Articles Posted in Employment Issues

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The California Labor Code states that employers must provide at least one day off per week, but the “day-of-rest statute” does not provide an unambiguous statement of employees’ rights and employers’ obligations. A federal lawsuit alleging violations of this statute raised multiple questions of interpretation. In 2015, the Ninth Circuit Court of Appeals sent three certified questions to the California Supreme Court, seeking to clarify several provisions. Mendoza v. Nordstrom, Inc. (“Mendoza I”), 778 F.3d 834 (9th Cir. 2015). The California Supreme Court ruled on the questions earlier this year, hopefully providing more clarity for both employers and employees. Mendoza v. Nordstrom, Inc. (“Mendoza II”), No. S224611, slip op. (Cal., May 8, 2017).

The day-of-rest statute, unlike many laws, is not wordy. The fact that a statute does not stretch on for many pages, however, does not imply that it is easy to understand or interpret. This statute provides that anyone “employed in any occupation of labor” has the right “to one day’s rest…in seven.” Cal. Lab. Code § 551. It further states that an “employer of labor” cannot “cause his employees to work more than six days in seven.” Id. at § 552. These provisions do not apply, however, when an employee works no more than 30 hours in a week, or no more than six hours in a day. Id. at § 556. The three sentences that comprise these three code sections raise multiple questions of interpretation.

The plaintiffs in the underlying lawsuit allege that the defendant scheduled them to work for more than six consecutive days, in periods of seven to 11 consecutive days. They claimed that this violated California’s day-of-rest statute. They appealed to the Ninth Circuit after the district court dismissed their claims.

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Businesses that employ multiple people may be subject to employment statutes at multiple levels of jurisdiction, from city ordinances to state and federal statutes. Employers may not discriminate against employees or job applicants on the basis of multiple factors. In many jurisdictions around the country, this includes limitations on how employers may inquire about and consider criminal history during the hiring process. While employers may be reticent about hiring someone with a criminal record, California law seeks to ensure that past mistakes do not unreasonably burden people who need a job. California businesses and business owners should be aware of recent amendments to the state regulation that addresses access to and use of criminal history during the hiring process.

Laws that restrict employer inquiries about criminal history are sometimes known as “Ban the Box” (BTB) laws. They generally prohibit employers from asking about criminal history at the beginning of the job application process. Some application forms include a box that applicants must check “yes” or “no,” indicating whether they have ever been arrested or convicted of a crime. BTB laws often prohibit employers from asking about or considering criminal history—the aforementioned “box”—until an applicant has cleared the first hurdles of the process.

Some employers may see any criminal history as cause for automatic rejection of that applicant, and there are a number of valid business reasons for this view. For job applicants, however, this sort of practice makes it more difficult—and sometimes nearly impossible—for someone to find a job. This can have negative effects on society as a whole, since people with criminal records might be more likely to return to crime if no one will offer them a job. BTB laws try to ensure that criminal history only affects job applicants when the past crime directly relates to the job.

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California imposes numerous responsibilities on businesses, particularly in their capacity as employers. These include requirements regarding the payment of wages and the maintenance of employment records. Employers are also prohibited from various types of discrimination under state and federal laws, including discrimination on the basis of race. A putative class action pending in a California federal court alleges race discrimination and various wage and hour violations against a designer clothing retailer. Sampino v. Versace USA, Inc., No. 3:16-cv-07198, am. complaint (N.D. Cal., Apr. 19, 2017).

In addition to general requirements that employers pay their workers for the full amount of compensation that they have earned, California sets numerous additional standards. For example, employers must maintain records of their employees, including payroll records showing the number of hours worked and the wages paid. Cal. Lab. Code § 1174. They must also provide itemized statements to their employees with each paycheck. Id. at § 226. A failure to meet these requirements may result in civil fines and liability to aggrieved employees.

