State High Court Orders Review of Case to Clarify Legality of Rounding Timecard Entries - California Chamber of Commerce

The California Supreme Court directed the Fourth District Court of Appeal to review a case involving whether "rounding" time clock entries is lawful under California law. Federal law permits rounding, and the California Division of Labor Standards Enforcement has permitted as a matter of policy, so long as the "rounding" evens out or favors the employee. A trial court recently ruled that a class action involving rounding could proceed against an employer, See's Candies. See's sought a writ in the Court of Appeal, which summarily denied the Petition. The Supreme Court, however, unanimously voted to Order the Court of Appeal to hear See's petition on the merits.

The petition for review is granted. The matter is transferred to the Court of Appeal, Fourth Appellate District, Division One, with directions to vacate its order denying mandate and to issue an order directing respondent Superior Court to show cause why the relief sought in the petition should not be granted. Votes: Cantil-Sakauye, C.J., Kennard, Baxter, Werdegar, Chin, Corrigan, Liu, JJ.

This does not mean See's will win. The Court of Appeal may decide in favor of the employee. But at least we'll have our first appellate decision on the issue of rounding.

I will let you know when the Court of Appeal decides the case. If you want to follow along the docket is here.

Thanks to the CalChamber for letting us know about this.


California Supreme Court to Revisit Arbitration Ruling

The U.S. Supreme Court in November ordered the California Supreme Court to revisit its decision in Sonic-Calabasas A v. Moreno.  So, the California Supreme Court just issued the following order:

In light of the United States Supreme Court's order vacating our judgment in the above-entitled case and remanding the cause to this court "for further consideration in light of AT&T Mobility LLC. v. Concepcion, 563 U.S. __ (2011) [131 S.Ct. 1740]," the parties are requested to brief the significance of that case. The parties are requested to file and serve simultaneous briefs by February 10, 2012, and may file and serve reply briefs by February 24, 2012.
We posted about Sonic-Calabasas here.

What's going on here, is that the California Supreme Court decided in Sonic-Calabasas A, 4-3, that an arbitration agreement requiring employees to arbitrate instead of going through the labor commissioner's informal hearing procedure was unlawful. The decision in my opinion cannot survive the Fedreal Arbitration Act, particularly after the U.S. Supreme Court's decision in AT&T v. Concepcion (discussed here).

So, there will be a round of briefing and then the Court will probably schedule oral argument in the future and issue a new opinion.


Court of Appeal Holds Arbitration Agreement Invalid

Yes, again.This time, the court refused to enforce an arbitration agreement that was included in an application form. (Don't do this).  The key issues for the court were (1) that the agreement was written in the first person so as to suggest it was one-way (2) that the agreement referenced the AAA arbitration rules, but did not attach them to the agreement (3) that there was no language explaining that "binding arbitration" means you give up the right to trial in court and (4) that the agreement was "take it or leave it."

The one-way language and the inclusion of the agreement to arbitrate in the application materials probably weakened this arbitration agreement such that it was easy to invalidate. But on the issue of "arbitration rules," the court does not mention that the AAA employment rules are modeled after the California Supreme Court's decision in Armendariz, that they provide more employee protection than the statutory arbitration acts, and that Armendariz itself does not require attaching the rules.  Indeed, Armendariz allows for implying the statutory rules if an arbitration agreement is silent regarding matters such as discovery.

On the issue of explaining what "binding arbitration" means, Armendariz does not require that either.  The term "binding" is not too complex.

The labyrinth of requirements the courts are imposing in the name of "unconscionability" is going to make it hard for employers to create a "bullet-proof" agreement.  Sooner or later, a court will consider whether the unconscionability doctrine has been stretched too far, and that it is a back-door attack on the Federal Arbitration Act's preemption law.  Until then, employers should be aware that arbitration agreement law is in flux and that their agreements may be challenged on a variety of grounds that may not always be obvious.

This case is Wisdom v. Accentcare and the opinion is here.

U.S. Supreme Court on Ministerial Exception to Title VII

The U.S. Supreme Court decided for the first time that there is a "ministerial exception" to anti-discrimination laws such as the ADA. The lower courts for many years recognized that exception.

At issue was Hosanna-Tabor Evangelical Lutheran Church and School and its discharge of a former teacher, Cheryl Perich. Perich was classified as a "called" teacher, rather than a "lay" one. Called teachers have to satisfy certain requirements, cannot be removed except for cause and by a vote of the congregation, and hold the title “Minister of Religion, Commissioned.”

As a called teacher, Perich 

taught math, language arts, social stud- ies, science, gym, art, and music. She also taught a reli- gion class four days a week, led the students in prayer and devotional exercises each day, and attended a weekly school-wide chapel service. Perich led the chapel service herself about twice a year.
Perich developed symptoms of narcolepsy, which resulted in her inability to perform her job. She later was discharged, after she threatened to file a Charge. The EEOC took up her case and sued on her behalf.

