DOL Issues Final Rule on $10.10/Hour Contractor Minimum Wage

October 24, 2014 by

On October 7, 2014, the Department of Labor (“DOL”) published final regulations setting a minimum wage of $10.10 per hour under certain federal contracts and subcontracts. The regulations were issued under Executive Order 13658, issued by President Obama on February 12, 2014. The new minimum wage will take effect on January 1, 2015.

  • Which contracts are covered by the higher minimum wage?

The $10.10/hour minimum wage will be applicable to new contracts for construction covered by the Davis-Bacon Act (“DBA”); contracts for services covered by the Service Contract Act (“SCA”); contracts for concessions; and contracts entered into with the Federal Government in connection with federal properly or lands and related to offering services for Federal employees, their dependents, or the general public.

  • What is a “new” contract that will be covered by higher minimum Wage?

The $10.10/hour minimum wage will apply as of January 15, 2015 to “new” contracts. The final regulations define “new contract” as follows:

New contract means a contract that results from a solicitation issued on or after January 1, 2015, or a contract that is awarded outside the solicitation process on or after January 1, 2015. This term includes both new contracts and replacements for expiring contracts. A contract that is entered into prior to January 1, 2015 will constitute a new contract if, through bilateral negotiation, on or after January 1, 2015:

(1) The contract is renewed;

(2)  The contract is extended, unless the extension is made pursuant to a term in the contract as of December 31, 2014 providing for a short-term limited extension; or

(3) The contract is amended pursuant to a modification that is outside the scope of the contract.

  • Which workers are covered by the $10.10 minimum wage?

In the final regulations, DOL provided two distinct subsets of workers that are covered by the higher minimum wage.

  1. Workers performing “on a government contract”

The $10.10 minimum wage will apply to all workers performing “on” a covered contract. In the Preamble to the final regulations, DOL states that it views workers performing on a covered contract as

those workers directly performing the specific services called for by the contract. Whether a worker is performing ‘‘on’’ a covered contract will be determined in part by the scope of work or a similar statement set forth in the covered contract that identifies the work (e.g., the services or construction) to be performed under the contract. Specifically, consistent with the SCA, see, e.g., 29 CFR 4.153, a worker will be considered to be performing ‘‘on’’ a covered contract if he or she is directly engaged in the performance of specified contract services or construction.

Under the final regulations, those workers who are covered by the prevailing wage requirements of the SCA are covered by the new $10.10 minimum wage and will be entitled to that higher minimum wage for all hours worked on a covered contract, regardless of how few those hours are in relation to total hours worked.

  1. Workers performingin connection with a government contract”

The proposed regulations made no distinction between workers performing on a government contract and those performing in connection with a government contract; both groups were covered to the same extent. The final regulations distinguish between the two classes of workers.

DOL has defined a worker performing “in connection with a government contract” as any worker who is performing work activities that are necessary to the performance of a covered contract but who are not directly engaged in performing the specific services called for by the contract itself.

According to DOL, these workers are not entitled to DBA or SCA prevailing wages, but, because they are covered by the FLSA, they are covered by the terms of Executive Order.

Under the final regulations, a worker performing in connection with a covered government contract is not covered by the $10.10 minimum wage if that worker spends less than 20 percent of his or her hours in a particular workweek performing in connection with such contract.

  • Annual adjustment to the minimum wage

Beginning January 1, 2016, and annually thereafter, the Secretary of Labor will determine by how much the $10.10 minimum wage will be increased, based on the annual percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers. DOL must publish the annual minimum wage rate at least 90 days before the new wage rate takes effect.

  • Special provisions for tipped employees

The new minimum wage applies to employee engaged in an occupation in which he or she customarily and regularly receives more than $30 a month in tips. Currently, employers must pay tipped employees minimum cash wage of $2.13 per hour toward satisfaction of federal minimum wage of $7.25 per hour. For contractors covered by the new regulations, however, employers must pay a cash wage of at least $4.90 per hour towards satisfaction of the $10.10 minimum wage. That amount will be adjusted annually, until the hourly cash wage equals 70 percent of the minimum wage applicable at that time to non-tipped employees.

  • Enforcement

The regulations provide for investigations by the Wage and Hour Division of DOL, with enforcement through administrative proceedings. Remedies include the retroactive inclusion of the minimum wage clause in covered contracts, the payment of back wages, withholding of contract payments and debarment.

