Employment Law

New California Employment Laws on Fair Pay, Waiver of Meal Periods

Why it matters

California continues its focus on employment-related legislation. Touted as the toughest law of its kind in the nation, Senate Bill 358 expands California’s Fair Pay Act, moving the burden to employers to prove that an employee’s higher rate of pay is based on factors other than gender (such as seniority or a merit system) and providing employees with the ability to sue if they are paid less than coworkers of a different gender performing “substantially similar” work. In addition, employers must maintain records of wages and wage rates, job classification, and related terms and conditions of employment for a three-year period. The new law becomes effective January 1, 2016. A second law involving the waiver of meal periods in the healthcare industry was passed in reaction to a decision from the state’s appellate court earlier this year in Gerard v. Orange Coast Memorial Medical Center. Analyzing the interplay between California Wage Order 5 and Labor Code Section 512, the court created panic by disallowing the common practice of waivers of second meal periods for employees in the healthcare industry, and made its decision retroactive. Senate Bill 327 reversed this decision and reaffirms the validity of waivers of a second meal period during a healthcare worker’s 12-hour shift. The bill amends the California Labor Code to reflect that position, taking immediate effect. Finally, employers dodged a bullet when Governor Brown elected not to sign Assembly Bill 465, which would have prohibited employers from requiring employees to agree to mandatory arbitration. In a veto statement, the Governor stated that he wished to avoid “years of costly litigation” challenging the measure and that “[i]f abuses remain, they should be specified and solved by targeted legislation, not a blanket prohibition.”

Detailed discussion

The California Legislature continues to focus on employment legislation, recently sending three bills to Governor Jerry Brown for his signature.

The first, Senate Bill 358, expands California’s existing prohibition on unequal pay between the genders. The state’s Fair Pay Act, originally enacted in 1949, provided that an employer may not pay an employee at a rate less than that paid to employees of the opposite sex in the same establishment for equal work performed on equal jobs. The new law lessens the burden on employees by requiring them to prove only that they received lower wages for “substantially similar” work and by eliminating the “same establishment” requirement.

In addition, the bill identifies the limited circumstances where an employer can show that wage disparity is based on a legitimate factor other than sex. Only a seniority system, a merit system, a system that measures earnings by quantity or quality of production, or a differential based on any bona fide factor other than sex (such as geographic location, education, experience, or training) will suffice. These defenses “shall apply only if the employer demonstrates that the factor is not based on or derived from a sex-based differential in compensation, is job related with respect to the position in question, and is consistent with a business necessity.” The burden to establish a bona fide factor other than sex is placed on the employer.

SB 358 also added a prohibition regarding retaliation and bans employers from interfering with workers’ ability to discuss and share information about their wages.

Recordkeeping requirements are included in the legislation, with employers mandated to maintain records of the wages and wage rates, job classification, and other terms and conditions of employment for a three-year period.

The new provision of the Fair Pay Act will take effect on January 1, 2016.

A second new law was passed in response to a decision from a California appellate court earlier this year. In Gerard v. Orange Coast Memorial Medical Center, the court had held that workers in the healthcare industry could not waive their statutory right to a second meal period when they worked more than 12 hours per day.

While state labor law requires that employees who work more than 10 hours in a workday must receive two 30-minute meal periods, Section 11(D) of California Wage Order 5 expressly permits employees in the healthcare industry to waive the second meal period if the workday is not longer than 12 hours and the first meal period was not waived. A trio of former hospital employees filed a putative class action claiming that this Wage Order was in conflict with Labor Code Sections 512(a) and 516.

A trial court sided with the hospital but the appellate panel reversed, holding that the more permissive Wage Order was partially invalid and was trumped by the Labor Code. The court made its decision retroactive, basically upending years of reliance on the Wage Order.

While the Gerard case is currently pending before the California Supreme Court, the Legislature stepped in, passing Senate Bill 327 to affirm the validity of such meal period waivers in the healthcare industry. The new law took immediate effect upon Governor Brown’s signature on October 6.

