Author Archive: Mark S. Spring - Carothers DiSante & Freudenberger LLP

Gorsuch Writes Opinion Upholding Class Action Waivers in Arbitration Agreements

This morning, the United States Supreme Court issued its long-awaited opinion in three consolidated cases pending before it (NLRB v. Murphy Oil Co.; Epic Systems Corp. v Lewis; Ernst & Young LLP v. Morris) on the issue of whether a class action waiver provision in an employment arbitration agreement violates the National Labor Relations Act (“NLRA”) and is, thereby, unenforceable. There previously was a split of authority among the federal circuit courts on this issue, with the Fifth Circuit (along with Second and Eighth Circuits) in Murphy Oil holding that class action waivers do not violate the NLRA, and the Seventh and Ninth Circuits (in Epic Systems and Ernst & Young, respectively) holding that such provisions do violate the NLRA. Writing for the Court in a 5-4 opinion, Justice Gorsuch resolved this split today, holding that class action waiver provisions in employment arbitration agreements do not violate an employee’s right under the NLRA to engage in collective, concerted activity for mutual aid and protection, and that these provisions remain enforceable under the Federal Arbitration Act (“FAA”). The Court’s more specific holdings are as follows:

Congress has instructed in the Arbitration Act that arbitration agreements providing for individualized proceedings must be enforced, and neither the Arbitration Act’s saving clause nor the NLRA suggests otherwise.
The Arbitration Act requires courts to enforce agreements to arbitrate, including the terms of arbitration the parties select. The Act’s saving clause—which allows courts to refuse to enforce arbitration agreements “upon such grounds as exist at law or in equity for the revocation of any contract”—recognizes only generally applicable contract defenses, such as fraud, duress, or unconscionability, not defenses targeting arbitration either by name or by more subtle methods. By challenging the agreements precisely because they require individualized arbitration instead of class or collective proceedings, the employees seek to interfere with one of these fundamental attributes.

“The employees also mistakenly claim that, even if the Arbitration Act normally requires enforcement of arbitration agreements like theirs, the NLRA overrides that guidance and renders their agreements unlawful yet. . . . The employees ask the Court to infer that class and collective actions are ‘concerted activities’ protected by §7 of the NLRA, which guarantees employees ‘the right to self-organization, to form, join, or assist labor organizations, to bargain collectively . . . , and to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection.’ But §7 focuses on the right to organize unions and bargain collectively. It does not mention class or collective action procedures or even hint at a clear and manifest wish to displace the Arbitration Act. It is unlikely that Congress wished to confer a right to class or collective actions in §7, since those procedures were hardly known when the NLRA was adopted in 1935. Because the catchall term ‘other concerted activities for the purpose of . . . other mutual aid or protection” appears at the end of a detailed list of activities, it should be understood to protect the same kind of things, i.e., things employees do for themselves in the course of exercising their right to free association in the workplace.’ . . . In another contextual clue, the employees’ underlying causes of action arise not under the NLRA but under the Fair Labor Standards Act, which permits the sort of collective action the employees wish to pursue here. Yet they do not suggest that the FLSA displaces the Arbitration Act, presumably because the Court has held that an identical collective action scheme does not prohibit individualized arbitration proceedings, see Gilmer v. Interstate/Johnson Lane Corp., 500 U. S. 20, 32.’”

Justice Ginsburg, joined by Justices Breyer, Sotomayor, and Kagan, dissented. The majority characterized the dissenting arguments as policy arguments and reminded us all (thank you majority) that the role of courts is not to make policy, but to enforce the laws as written. “The policy may be debatable but the law is clear: Congress has instructed that arbitration agreements like those before us must be enforced as written. While Congress is of course always free to amend this judgment, we see nothing suggesting it did so in the NLRA—much less that it manifested a clear intention to displace the Arbitration Act. Because we can easily read Congress’s statutes to work in harmony, that is where our duty lies.”

The Supreme Court’s opinion reverses unfavorable precedent in the Ninth Circuit (Ernst & Young v. Morris) and Seventh Circuit (Epic Systems v. Lewis), and reaffirms the important principles that arbitration agreements will, and must, be enforced according to their terms, and that laws (or judicial decisions) that seek to interfere with arbitration are preempted by the Federal Arbitration Act. Class action waiver provisions in arbitration agreements are enforceable and do not violate the NLRA. This is a nice win for employers.