Free Meals But Breaks Cost Money

September 16, 2014 by

Questions often come up from employees and human resources professionals regarding rest and meal periods under the Fair Labor Standards Act. Most of these questions are the result of confusion by the employee regarding when rest and/or meal periods are required. Under the FLSA, an employer is not required to provide rest or meal periods to an employee during his or her shift. These requirements are often the result of state laws, employer policies or collective bargaining agreements that mandate breaks and meal periods. It is important to determine whether a state law, employer policy or collective bargaining agreement applies, as these may be the source for a required rest and/or meal period while working.

Under the FLSA, rest periods are considered compensable time. Employers should not require employees to “clock out” for rest periods. Rest periods usually run from approximately 5 minutes to about 20 minutes in duration. Employees are usually permitted to have a snack, a cup of coffee or soda, smoke (unfortunately) or use their cell phones during the break. If an employer provides breaks, the employer should not offset the break time against other working time or other on-call time. The key here though is that breaks are provided for relief to the employees and to promote efficiency in the workplace and should be treated as compensable time.

Meal periods, on the other hand, are treated differently. A meal period that is at least 30 minutes in duration does not need to be compensable time. An employee can be required to “clock out” and eat his or her meal unpaid provided that the employee is not required to perform work during the meal period. For example, if a receptionist is required to eat lunch at the reception desk, even though technically she is off the clock, she would still be working as she would be responsible for greeting visitors and accepting the mail or deliveries during her lunch break. Under certain circumstances, a meal period may be shorter than 30 minutes and still be considered non-compensable work time. These situations are very unusual and generally do not apply in the modern workplace. Meal periods should be at least 30 minutes long and employee should be relieved of all duties during this time.

Some employers, in my experience, have required employees to take their meal breaks in the designated employer cafeteria, or if none is provided, in the employer provided break or lunch room. This ensures that employees are not hanging around their work stations and working “off the clock” even if they are doing so without the express permission of the employer. Other employers who I worked with actually require employees to leave the office and eat their lunch either in the designated break room or at a local restaurant in order to ensure that the meal period is actually taken and also to ensure that customers do not come in to the establishment and form the impression that the employees are being paid and not working. (Imagine the classic example of the county road worker sleeping in his truck during his lunch break and members of the public thinking he is sleeping on the job!)

We always recommend employers maintain a clear policy regarding break periods and meal periods under the FLSA. If breaks and meal periods are given, ensure that employees are disengaged from work during the meal period if they are required to clock out. Remember also to check your state laws, employer policies and any applicable collective bargaining agreements to determine if any additional requirements apply.

Paul Bittner, Ice Miller LLP

Governor Brown Signs Bill Mandating Paid Sick Leave in California

September 10, 2014 by

Today Governor Jerry Brown signed a bill requiring California employers to provide paid sick leave to their employees beginning July 1, 2015.

The Healthy Workplaces, Healthy Families Act of 2014 requires employers to provide paid sick leave to employees who work in California for 30 or more days within a year from beginning employment. Paid sick leave will accrue at a minimum rate of one hour for every 30 hours worked, and an employee may begin using it beginning on the 90th calendar day of employment.

Employers may limit an employee’s use of paid sick leave to 24 hours or three sick days in each calendar year, and may provide 24 hours or three days in bulk at the beginning of the year in lieu of an accrual process. Employers may set a minimum increment of at least two hours for the use of paid sick leave, which can be used for the personal illness or preventive care of the employee or the employee’s family member, or to recover from domestic violence, sexual assault, or stalking. Employees are required to provide their employers with reasonable advance notification of their need to use paid sick leave if the need is foreseeable, or “as soon as practicable” if it is not foreseeable.

Accrued paid sick leave will carry over to the following year of employment, but employers are entitled to cap an employee’s accrual at 48 hours or six days. Employees are not entitled to a payout of accrued but unused paid sick leave upon separation from employment, but if an employee is rehired within one year from the date of separation, any previously accrued but unused leave must be reinstated.

