Appellate Decision May Prompt New Jersey Employers to Seek Jury Waivers Instead of Arbitration Agreements

By William R. Horwitz

Earlier this month, the Superior Court of New Jersey, Appellate Division, issued a decision that may cause employers considering mandatory arbitration agreements to consider jury-waiver agreements instead. In Noren v. Heartland Payment Systems, Inc., 2017 WL 476216 (App. Div. Feb. 6, 2017), the Court invalidated a jury-waiver provision’s application to statutory employment claims, but explained that, worded properly, such waivers are enforceable.  Litigating in court without a jury has certain advantages and New Jersey employers considering arbitration programs may also want to consider jury waiver provisions as another possible option.

The Facts

Defendant Heartland Payment Systems, Inc. (“HPS”) hired plaintiff Greg Noren (“Noren”) as a Relationship Manager in April 1998.  In that position, Noren sold debit and credit, payroll and other processing card services to merchants.  In 2002, HPS terminated Noren’s employment but then rehired him.  In connection with his rehiring, Noren signed an agreement that contained a jury-waiver provision.  In 2003, he signed another agreement containing an identical jury-waiver provision.  Both jury-waiver provisions provided that HPS and Noren “irrevocably waive any right to trial by jury in any suit, action or proceeding under, in connection with or to enforce this Agreement.”  In June 2005, HPS terminated Noren’s employment.

Trial Court

Noren filed a lawsuit asserting claims for breach of contract and violation of the New Jersey Conscientious Employee Protection Act (“CEPA”).  Noren requested a jury trial, but the court denied the request in light of the jury-waiver provisions.  After a bench trial, the judge dismissed Noren’s lawsuit.  Noren appealed.

Appellate Division

On appeal, the Appellate Division reversed the judgment of the trial court.  In reaching its decision, the Appellate Division observed that both the New Jersey Constitution and the statutory language of CEPA guarantee the right to a jury trial.  Thus, according to the Court, the issue was whether the jury-waiver provision to which Noren and HPS agreed “is a legally enforceable waiver of this constitutionally and statutorily guaranteed right.”  Based upon “customary principles of contract law,” the Court explained that such a waiver must be clear and unmistakable.  No magic language is required but, the Court explained, “to effect a waiver, the language must clearly explain (1) what right is being surrendered and (2) the nature of the claims covered by the waiver.”

Applying these principles, the Court held that the language of the jury-waiver provisions in Noren’s agreements was deficient.  According to the Court, the contractual language “made no reference to statutory claims and did not define the scope of claims as including all claims relating to Noren’s employment.”  The Court also noted that the reference in the jury-waiver provisions to “this Agreement” limited “the category of disputes for which a jury trial is waived.”  Thus, the Appellate Division concluded that the jury-waiver provisions “fail[ed] to clearly and unambiguously explain that the right to a jury trial is waived as to a CEPA claim.”  The Appellate Division remanded the CEPA claim to the trial court for a jury trial.

Practical Takeaways

The practical implication of this decision is that New Jersey courts are likely to treat a properly-worded jury trial waiver similar to a mandatory arbitration provision.  Courts have long recognized a federal policy favoring arbitration based on the Federal Arbitration Act.  In light of this policy, New Jersey courts generally enforce properly-crafted arbitration agreements.  No such federal policy favors jury-waiver provisions.  However, in its decision in Noren, the Appellate Division did not reference this distinction and instead analyzed the enforceability of jury-waiver provisions by applying the reasoning of caselaw addressing the enforceability of arbitration provisions.  In other words, the Court held jury-waiver provisions to the same standard as arbitration provisions.  Thus, in New Jersey, jury waiver provisions appear to be as enforceable as arbitration provisions.  Accordingly, employers considering arbitration agreements should also consider whether jury-waiver agreements are better suited to meet their needs.

