NEWS Archive

MEAL PERIOD WAS “BONA FIDE” AND NON-COMPENSABLE DESPITE TIME SPENT WALKING TO AND FROM THE DESIGNATED BREAK AREA

The U.S. Department of Labor (“DOL”) announced three new opinions on Labor Day to help promote clarity, consistency and transparency in the application of federal labor standards under the Fair Labor Standards Act (”FLSA”). The first addressed the effect of time spent by employees walking to an area designated by the employer to eat during their meal periods.

In FLSA 2026–11 (Sept 7, 2026), the DOL addressed the question of whether an uncompensated 60-minute lunch break, during which employees spent 6 to 14 minutes walking to and from the employer’s designated break area, constituted a “bona fide meal period.” Based on the facts provided by the employee requesting the opinion, the DOL concluded that time set aside for the meal period was sufficient. It allowed the employee to use the meal period for its intended purpose. In addition, it was an uninterrupted period during which the employee was “relieved from duty” for the purpose of eating or engaging in personal activities. Accordingly, it qualified as a “bona fide meal period” under the FLSA.

1. Background

The employee who sought the opinion worked as a security therapy aide at a detention facility. Employees at the facility were prohibited from bringing food beyond the entry building. Under the employee’s collective bargaining agreement, he was entitled to a 60-minute, unpaid meal period each workday. The employer’s policy prohibited employees from eating at their work area; rather, employees had to walk 3 to 7 minutes to a designated break area to eat their lunch. Employees then spent an equal amount of time returning to the work area. This was a total of 6 to 14 minutes of walking time, resulting in 46 to 54 minutes in the designated break area.

2. General Legal Principles

The FLSA generally requires covered employers to pay nonexempt employees at least the minimum wage for all hours worked. The wages an employee is entitled to receive thus cannot be determined without knowing the number of hours worked. The DOL explained that the FLSA generally does not require employers to provide employees rest or meal periods. However, if employers provide meal periods, the DOL looks to the duration of the meal period to determine if it is bona fide and compensable. Typically, 30 minutes or more is enough for a bona fide meal period. 29 C.F.R. §785.19; WHD Op. Ltr. FLSA2026-7. (A 20-minute meal break was found sufficient under the FLSA where the employer and employees agreed to it and special conditions showed it to be sufficient. WHD Op. Ltr. FLSA2004-22 (Nov. 22, 2004).

Based on the facts, the DOL concluded that the employer provided a bona fide meal period that was not compensable under the FLSA and 29 C.F.R. §785.19. This conclusion was supported because the employee was relieved from work duties during the meal break and the period was long enough for the employee to use it to eat a meal. This was the case “even after accounting for the travel time required by the employer.”

The DOL also rejected the employee’s contention that the “travel time to and from the break area should be compensable because ‘employees are not fully relieved of their duties for the purpose of eating a meal until they can access their food in the designated break area.’” The DOL recognized that most courts reject such a contention, which is called the “complete relief from duty” standard, and instead evaluate the compensability of meal periods under the “predominant benefit test” that favored the employer based on the facts. “When employees need just a few minutes of travel time to access a break room or other location where they can eat their meal, that time is generally not compensable.” Citing WHD Op. Ltr. FLSA2026-7 at 2, the DOL reiterated that the FLSA “does not require absolute freedom” from every limitation or condition to constitute a bona fide meal period.” In fact, even a 20-minute meal period was bona fide under the FLSA where it only took one to one and one-half minutes to access the break room. WHD Op. Ltr. FLSA2004-22.

3. Conclusion

The new DOL opinion is aligned with other FLSA authorities. Employers are nevertheless advised to consider the requirements of California law when drafting and administering their policies for California employees. The California and federal rules are examined in detail in the Wage and Hour Manual for California Employers by Attorney Richard J. Simmons of Sheppard. The book is available from Castle Publications, LLC.

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About The Author

Richard J. Simmons is a Partner in the law firm of Sheppard, Mullin, Richter & Hampton LLP in Los Angeles. He represents employers in various employment law matters involving litigation throughout the country and general advice regarding state and federal wage and hour laws, employment discrimination, wrongful discharge, employee discipline and termination, employee benefits, affirmative action, union representation proceedings, and arbitrations. Mr. Simmons received his B.A., summa cum laude, from the University of Massachusetts, where he was a Commonwealth Scholar and graduated in the Phi Kappa Phi Honor Society. He received his J.D. from Berkeley Law at the University of California at Berkeley where he was the Editor-in-Chief of the Industrial Relations Law Journal, now the Berkeley Journal of Employment and Labor Law.

Mr. Simmons argued the only case before the California Supreme Court that produced a victory for employers and business in 2018. He was recently recognized as the Labor and Employment Attorney of the Year by the Los Angeles Business Journal and was inducted into the Employment Lawyers Hall of Fame. He has lectured nationally on wage and hour, employment discrimination, wrongful termination, and other employment and labor relations matters. He is a member of the National Advisory Board to the Berkeley Journal of Employment and Labor Law, published by Berkeley Law at the University of California at Berkeley. He was also appointed by the California Industrial Welfare Commission as a member of three Minimum Wage Boards for the State of California.

EEOC MOVE TO END EEO-1 REPORTING RAISES NEW COMPLIANCE QUESTIONS FOR EMPLOYERS

On July 21, 2026, the U.S. Equal Employment Opportunity Commission (“EEOC”) voted to issue a Notice of Proposed Rulemaking (“NPRM”) that would eliminate the EEO-1 report and the other annual workforce demographic filings that have been a fixture of federal compliance for decades.

This is a significant development, but it does not mean demographic data has become irrelevant. Below is a summary of what the proposal entails, what it means for your organization, and why you should think carefully before abandoning your current data collection practices.

1. What Is The EEOC Proposing?

The proposed rule would rescind the regulations that require covered employers to file EEO-1 through EEO-6 reports, along with the associated recordkeeping requirements. The best-known of these, the EEO-1 Component 1 Report, requires covered private employers to report workforce data by race, ethnicity, sex, job category, and location. Generally, private employers with 100 or more employees are covered, as are certain federal contractors with at least 50 employees.

2. Why Is The EEOC Making This Move?

The Commission concluded that the EEO reports are inconsistent with equal employment opportunity law, may raise constitutional concerns, and collect data that is not narrowly tailored to enforcing anti-discrimination statutes. In its view, whatever limited value the reports provide is outweighed by the burden of producing them, estimated at nearly $275 million annually for employers and roughly $4 million annually for the EEOC to administer.

EEOC Chair Andrea Lucas stated that the proposal “reaffirms the founding principle that every individual is created equal and therefore is entitled to equal treatment under the law,” emphasizing that requiring employers to categorize employees by race and sex annually “stands in direct tension with Title VII’s requirement that employment practices be colorblind.”

3. What This Does Not Change

The proposed rescission would eliminate a federal reporting obligation, not the underlying anti-discrimination laws. Specifically:

• Federal, state, and local anti-discrimination laws remain fully in effect.

• The EEOC retains its authority to request specific, tailored records relevant to individual charge investigations.

• Legal prohibitions against discrimination in hiring, compensation, promotion, and termination are unchanged.

• State and local reporting, recordkeeping, and pay equity obligations may still apply.

4. Should Employers Stop Collecting Demographic Data?

In most cases, no. Even without a federal reporting mandate, workforce demographic data remains a valuable compliance and risk-management tool:

• Compliance and Risk Assessment. Regular demographic reviews help identify potential disparities in hiring, compensation, promotion, and termination before they become claims.

• Pay Equity Analysis. Demographic information remains essential for meaningful pay equity analyses, regardless of whether a federal reporting requirement exists.

• Defending Employment Decisions. Historical workforce data can help employers evaluate and defend discrimination allegations by demonstrating legitimate, nondiscriminatory business reasons for employment decisions.

• State and Local Requirements. Multi-state employers should evaluate whether state or local laws impose separate reporting, recordkeeping, or pay equity obligations requiring ongoing data collection.

5. Best Practices For Employers Who Continue Collecting Data

Organizations that continue collecting workforce demographic data should do so with clear compliance purpose in mind:

• Limit access to the data to those with a legitimate need.

• Maintain demographic information separately from personnel records where possible.

• Establish clear retention policies for demographic data.

• Consider conducting certain demographic analyses at the direction of counsel to preserve privilege.

• Implement strong safeguards to protect confidential information.

• Ensure that internal analyses lead to appropriate follow-up, investigation, or corrective action where necessary.

6. Action Items For Employers

The NPRM was published on July 23, 2026, with a 30-day comment period that closed on August 24, 2026. A public hearing on August 11, 2026, drew nearly 1,500 written comments, with most speakers urging the Commission to retain or modernize the framework. The EEOC has not yet issued a final rule. Until a final rule takes effect, current obligations remain in force, and employers should prepare as if the 2026 filing will proceed.

In the meantime, employers should:

• Continue complying with current EEO-1 requirements until or if the legal requirements actually change.

• Audit current practices to determine what demographic information your organization collects, and why.

• Identify applicable state and local requirements that may mandate continued collection or reporting.

