Labor and Employment

On March 12, 2020, in the case Kim v. Reins International California, Inc., the California Supreme Court addressed the issue: “Do employees lose standing to pursue a claim under the Labor Code Private Attorneys General Act (“PAGA”) … if they settle and dismiss their individual claims for Labor Code violations?”  Unfortunately, for employers in California, the California Supreme Court held that an employee could continue to pursue PAGA claims against their employers, even if they have settled and dismissed their individual claims, for Labor Code violations against that employer.

Reins operates a number of restaurants in California, and employed the plaintiff, Justin Kim, as a “training manager.”  Reins had classified its training managers as an exempt position.  Kim sued Reins in a putative class action claiming that he and other training managers had been misclassified.  His complaint brought individual claims, class action claims, and also sought civil remedies under PAGA as a result of the alleged misclassification.

Reins moved to enforce an arbitration agreement it had with Kim, dismiss the class action claims and stay the PAGA claim until the arbitration was complete (Reins acknowledged that it could not force arbitration of the PAGA claim).  The Court granted Reins’ motion.  It dismissed the class action claims and ordered arbitration of the individual claims while staying the PAGA claim pending the outcome of the arbitration.  During the arbitration, Kim accepted a settlement offer from Reins and dismissed his individual claims as a result.  This resulted in the stay of the PAGA claim being lifted.  Reins moved for summary adjudication on the ground that Kim no longer had standing to pursue a PAGA claim given that he had settled and dismissed his individual claims.  The trial court agreed with Reins and granted its motion, finding that Kim, by settling his individual claims, was no longer an “aggrieved employee” under PAGA.

The issue of standing acts as kind of a “gate keeper” to the court system, ensuring that courts are only deciding actual controversies between the parties.  In order to determine whether Kim had standing to pursue the PAGA claim despite his dismissal of his individual claims, the California Supreme Court looked to the language of the PAGA statute, noting that its job was “to ascertain the intent of the legislature so as to effectuate the purpose of the [PAGA statute].”  In looking at the plain language of PAGA as it relates to standing, a plaintiff has to establish two requirements: (1) he or she is someone “who was employed by the alleged violator;” and (2) he or she is someone “against whom one or more of the alleged violations [of the Labor Code] was committed.”  The California Supreme Court held that in applying this plain language, both requirements could be readily ascertained.  Kim was both employed by Reins and that he had alleged “that he personally suffered at least one Labor Code violation on which the PAGA claim was based.”

Reins argued that although this may have meant that Kim had standing under PAGA at the time he brought his claim, he “lost” standing when he settled and dismissed his individual claim.  In particular, Reins argued that once Kim’s “injury” had been settled and thereby “redressed,” it was no longer a “continuing injury” that needed to be addressed under PAGA.  The California Supreme Court rejected this argument.

First, the California Supreme Court held that the language of standing under PAGA focuses on the alleged violations, not the alleged injury.  In essence, to adopt Reins’ argument, the California Supreme Court felt that it would be inserting “expiration” language into the statute, which it did not feel that it could do under the separation of powers theory.  It concluded that the Legislature could have included such language when it enacted PAGA but apparently decided not to.  Thus, in interpreting the PAGA standing requirement, the California Supreme Court held, “employees who were subjected to at least one unlawful practice have standing to serve as PAGA representatives, even if they did not personally experience each and every violation.”

Furthermore, under PAGA, a prospective plaintiff must first notify his or her employer and the Labor and Workforce Development Agency of the alleged violations and supporting facts and theories.  The LWDA then has 65 days in which to investigate, issue a citation, or otherwise respond to the employee’s notice.  If the LWDA fails to do one of these things within that time period, the employee may then bring a PAGA claim.  The California Supreme Court concluded that the statutory purpose of PAGA was to allow private individuals, such as Kim, to seek to enforce PAGA as a means of augmenting “the limited enforcement capability of the [LWDA].”  Thus, the Court noted that focusing on the PAGA plaintiff individual’s claims shifts focus from the proper role of the plaintiff who is instead “acting on behalf of the government.”

