Employment Law

California Employers Face Rise In PAGA Suits

Why it matters: California employers are facing a proliferation of suits filed under the State’s Private Attorney General Act (PAGA): new data reveals that the number of lawsuits jumped from 759 in 2005 to 3,137 in 2013. Why the increase in popularity? As courts have upheld arbitration agreements and class waivers in employment contracts with greater regularity, PAGA actions have emerged as a means for plaintiffs to remain in court. Over the last decade since PAGA was enacted in 2004, the State – which receives 75 percent of any monies collected in a successful action brought under the statute – has generated a total of $31.6 million, with plaintiffs generating roughly $10 million. One possible ray of hope for employers seeking to avoid a continuing rise of PAGA suits: the state Supreme Court is currently considering whether or not an employment agreement such as an arbitration agreement can validly waive an employee’s PAGA claims. A decision is expected later this year.

Detailed Discussion
In 2004, recognizing that the California Labor & Workplace Development Agency lacked the funds to enforce the State’s numerous employment laws, the Legislature enacted the Private Attorney General Act. That statute allows plaintiffs to bring suit on behalf of the State, with 75 percent of any recovery being paid to the State.

The ensuing decade has seen a fourfold increase in complaints filed under the statute despite the smaller recovery for plaintiffs themselves when pursuing such suits. As more and more companies rely upon arbitration agreements and class-action waivers – and courts increasingly uphold them – plaintiffs are willing to accept a limit on their damages just to stay in court.

From just 759 PAGA claims filed in 2005, 3,137 PAGA claims were filed in 2013. These lawsuits translated into $31.6 million for the State generated for successful claims. For employee plaintiffs, the recovery totaled about $10 million, or an average of $12,000 per claim.

PAGA claims also pose uncertainty to employers. Given the relative youth of the statute and the limited amount of case law interpreting it, questions regarding the application of the statute remain.

With class-action waivers and arbitration agreements increasingly the norm and not the exception, some employment attorneys predict that the number of PAGA suits will continue to increase.

Employers may be able to avoid a meteoric rise in PAGA claims, depending on the outcome of a case currently pending in the State’s highest court. On April 3 the California Supreme Court heard oral argument in Iskanian v. CLS Transportation of Los Angeles addressing the issue of whether an employee can waive prospective PAGA rights or whether such a waiver agreement is unenforceable.

If the California Supreme Court were to uphold such waivers, employers might be able to breathe a relative sigh of relief. Alternatively, if the Court determines that such agreements are unenforceable, PAGA claims may continue to multiply.

A decision from the Court is expected later this year.

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High-Profile Antitrust Poaching Suit Settles In California

Why it matters: Just weeks before trial, a closely watched case out of California federal court alleging that major tech companies, including Adobe Systems, Apple, Google, and Intel, conspired to keep salaries of tech engineers level and not steal each other’s employees has settled. While the terms of the deal have not been confirmed, the plaintiffs had requested $9 billion in trebled damages under the federal Sherman Act. The consolidated litigation began after the tech companies settled similar charges with the Department of Justice without paying a penalty. The civil suit – which originally included additional tech companies Intuit, Lucas Films, and Pixar before they paid $20 million to exit the case – has proven much more costly. According to Reuters, the remaining defendant tech companies agreed to pay a total of $324 million to settle the case.

Detailed Discussion
In 2010 the Department of Justice (DOJ) completed an investigation into several big-name technology companies based in California. Although the companies did not admit fault, they reached a deal with the DOJ in which they promised to stop the use of employee antipoaching agreements.

Civil suits followed in 2011. Groups of current and former employees of Adobe Systems, Apple, Google, Intel, Intuit, Lucas Films, and Pixar charged the companies with violating the Sherman Act by conspiring to keep their salaries level and to keep their hands off each other’s employees. According to the plaintiffs, the companies agreed not to cold-call potential hires from competitors but rather provide each other with notice. And to eliminate bidding wars over specific employees, the tech company defendants allegedly agreed to cap salary packages, which the plaintiffs said lowered their income by 10 to 15 percent from natural market conditions.

Multiple suits were consolidated into In re High-Tech Employee Antitrust Litigation. Three of the tech company defendants – Intuit, Lucas Films, and Pixar – paid a total of $20 million to escape the litigation. The remaining four defendant companies continued to battle it out with the plaintiff employees, but as the May 27 trial date loomed, the companies received some negative court rulings.

Most significantly, U.S. District Court Judge Lucy H. Koh certified a class of roughly 64,600 employees and denied the tech companies’ summary judgment motion in early April. The plaintiffs had ready to share with a future jury e-mail messages discovered during the DOJ investigation where executives seemingly agreed not to poach employees from one another.

In a 2005 missive from Apple’s Steve Jobs to Google cofounder Sergey Brin, Jobs wrote, “If you hire a single one of these people, that means war.” Another message from former Google CEO Eric Schmidt cautions about the need to keep their communications confidential: “I don’t want to create a paper trail over which we can be sued later?” he wrote.

