The Ninth Circuit Asks the California Supreme Court to Weigh in on Bag Checks

By Philippe A. Lebel

On August 16, 2017, the Ninth Circuit Court of Appeals issued an order certifying a question regarding an important wage and hour issue to the California Supreme Court: Is time spent on an employer’s premises waiting for and undergoing required exit searches of bags or packages voluntarily brought to work for purely personal convenience by employees compensable as “hours worked” under California law?

The question arose in Frlekin v. Apple, Inc., an appeal in a wage and hour class action brought against Apple, Inc., by current and former nonexempt California retail store employees. In the suit, the plaintiffs sought compensation for time that they spent waiting for and undergoing exit searches whenever they left Apple’s retail store locations, pursuant to the company’s Employee Package and Bag Searches policy. The at-issue policy, which is similar to ones in place at many other large retailers, required that employees undergo unpaid, manager-performed bag/package checks before leaving the stores—at breaks or at the end of their shifts.

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California Supreme Court Ruling on Right to Statewide Discovery in PAGA Actions Is Not as Bad for Employers as It Looks

By Ramon A. Miyar & Jaime D. Walter

In a blow to the defense bar—and, in particular, retail employers—the California Supreme Court, in Williams v. Superior Court (Marshalls of CA, LLC), S227228 (July 13, 2017), held that there is nothing unique about claims filed under the California Labor Code Private Attorneys General Act of 2004 (PAGA) that would justify restricting the scope of discovery under California law.  The Supreme Court reversed a decision of the California Court of Appeal that would have precluded PAGA plaintiffs from obtaining the contact information of other potentially aggrieved employees beyond the discrete location at which they work(ed) without first making a threshold evidentiary showing that (a) they were aggrieved employees and (b) they had knowledge of systemic statewide Labor Code violations.  Rather, to justify disclosure of the contact information of all employees in California, the Supreme Court found that it is sufficient for a named plaintiff to allege that the at-issue violations occurred, that plaintiff himself or herself was aggrieved, and that the defendant employer had a systemic, statewide policy that caused injury to other employees across California.
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The Unanswered Question: Do “Call-In” Schedules Trigger California Reporting Time Pay Obligations?

By Cheryl D. Orr, Philippe A. Lebel and Irene M. Rizzi

On June 8, 2017, plaintiffs Mayra Casas and Julio Fernandez (“Plaintiffs”) filed an unopposed motion seeking approval of a $12 million settlement reached against defendant Victoria’s Secret Stores, LLC (“Victoria’s Secret”) in a closely watched case challenging the legality of Victoria’s Secret’s “call-in” scheduling practices. The case, Casas v. Victoria’s Secret Stores, LLC, was pending before the Ninth Circuit Court of Appeals at the time the parties’ settled the case, and was one of many currently pending class action lawsuits challenging similar practices by retailers. As a result of the parties’ settlement, the ultimate question in Casas remains unanswered: Are employees who are required to call their employer to determine if they are required to show up for call-in shifts entitled to reporting time pay?

Retail Industry Reporting Time Pay Requirements

In addition to the Labor Code, employers in California must adhere to the requirements of industry-specific Wage Orders, promulgated by the now-defunct Industrial Welfare Commission. Wage Order 7, which applies to the “mercantile” industry (i.e., retailers), requires employers to pay non-exempt employees for certain unworked but regularly scheduled time. Such compensation is known as reporting time pay. Under Wage Order 7, retailers are required to pay reporting time pay if an employee “is required to report for work and does report, but is not put to work or is furnished less than half …[of his or her] usual or scheduled day’s work.” When this occurs, the employee must be paid the greater of (1) half his or her usual or scheduled day’s work (up to four hours), or (2) two hours at his or her regular rate of pay.

In the past, most reporting time pay litigation concerned situations where non-exempt employees were called in to work for special meetings or were sent home early on regularly scheduled days of work.

Casas v. Victoria’s Secret Stores, LLC

Filed in 2014, Casas called into question the legality of call-in scheduling, a common practice among retailers. Victoria’s Secret’s call-in policy required employees to call their managers two hours before the start of certain scheduled call-in shifts to determine if the employees needed to show up for work. When employees were required to come in to work, they were paid for their work time. However, when employees were told that they did not need to report to work, they were not paid. Plaintiffs argued that this policy violated Wage Order 7 because employees “reported to work” by calling their manager and were thus entitled to reporting time pay when Victoria’s Secret failed to furnish or cut short their call-in shifts.