Likewise, although a representative of a class action can lose his or her ability to represent the class if he or she settles and dismisses her individual claims, the Court concluded that PAGA is not analogous to a class action.  Rather, the California Supreme Court concluded, “Every PAGA action … is a representative action on behalf of the State” and not on a particular class.

The California Supreme Court also reasoned that allowing an employer to avoid PAGA penalties by settling a representative’s individual claims would frustrate the State’s ability to collect and distribute civil penalties that are supposed to be collected in connection with PAGA claims.  The California Supreme Court was concerned that the State’s ability to recover future PAGA monies “would be diminished” and that “employers could potentially avoid paying any penalties to the state simply by settling with the individual employees.”

California employers need to be aware of the significance of the California Supreme Court’s Kim decision, especially in strategizing how to address alleged Labor Code violations brought by a single employee.  Employers may now be forced to focus more on litigating the PAGA claims rather than trying to avoid those claims by seeking to settle and/or dismiss a representative employee’s individual claims.

The State of California filed an appeal last week to challenge a federal court’s order barring California from enforcing a new state law that would curtail workplace arbitration agreements.  Unless the State takes some additional action, the lower court’s ban on enforcement of the new law, AB 51, will remain in effect during the appeal.

The new law would prohibit employers from requiring employees to agree to arbitrate claims alleging violations of the California’s Fair Employment and Housing Act and Labor Code.  Many employers are especially concerned that AB 51 could impose imprisonment and fines on those who try to condition employment on workers signing arbitration agreements.  However, proponents of the new law contend that it is needed to prevent employers from depriving mistreated workers of having their day in court (or in administrative agencies created to remedy workplace violations).

In rulings on January 31 and February 7, 2020, U.S. District Judge Kimberly Mueller (of the Eastern District of California, in Sacramento) issued a preliminary injunction barring the State from enforcing AB 51.  That preliminary injunction is not permanent, but would remain in place until the district court decides whether to issue a permanent injunction.  On February 19, 2020, the State filed its notice asking the U.S. Court of Appeals for the Ninth Circuit (“Ninth Circuit”) to reverse the preliminary injunction.

Now that its appeal is on file, the State may ask either Judge Mueller or the Ninth Circuit to suspend enforcement of the preliminary injunction until the outcome of the appeal.  If the State were to proffer such a request, and if the courts were to grant it, such a ruling would allow the State to enforce the ban on arbitration agreements while the appeal is pending.

Regardless of whether the State seeks or obtains such a stay, employers who wish to secure arbitration agreements from employees should consult with competent legal counsel.  The district court case is Chamber of Commerce of the USA et al. v. Becerra et al., U.S. Dist. Ct. E.D. Cal. Case No. 2:19-cv-02456-KJM-DB.  The Ninth Circuit case is Chamber of Commerce of the USA et al. v. Becerra et al., Case No. 20-15291.

A federal court in Sacramento explained last week its rationale for temporarily barring the State of California from enforcing a new law, AB 51, that would curtail employment arbitration agreements.  The rationale set forth in that written order of February 7, 2020, strongly suggests (but does not guarantee) that the court is inclined to permanently enjoin the State from enforcing that new law.

By adding section 432.6 to the California Labor Code, AB 51 would have banned employers from requiring employees to agree to arbitrate claims alleging violations of California’s Fair Employment and Housing Act and Labor Code.  On December 30, 2019, U.S. District Judge Kimberly Mueller granted a temporary restraining order barring the State from enforcing that new law until a hearing could be held in early January 2020.

Then, in a ruling on January 31, 2020, the court converted its temporary restraining order into a preliminary injunction.  The preliminary injunction enjoins the State from enforcing AB 51 as it relates to arbitration agreements that are governed by the Federal Arbitration Act (“FAA”).  That preliminary injunction is not permanent, but will remain in place until the court decides whether to issue a permanent injunction.

Judge Mueller’s ruling last month did not “explain the reasoning” for issuing the preliminary injunction; however, she promised to do so “in a detailed, written order” that would be dispatched shortly thereafter.  On February 7, 2020, Judge Mueller issued that detailed written order in Chamber of Commerce of the United States, et al. v. Becerra, et al., U.S. Dist. Ct. E.D. Cal. Case No. 2:19-cv-2456.