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California Supreme Court Clarifies Day of Rest Rules

Earlier this week, the California Supreme Court issued its opinion in Mendoza v. Nordstrom, clarifying California’s day of rest requirements. These requirements are set forth in California Labor Code sections 551 and 552. Section 551 provides that “every person employed in any occupation of labor is entitled to one day’s rest therefrom in seven,” and Section 552 prohibits employers from “causing their employees to work more than six days in seven.” However, Section 556 exempts employers from the duty to provide a day of rest “when the total hours of employment do not exceed 30 hours in any week or six hours in any one day thereof.” While these provisions do not appear too complicated or hard to follow at first blush, compliance has been challenged in wage and hour litigation, raising several questions of what these provisions technically mean. Questions that have arisen include the following:

What does it mean to “cause” an employee to work more than six days in seven? Is it enough to “allow” the employee to work seven days in a row, or must the employer require the employee to work more than six days in a row to be found in violation of the statute?
Is the day of rest required for any consecutive seven-day work period on a rolling basis, or is it measured based on the employer’s workweek (the definition of which varies from employer to employer and may not match a calendar week)?
Does the exemption from the day of rest requirement apply where the employee works 6 or less hours on at least one day during the workweek, or must the employee’s hours be 6 or less every day of the workweek (and no more than 30 for the entire week)?

The California Supreme Court agreed to answer these questions at the request of the Ninth Circuit in Mendoza v. Nordstrom. Here’s how the Court ruled on these issues:

A day of rest is guaranteed for each workweek. Periods of more than six consecutive days of work that stretch across more than one workweek are not per se prohibited.
The exemption for employees working shifts of six hours or less applies only to those who never exceed six hours of work on any day of the workweek. If on any one day an employee works more than six hours, a day of rest must be provided during that workweek, subject to whatever other exceptions might apply.
An employer causes its employee to go without a day of rest when it induces the employee to forgo rest to which he or she is entitled. An employer is not, however, forbidden from permitting or allowing an employee, fully apprised of the entitlement to rest, independently to choose not to take a day of rest.

With respect to question (1), the Court held that the seven-day period is based on the workweek as defined by the employer. Thus, if the employer uses a calendar week, then the seven-day period (during which there should be one day of rest) is based on each calendar week. If the employer defines its workweek differently, then the seven-day period designated by the employer controls. However, the one-day-of-rest-in-seven provision does not apply on a rolling basis to every consecutive seven-day period.

With respect to question (2), the Court held that if an employee works more than 6 hours on any day of the workweek, the day of rest provision applies. The Court rejected an interpretation that would exempt employers from providing a day of rest to an employee who works 6 hours or less on just one day of the workweek. Thus, if an employee’s hours exceed 6 on any day of the workweek, the day of rest requirement will apply. You now ask, “What if the employee does not work more than 30 hours per week?” Unfortunately, the Court chose not to clarify whether the day of rest exception for employees working no more than 30 hours per week or 6 hours per day should be read in the conjunctive or disjunctive (because the Ninth Circuit did not expressly ask the Court to answer this particular question). Thus, left for another day (and more litigation) is the issue of whether the day of rest requirement applies to an employee who works more than 6 hours one or two days of the workweek, but whose total hours for the workweek do not exceed 30. The conservative approach of course, it to provide the opportunity for a day of rest to any employee who works more than 30 hours per week and/or more than 6 hours in any one workday.

Finally, with respect to question (3), the Court held that an employer “causes” an employee to work more than six days in seven if it motivates or induces the employee to do so. This does not mean that the employer is liable if it simply permits an employee to work more than six days in seven. “[A]n employer‘s obligation is to apprise employees of their entitlement to a day of rest and thereafter to maintain absolute neutrality as to the exercise of that right. An employer may not encourage its employees to forgo rest or conceal the entitlement to rest, but is not liable simply because an employee chooses to work a seventh day.” Based on this interpretation, an employer generally should not affirmatively schedule or require employees to work more than six days in seven, but it is okay to offer employees the opportunity to work more than six days in seven, so long as they are apprised of their entitlement to one day’s rest each workweek and notified that they will not be penalized for choosing to take a day of rest (nor rewarded, apart from being paid their earned wages, for not taking a day of rest).

While this opinion clarified some issues relating to California’s day of rest requirements, it also left an important one unanswered. Specifically, California Labor Code section 554 provides an exception from the day of rest requirement where the “nature of the employment reasonably requires that the employee work seven or more consecutive days, if in each calendar month the employee receives days of rest equivalent to one day’s rest in seven.” There is a lack of guidance on when the “nature of the employment reasonably requires” seven or more consecutive days of work so as to allow accumulated rest days to be taken at a different time during the month, and today’s opinion does not shed light on that subject.

California employers are advised to review their scheduling and pay practices to ensure compliance with California’s day of rest requirements, as clarified by the California Supreme Court today. Employers are further reminded that California has special overtime compensation rules that apply to work performed on the seventh consecutive day of a workweek (time and one half for the first 8 hours of work performed on the seventh consecutive day of the workweek, and double time for hours in excess of 8).

