What Employers Really Need to Understand About Arbitration Agreements

July 29, 2013

Many employers view arbitration agreements as a cost-effective and time-saving method for resolving disputes with their employees. I am personally of the opinion that heading to arbitration is not “cost-effective” any more simply because of the cost of the fees associated with arbitration. I do agree that heading to arbitration maybe a “time saving” method but not more than heading to mediation. The other issue is whether or not arbitration agreements are enforceable and in fact, in recent years, the Courts have issued differing opinions on whether such agreements are enforceable. Generally speaking, the courts closely scrutinize arbitration agreements because the employee lacks equal bargaining power, particularly where an agreement to arbitrate is a condition of employment. The courts examine both procedural unconscionability (i.e., oppression or surprise to one side that arises from unequal bargaining power) and substantive unconscionability (i.e., whether the terms of the agreement are unduly harsh or one-sided). The California Supreme Court has held that an agreement to arbitrate is unenforceable only if both the procedural and substantive elements are satisfied, but that these types of unconscionability are viewed on a sliding scale. In other words, the more substantively oppressive the terms of the arbitration agreement, the less evidence of procedural unconscionability is required.

The California Supreme Court has set forth the minimum requirements for an enforceable arbitration agreement: (1) a modicum of mutuality; (2) a neutral arbitrator; (3) all costs beyond those normally incurred in litigation to be borne by the employer; (4) some discovery; (5) a written decision with some reasons for the award; (6) the same relief available as in litigation. Subsequent decisions by the California courts and the Ninth Circuit Court of Appeal have found unconscionable provisions that restrict an employee’s appeal rights to a second arbitrator and to awards exceeding $50,000, require payment of a deposit and fees for each arbitration session by the employee, and limit an employee to a one-year statute of limitations.

Employers should keep in mind the risk of invalidation if their agreement is improperly drafted. While the courts have enforced arbitration agreements where only one term is unconscionable and can be severed, they have denied enforcement where the entire agreement was permeated with objectionable provisions or the purpose of the agreement appears to be to obstruct the employee’s claims.

Given the complicated issues in this area, employers should consult with experienced employment counsel before drafting or implementing an arbitration agreement. The focus in drafting these agreements should be on changing the forum for resolution of the dispute, rather than seeking to gain a substantive advantage over the employee. Here are some general “DO’s” and “DON’Ts” that are worth noting:

* DO consider allowing the employee an opportunity to opt-out of arbitration within 30 days after being notified of the program.
* DO provide a procedure for the selection of a neutral arbitrator.
* DO specify the types of claims that are subject to the agreement.
* DO provide for some mutuality, rather than just requiring arbitration by the employee.
* DO allow for more than minimal discovery.
* DO require a written decision by the arbitrator setting forth the basis for the award.
* DO allow for some judicial review of the decision.
* DO include a severability clause in the event any provision is found unenforceable.
* DON’T bury the agreement to arbitrate in pre-printed complex forms that the employee is unlikely to read.
* DON’T limit the statute of limitations for any claims.
* DON’T limit the employee’s ability to pursue class or group claims.
* DON’T require the employee to share the cost of the arbitration fees or to incur other costs that they would not bear in ordinary litigation.
* DON’T limit the recoverable damages.
* DON’T provide for one-sided amendments or changes to the agreement by the employer.

So, having said all of the above, do I think you should keep your arbitration agreements in place? Probably, but don’t discount the opportunity to head to mediation first. I know employers who feel they are innocent of the allegations do not want to write a check, however, “do the math.” It really turns on being “cost effective.”

URGENT:Piece Rate and Commission Pay Systems in Jeopardy!

July 22, 2013

The California Supreme Court has denied a petition to review the appellate court decision in Gonzalez v. Downtown LA Motors, despite support from national and state-wide trade associations representing car dealers, grocers, retailers, agriculture, trucking, large corporations, and small businesses. Now, any employer in California paying piece-rate pay, including flag hours, and commissions as the exclusive forms of payment to employees may be violating California law. In Gonzalez, the trial court reviewed an analysis of piece rate (flag hour) tasks performed by service technicians and ordered that unrecorded time in between those tasks had to be paid on an hourly basis, even though pay for all hours worked in the payroll period far exceeded the applicable minimum wage. The damage award in excess of $1.2 million now stands. A similar order against Safeway involving payment by piece rate held that the food chain must pay employees separately for rest periods at an hourly rate.

