Employment Law

California Increases Amount Paid for Family, Disability Leave

Why it matters

In the latest changes to California employment law, Governor Jerry Brown signed an amendment increasing the payment to employees for family and disability leave in the state. For periods of disability or leave beginning on or after January 1, 2018, workers will be entitled to an increase from the current amount of 55 percent of their benefits under the state's Paid Family Leave or State Disability Insurance programs to either 60 or 70 percent, depending on the worker's income. Assembly Bill 908 also eliminated the seven-day waiting period that currently exists before an individual is eligible for family temporary disability benefits. "Families should be able to afford time off to take care of a new child or a member of their family who becomes ill," Gov. Brown said in a press release. "This expansion makes sense for employers and employees." The change comes on the heels of a new law bumping the state's minimum wage up to $15 per hour.

Detailed discussion

In 2002, California became the first state in the country to establish a paid family leave program. Under the current version of the law, employees are entitled to wage replacement for periods of leave due to disability or to care for a family member pursuant to the Paid Family Leave (PFL) and State Disability Insurance (SDI) programs.

For an individual who has quarterly base wages greater than $1,749.20, the weekly benefit was calculated by multiplying base wages by 55 percent and dividing the result by 13. The resulting number could not be higher than the maximum workers' compensation temporary disability indemnity weekly benefit amount.

To make it easier for workers to take up to six weeks off "to bond with a new child or care for an ill family member"—and eliminate the seven-day waiting period for receiving temporary disability benefits—lawmakers enacted Assembly Bill 908, signed into law by Governor Jerry Brown in April. The new law amended the formula for PFL and SDI payments to increase the rate to 60 or 70 percent, depending on an employee's income.

The new law provides that beginning January 1, 2018, individuals with wages above the highest-income quarter during a one-year base period less than $929 will receive a minimum of $50. Those with wages $929 or greater but less than one-third of the state average quarterly wage will be entitled to 70 percent of the amount of wages paid during the highest-income quarter during the base period, divided by 13.

Employees whose wages were at least one-third of the state average quarterly wage during their highest quarter will receive the greater of 23.3 percent of the state average weekly wage or 60 percent of the wages during the highest quarter, divided by 13.

However the math comes out, the wage replacement rate must not exceed the maximum workers' compensation temporary disability indemnity weekly benefit amount established by the Department of Industrial Relations. The revised formula only applies to periods of disability beginning January 1, 2018, but before January 1, 2022.

To read AB 908, click here.

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State AGs Investigate On-Call Scheduling

Why it matters

On-call scheduling remains on the radar of regulators across the country, as demonstrated by New York Attorney General Eric Schneiderman's most recent round of letters to employers questioning the practice. Joined by the District of Columbia Attorney General and seven other state AGs (representing California, Connecticut, Illinois, Maryland, Massachusetts, Minnesota, and Rhode Island), the letters request information about on-call scheduling practices and express concern about the negative impact it may have on the lives of workers. Employers were asked to provide information about payroll records, sample schedules, and any analysis or studies the companies may have performed about alternatives to on-call scheduling or the impact of the practice on the well-being and productivity of employees. "On-call shifts are unfair to workers who must keep the day free, arrange for child care, and give up the chance to get another job or attend a class—often all for nothing," AG Schneiderman said in a press release about the letters. "On-call shifts are not a business necessity, as we see from the many retailers that no longer use this unjust method of scheduling work hours." Schneiderman sent similar letters to companies in New York last April while employers in California were hit with lawsuits over the practice in the fall. As the issue moves nationwide, employers making use of on-call scheduling should be prepared for scrutiny, whether from regulators or employees.

Detailed discussion

The practice of on-call scheduling—most commonly found at retailers and restaurants—is facing increasing scrutiny nationwide. Last April, New York Attorney General Eric T. Schneiderman sent letters to eight different companies, expressing concern that the practice, which involves employees calling in to an employer a few hours before a shift to find out if they will be assigned to work that day, has a negative impact on workers. Typically, workers who learn that their services are not required receive no compensation for the day.

After receiving the letters, more than one company halted the practice, agreeing to provide employees with work schedules at least one week prior to the start of the workweek. But the publicity triggered more action, including class actions filed by employees in California.

Now, AG Schneiderman has picked up the cause again, along with attorneys general from the District of Columbia and seven other states: California, Connecticut, Illinois, Maryland, Massachusetts, Minnesota, and Rhode Island (although some of the offices only signed letters to companies located within their states). In letters to 15 companies, the regulators expressed their concern about the toll on employees from "unpredictable" work schedules.

