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In the Ninth Circuit, the Equal Pay Act’s Catchall Exception No Longer Catches Salary History

Recent years have seen rising movements aimed towards closing the gender wage gap.  In fact, you may notice employees wearing red today for national #EqualPayDay.  On April 9, 2018, in Rizo v. Yovino, the Ninth Circuit added to the national discourse by expanding the Equal Pay Act’s protections in one key aspect – excluding salary history as a justification for wage disparities under the Act’s catchall exception.

The Equal Pay Act

The Equal Pay Act requires employers to pay men and women equal pay for equal work, with four exceptions.  Employers can justify wage differentials based on:  (1) merit, (2) seniority, (3) quantity or quality of work, or (4) the catchall exception – “any other factor other than sex.”   Federal circuits uniformly concluded that this catchall exception included employees’ salary history.  In 1982, the Ninth Circuit in Kouba v. Allstate Insurance Co., specifically held that past salary is a “factor other than sex.”

However, many things have changed since 1982.  National discourse on the gender wage gap has only gotten stronger with social media as a platform for discussion.  And recently, states have been progressively enacting their own pay equity legislation that offer more protection than the Equal Pay Act.  California’s Fair Pay Act, for example, is the broadest in the nation and prohibits wage disparities based on gender, race, and ethnicity.  Effective January 1, 2018, California also prohibits employers from asking applicants about salary history or, if voluntarily disclosed, using salary history to justify pay disparity.  Now, another change to add to this list is the Ninth Circuit’s view of this catchall exception – which now falls in line with California.

Rizo v. Yovino

 Aileen Rizo, a math consultant in Fresno County School District, sued the Superintendent Jim Yovino alleging that the County violated the Equal Pay Act by compensating new hires based on the salary they earned at their prior job.  Rizo filed suit after learning that a recently hired male colleague with less experience than her earned approximately $12,000 more than Rizo.  The County asserted that although Rizo was paid less than her male counterpart for the same work, the discrepancy was based on Rizo’s prior salary, which was a “factor other than sex.”

The issue on appeal was whether an employer could consider prior salary under the Equal Pay Act’s catchall exception when setting its employees’ salaries.  According to the Ninth Circuit en banc, no.  The Court made clear that “[p]rior salary alone or in combination with other factors cannot justify a wage differential” among gender.  The Court explained that “[t]o hold otherwise – to allow employers to capitalize on the persistence of the wage gap and perpetuate that gap ad infinitum – would be contrary to the text and history of the Equal Pay Act.

Rizo puts the Ninth Circuit at odds with other circuits and overturns three decades of Ninth Circuit precedent in Kouba.  We await to see if the Supreme Court agrees to resolve this split, and if other circuits follow along.  But for now, Ninth Circuit employers should start auditing their workforce and practices for gaps based on salary history.

—Ferry Eden Lopez

U.S. Supreme Court Holds That Service Advisors at Automobile Dealerships Exempt from Overtime Under FLSA

On April 2, 2018, the United States Supreme Court issued its opinion in Navarro v. Encino Motorcars, LLC, No. 16-1362, holding that service advisors at automobile dealerships are exempt under section 13(b)(10) of the Fair Labor Standard Act (FLSA).  This is the second time in two years that the high court has reversed Ninth Circuit decisions to the contrary.

Navarro is a wage and hour class and collective action brought in 2012 by five service advisors who worked at a Los Angeles Mercedes Benz dealership, claiming overtime under the Fair Labor Standards Act (FLSA) and state law. The district court dismissed the FLSA claims based on FLSA section 13(b)(10), which exempts from federal overtime “any salesman . . . primarily engaged in selling or servicing automobiles or trucks.”  The Ninth Circuit reversed in the initial appeal, departing from more than 40 years of legal precedent and in spite of the industry’s historical reliance on the exemption. The Ninth Circuit’s principal rationale for finding the exemption inapplicable was new regulatory guidance issued by the U.S. Department of Labor in 2011, which excluded service advisors from the exemption. In 2016, the U.S. Supreme Court reversed, holding that the 2011 DOL regulation was invalid and the Ninth Circuit had erroneously relied on it in interpreting the statute. But rather than addressing the scope of the exemption itself, the Supreme Court sent the case back to the Ninth Circuit to interpret the exemption without reliance on the DOL’s regulation. Not surprisingly, on remand the Ninth Circuit came to the same conclusion it had before, emphasizing that exemptions from overtime should be construed narrowly.