California law prohibits employers from discriminating against employees and job applicants on the basis of race and multiple other factors. Cal. Gov’t Code § 12940(a). It further prohibits an employer, or anyone acting on an employer’s behalf, from “aid[ing], abet[ting], incit[ing], compel[ling], or coerc[ing]” any unlawful acts of discrimination. Id. at § 12940(i). Retaliating against an employee for complaining about prohibited conduct, either internally or to state regulators, also violates state law. Id. at § 12940(h).

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The U.S. financial system depends on competition in order to maintain efficiency and fairness. Federal and state antitrust laws prohibit a wide range of anti-competitive activities in order to protect the public against monopolistic behaviors. This applies not only to commercial activities like buying and selling goods and services but also features of employment like hiring and salary decisions. When a group of employers makes anticompetitive agreements that harm workers, those workers may have recourse in court. A putative class action in California alleges that two companies entered into an unlawful “anti-poaching” agreement, by which each company agreed not to hire employees of the other company. Frost et al. v. LG Corporation et al., No. 5:16-cv-05206, consol. class action complaint (N.D. Cal., Nov. 8, 2016).

The main federal antitrust law in the U.S. is the Sherman Act of 1890, 15 U.S.C. § 1 et seq. It prohibits various anticompetitive activities, and it empowers the federal government to investigate businesses that have amassed significant market power, sometimes known as “trusts.” California’s Cartwright Act, Cal. Bus. & Prof. Code § 16720 et seq., contains similar provisions. A business does not violate antitrust law solely by attaining a monopoly in a particular market. A company that attains a monopoly by suppressing competition from others does violate antitrust law, however, as does a company that legitimately attains a monopoly and then suppresses competition in order to keep it.

Examples of anticompetitive activities prohibited by the Sherman and Cartwright Acts include price-fixing or boycott agreements between businesses that are otherwise competitors, as well as contractual terms that require customers or vendors to do business exclusively with a particular company. In the context of employment, employers may violate antitrust laws by making agreements to keep wages below a certain level for their employees, as well as anti-poaching agreements that keep employees from changing jobs within their field.

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Laws at the federal and state levels regulate multiple aspects of the employer/employee relationship. Federal law sets certain minimum standards for many employers nationwide, such as a minimum wage of $7.25 per hour and a prohibition on specific types of discrimination. State laws may add to these minimum requirements, but they cannot reduce the standards set by the U.S. Congress. California has augmented the protections afforded to employees in many ways, including a state law prohibiting wage disparities based on gender. Several bills recently enacted by the California Legislature have further added to these provisions. Employers in the Bay Area and throughout California should understand how these amendments might affect them.

Prior to the 2015 session of the California Legislature, the California Labor Code prohibited employers from paying workers of different genders at different rates for “equal work” performed “in the same establishment.” The law defined “equal work” as work that “requires equal skill, effort, and responsibility” and is “performed under similar working conditions.” Cal. Lab. Code § 1197.5(a) (2014). Pay disparities were permissible if they were based on systems of seniority, merit, “quantity or quality of production,” or another “bona fide factor other than sex.” Id. Penalties for violations of these provisions included the amount of underpaid wages, along with “an additional equal amount as liquidated damages.” Id. at § 1197.5(b).

The California Legislature passed SB 358 in 2015, and it took effect on January 1, 2016. The bill amended § 1197.5 to expand the prohibition on wage disparities based on gender. Whereas an employee previously had to show a disparity in pay among workers “in the same establishment,” SB 358 allowed comparisons among all employees performing “substantially similar work.” Cal. Lab. Code § 1197.5(a) (2015). The assessment of whether the work is substantially similar is based on “a composite of skill, effort, and responsibility…under similar working conditions.” The same exceptions, such as a seniority- or merit-based system, still apply, except that the statute now addresses “bona fide factor[s] other than sex” in far greater detail. Id. at § 1197.5(a)(1)(D).

