Class Action

Can’t We Just Agree?: California Codifies It’s Hostility Towards Arbitration With AB 51.

On October 10, 2019, California Governor Gavin Newsom signed into law Assembly Bill 51 (AB 51) prohibiting mandatory workplace arbitration agreements. AB 51 adds Section 12953 to the Government Code and Section 432.6 to the Labor Code. AB 51 applies to contracts entered into or modified after January 1, 2020. READ MORE

It’s Never Too Late: NLRB Rules Employers Can Update an Existing Mandatory Arbitration Agreement to Include a Class or Collective Action Waiver After Being Sued, and Can Warn Workers that Failure to Sign Will Result in Termination

Arbitration agreements are a powerful tool in resolving employment actions.  As we noted last year, the U.S. Supreme Court ruled in a landmark case that employers can use class and collective action waivers in mandatory arbitration agreements.  The U.S. Supreme Court’s 5-4 decision in Epic Systems Corp. v. Lewis, No. 160285 (U.S. May 21, 2018), was authored by Justice Gorsuch, and settled the longstanding dispute over whether arbitration agreements containing class waivers are enforceable under the Federal Arbitration Act (FAA) despite the provisions of Section 7 of the National Labor Relations Act (the Act).

On August 14, 2019, the National Labor Relations Board (NLRB) issued Cordúa Restaurants, Inc., 368 NLRB No. 43 (2019), in which the NLRB sided with employers on two key arbitration questions following the Epic decision.  First, the NLRB found that an employer that is sued in a class or collective action can update its existing mandatory arbitration agreement to include a class or collective action waiver, barring workers from opting in to the pending litigation.  What’s more, the NLRB found that employers can warn workers that failure to sign the updated arbitration agreement will result in termination.

Employers can update an existing mandatory arbitration agreement to include a class or collective action waiver, even after workers have opted in to the collective action:

The NLRB first addressed the issue of “whether the Act prohibits employers from promulgating [mandatory arbitration] agreements in response to employees opting in to a collective action.”  In Cordúa Restaurants, Inc., Cordúa Restaurants had an existing mandatory arbitration agreement that required employees to waive their “right to file, participate or proceed in class or collective actions (including a Fair Labor Standards Act (‘FLSA’) collective action) in any civil court or arbitration proceeding,” but did not expressly prohibit opting in to collective actions.  Seven employees filed a collective action in the United States District Court for the Southern District of Texas alleging violations of the FLSA and the Texas Minimum Wage Act.  After thirteen employees opted in to the collective action, Cordúa Restaurants updated their existing mandatory arbitration agreement to expressly require employees to agree not to opt in to collective actions.  Although the NLRB, for purposes of the decision, assumed that opting in to a collective action constitutes protected concerted activity under Section 7 of the Act, it still found that promulgating the updated mandatory arbitration agreement in response to the opt-ins did not violate the Act.  The Board reasoned that Epic made clear that an agreement requiring that employment-related claims be resolved through individual arbitration, instead of class or collective action, does not restrict Section 7 rights in any way.

Employers can warn workers that failure to sign the updated arbitration agreement will result in termination:

The NLRB next tackled the issue of “whether the Act prohibits employers from threatening to discharge an employee who refuses to sign a mandatory arbitration agreement.”  After updating the mandatory arbitration agreement to include the above provision against opting in to collective actions, Cordúa Restaurants needed to distribute and execute these updated agreements.  During a pre-shift meeting, an assistant manager distributed the updated agreement to employees and explained that employees would be removed from the schedule if they declined to sign it.  After a couple employees objected to signing the updated agreement, the assistant manager stated that he “wouldn’t bite the hand that feeds [him]” and that he would instead “go ahead and sign it.”  The NLRB reasoned that because Epic permits employers to condition employment on employees entering into an arbitration agreement that contains a class or collective action waiver, the assistant manager did not unlawfully threaten the employees.

