California Developments

What We May See from the California Supreme Court in 2019

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2018 saw some major developments in employment law, particularly in California. The California Supreme Court embraced the ABC test for independent contractors in Dynamex, and rejected the de minimis doctrine for Labor Code claims in Troester. While 2019 has already brought legislative changes through the #metoo laws effective January 1, attention should also be on cases before the California Supreme Court. These cases may present new challenges for all employers, but particularly for media companies and employers doing business across state lines. The Court’s decisions in these cases have the potential to increase employers’ exposure to liability. We highlight some such cases here. READ MORE →

Making a List and Checking It Twice – Key Employment Considerations For The New Year

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You may be asking yourself: How is it already almost 2019?! With the New Year fast approaching, for those employment law enthusiasts out there, here are some legal issues that you want to keep in mind as you look back on 2018 and forward to 2019:

1. Compensation

Year-End Bonuses: Employers distributing holiday bonuses, holiday gift cards, year-end merit bonuses, and other types of compensation to nonexempt employees should consider whether the compensation must be included in a nonexempt employee’s “regular rate” of pay when calculating overtime. The Code of Federal Regulations carves out some specific types of pay that need not be included in an employee’s regular rate of pay. For example, Section 778.211 excludes purely discretionary bonuses and section 778.212 excludes gifts for Christmas and other special occasions.  So, an employer giving employees gift cards for the holidays or other special occasions is not required to incorporate the value of those gift cards into an employee’s regular rate of pay as long as the amounts “are not measured by or dependent on hours worked, production, or efficiency.” See 29 C.F.R. § 778.212(a); 29 U.S.C.A. § 207.

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Big Win for the Healthcare Industry on Meal Break Waivers as the California Supreme Court Resolves an Apparent Conflict in the Labor Code and IWC Wage Order

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On December 10, the California Supreme Court issued an impactful decision for the healthcare industry. In Gerard v. Orange Coast Memorial Medical Center, the unanimous Court endorsed the Hospitals’ meal break policy, over which the parties had battled for more than a decade.

The policy permitted employees who worked shifts longer than 10 hours to voluntarily waive one of their two meal breaks, even if their shifts lasted more than 12 hours. The Plaintiffs alleged the meal period waivers they signed were illegal because under the California Labor Code, waivers were not permissible for shifts greater than 12 hours.

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All Aboard! California Law Requires More Female Representation on Boards of Directors

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As part of its effort to close gender-based pay gaps, California will now require companies to increase female representation on boards of directors.

Currently, one in four publicly held corporations in California have no women on their boards of directors. SB 826, which Governor Jerry Brown signed into law at the end of September, requires that all publicly held corporations based in California have at least one woman director by December 31, 2019. That is not the end of the requirements; by December 31, 2021, companies with five authorized directors must have a minimum of two female board members, and companies with at least six directors must have a minimum of three females on the board. The California Secretary of State will publish the names of compliant and non-compliant companies on an annual basis. In addition to the “name and shame” provisions, non-compliant companies face fines of $100,000 for the first violation and $300,000 for subsequent violations.

The sponsors of the bill, Sens. Hannah-Beth Jackson (D-Santa Barbara) and Toni Atkins (D-San Diego), stated when introducing the bill: “More women directors serving on boards of directors of publicly held corporations will boost the California economy, improve opportunities for women in the workplace, and protect California taxpayers, shareholders, and retirees. . . . Yet studies predict that it will take 40 or 50 years to achieve gender parity, if something is not done proactively.”  The bill cites numerous independent studies stating that publicly held companies perform better in terms of profitability, productivity, and workforce engagement when women serve on their boards of directors. It follows the lead of Germany, France, Spain, Norway, and the Netherlands that have addressed the lack of gender diversity on corporate boards by instituting quotas requiring 30 to 40 percent of seats be held by female directors.

Gov. Brown noted in his signing letter that corporations have been considered “persons” for more than a century, so they should reflect the “persons” who make up America as a result.  The California Chamber of Commerce and a coalition of other businesses opposed the bill and argued that the mandate is unconstitutional and a violation of California’s civil rights statutes. While Gov. Brown acknowledged that the law could face legal challenges, he noted that “recent events . . . make it crystal clear that many are not getting the message.” Therefore, he felt signing the bill into law was a necessary measure.  No lawsuits have yet been filed.

In the meantime, California-based publicly held companies should act promptly to ensure that their boards of directors include the number of women directors needed to comply with the statute.