The District Court dismissed the case; the Sixth Circuit reversed, holding that a retaliation claim under the ADA could proceed against the Church.
The unanimous Court, recognizing there is a ministerial exception, put it this way:

We agree that there is such a ministerial exception. The members of a religious group put their faith in the hands of their ministers. Requiring a church to accept or retain an unwanted minister, or punishing a church for failing to do so, intrudes upon more than a mere employment decision. Such action interferes with the internal governance of the church, depriving the church of control over the selection of those who will personify its beliefs. By imposing an unwanted minister, the state infringes the Free Exercise Clause, which protects a religious group’s right to shape its own faith and mission through its appointments.
The Court did not set out a specific test, but noted that (1) the Church held Perich out to be a minister (2) the Church had a ceremony and the congregation was involved in her investiture (3) she had significant religious training as a prerequisite (4) she held herself out to be a minister and even took a special tax deduction applicable only to members of a ministry (5) her duties involved significant religious teaching activities.

Based on that, the Court decided that Perich met the standards of the ministerial exemption.  The Court was careful to note that the term "minister" was misleading because the exception applies to religions that do not include "ministers."  The Court also refused to address the "parade of horribles" the EEOC argued, such as that Church employers would be exempt from wage-hour or criminal violations towards "ministerial" employees.  

The case is Hosanna-Tabor Evangelical Lutheran Church and School v. Perich and the opinion is here.

NLRB Decide Class Action Waivers Violate the National Labor Relations Act

If you need more convincing that the National Labor Relations Board's work will affect the private-sector workplace (even after all the Facebook hoopla), here it is.

DR Horton, a home builder, imposed a mandatory arbitration agreement. The agreement required the employee to assert all claims related to his employment in arbitration.  The agreement further states:

that the arbitrator “may hear only Employee’s individual claims,” “will not have the author- ity to consolidate the claims of other employ- ees,” and “does not have authority to fashion a proceeding as a class or collective action or to award relief to a group or class of employees in one arbitration proceeding”
The NLRB first held, in agreement with its administrative law judge, that the arbitration agreement unlawfully precluded an employee from filing a charge with the NLRB.  So, arbitration agreements must carve-out the right to do so.

The groundbreaking part of the decision is that requiring an employee to arbitrate all claims and only on an individual basis violates the National Labor Relations Act's guarantee of the right to engage in "concerted activity":

[The arbitration agreement] requires employees, as a condition of their employment, to refrain from bringing collective or class claims in any forum: in court, because the [agreement] waives their right to a judicial forum; in arbitration, because the [agreement] provides that the arbitrator cannot consolidate claims or award collective relief. The [agreement] thus clearly and expressly bars employees from exercising substantive rights that have long been held protected by Section 7 of the NLRA.
The Board decided this case with just two members, because the lone Republican (Member Hayes) recused himself.  It is unfathomable why the Board did not wait until it had a full complement for such an important decision, but that's the way things go.  We'll see if the courts decide that the decision is invalid under the Supreme Court's decision in New Process Steel v. NLRB (discussed here) (Board must have three member quorum).  I did not research whether 2 + 1 recused member is sufficient or whether New Process Steel will apply.

The Board was careful to note that an arbitration agreement that permits class actions to be filed in court, while mandating arbitration of individual claims would be lawful:

We need not and do not mandate class arbitration in order to protect employees’ rights under the NLRA. Rather, we hold only that employers may not compel employees to waive their NLRA right to collectively pursue litigation of employment claims in all forums, arbitral and judicial. So long as the employer leaves open a judicial forum for class and collective claims, employees’ NLRA rights are preserved without requiring the availability of classwide arbitration. Employers re- main free to insist that arbitral proceedings be conducted on an individual basis.

This decision likely will be challenged in appeals court and then to the Supreme Court.  So, the arbitration see-saw is not going to stop swaying yet.  For now, though, arbitration agreements containing class action waivers are subject to attack before the National Labor Relations Board.  Plaintiff lawyers thinking of challenging arbitration agreements on this basis in court may run into something called "Garmon" preemption. :)

So, to sum up:
- class waivers in arbitration agreements are lawful, if the arbitration agreement applies only to claims brought on an individual basis;
- an arbitration agreement cannot prevent an employee from filing a charge
- this decision applies only to employers covered by the National Labor Relations Act (so it does not cover certain small employers, agriculture, government employees, etc.) Most private sector employers, union and non-union, are covered.
- this decision is subject to further review, and there will be lots of it.

The case is DR Horton and the decision is here.


President Appoints Three to NLRB

The "recess" appointments fill up the Board to 5 members.  Guess what?  The full Board is not stacked with pro-management Board members.  Read the announcement and bios here.

DLSE revises FAQs on Wage Theft Notice...

I posted about the Division of Labor Standards' Enforcement's template Notice here and about the FAQs here.  The DLSE apparently has thought better of its requirement that even current employees receive a notice (because that plainly was not in the statute).  So, the agency revised its FAQ's, here.  Slightly concerned employers I spoke with ... please take note.


Court of Appeal Finds "At Will" Insurance Agent Was Independent Contractor

Happy New Year!