"Without the security of a definite work schedule, workers who must be 'on call' have difficulty making reliable childcare and elder-care arrangements, encounter obstacles in pursuing an education, and in general experience higher incidences of adverse health effects, overall stress, and strain on family life than workers who enjoy the stability of knowing their schedules reasonably in advance," according to the letters. " 'On-call shifts' also interfere with workers' ability to obtain supplemental employment to ensure financial security for themselves and their families."

Some states have reporting pay or call-in pay laws, the AGs noted. For example, a New York state regulation provides, "An employee who by request or permission of the employer reports for work on any day shall be paid for at least four hours, or the number of hours in the regularly scheduled shift, whichever is less, at the basic minimum hourly wage."

To gather information about the employer's use of on-call scheduling, the letters requested information and documents from each recipient. Questions covered scheduling practices, from whether or not a computerized system is used to the level of autonomy that individual store managers have in the process, to details about the total number of employees, the number of employees subject to on-call shift requirements, and the specific policies workers must follow, along with any penalties to which they might be subject to and numbers of employees who have been disciplined or terminated for failure to follow the policies.

The AGs also asked about whether or not recipients have "studied or analyzed the efficiencies or cost savings believed to be associated with the use of 'on call shifts' or the potential or actual effect of 'on call shifts' on the productivity or well-being of its employees," or whether the employer has considered alternative methods for addressing unscheduled absences or unanticipated shifts in business volume other than on-call scheduling.

Employers were instructed to provide policies, handbooks, documents, or written materials regarding on-call scheduling, three to four samples of schedules including on-call shifts, any computerized reports showing instances of on-call shifts assigned, and time and payroll records showing dates on which an employee was paid for a time period of fewer than the minimum hours required by state law (such as the four-hour minimum in New York).

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NLRB, California Appellate Court Split on Arbitration Agreements

Why it matters

Recent decisions from a National Labor Relations Board (NLRB) administrative law judge (ALJ) and a California appellate panel demonstrate the spectrum of approaches courts and regulators can take when considering arbitration agreements in the employment context. In the California case, the court affirmed a ruling that an employer's agreement was not unconscionable, noting that the employee was given the opportunity to consider the agreement, was not told by the employer that failure to sign it would result in repercussions, and the provisions at issue were clearly marked, not hidden or buried in the text. Taking an opposite stance, the NLRB ALJ invalidated an employer's arbitration agreement in a challenge brought by a worker who sought to represent a group of employees. The ALJ found that the employer's position that the agreement banned class and collective actions—and attempt to enforce such a prohibition—ran afoul of Section 7 of the National Labor Relations Act as employees could "reasonably believe" they were unable to file charges of unfair labor practices with the Board. In addition, the ALJ said he was bound by the D.R. Horton and Murphy Oil line of cases. Although he acknowledged that some courts have questioned the validity of the decisions, "[a]dministrative law judges must follow board precedent unless and until it is overruled by the Supreme Court," he wrote. "Under that precedent, it is unlawful for an employer to maintain and/or enforce a mandatory arbitration provision that, either on its face or as applied, precludes employees from pursuing employment-related claims on a class or collective basis in any forum."

Detailed discussion

When it comes to arbitration in employment agreements, the National Labor Relations Board (NLRB) and the California courts appear to be moving in different directions.

California has a long and complicated history with arbitration in the context of employment agreements, with multiple cases traveling from the state court system up to the U.S. Supreme Court and back.

But the courts have recently taken a friendlier approach to employers, most recently in a dispute involving a former residential property manager for J.K. Residential Services, Inc. Celestina Campos was provided with a two-page form in Spanish by J.K. Residential's third-party administrative services provider that included an arbitration clause on the bottom half of the second page.

Four paragraphs set out the arbitration agreement followed by the signature line with a statement that "The undersigned applicant agrees that he or she has knowingly and voluntarily waived his or her right to judicial resolution of any and all previously unasserted claims as that term is broadly defined in paragraph 1 above."

When J.K. Residential began working with a different administrative services provider, Campos was presented with an eight-page form in English. Four pages consisted of the employment agreement while tax forms made up the other half. One paragraph described the arbitration agreement between the parties with a single sentence in bold: "I and [administrative service provider] mutually waive any right to a jury trial."

