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Fenwick Employment Brief - October 2015

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Legislative Update
Ninth Circuit Affirms Iskanian Ruling Rendering PAGA Waivers Illegal
Whistleblower Statute Protects Employees From Retaliation For Reporting Personal Matters

News Bites
Chipotle Sued In Class Action For FCRA Violations
DOL Reaches $18 Million Settlement With Haliburton For Employee Misclassification
EEOC Focuses On Transgender Rights

Legislative Update

Governor Brown recently signed into state law the following employment law bills (among others):

  • SB 358—Referred to as the California Fair Pay Act, this law is directed at closing the pay differential between male and female employees, including prohibiting an employer from paying any of its employees at wage rates less than those paid to employees of the opposite sex for substantially similar work, when viewed as a composite of skill, effort, and responsibility, as specified.
  • AB 1506—Amends the Private Attorneys General Act (“PAGA”) to allow employers a limited window to cure certain wage statement deficiencies before a PAGA action may be pursued.
  • AB 1509—Prevents employers from retaliating against employees for being a family member of an employee who has, or is perceived to have, engaged in activities protected under certain Labor Code sections (mainly those addressing whistleblowing).

Much to the relief of employers, the governor vetoed a bill (AB 465) attempting to prohibit all mandatory pre-employment agreements to arbitrate Labor Code violations.

Please see our September 2015 issue for more details on the above and other new laws.

Ninth Circuit Affirms Iskanian Ruling Rendering PAGA Waivers Illegal

In Sakkab v. Luxottica Retail North America, Inc., the Ninth Circuit affirmed the California Supreme Court’s Iskanian v. CLS Transportation Los Angeles, LLC decision (originally summarized in our June 2012 issue), which held that pre-dispute arbitration agreements between employers and employees cannot require waiver of representative claims under PAGA.

Sakkab filed a putative class action lawsuit against Luxottica alleging that the company misclassified its employees as exempt in order to avoid paying overtime and providing meal and rest breaks. The district court granted Luxottica’s motion to compel arbitration and dismissed Sakkab’s complaint based on the arbitration provision in its Retail Associates Guide that Sakkab signed. The provision contained a waiver of collective or representative actions. The court relied on the United States Supreme Court’s decision in AT&T Mobility LLC v. Concepcion (originally summarized in our April 2011 Litigation Alert), which held that the Federal Arbitration Act (“FAA”) would preempt a state rule regarding waiver of PAGA claims.

By the time the Ninth Circuit heard Sakkab’s appeal, the California Supreme Court had decided Iskanian, which held that PAGA waivers are unenforceable. In coming to the ultimate conclusion that pre-dispute agreements that waive PAGA claims are unenforceable under California law, and that the FAA does not preempt this rule, the Ninth Circuit analyzed the purpose of PAGA. PAGA was enacted to provide civil penalties for certain California Labor Code violations that previously carried only criminal penalties. Further, it allowed employees, on behalf of the state (the Labor Workforce and Development Agency) to recover such penalties and keep a percentage of the penalties it recovered, with the remainder being given to the state. This alleviated strained state resources, which did not have the bandwidth to pursue such Labor Code violations.

The court noted that “a law established for a public reason may not be contravened by private agreement.” It agreed with the Iskanian court that agreements with PAGA waivers would harm the state’s interests in enforcing the Labor Code and receiving civil penalties that serve as a deterrent for labor violations. In addition, it stated that Congress’s intent in enacting the FAA was not to allow the contracting parties’ expectations to “trump” any and all other interests.

In reversing and remanding the lower court’s decision, the court noted that Sakkab did not argue that the entire arbitration provision should be rendered void due to its unlawful PAGA waiver and tasked the lower court with deciding this issue and whether his non-PAGA claims should be litigated or arbitrated.

Employers should examine their arbitration agreements to ensure compliance with this ruling, which provides further clarity that PAGA waivers are not enforceable in California.