Dissent:

The majority opinion was authored by Chairman John F. Ring, Member Marvin E. Kaplan, and Member William J. Emanuel.  Member Lauren McFerran authored a separate dissent, which disagreed with the majority on both issues and found that, “[t]he record here establishes that [Cordúa Restaurants] violated Section 8(a)(1) [of the Act] by imposing the revised arbitration agreement on employees, in response to their protected concerted activity and by threatening employees for protesting the revised agreement.”  Member McFerran reasoned that although Epic blessed the use of mandatory arbitration agreements with class or collective action waivers, promulgating a lawful rule or policy in response to protected concerted activity is prohibited under Board law.  Lastly, Member McFerran found that the employees exercised their Section 7 rights by protesting the updated agreement and the assistant manager unlawfully threatened them.

Takeaways:

In its news release, the NLRB recognized that Cordúa Restaurants, Inc. is its first decision concerning the lawfulness of employer conduct surrounding mandatory arbitration agreements since Epic.  It remains to be seen how state or district courts analyze a fact pattern such as this one, but this is a very encouraging development for employers if this is a sign of what’s to come from the NLRB.  The decision strengthens employers’ power to effectuate mandatory arbitration agreements—now before and during pending litigation.

Ninth Circuit Withdraws Vasquez, Punts to California Supreme Court on Dynamex Retroactivity

On July 22, 2019, the Ninth Circuit withdrew its recent decision in Vazquez v. Jan-Pro Franchising International, Inc., and ordered that it would certify to the California Supreme Court the question of whether the worker classification test articulated in Dynamex Operations West v. Superior Court applies retroactively. READ MORE

Tip-ping the Scales: New Challenge to the DOL’s Revised Tip Credit Rule

As was reported late last year, the Department of Labor (“DOL”) in 2018 published an Opinion Letter (FLSA2018-27), effectively rescinding the agency’s 80/20 tip credit rule. In general, the tip credit rule permits employers in tip-producing industries, such as the restaurant industry, to compensate employees at a minimum rate of $2.13 per hour, and to take a credit against the tips an employee receives. An employer is additionally responsible for the remainder of an employee’s wages, if any, between what the employee earned in wages and tips combined, and the federal minimum wage. READ MORE

2019 Federal Wage and Hour Updates: The DOL Tackles Potential OT Violations and Ministerial Exceptions Under the FLSA

On December 21, 2018, the Department of Labor issued two opinion letters regarding the Fair Labor Standards Act (“FLSA”). The first opinion letter explains that an employer failed to comply with the FLSA’s overtime requirements when it designated a standard regular rate of pay for overtime purposes and the actual regular rate of pay exceeded that amount. The second opinion letter found that certain members of a religious organization were not employees under the FLSA, but, even if considered employees, qualified for the ministerial exception. This blog post explores both letters. READ MORE

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

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.

READ MORE

Say It Again: No Common Question Binds a Class Subject to Thousands of Individualized Pay Decisions

Echoing an increasingly familiar refrain, another district court has declined to certify a class of women bringing pay equity claims on the basis that they did not present a common question capable of producing a common answer to “the crucial question why was I disfavored.” Relying largely upon Wal-Mart Stores, Inc. v. Dukes, the court found certification inappropriate because the putative class members were subject to countless independent decisions involving the judgment and discretion of individual managers. The case also serves as another reminder that courts (including California state courts) will not accept an overly simplistic analysis comparing broad job categories or titles, but will continue to look at actual business practices and job responsibilities to ensure comparators are “similarly situated” so a meaningful pay comparison can be made. READ MORE

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

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.).

Change of Course? OFCCP Issues Long-Awaited Revised Compensation Guidelines

In a highly anticipated move, the Department of Labor’s Office of Federal Contract Compliance Programs (OFCCP) issued its new compensation directive on August 24, 2018. Directive (DIR) 2018-05, Analysis of Contractor Compensation Practices During a Compliance Evaluation, replaces the Obama-era compensation guidance DIR 2013-03, Procedures for Reviewing Contractor Compensation Systems and Practices (referred to as Directive 307). OFCCP also included a list of 22 Frequently Asked Questions (FAQs) with DIR 2018-05. READ MORE

Wait a Minute…California Supreme Court Says Employers Must Pay for De Minimis Off-the-Clock Work

On July 26, 2018, the California Supreme Court found that employers must compensate workers for the time they spend on certain menial tasks after clocking out of their shifts. In a unanimous decision, the Court held that California wage law did not bar a putative class action brought by a former Starbucks employee who routinely spent several minutes on trivial close-out tasks after his shift. READ MORE