Employment Law

California Appeals Court: Employee Must Arbitrate Employment Dispute

Why it matters

Holding that an employee was equitably estopped from denying a defendant’s right to arbitrate an employment dispute, a California appellate court affirmed a trial court’s grant of a motion to compel arbitration. Real Time Staffing Services hired Narciso Garcia as an hourly employee. As part of the hiring process, Garcia filled out an employment application that included an arbitration agreement. Garcia was then assigned to work for Pexco LLC. When Garcia later sued both Real Time and Pexco for violations of the state’s Labor Code, the defendants moved to compel arbitration. Garcia objected, arguing that Pexco was not a signatory to the arbitration agreement. A trial court granted the motion to compel, and the appellate panel affirmed. Each cause of action in the complaint was alleged against “All Defendants,” with no distinction between Real Time and Pexco, the court said, leaving Garcia’s claims intertwined between the defendants. “On these facts, it is inequitable for the arbitration of Garcia’s assignment to proceed with Real Time, while preventing Pexco from participating,” the court wrote.

Detailed discussion

Narciso Garcia was hired by Real Time Staffing Services in 2011 as an hourly employee. As part of the hiring process at the temporary staffing company, Garcia filled out an application that included an arbitration agreement. The agreement provided that “any dispute” between Real Time and Garcia would be determined by binding arbitration.

Garcia was assigned by Real Time to work at Pexco. In 2014, he filed suit against Real Time and Pexco, asserting violations of the Labor Code and unfair business practices pertaining to payment of wages during his stint at Pexco. Each cause of action in the complaint was alleged against “All Defendants,” with no distinction between Real Time and Pexco.

The defendants moved to compel arbitration, and a trial court granted the motion. Garcia appealed the order granting Pexco’s motion, arguing that because Pexco was a nonsignatory to the arbitration agreement, the claims against Pexco should be tried separately.

While the general rule is that one must be a party to an arbitration agreement to be bound by it or invoke it, the appellate panel determined that the equitable estoppel exception applied. “Under this exception, ‘a non-signatory defendant may invoke an arbitration clause to compel a signatory plaintiff to arbitrate its claim when the causes of action against the nonsignatory are “intimately founded in and intertwined with” the underlying contract obligations,’” the court stated. “The doctrine applies where the claims are ‘based on the same facts and are inherently inseparable’ from the arbitrable claims against signatory defendants.”

The court disagreed with Garcia’s contention that his claims were not sufficiently “intertwined” with the underlying arbitration agreement because his claims were based upon statutory violations and did not sound in contract.

“Even though Garcia’s claims are styled as Labor Code violations, the arbitration agreement applies,” the panel wrote. “Labor Code violations are clearly, and indeed expressly, included as one of the types of disputes covered by the arbitration agreement. The arbitration agreement is so clear Garcia concedes Real Time may compel arbitration of his statutory claims under the agreement. This is because Garcia’s claims fall within the ambit of the arbitration clause due to the strong policy favoring arbitration and the language of the arbitration agreement.”

Further, “all of Garcia’s claims are intimately founded in and intertwined with his employment relationship with Real Time, which is governed by the employment agreement compelling arbitration,” the court said.

“On these facts, it is inequitable for the arbitration about Garcia’s assignment with Pexco to proceed with Real Time, while preventing Pexco from participating. This is because Garcia’s claims against Pexco are rooted in his employment relationship with Real Time, and the governing arbitration agreement expressly includes statutory wage and hour claims. Garcia does not distinguish between Real Time and Pexco in any way. All of Garcia’s claims are based on the same facts alleged against Real Time. Garcia cannot attempt to link Pexco to Real Time to hold it liable for alleged wage and hour claims, while at the same time arguing the arbitration provision only applies to Real Time and not Pexco.”

Given Garcia’s allegations that Pexco and Real Time were his joint employers, the agency exception would also apply to require arbitration, the panel added. “[T]he operative complaint alleged workplace violations against Real Time and Pexco as joint employers, referred to both employers collectively as ‘defendants’ without any distinction, and alleged identical claims and conduct regarding unlawful and improper acts,” the court said.

The panel, accordingly, affirmed the motion to compel arbitration.

To read the opinion in Garcia v. Pexco, LLC, click here.

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Supreme Court Won’t Weigh In on FLSA Definition of “Wages”

Why it matters

The U.S. Supreme Court denied certiorari in a case defining what constitutes “wages” to calculate overtime pay under the Fair Labor Standards Act, leaving in place the expansive interpretation adopted by the U.S. Court of Appeals for the Ninth Circuit. The city of San Gabriel, California, had a policy of permitting workers to receive “cash-in-lieu” payments when they purchased less medical insurance coverage (because of coverage under a spouse’s plan, for example). But the city did not include these payments when determining a worker’s regular rate of pay for purposes of calculating overtime under the FLSA, triggering a collective action. After a split decision from a district court, the Ninth Circuit sided with the employees. Even though the “in-lieu” amount was not a payment based on the number of hours worked, it was still compensation that must be included in the overtime calculation, the panel wrote, relying in part on the U.S. Department of Labor’s interpretation of the statute. The city filed a writ of certiorari, but the justices denied it without comment, leaving the Ninth Circuit’s opinion in place despite contrary authority from the Third, Sixth and Tenth Circuits, where the courts have adopted more narrow readings of what constitutes “wages.”