Employers are required to maintain records of their employee’s accrual and use of paid sick leave for at least three years. The notice provided to an employee at the beginning of employment pursuant to the Wage Theft Prevention Act must include notice of the employee’s right to paid sick leave, and employers must provide each employee with a notice of the amount of paid sick leave or paid time off available to the employee on the employee’s itemized wage statement, or in a separate writing provided on each pay date. Employers must also display a poster created by the State Labor Commissioner notifying employees of their paid sick leave rights. Employers are prohibited from retaliating against an employee for using paid sick leave, filing a complaint with the Labor Commissioner alleging retaliation, or cooperating in an investigation of an alleged violation by the employer.

Employers that already provide paid sick leave or paid time off that satisfies the new law’s requirements are not required to provide any additional paid sick leave. The new law exempts in-home support workers, most employees covered by collective bargaining agreements that provide paid sick leave or paid time off, and construction industry employees covered by collective bargaining agreements entered into before January 1, 2015, or that expressly waive the requirements of the new law.

Employers with California-based employees should immediately begin making arrangements to comply with the new law. Employers with existing paid sick leave or paid time off policies should ensure their existing plans comply with the law, or adjust those policies as necessary.

Aaron Buckley – Paul, Plevin, Sullivan & Connaughton LLP – San Diego, CA

Sixth Circuit Limits Enforcement of Key Employment Contractual Waivers in FLSA Cases

September 1, 2014 by

Over the past few years, there has been considerable litigation over whether employees may contractually waive their right to bring class or collective actions against their employers.

For example, the NLRB in its D.R. Horton line of cases believes that arbitration agreements limiting employees in their right to bring collective or class actions are not enforceable since they arguably waive an employee’s Section 7 right to engage in concerted activities. The courts have not agreed with the NLRB, and applying the Supreme Court’s recent line of cases upholding arbitration agreements proscribing class relief, have held that the congressional support for arbitration vis-à-vis the Federal Arbitration Act is a stronger policy than other rights relating to the ability to seek class relief. Further, the courts have construed the FAA to hold that unless an arbitration agreement clearly permits the seeking of class relief through arbitration, such relief is not available – through arbitration or otherwise. See generally Owen v. Bristol Care, Inc., 702 F.3d 1050, 1054-55 (8th Cir. 2013)(arbitration agreement containing class action waiver is enforceable in claim brought under FLSA); Sutherland v. Ernst & Young LLP, 726 F.3d 290,295-96 (class action waiver must be enforced pursuant to the U.S. Supreme Court’s decision in American Express Co. v. Italian Colors Restaurant, 133 S.Ct. 2304 (2013)); Parisi v. Goldman, Sachs & Co., 710 F.3d 483, 486 (2d Cir. 2013) (undisputed that arbitration agreement did not provide for arbitration agreement on class-wide basis); Walthour v. Chipio Windshield Repair, LLC, 745 F.3d 1326, 1134-36 (11th Cir. 2014) (arbitration agreement which waives collective claims is enforceable); D.R. Horton, Inc. v. NLRB, 737 F.3d 344, 558-61 (5th Cir. 2013) (class and collective action waivers are not inconsistent with the NLRA’s Section 7 concerted activity protections, and therefore such waivers in arbitration agreements between employers and employees are enforceable); Reed Elsevier, Inc. v. Crockett, 734 F. 3d 594, 600 (6th Cir. 2013) (where agreement is silent on the availability of class relief through arbitration, class relief is not available). See also Huffman v. The Hilltop Companies, LLC, 747 F.3d 391, 398 (6th Cir. 2014) (contract silent on right for bringing class claim in arbitration precludes the arbitration of class claims).

Recently, though, the Sixth Circuit Court of Appeals (i.e., the federal appellate court over the judicial districts in Michigan, Ohio, Kentucky and Tennessee) has held that agreements which limit rights under the FLSA which are not covered by the FAA may not be enforceable. That is, while such agreements may be enforceable if they are in the context of an FAA covered arbitration agreement, if the agreement is just an ordinary employment or separation agreement – and not an arbitration agreement – such agreements may not be enforceable.

The first of this line of cases was Boaz v. FedEx Customer Information Services, Inc., 725 F.3d 603 (6th Cir. 2013). In Boaz the employee signed an employment agreement requiring the bringing of claims within six months notwithstanding longer statutes of limitations. In the FLSA context, the court held, this waiver amounted to a waiver of a substantive right to wages under the FLSA, and since waivers of rights under the FLSA are not enforceable, the court refused to enforce this waiver. The court also inferred that its decision may have been otherwise if the case arose under an arbitration agreement “due to the strong federal presumption in favor of arbitration.” Id. at 606-07.