New California Legislation to Boost Salary Level for Overtime Exemption

The minimum salary to qualify for the traditional “white collar” overtime exemptions (administrative, executive, professional) in California has been higher than that required under federal law for many years. Because California’s exempt salary threshold is tied to the state minimum wage (an exempt employee generally must earn a salary of at least two times the state minimum wage), the salary floor goes up as California’s minimum wage goes up. The current minimum salary for exempt executive, administrative, or professional status in California is $43,680 per year (under the current minimum wage of $10.50).

As most employers know, last year the federal Department of Labor enacted regulations increasing the minimum salary to qualify for exempt status under the federal Fair Labor Standards Act (“FLSA”) to $47,476 per year. California employers would have had to comply with the higher salary threshold under the FLSA, except that the regulations were blocked by a Texas court late last year. The Texas court’s ruling is now on appeal, but at this point most WHDI members believe that the overtime regulations will not be reinstated — at least in current form — under the Trump administration.

California is now seeking to accomplish what the Obama administration could not accomplish at the federal level, by proposing to raise the minimum annual salary to qualify for exempt status in California to $47,472. AB 1565 (Thurmond) recently passed through the California Assembly’s Labor and Employment Committee. Under the bill, the minimum salary for exempt executive, administrative, or professional workers would be $47,472 or twice the state minimum wage, whichever is greater. As California’s minimum wage continues to rise, a salary of twice the state minimum wage eventually will be a number greater than $47,472. Until that time, $47,472 would be the minimum salary for exempt status in California if this bill is enacted. Our California WHDI members certainly believe that this bill has a reasonable chance of being passed and signed by Governor Brown, so employers with California employees should keep an eye on AB 1565.

Ninth Circuit Upholds Time Rounding Practices

The Ninth Circuit issued its decision in Corbin v. Time Warner-Advance Newhouse, rejecting an employee’s claim that he was unlawfully denied compensation for hours worked due to his employer’s poilcy of rounding time entries to the nearest quarter hour.  The Ninth Circuit further rejected the employee’s claim that the trial court erroneously denied class certification on the rounding claim.  The first paragraph of the Ninth Circuit opinion nicely captures just how ridiculous this claim, where less than $20 was actually at issue, was:

“This case turns on $15.02 and one minute.  $15.02 represents the total amount of compensation that Plaintiff Andre Corbin (“Corbin”) alleges he has lost due to his employer’s, Defendant Time Warner Entertainment-Advance/Newhouse Partnership (“TWEAN”), compensation policy that rounds all employee time stamps to the nearest quarter-hour.  One minute represents the total amount of time for which Corbin alleges he was not compensated as he once mistakenly opened an auxiliary computer program before clocking into TWEAN’s timekeeping software platform. $15.02 in lost wages and one minute of uncompensated time, Corbin argued before the district court, entitled him to relief under the Fair Labor Standards Act of 1938 (“FLSA”), 29 U.S.C. § 201, et seq., and various California state employment laws.”

Of course, it is safe to assume that several hundreds of thousands of dollars were spent litigating the merit of this $15.00 claim, the propriety of class certification, and the resulting appeal.  Fortunately, the Ninth Circuit, like the trial court, rejected the employee’s claims and in the process, upheld the validity of the employer’s rounding policy under both the FLSA and California law.

The rounding policy at issue rounded all employee time stamps to the nearest quarter hour.  There was no evidence that the policy operated to benefit only the employer by, for example, rounding all entries in the employer’s favor.  Instead, the evidence showed that the policy was neutral, meaning that if an employee clocked in up to 7 minutes early, the employee’s time would be rounded up (benefiting the employer), but if the employee clocked in up to 7 minutes late, his or her time would be rounded down (benefiting the employee).  Similarly, if the employee clocked out up to 7 minutes early, the time would be rounded up (benefiting the employee), and if the employee clocked out up to 7 minutes late, the time would be rounded down (benefiting the employer).  A review of the named plaintiff’s time records revealed that the rounding policy resulted in plaintiff gaining compensation or breaking even 58% of the time.  However, for the snapshot of time at issue, the net result was that plaintiff lost $15.02 based on the rounding policy.  Plaintiff alleged that this violated both the FLSA and California law, and sought to certify a class action on the claim.  The district court granted summary judgment in favor of the employer and rejected the plaintiff’s effort to certify a class.

