Audits/Due Diligence - Page 21 of 24

California Court of Appeal Finds Employment Arbitration Agreement Barring Class Claims Unconscionable

In Compton v. Superior Court of Los Angeles County, No. B236669 (2d Dist. Mar. 19, 2013), a divided panel of the Second District Court of Appeal reversed the Los Angeles Superior Court’s order compelling arbitration of her wage-and-hour class action complaint.

The Compton majority found the arbitration provision was substantively unconscionable because it was “unfairly one-sided” for four reasons. First, the agreement exempted the employer from arbitration for injunctive relief on claims related to confidential information and trade secrets. The majority did not find the carve-out of plaintiff’s claims for workers compensation, unemployment and disability claims sufficient to create parity. Second, the majority found the imposition of a one-year time limit to arbitrate employee claims impermissibly shortened the applicable statutes of limitations; for a separate, but related reason, the court found this limitation was unfairly one-sided when compared with the three- and four-year statutes of limitation applicable to the unfair competition and trade secret claims preserved by the employer. Finally, the majority found that the attorneys’ fees language undermined the employee-favorable statutory fee provisions. Of some concern, the court declined to sever the offensive terms, finding the agreement to be “permeated by unconscionability.”

In an apparent effort to distance its opinion from AT&T Mobility, LLC v. Concepcion (2011) 131 S.Ct. 1740 and its progeny, the Compton majority emphasized that the Concepcion opinion arose out of a consumer arbitration agreement. The court specifically found that Concepcion “did not abrogate the Armendariz one-sidedness rule,” i.e., “the doctrine of unconscionability limits the extent to which a stronger party may, through a contract of adhesion, impose the arbitration forum on the weaker party without accepting that forum for itself.” Armendariz v. Foundation Health Psychcare Servs. (2000) 24 Cal.4th 83, 118.

The Compton court found that the agreement was also procedurally unconscionable because, regardless of “how conspicuous the arbitration agreement’s terms and advisements,” the employer’s reported conduct (hurried presentation and signature requested) “rendered them nearly meaningless” and demonstrated oppression. The court also found that the information provided was one-sided because it did not sufficiently set forth the rights that were being waived, and because the rules of the applicable arbitration bodies were not provided to the employees in toto.

As a procedural side note, the panel was divided even on the basis for consideration of the appeal. The dissent found that the appeal was appropriate pursuant to the “death knell” doctrine, and the majority side-stepped the issue by addressing the issue as a petition for writ of mandate.

The dissent raises a host of issues and highlights the unsettled conflicts between the Concepcion line of cases and California’s unconscionability principles, which have arisen primarily in the context of employee and consumer lawsuits.

Given the strong language in Compton and the court’s refusal to strike out the offensive terms, California employers may wish to engage in a review of their arbitration agreements in light of the Compton majority’s opinion.

Editor’s Update:

On June 12, 2013, the Supreme Court granted defendant’s petition for review, but deferred all briefing and further action in the matter pending its disposition of Sanchez v. Valencia Holding Co., S199119, the leading case on the related issue of whether the Federal Arbitration Act, as interpreted in AT&T Mobility LLC v. Concepcion (2011) 563 U.S. ___, 131 S.Ct. 1740, preempt state laws invalidating mandatory arbitration provisions in a consumer contract on grounds of procedural and substantive unconscionability.

NLRB Acting General Counsel Gets One Right

The NLRB’s Acting General Counsel has finally recognized that employees do not read every employer policy through a Section 7 lens. In a Memorandum from the General Counsel’s Division of Advice dated February 28, 2013, the Acting GC found that Boeing Company did not interfere with or restrain Section 7 activity by maintaining an ethics policy Code of Conduct which prohibits employees from questioning the company’s honesty, morality or reputation. Instead, the Memorandum concludes that reasonable employees would understand that the company’s Ethical Guidelines are aimed at matters of business ethics, not protected concerted activity.