In December 2014, U.S. District Court Judge George H. Wu rejected Plaintiffs’ argument and dismissed their call-in claims, reasoning that both the common meaning of “report” and legislative history held that “reporting for work” entailed physically appearing for work. Thereafter, Plaintiffs took an interlocutory appeal to the Ninth Circuit.

During oral argument, the three-judge Ninth Circuit panel expressed concerns about rendering a decision on the legality of uncompensated call-in procedures, and suggested that the question might be better resolved by the California Supreme Court.

Following oral argument, but before the Ninth Circuit rendered any decision, the parties settled the case, depriving the appellate court of the ability to render an opinion. Under the terms of the proposed settlement, Victoria’s Secret will pay $12 million to settle the claims of the 40,000 putative class members.

Questions Left Unanswered

While Casas was pending, numerous other retailers (including Club Monaco, Hollister, Abercrombie & Fitch, and Zumiez) were hit with similar putative class action lawsuits challenging their respective call-in scheduling practices. Several of those cases were stayed pending resolution of Casas, and will now proceed without a definitive answer from the Ninth Circuit regarding the law.

Several large retailers, including Victoria’s Secret, have done away with call-in shifts. However, such practices remain commonplace in the retail industry. Whether employers—retailers in particular—are required to pay reporting time pay for unworked call-in shifts remains an open issue.1 We will continue to monitor case law and legislative developments in this area.

1 Several state attorneys general have put pressure on large retailers to abandon call-in scheduling and certain jurisdictions (e.g., San Francisco) have proposed and/or enacted legislation prohibiting employers from such practices. However, to date, California has not passed any state-wide legislation addressing the practice.

Do You Have At Least 20 Employees in California?

By Pascal Benyamini

Currently, if you are an employer with 50 or more employees within 75 miles, you are required, under the federal Family and Medical Act (FMLA) and the California Family Rights Act (CFRA), to provide an unpaid protected leave of absence of up to 12 weeks during any 12 month period to eligible employees for various reasons, including, for the birth or placement of a child for adoption or foster care; to care for an immediate family member with a serious health condition, or to take medical leave when the employee is unable to work because of a serious health condition.

A pending California Senate Bill (SB), if passed, would extend some of the benefits of the FMLA and CFRA to California employers with 20 to 49 employees. SB 63, aka Parental Leave, would add Section 12945.6 to the Government Code, and prohibit employers with 20 to 49 employees within a 75 miles radius from refusing to allow an employee with more than 12 months of service and at least 1,250 hours of service with the employer during the previous 12-month period, to take up to 12 weeks of parental leave to bond with a new child within one year of the child’s birth, adoption, or foster care placement.

SB 63 would also prohibit employers from refusing to maintain and pay for coverage under a group health plan for an employee who takes this leave (assuming an employer has a group health plan). Further, under proposed SB 63, eligible employees will be entitled to utilize accrued vacation pay, paid sick time, or other paid time off during the period of parental leave.

If an employer employs both parents who are eligible for leave, SB 63 would authorize, but not require, the employer to grant simultaneous leave to both employees.

This bill would also prohibit an employer from taking any adverse action, such as refusing to hire, or from discharging, fining, suspending, expelling, or discriminating against, an employee for exercising the right to parental leave or giving information or testimony as to his or her own parental leave, or another person’s parental leave, in an inquiry or proceeding related to rights guaranteed under this bill.

Finally, SB 63 would prohibit an employer from interfering with, restraining, or denying the exercise of, or the attempt to exercise, any right provided under this bill.

It remains unclear whether SB 63 will pass and be signed into law by Governor Brown. We will continue to monitor any developments on SB 63 and other pending bills that may impact employers in California.

California Cracks Down on Employers’ Use of Criminal Background Information

By Kate S. Gold and Jessica A. Burt

California employers using employees’ criminal convictions to make employment-related decisions should be aware of the recent flurry of new regulations and pending state legislation that place increased limitations on employers’ use of such information.

New FEHC Regulations Prohibit Consideration of Criminal History When Doing So Has An Adverse Impact On Individuals in A Protected Class

California’s Fair Employment and Housing Commission (FEHC) issued new regulations on employers’ use of criminal background information when making employment decisions, including hiring, promotion, discipline, and termination. The new regulations take effect on July 1, 2017, and are intended to clarify how the use of criminal background information may violate the provisions of the Fair Employment and Housing Act (“FEHA”).  The regulations prohibit employers from seeking or using any criminal history information that has an adverse impact on an individual within a protected class, such as race, national origin or gender. The new regulations provide that an adverse impact may be established through the use of state or national level statistics or by offering “any other evidence” that establishes an adverse impact.