Whistleblower Statute Protects Employees From Retaliation For Reporting Personal Matters

A California Court of Appeal in Cardenas v. M. Fanaian, D.D.S., Inc. held that Labor Code § 1102.5, which protects employees from retaliation for reporting illegal conduct to law enforcement agencies, applies to an employee’s report of illegal conduct of a private or individual nature unrelated to the employer’s operation or enterprise.

Cardenas was a dental hygienist. She received an expensive ring from her husband for her twenty-fifth wedding anniversary. Cardenas wore her new ring to work every day until one day when it went missing. She had reason to believe that a coworker had stolen the ring. When she told her boss, he discouraged her from reporting the incident to the police. Cardenas and her husband went ahead and filed a police report for theft of the ring. The police visited the dental office where Cardenas worked a few times to interview witnesses and collect evidence. After one of the visits, Cardenas’s boss told her that the police investigation was becoming a distraction for the office and that he would have to let her go.

Cardenas sued her employer for violation of Labor Code § 1102.5 and wrongful termination in violation of public policy. The employer argued that Cardenas could not maintain a claim for violation of Labor Code § 1102.5 for reporting the personal matter (i.e., theft of her wedding ring) since the legislative intent was to protect employees from retaliation for reporting illegal conduct related to the employment operation or enterprise. The court disagreed. It noted that if the legislature had wished to limit the application of Labor Code § 1102.5, it could have included clarifying language explicitly restricting protection of the statute to reporting employer-related issues. However, the legislature did not and thus the court was forced to apply the statute based on its plain language.

The court’s interpretation and application of the Labor Code and its protection of employees is broad and shows the importance that California courts place on preventing retaliation in the workplace, even with respect to alleged unlawful behavior that is unrelated to the operation of the business.

News Bites

Chipotle Sued In Class Action For FCRA Violations

A recent class action lawsuit in California federal court alleges that Chipotle buried its Fair Credit Reporting Act (“FCRA”) disclosure in its employment application, so as to allegedly render the disclosure inadequate, and the background check on which it was based unlawful. The named plaintiff in the action alleged that Chipotle placed the FCRA disclosure in the employment application and surrounded it with distracting language. However, FCRA requires that such disclosures are made in a document consisting solely of the disclosure. The plaintiff also claims that Chipotle did not provide her the required summary of her rights under FCRA and failed to provide a box to check to indicate that she wanted a copy of the background check report (a violation of California law). The lawsuit seeks recovery under both FCRA and California law. While no definitive rulings(s) have been issued, the suit is a reminder to employers that they must be vigilant about FCRA compliance when conducting background checks on which employment decisions will be based.

DOL Reaches $18 Million Settlement With Haliburton For Employee Misclassification

The Department of Labor (“DOL”) found that Haliburton had misclassified over 1,000 of its employees (28 positions, including field service representatives, reliability tech specialists, and pipe recovery specialists) as exempt from overtime. To settle the matter, Haliburton agreed to pay $18.3 million, a substantial DOL recovery to be sure. Both employee and contractor misclassification are hot button issues for the DOL and state agencies. Companies should evaluate their workforces for (1) employee misclassification in high risk areas such as technical support, customer service, and sales and (2) how they are using contractors in their business—engaging individuals as contractors to try them out before hiring them as employees, for long-term projects, or when the contractors are providing the same services as employees, create risk of contractor misclassification.

EEOC Focuses On Transgender Rights

The Equal Employment Opportunity Commission (“EEOC”) recently joined a lawsuit by a transgender male (transitioning from female) who claims he was told by his employer that he was required to dress and act as a woman in the workplace so as not to confuse customers. The employee has sued for gender identity discrimination under Title VII. In joining the suit, the EEOC stated that combating gender identity discrimination is a “priority issue.” Employers are required by law to reasonably accommodate transgender employees, including as to their dress and appearance, as well as bathroom usage, among other issues.

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