Law News – September 2014
Federal Case Update
Ninth Circuit Finds Private Employer’s Mining Leases with Navajo Nation may Assert a Hiring Preference for Navajo Indians which is a Political Classification, and Not a Classification based on National Origin under Title VII
To conclude a long-standing battle by the EEOC involving tribal hiring preferences, the Ninth Circuit affirmed an Arizona district court’s summary judgment in favor of the Employer, a private mining company, whose leases with the Navajo Nation required the Employer to give preference in employment to Navajo Indians. The leases involved the mining of coal on Navajo reservation land. Several members of the Hopi and Otoe tribes filed national origin discrimination charges with the EEOC under Title VII, alleging that they had applied for employment with the Employer and, despite being qualified for the job sought, were not hired because they were not Navajo.
The court held that the Navajo hiring preference in the current leases was based on a tribal affiliation which was a political classification, and not a classification based on national origin prohibited under Title VII.
(EEOC v. Peabody Western Coal Co. (9th Cir. 2014) — F3d –, Opinion Slip No. 12-17780.)
The Federal Aviation Administration Authorization Act of 1994 (FAAAA) Does Not Preempt California’s Meal and Rest Break Laws
The Ninth Circuit Court of Appeals filed an order and amended opinion, denying the defendant employers’ petition for an en banc rehearing of the court’s previous ruling, which stated that the Federal Aviation Administration Authorization Act of 1994 (FAAAA) does not preempt California’s meal and rest break laws as applied to motor carriers in the intrastate context because the meal and rest break laws are not sufficiently “related to” prices, routes or services. As a result of this order, the ninth circuit maintained its reversal of the district court’s dismissal, based on federal preemption, of claims brought by a certified class of drivers alleging violations of California’s meal and rest break laws.
(Dilts v. Penske Logistics, LLC (9th Cir. 2014) 2014 U.S.App.LEXIS 17476.)
Ninth Circuit Affirms Certification of Rule 23(b)(3) Class based on “Unofficial Policy” of Denying Overtime Payments and Statistical Sampling of Class Members to Accurately and Efficiently Resolve Questions of Liability
An employee filed a class action against an employer alleging unpaid overtime, missed meal and rest breaks, untimely payment of wages upon termination, noncompliant wage statements, and unfair competition under the UCL. The action was premised on the employer’s reclassification of a category of its employees from exempt salaried positions to hourly positions. After the reclassification, the selected employees’ workload did not substantially change, their compensation was still referred to as an annual salary, and hourly payment rates were not shared with other current or prospective employees. Following the reclassification, the employees did not keep time records, and although the manager of each office had the ability to file a timekeeping “deviation” or “exception” from the default expectation of eight hours per day and 40 hours per week, this adjustment only occurred if approved and each office had a non-negotiable budget that created a functional limit on the amount of overtime a manager could approve.
The district court certified the class with respect to the unpaid overtime, timely payment, and unfair competition claims. The court found that whether defendant had an unofficial policy of discouraging reporting overtime, defendant’s failure to reduce class members’ workload following reclassification, and defendant’s policy of treating employees’ salaries as exempt from overtime common to the class. Furthermore, under Rule 23(b)(3), the district court held that statistical sampling of class members could accurately and efficiently resolve the question of liability, while leaving the issue of individualized damages to a later date. The ninth circuit granted interlocutory appeal.
The ninth circuit affirmed on all counts. The court stated that whether the common questions were ultimately resolved in favor of one party or another was immaterial at class certification, as they go to the merits of the claims. On the due process issue, the court stated that many circuit courts (including the ninth circuit) have held that statistical sampling and representative testimony are acceptable ways to determine liability so long as these techniques are not expanded into the realm of damages. Thus, the court found the district court’s decision did not contradict Dukes or Comcast, and Leyva v. Medline Industries, 716 F.3d 510 (9th Cir. 2013) was controlling.
(Jimenez v. Allstate Ins. Co. (9th Cir. 2014) 2014 U.S. App. LEXIS 17174.)