On July 30th, the Court of Appeals more formally articulated its view that waivers in arbitration agreements are different than waivers in other agreements. In Killon v. KeHE Distributors, LLC¸ Case Nos. 13-3357/4340 (6th Cir. July 30, 2014), the court for the first time addressed whether waivers to bring class or collective claims in non-arbitration agreements are enforceable. The waivers in this case were specified in employment separation/severance agreements. The employees signed those agreements and later attempted to join a collective action for unpaid overtime. The district court held that such waivers were enforceable, but the Sixth Circuit reversed the trial court. The Sixth Circuit equated the right to participate in a class action with the right to sue within the full limitations period allowed by the FLSA, i.e., a right deemed non-waivable under Boaz. The court reiterated, though, that its holding may have been otherwise if the case entailed an arbitration agreement. Outside of that context, however, that Killon waivers were declared void. The court concluded: “Because no arbitration agreement is present in the case before us, we find no countervailing federal policy that outweighs the policy articulated in the FLSA.” Id. at *23.

While few other courts have been presented with the precise issue as to whether the existence of an arbitration agreements is a distinction which makes a difference, the Sixth Circuit’s holdings bring into jeopardy the ability to enforce agreements which shorten limitation periods or waive class relief in the context of FLSA disputes. Such agreements may be enforceable in other contexts, but drafting carve-outs in such waivers may be cumbersome, particularly if they are tailored to only apply within the Sixth Circuit.

To be sure, the merits of the court’s holdings in these cases will likely be subject to further debate and review by courts in other circuits since there is contrary authority suggesting that these “rights” are procedural and not substantive, and are therefore waivable. At this time, though, such is not the rule in Sixth Circuit and that will likely remain the case until the Supreme Court weighs-in, if ever. Consequently, employers – particularly those within the Sixth Circuit – should avoid using such waivers unless they are part of arbitration agreements.

Ninth Circuit Upholds Judgment in Favor of a Police Officer Who Claimed Retaliation for Testifying in a Fair Labor Standards Act Lawsuit

July 28, 2014 by

July 28, 2014
By Malani L. Kotchka, Lionel Sawyer & Collins

Police officer Leonard Avila periodically worked through his lunch break but did not claim overtime. The LAPD deemed Avila insubordinate for not claiming overtime and fired him. He was terminated only after Avila had testified in a Fair Labor Standards Act lawsuit brought by a fellow officer Edward Maciel who sought overtime pay for working through his lunch hour.

Avila then brought his lawsuit claiming that he was fired in retaliation for testifying in violation of the FLSA anti-retaliation provision, 29 U.S.C. § 215(a)(3). Avila testified under subpoena in Maciel’s lawsuit that he and many other LAPD officers, including his supervisors, operated under an unwritten policy of not claiming overtime for working through lunch. After Avila testified, the LAPD filed an internal investigation complaint against him and another officer who testified at the Maciel trial alleging that they had been insubordinate by not submitting requests for overtime. Both Avila and the other officer were fired. The jury found in favor of Avila on his FLSA claim and awarded him damages of $50,000. The district court entered a judgment on the jury verdict and later amended it to award Avila $50,000 in liquidated damages and $579,400 in attorney’s fees.

The Ninth Circuit Court of Appeals affirmed the jury verdict in Avila v. LAPD and held that the uncontested evidence in the case was that Avila would not have been fired had he not testified. The only officers disciplined for the overtime violations were those who had testified in the Maciel action. Furthermore, the only evidence introduced at the disciplinary hearing was Avila’s testimony in the Maciel matter. Employers should be very careful and should consider this decision when contemplating discipline of employees for misconduct which comes to light through testimony in an FLSA lawsuit.

California Supreme Court Limits Commissioned Employee Exemption

July 28, 2014 by

On July 14 the California Supreme Court ruled that commissions paid in one pay period cannot be attributed to earlier pay periods in order to satisfy the requirements of California’s commissioned employee overtime exemption. The case is Peabody v. Time Warner Cable, Inc.