Finally, employers can breathe a sigh of relief after the Governor vetoed a measure that would have barred the use of mandatory arbitration agreements in the employment context. Assembly Bill 465 had provided that any arbitration agreement entered into, revised, extended, or renewed on or after January 1, 2016, must include a statement that the agreement is not mandatory and that signing it is not a condition of employment.

The State Legislature passed the bill by narrow margins (22 to 15 in the Senate and 45 to 30 in the Assembly), but Governor Brown vetoed the controversial measure when it arrived on his desk. “While I am concerned about ensuring fairness in employment disputes, I am not prepared to take the far-reaching step proposed in this bill for a number of reasons,” according to the veto statement. “If abuses remain, they should be specified and solved by targeted legislation, not a blanket prohibition.”

The Governor also noted that blanket bans on mandatory arbitration have been “consistently” struck down in other states as violating the Federal Arbitration Act (FAA) and that the U.S. Supreme Court is currently considering two cases arising from California courts involving preemption of state arbitration policies under the FAA. “Before enacting a law as broad as this, and one that will surely result in years of costly litigation and legal uncertainty, I would prefer to see the outcome of those cases,” Governor Brown said.

To read SB 358, click here.

To read SB 327, click here.

To read AB 465, click here.

To read the veto statement, click here.

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Seventh Circuit Decision Offers Lesson in USERRA Compliance

Why it matters

Providing an important reminder regarding compliance with the Uniformed Services Employment and Reemployment Rights Act (USERRA), the Seventh Circuit Court of Appeals reversed summary judgment in favor of an employer and remanded an employee’s lawsuit that she was subjected to discrimination based on her military status back to the trial court for further proceedings. During her six and a half years of employment with Volvo, a worker was granted more than 900 days of military leave for training and for her deployment to Iraq and Kuwait. When she returned from her tours of duty, the employee experienced post-traumatic stress disorder (PTSD) and took more time off. After she was fired for tardiness, the employee sued, alleging discrimination under both USERRA and the Americans with Disabilities Act (ADA) based on her PTSD. A federal court judge granted summary judgment for Volvo, noting the employer’s patience over a period of six years. But the federal appellate panel reversed, ruling that a jury could find that the plaintiff’s discharge was motivated by the employer’s long-standing frustration with her frequent absences due to military service. The court focused on multiple e-mails from management complaining about her absences and her lack of communication during deployment, as well as the employee’s allegation that her supervisor told her she was an “undue hardship” to the company. The decision provides an important lesson for employers about compliance with USERRA. Even though the employer provided all of the leave mandated by the statute, the court found that communications expressing frustration with the worker’s absences demonstrated a possible discriminatory motive for her termination.

Detailed discussion

LuzMaria Arroyo began working for Volvo Group North America in June 2005 as a material handler in a parts distribution center in Illinois. The company knew Arroyo was a member of the U.S. Army Reserve when she was hired.

During her six and a half years of employment, Arroyo deployed twice: to Iraq from April 2006 to May 2007 and to Kuwait from April 2009 to August 2010. She also took regular leave for weekend drills, training, and other military activities. Volvo granted her more than 900 days of military leave during her time at the company.

Arroyo pointed to evidence that her supervisors were frustrated about her schedule and absences from work from the beginning of her employment. In the fall of 2005, her supervisor e-mailed management to ask if the company was required to provide time off for her to drive to and from Georgia, where her unit was based, for military drills. She testified that the same supervisor said her military duties were becoming an “undue hardship” for the company and she should transfer to a local unit.

Another e-mail complained that Arroyo only contacted Volvo once during her deployment to Iraq. When she returned from Kuwait, the company offered her a voluntary severance package with the hope that she would accept. She declined.