Campos again signed the document. She later filed suit against her employer for failure to pay minimum wage or overtime compensation and other violations of state labor law. J.K. Residential moved to compel arbitration. Campos objected, arguing that the agreement was both procedurally and substantively unconscionable. She told the court that she was not told what was in the document or whether she had a choice to sign it or change it and that no one ever mentioned the word "arbitration" or that she gave up her right to go to court.

The employer countered that Campos testified in her deposition that no one told her not to read the agreements, prevented her from reading them, imposed a time limit for her review, or forced her to sign. She never asked about if she could negotiate the terms or whether she had a choice to sign the agreement, and no one told her she would not get the job if she did not sign or that she would be fired or disciplined if she did not sign.

A human resources manager for J.K. Residential also filed a declaration to explain that she met with employees—including Campos—about the agreement to review it and answer any questions, bringing a bilingual representative with her.

Denying the motion to compel arbitration, a trial court judge determined the two agreements were not adhesive but were procedurally and substantively unconscionable. The employer appealed.

In an unpublished opinion, a panel of the California appellate court reversed, ruling that the agreements were not procedurally unconscionable. Campos was not forced to sign any document, was never told she couldn't ask questions, and a human resources manager reviewed the agreements and advised her of the arbitration clauses, the court said.

"This evidence not only supports the court's determination that the … agreements were not adhesive, but shows the two agreements were not oppressive, Campos's argument to the contrary notwithstanding," the panel wrote. "The arbitration provisions were not imposed as conditions of her employment and Campos had ample opportunity to question and negotiate. Campos was not deprived of a choice, as she was never told there would be negative repercussions if she did not sign the agreements."

Inequity is inherent in preemployment arbitration contracts, the court noted, but the evaluation of unconscionability depends on context. "Considering the entire record, including Campos's own testimony credited by the trial court, the economic realities did not function to prevent Campos from discussing the agreements, questioning them, or negotiating them free of negative consequences," the court said. "Thus, the agreements were neither adhesive nor oppressive."

The panel rejected additional grounds for invalidating the agreements, finding that the failure to attach the American Arbitration Association rules was irrelevant because the agreement did not reference the rules, citing to a similar holding from the California Supreme Court (LINK).

Further, Campos was not surprised by the arbitration provision, the panel said. "There was no surprise here," the court wrote. In one agreement, the relevant paragraphs were located immediately above the signature line; in the second, a significant clause was highlighted in bold. A human resources representative "made affirmative efforts to bring the arbitration provision to the attention of Campos who had the opportunity to read before signing" and a Spanish interpreter was present to answer questions.

"As the agreements were not contracts of adhesion, were not oppressive, and did not contain surprise, they were not procedurally unconscionable," the panel concluded. "In light of our conclusion concerning procedural unconscionability, we need not address the second prong involving substantive unconscionability."

The approach taken by an administrative law judge (ALJ) of the NLRB presents a different take on arbitration in employment agreements.

Joanna Rosales was hired by IIG Wireless, a wireless and telecommunications products retailer, in August 2012. At the time, she signed an arbitration agreement presented to her as part of the application process. The agreement provided that "as a condition of employment," employees must agree to binding arbitration of "any dispute or controversy between [the Company and the employee] arising from or in any way related to … employment with the Company," with limited exceptions. The agreement did not specifically state whether disputes must be arbitrated individually or may be arbitrated on a class or collective basis.

When Rosales was terminated in January 2014, she filed a demand for arbitration on behalf of herself and a class of other employees, alleging wage and hour violations under California state law. IIG objected to the demand for class arbitration, arguing that because the agreement was silent on the issue, "it is resigned to individual arbitration."

Rosales responded with a class action complaint in California state court. A trial court judge denied Rosales' motion to compel arbitration, holding that because the agreement was silent on the availability of class arbitration, she was required to arbitrate only her individual claims. Rosales appealed and the case is currently pending before the state court of appeals.

Concurrently, her charge of unfair labor practices moved forward with the NLRB. The General Counsel took the position that the arbitration provision at issue was clearly unlawful under D.R. Horton and Murphy Oil because employees would reasonably construe it to require arbitration of unfair labor practice allegations, preventing them from filing such charges before the Board. In addition, IIG applied the provision to prevent Rosales from pursuing her wage and hour claims on a class basis, further violating the National Labor Relations Act (NLRA).

The employer responded that employees would not be confused about the arbitration agreement, which clearly applies to civil litigation and not administrative charges, adding that the D.R. Horton and Murphy Oil line of cases have been wrongly decided and rejected by the majority of courts to consider them, citing decisions from the Fifth Circuit Court of Appeals.