The Supreme Court again granted certiorari and has again reversed. This time, the court squarely held that service advisors are exempt from overtime under section 13(b)(10). First, it noted that a service advisor is “obviously a ‘salesman,’ under the plain meaning of the term.”  Next, because service advisors are an integral part of the servicing process, they are “primarily engaged in … servicing automobiles.”  The court rejected the notion that only individuals who perform hands-on, under-the-hood service functions are engaged in “servicing” within the meaning of the FLSA. Finally, in perhaps the most groundbreaking aspect of the ruling, the Supreme Court rejected the well-worn interpretive rule that exemptions to the FLSA should be construed narrowly. Observing that this “narrow construction” approach is not reflected anywhere in the FLSA’s language, the court held that exemptions are to be interpreted “fairly” rather than “narrowly.”

Hirschfeld Kraemer LLP partner Felicia Reid has represented amicus curiaeNational Automobile Dealers Association, California New Car Dealers Association, and other state dealer associations, throughout the Ninth Circuit and Supreme Court proceedings in this case.

Growing Trend: 2nd and 6th Circuits Join 7th in Holding that Gay and Transgender Persons are Protected Under Title VII’s Ban on Sex Discrimination

It has been a busy few weeks in the federal courts regarding the development of gay and transgender employment discrimination law. On March 7, 2018, the Sixth Circuit held that Title VII’s prohibitions on sex discrimination include discrimination based upon transgender status, and further dismissed the notion that otherwise illegal discrimination can be summarily exempted from federal law when motivated by an employer’s religious beliefs.  Two weeks prior, on February 26, 2018, the Second Circuit similarly held that Title VII’s prohibitions on sex discrimination extend to sexual orientation.  Following the April 2017 decision of the Seventh Circuit in Hively v. Ivy-Tech Community College of Indiana (which also recognized Title VII’s protections as extending to sexual orientation in a professor’s denial-of-tenure case), we appear to be at a jurisprudential tipping point regarding gay and transgender employment discrimination protections.

Brief Background

Title VII of the Civil Rights Act of 1964 (“Title VII”) bars discrimination based upon “sex”.  There is no express definition in the statute of whether “sex” applies to sexual orientation or transgender status, and likewise there is no United States Supreme Court precedent that speaks to whether Title VII bars employment discrimination based upon these categories.  Since the 1990s, Congress has periodically considered new legislation barring employment discrimination on the basis of sexual orientation (but not transgender status) under the proposed Employment Non-Discrimination Act (“ENDA”), but the bill has never been brought up for a vote.  Under the Obama Administration, the Equal Employment Opportunity Commission (“EEOC”) attempted to fill this void, and continues to prosecute cases under the theory that discrimination on the basis of sexual orientation and transgender status necessarily involves sex discrimination based on non-conformance with gender norms and stereotypes; accordingly, it argues these forms of discrimination are covered under Title VII’s prohibition of discrimination based upon “sex”.

The Sixth Circuit Holds that Title VII’s Protections Extend to Transgender Persons

In EEOC v. R.G. & G.R. Harris Funeral Homes Inc., the Sixth Circuit considered the case of Aimee Stephens, a transgender female who began her employment at a funeral home as a gender-conforming man.  She later informed her employer of her intent to transition to a transgender woman and was fired for that reason.  The EEOC filed suit on her behalf under Title VII.  In its defense, the funeral home made a two-pronged argument: one, being transgender is not protected under Title VII, and two, even if being transgender was a protected status, the 1993 Religious Freedom Restoration Act (“RFRA”) would provide a complete defense because accommodating the transgender employee would create a “substantial burden” for the employer.  The Court noted that to accept the funeral home’s claim of “substantial burden” at face value (as the funeral home said it must) would “substitute religious belief for legal analysis regarding the operation of federal law.”  (This is a critical point because after Hobby Lobby’s success in Burwell v. Hobby Lobby Stores, Inc. in using the RFRA to avoid providing contraceptive care under the Affordable Care Act, it has been widely thought that the RFRA could be used as a sword by employers, i.e., applying a corporation’s religious beliefs to engage in otherwise unlawful conduct, including employment discrimination).  In the same breath, the Court held that the funeral home’s argument that the EEOC needed to engage in an arduous analysis of “compelling need” to enforce Title VII was without merit. Specifically, the Court explained that the federal government has a compelling interest in preventing and remedying unlawful employment discrimination, and that a complex, fact-intensive case-by-case analysis is not necessary to pursue this objective.  Although this may not be the last word on use of the RFRA as a complete defense to otherwise actionable employment discrimination, it seems logical that other Circuit Courts will follow the thoughtful and comprehensive analysis laid out by the Sixth Circuit.