The situation became more complicated upon Arroyo’s return from the second deployment when she was formally diagnosed with post-traumatic stress disorder (PTSD) and took three months of Family and Medical Leave Act (FMLA) leave. E-mails from management during this time noted that “[Arroyo] is really becoming a pain with all this,” while another message joked that “[s]he’s on vacation in Hawaii.”

When Arroyo returned to work, she requested several accommodations, many of which Volvo granted (such as a meditation room, a mentor, and time off for counseling).

Arroyo was terminated in 2011 for violation of the company’s attendance policy, under which employees received whole or fractional “occurrences” for unexcused absences or tardiness. After several occurrences of tardiness—although often of only a short duration between 1 and 10 minutes late—she was terminated.

Arroyo’s subsequent lawsuit alleged violations of the Uniformed Services Employment and Reemployment Rights Act (USERRA) and the Americans with Disabilities Act (ADA). A federal court judge granted summary judgment in favor of Volvo but Arroyo appealed. The federal appellate panel affirmed the dismissal of some of the claims but reversed with respect to plaintiff’s claims of discrimination under both federal statutes. The Seventh Circuit Court of Appeals concluded that Arroyo had sufficiently alleged that her service membership was “a motivating factor” in the adverse employment action taken against her and that Volvo had failed to prove that the termination would have occurred in the absence of her military status.

“Taking all the evidence as a whole, a reasonable jury could infer that Volvo was motivated, at least in part, by anti-military animus toward Arroyo,” the panel wrote. “There is evidence that from the beginning of her employment, her supervisors disliked the burden her frequent military leave placed on the company. They repeatedly discussed disciplining her and denied her rights, such as travel time, to which she was entitled. Some of the e-mails come close to a direct admission of management’s frustration. For example, [one supervisor] discussed his ‘dilemma’ of ‘disciplin[ing] a person for taking too much time off for military reserve duty.’ He later reportedly told Arroyo that accommodating her orders placed an undue hardship on Volvo; [a second supervisor] repeated the same sentiment. [Another manager] complained about Arroyo’s lack of communication while she was deployed in Iraq. A jury could understandably detect in these communications animus toward Arroyo’s military service.”

The court made the connection between the employer’s alleged animus and her termination because she was disciplined for instances of tardiness “often of a relatively minor nature,” when she was only a few minutes late. Further, the “e-mails expressing management’s frustration often transitioned directly into a discussion about disciplining Arroyo under the local attendance policy,” the court said.

“It is true that Volvo granted Arroyo a considerable amount of military leave during her tenure at the company and did not directly discipline her for those particular absences,” the panel acknowledged. “That fact will likely support Volvo’s arguments before a jury. But it does not negate an inference of discriminatory motive on summary judgment.”

Turning to the ADA claim, the court said it presented a “closer call” than the USERRA claim. Although less evidence existed of animus toward Arroyo’s PTSD than concerning her military service, the panel found it to be sufficient for her claim to move forward, again citing company e-mails.

“Internal emails indicate that Volvo management considered disciplining Arroyo for her absences while she was in the hospital [for her initial diagnosis of PTSD], even though she emailed [her supervisor] to tell him about her condition,” the court said. “Another one of her supervisors … joked about Arroyo’s absence, writing that she heard rumors Arroyo was actually vacationing in Hawaii. A few weeks earlier, [the same supervisor] complained … that Arroyo was ‘really becoming a pain with all this.’ This is enough for a jury to find discriminatory motive.”

The timing was also suspicious, the panel said, as the disciplinary steps that led to her termination coincided with the onset and diagnosis of Arroyo’s PTSD, supporting an inference of discrimination.

Reversing summary judgment on the USERRA and ADA discrimination claims, the panel affirmed the lower court’s dismissal of Arroyo’s failure to accommodate, retaliation, and intentional infliction of emotional distress claims.

To read the opinion in Arroyo v. Volvo Group North America, click here.