Facing trial, the parties informed Judge Koh on April 24 that they had reached an agreement, details of which were not revealed. A lawyer for the employee class released a statement confirming the settlement, adding, “This is an excellent resolution of the case that will benefit class members.”

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Beware Of Plans To Dodge ACA Requirements

Why it matters: The Affordable Care Act (ACA) presents several challenges for employers. In an effort to sidestep the legal requirements of the statute, some companies have announced their intention to reduce employee hours from full- to part-time. But employers should use caution, given that such a move could backfire and result in liability based upon the law’s antiretaliation provision. While the issue is far from settled – because the ACA has yet to take effect, the loss of benefits that have not yet begun is therefore an open question – employers will want to think long and hard before taking such action.

Detailed Discussion
Beginning January 1, 2015, employers with more than 50 full-time employees are required to offer health insurance to employees working at least 30 hours each week or pay a $2,000 fine per employee. But instead of adding employees to the company plan, some employers are considering reducing employee hours to avoid the mandate altogether.

National movie theater chain Regal Entertainment Group sent a memo to its employees disclosing its intention to keep employee work schedules below the 30-hour threshold. “To comply with the Affordable Care Act, Regal had to increase our health care budget to cover those newly deemed eligible based on the law’s definition of a full-time employee,” the company wrote in the memo. “To manage this budget, all other employees will be scheduled in accord with business needs and in a manner that will not negatively impact our health care budget.”

Even government entities like the City of Long Beach, California, which are facing a multimillion-dollar health bill, are limiting part-time workers to fewer than 27 hours per week.

Problem solved? Not exactly.

The ACA contains a provision prohibiting retaliation against employees because the worker has health insurance, including actions such as a schedule change, which could result in an employer who has reduced hours to avoid the statute’s coverage being on the hook for violating the statute. An additional claim pursuant to the Employee Retirement Income Security Act (ERISA) may also be viable.

Such claims are not surefire winners. While current employees will be covered by the law’s protections, new hires working fewer than 30 hours each week would have a tougher case of proving that they were subject to retaliation under the law. And because the health insurance requirement doesn’t take effect until January 2015, a schedule change in mid-2014 may not provide the basis for a prospective denial of rights.

After considering the potential legal implications (not to mention the practicalities of a part-time workforce), the decision is up to employers. One sure bet: If a company decides to try cutting hours, a public announcement is likely not the best idea, possibly generating a closer look from agencies like the Occupational Safety and Health Administration, which has responsibility for enforcing the law’s mandates.

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Severance Agreement Did Not Waive “Prospective” FMLA Rights, 11th Circuit Rules

Why it matters: A severance agreement that included a waiver of Family and Medical Leave Act claims was valid and enforceable, the 11th U.S. Circuit Court of Appeals recently determined, affirming dismissal of a former employee’s suit. The employee argued that the waiver was invalid under Department of Labor regulations because it was a prospective release of her rights, which she had yet to act upon. But the federal appellate panel held that “prospective” does not equate with “unexercised,” and that the employee had validly waived FMLA claims based upon the employer’s actions up to the date she signed the agreement.

Detailed Discussion
Hartford Fire Insurance Company, Blanche Paylor’s employer, presented her with a choice: sign a severance agreement with 13 weeks of benefits and a waiver of any claims she might have under the Family and Medical Leave Act (FMLA) or agree to a performance improvement plan and face termination if she failed to meet the required benchmarks.

Paylor chose the severance agreement. But she then filed an FMLA lawsuit, alleging that Hartford interfered with her FMLA rights and retaliated against her for exercising her rights. As for the severance agreement, she argued that she had pending an outstanding request for FMLA leave at the time she signed the agreement, leaving her rights “prospective” and, therefore, not waivable under Department of Labor regulations. Alternatively, she told the court that her agreement to the deal was not “knowing and voluntary.”

But the 11th Circuit disagreed.

Paylor correctly noted that 29 C.F.R. Section 825.220(d) was amended in 2009 to state that employees cannot waive “prospective” rights under the FMLA. But the regulation features additional language which states that “This does not prevent the settlement or release of FMLA claims by employees based on past employer conduct without the approval of the [DOL] or a court.”

An outstanding request for FMLA leave is not a prospective right, the court held. “All eligible employees possess an ‘unexercised’ right, in the abstract, to FMLA leave,” the panel wrote. “If by ‘prospective’ rights the DOL regulation really meant ‘unexercised’ rights, the FMLA would make it unlawful to fire any eligible employee, or at least any eligible employee with an outstanding request for FMLA leave. That is not the law: substantive FMLA rights are not absolute.”

The better interpretation of “prospective” rights under the FMLA “are those allowing an employee to invoke FMLA protections at some unspecified time in the future,” the court added. An employer could not offer all new employees a one-time cash payment in exchange for a waiver of any future FMLA claims, the court explained. “That waiver would be ‘prospective,’ and therefore invalid under the FMLA, because it would allow employers to negotiate a freestanding exception to the law with individual employees.”

Paylor’s circumstances were different, the court concluded. The severance agreement she signed contained a release of the specific claims she might have based on past interference or retaliation by Hartford, as the text of the regulation explicitly contemplates. Paylor signed the agreement on her last day of work, “thereby wiping out any backward-looking claims she might have had against her employer,” the panel said.