For employers, arbitration offers many potential advantages over litigating in court with a jury.  For instance, an arbitrator is less likely than a jury to award a plaintiff a surprising and unwarranted multi-million dollar verdict.  And, arbitrations are generally private, with no public filings unless a party moves to enforce an arbitration award.  Moreover, the employer plays a role in selecting the arbitrator.  However, arbitration has drawbacks.  For instance, an arbitration award is generally not appealable and the cost of arbitration (which, for the employer, includes paying the arbitrator’s fees) can be exorbitant.  Litigating in court without a jury does not have these drawbacks.  The employer can appeal a judge’s rulings and is not responsible for paying the judge’s fees.  Plus, judges are typically more inclined than arbitrators to dismiss a plaintiff’s claims on summary judgment.

In short, there are advantages and disadvantages to resolving employment disputes in court with a jury, in court without a jury, or in arbitration.  New Jersey employers seeking an alternative to court litigation should consider arbitration agreements but, in consultation with counsel, may also want to consider whether jury-waiver agreements would be a more suitable alternative to meet their goals.

What Retailers Need to Know About the California Transparency in Supply Chains Act

By Daniel H. Aiken, Carol F. Trevey and Brendan P. McHugh

Retail sellers and manufacturers across the country that conduct a threshold amount of business in California must comply with the California Transparency in Supply Chains Act (“Supply Chains Act” or “Act”). CAL. CIV. CODE § 1714.43. The Act, which became effective in January 2012, requires those retailers and manufacturers to disclose their efforts to eradicate slavery and human trafficking from their direct supply chains. Id. § 1743.43 (a)(1). Specifically, those companies must disclose on their website to what extent they: (1) engage in verification of product supply chains to evaluate and address risks of human trafficking and slavery; (2) conduct audits of suppliers; (3) require direct supplies to certify that materials incorporated into the product comply with the laws regarding slavery and human trafficking of the countries in which they are doing business; (4) maintain accountability standards and procedures for employees or contractors that fail to meet company standards regarding slavery and human trafficking; and (5) provide employees and management training on slavery and human trafficking. Id. § 1743.43 (c).

By its terms, the Act does not require manufacturers and retailers to take affirmative action to detect or prevent slavery or human trafficking in their supply chains. It requires only that the company make the mandated disclosures. Nevertheless, manufacturers and retailers should be aware of the potential for attorney general enforcement actions, as well as enterprising litigation by consumers, based on violations of the statute.

Requirements of the Supply Chains Act

The Act applies to any company that does business in California, has worldwide annual revenues in excess of $100 million, and is either a “manufacturer” or “retail seller” as reported on the entity’s California tax return. CAL. CIV. CODE §§ 1714.43(a)(1)–(a)(2). A retail seller or manufacturer located outside of California may be considered to be “doing business in California” if it satisfies one of the following conditions: the retail seller or manufacturer in a tax year (1) has business sales in California that exceed $500,000 or 25% of the businesses’ total sales, whichever is lesser; (2) has retail property and tangible personal property in California that exceeds $50,000 in value or 25% of the business’ total real property and tangible personal property value, whichever is lesser; or (3) pays compensation in California that exceeds $50,000 or 25% of the total compensation paid by the business, whichever is lesser. Id. § 1714.43(a)(2)(D); CAL. REV. & TAX. CODE § 23101(b). Retailers and manufacturers subject to the Act are identified each year using data provided to the California Attorney General by the state Franchise Tax Board. See CAL. REV. & TAX. CODE § 19547.5.

Retailers and manufacturers subject to the Act must disclose their efforts in the following five areas: verification, audits, certification, internal standards, and employee training. In 2015, the California Attorney General issued non-binding guidance to assist companies in complying with the statute. See California Department of Justice, “The California Transparency in Supply Chains Act: A Resource Guide,” at 3 (2015) (“Resource Guide”). According to the Attorney General’s guidance, disclosures should include the following:

  • Verification. Manufacturers and retailers subject to the act must disclose whether they verify “product supply chains to evaluate and address risks of human trafficking and slavery.” CAL. CIV. CODE § 1714.43(c)(1). This disclosure should include whether a third party conducts the verifications, a description of the verification process, and whether the company assesses potential risks related to labor-brokers and third-party recruiters in its supply chain. See Resource Guide at 11–12.
  • Audits. Manufacturers and retailers subject to the act must disclose whether they audit their suppliers’ practices. CAL. CIV. CODE § 1714.43(c)(2). This disclosure must specify whether audits are independent and unannounced. Id. It also should include statistics regarding the timeline, frequency, and number of audits. See Resource Guide at 14–15.
  • Certification. Manufacturers and retailers subject to the act must disclose whether they require direct supplies to certify that materials “comply with the laws regarding slavery and human trafficking of the . . . countries in which they are doing business.” CAL. CIV. CODE § 1714.43(c)(3). This disclosure should describe the company’s certification requirements, the consequences to the supplier of any violation, and any additional action the company takes to encourage direct suppliers to comply with relevant laws. See Resource Guide at 16–17.
  • Internal standards. Manufacturers and retailers subject to the act must disclose whether they maintain “accountability standards and procedures for employees or contractors [that] fail[] to meet company standards regarding slavery and human trafficking.” CAL. CIV. CODE § 1714.43(c)(4). This disclosure should describe the company’s standards and procedures, identify the persons tasked with monitoring these standards and procedures, and identify the company’s code of conduct related to supplier standards. See Resource Guide at 18–19.
  • Employee training. Manufacturers and retailers subject to the act must disclose whether they provide “employees and management . . . training on slavery and human trafficking, particularly with respect to mitigating risks within the supply chains of products.” CAL. CIV. CODE § 1714.43(c)(5). This disclosure should identify what positions receive training and provide a description the training, including the topics presented, duration, and frequency. See Resource Guide at 20–21.

Companies subject to the Supply Chains Act must make the above disclosures on their website’s homepage “with a conspicuous and easily understood link to the required information.” CAL. CIV. CODE § 1714.43(b). The California Attorney General has suggested that to be “conspicuous and easily understood,” a link should be placed at the top or bottom of the company’s homepage and include a relevant title, such as “California Supply Chains Act,” that plainly alerts consumers to its content. See Resource Guide at ii, 5. If a company subject to the Act does not maintain a website, such company must provide a written disclosure to any consumer request within 30 days. CAL. CIV. CODE § 1714.43(b).

A. Exclusive Remedy for Violations of the Act and Uses of the Act In Litigation

The exclusive remedy for a violation of the Supply Chains Act is an action brought by the California Attorney General for an injunction. Although the Attorney General has filed few cases under the statute, it has called upon consumers to report suspected violations. In 2015, the Attorney General requested companies that may be subject to the Act’s requirements to submit information voluntarily about their current disclosures. See Press Release, California Office of the Attorney General, Attorney General Kamala D. Harris Issues Consumer Alert on California Transparency in Supply Chains Act (April 13, 2015); Informational Letter.

B. The Supply Chains Act as a Predicate of California Unfair Competition Law, False Advertising Law, or Consumer Legal Remedies Act Claims

Although the sole remedy provided for under the Supply Chains Act is an Attorney General action for injunctive relief, the Act provides that it does not “limit [other] remedies available for a violation of any other state or federal law.” CAL. CIV. CODE § 1714.43(d). Some plaintiffs have therefore attempted to rely on violations of the Supply Chain Act as predicates for liability under California’s consumer protection statutes, the Unfair Competition Law (UCL), CAL. BUS. & PROF. CODE § 17200 et seq., the False Advertising Law (FAL), CAL. BUS. & PROF. CODE § 17500 et seq., and the Consumer Legal Remedies Act (CLRA), CAL. CIV. CODE § 1750 et seq.

