Employment Law

Supreme Court to Decide Validity of Class Action Waivers

Why it matters

After multiple petitions, and amidst a broadening split of the federal appellate courts, the U.S. Supreme Court agreed earlier this month to decide whether class action waivers in arbitration agreements in the employment context violate the National Labor Relations Act. The hotly contested issue arose when the National Labor Relations Board declared that such waivers violate employees’ Section 7 right to engage in protected, concerted activity by requiring individual arbitration and foreclosing class or collective actions of any kind. Federal appellate panels have split on the question, with the Second, Fifth and Eighth Circuit reaching the opposite conclusion while the Seventh and Ninth Circuits have agreed with the Board. The justices have agreed to weigh in on the issue by consolidating appeals from the various circuits for oral argument later this term, but one factor makes the case even more complicated: the composition of the Court. Unless President Donald J. Trump taps a new justice who is confirmed by the Senate in time to hear the case, the potential exists for a 4-4 split decision.

Detailed discussion

The dispute began in 2012, when a divided panel of the National Labor Relations Board (NLRB) ruled in D.R. Horton that an employment agreement waiving class or collective actions violated the National Labor Relations Act (NLRA). Although the Fifth Circuit Court of Appeals reversed the decision in 2013, the agency was undeterred and stuck with its position.

A split developed among the federal appellate courts. Faced with the question for a second time in Murphy Oil, the Fifth Circuit stood fast and again rejected the NLRB’s argument. “Murphy Oil committed no unfair labor practice by requiring employees to relinquish their right to pursue class or collective claims in all forums by signing the arbitration agreements at issue here,” the panel wrote. Similar holdings followed from the Second and Eighth Circuits.

But other circuits agreed with the NLRB, including the Seventh and Ninth Circuits in Epic Systems v. Lewis and Morris v. Ernst & Young, respectively. In Morris, for example, the Ninth Circuit noted that the agency is tasked with defining the scope of NLRA rights, attaching deference to the Board’s interpretation of the statute.

“Section 7 protects a range of concerted employee activity, including the right to ‘seek to improve working conditions through resort to administrative and judicial forums,’” the court said. “Concerted action is the basic tenet of federal labor policy, and has formed the core of every significant federal labor statute leading up to the NLRA.”

Given the division among courts, both the NLRB and the employers involved in the Seventh and Ninth Circuit cases asked the U.S. Supreme Court to weigh in on the issue.

The justices acquiesced, granting certiorari and consolidating Murphy Oil, Morris and Lewis, allotting one hour for oral argument on the question presented: “Whether an agreement that requires an employer and an employee to resolve employment-related disputes through individual arbitration, and waive class and collective proceedings, is enforceable under the Federal Arbitration Act, notwithstanding the provisions of the National Labor Relations Act.”

A date for the argument will be set later this term.

To read the petition for writ of certiorari in NLRB v. Murphy Oil, click here.

To read the petition for writ of certiorari in Ernst & Young v. Morris, click here.

To read the petition for writ of certiorari in Epic Systems Corporation v. Lewis, click here.

back to top

Arbitration Not Permitted for PAGA Claims

Why it matters

A California appellate court affirmed that arbitration is not permitted for Private Attorneys General Act (PAGA) claims, affirming denial of an employer’s motion to compel arbitration. A warehouse employee filed a single-count action under PAGA against her employer, alleging multiple violations of state labor law. The employer argued that the plaintiff had to first arbitrate her individual dispute to show that she was an “aggrieved party” under PAGA before the representative action could proceed in court. A trial court disagreed and denied the motion to compel arbitration. The employer appealed, contending that the Federal Arbitration Act (FAA) permits an employer and employee to individually arbitrate discreet disputes underlying a PAGA claim, which can then be collectively litigated. But the appellate panel affirmed denial of the motion to compel arbitration. “This dispute does not involve an individual claim by [the plaintiff],” the court wrote, “but rather an action brought for civil penalties under PAGA for violating the Labor Code.”

Detailed discussion

Martina Hernandez worked in a Ross Stores, Inc. warehouse in Moreno Valley, CA as a nonexempt, hourly-paid employee. She filed a single-count representative action under the state’s Private Attorneys General Act (PAGA) alleging that her employer violated numerous Labor Code laws, including failure to pay all appropriate wages, failure to properly itemize hours worked and paid, and failure to pay overtime. She sought recovery under the PAGA civil penalties.