Detailed discussion

Pursuant to the FLSA, employers must pay premium overtime compensation of one and one-half times the regular rate of payment for any hours worked in excess of 40 in a seven-day workweek. The “regular rate” is defined as “all remuneration for employment paid to, or on behalf of, the employee,” subject to a number of exclusions in the statute.

The city of San Gabriel, CA, offered a Flexible Benefits Plan for its employees, furnishing a designated monetary amount to each employee for the purchase of medical, vision and dental benefits. If an employee elected to forgo benefits because of alternative coverage, the employee received the unused portion of that benefits allotment as a cash payment added to his or her regular paycheck.

A group of current and former police officers employed by the city brought suit under the FLSA, alleging that the city failed to include payments of unused portions of their benefits allowances when calculating their regular rate of pay, resulting in a lower overtime rate and underpayment of overtime compensation. The plaintiffs also asserted that the city’s violation of the FLSA was willful, entitling them to a three-year statute of limitations and liquidated damages.

The employer responded that its cash-in-lieu of benefits payments were properly excluded from the regular rate of pay based on two statutory exclusions, denying that the alleged violations were willful.

A federal district court issued a split decision on the parties’ cross motions for summary judgment, but the U.S. Court of Appeals for the Ninth Circuit sided with the employees. Emphasizing that the FLSA is construed liberally in favor of employees—with exceptions construed narrowly against employers—the panel held that the payments should be included in the plaintiffs’ regular rate of pay.

An exclusion found at Section 207(e)(2) of the FLSA provides that payments made for vacation, holiday, illness “and other similar payments to an employee which are not made as compensation for his hours of employment” did not apply to the city’s payments, the court said, relying in part on the U.S. Department of Labor’s interpretation of the phrase.

Under the DOL’s regulations, “a payment may not be excluded from the regular rate of pay pursuant to Section 207(e)(2) if it is generally understood as compensation for work, even though the payment is not directly tied to specific hours worked by an employee,” the court stated. Ninth Circuit precedent backed this reading of the exclusion, as “the question of whether a particular payment falls within the ‘other similar payments’ clause does not turn on whether the payment is tied to an hourly wage, but instead turns on whether the payment is a form of compensation for performing work.”

The city’s payments are properly considered compensation for work, the panel found, and distinguishable from payments for nonworking time or reimbursement of expenses.

A second exclusion—found at Section 207(e)(4) for “contributions irrevocably made by an employer to a trustee or third person pursuant to a bona fide plan for providing old-age, retirement, life, accident or health insurance or similar benefits for employees”—was also inapplicable, the Ninth Circuit said. Not only did the city pay the unused benefits directly to its employees and not to a trustee or third person, but the Flexible Benefits Plan did not meet the definition of a “bona fide plan” under the statute.

The court did find that the employer was entitled to a partial overtime exemption for law enforcement officers pursuant to Section 207(k), but affirmed the district court’s ruling that the alleged violations were willful, permitting the plaintiffs to recover for an additional year and entitling them to liquidated damages.

Although the city argued that it properly evaluated the FLSA to exclude the benefits from the regular rate of pay, that classification took place in 2003 and was not reviewed, the panel said. An employer that fails to take the steps necessary to ensure its practices comply with the FLSA, and that offers no evidence that it “actively endeavored” to ensure such compliance, fails to dodge a finding of willfulness under the statute, according to the court.

Even the lack of case authority on the proper treatment of cash-in-lieu of benefits payments under the statute in the circuit did not help the employer, the court stated, particularly as the defendant “put forth no evidence that it ever looked to see whether such authority existed.”

In its writ of certiorari to the U.S. Supreme Court, the city argued that the Ninth Circuit’s interpretation of the exclusions created a circuit split with contrary authority from the Third, Sixth and Tenth Circuits. The employer also noted that an affirmation of the Ninth Circuit decision would lead employers to eliminate this type of cash-out plan, to the detriment of employees.

The justices were not persuaded, denying cert without comment and letting the Ninth Circuit opinion stand.

To read the Supreme Court’s order list denying cert, click here.

To read the Ninth Circuit opinion in Flores v. City of San Gabriel, click here.