For example, in Sud v. Costco Wholesale Corp., the plaintiffs attempted to bring UCL, FAL, and CLRA claims based on Costco’s alleged failure to disclose on its packaging that its prawns were “derived from a supply chain tainted by slavery, human trafficking and other human rights violations.” No. 15-CV-03783-JSW, 2017 WL 345994, at *1 (N.D. Cal. Jan. 24, 2017). The plaintiffs argued that this was an “unlawful” practice under the UCL, in part because it violated the Supply Chains Act. The Northern District of California dismissed the plaintiff’s claims, holding that “[t]he Supply Chains Act does not clearly speak to product labels.” Id. at *8. The court additionally held that “to the extent Plaintiffs are attempting to suggest” that Costco’s Supply Chains Act disclosure on its website did “not comply with the requirements of the Supply Chains Act . . . Plaintiffs lack[ed] statutory standing” because they had not alleged that they “read or relied on” the disclosure. Id. at *5, *8. Because the court focused on plaintiffs’ failure to allege an actual violation of the Supply Chains Act and their failure to allege that they relied on the disclosures required by the Act—as opposed to ruling that there was no private cause of action under the Supply Chains Act—Sud leaves open the possibility that inadequate Supply Chains Act disclosures could be a basis for successful UCL, FAL, or CLRA claims.

C. The Supply Chains Act as a Defense to California Unfair Competition Law, False Advertising Law, or Consumer Legal Remedies Act Claims

Defendants have also attempted to use their compliance with the Act to defeat claims under the UCL, FAL, and CLRA. California law recognizes a “safe harbor” defense to UCL, FAL, and CLRA claims where the California legislature has either clearly permitted certain conduct or “considered a situation and concluded no action should lie.” See Loeffler v. Target Corp., 324 P.3d 50, 76 (2014). Companies defending against UCL, FAL, or CLRA actions have, therefore, successfully pointed to their compliance with the Supply Chains Act as precluding plaintiffs from pursuing UCL, FAL, or CLRA claims based on alleged human trafficking or slavery in a company’s supply chain. In several cases, the District Court for the Central District of California has determined that the Act creates a safe harbor under the UCL because the California legislature specifically considered “how much companies should disclose to consumers about the possibility of forced labor in their supply chains.” Wirth v. Mars, Inc., Case No. 1:15-cv-1470, 2016 U.S. Dist. LEXIS 14552, at *3 (C.D. Cal. Feb. 5, 2016) (concerning cat food products that may have included ingredients from forced labor); See also Barber v. Nestle USA, Inc., 154 F. Supp. 3d 954, 961 (C.D. Cal. 2015) (same).

The Northern District of California, however, has expressed skepticism toward this argument. Without reaching the merits, in McCoy v. Nestle United States, Inc., the court questioned whether the Supply Chains Act creates a “safe harbor” because the Act is merely a disclosure statute that neither bars nor clearly permits conduct. 173 F. Supp. 3d 954, 971 (N.D. Cal. 2016). Similarly, in Hodsdon v. Mars, Inc., the court, in dicta, questioned whether adequate Supply Chains Act disclosures, which cover only “human trafficking” and “slavery,” preclude liability under the UCL, FAL, or CLRA based on child labor. The Hodsdon court commented that it would be “anomalous” if businesses earning more than $100 million worldwide (the Supply Chains Act threshold) would have access to such a “safe harbor” defense while smaller businesses would not. See Hodsdon, 162 F. Supp. 3d at 1029.

* * *

Manufacturers and retailers subject to the Supply Chains Act, or who may become subject to the Supply Chains Act, should consider whether their existing disclosures comply with the Act as interpreted by the California Attorney General. However, because of the limits of the safe harbor doctrine, compliance with the Act might not be sufficient to avoid consumer protection claims based on alleged human trafficking or slavery in supply chains. If you have any questions about best practices or other aspects of the Supply Chains Act, please do not hesitate to contact the authors or your usual Drinker Biddle contacts.

Get Ready to Comply: All Signs Point to Enforcement of the Enhanced EEO-1 Form and Reporting Obligations

By Alexa E. Miller and Lynne A. Anderson

For approximately fifty years, the Equal Employment Opportunity Commission (“EEOC”) has collected workforce data about race, gender, ethnicity and job category from all businesses with 100 or more employees, using the EEO-1 report.  In an effort to combat pay discrimination, last year the EEOC announced that it finalized regulations expanding the information collected in the annual EEO-1 report to include pay data.