Kimbly Arnold was an agent working for Mutual of Omaha.  She was non-exclusive, and sold other lines as well.  She was "at will" but was paid solely on commissions, had no office space unless she paid for it, had no supervisor or other personnel "managing her."  Her only job requirement was to submit at least one application for insurance every six months. 
Arnold took a job with another company requiring an exclusive relationship. She then brought a class action alleging failure to reimburse expenses under Labor Code Section 2802, and failure to pay wages at the time of termination.  Both of these claims require an "employment" relationship. 
Agreeing with the trial court, the Court of Appeal held that Arnold was an independent contractor, based in part on this evidence:
Mutual managers make themselves available to assist agents, as distinguished from supervising them. Training is generally not mandatory and is offered chiefly for the guidance of "new" agents. Training is required only with respect to compliance with state law directives. Managers provide assistance with sales or clients when an agent "wants them to assist." Software is provided by Mutual as a "best practice[e]" to enable agents to sell its products more successfully. Conference rooms, if available, are provided as a courtesy to agents seeking to set up a meeting and have no other space in the office. Mutual policy does not otherwise reimburse agents for regular business expenses, such as entertaining a client, although it does provide certain "prospecting" credits, beginning when an agent is newly appointed, by which the agent might apply for reimbursement for mailings, newsletters, and similar expenses to generate new business for Mutual products. The credits must be used and have no separate compensatory value. While Mutual pays its agents in two-week periods, payments are comprised of commissions and bonuses established by policy, and there is no guaranteed compensation; advances may be authorized only by a general manager in the event an agent has submitted an application for which a policy is likely to be issued. Advances are rare, due to the policy to pay commissions only on business actually issued, as opposed to routine advances for the purpose of regularizing payment amounts. . . ..

Arnold used her own judgment in determining whom she would solicit for applications for Mutual‟s products, the time, place, and manner in which she would solicit, and the amount of time she spent soliciting for Mutual‟s products. Her appointment with Mutual was nonexclusive, and she in fact solicited for other insurance companies during her appointment with Mutual. Her assistant general manager at Mutual‟s Concord office did not evaluate her performance and did not monitor or supervise her work. Training offered by Mutual was voluntary for agents, except as required for compliance with state law. Agents who chose to use the Concord office were required to pay a fee for their workspace and telephone service. Arnold‟s minimal performance requirement to avoid automatic termination of her appointment was to submit one application for Mutual‟s products within each 180-day period. Thus, under the principal test for employment under common law principles, Mutual had no significant right to control the manner and means by which Arnold accomplished the results of the services she performed as one of Mutual‟s soliciting agents.
The additional factors of the common law test also weigh in favor of finding an independent contractor relationship. Although Mutual could terminate the appointment at will, a termination at-will clause for both parties may properly be included in an independent contractor agreement, and is not by itself a basis for changing that relationship to one of an employee.
Notably, Arnold was engaged in a distinct occupation requiring a license from the Department of Insurance, and was responsible for her own instrumentalities or tools with the exception of limited resources offered by Mutual to enhance their agents‟ successful solicitation of Mutual‟s products. Arnold was required to pay a fee for the use of Mutual‟s office space and telephone service. Although Mutual paid its agents in a systematic way every two weeks, Arnold‟s payment itself—chiefly commissions—was based on her results and not the amount of time she spent working on Mutual‟s behalf. Finally, both Arnold and Mutual believed, at the time of her appointment, they were creating an independent contractor relationship and not an employee relationship.

Thus, the court went through the typical analysis of an independent contractor relationship under California's "common law" test and came up with little evidence of an employer-employee relationship.  The court rejected Arnold's attempt to define employee more broadly by using a Labor Code Section that contains no definition of employee... (Lab. Code 2750).

Anyway, the case is Arnold v. Mutual of Omaha Ins. Co. and the opinion is here.

Wage Theft Protection Act - FAQs from the DLSE

Here are some FAQs regarding the new notices that must be provided to employees "at the time of hire."
Some thoughts:

1. The DLSE apparently takes the position that the notice must be provided to existing employees, although that requirement is not contained in the statute.  
2.  Remember that changes to any of the items in the notice have to be communicated, either by a proper wage statement or a new notice.
3.  It is not mandatory to use DLSE's template form.  Employers may create their own. However, all the information on the DLSE's form (even the information not specified in the statute, must be listed on a separate form, rather than incorporated into a larger contract, offer letter, or handbook).
4.  If the notice is given electronically, the DLSE requires some method of obtaining an acknowledgement from the employee.
5.  The DLSE's notice requires specification of whether there is an oral or written employment agreement.  Every employee is employed pursuant to an "agreement," even if the employee is "at will."  (An agreement is as simple as "I will pay you if you work today."  It also could include a written offer letter or a formal employment contract).   So, employers should specify whether the employment contract is oral or written without fear that this provision somehow compromises at-will employment.
6.  The penalty for non compliance is not specified in the law and, therefore, will likely be the "PAGA" penalties of $100 per employee per pay period for the initial violation and $200 per pay period per employee for subsequent violations.  So, it is wise to comply with this law.

Happy New Year anyway!