If an employee or job applicant can demonstrate that an employer’s criminal background check policy or practice creates an adverse impact, the burden shifts to the employer to prove that the policy or practice is nonetheless justifiable because it is: (1) job-related and (2) consistent with business necessity. The criminal conviction policy or practice must bear a demonstrable relationship to successful performance on the job and measure the person’s fitness for the specific position, not merely evaluate the person in the abstract.  An employer must demonstrate that the criminal background check policy is “appropriately tailored” to the job, taking into account: (i) the nature and gravity of the offense; (ii) the amount of time that has passed since the offense and/or since the sentence for the offense was completed; and (iii) the nature of the job the employee holds or seeks.

An employer can demonstrate that its policies or practices are “appropriately tailored” to the job by either: (1) conducting an individualized assessment of the circumstances and qualifications of the applicant or employee and providing the individual with notice (before any adverse action is taken) that he or she has been excluded based on a conviction and affording the individual an opportunity to show that the criminal history exclusion should not apply due to their particular circumstances; or (2) demonstrating that a “bright line” rule regarding conviction disqualification can distinguish between those employees who actually pose an unacceptable risk and that the convictions being used to disqualify, or otherwise adversely impact the status of the employee or applicant, have a direct and specific negative bearing on the person’s ability to perform the duties or responsibilities necessarily related to the position.

The new regulations further provide that any bright-line policy that includes conviction-related information that is seven or more years old is subject to a rebuttable presumption that the policy is not specifically tailored to meet the job-related and consistent with business necessity defense.

Under the new regulations, even if an employer’s background check policy meets the new stringent standard, employers may still be liable if an individual employee can demonstrate that there is a less discriminatory policy or practice that serves the employer’s goals as effectively, such as a more narrowly targeted list of convictions or another form of inquiry that evaluates job qualification or risk as accurately.

Employers that are required to comply with federal or state laws or other regulations that mandate a criminal history screening process or require an employee or applicant to possess or obtain a required occupational license can rely on the applicable laws as a defense to an adverse impact claim.

The Regulations Require Employee Notification of an Adverse Action and Opportunity to Present Evidence of Factual Inaccuracy

The federal Fair Credit Reporting Act currently requires employers to provide notice to employees or job applicants when an adverse employment decision is made based on information obtained by an employer through a background check. In addition, the FEHC’s new regulations require that employers notify an employee or applicant of the disqualifying criminal conviction if the information was obtained from any source other than the applicant or employee (e.g., through a consumer report or internally generated search).

Under the regulations, the employee or applicant must be given a “reasonable opportunity to present evidence that the information is factually inaccurate,” and the criminal record may not be considered if the employee establishes that the information is inaccurate.

Similar Pending California Legislation

Employers should also note that pending Assembly Bill (AB) 1008 goes even further than the FEHC regulations and would make it unlawful for a California employer to: (1) include on any job application questions that seek the disclosure of an applicant’s criminal history; (2) inquire or consider an applicant’s prior convictions before extending a conditional offer of employment; and (3) when conducting a criminal background check, to consider, distribute, or disseminate information on (i) an arrest not followed by conviction, (ii) referral to or participation in a pretrial diversion program, (iii) convictions that have been sealed, dismissed, expunged, or statutorily eradicated pursuant to law, (iv) misdemeanor convictions for which no jail sentence can be imposed, or (v) misdemeanor convictions for which three years have passed since the date of conviction or felony convictions for which seven years have passed since the date of conviction.

If passed, AB 1008 would also require California employers that intend to deny employment to an applicant because of prior convictions to perform an individualized assessment of whether the applicant’s criminal history has a direct and adverse relationship to the specific job duties. The employer must then notify the applicant of the reasons for the decision and provide the applicant with 10 days to respond and challenge the accuracy of the information or provide evidence of rehabilitation, which the employer must then consider before making a final employment decision.

The bill is scheduled for a hearing before the California Committee on Labor and Employment on May 3, 2017.

Best Practices for California Employers Conducting Criminal History Checks

California employers that screen applicants and employees for criminal convictions should review and evaluate their criminal conviction policies, background check policies, and job applications for compliance with the new regulations and, potentially, for compliance with pending AB 1008.

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.

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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.