• Evaluate your use of demographic data for pay equity, promotion, hiring, or other compliance analyses.

• Review data access, confidentiality, and retention practices to ensure they are current and appropriate.

• Consult employment counsel before eliminating any existing collection or retention practices.

7. The Bottom Line

The EEOC’s proposal marks a potentially significant shift in federal reporting policy, but it leaves anti-discrimination laws fully intact. Workforce demographic data remains a key tool for compliance, risk management, and litigation defense. Employers who maintain thoughtful, proactive data collection and analysis practices now will be best positioned, whether the EEO-1 survives, evolves, or disappears entirely.

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About The Author

Carina Novell is an attorney in Sheppard’s Labor and Employment Practice Group in the firm’s San Diego (Downtown) office. Ms. Novell helps companies navigate complex California employment laws and defends both single-plaintiff and complex class action lawsuits. Carina focuses her practice on labor and employment law matters, as well as advising and representing management clients. Carina handles various types of employment litigation, including wage and hour class actions, discrimination, wrongful termination, retaliation, and harassment lawsuits.

Carina is a contributor to the California Labor and Employment ALERT.

Ms. Novell received her law degree from the University of California, Davis and her undergraduate degrees from Saint Mary’s College of California, summa cum laude.

PAGA PENALTIES AND ATTORNEYS’ FEES SLASHED BY COURT

There are few things California employers dread more than PAGA litigation. The Private Attorneys General Act (“PAGA”) generally presents a no-win scenario where employers face substantial legal expenses even when they prevail. Worse yet, employers have no realistic hope of recovering their attorney’s fees even when cases are frivolous and brought as money-making schemes.

1. The Taduran Decision

In the May 26, 2026 opinion of Taduran v. James R. Glidewell, Dental Ceramics, Inc., 121 Cal. App. 5th 197, 345 Cal. Rptr. 3d 578 (2026), the California Court of Appeal radically slashed penalties sought by Abraham Taduran, the plaintiff, along with his requested attorney’s fees. Even though the case remained costly to defend, it sends a message to plaintiffs’ attorneys and mediators that illusions of outrageous penalty and fee requests can be shattered by courts when the facts warrant it. It also offers valuable lessons for employers who wish to mitigate their risks and exposure by implementing aggressive, proactive strategies consistent with their legal obligations.

2. Overview Of Penalties And Fee Reductions

PAGA provides a vehicle for current and former employees to pursue substantial civil penalties against employers for Labor Code violations, even in cases where the alleged violations rely on hypertechnical claims or cause little or no actual economic harm. It is surprising to many that the lion’s share of penalty awards is shared by the State of California (which takes 65%) and plaintiffs’ attorneys.

In the Taduran case, the trial court exercised its discretion to slash the amount of penalties and attorney fees the plaintiff requested. It reduced the maximum penalty theoretically available under PAGA on a “per employee basis” and rejected the plaintiff’s claim that penalty reductions must occur on a “pay period basis.” Recognizing that “the Labor Code does not mandate any particular method for reducing a maximum civil penalty,” the court radically reduced the civil penalties by over 99% below the maximum allowed by PAGA – which was nearly $56 million.

The court also denied the plaintiff’s attorney’s request for $1,570,500 in attorney fees, based on a lodestar of $1.047 million and a multiplier of 1.5. The court accepted the lodestar figure, but applied a (negative) modifier of 0.70, resulting in an award of $733,440 in attorney fees. While still substantial, it was less than half the fees requested. The Court of Appeal approved the reduction in requested fees while rejecting the plaintiff’s claim that a negative multiplier is impermissible.

Some courts are finally getting a sense that plaintiff’s attorneys are hijacking PAGA to exploit a one-sided system that costs businesses billions of dollars that go into the coffers of plaintiff’s attorneys and the state, which siphons off 65% of PAGA payments. To benefit from the decision, employers should carefully assess the factors relied upon by the trial court to reduce the penalties and integrate them into their compliance efforts. For greater insights about the law and its built-in biases against employers and businesses, employers are encouraged to read California’s Private Attorneys General Act (PAGA) Litigation And Compliance Manual (Fourth Edition) by Attorneys Richard J. Simmons, and Ryan Krueger of Sheppard.

3. Background Facts

In 2018, Taduran filed an amended complaint alleging a single cause of action under PAGA. The lawsuit alleged his former employer, Glidewell, committed eight categories of violations against employees, including violations of California’s (1) minimum wage, (2) overtime, (3) rest period, (4) meal period, (5) separation earnings, (6) wage statement, (7) biweekly pay, and (8) record-keeping rules. The plaintiff sought summary adjudication of the wage statement and overtime claims while the employer sought summary adjudication of the wage statement claim.

4. The PAGA Penalty Claims

In 2022, the plaintiff submitted a trial brief asserting that Glidewell was liable on four claims. He asserted that the trial court had summarily adjudicated three issues in his favor, including Glidewell’s (1) failure to include information regarding piece-rate pay on wage statements (pay stubs), (2) failure to include the value of non-discretionary bonus pay in the regular rate, and (3) failure to include in overtime pay the value of payments for non-productive time, which was called “Uptime.”

a. The Plaintiff Sought Over $55 Million Based On Stipulated Facts

The employer stipulated to liability for rest period violations. The plaintiff thus claimed that the parties had stipulated to all relevant facts and the only remaining issue was the amount of civil penalties to be awarded. He argued that the civil penalties under PAGA totaled $55,985,350. While acknowledging the trial court had discretion to reduce this number, he maintained that the facts did not justify a reduction given Glidewell’s failure to pay all wages owed and its significant delay in rectifying admittedly faulty systems.

b. The Employer Sought Reductions In Penalties For “Hypertechnical” Violations

Glidewell had a different view. It argued the court should award a lesser amount than the maximum statutory penalties because the violations were “hypertechnical,” “very narrow” and did not warrant a significant penalty. Glidewell framed its penalties reduction arguments by presenting the court options that contextualized penalties so they could be constructed either based on a “per pay period” or “per aggrieved employee” formula.

More specifically, Glidewell proposed that the court award civil penalties of $65 per aggrieved employee on the wage statement issue, for a total award of $100,165. On the rest period issue, it proposed either $0.78 per pay period, for a total of $172,135.86, or $98.91 per aggrieved employee, for a total of $188,819.19. It also proposed either $3.33 per pay period for the uncompensated work time or $6.55 per aggrieved employee, for a total of $29,929.40. As to the bonus pay issue, Glidewell suggested different amounts for the bonus pay, totaling $40,303.89 when calculated per pay period, or $40,300.47, when calculated per aggrieved employee. (A practical observation is warranted. Astonishingly, the amounts proposed by the plaintiff and the employer were far greater than any actual losses experienced by the employees. It also should be pointed out that the greatest beneficiaries of penalty awards are the State of California (which receives a 75% share in PAGA pre-reform cases and 65% in new cases) and the plaintiff’s attorneys.)

The plaintiff argued that the reduction requested of more than 99% would be tantamount to an “outright elimination” of the penalty. He argued that Glidewell’s violations led to nearly $85,000 in unpaid wages and were continued for months after Glidewell acknowledged liability. He argued that an overly drastic reduction of the civil penalty would frustrate the intent of the law. (This argument was telling. The plaintiff argued that penalties of $56 million (plus over $1 million in attorney fees) were appropriate for an alleged underpayment of $85,000 in wages. The contrast in the harm alleged and the penalty sought is striking.)

5. Trial Court’s Ruling Reduced The Penalties

Following the parties’ briefing, the trial court awarded a total of $515,955 in civil penalties for the four Labor Code violations. It provided detailed reasoning for its reduction from the maximum penalty.

As for the wage statement issue, the court noted that the noncompliant wage statements did not result in any unpaid wages. Also, when the incomplete wage statements were supplemented by the production sheets Glidewell provided employees, the combination satisfied the purpose of the Labor Code wage statement requirements. Additionally, the court found that the maximum penalty of $33,199,250 based on $250 per pay period was “enormous” because Glidewell provided weekly rather than biweekly paychecks. Glidewell also corrected the wage statements beginning on March 1, 2019, which was 16 months before the trial court granted summary adjudication. Based on the circumstances, the trial court concluded a penalty above $100,165 would be “unjust arbitrary and oppressive.”

On the rest period issue, the court explained this issue was technical. It concerned how Glidewell calculated pay based on fractional rest periods. For example, an employee who took 20 minutes of rest would be credited with 0.33 hours, while an employee who took 40 minutes would be credited with 0.67 hours. Based on rounding, the employee who took 20 minutes of rest would be penalized. Over the relevant five-year period, employees were underpaid an average of $0.26 per pay period, for a total of just $63,464 in unpaid wages. The parties agreed the maximum penalty for this violation was $22,068,700. After finding that Glidewell’s method of calculation of rest period wages for piece-rate employees was applied in good faith, it reduced the penalty.

Other facts supporting the reduction included Glidewell’s willingness to change the system prior to adjudication and its willingness to pay the affected employees. Based on these circumstances, the court concluded that a penalty of $190,900 (1,909 employees times $100 per employee) was appropriate.