Funeral Homes Is Not an Outlier, But Signals a Clear Trend

The decision in Funeral Homes is not an outlier.  Little more than two weeks ago, in Zarda v. Altitude Express, the Second Circuit reconsidered its own precedent and held that sexual orientation discrimination against a gay skydiving instructor is discrimination based upon “sex” and is covered under Title VII.  And just under a year ago, In Hively v. Ivy Tech Community College of Indiana (where a gay college professor claimed that she had been denied tenure on the basis of her sexual orientation), the Seventh Circuit, sitting en banc, also abandoned prior decisions and became the first federal appellate court to hold that sexual orientation discrimination is prohibited under Title VII.  In reaching its decision, the Seventh Circuit thoroughly analyzed how “sex” discrimination has evolved over the years, including the groundbreaking 1989 Supreme Court decision in Price Waterhouse v. Hopkins (holding that discrimination based upon sexual stereotypes, including manners of dress and speech, is discrimination based upon sex) and in the 1997 Supreme Court decision in Oncale v. Sundowner Offshore Services, Inc. (enunciating the claim of “hostile work environment” which, like sexual orientation discrimination, is not written expressly in Title VII, and also held that sexual harassment under Title VII is not restricted to instances where the alleged harasser is of a different gender than the victim, but extends to instances where the harasser and victim have the same gender).  Of course, the recognition of a trend is not the same as complete unanimity.  In March 2017, the Eleventh Circuit held in Evans v. Georgia Regional Hospital (without engaging in any new analysis) that it was bound by its prior precedent to conclude that sexual orientation is not included in Title VII’s protections.  Further, other Circuits have no precedent on this issue at all; the Ninth Circuit is among these courts, due in part to the fact that several states within the Ninth Circuit, including California, have long expressly barred employment discrimination against gay and transgender persons under state law.

Notably, these changes are occurring despite the efforts of the Trump Administration to change course, such as the internal memorandum that Attorney General Jeff Sessions disseminated in the Department of Justice that sexual orientation and transgender status were not protected under Title VII. This argument seems out of step with the current judicial momentum, and it may be that the path set in motion during the Obama administration will not be halted despite the best efforts of the current administration.

Conclusion

Despite a compelling shift toward recognition that Title VII’s protections extend to gay and transgender persons, there is still a split among those circuits that have weighed in. It seems likely that this fundamental issue of federal civil rights law will be reviewed by the Supreme Court over the next few years, giving even more importance to the composition of the Court under the current President.

—Glen Kraemer
—Monte Grix

SEC Brings Enforcement Actions Against Promoters of Initial Coin Offerings

Throughout the latter half of 2017, the SEC became increasingly focused on regulating securities law violations involving blockchain technology and initial coin offerings. A blockchain is an electronic distributed ledger maintained and broadcast by a network of computers utilizing cryptology to process and verify transactions such that all computers in the network have the same ledger.

Initial coin offerings are being used by companies to raise funds for projects by issuing virtual or digital cryptocurrencies, such as bitcoins or ethereum. Although ICOs have differed in structure, they typically involve the issuance of coins or tokens which can be exchanged for products or services from the issuing company. The SEC has become concerned about the potential for abuse in these offerings. On July 25, 2017, the SEC issued an investigative report warning market participants that sales of digital assets such as ICOs or token sales by virtual organizations may be subject to the federal securities laws as investment contracts under the Howey test. On September 25, 2017, the SEC announced two initiatives to help address cyber-based threats and to protect retail investors. The Cyber Unit focuses the Enforcement Division’s cyber-related expertise on such misconduct as market manipulation schemes involving false information disseminated through social media; hacking to obtain inside information; violations with respect to distributed ledger technology and ICOs; and unauthorized access to retail brokerage accounts. The Retail Strategy Task Force is developing initiatives aimed at identifying misconduct involving retail investors.