The overtime exemption for commissioned employees (sometimes referred to as the “commissioned salesperson exemption” or “inside sales exemption”) is found in Industrial Welfare Commission Wage Orders 4 and 7, which exempt from overtime requirements employees whose earnings exceed one and one half times the state minimum wage if more than half the employee’s compensation consists of commissions.

Julie Peabody worked for Time Warner Cable selling advertising. Time Warner paid Peabody her hourly wages every two weeks, but paid her commissions only once a month.

Peabody brought a class action against Time Warner for unpaid overtime. Time Warner did not dispute Peabody’s claim to have worked overtime, but contended she fell within the commissioned employee exemption. The company acknowledged that most of Peabody’s paychecks included only hourly wages that were less than one and one half times the minimum wage, but argued that commissions paid monthly should be averaged out over all the weeks of the month, including weeks in earlier biweekly pay periods, in order to satisfy the minimum earnings requirement. Peabody contended the requirement can only be satisfied by applying commissions to the pay period in which they are paid.

The district court agreed with Time Warner and granted summary judgment. Peabody appealed to the Ninth Circuit Court of Appeals, which could find no clear controlling precedent to resolve the issue. The Ninth Circuit certified the question to the California Supreme Court.

The state’s high court saw things Peabody’s way. While acknowledging that an employer is permitted to pay commissions monthly or even less frequently, the court concluded that for purposes of the commissioned employee exemption, the minimum earnings requirement is satisfied only in those pay periods in which it actually pays the required minimum earnings. In other words, an employer may not satisfy the requirement by reassigning wages paid in one pay period to a different pay period. The court reasoned that to rule otherwise would be inconsistent with Labor Code Section 204, which requires wages to be paid at least twice per month. The court rejected Time Warner’s argument that the monthly averaging method should be endorsed because federal law permits it, explaining that, in light of the “substantial differences” between federal and California wage and hour laws, “reliance on federal authorities to construe state regulations would be misplaced.”

Employers should review their pay practices to ensure that all employees classified under California’s commissioned employee exemption are paid at least one and one half times the state minimum wage during each pay period. Employers should also ensure that these employees satisfy the other requirement of the exemption, i.e., that commissions account for more than half of their total compensation.

Aaron Buckley – Paul, Plevin, Sullivan & Connaughton LLP – San Diego, CA

City of San Diego Raises Minimum Wage and Mandates Paid Sick Leave

July 17, 2014 by

Earlier this week the San Diego City Council voted to join San Francisco, San Jose and several other cities across the nation as municipalities with higher minimum wages than those established by federal or state law. The council also voted to require employers to provide paid sick leave. The council is scheduled to vote again on July 28 to officially adopt the ordinance. The 6-3 vote in favor of the measure is sufficient to override an expected veto by Mayor Kevin Faulconer.

Currently the federal minimum wage is $7.25 per hour. California’s minimum wage increased from $8 to $9 per hour on July 1 of this year, and is scheduled to rise again to $10 per hour on January 1, 2016. Employees must be paid the highest minimum wage in effect, which means workers in San Diego are currently subject to the state minimum wage.

The vote by the City Council will, for the first time, establish a minimum wage within the City of San Diego that will be higher than both the federal and state minimums. San Diego’s minimum wage will apply to all private sector employees who work at least two or more hours per calendar week within the city limits. These employees must be compensated for each hour worked within the city limits at the following minimum hourly rates:

Beginning January 1, 2015:          $9.75

Beginning January 1, 2016:          $10.50

Beginning January 1, 2017:          $11.50

Beginning January 1, 2019, the city’s minimum wage will increase in January of each year based on the prior year’s increase in the Consumer Price Index.

San Diego’s new paid sick leave mandate takes effect April 1, 2015, and requires employers to provide employees with one hour of paid sick leave for every 30 hours worked within the city limits, with a maximum accrual of 40 hours per year. Employees may begin using paid sick leave on July 1, 2015. Paid sick leave may be used for the employee’s own illness or medical appointment, to care for an ill family member, or to take time off for reasons related to domestic violence.

Employers may require paid sick leave to be used in increments of at least two hours, and may limit an employee’s use of paid sick leave to 40 hours per year. Employees will be allowed to carry over unused sick leave to the following year, but employers are not required to pay out unused sick leave upon the employee’s separation from employment. Employers already providing paid sick leave that meets the requirements of the ordinance are not required to provide any additional sick leave.