As to the “Uptime” issue, the court explained the violation occurred because Glidewell paid overtime wages based on the regular hourly pay that did not include Uptime pay. Thus, in weeks where the Uptime rate is higher than the regular hourly rate, the overtime wages were underpaid. A total of $7,310 in lost wages occurred translating to $6.55 per employee or $1.11 per pay period. The parties agreed the maximum penalty for this violation is $658,900. The court concluded the relatively “minimal amount of unpaid wages” and Glidewell’s “willingness to repay those wages” supported a reduction. It determined a penalty of $167,400 or $150 per affected employee served both the deterrence and punishment functions of the law.

Finally, as to the bonus pay issue, Glidewell did not include the bonuses in the regular rate calculation. A total of $13,433 in lost wages occurred, and the maximum penalty was $58,500. The trial court declined to reduce that penalty.

6. The Attorney Fees Were Also Reduced

The plaintiff requested $1,571,658 in attorney fees, consisting of a 1.5 multiplier on a lodestar amount of $1,047,772, plus $98,138.21 in costs. He argued that higher fees than generated by an hourly rate were warranted based on the alleged “novelty” of his legal theory, counsel’s skill and experience, counsel’s “lost opportunity” to work on other matters, and contingency risk.

The court awarded $733,440 in attorney fees (less than half the amount sought) and $98,138 in costs. The court accepted the lodestar amount, but noted the amount was based on current billing rates for three attorneys even for legal work performed many years before their billing rates increased. The court looked at billing rates identified in another case that began earlier. The court also considered (1) the relatively straightforward, records-based nature of the claims, (2) the reasonable and expected skill in prosecuting the claims, (3) that the civil penalty award was less than 1% of what the plaintiff sought, and (4) the contingency risk, which weighed in favor of an upward multiplier, but only slightly given that liability of certain claims was established over four years earlier. Based on all these factors, the trial court concluded that a 0.70 multiplier was appropriate to lower the amount.

After a final judgment awarding $515,965 in civil penalties, plus $733,440 in attorney fees and $98,138 in costs was entered, the plaintiff appealed.

7. The Court Of Appeal Agreed With The Reductions In Penalties And Fees

On appeal, the plaintiff argued the court was required to calculate PAGA penalties reductions under Labor Code Section 2699(e)(2) on a per pay period basis, not on a per employee basis. The court of appeal observed that a court may award a lesser amount than the maximum civil penalty specified in the law based on the facts and circumstances of a particular case if to do otherwise would result in an award that is “unjust, arbitrary and oppressive or confiscatory.”

The court disagreed with the plaintiff’s argument that a reduction must be applied on a per pay period basis because PAGA imposes civil penalties on a per pay period basis. The court determined that Section 2699(e)(2) does not provide a formula for reducing the maximum civil penalty; it merely states that the court may award a “lesser amount.” The initial step of calculating the maximum civil penalty is set forth in 2699(f) which provides for calculation on a per pay period basis. However, that does not reference the reduction of a civil penalty, let alone provide any mandatory formula for reduction. Thus, after calculating the maximum civil penalty on a per pay period basis, “the trial court is not precluded from using any reasonable method to reduce that amount, including applying a reduction on a percentage, per pay period or per employee basis.”

The plaintiff argued that only a per pay period method deters violations because an employer faced with a per-person award has no incentive to discontinue committing violations because it will be penalized the same whether a violation occurs in one pay period or 1,000 pay periods. The court found this contention unpersuasive. It concluded that the trial court did not abuse its discretion in calculating a reduction on a per employee basis. The court thus affirmed the award of civil penalties.

The plaintiff also challenged the reduction in the attorney fee award and applied a 0.70 multiplier to the requested lodestar. Following a detailed analysis, the Court of Appeal agreed that the trial court properly considered various relevant factors and reasonably arrived at a negative multiplier. It thus affirmed the final judgment.

8. Summary And Practical Thoughts

The business community will not feel sympathy for the plaintiff’s attorney who experienced a substantial reduction of more than 99% in the PAGA penalties and over 50% in the attorney fees sought. While the record was ambiguous, it appears that the employer stipulated to liability on a number of issues rather than mounting an aggressive defense of every claim. Although the massive penalties and attorney fees sought were reduced materially, it can be argued that the employer did not challenge the amounts requested by the plaintiff as aggressively as possible.

The decision provides a roadmap that employers can follow when opposing penalties and attorney fees. In this case, the amount of penalties ultimately awarded by the court were less than one percent of those sought by the plaintiff. The Court of Appeal also offered some helpful guidance that can be followed in future cases. It determined that, after calculating the maximum civil penalty on a per pay period basis, a “trial court is not precluded from using any reasonable method to reduce that amount, including applying a reduction on a percentage, per pay period or per employee basis.” The language suggests that additional alternatives may be permissible in certain cases.

Overall, the rationales of the trial court and Court of Appeal are important for employers to understand and implement in appropriate cases. The case can also be cited in efforts to settle or mediate cases. Employers confronted with PAGA litigation should consult with their attorneys about the Taduran decision to determine if it may provide arguments they can and should pursue. Employers and their attorneys are also encouraged to consult Castle Publication’s leading text on the subject, California’s Private Attorneys General Act (PAGA) Litigation And Compliance Manual.

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About The Author

PLAINTIFF’S ATTORNEYS’ RELIANCE ON AI TO CITE NON-EXISTENT AND FABRICATED QUOTES HIT WITH SANCTIONS AND JUDICIAL REBUKE

On June 11, 2026, the California Court of Appeal agreed that plaintiff’s attorneys should face monetary sanctions for “AI” errors in a wage-hour case. Quinteros v. Harbor Distrib., LLC, 121 Cal. App. 5th 60 (2026), affirmed a trial court’s monetary sanctions against attorneys for their misuse of generative artificial intelligence (“AI”) in a meritless pleading.

On September 2, 2026, the California Supreme Court denied the sanctioned attorneys’ petition for review and request for an order directing depublication of the Court of Appeal’s opinion. The attorneys’ errors will now be cited to warn others against using the same shortcuts.

1. Miscitation Of Cases, Fabrication Of Quotations, And Blatant Misrepresentation Of Authority By Plaintiffs’ Attorneys

In June 2024, Lipeles Law Group (“LLG”) filed a proposed wage-hour class action in the Los Angeles County Superior Court on behalf of Sonia Ascensao against Harbor Distributing, LLC (“Harbor”) and other entities. Just six months later, LLG filed a proposed wage-hour class action in the San Francisco County Superior Court on behalf of Jaime Quinteros against Harbor and other purported employer entities. Both complaints alleged “substantially similar” violations of California’s wage-and-hour laws.

Harbor moved to stay the San Francsico Quinteros suit on the grounds of “exclusive concurrent jurisdiction” – that the Quinteros suit is a “copycat” action of the earlier Ascensao suit in Los Angeles County. LLG opposed the requested stay. Harbor’s reply asserted that the opposition LLG filed on Quinteros’ behalf cited cases for principles that were the exact inverse of their true holdings, disregarded actual and relevant authority, and did not explain why LLG was prosecuting duplicative proposed class actions in two separate forums.

The San Francisco County Superior Court granted the stay but did not end it there. It also issued an order to show cause (“OSC”) regarding why the trial court should not impose monetary sanctions on LLG, jointly and severally, in the amount of $5,000 payable to the defendants and $1,000 payable to the court. The OSC contained a finding that LLG’s opposition brief contained non-existent legal citations and no fewer than eight fabricated quotations falsely attributed to real cases – fabrications the court found more “insidious” than outright hallucinated case citations, because the misstatements are harder to detect.

In response to the OSC, LLG’s handling attorneys filed declarations apologizing and explaining that the opposition had been drafted by a contract attorney whom they contracted with regularly, and from whom they received “solid and good quality” work in the past. LLG also stated that the contract attorney had assured that Lexis confirmed “every citation was a valid citation,” but qualified that he “had been experiencing ‘issues’ with Lexis.” In a separately filed declaration, the same attorney denied using any generative AI tools, and expressed that he was “surprised and deeply concerned” by the assertions in the OSC.

At the OSC hearing, an LLG associate explained that she reviewed the opposition for flow and completeness, but that she did not fact check or cite check it. The trial court noted that the contract attorney’s declaration did not acknowledge any mistake at all, made no effort to explain how it is that the brief contained fabricated quotations and “180 degree opposite” misrepresentations of the holdings of cases, and provided no apology.

LLG’s attorneys claimed ignorance and mistake of their own firm’s earlier Los Angeles filing. But Harbor’s attorneys informed the court they had met and conferred with LLG prior to the motion to stay as to why LLG was pursuing the duplicative action.

The trial judge remarked: “What is at issue . . . is not just monetary sanctions but reporting this matter to the State Bar. [¶] I see no way around that. . . . But, as I say, this is the most egregious example of misrepresentation of the law that I’ve ever seen.” The court opined, “It seems to me you basically abdicated your responsibility here . . . . [¶] It imposed additional costs on your opponent and on the court. This is a motion that never should have had to have been brought in the first place and that you had no good faith basis to oppose.”