On December 1, 2017, the Cyber Unit filed an enforcement action against the promoters of an ICO for the “PlexCoin” proposed currency. The SEC charged the promoters with fraud, alleging that they had no intention of developing a currency and instead were using the funds that were raised for personal enrichment. The promoters were also charged with violating the federal securities laws by engaging in an unregistered offering in violation of the registration requirements of the Securities Act of 1933.

On December 11, 2017, the Cyber Unit entered into an offer of settlement with Munchee Inc., a California business that was offering Munchee tokens that would be used to improve its iPhone application, to pay users for food reviews and to sell advertisements to restaurants. In the settlement, Munchee agreed to stop offering and selling the tokens in violation of the registration requirements of the Securities Act of 1933.

The SEC has also issued a public statement that warned celebrities who promote ICOs that involve securities that they must disclose the nature, scope and amount of compensation received in exchange for the promotion. The SEC views the failure to do so to be a violation of the anti-touting provisions of the federal securities laws, presumably referring to Section 17(b) of the Securities Act of 1933.

The SEC is not the only federal agency concerned about ICOs. For instance, on October 17, 2017, the Commodity Futures Trading Commission LabCFTC Office issued a CFTC Primer on Virtual Currencies indicating that certain ICOs may be subject to CFTC jurisdiction. The CFTC has also released a customer advisory about the risks of virtual currency trading, issued a proposed interpretation of the term “actual delivery” in the context of virtual currencies under the Commodity Exchange Act, and established a virtual currency resource Web page.

This e-Bulletin was prepared by William Ross, of counsel to Hirschfeld Kraemer LLP, where he represents clients on corporate matters. Mr. Ross practices in Santa Monica, California.

Update on News Reports of H-1B Changes

Hello, clients and friends of the firm.  Happy New Year!  It looks like 2018 will be another very interesting year for immigration lawyers.

You may be getting questions about news reports regarding discussions within the Trump Administration of how to eliminate H-1B extensions beyond 6 years for individuals from China and India, who have a long wait for an immigrant visa (green card).  These reports are causing a lot of concern for employers and individuals who would be affected.

The H-1Bs extensions past 6 years are set forth in statute.  So it would require at least formal agency rulemaking with notice and comment period, and arguably an act of Congress, to change this provision.  If the Trump Administration tries to change it through administrative action, it will be litigated and the challenge will have legal merit.

At this point no proposal has been made and these news reports are drawing attention to the fact that this benefit can’t be changed without at least formal rulemaking if not legislation.

Please feel free to share this update with concerned individuals and organizations.

NLRB Reverses Browning-Ferris and Re-Establishes More Limited Standard for Determining Joint Employer Status

On December 14, 2017, the National Labor Relations Board (the “NLRB” or “Board”) decided  Hy-Brand Industrial Contractors, Ltd. and Brandt Construction Co. (“Hy-Brand”), reversing its 2015 decision in Browning-Ferris Industries of California, Inc. d/b/a BFI Newby Island Recyclery (“Browning-Ferris”) and re-establishing the pre-Browning-Ferris standard for determining joint employer status.  As detailed in our blog post here, the Browning-Ferris decision overturned three decades of Board precedent limiting joint employer status to entities that actually exercised direct control over the terms and conditions of employment.  Under the Browning-Ferris standard, an entity may be a joint employer if it has the right to “share or codetermine” the terms and conditions of employment, even if it never exercised that right and even if the reserved control is indirect or “limited and routine.”

In Hy-Brand, the Board analyzed whether two construction companies were joint employers of seven discharged employees, five of whom were terminated by Hy-Brand Industrial Contractors, Inc. (“Hy-Brand”) and two of whom were terminated by Brandt Construction Co. (“Brandt”).  The employees were terminated after engaging work stoppages that the Board determined were protected concerted activity.  Before deciding whether Hy-Brand and Brandt were joint employers, however, the Board analyzed and rejected the Browning-Ferris standard.

