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

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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
CAPSTONE LAW APC

Lubin v. Wackenhut: Decertification Order Based on Dukes Reversed by Cal. Ct. of Appeal

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On November 21, 2016, the California Court of Appeal for the Second Appellate District reversed the decertification of a class of over 10,000 employees. The Court of Appeal held that the trial court should examine the plaintiffs’ theory of recovery when evaluating class certification, rather than the frequency of violations resulting from that theory. Lubin v. The Wackenhut Corporation, No. B244383, __ Cal. App. 4th __ (2nd Dist. Div. 4 Nov. 21, 2016) (slip op. available here). This is welcome news for the plaintiffs’ class action bar, as it narrows the ways in which a trial court may peek at the merits of the plaintiff’s claims at the class certification stage.

The Lubin class of security officers, employed by Wackenhut, was initially certified for Labor Code claims on the basis of on-duty meal period waivers that the security officers had signed. Following certification, the parties agreed to a statistical sampling of records to determine the merits of the class claims—specifically, to determine how many class members had signed on-duty meal waivers that did not include required revocation language. Then, the United States Supreme Court issued its ruling on Wal-Mart Stores, Inc. v. Dukes, 564 U.S. 338 (2011), in which the high court cast doubt on the acceptability of using statistical sampling to prove liability in an employment class action. The defendant in Lubin moved for decertification based on Dukes, on the grounds that the agreed-upon sampling of meal break waivers would violate Dukes’ proscription of “trial by formula.” The trial court took further briefing in light of Brinker Rest. Corp. v. Superior Court, 53 Cal. 4th 1004 (2012), and then decertified the class. The Lubin plaintiffs appealed.

The Court of Appeal, citing Brinker, held that the answer to the “ultimate question” for class certification “hinges on ‘whether the theory of recovery advanced by the proponents of certification is, as an analytical matter, likely to prove amenable to class treatment.’” Slip op. at 8 (internal citations omitted). In pushing against the trial court’s application of Dukes, the Court of Appeal pointed to the clarification in Tyson Foods, Inc. v. Bouaphakeo, 136 S. Ct. 1036, 1048 (2016) (stating that Dukes does not “stand for the broad proposition that a representative sample is an impermissible means of establishing classwide liability”). Slip op. at 12. Further, the Court of Appeal criticized the trial court for examining, in its class certification analysis, the damages issue of whether employees actually experienced meal period violations. Notably, the Court of Appeal held that the trial court’s “standard requiring plaintiffs to ‘conclusively establish’ that Wackenhut had a policy that violated wage and hour laws is improper because plaintiffs’ burden at class certification is to produce substantial evidence.” Id. at 41 (emphasis in original).

With Lubin, the impact of Dukes has been reduced, and class action plaintiffs in California can now more easily certify claims based on solid theories of liability, even if the actual impact of those theories does not necessarily result in widespread damages. However, defendants may see this as a dilution of what it means to have a certified class, given that the bar has, in a sense, been lowered.

Authored by: 
Jonathan Lee, Associate
CAPSTONE LAW APC

Ochoa v. McDonald’s: First of Its Kind Joint-Employer Case Settles for $3.75M

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McDonald’s Corporation has agreed to pay $3.75 million to settle a certified wage-and-hour class action lawsuit in Ochoa, et al. v. McDonald’s Corp., et al., No. 3:14-cv-02098-JD (ND. Cal.). See Plaintiff’s Motion for Preliminary Approval of Class Action Settlement (Oct. 28, 2016) (available here). According to the motion seeking preliminary approval of the deal, the settlement marks the first of its kind in the fast food giant’s history between McDonald’s and a certified class of non-exempt “crew members” at a franchisee-operated restaurant.

In Ochoa, the plaintiffs sued McDonald’s and a franchisee alleging that the franchisee had violated various provisions of California’s Labor Code by miscalculating wages, incorrectly reporting timecards, failing to pay overtime and premium payments for noncompliant meal and rest breaks, failing to reimburse employees for the time and expense of maintaining uniforms, and issuing inaccurate wage statements. McDonald’s was named as a co-defendant on a theory of direct and vicarious liability. In August 2016, the court orally granted final approval to the plaintiffs’ settlement with the franchise owner, The Edward J. Smith and Valerie S. Smith Family Limited Partnership, leaving the claims against McDonald’s Corporation pending.

Certain preliminary rulings in the case were crucial to the first-ever settlement of its kind in McDonald’s history. In September 2015, Judge Donato of the United States District Court for the Northern District of California partially granted summary judgment in favor of McDonald’s, rejecting the plaintiffs’ claims that McDonald’s directly employs the plaintiffs and the putative class. Ochoa, No. 3:14-cv-02098-JD (N.D. Cal. Sept. 24, 2015) (slip op. available here). Critically, however, the district court denied summary judgment as to whether McDonald’s is potentially liable as a joint employer under an agency theory. The court held that the plaintiffs’ evidence demonstrating their belief that McDonald’s was their employer (being required to wear McDonald’s uniforms, serving McDonald’s food in McDonald’s packaging, receiving paystubs and orientation materials marked with McDonald’s name and logo, and applying for the job through McDonald’s website) was sufficient to follow a line of cases that found ostensible agency on similar facts. Further, the court found “that the ostensible agency theory would appear to apply with equal force against both McDonald’s USA and McDonald’s, Inc., despite the fact that the latter has no contractual relationship with Smith [the franchisee], because the plaintiffs and putative class may well not distinguish between McDonald’s corporate entities.” Slip op. at 15.