The trial court took the OSC under submission. LLG then filed an additional declaration representing that the two separate lawsuits’ proposed classes are not the same, and that there would be a settlement pending of the earlier Los Angeles action that would not have covered all of the proposed class members in the later San Francisco action.

The trial court sanctioned LLG and its attorneys, in accordance with its OSC. LLG appealed and compounded its problems.

2. The Court Of Appeal’s Holding

The Court of Appeal affirmed, rejecting LLG’s arguments, that (1) the trial court violated Code of Civ. Proc. Section 128.7(c)(2)’s “safe harbor” provision, (2) the conduct did not merit sanctions, and (3) awarding sanctions payable to Harbor was improper because the sanctions arose from the trial court setting the OSC on its own motion.

Section 128.7(c)(2) provides, “On its own motion, the court may enter an order describing the specific conduct that appears to violate subdivision (b) [certifying the propriety of the filings and positions put before the court] and directing an attorney, law firm, or party to show cause why it has not violated subdivision (b), unless, within 21 days of service of the order to show cause, the challenged paper, claim, defense, contention, allegation, or denial is withdrawn or appropriately corrected.”

LLG argued the trial court denied its Section 128.7’s safe harbor protection because: (1) the OSC never advised LLG of the 21-day withdrawal period LLG contends the statute requires; (2) the OSC hearing was set just three days after the tentative ruling, and sanctions issued only five days after that hearing, giving LLG less than 21 days to withdraw its opposition; and (3) the tentative ruling became final, “resolving” the motion and thereby precluding withdrawal.

LLG’s “safe harbor” argument was unpersuasive. The court held that LLG forfeited the “safe harbor” argument by failing to raise it in the court below – despite many chances to withdraw to correct its opposition to the motion to stay: after Harbor’s reply; after a tentative ruling published by the trial court; and at the time LLG’s attorneys submitted its declarations responding to the OSC. Instead, LLG stipulated to the ruling on the motion and insistently denied awareness of the prior Los Angeles lawsuit.

On the merits of the sanctions, applying an abuse-of-discretion standard, the Court of Appeal held that filing a brief with fabricated legal authority is sanctionable, finding LLG’s opposition both factually groundless and legally frivolous. The court rejected LLG’s attempt to shift blame to the contract attorney. Counsel of record bears ultimate responsibility for a brief’s accuracy, and attorneys cannot delegate to any technology their duty to verify citations.

Moreover, the Court of Appeal found that the $6,000 joint-and-several sanctions were not excessive compared to awards in similar cases involving misuses of AI.

The Court of Appeal similarly held that LLG forfeited its challenge to the sanctions paid to Harbor, because LLG failed to timely object in the proceedings below, and because LLG’s appellate argument was conclusory.

The judgment was affirmed, with costs to Harbor. On September 2, 2026, the California Supreme Court denied LLG’s petition for review and request for depublication, leaving the opinion as citable authority.

3. Practical Considerations

The Quinteros Court of Appeal opinion reinforces the well-known practice of courts to sternly punish attorneys’ negligent reliance on generative AI in court submissions. Any attorney using AI to assist with or perform legal work who does not verify all authorities cited by the program risks sanctions, state bar discipline, and/or adverse rulings from a court. Attorneys signing any court submission remain ultimately responsible for the contents, even when drafted by contract attorneys. The use of citation check software, even if it does not rely on AI, does not satisfy attorneys’ professional duties.

They also evidence some courts’ growing intolerance of recycled and boilerplate wage-hour suits brought despite little-to-no factual and procedural investigation. It would not be surprising if the published decision is cited in a challenge to the sanctioned attorneys’ adequacy to represent a class.

Finally, the opinion serves as a reminder that arguments must be raised in the trial court lest they be forfeited on appeal.

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About The Author

Richard Azada is an attorney in the law firm of Sheppard, Mullin, Richter & Hampton LLP in Los Angeles. His practice focuses on complex and high-stakes areas of employment law. He has extensive experience representing employers of all sizes in workplace law matters, including defending clients in discrimination, retaliation, harassment, and wage and hour actions.

Mr. Azada received his BA from University of California, Riverside and his law degree from Southwestern Law School, where he was a student editor for the Journal of International Media & Entertainment Law. Rich worked as an intern for the Labor Relations Division of the Los Angeles City Attorney and a major music record label. Rich also served as an extern for the Honorable Kirk H. Nakamura, Superior Court of California, County of Orange.

WHISTLEBLOWER RETALIATION CLAIM FAILED WHERE DISCLOSURES DID NOT “BLOW THE WHISTLE”

In Krzesni v. Wellpinit Sch. Dist., 182 F.4th 1147 (9th Cir. 2026), the Ninth Circuit affirmed summary judgment for defendants Wellpinit School District (“WSD”) and Superintendent John Adkins in a whistleblower retaliation action brought by David Krzesni under the National Defense Authorization Act for Fiscal Year 2013 (“NDAA”), 41 U.S.C. § 4712, and Washington state law.

1. Background

WSD is located within the Spokane Reservation. In September 2022, the federal government awarded WSD a “Native Youth Community Project Grant” to help prepare American Indian students for college and careers, and WSD hired Krzesni as Project Director in connection with the grant. Before Krzesni was hired, WSD had planned a student trip to Hawaii to participate in a peer mediation program. Although the federal grant contact advised that the trip had not been included in the original grant application and would not be approved, Krzesni and other WSD students and staff attended the program in March 2023.

Upon returning, Krzesni prepared the Annual Performance Report (“APR”), noting the trip expenses incurred ($55,011.05) and describing how the trip furthered various grant objectives, and submitted the APR to the government on April 27, 2023. On May 1, 2023, Superintendent Adkins contacted WSD’s general counsel about Krzesni, and the next day the two discussed not renewing his contract. On May 8, WSD administrators held an internal meeting and decided not to renew it. That same day, separately, Krzesni had a call with Bussell, the federal grant contact, who told him that drawing down grant funds for the Hawaii trip without prior authorization constituted “fraud.”

Krzesni sued, alleging he was unlawfully terminated in retaliation for making protected disclosures about WSD’s purported misuse of federal grant money—specifically, that WSD had used grant money to fund the Hawaii trip without the requisite federal authorization. He also brought a wrongful discharge claim under Washington law. The district court granted summary judgment on both claims, and Krzesni appealed.

2. The Ninth Circuit’s Decision

a. The Federal Whistleblower Claim

In its opinion, the Ninth Circuit first articulated the framework for a prima facie whistleblower claim under the NDAA. To prevail, a covered employee must show that: (1) the employee is covered by the statute; (2) the employee communicated to a qualified person or body; (3) the employee made a protected disclosure; and (4) the employee suffered an adverse employment action as a reprisal for making that disclosure. Once a prima facie claim is established, the employer may rebut it with clear and convincing evidence that it would have taken the same personnel action even if the protected disclosure had not occurred.

The court then addressed each of the three disclosures Krzesni alleged were protected.

(1) The Annual Performance Report: Krzesni argued that reporting the Hawaii trip in the APR constituted a protected disclosure. The court disagreed, holding that a descriptive account of the trip, without any explicit or implicit suggestion of misconduct, cannot objectively qualify as a protected disclosure. The APR described the trip as “a unique opportunity for cultural exchange and traditional Hawaiian restorative justice training” and affirmatively sought to justify the trip as furthering grant objectives.’ Because a disinterested observer with knowledge of the operative facts would not reasonably conclude that the disclosure evidenced any misconduct, the APR was not a protected disclosure.

(2) The Rhetorical Question: Krzesni also argued that his rhetorical question to a supervisor upon learning that grant funds had been drawn down without prior authorization (“So this is how we do things?”) constituted a protected disclosure. The court rejected this argument. As a threshold matter, Krzesni had not advanced this theory before the district court, and the court was not required to consider it. On the merits, the rhetorical question did not convey any “information” relating to misconduct as the statute requires, and a disinterested observer with knowledge of the operative facts could not reasonably conclude that it evidenced misconduct.

(3) The Call with the Federal Grant Contact: Krzesni argued that his May 8, 2023, call with Bussell, in which she characterized the unauthorized drawdown of grant funds as “fraud,” constituted a protected disclosure. The district court assumed a protected disclosure might have been made in that call but concluded it could not have been the basis for the adverse employment action, because WSD had already decided not to renew Krzesni’s contract before the call occurred. The Ninth Circuit agreed: because the decision not to renew Krzesni’s contract was initiated on May 1, 2023, before his May 8 call with Bussell, the adverse action could not have been taken in retaliation for that disclosure. An adverse action that precedes a purported disclosure cannot have been taken as a reprisal for it.

b. The State Law Wrongful Discharge Claim

The court separately affirmed summary judgment on the state law claim. Krzesni argued that the nonrenewal of his contract constituted wrongful discharge under Washington law, but the court held that the tort of wrongful discharge in violation of public policy applies only where an employee has been discharged. Because Krzesni was not discharged—his contract simply was not renewed—his state law claim failed as a matter of law.