California Court of Appeals Casts Doubt on Continued Validity of Employee Non-Solicitation Provisions

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Last week, the Court of Appeal for California’s Fourth Appellate District ruled that an agreement prohibiting former staffing company recruiters from soliciting their former employer’s employees is unenforceable under California Business & Professions Code section 16600. The court reasoned that the employee non-solicitation provision was too onerous on the recruiters’ ability to practice their profession i.e., recruiting employees. In rendering the decision, the court called into question long-standing precedent that upheld employee non-solicitation provisions, which are routinely included by California employers in employment and confidentiality agreements with their employees.

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#MeToo One Year Later: The Legislative Reaction

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On October 15, 2017, the #MeToo movement began in earnest following a tweet by actress Alyssa Milano. To commemorate the one-year anniversary of the #MeToo movement, the Orrick Employment Law and Litigation Blog will analyze the effects of the movement from the employment perspective. Part 1 reviewed the movement’s impact on sexual harassment claims in the workplace, Part 2 below focuses on the legislative reaction to the movement, and Part 3 discusses how employers have responded to #MeToo. READ MORE →

Now We’ve Got Your Attention: Recent Amendments to SF Fair Chance Ordinance Give Job Applicants Right to Sue and Send Penalties Soaring

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San Francisco recently added significant teeth to its “Fair Chance” ordinance, which is designed to give applicants who have criminal histories a chance to get their foot in the door without being automatically disqualified.

This is the next step in the “ban the box” movement, for which several cities, counties and states have passed laws restricting employers from inquiring about a job applicant’s criminal background. The term “ban the box” refers to questions on an employment application that ask a job applicant about past convictions. Proponents of “ban the box” laws argue they will help remove unfair employment barriers to job applicants with criminal histories.

In California, San Francisco and Los Angeles have instituted “Fair Chance” ordinances that require employers to state on their job postings that an arrest or conviction will not automatically disqualify a qualified application from consideration from employment. Recent amendments to the San Francisco Fair Chance Ordinance went into effect on October 1, 2018. These amendments:

  • Expand the scope of the law to cover any employer with 5 or more employees. Previously, the law covered employers with 20 or more employees.
  • Prohibit employers from inquiring about a person’s criminal history until after a conditional offer of employment has been made.
  • Prohibit employers from considering any convictions for decriminalized behavior (e.g., marijuana related convictions). Previously, the law had allowed such inquiries for convictions that were seven years old or less.
  • Increase penalties for non-compliance from a per-violation maximum of $100 to $2,000.
  • Direct that penalties must be paid directly to affected employees. Penalties were previously paid to the City.
  • Creates a new private right of action for any employee or applicant whose rights have been violated. Previously only the City Attorney could sue to enforce the law.
  • Requires that covered employers display a new poster in the workplaces as of October 1, 2018.

In addition to fair chance ordinances like San Francisco’s, California employers must also be mindful of other recent legislation that will have an impact on the hiring process, including state-wide legislation enacted in July 2018 that prohibits employers from inquiring into the salary history of their applicants. More on that here.

As always, employers are well advised to reach out to Orrick counsel for assistance navigating this complex area of law.

California #TakesTheLead on Harassment Laws: What Does It Mean for Employers?

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As you’ve likely been monitoring, last month the California legislature passed several bills to Governor Brown for signature relating to sexual harassment. The hashtag #TakeTheLead emerged as a symbol reflecting California’s potential to become the state at the forefront of passing additional legislation characterized as increasing protection for women – and workers generally – in the face of the #MeToo movement. Late Sunday night, in the last moments before Governor Brown’s September 30 deadline, he vetoed the most contentious bill – AB 3080 – and signed into law many of the other pending bills. READ MORE →

Cert Denied in Potential Harbinger for California Equal Pay Act Class Actions

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On August 28, 2018, a judge in Los Angeles County Superior Court issued one of the first decisions – if not the first decision – on a motion to certify a putative class action under the state’s revised Equal Pay Act, Cal. Labor Code § 1197.5 (“EPA”).  See Bridewell-Sledge, et al. v. Blue Cross of California, No. BC477451 (Los Angeles Sup. Ct. Aug. 28, 2018) (Court’s Ruling and Order re: Pls.’ Mot. for Class Certification).  Specifically, the court denied the plaintiffs’ motion to certify classes of all female and all African American non-exempt employees of Anthem Blue Cross California and related entities.  The complaint alleged both violations of the EPA, as well as discrimination in promotions and pay in violation of the Fair Employment and Housing Act (Cal. Gov. Code §12900 et. seq.).[1]

Expert testimony played a key role in the briefing and the court’s decision.  Plaintiffs attempted to use statistical evidence to establish there were common questions about the legality of pay and promotion decisions, and argued the claims were amenable to classwide treatment and common proof.  The court allowed Plaintiffs a second round of briefing after concluding they did not receive education, training, and performance-related data for their initial expert to include in his analysis.  In the supplemental round of briefing, however, Plaintiffs tendered a different expert who chose not to make use of the acquired data.