Ross moved to compel arbitration, arguing that Hernandez first had to establish that she was an “aggrieved party” pursuant to the statute before she could proceed in court. The employer pointed to an employment agreement Hernandez signed when she was hired that stated: “This Arbitration Policy … applies to any disputes, arising out of or relating to the employment relationship between an associate and Ross or between an associate and any of Ross’ agents or employees, whether initiated by an associate or Ross. This Policy requires all such disputes to be resolved only by an Arbitrator through final and binding arbitration.”

The determination of whether or not Hernandez was an “aggrieved party” necessarily involved the resolution of whether she was subject to a Labor Code violation, Ross said, which was a “dispute” that must be arbitrated as it involved whether she was subject to the violation.

A trial court disagreed, relying on Iskanian v. CLS Transportation to hold that because Hernandez’s complaint consisted of a single count under PAGA—a representative action on behalf of the state—no individual claims or “disputes” existed between the plaintiff and Ross.

Ross appealed but the appellate court affirmed denial of the motion to compel arbitration.

“[T]he dispute between Ross and Hernandez is not a dispute between the employer and the employee,” the court wrote. “Rather, this is a representative action and Hernandez is acting on behalf of the state. This dispute does not involve an individual claim by Hernandez regarding the Labor Code violations but rather an action brought for civil penalties under PAGA for violating the Labor Code. There are no ‘disputes’ between the employer and employee as stated in the arbitration policy. The trial court properly determined it had no authority to order arbitration of the PAGA claim.”

The determination of whether the party bringing the PAGA action is an aggrieved party should not be decided separately by arbitration, the court added. The use of the word “dispute” in the employment agreement rather than “claim” was, according to the court, “a distinction without a difference.”

“The term ‘dispute’ is clearly intended in the agreement to refer to all claims, disputes, and actions brought by the employee against the employer for personal Labor Code violations,” the court wrote. “Again, this case involves a dispute, claim or action brought on behalf of the state by Hernandez. Hernandez did not allege any individual claims or disputes.”

Public policy further supported this conclusion, the court stated, since “requiring an employee to litigate a PAGA claim in multiple forums would thwart the public policy of PAGA to ‘empower employees to enforce the Labor Code’ on behalf of the state.”

To read the decision in Hernandez v. Ross Stores, Inc., click here.

back to top

Seventh Circuit Affirms FMLA Verdict for Employee

Why it matters

An employer ran afoul of the Family and Medical Leave Act (FMLA) when it rescinded permission for an employee to work from home two days each week to care for her child. After her autistic son was expelled from day care, Miller Compressing Company allowed Tracy Wink to work from home two days per week to care for him. One Friday afternoon, however, Wink was told that, due to financial problems at the company, she had to work in the office full-time starting Monday or be fired. Unable to find day care, Wink was terminated and filed an FMLA retaliation lawsuit. A jury sided with the plaintiff and the employer appealed. The Seventh Circuit Court of Appeals affirmed the verdict, ruling that the plaintiff satisfied her evidentiary burden. The FMLA entitled Wink to take leave necessary “to take care of a very difficult (at times violent) sick child,” the panel wrote, and a reasonable jury could draw the inference that Wink’s superiors “were angry with her” for requesting to work from home.

Detailed discussion

An employee in the order processing department for Miller Compression Company, Tracy Wink, requested intermittent leave pursuant to the Family and Medical Leave Act (FMLA) to take her autistic two-year-old son to medical appointments and therapy in July 2011. The employer granted her request for a period of one year.

In February 2012, Wink’s son was expelled from day care (which he attended two days a week) because of his aggressive behavior, a product of his autism. Wink then requested FMLA leave to enable her to work from home two days each week, which would give her enough free time to take care of her son.

Human resources agreed to a hybrid arrangement that required Wink to inform the company of the number of hours she worked each day at home. The company then subtracted that time from the normal eight-hour workday to determine the hours of FMLA leave she used.

During the summer of 2012, however, Miller began experiencing serious financial problems. The company decided that none of its employees would be allowed to work at home during the week. On a Friday, the company told Wink that starting Monday she had to work five eight-hour days in the office each week or she would be terminated.

According to the evidence, Wink began to cry and told the HR officer that she would not be able to find child care for her son by Monday. The officer falsely told her that the FMLA covers leave from work only for doctors’ appointments and therapy. Unable to find child care by Monday morning, Wink was terminated.

