Posts belonging to Category Government & Regulation

SB 1241: Choice-of-Law, Choice-of-Venue Provisions in Employment Agreements Now Voidable by Employees

Thanks to a new Labor Code provision signed into law by Governor Brown last fall, California employees may no longer need to worry about being forced to litigate their employment cases in far-flung jurisdictions or under laws that provide less protection than California’s. On September 25, 2016, Governor Brown signed Senate Bill 1241 (available here), which enacted new Labor Code section 925. Under that new provision, for contracts entered into, modified, or extended on or after January 1, 2017, an employer cannot condition employment on requiring an employee who “primarily resides and works in California” to sign a provision that either (1) requires the employee to adjudicate outside of California a claim that arises in California or (2) deprives the employee of substantive protections of California law for claims arising in California.

The measure originated in the California Senate as an employee and consumer protection measure that would have allowed a California employee or consumer to void contractual provisions that require adjudicating disputes out-of-state or under the law of a foreign jurisdiction. The measure was, at least in part, aimed at companies’ oppressive arbitration provisions that attempted to exploit the United States Supreme Court’s decision in AT&T Mobility, LLC v. Concepcion, 563 U.S. 333 (2011). Many employers and businesses saw Concepcion as a green light to force employees and customers to resolve disputes in arbitration, in other states, and apply those states’ anti-consumer/anti-employee laws. As the bill made its way through the state legislature, lawmakers narrowed the bill’s scope to employment agreements. Importantly, the new law applies generally to all employment contracts and all forms of dispute resolution. As such, it is generally applicable, does not single out arbitration as a target, and therefore is likely not preempted by the Federal Arbitration Act.

The new law confirms California’s longstanding dedication to protecting employees’ rights, but it is not a sea change in the law. Indeed, the legislative history notes that some opponents of the bill questioned whether it was even necessary. Those opponents noted that California’s choice of law/choice of forum jurisprudence already allowed courts to invalidate such provisions if they would result in (a) litigation in an inconvenient forum or (b) applying law that conflicted with a fundamental California public policy. See e.g., The Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 17 (1972) (choice of forum clauses may be invalidated if they effectively deprive the litigant of their day in court); Wash. Mut. Bank v. Super. Ct., 24 Cal. 4th 906, 916 (2001) (court may refuse to enforce choice of law provision when the other state’s law fundamentally conflicts with California public policy).

Yet, although section 925 is consistent with prior jurisprudence, it is still a needed protection for California employees. As the bill’s supporters noted, under existing jurisprudence, Californians were still obliged to demonstrate that (a) the forum was inconvenient and/or (b) that the applicable law conflicted with fundamental California public policy. Litigating those issues presented substantial burdens both legally and practically. That said, section 925 presents some unanswered questions, such as defining what it means for an employee to “primarily reside[] and work[]” in California and what qualifies as a “substantive protection of California law” that needs to be defended. Needless to say, section 925 is a welcome addition to the Labor Code that will provide the state’s labor force additional protection and ensure that they are not deprived of the protections of California’s substantive law.

Authored By:
Andrew Sokolowski, Senior Counsel

Glenn v. Hyundai Motor: Defeating Primary Jurisdiction and Preemption Arguments

Last month, Judge David O. Carter of the Central District of California issued an order granting in part Hyundai’s Motion to Dismiss and/or Strike Allegations in First Amended Complaint in Glenn, et al. v. Hyundai Motor America, et al. No. SA CV 15-2052-DOC (June 24, 2016 C.D. Cal.) (slip op. available here). The Glenn plaintiffs had alleged that the Hyundai vehicles’ panoramic sunroofs had a tendency to spontaneously shatter. Notably, the National Highway Traffic Safety Administration (“NHTSA”) had already begun investigating the same sunroof issues in the Sorento, a vehicle produced by Kia, Hyundai’s sister company. The Glenn plaintiffs demanded injunctive relief in the form of a recall. Hyundai moved to dismiss the plaintiffs’ prayer for a recall injunction under the doctrines of primary jurisdiction and preemption. The district court, in addition to leaving intact the plaintiffs’ remaining fraud-based claims and allowing the plaintiffs to have standing to represent consumers who purchased different vehicles, denied Hyundai’s motion on the grounds of primary jurisdiction and preemption, providing guidance for other class action plaintiffs on how to avoid such a dismissal.

The primary jurisdiction doctrine applies, exempting an issue from federal court jurisdiction, based on: “(1) the need to resolve an issue (2) that has been placed by Congress within the jurisdiction of an administrative body having regulatory authority (3) pursuant to a statute that subjects an industry or activity to a comprehensive regulatory authority that (4) requires expertise or uniformity in administration.” Slip op. at 24 (quoting Astiana v. Hain Celestial Grp., Inc., 783 F.3d 753, 760 (9th Cir. 2015) (internal citations omitted)). The district court in Glenn held that, applying these considerations, the primary jurisdiction doctrine did not apply. As to the first two elements, the court found that because the plaintiffs sought monetary relief—relief beyond what NHTSA can provide in a recall—there is a substantial need to resolve the issue in court. Id. Regarding the third factor, there was also no authority suggesting that Congress intended NHTSA to have exclusive regulatory authority over vehicle safety. Id. at 24. Even though Hyundai had been asked to cooperate with NHTSA in its Kia Sorento sunroof investigation, the court found that the scope of NHTSA’s investigation did not clearly cover all of the Glenn class vehicles and thus, no actual conflict existed between the plaintiffs’ claims regarding the Hyundai sunroofs and NHTSA’s Kia investigation. Id. at 25 (quoting In re Toyota Motor Corp. Unintended Acceleration Mktg. Sales Practices and Prods. Liab. Litig., 754 F. Supp. 2d 1145, 1199 (C.D. Cal. 2010)). Finally, the court noted that the plaintiffs’ claims were strictly based on state and federal consumer protection laws, as opposed to the National Traffic and Motor Vehicle Safety Act (“Safety Act”) or NHTSA regulations, and thus there is no need to ensure uniformity of regulation and NHTSA is not better-equipped than the court to address the issues presented. Id.