The Board identified five “major problems” with the joint employer standard adopted in Browning-Ferris.  According to Hy-Brand, the Browning-Ferris standard exceeded the Board’s statutory authority because, instead of interpreting and applying the common law of agency, the standard reflected an “economic realities” theory and an attempt to serve a “statutory purpose;” adoption of the standard was motivated by a desire to return to a simpler bargaining environment that never actually existed; the standard exceeded the bounds of deference afforded to the Board by the courts; the standard was “ vague and ill-defined”; and adoption of the standard sought to redress imbalances in bargaining power which the National Labor Relations Act (“NLRA”) was not intended to address.  The Hy-Brand decision described the Browning-Ferris decision as “misleadingly depict[ing] the limits of common law” and accused it of having “distorted the common law agency test.”

After rejecting the Browning-Ferris standard, the Board re-established the prior standard that “a finding of joint-employer status requires proof that the alleged joint-employer entities have actually exercised joint control over essential employment terms (rather than merely having ‘reserved’ the right to exercise control), the control must be ‘direct and immediate’ (rather than indirect), and joint-employer status will not result from control that is ‘limited and routine.’”  Applying this standard, the Board determined that Hy-Brand and Brandt were joint employers because they shared a Corporate Secretary, the shared Corporate Secretary was directly involved in the terminations at issue, the Corporate Secretary identified himself as a Brandt official in the termination letters sent to the Hy-Brand employees, and the two companies maintained shared employment policies and practices, all of which were overseen by the shared Corporate Secretary.

The two dissenters were equally critical of the majority’s decision.  They argued that deciding whether Hy-Brand and Brandt Construction were joint employers was unnecessary to resolving the dispute, that overturning Browning-Ferris did not affect the outcome of the dispute in Hy-Brand, that neither party asked the Board to reconsider Browning-Ferris, that the majority failed to give notice that it was considering a change in the law and failed to provide interested parties an opportunity to present briefs on the issue, and that the decision was untimely, given that the D.C. Circuit was currently considering an appeal in Browning-Ferris.

The decision represents another milestone in the Trump administration’s efforts to roll back labor policies adopted during the Obama administration.  In June of this year, as detailed in this blog here, the Department of Labor withdrew joint employer and independent contractor guidance issued in 2015 and 2016 (that guidance is available here and here).  That guidance generally favored employees, expanding joint employer status and challenging the independent contractor status of workers in the so-called “gig economy.”

Takeaways

The return to the pre-Browning Ferris standard is a welcome development for employers, to be sure.  The difference between actual control and potential control is a bright line that employers can strategically work with, and the NLRB’s about-face largely quiets the consternation of the past two years that a company could, for example, be found to be the joint employer of an independent contractor’s employees through a “potential control” theory (referred to by the Department of Labor during the Obama Administration as “vertical” joint employment).  Part of the fear was that a joint employer finding, on the basis of potential control, could in turn lead to companies being forced to collectively bargain with the employees of its independent contractors, and thereby immensely expand an enterprise’s potential liabilities.   The same concern of broadened liability existed for “vertical” joint employment between franchisors and the employees of its franchisees.

So the apparent death of such a “vertical” joint employment model will not be mourned.  That said, employers still need to be cognizant of the effects of potential shared control of more than one enterprise (the pre-existing standard of “horizontal” joint employment): where an employer shares facilities, key employees, has common management, or any of the other shared attributes identified in the pre-Browning Ferris standard, the likelihood of finding a joint employer relationship increases, and employers should consider consulting with their counsel to ensure that there is no material, shared function between such enterprises.  (And of course, there is still a pending appeal of the NLRB’s Browning-Ferris decision in the Court of Appeals for the District of Columbia, and that Court could end up affirming the NLRB’s former “vertical” joint employment model—which the NLRB has now abandoned.  But the currently constituted NLRB would likely go its own way and ignore any Circuit Court decision, on the NLRB’s long-stated logic that that it is only bound to adhere to the decisions of the United States Supreme Court, not that of Circuit Courts of Appeal.)