3. Practical Considerations

Although the underlying facts arose in Washington, the Ninth Circuit’s interpretation of the NDAA’s protected-disclosure standard is binding precedent throughout the circuit, including in California, and the NDAA applies to all employers who receive federal grants or contracts regardless of state. Thus, this decision offers several practical lessons for California employers.

First, employees who describe a potentially problematic activity in internal or government reports, without any explicit or implicit suggestion of wrongdoing, are unlikely to be deemed whistleblowers under the NDAA. The disclosure must actually blow a whistle.

Second, vague, rhetorical, or ambiguous communications that do not convey specific information about misconduct will not satisfy the protected disclosure requirement, even if the employee harbored subjective concerns.

Third, the timing of an adverse employment decision is critical: where an employer initiates the adverse action before any protected disclosure is made, there can be no causal link sufficient to establish retaliation. Employers should therefore document the timing and basis for employment decisions carefully and contemporaneously.

Fourth, under Washington law, the nonrenewal of a fixed-term contract is not a “discharge” for purposes of a wrongful discharge in violation of public policy claim. This is an important distinction for Washington employers who use term-limited employment arrangements.

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About The Author

Rachel Schuster is an associate in Sheppard’s Labor and Employment Practice Group in the firm’s San Diego (Del Mar) office. Ms. Schuster defends employers of all sizes in a broad range of employment matters, including claims of discrimination, retaliation, harassment, wrongful termination, wage and hour disputes, and contract issues. She has experience handling single-plaintiff lawsuits, class actions, and PAGA cases in both state and federal courts, as well as representing clients in mediation and arbitration. In addition to her litigation practice, Rachel conducts workplace investigations, conducts employment law training sessions, and advises employers on compliance with wage and hour laws, Cal/OSHA regulations, and other employment-related requirements. She drafts, reviews, and updates employee handbooks and workplace policies to ensure legal compliance and best practices.

She has written a number of articles for the Sheppard Labor and Employment Blog and is a contributing author of the ALERT Newsletter.

Ms. Schuster received her law degree, as well as her undergraduate degree, from the University of California, Berkeley.

EEOC ISSUES NEW NATIONAL ENFORCEMENT PLAN FOR FISCAL YEARS 2025-2029

On June 4, 2026, the U.S. Equal Employment Opportunity Commission (“EEOC”) rescinded its prior Strategic Enforcement Plan (“SEP”) for Fiscal Years 2024–2028 and replaced it with a new National Enforcement Plan (“NEP”) covering Fiscal Years 2025–2029. The EEOC is the federal agency responsible for preventing and addressing workplace discrimination. The NEP establishes the agency’s enforcement priorities over a multi-year period and is designed to have a lasting impact on equal employment opportunity. It guides all of the EEOC’s activities, including outreach, public education, technical assistance, enforcement, and litigation.

Some of the key aspects of the NEP are summarized below. Employers are encouraged to review the full NEP for additional details. It is important to note that the NEP is a guidance document and does not create any legally enforceable rights or obligations.

1. Global Principles Governing The NEP

The NEP incorporates several principles which have guided its development and will govern its implementation. A number of those principles are particularly significant for employers.

a. Prevention, Voluntary Resolution, And Litigation

The EEOC plans to combat workplace discrimination on three fronts: (1) prevention, by educating employers and workers before problems arise; (2) voluntary resolution, by encouraging parties to settle disputes through mediation, early settlements, and negotiated agreements rather than proceeding to court; and (3) enforcement, by pursuing litigation when necessary to hold employers accountable.

b. Using Constrained Resources For Strategic Impact

The EEOC receives a large volume of discrimination complaints each year, and its budget and staffing are limited. Because the agency cannot devote equal resources to every complaint, it must be strategic about which matters it prioritizes. Like other law enforcement agencies, the EEOC has the discretion to decide where to focus its efforts. The NEP identifies specific categories of enforcement priorities (discussed in the next section) to help the agency direct its attention where it can have the greatest impact.

c. Nationwide Enforcement Model

To make the best use of its limited resources, the EEOC expects its staff to work together across offices and departments. When workload, expertise, or other factors call for it, the agency’s leadership may assign cases to multiple offices, transfer cases between offices, or send headquarters staff to support field offices in handling major investigations or priority cases.

d. Executive Branch Agency And Administration Priorities

The EEOC confirms that, as a federal executive branch agency, it will align its enforcement efforts with the current administration’s policy goals and comply with relevant executive orders.

e. Prioritization Of Disparate Treatment Liability

The EEOC draws a distinction between two types of discrimination claims. “Disparate treatment” refers to intentional discrimination—for example, refusing to hire someone because of their race or sex. “Disparate impact” refers to situations where a facially neutral policy disproportionately affects a particular group, even if there was no intent to discriminate. While Congress authorized both types of claims under Title VII, the EEOC considers intentional discrimination to be the more serious concern. Consistent with Executive Order 14281, Restoring Equality of Opportunity and Meritocracy, the agency will prioritize intentional discrimination cases, scale back the use of disparate impact theories in investigations “to the maximum degree possible,” and will not file or continue to pursue lawsuits based on disparate impact claims.

f. Individualized Assessment Of Matters

Whether a particular matter is treated as a priority under the NEP depends on two things: the type of issue involved and a case-by-case evaluation of whether the facts are strong enough to justify prioritizing it.

g. Broad Enforcement Of Laws In EEOC’s Jurisdiction

While the priority categories in the NEP are meant to guide the agency’s decisions about which cases to pursue, the EEOC is not limited to those categories. The agency retains the flexibility to prioritize any investigation or case it considers important, even if it falls outside the listed priorities.

h. Collaborating With Other Federal Agencies

The EEOC will collaborate with other federal agencies that are tasked with enforcement of civil rights, including the U.S. Department of Justice, the U.S. Department of Labor, and the U.S. Department of Education.

i. Collaborating With State And Local Agencies

The EEOC will collaborate with state and local agencies tasked with enforcement of civil rights within the agency’s jurisdiction, including state fair employment practices agencies and state attorneys general. Such collaboration may include workload-sharing arrangements, memoranda of understanding, coordinated investigations and litigation, information sharing, training, and other cooperative enforcement efforts consistent with applicable law.

2. Substantive Categories Of Enforcement Priorities

The EEOC has identified several categories of substantive priorities, each of which will apply, as appropriate, to investigation, conciliation, and litigation, as well as the agency’s amicus curiae and intervention representation.

a. Repeated Or Overt Discrimination And DEI Policies

The NEP focuses on potential violations of anti-discrimination laws—whether affecting a single individual or a broader group—that raise NEP issues and are likely to have wider significance. This includes cases involving repeated or obvious discrimination and policies that are discriminatory on their face. Examples may include: job postings that discourage or exclude applicants based on a protected characteristic (such as race, sex, or age); staffing agencies that refuse to place workers based on a protected characteristic; steering individuals into certain jobs because of their protected characteristics; company-wide policies that broadly deny workplace accommodations; and widespread or systemic harassment.

The NEP also targets intentional discrimination that arises from broad employment policies, programs, or practices labeled as “diversity, equity, and inclusion” (“DEI”) or similar terms, particularly those adopted by large corporations, prominent universities, and other major institutions. This includes the use of race- or sex-based quotas, including so-called “aspirational goals” that effectively function as quotas or that encourage decision-making based on race or sex in hiring, interviewing, staffing, layoffs, and promotions. It also covers restricting access to training, internships, fellowships, mentorships, sponsorships, apprenticeships, bonuses, benefits, and other workplace opportunities based on protected characteristics. Other examples include diverse slate policies (requiring a minimum number of candidates from underrepresented groups), diverse hiring panel requirements, mandatory diversity statements from job candidates, evaluation methods that factor in protected characteristics, and tying executive or employee pay to race- or sex-based demographic targets.

b. Law Development Cases

The EEOC prioritizes cases that could shape how anti-discrimination laws are interpreted, especially cases involving recent Supreme Court decisions or unresolved legal questions. Key areas of focus include how Title VII applies to certain DEI practices in light of recent rulings, particularly Ames v. Ohio Department of Youth Services, 605 U.S. 303 (2025) (addressing discrimination claims brought by members of majority groups), Muldrow v. St. Louis, 601 U.S. 346 (2024) (lowering the threshold for what constitutes a harmful job action), and Students for Fair Admissions v. President and Fellows of Harvard College, 600 U.S. 181 (2023) (striking down race-conscious college admissions). The agency is also focused on how older Supreme Court decisions permitting voluntary affirmative action programs should be read in light of these newer rulings. Additional priorities include employers’ duty to accommodate employees’ religious practices under Groff v. DeJoy, 600 U.S. 447 (2023); the scope of protections following Bostock v. Clayton County, Georgia, 590 U.S. 644 (2020)—particularly regarding employees’ rights to single-sex intimate spaces, the right to express views about the binary nature of sex, and religious accommodations—and the reach of the Pregnant Workers Fairness Act.

c. Protecting Vulnerable Workers

The NEP prioritizes cases that protect workers who may be especially at risk of exploitation, including teenage workers, people with limited literacy or education, low-wage workers, survivors of sexual assault, and workers with developmental or intellectual disabilities.

d. Protecting The Integrity Of The EEOC’s Enforcement Process

The NEP prioritizes cases that involve protecting the EEOC’s ability to investigate and resolve discrimination complaints effectively. This includes cases where employers retaliate against individuals for filing complaints with the EEOC or opposing workplace discrimination, especially where the legal boundaries of retaliation protections are at issue. Other examples include: cases where an employer challenges the validity of EEOC guidelines or regulations as a defense; disputes over the EEOC’s right to access information, including efforts to enforce subpoenas; cases where an employer has materially violated the terms of a prior settlement or agreement with the EEOC; and cases involving failures to comply with the EEOC’s recordkeeping and reporting requirements where there are signs of broader legal violations.

e. Evenhanded Enforcement

Each EEOC component is required to ensure evenhanded enforcement of the civil rights laws enforced by the agency, mindful that EEOC staff are public servants working on behalf of all American workers protected by those laws.