The trial court concluded that neither of Plaintiffs’ experts had appropriately grouped together similarly situated individuals across the entire putative classes.  A plaintiff does not state even a prima facie case of an EPA violation unless she can show that she was paid less than another employee of a different gender, race, or ethnicity for “substantially similar work, when viewed as a composite of skill, effort, and responsibility, and performed under similar working conditions.”  Cal. Labor Code §§ 1197.5(a) (gender), (b) (race or ethnicity).  The court found that Plaintiffs failed to furnish evidence that could make that showing across the entire class.

Plaintiffs’ experts grouped individuals by EEO job group, which assigned Anthem’s greatly varied jobs into only 10 categories, with over 80% of individuals falling into just one EEO job group (office and clerical).  The EEOC web site itself describes this category broadly to include office and clerical work regardless of level of difficulty.  Both experts also ignored Anthem’s grouping of jobs into job families, which clustered jobs by function and responsibility and greatly narrowed the breadth of the groups.

The Court found Plaintiffs’ statistical models thus crucially rested on faulty assumptions by assuming those who shared an EEO job group were comparable.  To demonstrate, the court pointed to various Anthem jobs, vastly different in nature, which shared the same EEO job group.  For example, dental services analysists and office clerks were in the same EEO job group even though Anthem required dental services analysts to have a bachelor’s degree and two years of experience, while Anthem only required a high school diploma (and no prior experience) of office clerks.  The court also looked to market trends as evidence of the different pay typical of these vastly different positions, noting that market research data indicated that nationwide median pay was $47,900 for dental analysts but only $28,200 for clerks.  As another example, a nurse practitioner and accounting operations manager, earning $93,000 and $166,400 at Anthem, respectively, shared the same EEO job group and were treated as similarly situated in Plaintiffs’ models, even though one worked in the finance department and the other in the physicians’ and nurses’ department.  The court found the expert models did not properly analyze pay rates of putative class members and juxtapose those against employees who performed substantially similar work.  Thus, the court concluded it could not rely on Plaintiffs’ models to assess violations on a classwide basis but would instead have to make individualized inquires as to who were truly comparators under the EPA.

Aside from the problematic reliance on EEO groupings, the court also faulted Plaintiffs’ second expert on two additional grounds.  First, he only measured tenure by time at the company, rather than time in a position.  As Defendant’s expert pointed out, time in position is a more relevant tenure-related variable, because one would expect salary to increase over time in a position as the employee gained experience in that role.  Time in position was a statistically significant variable related to compensation in 7 of 10 years.  Conversely, Plaintiffs’ model measuring tenure by time since hire did not accurately capture one’s experience in a specific position, but instead conflated various positions held and ignored decreases that may have resulted from position changes. The court also found that Plaintiffs’ expert erred by including physician advisors earning over $180,000 in his model.  By contrast, Defendant’s expert deemed these individuals as outliers because their earnings were so vastly different from other non-exempt employees.  The Court found the exclusion of “time in position” and inclusion of physician advisors further evidenced that Plaintiffs’ experts’ “methodology would not provide a reasonable basis for his conclusion that racial discrimination exists at Blue Cross.”

Even ignoring the reliability problems, the court noted that Plaintiffs’ final statistical model showed no pattern of underpayment of women and no statistically significant disparity for five of the eleven years of the class period.  Defendant’s statistical model, on the other hand, controlling for Anthem job family to reflect similarly situated positions based on actual jobs, showed that there were no statistically significant disparities for 10 of the 11 years of the class period.  The court noted that Plaintiffs’ models—particularly when juxtaposed with Defendant’s more refined analysis—highlighted “the inherent problem in treating [the] case as a class action” because the evidence showed “individual [Anthem] job titles within [an EEO] Job Group can be vastly different.”  The court explained the upshot was that it would have to conduct highly individualized assessments of each member of the putative class to determine liability, and that Plaintiffs’ statistical models did nothing to cure the problem.