The State had challenged the legality of issuing such an injunction, arguing that the plaintiffs did not have legal standing to bring the action and that the federal court lacked jurisdiction to hear the case.  Judge Mueller’s detailed written order rejects those arguments.

That detailed order also sets forth the court’s analysis on the following four factors:  (1) the likelihood of the plaintiffs succeeding on the merits of their claim that AB 51 runs afoul of the FAA, (2) the probability that plaintiffs would suffer irreparable harm absent a preliminary injunction, (3) the balance of the equities, and (4) whether ordering such an injunction is in the public interest.

The court was persuaded that the plaintiffs were likely to succeed on the merits for a number of reasons.  First, Judge Mueller agreed that AB 51 violates the FAA by treating arbitration agreements differently than other contracts.  Second, the court found that, by imposing penalties against employers who require their employees to enter arbitration agreements, AB 51 interferes with the FAA’s goal of promoting arbitration.

Given such circumstances, Judge Mueller was convinced that employers would be harmed if she declined to issue a preliminary injunction.  In that vein, she explained that employers who comply with AB 51 would sacrifice their federal right to require arbitration agreements under the FAA; meanwhile, employers who fail to comply with AB 51 may be subject to civil and criminal penalties.

The court ultimately concluded that the balance of the equities and the public interest supported issuing a preliminary injunction.  Judge Mueller elaborated that ensuring the supremacy of federal laws is of “paramount” importance.

While the court’s ruling is a good sign that it will at some point permanently bar the State from enforcing AB 51, it remains to be seen if the State can avoid that outcome.  And while this preliminary injunction is likely appealable, there is no indication yet as to whether the State will pursue such an appeal or merely continuing litigating in the trial court against the imposition of a permanent injunction.  As these developments unfold, employers who wish to secure arbitration agreements from employees should consult with competent legal counsel.

A federal judge in Sacramento has continued an order that temporarily bars the State of California from enforcing a new state law that would curtail employment arbitration agreements.  The new law, AB 51, which added section 432.6 to the California Labor Code, would have banned employers from requiring employees to agree to arbitrate claims alleging violations of certain state workplace laws; specifically, the Fair Employment and Housing Act and the Labor Code.

At a hearing on January 31, 2020, U.S. District Judge Kimberly Mueller converted her prior temporary restraining order into a preliminary injunction barring the state from enforcing the new law.  In the minute order memorializing that ruling, Judge Mueller stated that she would “explain [her] reasoning in a detailed, written order” that will be dispatched “[i]n the coming days.”  The case is Chamber of Commerce of the USA et al. v. Becerra et al., U.S. Dist. Ct. E.D. Cal. Case No. 2:19-cv-02456-KJM-DB.

In federal court, there are basically three types of injunctions that compel parties to do or stop doing a particular act; namely, 1) temporary restraining orders, 2) preliminary injunctions, and 3) permanent injunctions.  Courts generally issue temporary restraining orders and preliminary injunctions to preserve the status quo while deciding whether to issue a permanent injunction.  A court can issue a temporary restraining order without notice to the other party, while a preliminary injunction requires both notice to the other party and usually a hearing where each side presents their arguments.

Although not a guarantee that a permanent injunction will ensue, the issuance of a preliminary injunction is frequently a good sign that the court is strongly leaning in that direction.  Indeed, to obtain a preliminary injunction, the party asking for it must persuade the court that there is a likelihood of ultimately prevailing on the merits.

One aspect of the new law that has employers especially concerned is that it could impose imprisonment and fines on employers who try to condition employment on workers signing arbitration agreements.  According to employers, resolving workplace disputes through arbitration is better for everyone concerned because it is faster and more economical than litigating in court or in an administrative agency.  Employers say it is wrong to impose criminal penalties on them for trying to bolster such common-sense procedures, and that doing so runs afoul of the Federal Arbitration Act.

On the other hand, proponents of the new law contend that it is needed to prevent employers from depriving mistreated workers of having their day in court (or in administrative agencies created to remedy workplace violations).  They insist that, without the new law, employers can continue to coerce workers to sign away their legal rights, and that employees who sign away such rights are then “trapped in the employer’s handpicked arbitration system.”