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Lack of Detail in EEOC Charge Doesn’t Mandate Dismissal of a Lawsuit

Why it matters

The lack of detail found in a plaintiff’s charge with the Equal Employment Opportunity Commission did not require dismissal of the subsequent lawsuit for failure to exhaust administrative remedies, the U.S. Court of Appeals for the Tenth Circuit determined in a sexual harassment suit. Seeking to sue Needham Trucking LLC and a company shareholder, Bryan Jones filled out an intake questionnaire with the EEOC. In response to multiple questions asking for detailed explanations, Jones wrote “[s]ee attached.” The EEOC never received the attachment and did not tell Jones it was missing, but prepared a charge form and issued a right-to-sue letter on his behalf. Jones then filed a Title VII suit. Needham moved to dismiss for failure to exhaust administrative remedies, arguing that the facts alleged in the charge were insufficient to put it on notice of the claims made in the complaint. A district court granted the motion, but the Tenth Circuit reversed. Although Jones’ complaint was “undoubtedly” more detailed than his charge form, the form only needs to “describe generally” the alleged discrimination, the panel held.

Detailed discussion

Bryan Jones worked as a mechanic for Needham Trucking for approximately six months in 2014. He claimed that he was fired because he would not have sex with Julie Needham, his direct supervisor and a shareholder of the business. Jones completed an intake questionnaire with the Equal Employment Opportunity Commission, checking the boxes for “Sex” and “Retaliation” as the reasons for his claims of employment discrimination, additionally writing out “sex har[as]sment."

He also identified another mechanic as a comparator, who Jones alleged was treated better because the other mechanic had sex with Needham, and listed two other witnesses. In response to questions contained on the EEOC questionnaire seeking more detailed explanations, Jones wrote “[s]ee attached.” The reference was to a six-paragraph statement that concluded with the statement, “I was terminated because I refused to agree to Ms. Needham’s sexual advances and I rejected all such efforts by her.”

The attachment never made it to the EEOC, and the agency did not alert Jones to the fact that it was missing. Regardless, the EEOC prepared a charge form on behalf of Jones and issued him a right-to-sue letter. Jones then filed a complaint in Oklahoma federal court containing various state law claims, as well as a claim of sexual harassment in violation of Title VII, stating that the alleged harassment took the form of both hostile work environment discrimination and quid pro quo discrimination.

In their motion to dismiss, the defendants argued that Jones had failed to exhaust his administrative remedies with his insufficient intake form. The district court granted the companies’ motion, and the plaintiff appealed.

The U.S. Court of Appeals for the Tenth Circuit reversed. Although Title VII requires that a plaintiff must first exhaust administrative remedies by filing a sufficient charge of discrimination with the EEOC, Congress did not provide much guidance on how to satisfy this requirement, the court noted.

“Aside from requiring that a charge be in writing and made under oath, Congress provided scant detail on what the charge should look like and instead gave the EEOC the responsibility of fleshing out those requirements,” the court explained. The agency has established a system where individuals submit information, typically in the form of an intake questionnaire, and then the EEOC renders assistance in filing the charge, which should contain a “clear and concise statement of the facts, including pertinent dates, constituting the alleged unlawful employment practices.”

The point of this process is to give notice of the alleged violation to the charged party and give the EEOC an opportunity to conciliate the claim. “Given these goals, the charge document must contain the general facts concerning the discriminatory actions later alleged in the legal claim,” the panel said.

The key question: Were the facts alleged in Jones’ charge form sufficiently related to the claim made in the complaint such that those facts would prompt a company investigation of the claim? The defendants answered the court’s question in the negative, arguing that the charge form was insufficient to put it on notice as to whether Jones was alleging quid pro quo or hostile work environment sexual harassment.

The panel rejected this “complete bifurcation” between the two forms of sexual harassment, as the U.S. Supreme Court has cautioned they are not wholly distinct claims but simply “shorthand descriptors to delineate different ways in which sexual harassment can occur.”

Both factual scenarios lead to the same place, the court stated: “[S]exual harassment that violates Title VII’s proscription against sex discrimination in the workplace.” Despite differences in the elements needed to prove the specific sexual harassment claim, the two descriptors are not so unrelated that the facts could not overlap or that an investigation of facts from one allegation could not also fall within the scope of an investigation of the other, the court said.

With this understanding of the alleged conduct at issue, the Tenth Circuit answered its own question in the affirmative.

“A charge need only ‘describe generally’ the alleged discrimination, in order to ‘give notice of an alleged violation to the charged party,’” the panel wrote. “Mr. Jones’s form has the boxes checked for his allegations of sex-based discrimination and retaliation, and it recounts that he was ‘subjected to sexual remarks,’ that ‘Julie Needham terminated [his] employment,’ and that no reason was given for his termination. We think this was sufficient to alert Needham to the sexual harassment allegations and to trigger an investigation that would look into what the sexual remarks were, why Mr. Jones was fired, and whether the two events were connected.”