California Case Update
Employer Can Terminate Employee for Failing to Participate in Fitness For Duty Examination After Other Employees Reported that that Employee’s Behavior was Frightening Them
The employee, a tenured professor at a university, sued the university and the Assistant Vice President of Human Relations for violations of FEHA, the Unruh Act, the Confidentiality of Medical Information Act, his right to privacy, and defamation after he was terminated for failing to participate in a Fitness for Duty (FFD) examination following reports from faculty members and school administrators that his behavior was frightening them. The employee argued that the employer’s demand for an FDD was unlawful and in retaliation for the employee’s earlier internal grievances (race-based discrimination and harassment against the employer), was unnecessary because the employee was willing to submit a letter stating that he did not intend to harm anyone, and was unsupported by any objective evidence because the employer refused to give more details as to the events underlying the request. The trial court granted a nonsuit against the employee on the defamation cause of action and a jury ruled in favor of the employer on the other claims.
The court of appeal affirmed on all counts. With regard to the FEHA claim, the court stated that the requirement for an interactive process was not implicated because the employee never acknowledged having a disability or sought any accommodation for one. Further, the court found substantial evidence that the FDD was job-related because multiple people reported multiple instances of threatening behavior on the employee’s part. On the Unruh Act claim, the court found there was substantial evidence that the employer had a legitimate concern because the thrust of the evidence showed that the employer did not know what was causing the employee’s behavior, not that the employer had determined the behavior resulted from a disability. On the Confidentiality of Medical Information claim, the court stated that because the FFD was job-related and consistent with business necessity, the discharge was “necessary” within Cal. Civ. Code section 56.20(b) because the employee refused to release medical information required for the FFD. Finally, the defamation claim was upheld given the defense verdicts on the other allegations. The court also found that the trial court did not err when it denied the employee’s motion in limine to exclude evidence that he could have mitigated his damages, nor did the trial court err by excluding the employee’s request for production of evidence, which the employee argued could have supported a spoliation of the evidence jury instruction.
(Kao v. University of San Francisco (2014) 229 Cal. App. 4th 437.)
State and Local Regulatory Update
San Diego’s Minimum Wage and Paid Sick Leave Ordinance Stayed Until at Least June 2016
This summer the San Diego City Council overrode Mayor Kevin Faulconer’s veto of an ordinance to increase the minimum wage and to require paid sick leave for employees working within the City of San Diego (adding Article 9, Division 1, sections 39.0101 through 39.0115, to Chapter 3 of the San Diego Municipal Code). Quickly summarized, this ordinance would have increased San Diego’s minimum wage to $9.75 on January 1, 2015 (compared to $9.00 in California), and increased it to $10.50 on January 1, 2016 and to $11.50 on January 1, 2017, with automatic CPI-based increases annually starting January 1, 2019. It would also have required employers provide forty hours annually of paid sick leave, thus exceeding the twenty-four hours now required for other California employers.
However, the San Diego business community has obtained the signatures needed to require a city-wide referendum on this ordinance. This referendum likely will not occur until June 2016, effectively staying this ordinance until at least that point, and it is possible the San Diego City Council may rescind this Ordinance before then or attempt to negotiate a different minimum wage increase. San Diego employers should stay tuned, but for now at least, they will not have to deal minimum wage or paid sick leave requirements different than the state-wide versions.
California Department of Industrial Relations Announces Increase in Computer Professional Salary for Exemption Purposes
Labor Code section 515.5 provides that certain software employees are exempt from overtime requirements if certain duties are met, including the performance of statutorily-enumerated duties and an hourly rate of pay not less than the statutorily-specified rate. The Division of Labor Statistics and Research (DLSR) is responsible for annually reviewing this rate to determine if any adjustments are needed for the following year, and usually makes such determination by the end of October. On October 10, 2014, the DLSR adjusted the computer software employee’s minimum hourly rate of pay exemption from $40.38 to $41.27, the minimum monthly salary exemption from $7,010.88 to $7,165.12, and the minimum monthly salary exemption from $84,130.53 to $85,981.40, effective January 1, 2015.
Employment Law News – August 2014
Federal Regulatory and Agency Update
Department of Labor Investigation Leads to Almost $6M In Unpaid Overtime and Damages
On August 5, 2014, the Department of Labor announced that as a result of its investigation, LinkedIn Corp. paid $3,346,195 in overtime back wages and $2,509,646 in liquidated damages to 359 former and current employees working at company branches in California, Illinois, Nebraska and New York. The investigation by the U.S. Department of Labor's Wage and Hour Division found that LinkedIn was in violation of the overtime and record-keeping provisions of the Fair Labor Standards Act, including employees working “off the clock” hours. Pursuant to the investigation LinkedIn entered into an enhanced compliance agreement with the department that includes compliance training, policy distribution and education, prohibiting off-the-clock work to all nonexempt employees and their managers, manager training, and continuing to educate its employees that there would be no retaliation for complaints by employees.