Judge Mueller’s preliminary injunction is likely appealable, but there is no indication yet as to whether the State of California will pursue such an appeal or wait until the conclusion of the litigation.

Effective January 1, 2020, California’s minimum wage rate increased to $13.00 per hour (from $12.00) for employers with 26 or more employees and $12.00 per hour (from $11.00) for employers with 25 or fewer employees. The minimum wage will continue to increase yearly until it reaches $15.00 per hour on January 1, 2022 for employers with 26 or more employees and January 1, 2023 for employers with 25 or fewer employees.

In California, many cities and counties are increasing their minimum wages faster than the state. Click here for a chart of increases set to take place in 2020.

Mandatory arbitration agreements in California employment have been granted a stay of execution. For now. Earlier today, a federal judge in California issued a temporary restraining order enjoining enforcement of AB 51, the new California law that would have banned employers in the state from requiring employees to sign mandatory arbitration agreements as a condition of employment.  AB 51 was set to take effect on January 1, 2020.

Earlier this month, a group of pro-commerce organizations and trade associations, including the United States Chamber of Commerce and the California Retailers Association, jointly filed a lawsuit seeking to block AB 51 from taking effect. The organizations argued that AB 51 was preempted by federal law that precludes states from limiting or interfering with the use of arbitration agreements to resolve disputes.

Judge Kimberly Mueller of the Eastern District of California accepted that argument, at least for now. The temporary restraining order prevents enforcement of AB 51 until at least January 10, 2020. The Court has set a hearing that day to decide whether to grant a preliminary injunction that would block enforcement of AB 51 until the lawsuit is resolved.

So what does this ruling mean for California employers? For now, not much other than hope. AB 51 will still take effect on January 10 unless Judge Mueller grants the longer injunction. Granting the temporary restraining order, however, does suggest that she believes the preemption argument may have merit. That said, employers would be best suited taking a wait-and-see approach between now and the next ruling from the court. In the meantime, employers may consider permissive, rather than mandatory, arbitration agreements that make clear entering into it is not a condition of employment. Also, because AB 51 does not apply retroactively, employers will still be able to enforce mandatory arbitration agreements that were entered into before January 1, 2020.

In 2018, this author blogged about how religious entities can navigate the potential traps when they seek to comply with the federal laws against anti-harassment, discrimination and retaliation laws by adopting handbook policies and training their employees, while protecting their status as exempt from the California analog to Title VII, the Fair Employment and Housing Act (FEHA).  While that case was up on appeal, the parties settled, leaving the state of the law unsettled.

Happily for religious entities, the Court of Appeal for the Sixth Appellate District of California, in another case pending at the same time has paved a clearer path forward for religious employers.

Mathews v Happy Valley Conference Center

Background

Plaintiff Jeremiah Mathews was an employee of a religious employer, Happy Valley Conference Center (“Happy Valley”), a subordinate affiliate (but separate legal entity) of the Community of Christ Church (“Church”) in the Santa Cruz mountains.  (The sordid details and other legal issues are laid out in the appellate court’s opinion. This post focuses only on the religious entity exemption issue.)

In short, Mathews blew the whistle, reporting sexual harassment by his supervisor of a coworker.  A month later, Mathews was terminated – according to the employer, the termination was for unrelated conduct.  He initially filed an EEOC charge alleging retaliation for reporting harassment, and then sued for retaliatory termination under various theories, including under Title VII (which does not contain a general exemption for religious entities) and FEHA (which does).  Out of the gate, Mathews sought affirmative declaratory relief as to the scope of FEHA’s religious entity exemption and the interpretation of Happy Valley’s handbook anti-harassment and retaliation provisions.  Among other defenses, Happy Valley asserted that it was exempt from FEHA as a religious entity.  The Church also asserted the FEHA religious exemption.