Agreeing with the district court, the Ninth Circuit held that the rounding policy was lawful and that plaintiff did not have a valid claim for unpaid wages.  The Court relied on a FLSA regulation, 29 CFR 785.48, that specifically permits rounding practices as long as they are applied in a neutral manner that does not, over time, result in a failure to compensate employees for all time that they have actually worked.  The plaintiff argued that because he lost $15.02 as a result of the application of the rounding policy (for the snapshot of time analyzed), it violated the law because it resulted in him being underpaid.  The Ninth Circuit rejected this argument, reasoning that the validity of a rounding policy depends on how it operates in the global sense, not how it impacts one individual employee.  Here, the evidence showed that the policy was neutral in operation.  Furthermore, even looking at how the policy affected just the individual plaintiff in this case, even though the plaintiff lost $15.02 for the snapshot of time analyzed, the rounding policy was still lawful because it was undisputed that in most pay periods the policy operated to either overcompensate the plaintiff or he broke even.  Thus, it did not result in him being systematically underpaid.  Indeed, in 8 out of 10 of his last pay periods, he was overcompensated based on the rounding policy.  Thus, if he had continued working a few more pay periods and those were added into the analysis, it likely would have resulted in there being no net loss whatsoever.  The Court thus rejected the idea that just because the particular snapshot of time selected produced a net loss, this automatically invalidates the rounding policy.  The Court reasoned that if this were the case, this would lead to artful pleading by plaintiffs to craft rounding claims based on carefully selected snapshots of time that they know would yield a net loss.

Having determined that the rounding policy complied with federal law, the Court turned to plaintiff’s claim that the policy violated California law.  The Court rejected this argument as well, holding that California law is in accord with federal law on the issue of rounding.

The Court similarly rejected the plaintiff’s claim that he was denied one minute of pay for work he performed off the clock on one occasion when he mistakenly logged onto his computer before clocking in.  The court held that this was de minimis time that was not compensable under the FLSA or California law.  The Court further noted that the employee’s off the clock “work” was contrary to the employer’s policies specifically requiring employees to clock in before performing any work.

On the issue of class certification, the Court held that the trial court’s grant of summary judgment in favor of the employer on the named plaintiff’s rounding claim mooted the issue of whether or not a class should have been certified because there was no valid rounding claim upon which to base a class claim.

While a good result and a favorable decision for employers, this case should not be interpreted as providing blanket approval for rounding policies and practices.  Such policies still carry risk and invite litigation, particularly where combined with written or unwritten rules of practice that aim to ensure that the policy will operate to the benefit of the employer.

California Minimum Wage Ordinances: Employers Cannot Rely on State and Federal Law Alone

California’s minimum wage increased to $10 per hour effective January 1, 2016. This is the second increase in just 18 months under legislation signed by Governor Jerry Brown in 2013. This latest increase to the statewide minimum wage is not the only one facing California employers. At least twelve cities across California have already enacted their own minimum wage ordinances – and several other cities are looking to follow suit.

To complicate matters more for business owners, HR and payroll administrators, and managers, several of these local ordinances also include posting and mandatory sick leave requirements (above and beyond California’s recently-enacted statewide sick leave law). This patchwork of laws creates an administrative quagmire for employers—particularly those with multiple locations across the state.

The twelve cities that have enacted local minimum wage ordinances are listed below, together with their applicable local minimum wage rates and known upcoming increases:

 

City Local Minimum Wage As of January 2016 Upcoming Increases in Near Future
 

Berkeley

 

$11.00/hour

 

 

 

$12.53/hour

(effective October 1, 2016)

 

 

Emeryville

 

$12.25/hour for

businesses with 55 or

fewer employees

$14.44/hour for

businesses with more

than 55 employees

 

 

 

$13/hour for

businesses with 55 or

fewer employees

$14.82/hour for

businesses with more

than 55 employees

(effective July 1, 2016)

 

 

Long Beach

 

$13.80/hour

 

 

 

Los Angeles

 

$10.50/hour

for businesses with

26 or more employees

(effective July 1, 2016)

 

$15.37/hour

for hotel workers

 

 

$10.50/hour

for business with

25 or fewer employees

(effective July 1, 2017)

 

Mountain View

 

$11.00/hour

 

 

 

 

Oakland

 

$12.55/hour

 

 

 

 

Palo Alto

$11.00/hour  

 

 

Richmond

 

$11.52/hour

 

 

 

 

San Francisco

 

$12.25/hour

 

 

 

$13.00/hour

(effective July 1, 2016)

 

 

San Jose

 

$10.30/hour

 

 

 

Santa Clara

 

$11.00/hour

 

 

 

Sunnyvale

 

$10.30/hour

 

 

 

In addition to these cities, which all have active minimum wage laws, Sacramento has a minimum wage ordinance that goes into effect in 2017 and San Diego (via ballot referendum) and Pasadena are among the cities that are close to enacting their own minimum wage ordinances as well.

We will try to keep you posted and update this information regularly. Employers with workers in California should consult legal counsel to make sure they are complying not only with state law, but with any local wage and hour laws as well.