Stay tuned.  Looking ahead, the NLRB will continue to be an important forum as a shift to employer-friendly interpretations of the NLRA likely continues.

Ian Forgie is an associate in Hirschfeld Kraemer LLP’s San Francisco office.

The Boeing Company: In a Win for Employers, NLRB Dumps the “Reasonably Construe” Standard for Determining Whether Employee Handbooks’ Violate NLRA Rights

On December 14, 2017, the National Labor Relations Board (“Board”) – the entity responsible for enforcing the National Labor Relations Act (“NLRA”) – overturned a handbook standard that has been plaguing employers for more than a decade. In its place, the Board stated a new balancing test that is significantly more employer-friendly.

Background

In its 2004 Lutheran Heritage NLRB decision, the Board held that employers could violate Section 7 of the NLRA simply by maintaining handbook policies and rules that might “reasonably be construed” by an employee to “chill” protected activity under the NLRA. This “reasonably construe” standard has since been used to invalidate a substantial number of employer policies, ranging from social media policies to civility standards and even recording policies.  The plethora of decisions applying the Lutheran Heritage standard have produced widely-varying results, which has led to confusion for employers – and the Board itself – about which handbook policies are lawful. But now, those headaches could be a thing of the past.

The New Test

Using the standard announced in Boeing, the Board will now evaluate facially-neutral handbook policies and rules by balancing their potential impact on NLRA-protected rights against the employer’s “legitimate justifications” for maintaining the rule or policy. In so doing the Board will classify rules in three categories:

A rule will be classified in Category 1 (and is always lawful) if either the rule standing alone, reasonably and objectively interpreted, could not potentially interfere with NLRA rights or if the rule’s potential interference with NLRA rights is outweighed by the employer’s legitimate business justifications. According to the Board, both the “no-camera” rule at issue in Boeing (prohibiting employees from capturing images in the workplace without approval or a “valid business need”) and the “harmonious interactions” (civility) rules at issue in a number of overruled precedents will fall within Category 1.  

A rule will be classified in Category 2 (and is sometimes lawful) if it potentially interferes with NLRA rights. The next step under this category is to determine, based upon the facts particular to the application of the rule, whether the potential interference is outweighed by legitimate business justifications (in other words, such a rule could be legal as applied under some circumstances but not others).

Finally, a rule will be classified in Category 3 (and is always unlawful) if it infringes on employees’ NLRA rights, regardless of the individual application (and thus there can be no “outweighing” by the employer’s legitimate business justifications). The Board noted, for example, that a rule prohibiting employees from discussing their wages or benefits with each other would still fall within category 3, and would therefore be unlawful.

Notably, in overruling the Lutheran Heritage standard, the Board also explicitly overruled all cases regarding “harmonious interactions and relationships” or “basic standards of civility.”  This is good news for employers, many of whom felt frustrated by an NLRB standard that was as ephemeral as a morning fog. However, the Board was careful to note that this decision does not “pass on the legality” of other cases decided under the Lutheran Heritage standard such as Fresh & Easy Neighborhood Market (which outlawed rules requiring employees to maintain the privacy of employee and customer information), Whole Foods (which outlawed bans on video and photography in the workplace), or Costco (which outlawed rules protecting the reputation of the employer). Instead those rules will be evaluated in “future cases” using the balancing test announced in Boeing. Finally, the Board was clear to note that handbook rules created as a response to protected activity, or facially-neutral rules applied to employees who engaged in protected activity, would still be unlawful.

Takeaways

For now, employers should carefully monitor developments in this area.  We expect to see a number of future cases exploring the nuances of this standard, and possibly overruling other precedents decided on the Lutheran Heritage standard. Employers who eliminated civility policies in light of now-overruled precedent may wish to add them back into their handbooks, but should clearly spell out the legitimate justifications that support the policy. For other handbook policies – such as social media, restrictions on cameras, and protecting the company’s reputation – employers may now maintain those rules with more confidence. However, these policies should still be supported by reasonable business justifications. Employers are encouraged to seek the advice of counsel when adding or modifying their handbook policies.