3. Chair Priorities

The following ongoing Chair Priorities complement, and are applications of, the substantive categories of priorities listed in the NEP. They are: (A) remedying DEI-related race and sex discrimination; (B) protecting American workers from anti-American national origin discrimination; (C) defending women’s rights to single-sex spaces at work and workers’ rights to express the binary nature of sex; and (D) protecting workers’ religious liberty rights to receive religious accommodations and be free from religious discrimination, harassment, and related retaliation.

4. Practical Considerations

The NEP represents a major shift in how the EEOC will approach enforcement, and it has real, immediate consequences for employers in every industry.

Perhaps most importantly, the NEP treats DEI-related policies as a potential source of intentional discrimination. This means employers with diversity-focused programs (such as hiring initiatives, demographic goals, diverse slate requirements, or executive pay tied to diversity metrics) should carefully review those practices with legal counsel. Programs originally designed to promote inclusivity could now be viewed by the EEOC as discriminatory employment policies. Employers should evaluate whether any of their DEI programs factor protected characteristics (such as race or sex) into employment decisions, and assess the legal risks under the NEP’s enforcement priorities.

The NEP’s decision to move away from disparate impact claims also carries practical significance. Employers whose diversity efforts have relied on the argument that their policies are neutral and nondiscriminatory may find that this defense carries less weight when the EEOC is focused almost entirely on intentional discrimination.

Employers should also take note of the NEP’s emphasis on retaliation and the integrity of the EEOC’s processes. Companies that have previously settled cases or entered into agreements with the EEOC should make sure they are fully complying with those agreements, since violations are now a stated enforcement priority.

The EEOC enforces several major federal employment laws, including Title VII of the Civil Rights Act of 1964 (prohibiting discrimination based on race, color, religion, sex, and national origin), the Equal Pay Act of 1963, the Age Discrimination in Employment Act of 1967, Section 501 of the Rehabilitation Act of 1973, Titles I and V of the Americans with Disabilities Act of 1990, Title II of the Genetic Information Nondiscrimination Act of 2008, and the Pregnant Workers Fairness Act. Employers should review their policies and practices under each of these laws in light of the priorities now set out in the NEP.

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OUTDATED ARBITRATION AGREEMENTS MAY CREATE SIGNIFICANT RISK

In Stoker v. Blue Origin, LLC, 120 Cal.App.5th 91 (2026), the California Court of Appeal determined that the employer’s arbitration agreement was unconscionable and could not be saved through a severance provision. The decision underscores the importance of carefully drafting arbitration agreements for California employees.

1. Background

Craig Stoker, a former senior director at Blue Origin, sued Blue Origin for retaliation, discrimination, harassment, breach of contract, and wrongful termination. Blue Origin moved to compel arbitration. The trial court denied the motion, and the Court of Appeal affirmed, finding that the agreement was unconscionable and unsalvageable, without reaching the question of whether the federal Ending Forced Arbitration Act applied.

2. Key Holdings

a. Adhesive Employment Agreements Carry Inherent Procedural Unconscionability

The evidence presented in this case showed that Blue Origin’s recruiter told Stoker the agreement contained “standard terms” that “everyone has to sign.” There was also no evidence the terms were negotiable. On these facts, the court reaffirmed that take-it-or-leave-it arbitration agreements are contracts of adhesion — even for senior employees. The court also noted that adhesion alone establishes only a low degree of procedural unconscionability, but an adhesive contract is enough to trigger close scrutiny of the contract’s substantive terms, since an agreement must be both substantively and procedurally unconscionable to be unenforceable.

b. Four Substantive Defects Rendered The Agreement Unenforceable

In reviewing the contract’s substantive terms, the court identified four independent grounds of substantive unconscionability:

i. Overbreadth

The agreement required arbitration of “any and all claims, disputes, or controversies” without limitation to employment-related matters. The court held that forcing an employee to arbitrate claims with no nexus to the employment relationship — like a hypothetical car accident with a coworker — is unconscionably broad.

ii. Lack Of Mutuality

The agreement funneled virtually all employee-side claims (discrimination, wage and hour, and whistleblower claims) into arbitration, while carving out claims employers are more likely to bring (trade secrets, intellectual property, and non-solicitation breaches). The court found this one-sided structure unconscionable.

iii. Predispute Jury Trial Waiver

For claims falling outside arbitration, the agreement waived the right to a jury trial. The court reiterated that predispute jury trial waivers are unenforceable under California law.

iv. PAGA Representative Action Waiver

The agreement barred all class, collective, and representative claims, including PAGA actions. The court confirmed that a blanket predispute waiver of representative PAGA claims is unenforceable in California.

c. Severance Was Not Available To Save The Agreement

The employer argued that any unconscionable provisions should be severed but the court refused to sever the offending provisions, finding that:

(a) the overbreadth and mutuality defects could not be fixed by deleting language and the court would have to rewrite the agreement to rectify these issues;

(b) four unconscionable provisions reflected a “systematic effort” to tilt the forum in the employer’s favor; and

Blue Origin’s severability clause did not change the outcome and could not override a court’s discretion to void the entire agreement. This is an important holding for employers to consider.

3. Practical Considerations

In light of this decision, employers should review their arbitration agreements to ensure the following:

a. Narrow The Scope Of The Arbitration Clause

Arbitration provisions should be limited to claims “arising out of or relating to” the employment relationship. Broad, catch-all language covering “any and all disputes” should be avoided.

b. Ensure Mutuality Of Obligation

If the employer carves out trade secret or intellectual property claims from arbitration, the employee should be afforded a reciprocal carve-out. Alternatively, employers may consider subjecting all claims to arbitration without one-sided exceptions.

c. Eliminate Predispute Jury Trial Waivers

Such waivers are unenforceable in California and serve only to compound an unconscionability finding.

d. Do Not Include Waivers Of Representative PAGA Claims

While class action waivers may be enforceable, blanket representative PAGA waivers remain invalid under California law. Representative PAGA actions should be expressly carved out of any representative action waiver.

e. Audit Agreements For Cumulative Defects

A single unconscionable provision may be severable but multiple unconscionable provisions likely are not. The greater the number of unconscionable terms, the more likely a court will void the agreement in its entirety.

f. Do Not Rely On Severability Clauses As A Safeguard

While such clauses may be helpful, they will not rescue an agreement that is fundamentally one-sided.

g. Exercise Care In The Rollout Process

Employees should be afforded adequate time to review the agreement, an opportunity to ask questions, and (where feasible) the ability to negotiate terms. While these measures will not eliminate procedural unconscionability concerns entirely, they may mitigate them.

4. Conclusion

Stoker v. Blue Origin sends a clear signal: California courts will void arbitration agreements that systematically favor the employer, and neither severability clauses nor the federal policy favoring arbitration will alter that result. Employers who have not recently reviewed their arbitration agreements should do so promptly.

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About The Author

Carina is a contributor to the California Labor and Employment ALERT.

Ms. Novell received her law degree from the University of California, Davis and her undergraduate degrees from Saint Mary’s College of California, summa cum laude.

U.S. SUPREME COURT RECOGNIZES AN FAA EXEMPTION FOR “LAST-MILE” DRIVERS

The Federal Arbitration Act (“FAA”) has been at the center of employment litigation for decades. Courts have consistently held that properly drafted employment arbitration agreements are enforceable and require parties to arbitrate disputes arising from employment rather than litigate such disputes in court before a judge or jury. Courts have also ruled that state laws cannot stand as an obstacle to the enforcement of covered arbitration agreements, including agreements that bar class actions. The important role arbitration agreements play in employment settings has encouraged litigation focusing on exemptions from the FAA that afford individuals an opportunity to bypass arbitration and instead litigate claims in court.

The U.S. Supreme Court addressed the exemption that exists in Section 1 of the FAA. It provides that “nothing” in the law shall be used to compel arbitration in disputes involving the “contracts of employment” of any class of workers “engaged in . . . interstate commerce.” 9 U.S.C. § 1. In Flowers Foods, Inc., v. Brock, __ U.S. __ (May 28, 2026), the Supreme Court examined the scope of the exemption and found it applicable to certain drivers sometimes referred to as “last-mile” drivers. The case arose from a proposed class action asserting that Flowers violated state and federal laws by misclassified drivers as independent contractors rather than employees.