The revised EEO-1 form requires employers to collect aggregate W-2 earnings and report the number of employees in each of the twelve pay bands (spanning from $19,239 and under to $208,000 and over) for the ten EEO-1 job categories (Executive/Senior Level Officials and Managers; First/Mid Level Officials and Managers; Professionals; Technicians; Sales Workers; Administrative Support Workers; Craft Workers; Operatives; Laborers and Helpers; Service Workers) and classified by race, sex and ethnicity.  The revised EEO-1 form has been largely criticized by employers claiming that the collection of W-2 earnings, without any context to explain legitimate non-discriminatory reasons for pay disparities (e.g., education, training, experience, tenure, merit, etc.) will unnecessarily open the door to increased scrutiny and investigations.  To make matters worse, the EEOC has not been very forthcoming about how the information would be analyzed and used, other than as a “screening tool” to identify pay discrimination.

With the post-election transfer of power completed, many practitioners were unsure whether the EEOC would move forward with collecting summary pay data under the new administration.  Indeed, one of President Trump’s first actions was to issue a government-wide regulatory freeze halting any new and pending regulations from taking effect.  Moreover, the newly appointed acting chair of the EEOC, Victoria Lipnic, confirmed that the revised EEO-1 forms are precisely the intended regulations targeted by Trump’s directive to halt and re-evaluate new and pending rules.  That stance coupled with the President’s executive order requiring that for every new federal regulation implemented, two must be rescinded, left many within the employment law community predicting that the new EEO-1 form would fall victim to the new administration’s chopping block.

However, with the passage of time, it appears that the revised EEO-1 form is likely here to stay.  Unlike some other agencies, the EEOC operates by majority vote.  Acting Chair Lipnic voted against the new pay data reporting requirements, but she was outnumbered 3 to 1.  Therefore, any changes to the new EEO-1 report would require a majority vote from the commission.  Trump will have an opportunity to nominate two more Republican commissioners later this year, which, if the nominees are confirmed by the Senate, could tip the balance in favor of rolling back the revised EEO-1 form.  However, that type of ideological shift among the EEOC commissioners would not occur until at least the Fall of 2017.  Although Lipnic indicated that the enhanced pay data collection requirements may be re-evaluated in the future, she has also stressed that equal pay remains a priority for the EEOC.  Given the timing of any new appointments and the upcoming filing deadline (March 31, 2018), it’s more likely that we will see a proposal to modify the revised EEO-1 form, rather than a complete repeal of the collection of pay data.

Thus, employers with more than 100 employees would be wise to gear up for compliance. The EEOC recently issued guidance to assist companies with the new reporting obligations by answering questions from the agency’s employer webinars about the revised EEO-1 report. The EEOC’s guidance instructs employers to reference an employee’s wages as reported in his or her W-2, Box 1 for the calendar year, which includes wages, tips and other compensation, to identify the correct pay band.  The EEOC clarified that employers cannot reference gross annual earnings instead of W-2, Box 1, earnings.  Employers should then count and report the total number of employees in each pay band for the job category on the new EEO-1 form.

The revised EEO-1 form also requires employers to report the total hours worked during the year, which will help explain partial year or part-time employment. The new EEO-1 form follows the Fair Labor Standards Act (FLSA) definition of hours worked.  Therefore, employers are not required to include paid leave, such as sick leave, vacation leave, or paid holidays as hours worked.  For non-exempt employees, employers should use the number of hours worked under the FLSA during the reporting year.  For exempt employees, employers can choose to either report the designated proxy hours of 40 per week for full-time employees or 20 hours per week for part-time employees multiplied by the number of weeks worked that year, or, alternatively, report actual hours worked, as defined by FLSA, if the employer already maintains such records.  Employers are not required to create or retain any new records of hours worked for exempt employees.

Other noteworthy changes in the new EEO-1 report include the new workforce snapshot period, which was previously a pay period in between July 1 and September 30, but is now a pay period between October 1 and December 31, and the new filing deadline every March 31, beginning March 31, 2018 and continuing thereafter. Employers are reminded to report pay and hours worked for the entire year for employees who are on the payroll during the workforce snapshot period.  The job categories and demographic data remain the same.