Happy Valley used software purchased from a popular provider of human resources forms and handbooks.  The employee handbook was a “canned” handbook created using standardized templates; there was no option in the software Happy Valley used for religious entity-specific provisions related to discrimination, harassment, or retaliation.  As adopted and provided to plaintiff during his employment, the employee handbook stated Happy Valley’s company policy “prohibits unlawful discrimination based on race, color, creed, gender, religion, marital status, registered domestic partner status, age, national origin or ancestry, physical or mental disability, medical condition including genetic characteristics, sexual orientation, or any other consideration made unlawful by federal, state, or local laws.”  The handbook continued that Happy Valley is “committed to compliance with all applicable laws providing equal employment opportunities” (emphasis added) and advised employees that they could contact the federal Equal Employment Opportunity Commission or the California Department of Fair Housing and Employment (which enforces the FEHA) if they feel they have been harassed or retaliated against.

Mathews claimed that defendants had waived and/or should be estopped from asserting its exemption, because it had a handbook policy prohibiting retaliation and harassment under “all applicable laws”.   The trial court determined that defendants had waived the right to assert the religious entity exemption from the FEHA, based on the employee handbook, and because the defendants did not raise the religious entity exemption in their initial response to the EEOC charge. The court made similar findings to support estoppel and found that Mathews’ detrimental reliance was expending money pursuing his claims in reliance on the employee manual and the fact that the Church did not assert the exemption during the administrative claim investigation. The jury then found that the defendants’ firing of Mathews was in retaliation for reporting sexual harassment, and returned a $900,000 verdict and the employer was ordered to pay almost $1,000,000 in attorney’s fees.

Appeal

1.         Defendants’ Handbook did Not Waive the Exemption from the FEHA.

On appeal, the court considered the waiver claim de novo, and found that there was no waiver of the religious entity exemption.

The EEOC notified defendants it was investigating a potential Title VII violation, not a FEHA violation. So, assertion of a FEHA exemption was immaterial to the EEOC proceedings and failure to raise it in that context did not waive the exemption.

As to the handbook, the court of appeal notes that the handbook never explicitly references the FEHA – it simply states that Happy Valley prohibits harassment, discrimination, and retaliation; that Happy Valley is “committed to compliance with all applicable laws providing equal employment opportunities”; and that employees “should be aware that the Federal Equal Employment Opportunity Commission and the California Department of Fair Employment and Housing investigate and prosecute complaints of prohibited harassment in employment.” The handbook makes no promise that defendants will be bound by FEHA; the handbook refers to being bound by “applicable” laws. Nothing in the handbook amounts to a “knowing and voluntary” waiver of the religious entity exemption.

    2.         Defendants’ Conduct did not Support Estoppel

On appeal, the court considered the estoppel claim de novo, and found that the defendants were not estopped by their conduct from asserting the religious entity exemption.

The Court considered both the definition of “estoppel” in California Evidence Code section 623, and the doctrine of equitable estoppel founded on the concepts of fair dealing. “Whenever a party has, by his own statement or conduct, intentionally and deliberately led another to believe a particular thing true and to act upon such belief, he is not, in any litigation arising out of such statement or conduct, permitted to contradict it.” (Evid. Code, § 623.)  The Court found it important that equitable estoppel is “defensive in nature only,” and “operates to prevent one [party] from taking an unfair advantage of another.”

The Court found that there was no evidence that a crucial element of estoppel – conduct by the party that causes detrimental reliance by the other. “  The employee handbook was ambiguous and makes no affirmative representation that FEHA will apply.  The failure to raise the FEHA exemption before the EEOC, which only enforces Title VII, was reasonable, because it was not relevant.  And finally, defendants’ denial in the case put Mathews on notice that they believed the religious entity exemption applied. There was no indication that Mathews would have abandoned the FEHA cause of action had he known earlier that defendants would assert the religious entity exemption.

   3.         Religious Employers are Exempt from the Retaliation Provision of FEHA

The appellate court considered and rejected Mathews’ argument that even if the FEHA’s religious exemption applies to defendants as “employers,” the retaliation provision – which prohibits retaliation by any “employer, … or person” – still applies.  The court rejected this tortured reading, stating that “because we have already determined that defendants … were plaintiff’s employer, they fall under the ‘employer’ category for purposes of” the anti-retaliation provision.  As employers that are religious entities, they are exempt from FEHA liability.