1. Background

Flowers Foods is one of the nation’s largest producers of packaged baked goods, such as Wonder Bread. It distributes its products across the country from its bakeries in 19 states. To get its products to market, the company depends in part on franchisees who buy the rights to distribute the products in specific territories, including Angelo Brock, a franchisee who serves the Denver area. Brock picks up products from a warehouse in Colorado and delivers them to local stores, all without leaving the state.

2. The Lawsuit

In 2022, Brock sued Flowers in federal district court, alleging that the company had underpaid him and other distributors in violation of various federal and state laws. In response, Flowers filed a motion asking the court to send the dispute to arbitration. It argued that Brock had signed a distribution agreement promising to arbitrate any disagreement that might arise between himself and Flowers.

Ultimately, the district court denied Flowers’ motion and the Tenth Circuit Court of Appeals affirmed. The Tenth Circuit rested its decision on Section 1 of the FAA, which contains an exception from the requirement directing courts to enforce arbitration agreements. Reasoning that Brock belonged to a class of workers engaged in interstate commerce, the court concluded that it lacked authority to compel the arbitration Flowers sought. The court explained that Brock did not cross state lines himself or interact directly with those who did. But, those facts were not dispositive because, what mattered was that Brock’s “interstate route formed a constituent part of the . . . interstate journey of Flowers’ goods from out-of-state bakeries to their intended destinations at retail stores.”

3. The Issue Before The Supreme Court

Flowers petitioned the Supreme Court to review the case to resolve a single question: “whether someone can qualify as a worker ‘engaged in interstate commerce’ under Section 1 of the FAA if he never crosses state lines and never interacts with vehicles that do.”

Flowers’ sole theory was that, to be engaged in interstate commerce for purposes of Section 1, a worker must either cross state lines or interact with a vehicle that does (say, by loading or unloading the goods it carries). The Supreme Court concluded that theory is incorrect. In some instances, a worker “who transports goods on an intrastate leg of an interstate journey can qualify for Section 1’s exemption” without satisfying either of those criteria. It observed that “individuals can sometimes be direct, necessary, and active participants in moving goods ‘from . . . points in one state” to “points in another state” without crossing state lines or interacting with vehicles that do,” citing Blacks’s 1001.

4. The Supreme Court’s Added Remarks

The Supreme Court appeared to question the arguments made by Flowers in the litigation. It noted that Flowers did not ask the Supreme Court to decide the legal significance of several facts raised by the litigation, but instead ventured to ask the Supreme Court to adopt a bright-line rule that an individual can never qualify for Section 1’s exemption unless he crosses state lines or interacts with vehicles that do. The Supreme Court could not see how the FAA’s statutory text could support that interpretation. It thus affirmed the judgment of the Tenth Circuit.

The Flowers decision recognizes the significance of the FAA’s Section 1 exemption and discussed its scope. While the case focusses on drivers, it can be expected to lead to creative arguments that others will qualify for an FAA exemption that will enable them to evade the impact of arbitration agreements. Employers are encouraged to discuss the potential implications of the decision on other individuals.

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About The Author

WHAT EMPLOYERS NEED TO KNOW ABOUT I-9 ERRORS AND PENALTIES

The I-9 form was created in 1986 based on congressional legislation. It requires employers to timely inspect and record the work authorization documents of every new hire and reverifications when needed. Employers enrolled in E-Verify are still required to complete a paper or digital I-9 for each employee.

While ICE I-9 audits are statistically rare, increased staffing at the agency may lead to more frequent audits going forward.

In March 2026, ICE announced on its website that it has overhauled its I-9 audit process and compliance guidance, expanding the categories of substantive violations, narrowing the scope of correctable technical failures, and thereby expanding employers’ civil penalty calculations.

Fines for substantive errors are typically $2,500 per I-9, so the penalties can add up. Going forward, what typically would be a technical error that would not result in a fine will now be determined to be a substantive error. The resulting penalties can be substantial.

As discussed below, employers are encouraged to review their I-9s for compliance. The statute of limitations for a substantive violation is five years which means liability continues for five years from the date of correction.

1. Key Changes Under the Updated Guidance

The updated guidance represents four principal shifts in enforcement posture:

1) Reclassification of Common Errors as Substantive Violations: Many I-9 errors previously treated as correctable technical failures, including dating errors, late document verification, incomplete Section 2 entries, and use of the Spanish-language form outside Puerto Rico, are now substantive violations carrying mandatory fines.

2) Remote Verification and Electronic I-9 Compliance: Errors in alternative document examination, such as failing to mark the “alternative procedure” box, lacking active E-Verify participation, and failing to meet the electronic I-9 standards in 8 C.F.R. § 274a.2(e) to (i), including audit trail, electronic signature, security, and legible-copy requirements.

3) Heightened Scrutiny of Supplement B: Previously routine Supplement B errors, missing rehire dates, late or incomplete reverifications, missing signatures, incorrect document information, and failure to mark the alternative procedure box, now carry mandatory fines. Failure to reverify before temporary employment authorization expires is treated with particular severity.

4) Civil Penalty Exposure: Penalty amounts are set by statute and adjusted annually for inflation; each substantive violation and each uncorrected technical failure is a separate chargeable offense. See the Federal Register for more details.

2. Notices Employers May Receive During An I-9 Audit

An I-9 audit begins when ICE serves a Notice of Inspection (“NOI”), giving the employer at least three business days to produce Form(s) I-9 and supporting documentation (e.g., payroll records, employee lists, and business licenses). During and after the audit, ICE may issue the following notices:

• Notice of Technical or Procedural Failures: Identifies correctable errors and provides at least ten business days to fix them. Uncorrected failures become substantive violations with mandatory fines. Employers should prioritize corrections within this window.

• Notice of Discrepancies: Indicates that Homeland Security Investigations cannot confirm work eligibility from the documents provided; the employer should give the employee a copy and an opportunity to present additional documentation.

• Notice of Suspect Documents: Informs the employer that employee documentation appears invalid or unrelated to the employee. The employer and employee may respond with evidence of valid work authorization.

• Notice of Inspection Results (Compliance Letter): Confirms the employer is in compliance.

• Warning Notice: Issued when substantive violations exist but future compliance is expected. A Warning Notice will not be issued if the employer has a prior enforcement history, failed to correct technical failures within the allotted period, committed substantive violations, or if there is evidence of fraud (e.g., backdating). A follow-up audit may occur.

• Notice of Intent to Fine (“NIF”): The most serious outcome, issued for substantive violations, uncorrected technical failures, and knowing-hire or continuing-to-employ violations. The NIF process and hearing rights are discussed below.

3. Substantive Violations: Summary Of Key Categories

The following are substantive violations per the updated guidance:

• General: Failure to prepare or present the Form I-9; failure to ensure timely completion of Section 1 and Section 2 (and Supplement B, if applicable); use of the Spanish-language form outside Puerto Rico; and failure to meet electronic I-9 standards under 8 C.F.R. § 274a.2(e), (f), (g), (h), and (i).

• Section 1: Failure to ensure the employee provides a legal name and date of birth; checks the correct citizenship/immigration status box; completes required alien registration, admission number, or foreign passport fields; signs the attestation; and dates Section 1.

• Section 2: Failure to examine and verify acceptable documents within three business days of hire; record required document information; handle receipts and replacement documents within the 90-day period; mark the alternative procedure box; maintain active E-Verify participation when noting an alternative procedure; print the employer’s name and title; provide the date of hire; and sign and date the Certification.

• Supplement A: Failure to ensure the preparer or translator provides a complete name, address, signature, and date.

• Supplement B: Failure to reverify by the authorization expiration date; provide the rehire date; record reverification document information; handle replacement documents within the 90-day period; print the employer’s name, sign, and date the reverification on or before the expiration date; and mark the alternative procedure box.

4. Technical And Procedural Failures

The following errors are correctable within the ten-business-day cure window; if uncorrected, they become substantive violations:

• Using an outdated Form I-9 version.

• Omitting the employee’s other last names or physical address in Section 1 (a missing email or phone number is not a violation).

• An incorrect Social Security Number when enrolled in E-Verify.

• Omitting the employee’s name at the top of page 2, Supplement A, or Supplement B.

• Omitting the business name or address in Section 2.

• Failing to record the employee’s new legal name in Supplement B.

For the full list, please visit I-9 Fact Sheet.

5. How Fines Are Calculated

Civil penalty amounts are adjusted annually for inflation under the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015. The applicable penalty range is determined by the date ICE serves the NIF. Consult the current Federal Register for updated amounts.