Separately, a federal district court has ruled that Nordstrom must pay its sales people at an hourly rate when they are not engaged in selling activities, even though Nordstrom guarantees pay above minimum wage and many employees earn very substantial commissions far above minimum wage in every pay check.

Unless this gutting of piece rate and commission pay is reversed, almost every employer in California that has paid piece rate or commission believing it covers all hours worked in the pay period when the employee has earned more than least minimum wage for the period faces liability for back pay. Claims will be made that any time in between assigned tasks or actual sales must be paid at minimum wage, regardless of the employee’s earnings. The statute of limitations is three years and, in some instances, may be four years. A class action claim may, in some cases, be defeated if the employer is able to enforce an individual arbitration agreement.

This week, Art Silbergeld, the attorney Potts & Associates has always recommended to help our clients address wage claims and other employment disputes and to defend them in litigation, was again named by The Los Angeles Daily Journal as one of the Top 75 employment litigators in California. He has been working with the California New Car Dealers Association and other trade associations on this critical issue. If you have any questions about the status of wage law affecting your own practices, recording time at work, or undertaking an internal audit or if your company faces a dispute over the piece rate or commission issue, Art is available to speak with you at (310) 772-8308. SilbergeldA@dicksteinshapiro.com

U.S. Supreme Court Decision on Prop 8: The Probable Impact on the Work Environment

July 15, 2013

The recent U.S. Supreme Court Case regarding the Defense of Marriage Act (Windsor v. Schlain, No. 12-307 (U.S. 2013)) has numerous immigration consequences for certain same-sex spouses that are married. The June 26, 2013 decision opens the door for many immigration benefits for certain qualifying spouses.

If the marriage takes place in a state that recognizes a same-sex marriage, then U.S. Citizenship & Immigration Services (US CIS) will allow the U.S. Citizen or permanent resident partner to sponsor their foreign national spouse for permanent residency in the U.S. Currently, there are 14 states where the marriage will be recognized as valid for immigration purposes, including California, Connecticut, Delaware, Iowa, Maine, Maryland, Massachusetts, Minnesota, New Hampshire, New York, Rhode Island, Vermont, Washington, Washington DC.
And the U.S. Citizen spouse could even sponsor the foreign national partner on a fiancé visa if they are overseas and plan to marry within 90 days of entry to the U.S.

In addition, it will allow non-immigrants who are applying for a temporary visa (such as H-1B, L-1, TN, etc.) to have their spouses join them on a derivative visa if their same-sex marriage is recognized as valid in the overseas country where the marriage took place. Currently, there are 15 countries that recognize same sex-marriages including Argentina, Belgium, Brazil, Canada, Denmark, France, Iceland, Netherlands, New Zealand, Norway, Portugal, South Africa, Spain, Sweden, and Uruguay.

US CIS has indicated that the place of marriage (celebration) will dictate eligibility as opposed to the current place of residency. For example, if a couple marries in California and then moves to Wyoming, then they will still be able to petition for permanent residency since the location of the ‘place of celebration” of the marriage controls.
Spouses may also marry overseas in a country that recognizes same-sex marriages and US CIS will recognize that marriage for visa purposes.

Employers may be faced with challenges regarding time off requests and benefits that may or may not be offered by the employer. You must understand that personal sentiments must be left outside of the workplace. This is an area that will probably begin a new series of litigation if employers are not careful. Furthermore, keep in mind, this is an emotional issue for many and when emotions enter into the picture, it usually ends up spelling disaster for employers. Be patient, and understanding, as we move along this trail.

U.S. Supreme Court Defines the Definition of a “Supervisor”

July 8, 2013

The United States Supreme Court has issued two decisions important for employers litigating harassment and retaliation claims under Title VII. In the first case, Vance v. Ball State University, the Court decided an important issue relating to an employer’s liability for harassment of an employee by a “supervisor.” More specifically, the Court decided a dispute concerning what it means to be a “supervisor”–i.e. does the employee need to have authority to hire and fire and make similar decisions or is it enough if the employee directs the daily work of others (the latter approach being the approach endorsed by the EEOC)? This issue is significant because employer liability for harassment under Title VII varies depending on whether the alleged harasser is a supervisory employee or a co-worker. If the harasser is a supervisor, the employer generally is vicariously liable for the harassment. If the harasser is not a supervisor but a co-worker of the victim, then the employer generally only is liable if it knew or should have known of the harassment and failed to take prompt and effective remedial action. Prior to this decision, courts disagreed over the meaning of the term “supervisor” and thus parties to harassment suits under Title VII generally had to litigate whether the alleged harasser qualified as a supervisor (with Plaintiffs’ attorneys of course arguing broadly for supervisor status, and employers urging a narrow view of supervisor status).