EEOC and Ministry of Foreign Affairs of the United Mexican States Sign MOU Regarding Rights in Employment
On August 29, 2014 the EEOC signed a national Memorandum of Understanding with the Ministry of Foreign Affairs of the United Mexican States designed to “further strengthen their collaborative efforts to provide immigrant, migrant and otherwise vulnerable Mexican workers and their employers with guidance and information and access to education relative to their rights and responsibilities under the laws enforced by the EEOC.”
Federal Case Update
Officer’s ADHD Not Sufficiently Limiting to Constitute Disability Under ADA
An employee worked for many years as a police officer for the employer. The employee’s supervisors felt the employee was a good officer, and he received favorable performance reviews and a promotion to sergeant despite concerns about his interpersonal style and ability to get along with others. Although his supervisors considered him a good officer, the employee had significant difficulties getting along with his co-workers. Co-workers and subordinates described him as (among other things) “tyrannical,” “belittling,” “demeaning,” “threatening,” “arrogant,” and “vindictive.” The employee was eventually fired for his unacceptable behavior toward co-workers and subordinates. The employee argued that his ADHD was a disability that interfered with the major life activities of working and interacting with others.
The Ninth Circuit Court of Appeals reviewed and reversed the trial court’s denial of the employer’s motion for summary judgment. The court rejected the employee’s argument that his ADHD interfered with the major life activity of working, noting that he was reasonably successful as an officer and had developed coping mechanisms for his ADHD that allowed him to have a relatively successful career as an officer, including his promotion to sergeant. The court also rejected the employee’s argument that his ADHD interfered with the major life activity of interacting with others. The court noted that although “interacting with others” is a major life activity, and people suffer from conditions like agoraphobia or severe anxiety or OCD disorders that prevent those people from living a normal life, and essentially leave them housebound. The court found that in this instance, employee had a problem getting along with others, not interacting with others, essentially noting that simply being very disagreeable or unlikeable is not a disabling condition under the ADA. The court also observed that employee was able to behave appropriately with his superiors and members of the community while performing his job, and his interpersonal problems existed almost exclusively with co-workers and subordinates. According to the court, the selective nature of the exhibition of his symptoms pointed to employee simply being unlikeable, not disabled.
(Weaving v. City of Hillsboro (9th Cir. 2014) 763 F.3d 1106.)
Ninth Circuit Holds Alleged Retaliatory Actions Must Be Viewed in Context
Employee was a Dispatch Supervisor for the County of Riverside and an active member of the local union. The employee claimed the employer (County) retaliated against her for making comments about the status of the collective bargaining negotiations that were protected by the First Amendment. The employee was not terminated but offered thirty other instances of alleged retaliation, including, transferring her involuntarily, conducting internal investigations of her, removing her from a higher-paid community college teaching assignment, prohibiting her from using break time to travel between work sites thereby requiring her to use unpaid time for work travel, rescinding a previously approved vacation, and removing her from an unpaid position with the uniform committee.
The district court granted summary judgment for the employer finding the employee had failed to meet her burden. While the district court analyzed the employee’s claims regarding involuntary transfers and internal investigations, it dismissed the remaining incidents finding them to be “petty workplace gripes” that could not be considered retaliatory adverse employment actions.
The ninth circuit disagreed with the district court’s approach, emphasizing that alleged retaliatory actions, even seemingly innocuous ones, must be viewed in context. The court explained the evidenced suggested “some of these actions were taken as part of a more general campaign and hence might in context have greater materiality than when viewed in isolation.”
While this was a First Amendment retaliation case which focused on whether the alleged retaliatory actions were reasonably likely to deter an employee from engaging in protected speech, the court’s reasoning could be used in other retaliation cases such as those brought under Title VII. Notably, California courts have previously applied similar reasoning to FEHA cases.
(Thomas v. County of Riverside (9th Cir. 2014) 763 F.3d 1167.)