She filed suit under the FMLA and a jury found in her favor. The employer appealed. After reviewing the evidence, the Seventh Circuit Court of Appeals affirmed.

“The Family and Medical Leave Act entitled Wink to take leave necessary to take care of a very difficult (at times violent) sick child,” the panel wrote. “Wink proved, and the jury determined, that the company had retaliated against her for asserting her FMLA right to take leave necessary to enable her to take care of her sick child for several hours two days a week. As she was a valued and experienced employee who had worked for the company at home two days a week since February without the company’s complaining, the company had no compelling reason to fire her.”

Perhaps, the Seventh Circuit suggested, Miller could have lowered her wage because of its financial troubles. But the employer did not argue that point.

“The best inference, or at least an inference that a reasonable jury could draw, was that Wink’s superiors were angry with her for requesting to be allowed to stay home (albeit working part of the day) two days a week, though she’d been doing that since February to the satisfaction of her employer,” the court said. “Hence the phony line that FMLA can’t be used to authorize leave to take care of a very sick child even when obtaining day care for the child is difficult or even impossible because of the child’s particular ailment—autism that in this case manifested itself at times in violent behavior.”

The FMLA is explicit that an eligible employee (which Wink was conceded to have been) is entitled to take up to 12 work weeks of unpaid leave per year in order to care for a family member with a serious health condition, including a child with such a condition, the court noted.

Wink’s award for claims of breach of contract and violation of Wisconsin state law were similarly affirmed by the Seventh Circuit, which also held that her award of attorneys’ fees—discounted by the district court judge by 20 percent—be paid in full.

To read the opinion in Wink v. Miller Compression Company, click here.

back to top

New York Entities Banned From Inquiring About Wage History

Why it matters

New York joined the growing trend of states prohibiting employers from inquiring about wage history in a pair of executive orders issued by Governor Andrew Cuomo in early January. In an effort “to put New York on the fast track to eliminate the wage gap,” Executive Order 161 prohibits state entities from asking or mandating that an applicant “provide his or her current compensation, or any prior compensation history,” prior to making a conditional offer of employment with compensation. Applicants may still volunteer information about their compensation histories, however, and employers may request and verify compensation information after offering employment. Executive Order 162 applies to state contractors (and subcontractors), who must provide “detailed workforce utilization reports” including the job titles and salaries of each employee performing work on the contract. While the New York orders are limited to state agents and contractors, they demonstrate the continued movement toward banning consideration of payment history already enacted California and Massachusetts.

Detailed discussion

Joining the efforts to promote pay equity by President Barack Obama’s administration (including the new requirement that employers report salary data about workers as part of a modified Employer Information Report) and states such as California and Massachusetts, both of which prohibited employers from inquiring about wage history, New York Governor Andrew M. Cuomo signed two executive orders in January.

“Every New Yorker should have the opportunity to be fairly and equally compensated based on the nature and responsibility of the work that they do,” Executive Order 161 stated, referencing the 2015 law enacted by the state with the goal of equal payment in the workplace. “Despite recent advances, federal data shows that women in this state continue to earn an average of 87 cents on the dollar, or 13 cents less, compared to what men earn for performing the same work.”

To combat the uneven playing field, Gov. Cuomo ordered state entities—defined to include all agencies and departments over which the Governor has executive authority and all public benefit corporations, public authorities, boards and commissions for which the Governor appoints the Chair, the Chief Executive or the majority of Board Members, except for the Port Authority of New York and New Jersey—to stop asking for wage history.

“In order to promote consideration of applicants based on their unique aptitude and qualifications, no [s]tate entity is permitted to ask, or mandate, in any form, that an applicant for employment provide his or her current compensation, or any prior compensation history, until such time as the applicant is extended a conditional offer of employment with compensation,” according to the order.

Once a conditional offer of employment has been extended, a state entity may request and verify compensation information, and applicants can still volunteer compensation information. If a state entity is already in possession of an applicant’s prior compensation as of the effective date of the order, it shall not be relied upon in determining the applicant’s salary.

An applicant’s refusal to provide wage history cannot be considered in making an employment decision, and individuals that have been improperly asked for compensation information can report violations of the order to the Governor’s Office of Employee Relations.

Executive Order 162 follows a similar vein, noting that “the collection of additional information related to the compensation of individuals performing work on [s]tate contracts is critical to ensure that workers are being provided equal opportunities to work on [s]tate contracts and are being paid similarly for performing the same work.”