In yesterday’s 5-4 decision, the Supreme Court provided the needed clarification and guidance on this issue, defining the term “supervisor” narrowly in a way that benefits employers. The Court held that to be considered a supervisor, the employee must be empowered by the employer to take “tangible employment actions against the victim.” This means that the employee must have the power to effect “a significant change in employment status, such as hiring, firing, failing to promote, reassignment with significantly different responsibilities, or a decision causing a significant change in benefits.” The Court rejected as “nebulous” the EEOC’s (and many circuit court’s) definition of a supervisor to include anyone with the ability to significantly direct another’s daily work.

The Supreme Court’s decision is a favorable one for employers because it narrows the circumstances under which employers can be held vicariously liable for harassment, and should reduce litigation costs that previously had to be expended litigating whether the alleged harasser was a supervisor or not.

In another employer-friendly Title VII decision issued yesterday, University of Texas Southwestern Medical Center v. Nassar, the Court (also in a 5-4 decision) decided a split among the circuits concerning the standard for proving retaliation claims under Title VII (meaning claims that an employee was retaliated against for complaining about discriminatory practices in violation of Title VII). Prior to yesterday’s decision, some courts had held that an employee need only prove that a retaliatory motive was “a motivating factor” behind the adverse employment action. Other courts held that an employee, in order to prevail, has a higher burden of proving that a retaliatory motive was the actual cause of the adverse employment action. The Supreme Court has now spoken and held that the standard for proving a retaliation claim under Title VII is “but for” (actual cause)causation. This decision similarly is favorable for employers litigating Title VII retaliation claims because it makes it more difficult for the plaintiff to prove and prevail on the claim.

These were great decisions for employers!

Pending New Laws on The Horizon!

July 2, 2013

California has a number of new laws looming on the horizon many of which will have another huge impact on California businesses. One has to wonder if the California Legislatures simply do not care about the enormous pressures employers are faced with on a daily basis. And let me be clear, not just about surviving as a business from a sales perspective, I am referencing the managing of their employees with the ever threatening “I will sue you” mentality! The more regulations that are mounted against employers, the more opportunity employees will have to drag their current or former employer into court. Enough said. Let’s take a look at a few of these and next week I will add a few more. Yes, there are more!

Senate Bill 655 is all honesty is not bad for employers. It seeks to codify the Holding in Harris v. City of Santa Monica, which clarified the application of the “mixed motive” defense in discrimination cases. Basically, the new law actually limits the remedies available where an employer can prove that the same adverse action employment action would have occurred for a lawful reason even if the employee proves that a protected characteristic was a substantial factor in the employer’s decision.
Senate Bill 390 would amend the Labor Code (Section 227) to allow the Labor Commissioner to pursue criminal prosecution and fines in connection with an employer’s failure to remit payroll taxes to the proper agency.

Senate Bill 400 would amend the Fair Employment & Housing Act (FEHA) by adding victims of stalking, sexual assault, and domestic violence as protected categories. As amended, FEHA would prohibit any adverse actions by the employer because of the employee’s status as a victim and will require the employer to provide a reasonable accommodation for the employee/victim.

Senate Bill 435 would amend Labor Code Section 226.7 to provide rest breaks to piece-rate workers. Such pay will be based on the average piece –rate wage. The bill authorizes any piece-rate worker to file a civil action or a claim with the Department of Labor Standards Enforcement (DLSE) to recover any unpaid piece-rate wage for each rest period which an employer failed to provide consistent with existing law. The bill excludes workers whose rest periods are expressly covered by a collective bargaining agreement.

Senate Bill 390 would amend Labor Code to expand employer liability in connection with the use of independent contractors. Specifically, the bill will allow for employers to be liable for any damages caused by independent contractors to third parties, including wage & hour violations, penalties and fines, where the independent contractor utilized by the employer wore uniforms similar to the employer or used the employer’s logo at the time the injury or damage occurred.

More to come!