“Ensuring equal pay protections for all workers” remains a substantive priority for fiscal years 2017-2021, as set forth in the EEOC’s Strategic Enforcement Plan. Therefore, it is important that employers are fully ready to comply with the new reporting obligations.  Prior to compiling and reporting its 2017 EEO-1 data, we recommend that companies conduct an internal audit to identify any pay disparities and then consult with legal counsel to analyze the bona fide business reasons for any discrepancies.

Trump’s Supreme Court Nominee Will Likely Be Key Vote in Class Action Waiver Dispute

By Thomas J. Barton

The United States Supreme Court finally agreed earlier this year to resolve whether the National Labor Relations Act (NLRA) prohibits class action waivers in employee arbitration agreements. This ruling will have an immediate and far ranging impact on employers. The Trump presidency will likely play a crucial role in the outcome of what will be the first of many challenges to the expansive federal agency policies under the former Obama administration.

Employers have increasingly required employees to sign agreements to have their employment disputes resolved through private arbitration rather than through a lawsuit in state or federal court. The most critical aspect of these agreements has been the provisions by which the employee agrees to resolve his or her dispute on an individual basis rather than by means of a class action. When enforced, class action waivers are a potent weapon to stem the tide of wage and hour and employment discrimination class actions, which otherwise can result in claims involving thousands of workers and multimillion dollar settlements.

During the past five years, the federal appellate courts have disagreed on the validity of class action waivers causing confusion for national companies. Under President Obama, the NLRB took the position that workers have a right to engage in “concerted, protected activity” and therefore cannot waive their rights to engage in collective and class action proceedings to enforce these collective rights. In doing so, the NLRB, as it often did under the former administration, reached outside of its traditional role of resolving disputes between management and unionized workforces, to strike down arbitration provisions applicable to non-unionized workers.

In 2013, the Fifth Circuit in D.R. Horton v. National Labor Relations Board rejected the NLRB’s position and upheld the use of class action waivers. Undeterred, the activist NLRB continued to challenge class action waivers without success in the Second and Eighth Circuits in Sutherland v. Ernst & Young and Murphy Oil USA v. NLRB, respectively.

Last year, the NLRB finally received support for its position. The Seventh and Ninth Circuits found that “concerted activities” under the NLRA included participation in class and collective remedies. In other words, these courts struck down class action waivers because they prevented employees from joining together in a class action to assert their common rights. The Seventh and Ninth Circuits bolstered their rulings by declaring that the NLRB was entitled to “judicial deference” in its interpretation of the NLRA. Thus, a split occurred among the circuits that the Supreme Court will resolve. To add further to the confusion, there is another decision pending before the Third Circuit, which may be decided this spring.

Trump recently nominated Judge Neil Gorsuch to the Supreme Court to fill Justice Scalia’s seat. Judge Gorsuch currently sits on the Federal Court of Appeals for the Tenth Circuit. If nominated, many experts believe that Judge Gorsuch will be the deciding vote in what is currently viewed as a four-to-four tie among the justices.

As expected, Trump’s appointment is a conservative jurist whose decisions, on the whole, are pro employer. Not surprisingly then, Judge Gorsuch has a history of reigning in federal agency authority. Of particular note is his opinion in NLRB v. Community Health Services, where he rejected the policy of deference to the NLRB and felt that the NLRB had taken a position beyond its statutory mandate. Gorsuch’s appointment does not bode well for the NLRB’s recent aggressive positions including, its position on class action waivers.

Further tipping the predictive scales in favor of employers, Judge Gorsuch’s past rulings have favored upholding arbitration agreements. In Ragab v. Howard, Judge Gorsuch filed a dissent in a case where the majority refused to enforce an arbitration agreement, because, as he wrote, the “parties clearly intended to arbitrate their claims.” By extrapolation, Judge Gorsuch may be inclined to enforce the parties’ agreement to arbitrate their claims on an individual basis rather than through the means of a class action mechanism. While no one can predict the outcome in this case, the odds are that Judge Gorsuch will vote to uphold the validity of class action waivers.