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Employer’s Background Check Forms Check Out Fine, California Court Rules

Why it matters

A federal court judge in California ruled in favor of an employer, granting a motion to dismiss a suit challenging the forms used to conduct background checks on potential employees. A pair of former employees sued, arguing that the employer did not satisfy the requirements of either the federal Fair Credit Reporting Act (FCRA) or the state counterparts by providing an application form along with a consent and disclosure form permitting the company to perform a review of the applicants’ credit histories. The judge, however, threw out the claims, although with leave to amend the complaint. “The court is not aware of any authority supporting this contention that merely presenting these documents together violates the FCRA,” the court said. Background check procedures remain a popular source of litigation from both employees and regulators (such as the Equal Employment Opportunity Commission, which has brought multiple lawsuits challenging the use of background checks), and employers should ensure that they are following both state and federal requirements when conducting preemployment background checks of applicants.

Detailed discussion

During the hiring process, Kohl’s Department Stores provided two forms to applicants. One document was an “Employment Application” and the second was titled “Consent and Disclosure for Acquisition of Consumer Report(s).”

The Employment Application consisted of two pages seeking identifying information on the first page, as well as information pertaining to availability, employment history, and the position sought. The second page requested that the applicant disclose his or her criminal history, with a statement above the signature line that released Kohl’s from liability associated with the preemployment check.

The one-page Consent and Disclosure Form requested the applicant’s identifying information and disclosed that Kohl’s would use a consumer reporting agency to obtain consumer reports on the applicant that would contain personal information such as criminal history, drug offenses and sex offender status. The form also provided the name and contact information for the consumer reporting agency, the method by which the applicant could dispute the report, and that Kohl’s might use the information gathered to make a hiring decision. Applicants were required to sign the form at the bottom.

Two former Kohl’s employees filed suit, challenging the national retailer’s background check procedures. The ex-employees alleged that, by providing the two forms to applicants simultaneously, Kohl’s ran afoul of the requirements of the federal Fair Credit Reporting Act (FCRA), the California Investigative Consumer Reporting Agencies Act (ICRAA), and the state’s Consumer Credit Reporting Agencies Act (CCRAA).

Kohl’s filed a motion to dismiss the suit. The U.S. District Court for the Northern District of California granted the motion, although it dismissed the FCRA and ICRAA claims with leave to amend.

Section 1681b(b)(2)(A)(i) of the FCRA requires that “a clear and conspicuous disclosure has been made in writing to the consumer at any time before the report is procured or caused to be procured, in a document that consists solely of the disclosure, that a consumer report may be obtained for employment purposes.”

The plaintiffs advanced a theory that Kohl’s violated the stand-alone requirement because the Employment Application and Consent and Disclosure Form were part of the same employment packet and provided to applicants at the same time. They also alleged that the disclosure also failed the “clear and conspicuous” requirement because it appeared together with other information in the Employment Application.

Kohl’s countered that the documents were two separate forms that served two separate functions in the applicant screening process. The court agreed.

“Plaintiffs have not sufficiently alleged Kohl’s failure to comply with the statute,” the judge wrote. “Each form separately bears [the Plaintiffs’] signature. The Employment Application is formatted in landscape, bears a separate title, and contains a separate form code. More importantly, the Employment Application appears to serve a different and distinct function. It requests certain employment-related information about the applicant such as basic identifying information, criminal history, and authorization and release for the company to ‘contact … employment references and personal references, as well as education institutions.’ In contrast, the Consent and Disclosure Form is formatted in portrait, and bears a distinct title and form code.”

Based on the pleadings, “Kohl’s appears to have provided two separate documents to Plaintiffs, in compliance with the FCRA,” the court said.

The judge distinguished two cases cited by the plaintiffs where federal courts found possible FCRA liability when employers presented a release of liability with either a disclosure or authorization provision in the same document. “Here, in contrast, the disclosure and authorization provisions appear in one document (the Consent and Disclosure Form) while a release of liability appears in a separate document (the Employment Application),” the court explained.