Almost a year after ruling on the summary judgment motion, in July 2016, the court handed another victory to the plaintiffs by certifying their “miscalculated wages claims, overtime claims and maintenance-of-uniform claims, and any claims that are derivative of those claims.” Ochoa, at 15, No. 3:14-cv-02098-JD (N.D. Cal. July 7, 2016) (slip op. available here). In rejecting McDonald’s argument challenging the plaintiffs’ agency theory as incapable of class-wide resolution due to individualized questions of personal belief and reasonable reliance, the court found that the “[p]laintiffs have tendered substantial and largely undisputed evidence that the putative class was exposed to conduct in common that would make proof of ostensible agency practical and fair on a class basis.” Id. at 5. That evidence included declarations showing that the plaintiffs “were required to wear McDonald’s uniforms, packaged food in McDonald’s boxes, received paystubs, orientation materials, shift schedules and time punch reports all marked with McDonald’s name and logo, and in most cases applied for a job through a McDonald’s website.” Id. The court also noted the fact that employees “spent every work day in a restaurant heavily branded with McDonald’s trademarks and name,” and found that “[t]hese facts are shared in common across the proposed class and make classwide adjudication of ostensible agency against McDonald’s a suitable and appropriate procedure.” Id.

These preliminary rulings on summary judgment and class certification are significant both because they yielded the first settlement of its kind in McDonald’s history, and because Ochoa may portend future findings of joint employer liability across franchisee and franchisor. Only time will reveal Ochoa’s true impact, but it is clear that courts will start to look past the franchisee to the franchisor as the source of violative practices that result in wage-and-hour violations.

Authored by: 
Suzy Lee, Associate
CAPSTONE LAW APC

Augustus v. ABM: Cal. Supreme Court Clarifies Employers’ Obligation to Provide Duty-Free Rest Breaks

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Last month, the California Supreme Court issued Augustus, et al. v. ABM Security Services, Inc., __ Cal. 4th __, 2016 WL 7407328 (Cal. Dec. 22, 2016) (slip op. available here), a much-anticipated decision that clarified that employers may not require employees to take on-duty and/or on-call rest periods. Instead, the California Supreme Court held “employers [must] relinquish any control over how employees spend their break time, and relieve their employees of all duties—including the obligation that employees remain on call. A rest period, in short, must be a period of rest.” Slip op. at 21. This opinion is likely to spur further litigation regarding employers’ rest break policies.

The Augustus case arose out of the defendant ABM’s practice of requiring its security guard employees to leave their pagers and radio phones on during their rest breaks, while also remaining “vigilant” and responding to certain needs as they arose during their breaks. Slip op. at 1. In 2005, the plaintiffs filed a class action complaint alleging that this practice violated ABM’s legal obligation to provide duty-free rest breaks to its employees. After several years of litigation, the trial court granted plaintiffs’ motion for summary judgment and awarded the class approximately $90 million, reasoning that every instance when a class member carried a communication device during a rest break constituted a violation of the law. The Court of Appeal reversed. Although the appellate court agreed that the defendant did not relieve guards of all duties during rest periods and instead required that they remain on call, it concluded that state law does not require employers to provide off-duty rest periods, and, moreover, that simply being on call does not constitute performing work.

The California Supreme Court reversed again. After noting the long-standing policy of interpreting the Labor Code and Wage Orders in favor of employees, the court held that a rest period must be just that: a period of rest. Specifically, the court stated “a rest period during which an employer may require that an employee continue performing duties seems to place too much semantic emphasis on ‘period’—and too little on ‘rest.’” Slip op. at 8. The court also noted that its holding is consistent with several Division of Labor Standards Enforcement (DLSE) opinion letters. Further, the court declined the defendant’s suggestion to define a rest break violation in terms of whether the employer’s policy “unreasonably” interfered with the employees’ rest break rights because it would introduce uncertainty to the law. Id. at 18. The court also noted that the Industrial Welfare Commission could and did authorize on-call rest periods, such as in Wage Order 5, which applies to caretakers of children or infirm, but failed to do so in Wage Order 4, which applied to the class members here. Id. at 11-12.

The court then turned to the question of whether an employer may require employees to remain on call during rest periods. The court held that “one cannot square the practice of compelling employees to remain at the ready, tethered by time and policy to particular locations or communications devices, with the requirement to relieve employees of all work duties and employer control during 10-minute rest periods.” Slip op. at 15. The court explained that having to carry a communications device during a rest period and to respond to employer inquiries while on a rest break is “irreconcilable with employees’ retention of freedom to use rest periods for their own purposes.” Id. at 16. Emphasizing the protective nature of the Labor Code and Wage Orders, the court held that the employer’s power to call on employees to perform work during their rest breaks constituted “a broad and intrusive degree of control.” Id. at 16-17.

Justice Kruger issued a concurrence and a dissent. She concurred with the majority’s opinion that employers must provide off-duty rest periods to nonexempt employees. However, she disagreed that the mere requirement that an employee carry a communication device during the rest period constitutes a violation of the law. In particular, she emphasized that despite the trial court’s award of approximately $90 million to the class, the record was devoid of any evidence that any of the class members’ rest periods were actually interrupted. Slip op., Kruger concurring and dissenting op. at 3. Accordingly, Justice Kruger concluded that the court should instead reverse the Court of Appeal’s opinion and remand for consideration of whether the defendant’s on-call policy actually interfered with its employees’ ability to use their rest periods as periods of rest. Id. at 12-13.

The Augustus decision is an important clarification of the employers’ obligation to provide work-free rest periods. This decision, however, does not mean that employers with on-call policies will have to change them radically. As the California Supreme Court noted, employers that end up having to interrupt an employee’s rest period may simply provide the employee with another rest period or pay the premium of one hour’s wages pursuant to Labor Code Section 226.7. Slip op. at 19. Alternatively, the employer may apply to the DLSE for an exemption. Id. at 19 n.14.

Authored By:
Stan Karas, Senior Counsel
CAPSTONE LAW APC