– Stefanie Renaud

PAGA Actions Still Cannot Be Individually Arbitrated: the U.S. Supreme Court Declines to Hear Challenge to Iskanian; Other Employment Arbitration Decisions on the Horizon

On October 16, 2017, the U.S. Supreme Court declined to review the California Court of Appeal’s 2016 decision in Tanguilig v. Bloomingdale’s, Inc.  At least for now then, the California Supreme Court’s 2012 decision in Iskanian v. CLS Transportation Los Angeles, LLC stands.  As readers of this blog will know, that earlier decision determined that employees may not waive their right to bring representative actions under California’s Private Attorneys General Act (“PAGA”) by signing an arbitration agreement that requires them to arbitrate disputes on an individual, and not on a class or representative, basis.  In Tanguilig v. Bloomingdale’s, Inc., the California Court of Appeal reaffirmed this principle, and rejected Bloomingdale’s arguments that Iskanian was wrongly decided or had been overruled.  In dissecting the U.S. Supreme Court’s decision not to review Tanguilig v. Bloomingdale’s, it is worth revisiting that 2016 decision.

Essentially, before the California Court of Appeal, Bloomingdale’s argued that Iskanian was wrongly decided in light of prior and subsequent federal decisions, and that it had been overruled by the U.S. Supreme Court’s decision in DIRECTV, Inc. v. Imburgia in 2015 (which addressed when arbitration provisions in a contract are governed by the Federal Arbitration Act, or “FAA”).  Addressing Bloomingdale’s argument that Iskanian had been wrongly decided, the California Court of Appeal held that it was bound by stare decisis to follow the California Supreme Court’s decision in Iskanian and found that, in any case, the Ninth Circuit had also upheld Iskanian’s interpretation of federal case law.  As to the argument that Iskanian had been overruled by the U.S. Supreme Court in DIRECTV, the Court of Appeal reasoned that DIRECTV did not address the enforceability of PAGA waivers and therefore was irrelevant.

Bloomingdale’s also asked the court to compel arbitration of “the individual portion of Tanguilig’s PAGA claim” and stay “the representative portion” pending arbitration of the individual claim.  The Court of Appeal rejected this argument on the ground that PAGA claims are brought by plaintiffs as representatives of the state and there is no basis for compelling the state to arbitrate its claims against the employer.  Under this principle, the Tanguilig court held that, while “[i]t is less than clear whether an ‘individual’ PAGA cause of action is cognizable, the question was irrelevant because any such claim would be brought by a plaintiff as a representative of the state, which had not agreed to arbitrate its claims, whether individual or collective, against the employer.  (The California Supreme Court, for its part, denied Bloomingdale’s petition for review on March 1, 2017.)

The California Court of Appeal’s logic and decision (and the California Supreme Court’s refusal to review the Court of Appeal decision) is not surprising, and neither are decisions by the Ninth Circuit that are largely consistent with Tanguilig v. Bloomingdale’s.  However, the United States Supreme Court’s denial of review here is surprising.  The Supreme Court, and notably the late Justice Scalia, have largely rejected California’s prior attempts to limit the reach of the FAA.  (See, for example, AT&T Mobility v. Concepcion.)  It was thought that the Court would continue this line of reasoning given Justice Neil Gorsuch’s close ideological identification with Scalia’s positions.  The decision not to review Tanguilig either means that the Court views PAGA actions as unique (essentially qui tam actions, or actions by the state government brought by private citizens) and therefore not within the scope of its prior decisions on the breadth of the FAA, or that it did not view this case as the proper vehicle to review the reasoning of Iskanian.

The decision not to review Tanguilig will not, however, be the U.S. Supreme Court’s last word on employment arbitration for this term, however.  A few weeks ago, the Court heard oral argument on a trio of cases (Epic Systems Corp. v. Lewis, NLRB v. Murphy Oil USA, and Ernst & Young LLP v. Morris) addressing whether an employer’s use of class and collective action waivers in arbitration agreements with employees constitute an unfair labor practice under the National Labor Relations Act (“NLRA”) The National Labor Relations Board (“NLRB”) has consistently taken the position that such waivers violate the NLRA, but the federal Courts of Appeal are split on this.  And although not shocking, it is remarkable to note that the United States Department of Justice, having initially filed a brief alongside the NLRB under the Obama Administration has now switched sides and argued on behalf of employers and in defense of collective action waivers.