The court granted Kohl’s motion to dismiss with leave to amend the FCRA and ICRAA claims. The plaintiffs conceded that the CCRAA claim was subject to dismissal and it was dismissed with prejudice.

To read the order in Coleman v. Kohl’s Department Stores, click here.

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Regulators, Employees Target On-Call Scheduling

Why it matters

On-call scheduling remains a target of regulators and workers alike, with new suits filed challenging the practice and a recent deal between the New York Attorney General and an employer agreeing to end its use. Forever 21 and BCBG Max Azria were both the targets of complaints in California state court recently, alleging that the retailers fail to compensate workers for the time spent on call when they do not end up working. The on-call shifts are no different from regular shifts and employees should be paid accordingly, the plaintiffs claim, calling the practice of on-call scheduling a “new form of wage theft.” New York’s Attorney General has focused on the practice as well. Earlier this year, AG Eric Schneiderman sent letters to several major retailers and launched an investigation into possible violations of labor law. A number of national retailers have since agreed to stop using the practice. Joining the list earlier this month, Urban Outfitters promised to start providing employees notice of their schedules at least one week before the start of the workweek. Given the scrutiny from regulators and employees alike, employers may want to think twice before making use of on-call scheduling.

Detailed discussion

Should workers who are required to be “on call” for a shift be paid for their time? According to two new lawsuits filed in California state court by workers in the retail industry, the answer is “yes.”

Raalon Kennedy and Robynette Robinson alleged that Forever 21 and BCBG Max Azria, respectively, owe employees for on-call shifts even if they don’t end up working. “On-call shifts, like regular shifts, also have a designated beginning time and quitting time,” Kennedy wrote in his complaint. “In reality, these on-call shifts are no different than regular shifts, and Forever 21 has misclassified them in order to avoid paying reporting time in accordance with applicable law.”

Under California law, employers must pay nonexempt employees “reporting time” pay when they are required to report to work but do not end up working or work less than half of the scheduled day. Both Kennedy and Robinson alleged that they were never paid for reporting time and argued that being on call limited their chance to work a second job or plan activities.

Characterizing missing payment for on-call shifts as “a new form of wage theft,” the suits claim that employees are also penalized for missing on-call shifts or being late. “Unpredictable work schedules take a toll on all employees, especially those in low-wage sectors,” Robinson alleged in her complaint.

On the other coast, the State of New York is pursuing an action against employers utilizing on-call schedules. New York Attorney General Eric T. Schneiderman launched an investigation into the practice earlier this year, sending letters to 13 major retailers to ask how they set workers’ schedules. Recipients were also cautioned that use of on-call scheduling could violate state law.

Schneiderman said New York regulations require that employees who report for work on any day must be paid for at least four hours, or if the shift is less than four hours, at least minimum wage. The investigation was triggered by a rising number of calls to the AG’s office by employees complaining that they were not being paid accordingly, he said, particularly in the retail industry.

Some employers responded by agreeing to stop the practice. Urban Outfitters recently promised to halt the practice in its New York stores with a phase-in process starting in November. The company also stated that it would provide employees with their schedules at least one week prior to the start of the workweek.

“Workers deserve basic protections, including a reliable work schedule that allows them to budget living expenses, arrange for childcare needs and plan their days,” Schneiderman said in a statement announcing the latest agreement. “I commend Urban Outfitters for taking this important step to ensure that their employees have schedules that are more predictable.”

In addition to California and New York, six other states—Connecticut, Massachusetts, New Hampshire, New Jersey, Oregon, and Rhode Island—as well as Washington, D.C., have laws on the books mandating reporting time pay.