But ALJ Jeffrey D. Wedekind sided with the General Counsel and Rosales, noting that the language in the employer's agreement "is not significantly or substantially different from provisions found unlawful in other D.R. Horton/Murphy Oil cases," and referencing one federal court decision endorsing the Board's reasoning.

"In any event, administrative law judges must follow Board precedent unless and until it is overruled by the Supreme Court," the ALJ wrote. "Under that precedent, it is unlawful for an employer to maintain and/or enforce a mandatory arbitration provision that, either on its face or as applied, precludes employees from pursuing employment related claims on a class or collective basis in any forum."

IIG Wireless violated the NLRA by maintaining "a mutual arbitration agreement that employees would reasonably believe bars or restricts them from filing unfair labor practice charges with the [Board]," that as applied, "compels employees, as a condition of employment, to waive the right to maintain class or collective actions in all forums, whether arbitral or judicial," and attempting to enforce the agreement against Rosales in her state court action.

The ALJ ordered the employer to rescind or revise the agreement and notify Rosales and other employees of the changes. IIG must also inform the courts involved in the Rosales litigation that the company "no longer oppose[s] Rosales's class or representative claim on the basis that they are barred by the agreement." ALJ Wedekind further instructed the employer to reimburse Rosales for all reasonable expenses and legal fees.

To read the opinion in J.K. Residential Services, Inc. v. Superior Court, click here.

To read the decision in IIG Wireless, click here.

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Uber Steers Litigation With Drivers Into $100M Settlement

Why it matters

Uber announced a settlement agreement in the high-profile litigation challenging the classification of drivers as independent contractors last month with the possibility of a $100 million payout. Drivers in California and Massachusetts sued the company over its employment practices, claiming the ride-sharing app improperly characterized them as independent contractors when they were actually employees, entitled to additional payments and benefits. Pursuant to the settlement terms, Uber will continue to classify drivers as independent contractors and not employees. However, the estimated 385,000 drivers will receive a payout and beneficial changes to Uber policy. The company will help with the creation of "drivers associations" in both states and clarify its policy on how and why drivers are "deactivated" from driving for the service. Uber also promised to pay $84 million to the drivers, with an additional $16 million added to the settlement fund if the company holds an IPO and the average valuation of the company increases to one and a half times that of its last financing round ($62.5 billion as of December 2015). The deal still requires approval from the federal court judge overseeing the litigation, but if it gets the go-ahead, it could set the tone for similar deals in other states. It also establishes that Uber will not be budging on its stance that drivers are not employees.

Detailed discussion

While ride-sharing apps like Lyft and Uber Technologies have seen enormous growth over the last few years, the companies have also faced significant employment issues. Drivers in several states have sued the companies alleging they were misclassified as independent contractors instead of employees, seeking additional wages or reimbursement.

Facing a putative class action in California federal court, Lyft recently reached a deal with drivers. The company agreed to make changes to its terms of service to provide drivers with greater protections and pay $12.25 million to the class but refused to alter the classification of drivers to employees going forward.

Uber reached a similar agreement, albeit on a larger scale. The company was facing consolidated class actions filed in California and Massachusetts where the drivers had successfully moved for class certification. But after three years of litigation and with trial scheduled to begin on June 20, the parties put on the brakes.

The deal includes both policy changes and a monetary payout by Uber. The approximately 385,000 drivers in the two states will receive portions of an $84 million settlement fund that could be bumped up to $100 million if the company holds an IPO and the average valuation of the company increases to one and a half times that of its last financing round, $62.5 million as of December 2015. Awards will be based on the number of miles driven, with those logging 25,000 or more miles receiving in the range of an estimated $8,000.

Policywise, Uber agreed to provide more details about how and why drivers are "deactivated" from the service and clarify policies on tips, as well as helping with the creation of a drivers' association in both states. Specifically, the company said riders will be informed that tips are not included in the fare and drivers will be permitted to put signs in their cars stating that "tips are not included, they are not required, but they would be appreciated." Uber also provided a list of the reasons why a driver may be deactivated, ranging from using drugs and alcohol to carrying a firearm to unsafe driving.

Perhaps most significantly, Uber will not change its business model pursuant to the deal, and drivers will continue to be classified as independent contractors. The company still faces litigation in other states (including Arizona, Florida, and Pennsylvania) on the issue, and the legal question of the appropriate characterization of drivers for ride-sharing apps remains unanswered.

To read the motion for preliminary approval of the settlement agreement in O'Connor v. Uber Technologies, click here.

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