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The California Court of Appeal this week provided a shield to employers against attacks left open by the state Supreme Court’s momentous decision earlier this month concerning meal and rest periods. The appellate court in Kinecta Alternative Financial Solutions Inc. v. Superior Court (Malone), No. B235491, decided that a trial court in Los Angeles should have dismissed class-action allegations in a meal-and-rest-period lawsuit.

In so doing, the Court of Appeal also relieved the employer from its obligation to produce confidential contact information of other employees who allegedly were not provided meal or rest periods. The appellate court reached those conclusions because the lead plaintiff and her employer had entered an enforceable arbitration agreement that did not contemplate class arbitration.

Of course, employers in the Golden State were relieved on April 12, 2012, when California’s highest court handed down its opinion in Brinker Restaurant Corp. v. Superior Court (Hohnbaum), No. S166350. That case confirmed that employers are not required to ensure their employees take legally mandated breaks; instead, employers only must provide such breaks to their workers. However, in that decision, the Supreme Court did not negate the ability of employees to file class-action lawsuits alleging meal-and-rest-period violations.

The Brinker decision is momentous because it is much easier for employers to show that they provided meal or rest periods than it is to prove that they ensured their workers actually took such breaks. Nonetheless, defending against any class action can be extremely costly and risky, even when an employer has strong evidence that it provided breaks. Avoiding class actions altogether is much more economical.

Accordingly, while the Supreme Court’s decision in Brinker generated much more fanfare, the Court of Appeal’s opinion in Kinecta may be of greater value to employers. Using an enforceable arbitration agreement to negate a class action at the outset can be a lot cheaper than defending a class action regardless of whether the employer has favorable evidence.

With that said, arbitration agreements may not be suitable for every employer. And when such agreements are desirable, care must be taken to ensure that their terms are enforceable. Thus, prudent employers who wish to explore implementing or updating arbitration agreements to reduce their exposure to meal-and-rest-period class actions should consult with legal counsel in light of the Kinecta decision.

As many readers of this Blog know, we’ve been awaiting the California Supreme Court to issue its decision in the Brinker case. This morning it did so. As our attorneys continue to analyze the decision involving issues of employee rest periods and meal breaks, we will be publishing several blog updates in the coming days discussing the impact of the decision on California employers.

In the meantime, we wanted to give you three brief takeaways from today’s decision:

• Meal Period: The Court held that when an employee is entitled to a meal break, an employer’s obligation is to relieve the employee of all work duties during that time but that the employer does not have an obligation to ensure that the employee does no work during the meal period. However, as Justice Werdegar points out in her concurring opinion, the burden remains on the employer to prove that an employee was provided with a meal break. Practically speaking employers will want to have documents and practices in place that demonstrate: (1) a policy of relieving employees of all duty obligations during the meal period; (2) a policy prohibiting any supervisor from encouraging or coercing an employee from working during or through a meal period; and (3) to train supervisors on this standard. Employers may also wish to adopt a policy by which employees should report any meal period denial.

• Rest Period Timing: The Brinker plaintiffs argued that an employer was required to provide at least one rest period before any meal period. Plaintiffs wanted to prevent employers from requiring employees to take an “early lunch”, i.e. requiring a meal break at the beginning of an employee’s shift. The Court rejected plaintiffs’ argument and held that there was no requirement regarding the timing of meal periods vs. rest periods.

• Uniform Policies and Class Actions: The Brinker employee-plaintiffs were subgrouped into three classes for certification: (1) those alleging rest break violations; (2) those alleging meal break violations; and (3) those alleging “off the clock work” violations. The Court held that the first group (rest breaks) should be class certified; the third group (“off the clock”) should not be class certified and that the lower court should reanalyze whether to certify the second group (meal breaks) in light of the Court’s meal break ruling described above. The Court’s ruling suggests that when employees are covered by a uniform policy of the employer, it is more likely that class certification will be granted. Given that there was no uniform policy regarding “off the clock work,” the Court held that it was improper to certify this class of employees since each case of “off the clock work” would have to be decided on a case-by-case basis.

Please follow this Blog for further updates regarding this landmark decision.

As you know, documentation is essential to performing even routine HR functions. You have potential employees fill out numerous pre-hire documents. You have employees sign employment agreements and other documents when hired. During the course of employment, you have employees sign additional documents, such as acknowledgments regarding your employee handbook, change in employment status documents, etc. But have you sat down recently to review whether all of the documents you are having employees sign are consistent? The recent case of Grey v. American Management Services demonstrates why you should.

In the Grey case, the employer, AMS, had Grey complete a pre-hire application packet that included an Issue Resolution Agreement (“IRA”). The IRA provided that all disputes related to Grey’s future employment with AMS would be subject to arbitration. However, when Grey was actually hired by AMS, he was asked to sign an employment contract that stated that only disputes arising out of a breach of the employment contract would be subject to arbitration. That employment contract also contained what’s called an “integration” clause that provided: “This agreement is the entire agreement between the parties in connection with employee’s employment with [AMS] and supersedes all prior and contemporaneous discussions and understandings.”

Grey later sued AMS for a variety of claims and claimed that he was subject to harassment based on his sexual orientation. AMS moved the Court to compel arbitration pursuant to the IRA he signed. The Court ordered the case to arbitration. At arbitration, AMS successfully defended against Grey’s claims and not only had the trial court confirm the arbitration award, but also award costs to AMS for having to defend against Grey’s claims.

Grey appealed the decision and argued that the trial court erred in ordering the case to arbitration. The appellate court agreed. Why? Because of the inconsistency in the arbitration provisions in the employment contract that Grey signed at the time of hire and the IRA he signed during the pre-hire application process.

The Court ruled that, under California law, “the terms of a final integrated contract `may not be contradicted by evidence of any prior agreement or of a contemporaneous oral agreement’.” The Court found that the employment agreement that Grey signed at the time of hire contained an “integration” clause that meant it was intended to be the “final” contract regarding Grey’s employment and superseded all prior agreements, including the IRA. While the IRA contained an arbitration provision that was broader (requiring the arbitration of any dispute relating to Grey’s employment); the employment contract was much narrower requiring arbitration only of breach of the agreement itself (and not statutory claims such as unlawful harassment). Because the employment agreement superseded the IRA, the Court held that it was improper to rule to order Grey to arbitrate his harassment claims. Therefore, the appellate court vacated the arbitration award and ordered that Grey be allowed to present his claims in state court.

Had the employer in the Grey case simply reviewed the various employment documents it had employees sign to ensure consistency, it may well have avoided the outcome of having won at arbitration but later losing on appeal.

To avoid this potential outcome, all employers should periodically review any documents they have employees sign, such as employment agreements, employee handbook acknowledgments, dispute resolution agreements and other policies. Not only should they ensure that these documents are updated to address any new laws, they should also be reviewed to ensure that they remain consistent with one another over time.