Significantly, the court noted that Plaintiffs failed to identify a single uniform policy that dictated pay and promotion decisions across the putative class.  The court noted that this failure further undermined the idea that there was any predominant common question amenable to common proof, related to whether Blue Cross had a policy of discriminating in pay and promotions.  In contrast, Blue Cross put forth evidence that it used race- and gender-neutral factors to develop its pay structure, including using market surveys to determine the median pay rates for its specific jobs and adjusting pay per geographic location.  The company also put forth evidence that managers had discretion to make individualized determinations when making pay decisions by considering the labor budget and pay equity among employees as well as the employee’s contributions, experience, and performance.  Plaintiffs’ failure to identify a specific employment practice in the face of Defendant’s evidence of race-and gender-neutral pay-setting policies, in the court’s view, underscored that the equal pay inquiry was highly individualized, and thus even a reliable regression model “would not be sufficient for a finding of predominance.”  Quoting the U.S. Supreme Court’s 2011 decision in Walmart Stores, Inc. v. Dukes, the Court noted that statistics alone are “insufficient to establish [Plaintiffs’] discrimination theory can be proved on a classwide basis.”

This case serves as a reminder that even under California’s EPA, one of the nation’s most employee-friendly equal pay statutes, plaintiffs cannot skirt the requirement that comparators must perform substantially similar work, when viewed as a composite of skill, effort, and responsibility, and performed under similar working conditions, and that poorly-constructed statistics are insufficient on their own to furnish common, classwide proof of discrimination.  Orrick will be tracking developments in this and other EPA cases and putative class actions.

[1] Plaintiffs also alleged unfair business practices violations (Cal. Bus. & Prof. Code §§ 17200 et. seq.).

Ninth Circuit Clarifies Boundaries of California’s Restriction on Noncompete Agreements

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Taking a second look at the use of “no future employment” provisions in a settlement agreement between a doctor and his former employer, the Ninth Circuit Court of Appeals recently held that two of the three provisions constituted “restraints of substantial character” that ran afoul of California’s restriction on noncompete clauses. Golden v. California Emergency Physicians Medical Group, No. 16-17354 (9th Cir. July 24, 2018) (“Golden II”).

In 2007, Dr. Donald Golden, an emergency room surgeon, sued his former employer, California Emergency Physicians Medical Group (“CEP”), claiming that he had been fired because of his race.  After mediation, the parties orally agreed to settle the dispute. However, Dr. Golden later refused to sign a written settlement agreement, arguing that three provisions therein violated the restriction on noncompete agreements embodied by California Business and Professions Code Section 16600. Section 16600 provides that, aside from certain exceptions, “every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.”

Dr. Golden challenged the following provisions of the proposed settlement agreement as violative of Section 16600:

  1. A provision preventing Dr. Golden from working or being reinstated at any facility that CEP owns, manages or contracts with.
  2. A provision allowing CEP to terminate Dr. Golden without any liability if CEP contracts with an emergency room at which Golden is employed or rendering services.
  3. A provision allowing CEP to terminate Dr. Golden without any liability if CEP contracts with a facility at which Golden is employed or rendering services.

The district court originally granted a motion to enforce the agreement and ordered Dr. Golden to sign, reasoning that the provisions would only prevent him from working for, not competing with, his former employer CEP, and thus Section 16600 did not apply. When the Ninth Circuit first considered this issue on appeal (Golden I), it  reversed, holding that Section 16600 applies not only to noncompetition agreements but to any contractual provision that places a “restraint of a substantial character” on a person’s ability to practice a profession, trade, or business.  The Ninth Circuit remanded the case to the district court to apply this standard, but the district court again ordered Dr. Golden to sign the settlement agreement, concluding that the disputed provisions did not constitute a restraint of a substantial character.

Addressing the dispute a second time in Golden II, the Ninth Circuit clarified that to meet the “restraint of substantial character” standard, “a provision need not completely prohibit the business or professional activity at issue, nor does it need to be sufficient to dissuade a reasonable person from engaging in that activity…[b]ut its restraining effect must be significant enough that its enforcement would implicate the policies of open competition and employee mobility that animate [Business and Professions Code] section 16600.”

The Ninth Circuit concluded that the first clause prohibiting Golden from working at any facility contracted by, owned, or managed by CEP was valid, as its effect on Golden’s ability to practice medicine was minimal. However, the court held that the second and third restrictions proposed by CEP would “easily rise to the level of a substantial restraint, especially given the size of CEP’s business in California.” CEP currently staffs 160 healthcare facilities in California and handles between twenty-five and thirty percent of the state’s emergency room admissions. Because the second and third restrictions would affect Golden’s “[existing] and future employment at third-party facilities” where CEP provided services, even if the CEP services began after Golden’s employment, and even if CEP’s services did not compete with the services Golden provided, the provisions ran afoul of Business and Professions Code Section 16600.

The Ninth Circuit’s recent decision is a good reminder that California generally disfavors noncompete agreements. California employers may wish to review their separation/settlement agreements with this case in mind or to consult with counsel to ensure that their agreements comply with California law.