For now, employers should be mindful that PAGA cases cannot be individually arbitrated, and even representative (quasi-class) arbitration is uncertain at best.  (There has been a split between state and federal courts regarding representative arbitration for PAGA, and employers are likely better off in federal court, if such an option is available.)  A periodic review of employment arbitration agreements, with the advice of counsel, is warranted to make sure that the scope of arbitrable claims is properly defined.

Employment Considerations During Natural Disasters

Tragic events such as the fires currently affecting both Northern and Southern California often leave employers unable to run business as usual.  Be it property damage or safety concerns, this disruption in business can leave employers asking how to manage their payroll under the circumstances.  The following provides a quick guide to such issues:

Nonexempt Employees: Both Federal and California Law only require employers to pay nonexempt employees for hours that the employee actually works.  An employer is therefore not required to pay nonexempt employees if the employer is unable to provide work to those employees due to a natural disaster.

     NOTE – On call time: Employees who are required to remain at or near an employer’s premises are “on call” and the employer is required to pay these employees for such time.  For example, even if they perform no work, employees who are required to remain on premises to deal with emergency repairs must be compensated.

Exempt Employees: An employer is required to pay an exempt employee’s full salary if the worksite is closed or unable to reopen for less than a full workweek.  However, an employer may require an exempt employee to use his or her allotted leave for this time—despite this option, if the employee does not have a leave balance, no equivalent deduction from salary may be made.

     NOTE – Exempt Employees who choose to stay home: If the employer is open for business, an absence caused by transportation difficulties experienced during natural disasters may count as an absence for personal reasons, such that certain deductions are allowed.  Under this circumstance, an employer may place an exempt employee on leave without pay (or require the employee to use accrued PTO) for the full day that he or she fails to report to work.  Importantly, deductions may only be made for full day absences—if an exempt employee is absent for one and a half days for personal reasons, the employer can deduct only for the one full-day absence.

Reporting time pay: California law guarantees at least partial compensation for employees who report to their job expecting to work a specified number of hours but who are deprived of that amount of work because of inadequate scheduling or lack of proper notice by the employer.  While reporting time pay is not required where the work interruption is attributable to “an Act of God or other cause not within the employer’s control,” employers should make every effort to communicate the business closure and lack of work to employees before they report to work.

Benjamin J. Treger is an associate in the Santa Monica office of Hirschfeld Kraemer LLP. You can reach him at btreger@hkemploymentlaw.com, or (310) 255-1824.

 

Does Title VII Prohibit Employment Discrimination Against Gay and Transgender Persons? Jeff Sessions Says No, but the Supreme Court Will Likely Weigh In

Today, in a memo to all U.S. Attorneys and heads and federal agencies, Attorney General Jeff Sessions stated that Title VII of the Civil Rights Act of 1964, as a matter of law, does not prohibit employment discrimination against transgender persons.  The Attorney General stated in his letter that there was no intent or effect of diminishing the prohibition against sex discrimination for all persons (and characterizing discrimination against, for example, gay persons, as sex discrimination based upon sexual “stereotypes” has been a back door, of sorts, to bring sexual orientation within Title VII’s protections).  The Department of Justice’s new position, which is an about-face from the position staked out by former Attorney General Eric Holder during the Obama Administration, sets up a conflict with the Equal Employment Opportunity Commission, which has taken the opposite position and is enforcing Title VII, within its jurisdiction, as providing such protections.  Sessions’ letter is, of course, not a court decision and sets no legal precedent, but it does set the policy of the Department of Justice and other federal agencies.

There is, however, a federal Court of Appeal (the 7th Circuit) that may very well decide, for the first time, that Title VII does indeed, by its prohibition of discrimination based upon “sex,” also prohibit discrimination on the basis of sexual orientation: on September 23, that Court heard oral argument in the case of Zarda v. Altitude Express, a case brought by the estate of Donald Zarda, a deceased gay skydiving instructor who alleged he was terminated from his job because of sexual orientation.  Whatever the decision is, it is near certain that the losing side will petition for review before the Supreme Court.  Stay tuned.