The measure also requires employers to post notices of the new ordinance within the workplace by April 1, 2015, and to provide each new employee with written notice of the minimum wage and paid sick leave requirements after that date. The city will make notice materials available to employers by April 1, 2015.

The ordinance also creates a city Enforcement Office to enforce the minimum wage and paid sick leave requirements, and establishes a civil penalty for most violations of up to $1,000. Violations of the notice requirement may be assessed at $100 per employee, up to a maximum of $2,000.

San Diego business leaders are considering a referendum to overturn the ordinance. In the meantime, employers who have employees working within the San Diego city limits (even if the employer is based outside the city) should plan to comply with the new minimum wage, sick leave, and notice requirements.

Aaron Buckley – Paul, Plevin, Sullivan & Connaughton LLP – San Diego, CA

Fifth Circuit Blocks Franchisee Employee’s Effort to Treat Franchisor As His “Employer” Under The FLSA

July 11, 2014 by

by Erin L. Malone, Phelps Dunbar LLP (Tampa, FL)

The Fifth Circuit Court of Appeal recently held in Orozco v. Plackis that a franchisor was not liable to a franchisee employee for alleged minimum wage and overtime violations because the franchisor was not an “employer” under the Fair Labor Standards Act (“FLSA”). No. 13-50632, 2014 WL 3037943 (5th Cir. July 3, 2014). Under the FLSA, an employer is broadly defined as “any person acting directly or indirectly in the interest of an employer in relation to an employee.” 29 U.S.C. § 203(d). Relying on the economic reality test, the Fifth Circuit examined the employer‒employee relationship by examining whether the franchisor: (1) possessed the power to hire and fire the employee, (2) supervised and controlled the employee work schedules or conditions of employment, (3) determined the rate and method of payment, and (4) maintained employment records. After examining the evidence, the Fifth Circuit held that the franchisor was not an employer under the FLSA because the employee lacked legally sufficient evidence to establish any of the elements of the economic reality test.

In Orozco, a restaurant cook filed a lawsuit against the restaurant’s franchisee owners, alleging minimum wage and overtime violations under the FLSA, and after settling with the franchisee owners, the employee added the restaurant’s franchisor owner as a defendant. At trial, the jury rendered a verdict in favor of the employee, finding, in part, that the franchisor was the employee’s employer and the franchisor was part of an enterprise covered by the FLSA. The district court denied the franchisor’s motion to set aside the jury’s verdict, and the franchisor appealed.

The Fifth Circuit reversed the district court and rendered judgment in favor of the franchisor. The Fifth Circuit found that the evidence did not allow the jury to find that the franchisor was an employer under the FLSA. In fact, the Fifth Circuit found that none of the elements of the economic reality test weighed in favor of employer status. It is noteworthy that the United States Department of Labor filed an amicus brief in favor of the employee, but the Fifth Circuit ignored the DOL’s brief in the opinion.

FLSA suits continue to proliferate and employees of franchisees sometimes look to franchisors as a “deep pocket” or, in this case, an “extra pocket” to recover money. Franchisors (especially in the Fifth Circuit – Louisiana, Mississippi, and Texas) should consider the Orozco decision as an arrow in the quiver to avoid possible liability against FLSA lawsuits filed by franchisee employees. Nevertheless, franchisors also should know that Orozco does not provide absolute immunity against FLSA lawsuits, as the Fifth Circuit clarified that the Orozco decision does not mean “franchisors can never qualify as the FLSA employer for a franchisee’s employees.” Franchisors should know and appreciate that the FLSA broadly defines who and what constitutes an employer (more broadly than the common law definition of employer), and the analysis of determining an employer’s status is fact specific.

California Supreme Court on Arbitration Agreements: Class-Action Waivers OK, but PAGA Claims Unwaivable

June 27, 2014 by

This week, the California Supreme Court issued its highly anticipated opinion in Iskanian v. CLS Transportation Los Angeles, LLC. The decision was a partial victory for employers: the Court clarified that class-action waivers in arbitration agreements may be enforced, but it also held that employers cannot obtain the waiver of an employee’s right to bring a “representative” claim under California’s Private Attorney General Act of 2004 (PAGA).