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We’re All Winners—At Least When It Comes to Attorneys’ Fees in California

Why it matters

A California appellate panel recently held that for purposes of awarding attorneys’ fees to the winners of certain legal claims, there can be a prevailing party on one count and a different prevailing party on a separate count. A plaintiff sued her former employer for unpaid wages and overtime, as well as for violations of the state Equal Pay Act. At the end of a trial, a jury awarded her $26,300 on the Equal Pay Act claims but found for her employer on the overtime and wage claims. Both parties filed motions for attorneys’ fees as the prevailing party. The trial court granted both motions and offset the amounts for a net award to the employee of $3,709.19. She appealed, arguing that the trial court erred because there can be only one prevailing party for practical purposes and that she believed it should be the plaintiff, as she was awarded damages. But the appellate panel affirmed, writing that when two attorneys’ fee award statutes are in play in separate causes of action, there can be a prevailing party for one cause of action and a different prevailing party for the second cause of action.

Detailed discussion

Mahta Sharif sued Mehusa, Inc., for unpaid overtime, unpaid wages, and violation of California’s Equal Pay Act. At trial, her former employer prevailed on the overtime and wage claims and a jury awarded Sharif $26,300 on her Equal Pay Act claim.

Sharif then filed a motion for attorneys’ fees under Section 1197.5(g) as the prevailing party on her Equal Pay Act claim. Mehusa countered with a motion for attorneys’ fees and costs under Section 218.5 as the prevailing party on the plaintiff’s wage claim. Granting both motions, the trial court judge offset the awards for a net award to Sharif of $3,709.19.

The plaintiff appealed. On a “practical level,” she was the sole prevailing party, Sharif told the court, because the jury awarded her monetary damages.

The appellate panel disagreed, affirming the trial court’s award.

The Equal Pay Act provides for an award of attorneys’ fees under Section 1197(g), so the plaintiff was entitled to reasonable attorneys’ fees for prevailing on that claim, the court said. At the same time, Section 218.5 is a two-way fee-shifting statute that requires the award of reasonable attorneys’ fees and costs to the prevailing party on wage claims.

Sharif’s position that there can be only one prevailing party in a lawsuit—and that she was that party because of her $26,300 award—was misplaced, the panel said. California courts have repeatedly held that a rigid definition of prevailing party should not be used and should instead “be determined by the trial court based on an evaluation of whether a party prevailed ‘on a practical level.’ ”

The plaintiff was correct that she was entitled to an award of attorneys’ fees as the prevailing party on her Equal Pay Act claim pursuant to Section 1197.5(g). But she was wrong that the defendant shouldn’t get an attorneys’ fee award too.

“The trial court did not err in determining that defendant was the prevailing party on plaintiff’s wage claim,” the court wrote. “In her complaint, plaintiff claimed that defendant failed to pay her $261,998.27 in wages. The jury found that defendant owed her nothing for wages. Thus, defendant was the ‘prevailing party’ on plaintiff’s wage claim—that is, it prevailed on a ‘practical level’ and ‘realized its litigation objectives.’ Accordingly, defendant was entitled to its attorney fees under section 218.5.”

If plaintiff had brought her wage and Equal Pay Act claims in separate actions, Mehusa would have been entitled to recover its attorneys’ fees in the action asserting the wage claim, and Sharif would have been entitled to recover her attorneys’ fees in the Equal Pay Act claim, the panel noted.

“There is no legal or logical reason why defendant should be precluded from recovering its attorney fees on plaintiff’s wage claim simply because plaintiff combined her wage and Equal Pay Act claims in a single action,” the court said. “By providing that the prevailing party under one statute is entitled to fees, and that a different prevailing party under another statute is entitled to fees, the Legislature expressed an intent that there can be two different prevailing parties under separate statutes in the same action. Thus, a net monetary award to a party does not determine the prevailing party when there are two fee shifting statutes involved in one action.”

To read the decision in Sharif v. Mehusa, Inc., click here.

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With Safe Harbor Invalidated, Companies Ask: What Now?

Earlier this month, the Court of Justice of the European Union threw out the Safe Harbor agreement between the United States and the European Union, leaving a wake of uncertainty about the international transfer of data. For more information on the decision—and some of the options for companies wondering how to handle the transatlantic transfer of data—click here to read a story from our Advertising Law Newsletter.

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