While recent Board decisions give lip service to the requirements that phrases not be read in isolation, and that policies are unlawful only if employees “would reasonably construe” them as prohibiting Section 7 activity, all too often the opinions read as if the analysis was simply an academic exercise for labor lawyers to decide if the language could be construed as interfering with protected rights irrespective of the context in which they are found. Refreshingly, that is not the case in the Boeing Company Memorandum.

Boeing’s Ethical Guidelines is a forty-three page statement of the company’s business ethics, and sets forth the policies and standards by which the company and its employees are expected to conduct themselves as a government contractor. In the one-page Code of Conduct preamble, the company sets forth its own expectation for conducting business with highest standard of ethics and integrity, and mandates that employees meet that standard: “Employees will not engage in conduct or activity that may raise questions as to the company’s honesty, impartiality, reputation or otherwise cause embarrassment to the company.” The preamble Code of Conduct does not contain any limiting disclaimers or clarifying examples to explain that it is not intended to interfere with or restrict Section 7 rights. Nevertheless, the Acting GC determined that employees would understand that the Code does not interfere with their rights because the “broader framework” of the forty-three page Guidelines contains examples of the type of conduct – such as bribery or insider trading – that would undermine the company’s reputation for integrity. In other words, context matters even where the context requires reading the policy as a whole, and even where there are no clarifying examples or disclaimers connected with the prohibitions at issue. We can only hope the Acting General Counsel continues to apply the rule that policy statements should not be read in isolation, and continues to recognize that employees “would reasonably” understand the context in which prohibitions are contained.

Second Circuit Rejects Application of McDonnell Douglas to New York City Human Rights Law – But Grants Summary Judgment Under More Lenient Analysis

The U.S. Court of Appeals for the Second Circuit recently affirmed a district court’s summary judgment dismissal of a lawsuit that an attorney filed against her former employer alleging race discrimination under federal, state and New York City law. In Simmons v. Akin Gump Strauss Hauer & Feld, LLP, 2013 U.S. App. LEXIS 1571 (2d Cir. 2013), the Court explained that the trial court had erroneously applied the McDonnell Douglas analysis to a New York City Human Rights Law claim, rather than only to the federal and state claims. Nonetheless, the Second Circuit concluded that the trial court properly dismissed all of the claims.

Plaintiff Tameka Simmons worked as an associate for defendant law firm, Akin Gump Strauss Hauer & Feld, LLP (“Akin Gump”), from 2007 to late 2009. In 2009, the firm was “experiencing significant economic difficulties.” For economic reasons, Akin Gump laid off forty-seven attorneys in March 2009. In April 2009, the firm announced deferred start dates for incoming associates. In June 2009, the firm converted a full-time associate to an hourly employee. At the end of 2009, the firm discharged Simmons.

Simmons filed a lawsuit against Akin Gump in the U.S. District Court for the Southern District of New York. Her claims included race discrimination in violation of: (1) Section 1981 of the Civil Rights Act of 1866, 42 U.S.C. § 1981; (2) Title VII of the Civil Rights Act of 1964, 42 U.S.C. § 2000e et seq.; (3) the New York State Human Rights Law, N.Y. Exec. Law § 296; and (4) the New York City Human Rights Law, NYC Admin. Code § 8-101 et seq. After discovery, Akin Gump filed a motion for summary judgment. The district court granted the motion, dismissing the lawsuit in its entirety. Simmons appealed.

The Second Circuit analyzed the federal and state claims under the “burden-sifting framework” of the McDonnell Douglas case. In so doing, the Court considered whether Simmons could establish a prima facie case of discrimination by showing: (1) that she was a member of a protected class; (2) that her job performance was satisfactory; (3) that she experienced an adverse employment action; and (4) “circumstances giving rise to an inference of discrimination” based on her membership in the protected class.

The Court concluded that Simmons could not establish the fourth prong of the analysis, because no evidence gave “rise to a reasonable inference of discrimination due to her race.” According to the Court, the evidence demonstrated that Akin Gump terminated her employment solely for economic reasons.