The court also rejected Paylor’s contention that her waiver was not knowing and voluntary. The agreement was clearly worded and Paylor acknowledged that it recommended that she consult with an attorney. Although she did not graduate from high school or college, Paylor was a 20-year veteran of the insurance industry and had attended college classes relating to the subject. Considering the totality of the circumstances, the panel found no issue of material fact in dispute as to Paylor’s knowing and voluntary waiver.

To read the decision in Paylor v. Hartford Fire Insurance Company, click here.

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NLRB Continues Crackdown On Employer Policies

Why it matters: Continuing its enforcement efforts with regard to employment policies, the National Labor Relations Board (NLRB) recently addressed issues relating to a social media policy, as well as a behavior policy prohibiting “negativity” in the workplace. In the first case, Valero Energy Corp. agreed to drop an allegedly invalid social media policy after United Steelworkers filed an unfair labor practice charge with the NLRB, claiming that the company illegally interfered with employees’ rights to discuss their terms and conditions of employment on Facebook and other social media sites. The NLRB issued a complaint, and – perhaps wary of the agency’s recent friendly rulings for unions and employees in regard to such challenges – Valero agreed to rescind the policy. In a second case, a three-member panel of the NLRB found three provisions of Michigan’s Hills and Dales General Hospital, which purported to keep negative comments out of the workplace, to be facially invalid. As the cases – and pro-employee decisions – continue to mount, employers would be well advised to review their policies and agreements in light of the NLRB’s focus.

Detailed Discussion
In 2012, United Steelworkers Local 13-423 filed an unfair labor practice charge with the NLRB over Valero Energy’s social media policy, claiming that it interfered with employees’ rights to discuss their terms and conditions of employment. A regional office of the NLRB in Texas agreed and filed an administrative complaint.

On April 8 the NLRB announced that Valero had agreed to immediately rescind the policy and inform employees about the change. “Under the terms of the settlement, Valero Services agreed to notify employees that it will rescind its unlawful social media policy and to post NLRB notices at its 52 facilities nationwide, as well as mail notices to employees, advising them that they will not be prohibited from using social media to discuss their terms and conditions of employment,” according to a statement from the NLRB.

NLRB Associate Chief Administrative Law Judge William N. Cates signed off on the deal, the full details of which were not made public.

In a second case, the NLRB targeted a behavior policy banning “negativity” in the workplace. After struggling with a poor work environment for years, Hills and Dales General Hospital in Michigan attempted to implement measures to change its culture.

One step it pursued: setting up employee teams to draft policies on various issues such as customer service, respect, attitude and teamwork. The final “Values and Standards of Behavior Policy” was distributed for employee feedback before taking effect. The hospital asked employees to sign copies of the policy and framed them in the lobby for patients to see them.

The NLRB challenged three provisions of the policy. Two fell under the Teamwork heading: Number 11, which stated, “We will not make negative comments about our fellow team members and we will take every opportunity to speak well of each other,” and Number 16, “We will represent Hills & Dales in the community in a positive and professional manner in every opportunity.” The third provision came from the Attitude section, Number 21: “We will not engage in or listen to negativity or gossip. We will recognize that listening without acting to stop it is the same as participating.”

An administrative law judge (ALJ) found paragraphs 11 and 21 facially violated Section 8(a)(1) of the National Labor Relations Act (NLRA) because employees would reasonably construe them to prohibit protected Section 7 activity.

A three-member panel of the NLRB affirmed, finding the provisions “overbroad and ambiguous by their own terms.”

The panel rejected the employer’s argument that the employee involvement in drafting the rules weighed against employee confusion about their meaning. “As a general matter, such employee involvement is no guarantee that work rules will not infringe on Section 7 rights; employees might well endorse an unlawful rule, knowingly or not, but their consent or acquiescence cannot validate the rule,” the NLRB wrote.

Although the ALJ found that paragraph 16 did not violate the NLRA, the panel reversed, determining that it “is just as overbroad and ambiguous” as paragraphs 11 and 21.

“Particularly when considered in context with these other unlawful paragraphs, employees would reasonably view the language in paragraph 16 as proscribing them from engaging in any public activity or making any public statements (i.e., ‘in the community’) that are not perceived as ‘positive’ towards [the employer] on work-related matters,” the panel said. “This would, for example, discourage employees from engaging in protected public protests of unfair labor practices, or from making statements to third parties protesting their terms and conditions of employment – activity that may not be ‘positive’ towards [the employer] but is clearly protected by Section 7.”

The NLRB distinguished a prior ruling, which allowed an employer to use the phrase “positive and ethical manner” in a policy, because Hills and Dales’ use of “positive and professional” had a much broader scope, the panel said.

The agency ordered the hospital to revise or rescind all three paragraphs and notify employees accordingly. One member of the panel dissented with regard to the conclusion on paragraph 16.

To read the NLRB’s press release about the Valero settlement, click here

To read the Board’s decision in Hills and Dales General Hospital, click here.

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