ICE calculates the base fine by dividing chargeable violations by the total number of I-9s that should have been presented; the resulting percentage sets the base fine range, which may shift based on whether it is the employer’s first, second, or subsequent offense. Five statutory factors then adjust the base fine: business size, good faith, seriousness, involvement of unauthorized aliens, and history of previous violations. Each factor can move the fine up or down by five percent, for a cumulative adjustment of plus or minus twenty-five percent. Good faith, demonstrated through proactive self-auditing, training, and prompt correction, is the factor most within the employer’s control.

6. If You Receive A Notice Of Intent To Fine

The NIF outlines the charges, specifies the alleged violations, and states the fine amount.
Under 5 U.S.C. §§ 554–557, the employer may request a hearing before an Administrative Law Judge at the Office of the Chief Administrative Hearing Officer (“OCAHO”) within the Executive Office for Immigration Review. The request must be made within 30 calendar days of receipt.

If a timely hearing request is filed, the employer may request settlement negotiations with ICE before the hearing. If a written request for a hearing is not timely received, ICE will issue a Final Order, and there is no appeal from a Final Order.

If the parties reach agreement, ICE will not file a complaint with OCAHO. If not, ICE will file a complaint to initiate administrative proceedings.

7 What Employers Should Be Doing Now

Given the expanded violation classifications, employers should consider taking the following steps:

a. Conduct an internal I-9 self-audit focusing on missing signatures and dates, incomplete Section 2 entries, reverification accuracy, Supplement B maintenance, and remote verification documentation.

b. Train HR staff on the updated substantive violation standards, document review procedures, and reverification requirements.

c. Implement reverification tracking to ensure reverification is completed before temporary employment authorization expires. Consider enrolling in E-Verify to streamline verification and reduce compliance exposure.

d. Verify I-9 retention compliance (three years from the first day of employment or one year from the date employment ends, whichever is longer). A simpler rule is to keep the I-9 throughout employment and then for 3 years after termination. Digital I-9 Software: It is highly recommended to use digital I-9 software rather than paper I-9. The software will eliminate most I-9 errors other than a timeliness error. It should be noted that any digital I-9 software must comply with ICE’s strict standards, including the requirement that it maintain an electronic audit trail. Merely scanning your paper I-9s is not sufficient.

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About The Authors

Greg L. Berk is a Partner in the law firm of Sheppard, Mullin, Richter & Hampton LLP in the firm’s Orange County office. He leads the Firm’s immigration practice and is a Certified Specialist in Immigration and Nationality Law by the State Bar of California Board of Legal Specialization. He has over 25 years of experience advising on all aspects of U.S. immigration matters. He assists employers worldwide with the hiring and retention of foreign national executives and highly talented individuals that are needed in their U.S. workforce. He also works with investors on E-2, L-1, and EB-5 matters. He also handles I-9 and other immigration compliance matters.

Greg frequently lectures on immigration issues and is a regular contributor to the California Labor and Employment ALERT Newsletter and Sheppard’s Labor & Employment Law blog. Mr. Berk received his J.D. from Western State University College of Law, his M.B.A. from George Washington University and his B.A. from California State University.

Mia Ndalugi is associate in the Labor and Employment Practice Group with the law firm of Sheppard, Mullin, Richter & Hampton LLP in the firm’s Orange County office. She is a frequent contributor to the California Labor and Employment ALERT Newsletter and Sheppard’s Labor & Employment Law blog. Ms. Ndalugi received her J.D. from Georgetown University, and her B.S. from University of California, Berkeley, magna cum laude, Highest Honors Distinction.

CALIFORNIA SUPREME COURT CLARIFIES UNCONSCIONABILITY ANALYSIS

In Fuentes v. Empire Nissan, Inc., 19 Cal.5th 93 (2026), the California Supreme Court addressed the following question: can an arbitration agreement’s nearly illegible print support a finding of both procedural and substantive unconscionability? The Court held that illegibility can significantly heighten procedural unconscionability, thereby lowering the threshold for the required showing of substantive unconscionability under the sliding scale analysis, but cannot itself render an agreement’s terms substantively unconscionable.

1. Background

When applying to work at Empire Nissan, Evangelina Yanez Fuentes signed a document titled “Applicant Statement and Agreement,” which contained a provision mandating arbitration of “all disputes which may arise out of the employment context.” The document was printed in a very small, blurry font that was nearly unreadable. The arbitration provision itself was a lengthy, densely printed paragraph filled with legal jargon and statutory references, described by the trial court as “visually impenetrable” and at the “limits of legibility.”

The document was part of an employment application packet that Empire Nissan gave Fuentes only five minutes to review. She was told the documents related to her application, that she had to complete them to be hired, and that she should hurry. She was not offered an opportunity to ask questions and did not receive a copy.

Fuentes later signed two confidentiality agreements prohibiting her from disclosing confidential information and trade secrets and from competing with the dealership. After two and a half years, Fuentes went on medical leave for cancer treatment. When she requested a brief extension before returning to work, Empire Nissan terminated her employment. Fuentes then filed suit alleging wrongful discharge and related claims.

The trial court denied Empire Nissan’s motion to compel arbitration, finding a very high degree of procedural unconscionability based on the agreement’s barely legible text and the lack of a meaningful opportunity for her to review or negotiate its terms. The court also found a low to moderate degree of substantive unconscionability, concluding that the agreement’s fine-print terms were indicative of substantive unconscionability and that the confidentiality agreements appeared to carve out from arbitration claims that only Empire Nissan would bring.

Empire Nissan appealed, and the court of appeal reversed. The court concluded that arguments about illegibility go exclusively to procedural unconscionability and, relying on the principle that the law strongly favors arbitration, interpreted the confidentiality agreements as requiring arbitration of claims brought under them. On that basis, it found no substantive unconscionability and directed the trial court to grant Empire Nissan’s motion to compel arbitration.

2. The Supreme Court’s Decision

The California Supreme Court reversed and remanded, clarifying the law on two significant points.

a. Illegibility And Substantive Unconscionability

The Court agreed with the court of appeal that tiny print and an almost illegible format do not indicate substantive unconscionability. An otherwise fair and mutual term is not made substantively unconscionable by being difficult to read. Small font size can require a lesser showing of substantive unconscionability under the sliding scale analysis, but because it does not affect the substance of an agreement’s terms, it cannot render a term substantively unconscionable.

The Court also clarified that “fine-print terms,” as used in OTO, L.L.C. v. Kho, 8 Cal. 5th 11 (2019), refers to substantively unfair or one-sided terms hidden in a legal document, not simply terms printed in a small font.

b. The Confidentiality Agreements And Mutuality

The Court also found that the court of appeal erred by relying on a presumption favoring arbitration over litigation to interpret the confidentiality agreements. The Court reaffirmed that the policy favoring arbitration is not one of promoting arbitration over litigation, but of ensuring that arbitration agreements are treated like other contracts.

Reading the confidentiality agreements’ text, the Court noted that nothing limited Empire Nissan’s right to bring its claims in court. The agreements specified that Empire Nissan could seek any remedies available at law or in equity and that the prevailing party in a “legal action” could recover attorney fees and costs. The Court interpreted “legal action” in its ordinary sense as a court proceeding and found that the agreements’ silence on arbitration suggested the parties did not intend claims under them to be arbitrated.

Reading the agreements together, however, the Court found an ambiguity — the confidentiality agreements stated that they “supersede any and all prior agreements” on the covered subjects, but the arbitration agreement limited modification to writings signed by Empire Nissan’s president. Because the court of appeal’s conclusion lacked an adequate factual foundation on the signature issue, the Court remanded for the trial court to make the relevant findings.

3. Practical Considerations

The Fuentes decision provides important guidance for California employers who use arbitration agreements.

Illegibility is a procedural problem, not a substantive one, but it can still significantly strengthen an unconscionability challenge. To minimize this risk, employers should ensure that arbitration agreements are presented in a legible format and that employees are given adequate time to review them.

Employers should also review their arbitration agreements and any related agreements, such as confidentiality or noncompete agreements, to consider ensuring that the arbitration obligation is genuinely mutual and does not carve out claims that only the employer would bring.

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About The Author

Ryan J. Krueger is a Partner with Sheppard, Mullin, Richter & Hampton LLP in the firm’s Los Angeles office. He specializes in labor and employment matters on behalf of employers, including wage and hour violations, employment discrimination, wrongful termination and sexual harassment. Mr. Krueger has experience in all aspects of employment litigation, including brief writing and oral argument, taking and defending depositions, and negotiating settlements. He has also second chaired multiple trials and arbitrations, and argued before the California Court of Appeal. Mr. Krueger also regularly counsels employers regarding California and federal employment law issues.

Ryan is a co-author of the California’s Private Attorneys General Act (PAGA) Litigation and Compliance Manual, and is a frequent contributor to the California Labor and Employment ALERT Newsletter. He is a co-speaker at the Castle Publications’ Seminars as well as the Labor Law Update for Sheppard.

He received his J.D. from the University of California, Los Angeles and his B.A. from the University of Wisconsin, with distinction. During law school, Mr. Krueger served as extern to the Honorable Morton Denlow, U.S. District Court for the Northern District of Illinois. He is admitted to practice in all California state courts, along with the United States District Court for the Central District of California and the Ninth Circuit Court of Appeals.