In any event, the Court explained, even if Simmons had been able to establish a prima facie case of discrimination, she could not have satisfied the next step in the McDonnell Douglas analysis, which was demonstrating that the firm’s proffered reason for her termination was pretextual. To satisfy this burden, Simmons would have had to present “sufficient evidence to support a rational finding that the legitimate, non-discriminatory reasons proffered by [the firm] were false, and that more likely than not discrimination was the real reason for the employment action.” The Court acknowledged that Simmons provided “some evidence” – such as the “low percentage of African-American associates” in her department of the firm – but it was insufficient. According to the Court, “[n]o reasonable jury could have found, on this record, that Simmons was selected for the reduction-in-force at least in part because of her race.”

The Second Circuit then turned to Simmons’ claims under the New York City Human Rights Law. The Court explained that the New York City law “was intended to provide a remedy reaching beyond those provided by the counterpart federal civil rights laws.” Accordingly, under the City law, Akin Gump could only obtain summary judgment by “showing that, based on the evidence before the court and drawing all reasonable inferences in [favor of Simmons], no jury could find that [Akin Gump] treated Simmons ‘less well’ than other employees at least in part because of her race.”

The Second Circuit observed that the district court had erred in failing to apply this more lenient analysis. Nonetheless, even under this analysis, the Second Circuit concluded that Simmons could not maintain her claim. The Court concluded that “Simmons failed to raise a triable issue as to whether she was treated less well than other employees based in whole or in part on discrimination, and not because of the non-discriminatory reasons proffered by [Akin Gump].”

As the Simmons v. Akin Gump case makes clear, the analysis that courts apply to discrimination claims under the New York City Human Rights Law is more lenient than the analysis under federal and state anti-discrimination laws. Employers with New York City employees should be aware of the more liberal analysis, but understand that – even under this analysis – courts will dismiss claims as long as employers can provide adequate support for their decisions. The keys to this effort include maintaining clear policies and documenting reasons for employment decisions.

Bye-Bye, Big Labor? What Michigan’s “Right to Work” Law Means for Employers

Michigan’s new right to work law, which endorses the right to engage in or refrain from collective action and prohibits the closed shop, analogous to right to work laws in many other states, is not well received by labor unions. Why do unions hate right to work laws, particularly when they change the way things have been for decades? Because unions lose – they lose revenue because employees can no longer be forced to pay dues or agency fees to the union in order to keep their jobs. Unions also lose power – they can no longer fine employees who violate the union’s rules. The union continues to have the obligation to represent all employees in the bargaining unit equally, but will likely get paid less (in dues) for doing so.

The Michigan right to work law will not be effective immediately for everyone. The new right to work law only applies to an agreement, contract, understanding or practice that takes effect or is extended or renewed after the effective date, approximately March 28, 2013.

On December 11, 2012 Michigan enacted a right to work law. Governor Snyder signed House Bill 4003, which applies to the public sector, and Senate Bill 116, which applies to the private sector, into laws. This legislation will prohibit an individual from being required as a condition of obtaining or continuing employment to do any of the following:

Refrain or resign from membership in, voluntary affiliation with, or voluntary financial support of a labor organization.
Become or remain a member of a labor organization.
Pay any dues, fees, assessments, or other charges or expenses of any kind or amount or provide anything of value to a labor organization.
Pay to any charitable organization or third party an amount that is in lieu of, equivalent to, or any portion of dues, fees, assessments, or other charges or expenses required of members of or employees represented by a labor organization.

If an agreement, contract, understanding or practice between or involving an employer and a labor organization violates the above provisions it is unlawful and unenforceable. Therefore, Michigan private sector employees will retain all of their existing rights under the National Labor Relations Act and any collective bargaining agreement between their employer and union representative, should they choose to retain their union representation. The new law will prohibit agreements from binding employees to the different facets of union membership including payment of union dues and assessments, union rules, or union fines, penalties or punishment, including union discipline or fines for working during a strike or crossing picket lines. Ultimately, the employee will now have the ability to decide whether to join a union.