After June 1, 2017, state agencies and authorities must include a provision in all contracts, agreements and procurements “requiring contractors to agree to include detailed workforce utilization reports to include, in addition to the equal employment opportunity information, as is currently required to be included in such reports, the job title and salary of each employee of a contractor performing work on a [s]tate contract, or of each employee in the contractor’s entire workforce if the contractor cannot identify the individuals working directly on a [s]tate contract.”

The same requirement will be imposed on subcontractors as well.

Reports will be made on a quarterly basis for those contracts having a value in excess of $25,000, except for prime construction contracts with a value over $100,000, which will require monthly reports.

“State government has a responsibility to lead and ensure that [the existing] pattern of discriminatory wage practices is confronted and addressed and does not perpetuate in New York State,” according to Executive Order 162.

To read Executive Order 161, click here.

To read Executive Order 162, click here.

back to top

Wage Statements Comply With State Law, Ninth Circuit Affirms

Why it matters

The Ninth Circuit Court of Appeals affirmed summary judgment in favor of Costco Wholesale Corporation in a suit brought by a former employee alleging the company’s wage statements violated California state law. Costco’s pay statements did not list her total hours worked and the separate hourly rates for vacation pay and vacation pay at the overtime rate, Loretta Apodaca claimed in her putative class action. Costco countered that the statements complied with the law because they listed the total hours worked with the corresponding hourly rates and that any violation of the statute was not “knowing and intentional.” A district court judge sided with the employer and the federal appellate panel affirmed. Costco listed the total hours worked, the court said, and the lack of vacation pay challenged by the plaintiff “does not reflect ‘total hours worked,’ but instead represents paid time off.” Because the employer complied with the “plain and commonsense meaning” of the statute, it was entitled to summary judgment, the court held.

Detailed discussion

Loretta Apodaca filed a putative class action against her former employer, Costco Wholesale Corporation, alleging that the company violated California Labor Code section 226 by providing inaccurate wage statements. Costco failed to list on the wage statement the total hours and the separate hourly rates for vacation pay and vacation pay at the overtime rate (or float overtime) on the line labeled “vacation pay/nonexempt salaried vacation or float overtime,” she told the court.

Costco moved for summary judgment on the claim, arguing that its wage statements complied with section 226 of the Labor Code because they stated the total hours worked by the employee along with corresponding hourly rates. In addition, Apodaca failed to prove she was injured pursuant to section 226(e) because any alleged violation of the law was not “knowing and intentional,” the national retailer added.

A district court judge agreed with Costco and granted summary judgment in the employer’s favor. Apodaca appealed and, in an unpublished memorandum, the Ninth Circuit Court of Appeals affirmed.

To establish a section 226 claim, a plaintiff must demonstrate both a violation of subsection 226(a) and an injury under subsection 226(e), the panel noted. While the trial court found Apodaca failed with regard to her 226(e) obligation, the Ninth Circuit said Costco’s wage statements satisfied 226(a) and never considered the injury prong.

“The Labor Code provisions at issue require that the employer provide an accurate itemized wage statement listing ‘total hours worked by the employee,’ and ‘all applicable hourly rates in effect during the pay period and the corresponding number of hours worked at each hourly rate by the employee,’” the court wrote. “The district court correctly concluded that the line at issue, ‘vacation pay/nonexempt salaried vacation or float overtime,’ does not reflect ‘total hours worked,’ but instead represents paid [time off]. Here, in the line ‘vacation pay/nonexempt salaried vacation or float overtime,’ Costco included additional information not required by statute, i.e., information regarding paid vacation, and therefore did not violate section 226(a).”

Costco’s wage statements satisfy the Labor Code requirements because they list the total hours worked and the corresponding hourly rates, the panel said. “It is undisputed that the total hours worked can be calculated based on the wage statement [alone] by adding the ‘REGULAR PAY’ hours to the ‘OVERTIME’ hours,’” the court explained. “It is also undisputed that the applicable hourly rate for these worked hours can be calculated based on the wage statement [alone] by dividing the amount paid by the hours worked.”

“Because the hours worked and hourly rate can be ‘promptly and easily determine[d] from the wage statement alone,’” the Ninth Circuit affirmed summary judgment for the employer.

To read the memorandum in Apodaca v. Costco Wholesale Corp., click here.

back to top



pursuant to New York DR 2-101(f)

© 2024 Manatt, Phelps & Phillips, LLP.

All rights reserved