Although, at the end of the day, these findings did not ultimately absolve Happy Valley of all liability for conduct that fell outside of the purview of the FEHA, it did reaffirm this author’s views that a religious entity’s good faith efforts to prevent harassment, retaliation and discrimination through policies, training and notices of employee rights, should not create liability.  In addition, while it appears the Church’s use of out-of-the-box canned templates ultimately did not create liability, the Church had to spend five years and thousands of dollars defending that position before it prevailed on appeal.

Employers – particularly those who believe themselves exempt (as a small business, religious employer, or otherwise) from, would be wise to consult with competent California legal counsel and have their handbooks, offer letter templates, applications and related materials reviewed annually to minimize these risks.  Templates are no substitute for customized counsel.

It is important to note that there is a possibility that this Sixth Appellate District opinion could be reviewed by the California Supreme Court.  If that occurs, watch for an update to this post.

In a decision that may lead employers to feel a little less gratified on Thanksgiving Day, a California appellate court determined last week that “even a legitimate company policy, if mistakenly applied,” can lead to liability for disability discrimination in the Golden State.  Specifically, the Court of Appeal ruled that “a lack of [discriminatory] animus does not preclude liability for a disability discrimination claim.”  A copy of that decision in is available at this link.

The plaintiff in Glynn v. Superior Court was a pharmaceutical sales representative who requested and obtained a leave of absence from his employer due to an eye condition that left him unable to drive.  So far so good.  But things started to take a turn for the worse when the employer declined to reassign the plaintiff to a new job in the company that did not require driving (even though the plaintiff applied for several such positions).

Things got even worse yet when a temporary corporate benefits staffer mistakenly concluded that the plaintiff had transitioned from short-term disability to long-term disability.  This mistake led the staffer to conclude, innocently but incorrectly, that the plaintiff was unable to work with or without a reasonable accommodation.  Based on that seemingly good-faith mistake, the staffer fired the plaintiff (even though the employer’s policies did not allow such a termination unless the employee actually applied for and was receiving long-term disability benefits).  The plaintiff tried to correct the misunderstandings over the course of a few months, but the employer ignored his entreaties.

Things went from worse to worst when the plaintiff filed a lawsuit alleging, among other things, disability discrimination in violation of the California Fair Employment and Housing Act, Cal. Govt. Code §§ 12940 et seq. (“FEHA”).  After realizing that a mistake was at the root of terminating the plaintiff’s employment, the employer tried to make things better by offering to reinstate him.  However, the plaintiff rejected that offer because the employer did not identify any specific position being offered or the rate of compensation.

With seemingly nothing left to do but defend itself in litigation, the employer persuaded the Los Angeles County Superior Court to dismiss the plaintiff’s disability-discrimination claim.  However, the plaintiff filed an emergency appeal and convinced California’s Second Appellate District to reverse that dismissal.  The Court of Appeal reasoned that the FEHA “‘does not require an employee with an actual or perceived disability to prove that the employer’s adverse employment action was motivated by animosity or ill will against the employee. Instead, California’s statutory scheme protects employees from an employer’s erroneous or mistaken beliefs about the employee’s physical condition.’”

Ultimately, the appellate court opined that “‘the financial consequences of an employer’s mistaken belief that an employee is unable to safely perform a job’s essential functions should be borne by the employer, not the employee, even if the employer’s mistake was reasonable and made in good faith.’”  This is not to say that liability in such circumstances is a forgone conclusion; it remains to be seen whether a jury might forgive such missteps if they do not appear to be borne of any discriminatory animus.  Still, there are important lessons to be learned from this decision.

The take away is that disability accommodation is an area of the workplace that presents many traps for the unwary.  At the same time, any decision to terminate an employee, particularly one who is arguably entitled to some type of disability accommodation, can lead to costly litigation.  Similarly, an offer to reinstate a terminated employee may provide an employer with a valuable defense that might reduce exposure, but that offer must be handled correctly to be effective.  Therefore, it is advisable to review such decisions with an experienced employment attorney before executing them.