Current collective bargaining agreements are “grandfathered” and this prohibition only applies to an agreement, contract, understanding or practice that takes effect or is extended or renewed after the effective date, approximately March 28, 2013. Therefore, employees have to abide by the current contracts until they expire. A recent NLRB decision stated that an employer’s obligation to check off union dues continues after the expiration of a union contract establishing such arrangement. In light of this decision, it would be prudent for employers, if a current agreement expires or is extended after March 28, 2013, to tread carefully when providing employees an opportunity to opt out of the union or payment of union dues. Employers should ensure they are lawfully communicating with their employees whose contracts expire after March 28, 2013 when providing information or resources to them about how to opt out.

The future of big labor is uncertain. Unions stand to lose massive numbers of members and large sums of money when employees are given a choice to decline membership. This isn’t the entire story, though. The National Labor Relations Board has in recent years been heavily pro-union and only stands to get stronger through appointments from President Obama.

Board Reverses 34-year Rule and Requires Employers to Give Unions Actual Witness Statements

Since 1978, the National Labor Relations Board has allowed employers to refuse to provide unions with copies of witness statements obtained during an investigation of employee misconduct. In Anheuser-Busch, 237 NLRB 982 (1978), the Board agreed with a U.S. Supreme Court ruling that disclosure of witness statements to a union would create a risk of coercion and intimidation and could well cause witnesses to be reluctant to provide truthful statements or participate in Board investigations. Recognizing that a union may have a legitimate need for information related to the investigation, the Board required employers to provide summaries of the witness statements to the union. This requirement balanced the confidentiality rights of the employees providing the statements with the union’s interest in relevant information.

The Board has rejected this “bright-line” rule and replaced it with a “balancing test” to decide when and under what circumstances an employer must give the union actual witness statements. Under this new approach, articulated in American Baptist Homes of the West, d/b/a Piedmont Gardens, 359 NLRB No. 46 (2012), employers must produce witness statements to a union upon request unless the employer can prove its confidentiality interest outweighs the union’s need for the information.

In Piedmont Gardens, the employer operated a continuing care facility that offered independent living, assisted living and skilled nursing care level options to its residents. In June 2011, a charge nurse informed the Human Resources Director that she had seen two certified nursing assistants sleeping on the job. The HR Director asked the charge nurse to prepare a written statement and assured her it would be kept confidential. Another charge nurse who witnessed the sleeping employees prepared a written statement after learning that her fellow charge nurse had done so, but without an assurance of confidentiality. Based on the witness statements, one of the sleeping employees was terminated.

The union requested all written statements relied on in making the termination decision and the names and job titles of everyone who was involved in the investigation. The employer refused to provide any of the requested information, but it offered to work with the union to reach an “accommodation to disclosure.” No information was provided to the union, and it filed an unfair labor practice charge.

The Board majority held that the employer was required to provide the witnesses’ names and job titles, along with the witness statement from the charge nurse who was not assured of confidentiality. However, the Board stated it would not apply its new standard in this case because it would cause a “manifest injustice” to the employer who was guided by the Anheuser-Busch standard. Thus, the employer did not have to provide the witness statements of employees who were told their statements would remain confidential.

The discarded Anheuser-Busch standard provided employers and unions certainty about their respective rights and obligations regarding disclosure of witness statements given during an employer’s investigation of possible wrongdoing. The new standard eviscerates certainty and creates a standard that is vague, subjective and outcomes will be unpredictable because each situation will be based on its unique and nuanced facts. As noted by dissenting Board Member Hayes, the new standard “will often put human relations officials…in the position of making a legal assessment whether their employer’s confidentiality interests are legitimate, substantial, and superior to the interest of the union requesting witness statements.”