Iskanian resolved a split amongst California courts as to whether the U.S. Supreme Court’s 2011 ruling in Concepcion v. AT&T Mobility overruled an earlier California case – Gentry v. Superior Court – that said courts could evaluate class-action waivers on a case-by-case basis. The Iskanian Court addressed whether the Federal Arbitration Act (FAA) allowed state courts to refuse to enforce arbitration agreements in order to promote important state interests, such as California’s wage-and-hour laws. The plaintiff in Iskanian argued wage claims were cost-prohibitive for an individual to bring, so class actions were needed to enforce California’s unwaivable labor rights.

The California Supreme Court concluded that the FAA trumps these state-law interests. Because the FAA mandates the enforcement of legal arbitration agreements, California labor laws cannot require procedures that are “incompatible with arbitration.” Therefore, California courts are not free to rely on public policy to reject class action waivers. The Court also rejected the argument that class action waivers violated employees’ rights to engage in “concerted activity” under National Labor Relations Act.

The case was not a total win for employers, however, as the Court determined that employees cannot waive the right to bring claims under the PAGA. Iskanian held that the FAA’s purpose is to preserve arbitration’s “efficient forum for the resolution of private suits.” PAGA “deputizes” employees so they can assert claims for civil penalties on behalf of the state of California. Since PAGA claims are not “private suits” but state enforcement claims, the Court reasoned, the FAA does not apply and an employee’s waiver of rights to pursue PAGA claims on behalf of other employees is not enforceable.

What This Means

Iskanian allows employers to include class action waivers in arbitration agreements. To be enforceable, these agreements still must comply with existing legal standards including mutuality, allocation of costs, and preservation of statutory rights to attorneys’ fees.

However, it is now established that such class action waivers cannot include a waiver of an employees’ right to bring PAGA claims. Therefore, employees with valid arbitration agreements can still seek civil penalties for Labor Code violations, and they can do so on behalf of themselves and all other allegedly aggrieved employees. As a result, employers with valid class action waivers in arbitration agreements could find themselves litigating wage claims in two separate forums.

The potential of parallel wage claims is a new wrinkle in this area. Employers should consider this along with all the other pros and cons of arbitration agreements, and ensure that their agreements do not otherwise violate California law against unconscionable contracts.

by Matthew R. Jedreski and Fred M. Plevin.

FLSA Settlements – Doesn’t Mean It is Over Yet

June 13, 2014 by

You know the feeling. Regardless of whether you are an in-house attorney or outside counsel, you have settled a significant FLSA litigation matter. You breathe a sigh of relief. All that is left is the paper work for the settlement agreement and court approval. You and your client are happy. But, wait, the court has rejected your settlement? How can that be?

Recently, courts have denied approval of settlement agreements for various reasons – the way funds will be distributed or broad releases. One judge in overseeing a proposed settlement involving a music retailer noted that the financial settlement to the putative class was less than the proposed attorneys’ fees in the proposed settlement. This one is easy to ignore in 49 states because it involves California state claims and therefore brought under a different statute and procedural vehicle from FLSA claims.

But, judges in FLSA cases in several states have also recently rejected proposed settlements for similar reasons – the judge determined the settlement was not fair. Courts are trying to verify that there was really an arms-length negotiation between plaintiff’s counsel and defendant’s counsel. Courts aim to ensure that the funds are being distributed fairly and not heavily weighted in favor of a group of plaintiffs or attorneys’ fees. Courts are also very concerned about the appropriateness of a full, general release of all claims rather than a release limited to those asserted under the FLSA. Finally, judges are leery of confidential settlements and are now rejecting settlements that are filed under seal or involve confidentiality provisions.

With recent statistics showing a 5% increase in FLSA filing over the last year, lawyers on both sides of the docket need to consider these factors when reaching terms and drafting settlement agreements. Courts are obviously willing to reject those settlements that they find to be unfair. It is in all parties’ interest to reach an agreement that a court will approve. That means employers may not be able to insist on favored terms like full releases and confidentiality. It also means that lawyers should be discussing the breakdown among attorneys’ fees and settlement awards during the negotiation process to avoid reaching an agreement that will not be approved.

What these recent cases remind us is that reaching a deal is not the end of the road, obtaining approval is. And, judges are willing to withhold approval if they do not view the deal is fair to all of the class members.  These issues should be discussed as you are reaching the final stages of negotiations to avoid an order denying approval.


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