Although “the complaint Mr. Jones filed was more detailed than his charge form, this is to be expected given that a complaint must meet [Federal Rule of Civil Procedure] Rule 8 pleading standards and contain sufficient facts to render it plausible,” the court added.

To read the decision in Jones v. Needham, click here.

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NLRB ALJ Strikes Down 17 Employer Policies

Why it matters

More than a dozen policies—including one requiring an employer’s approval before a worker could make a social media post—were shot down by a National Labor Relations Board administrative law judge in a decision involving a real estate management services company. Patrick Thurman filed a charge with the agency last year, pointing to several policies in the Newmark Grubb Knight Frank handbook that he said violated the National Labor Relations Act. For example, the company required employees to “avoid activities … inconsistent with the best interests of the company and our clients,” and mandated that workers get permission from management before posting about the company on social media. An ALJ agreed with Thurman that the challenged policies (17 in all) violated the statute. Other policies that failed to pass muster included one banning clothing with printed slogans or promotions, as well as another prohibiting the use of company technology for personal use. The decision serves as a reminder to employers that the NLRB continues to keep a close eye on employer handbooks and policies on a wide range of topics, from clothing to social media to technology use.

Detailed discussion

A national real estate management services company, Newmark Grubb Knight Frank (NGKF) employed Patrick Thurman, who filed a charge with the National Labor Relations Board (NLRB) in June 2016, challenging a total of 17 policies found in the employer’s handbook. Thurman alleged that the policies violated Section 8(a)(1) of the National Labor Relations Act (NLRA) because they were overbroad and employees would reasonably construe them to ban their Section 7 activities.

Following a hearing, Administrative Law Judge (ALJ) Robert A. Ringler agreed, finding each of the policies violated the federal statute.

The employer’s “conflicts of interest” policy, for example, stated that NGKF expects “our employees to … always avoid activities … inconsistent with the best interests of the Company and our clients,” with workers required to “promptly disclose” any conflicts of interest.

“This policy, which bans conflicts of interest and has an ongoing disclosure requirement, is unlawful, given that it can be reasonably construed to bar any Section 7 activities conflicting with [the employer’s] interests,” the ALJ wrote. For the same reason, an “outside employment and business activities” policy that prohibited employees from “participating in outside work activities that might present a conflict of interest” was similarly thrown out.

A policy requiring that any reference inquiries and requests for employee information be forwarded to the Human Resources Department “may reasonably be construed to ban employees from engaging in their Section 7 right to discuss wages or other workplace issues amongst themselves or with a union,” and a “confidentiality” policy subjecting workers to disciplinary action, up to and including termination, for disclosing confidential company information failed for the same reason.

Three policies—on “telecommunications usage,” “use of company information technology” and “company property”—all ran afoul of Section 7 because their prohibitions on employee use could all be reasonably construed by employees to bar unauthorized solicitation and other protected activity outside of working hours on the employer’s premises, as well as the use of its email systems, phones and IT systems during nonworking time for Section 7 activities, the ALJ said.

A ban on tape recordings was also found unlawful. “This policy, which prohibits unauthorized workplace recordings, unlawfully and over-broadly encompasses recordings made for one’s own mutual aid and protection,” the decision said, which might include recording images of protected picketing, documenting unsafe workplace equipment or hazardous working conditions, or publicizing discussions about terms and conditions of employment.

The employer’s “respectful workplace policy,” setting guidelines that all employees and guests “should be treated with courtesy and respect at all times” was tossed because it “essentially bars any disrespectful workplace commentary” and “employees could reasonably construe this rule to ban statements of criticism toward their employer, which are generally protected,” the ALJ wrote.

NGKF’s social media policy presented additional violations of the NLRA based on language such as “only those types of social media that have been approved by the Company … are permitted” and “[a]s a general matter, use of social media that provides for communication that the Company cannot capture and/or monitor (e.g. Twitter … and similar apps …) is prohibited.”

The employer’s “mandate that employees obtain consent before posting about the company on social media is unlawful … as they over-broadly limit employees’ Section 7 rights to engage in collective activities online,” the ALJ said.

Several other policies within the handbook were declared unlawful, from one requiring prior approval for outside speaking and writing activities to another setting rules on handling press inquiries, as well as policies requiring cooperation in investigations and litigation and another prohibiting “clothing with printed slogans/promotions,” as NGKF failed to establish special circumstances justifying the rule. Finally, a “Standards of Conduct” policy reiterated several portions of other unlawful policies and was, accordingly, struck down as well.

Concluding that a total of 17 policies violated the NLRA, the ALJ ordered the employer to cease and desist use of the policies and rescind them from the company’s handbook, as well as to distribute inserts and post a notice to that effect on a nationwide basis.

To read the decision in BCG Partners, Inc., click here.

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