This ruling follows another recent Board decision that ruled employers can no longer, as a matter of human resource practice or policy, require employees to maintain confidentiality of investigatory interviews. Banner Health System, d/b/a Banner Estrella Medical Center, 358 NLRB No. 93 (2012). Unionized employers now must consider when and how they can give confidentiality assurances to employees who provide witness statements and under what parameters the employer’s confidentiality interests are more important than the union’s right to obtain witness statements. Employers should analyze their investigatory practices and policies in light of these two rulings.

The likely real-world implications for unionized employers is that unions will demand witness statements with regularity and, if the employer refuses, file unfair labor practice charges. More frequent involvement of legal counsel may well be necessary because of the vague and fact-specific balancing act employers are now required to make.

New Year, New Laws for California Employers – Deposition Limits, San Francisco Ordinances and Meal Periods

In the final part of our series, “New Year, New Laws for California Employers,” we take a look at new deposition limits, San Francisco ordinances and meal periods. Prepared by Mark Terman, partner in the Los Angeles office, this series looks at some of the significant new regulations becoming law in 2013 affecting private employers doing business in California.

Deposition Limits

AB 1875 limits a deposition of any person to seven hours of total testimony, similar to the requirement in federal courts. Excepted from this limitation are depositions in employment and complex cases, and of expert witnesses.

San Francisco City Ordinances

For an employer who directly or indirectly employs or exercises control over an employee’s wages, hours and working conditions in the city of San Francisco, Minimum Wage, Health Care Security (HCS) and Paid Sick Leave (PSL) Ordinances benefit those employees (http://sfgsa.org/index.aspx?page=430).

For 2013, hourly minimum wage for employees in San Francisco increases to $10.55 from $10.22, while the statewide minimum wage outside San Francisco remains at $8. The required 2013 “spend per employee,” under the HCS Ordinance for employers with 100 or more employees increases to $2.33 from $2.20 per hour. For employers of 20-99 employees, spend increases to $1.55 from $1.46. Exempt from the HCS Ordinance are employers with 19 or fewer employees, managers and supervisors salaried at $86,593 or more and nonprofit employers of less than 50 employees. So far, there is no change in the PSL Ordinance.

Meal Periods

Of the many court decisions this year affecting employers, perhaps none impact as many employers as the California Supreme Court’s meal period directive in Brinker Restaurant Corp. v. Superior Court.

Before Brinker, California employers were relegated to policing and disciplining employees to ensure they took at least one, 30-minute nonworking meal periods and, if employers did not, they stood to risk class-action and single-plaintiff litigation over regular wages, overtime wages, wage premium (an extra hour of pay for each meal period lost), interest and attorneys’ fees.

By contrast, Brinker ruled that an employer’s obligation is to relieve its employees of all duty, with employees then at liberty to use the meal period for whatever purpose, but the employer need not ensure that no work is done during the meal period. Likewise, an employee may not capitalize on premium pay by intentionally working through provided meal periods, and an employer may not “impede or discourage” a full, uninterrupted meal period. Finally, the court held that an employer must provide a reasonable opportunity to take meal periods of at least 30 uninterrupted minutes, within the proper time frame, and relieve employees of all duties.

While this case is welcome news, employee claims may still surface. For example, some employees may contend that they were impeded or discouraged from taking lunch or leaving their work area, thus triggering premium pay. Some employees may habitually decline to take a meal period to try to consume “regular rate” working time midday and assure that some overtime is worked, forcing the employer to pay overtime rates for those hours. Consequently, some employers may still prefer to require by their own policies that meal periods are actually taken, rather than made available.

Links to the other posts from this series are below.

New Year, New Laws for California Employers – Employer Access to Social Media

New Year, New Laws for California Employers – Religious Dress and Grooming Protected and Breastfeeding Further Protected

New Year, New Laws for California Employers – Added Whistle-blower Protections, With Whom Will the EDD Share Employer Reports and Contracts with Commission Employees

New Year, New Laws for California Employers – Right to Inspect and Receive Employment Records and Right to Inspect and Copy Wage Records