Similarly, the court held that the plaintiffs’ request for injunctive relief was not preempted by the Safety Act at this point, finding that Hyundai had not “met its burden of showing that it was Congress’ clear and manifest intent for the Safety Act to preempt the relief Plaintiffs seek pursuant to their State law claims.” In re Toyota, at 1197 (emphasis added). Hyundai failed to show that the ongoing NHTSA investigation with Kia encompasses all the models of the Glenn class vehicles, and thus, the court declined to find preemption because there was no actual conflict between the relief the plaintiffs sought and the Safety Act. Slip op. at 26.

These findings are instructive when developing a car class action where a NHTSA investigation is already ongoing and the plaintiff is confronted with a defendant’s argument that its claims for a recall injunction should be dismissed due to the doctrines of primary jurisdiction or preemption. Plaintiffs should consider demanding monetary relief, distinguishing the vehicles at hand from those under investigation by NHTSA, and basing their claims strictly on state and federal consumer protection laws, with no reference to the Safety Act or NHTSA Regulations, to avoid primary jurisdiction and preemption.

Authored by: 
Tarek Zohdy, Associate

DOL Overtime Changes to Increase Protections for and Wages of Millions of Workers

On May 18, 2016, the Department of Labor (“DOL”) announced new overtime rules under the Federal Labor Standards Act (“FLSA”), giving employers until December 1, 2016, to comply. The rules increase the salary threshold over which employers may classify their employees as exempt under one of the white-collar exemptions—administrative, executive, or professional. The salary threshold under federal regulations had been $23,660, meaning that employees only had to earn at least $23,660 annually in order to qualify for one of these exemptions. The new rules double the annual salary threshold to $47,476.

This is an important increase, as employees who are classified as exempt are not entitled to overtime pay. The DOL estimates that under the previous salary threshold, only 7% of salaried workers were entitled to overtime pay. With the increase in the salary threshold, the DOL estimates that 35% of salaried workers will now be entitled to overtime pay. Department of Labor, “The New Overtime Rule & Working Women: By the Numbers,” available here. According to the DOL, the new rules will impact 4.2 million workers, 56% of whom are women, who will either gain new overtime protections or get a raise to the new salary threshold. Id. California employees will also see an increase in the salary threshold, although a less substantial one. California law already applies a salary threshold of $41,600 to qualify as exempt under a white-collar exemption. Thus, the DOL’s changes increase the minimum salary threshold for California employees by nearly $6,000.

Regarding the exemption for highly compensated employees (“HCE”), the total annual compensation level above which most white collar workers will be ineligible for overtime was raised to the 90th percentile of full-time salaried workers nationally, up from the current $100,000 to $134,004 a year. An HCE exemption may apply where the employee needs only to perform at least one of the exempt duties or responsibilities of an exempt executive, administrative, or professional employee to satisfy the exemption. Additionally, non-discretionary bonuses, incentive pay, or commissions can now be included to satisfy up to 10 percent of the salary threshold for non-HCE employees, provided these payments are made on at least a quarterly basis. Also, no changes were made to the existing “duties test” which determines whether white collar salaried workers earning more than the salary threshold are ineligible for overtime pay, due to the executive, administrative, or professional exemption.

Finally, the new rules establish a mechanism for automatically updating the salary threshold every three years to ensure that the threshold reflects workers’ earnings, instead of allowing a lengthy gap between updates, like the nearly twelve years that have passed since the DOL last updated them.

Authored By:
Bevin Allen Pike, Senior Counsel

Restoring Statutory Rights Act (S. 2506): Bill Against Mandatory Arbitration

In recent years, bolstered by U.S. Supreme Court decisions, numerous businesses have successfully limited their potential exposure for consumer protection and employment law violations by requiring consumers and employees to enter into arbitration agreements. Now, the pendulum seems to be swinging back as Congress considers a bill limiting the practice.

On February 4, 2016, Democratic Senator Patrick Leahy introduced the Restoring Statutory Rights Act (S. 2506) (available here). The bill would create an exception in the Federal Arbitration Act (FAA) for disputes involving individuals and small businesses. Pursuant to the proposed statute, arbitration would be available only if the parties agreed to it after the dispute arose. By contrast, currently, individuals often agree to arbitration as a condition of purchasing a product or applying for employment. The bill explicitly criticizes recent U.S. Supreme Court decisions regarding the preemptive effect of the FAA, stating that the decisions “have enabled business entities to avoid or nullify legal duties created by congressional enactment, resulting in millions of people in the United States being unable to vindicate their rights in State and Federal courts.”

The proposed bill would also strengthen the power of the courts to reject mandatory arbitration if the arbitration clause is unconscionable or if a statute prohibits arbitration. Specifically, the bill provides that courts may decline to compel arbitration if “a Federal or State statute, or the finding of a Federal or State court, . . . prohibits the agreement to arbitrate on grounds that the agreement is unconscionable, invalid because there was no meeting of the minds, or otherwise unenforceable as a matter of contract law or public policy.” This provision is expressly aimed at cases such as AT&T Mobility v. Concepcion, 563 U.S. 333 (2011), that have interpreted the FAA to preempt substantive rights and remedies established under the law.

The success of this bill is uncertain as Republicans maintain control of both houses of Congress and generally favor arbitration, but it represents a serious effort to roll back some of the excesses in business entities’ use of arbitration.

Authored By:
Stan Karas, Senior Counsel