Ninth Circuit Finds FedEx Delivery Drivers to Be Employees Under California’s Right to Control Test
In a certified class action, FedEx drivers claimed they were improperly classified as independent contractors and sought damages for unpaid wages, reimbursement for business expenses and associated penalties. The district court entered summary judgment in favor of FedEx, finding FedEx properly considered them to be independent contractors in light of the entrepreneurial opportunities afforded by the arrangement, i.e. the ability to own and operate businesses and profit accordingly.
The ninth circuit reversed summary judgment in favor of FedEx and ordered the district court to enter summary judgment in favor of the certified class finding they were employees as a matter of law under California’s right-to-control test. The ninth circuit held FedEx unambiguously controls the manner and means by which the drivers complete their jobs. For example, FedEx controlled the appearance of the drivers and their vehicles, the times the drivers could work and how and when packages are delivered. The court also rejected FedEx’s argument it provided the drivers with “entrepreneurial opportunities” by giving them the ability to operate multiple routes and hire employees because this could only be done with FedEx’s consent.
(Alexander, et al. v. FedEx Ground Package System, Inc. (9th Cir. 2014) — F.3d —, 2014 U.S. App. LEXIS 16585.)
California Case Update
Health Care Worker Claiming Retaliation under Health and Safety Code section 1278.5 Entitled to a Jury Trial
A health care employee filed a lawsuit against her former employer claiming it wrongfully terminated her employment in violation of public policy and retaliated against her in violation of Health and Safety Code section 1278.5. With respect to her second cause of action under Health and Safety Code section 1278.5, the employee sought compensatory, emotional distress and punitive damages along with attorney fees, statutory civil penalties and costs. The employee did not seek reinstatement.
At the eve of trial, the trial court permitted a jury trial for the employee’s wrongful termination claim but denied a jury trial on her second cause of action finding her statutory claim “purely equitable”. The employee filed a petition for writ of mandate challenging the denial of a jury trial. The appellate court granted the employee’s petition holding that since the statute was amended to include remedies available in both law and equity, this inferred the legislature’s intent to confer an employee’s right to a jury trial. The appellate court further held that Article I, section 16 of the California Constitution also confirmed the employee’s right to a jury trial because the “gist” of her claim was a statutory violation for which the employee sought monetary compensation.
(Shaw v. Superior Court (2014) 229 Cal. App. 4th 12.)
Employee Allegedly Terminated for Complaining About Fraud Against the Company May State a Claim for Wrongful Termination in Violation of Public Policy
The employee worked at a car dealership and alleged he was terminated for complaining to his superiors that his supervisor and coworkers were submitting fraudulent warranty claims to the manufacturer for reimbursement. The employee alleged a claim for wrongful termination in violation of public policy, contending the employer’s conduct implicated the statutes of theft (Pen. Code §§ 484, 487) and fraud (Civ. Code §§ 1572, 1709).
To state a claim for wrongful termination in violation of public policy, the underlying public policy must be (1) supported by either constitutional or statutory provisions, (2) inure to the benefit of the public, (3) have been articulated at the time of the discharge, and (4) be fundamental and substantial. The trial court sustained a demurrer as to the employee’s wrongful termination claim, finding that internal complaints about fraud against the company affects only the private interests of the employer, and does not inure to the benefit of the public. The court of appeals reversed, holding that an employee may state a claim for wrongful termination where he is allegedly terminated for complaining or refusing to participate in a crime against his employer, as this serves not only the interests of the employer, but also the fundamental public interest in a workplace free from crime.
(Yau v. Santa Margarita Ford, Inc. (2014) 229 Cal. App. 4th 144.)
Employers Must Reimburse Employees for Mandatory Use of a Personal Cell Phone for Work-Related Calls, Regardless of the Details of the Employee’s Cell Phone Plan, Whether the Phone Bill Is Paid by a Third Person and Whether the Employee Changed Plans to Accommodate Work-Related Cell Phone Usage
A customer service manager filed a putative class action on behalf of 1500 service managers seeking reimbursement for using personal cell phones for work-related calls, alleging violations of California Labor Code section 2802, Business and Professions Code section 17200 and California Labor Code section 2699 (the Private Attorneys General Act of 2004). The trial court denied class certification based on lack of commonality holding that each class member’s cell phone plan will have to be examined in order to determine whether an expense was incurred for business use. The court of appeal reversed, holding that
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