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In almost any employer/employee relationship, an agreement between the parties governs the terms and conditions of employment, filling in the gaps not covered by local, state, and federal employment laws. These types of contracts rarely involve two parties with equal bargaining power. A longstanding legal principle holds that any provision in an employment contract that contradicts or violates an employment statute or regulation is unenforceable. The California State Legislature can enact laws targeting specific types of employment contract clauses. It recently enacted SB 1241, which takes effect at the beginning of 2017. This bill targets clauses that limit California employees’ ability to assert claims against their employers under California law, commonly known as “choice of law” or “forum selection” clauses.

In any lawsuit, a plaintiff must be able to establish that the court in which they have filed suit has jurisdiction over the defendant(s) and that the venue of the suit is proper. In most disputes filed in state court, a plaintiff must establish that the state of California has jurisdiction and that the county where the court sits is the correct venue. In a federal lawsuit, a plaintiff must establish the court’s personal jurisdiction over the defendant, its subject matter jurisdiction over the lawsuit, and the appropriateness of filing the case in that particular federal district. A defendant may object to the court’s jurisdiction, the venue of the case, or both.

Common jurisdictional questions include the jurisdiction of federal courts over disputes involving state law questions and the jurisdiction of a court in one state over a defendant who lives in another state. Choice of law clauses in written contracts allow the parties to agree in advance to both jurisdiction and venue in the event of a dispute that leads to litigation. For example, a choice of law clause might state that all disputes relating to the contract will be governed by California law and adjudicated in the courts of Alameda County. By entering into a contract with a choice of law clause, a party to a contract is generally deemed to have waived any and all objections to jurisdiction and venue, and to have agreed not to seek either in a different location.

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Class actions allow large groups of individuals with substantially similar claims against one defendant, or a small group of defendants, to pool their claims in a single lawsuit. Federal and state rules impose standards for certifying a case as a class action, and they also regulate the conduct of the case. The Federal Rules of Civil Procedure (FRCP) require the parties to present any proposed settlement to the court for approval. A California federal judge recently denied a joint motion to approve a class action settlement, finding it not to be “fair, adequate, and reasonable” to the interests of all class members. O’Connor et al. v. Uber Technologies, Inc. et al., No. 4:13-cv-03826, order at 2 (N.D. Cal., Aug. 18, 2016).

A class action begins as a lawsuit filed by one or more plaintiffs on behalf of a proposed class of people. The plaintiffs typically propose themselves as representatives of this class for the purpose of the litigation. FRCP 23 establishes four criteria for a class action:  numerosity of class members, commonality of legal and factual questions among all class members, typicality of the class representatives’ claims, and the ability of the class representatives to represent the class “fairly and adequately.” Fed. R. Civ. P. 23(a). Once the court certifies a class, it must notify class members of the pending action. Most class actions are “opt out,” meaning class members are plaintiffs unless they request to be excluded.

The parties to a class action must present any proposed settlement to the court for approval. If the settlement would bind class members, such as by preventing them from asserting further claims under the doctrine of res judicata, the court must conduct a hearing to determine whether the settlement is “fair, reasonable, and adequate.” Id. at 23(e)(2). Individual class members must receive notice of the proposed settlement and must have an opportunity to object.

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The precise nature of the legal relationships between an employer and the people who work for it depends on whether those workers are employees or independent contractors. Employees are often entitled to a broad range of legal protections regarding minimum wage, overtime hours, unemployment compensation, and other terms and conditions of employment. Independent contractors, on the other hand, are generally only entitled to whichever rights are defined in their contract. Misclassifying an employee as an independent contractor can result in substantial penalties under California law. See Cal. Lab. Code § 226.8. Recent court decisions in California have closely examined the distinction between employees and independent contractors as workers challenge their alleged independent contractor status.

The legal standard for determining whether someone is an employee or an independent contractor varies from state to state. California has adopted the common-law rule known as the “right to control” test, which examines whether the employer “has the right to control the manner and means of accomplishing the result desired.” S. G. Borello & Sons, Inc. v. Dep’t of Industrial Relations, 48 Cal.3d 341, 350 (1989). To put it in overly simple terms, if the employer has the authority to dictate when and where work is to occur, such as at the employer’s place of business between 9:00 a.m. and 5:00 p.m., the worker is probably an employee. If the worker has the autonomy to determine their own hours and location of work, they are probably an independent contractor.