In terms of timing, the Supreme Court will not likely issue a decision until October or November of this year. In the meantime, employers are left with conflicting precedents. Given the predicted outcome, employers probably should not alter their practices or policies of requiring arbitration agreements with class action waiver provisions. Nor should employers shy away from adopting arbitration policies that include class action waivers. Depending on the jurisdiction where a putative class action is filed, employers should continue to attempt to enforce class action waivers and seek a stay of the litigation, if appropriate, now that the Supreme Court has agreed to hear the case.

If you have any questions or concerns about this alert, please do not hesitate to contact the author or your usual Drinker Biddle contact.

Bag Check Claims: Not Quite Yet in the Bag for California Employers

By Cheryl D. Orr and Jaime D. Walter

California employers that perform bag checks on employees in order to deter theft breathed a sigh of relief in 2015 after a California federal court’s ruling in Frlekin v. Apple Inc., No. C 13-03451, 2015 WL 6851424 (N.D. Cal. Nov. 7, 2015), which provided that state law does not require that Apple compensate hourly employees for time they spend undergoing security checks. The ruling followed another favorable decision in December 2014, when the U.S. Supreme Court held in Integrity Staffing Solutions, Inc. v. Busk, 135 S. Ct. 513, 518 (2014) that security checks do not constitute compensable work activities under federal law. After years of increased attention having been paid to bag check actions, the decisions slightly cooled the plaintiffs’ bar’s enthusiasm for such actions. But despite the victories, California employers should not let their guard down quite yet. A number of recent high-value settlements continue to make bag check claims attractive.

Busk and Frlekin

In Busk, the Supreme Court provided that post-shift activities, such as bag checks, were compensable under the Fair Labor Standards Act if they constituted an “integral and indispensable” part of an employee’s job responsibilities. Because the bag checks in Busk had neither an integral nor indispensable relationship to the employees’ responsibilities, which involved retrieving shelved products and packaging them for delivery, they did not constitute compensable activities under federal law. Employees could retrieve and package items without security screenings, reasoned the Court.

As it is difficult to imagine many situations in which a court would deem antitheft security checks to be integral or indispensable to an employee’s job, Busk allowed employers to more confidently treat security checks as noncompensable. That confidence eroded a bit, however, when a federal district court in California held in Miranda v. Coach, Inc., No. 14-cv-02031-JD, 2015 WL 1788955 (N.D. Cal. Apr. 17, 2015) that Busk’s ruling did not apply to California labor law. As a result, when the Northern District of California later held that year that Apple’s bag checks did not constitute “work” under California law, employers rejoiced. The Frlekin court reasoned that the bag checks did not constitute “hours worked” because, among other things, employees were not “suffered or permitted to work.” Echoing the reasoning in Busk, the court explained that the bag checks were in no way related to the employees’ job responsibilities and were only “peripheral activities relating to Apple’s theft policies.” Moreover, the employees did not have to complete any job duties during the bag checks; they simply had to wait passively while other people searched their belongings.

Developments and Takeaways Following Frlekin

Although Busk essentially closed the door on bag check claims that arise under federal law, Frlekin is on appeal and bag check litigation—although not as popular—continues. A suit brought against Macy’s last year involves bag check claims, and the Northern District of California granted motions for class certification of bag check actions involving Converse and Nike last year. Coach, Burlington Coat Factory, Old Navy, CVS, and Real Time Staffing Services all settled bag check actions for amounts that ranged from $300,000 to $12.75 million.

The Ninth Circuit will likely hold a hearing in Frlekin in May 2017. While we would not be surprised if the court were to affirm the ruling, even if it does, the opinion may not entirely foreclose bag check litigation in California, as employees may attempt to factually distinguish their employers’ bag check policies from that imposed by Apple.

To reduce the risk of bag check exposure, employers should consider ways to allow employees to remain clocked in while undergoing bag checks. If practical difficulties make that option too burdensome, employers may want to review Frlekin and consider adopting a policy similar to Apple’s.