Reality is rarely so simple, of course. The California Supreme Court acknowledged in Borello that the “right to control” test “is often of little use in evaluating the infinite variety of service arrangements.” Id. It identified eight additional factors that courts should consider, including whether the worker “is engaged in a distinct occupation or business”; which party “supplies the instrumentalities, tools, and place of work”; whether payment is made “by the time or by the job”; and whether the work is outside the scope of the employer’s “regular business.” Id. at 351.

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Employers in California must, at times, balance the needs of their business with their employees’ rights under local, state, and federal laws. The National Labor Relations Act (NLRA), 29 U.S.C. § 151 et seq., protects workers’ rights to engage in union-related activities, as well as the rights of workers who do not want to engage in such activities. The federal government has exclusive jurisdiction over disputes of this nature, meaning that the NLRA preempts state law claims. A California appellate court recently held, however, that preemption does not necessarily extend to business tort claims against a labor union, upholding an injunction in a trespass lawsuit. Wal-Mart Stores, Inc. v. United Food and Commercial Workers Int’l Union, 16 C.D.O.S. 7079 (Cal. App. 2d Dist., 2016).

Section 8 of the NLRA, codified at 29 U.S.C. § 158, prohibits “unfair labor practices” by both employers and labor organizations. Labor organizations may not, for example, “picket or cause to be picketed, or threaten to picket or cause to be picketed,” an employer when it is not the employees’ authorized representative, and the employer has either already recognized a different union as the authorized representative or is in the process of doing so. 29 U.S.C. § 158(b)(7).

Employers can bring a complaint against a union under § 8 to the National Labor Relations Board (NLRB), which is authorized by the NLRA to adjudicate disputes. The NLRB has exclusive jurisdiction over unfair labor practice claims, meaning that any dispute involving a practice addressed in § 8 of the NLRA must first go before the NLRB. This applies to both state and federal claims and is known as “preemption.” The U.S. Supreme Court has held that “state jurisdiction must yield” when a matter falls under the purview of the NLRA. Wal-Mart, slip op. at 6, quoting San Diego Bldg. Trades Council v. Garmon, 359 U.S. 236, 244 (1959).

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When an employee parts ways with an employer—whether by the employee’s choice or the employer’s—it is often a difficult process of transition. Among many important questions for the employer to consider is the total amount of compensation still owed to the employee. This includes any wages owed for time worked up to their final work date, barring any unusual circumstances. What about less tangible compensation, though, such as paid vacation leave? Some employers readily pay departing employees for unused vacation time, while others take a “use it or lose it” approach. Laws vary from one state to another, but California law clearly states that an employer must compensate a departing employee for accrued vacation time, or potentially face civil liability for unpaid wages.

No state requires an employer to provide paid vacation time to their employees, but state employment statutes generally require employers to abide by any written or otherwise formalized employment policies. If an employer does offer paid vacation time, a common method is to allow a certain amount of paid vacation time for certain periods of employment. For example, an employee might accrue one day of paid vacation, at their then-current rate of pay, for each month of employment. California and several other states prohibit employers from enacting policies stating that accrued-but-unused vacation time expires upon an employee’s termination or resignation.

If an employer’s policy is to compensate employees for unused vacation time at the end of their employment, the employer must apply that policy consistently. An employer’s policy could identify specific circumstances in which it would not be obligated to pay an employee for unused vacation time, but the employer must also abide by those provisions consistently. In practice, compensation for unused paid vacation might look like this. An employee with five days of accrued vacation time gives notice that July 31, a Friday, will be their last day of employment. Their final paycheck will include wages owed through July 31, as well as five additional days’ worth of regular wages.

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