TIME RECORDS SHOWING HIGH MEAL PERIOD VIOLATION RATES CAN BE COSTLY

The ALERT has published articles over the years stressing the importance of employees’ time records in wage-hour litigation. While time records are basic documents that every employer must keep, few employers understand how critical a role they play in defending wage-hour practices. It is repeatedly said that time records can be your ally or your enemy. Here is why.

1. Time Records Will Be Used By Employers Or Plaintiffs’ Attorneys To Tell Your Story

It has always been obvious that time records can be used in wage-hour litigation to tell an important story that can lead to liability or refute a claimed violation. For example, employees can seek to use time records to show unauthorized overtime work, the failure to pay for off-the-clock work, or challenge time rounding and meal period practices.

Employers can use properly kept time records effectively to tell a much different story. Employers who train supervisors and employees about the need to keep accurate time records can benefit immensely from such efforts. Compliant records and policies can help demonstrate that employees are directed to record all work time, to never work off the clock, to follow permissible time-rounding practices (if rounding occurs), and to show all work was accurately recorded and compensated.

Maintaining pristine time-keeping, meal period and rest period policies is essential. Because the law imposes the obligation on employers to keep time records that accurately show all work time, when employees begin and end work each shift, and when employees begin and end each meal period, the failure to maintain and produce such records can have serious consequences, particularly if employers are forced to defend their practices in court.

2. The Role Of Accurate Time Records In Meal Period Litigation

The importance of maintaining accurate time records showing legal compliance has never been greater. Dozens of wage-hour actions are filed under the Private Attorneys General Act of 2004 (“PAGA”) every day and class action lawsuits remain extremely common. Employees allege meal and rest period violations in thousands of cases filed every year. While time records need not record rest periods, they must record the times meal periods begin and end unless an exception to that obligation exists, e.g., if an employer’s operations cease entirely during meal periods.

It is imperative that employers understand that such records play a key role in any meal period litigation, regardless of whether it is a PAGA, class action or single plaintiff case. As explained below, plaintiffs’ attorneys prey on employers who are unprepared to protect themselves.

a. Plaintiffs’ Attorneys Use Time Records To Build Their Case

Employers should anticipate that attorneys challenging their meal period practices will closely examine their written policies and time records for potential violations. They may turn the records over to a “data analyst” who, in turn, looks at each employee’s time records and tries to identify every possible instance in which a record indicates a “late, short, or missed meal period.” Under the law, a “late” meal period is one that begins after the end of the fifth hour of work and a “short” meal period is one that is less than 30 minutes long. If an employee works over 10 hours in a day, a second meal period is “late” if it begins after the end of the tenth hour of work.

b. Records Can Create A Presumption Of Violations

The California Supreme Court’s 2021 decision in Donohue v. AMN Services indicates that a time record creates a rebuttable presumption of a violation if it shows a late, short or missed meal period. Even though an employer may have a good explanation and legal justification for the fact that an employee missed a meal period or took a late or short meal period, the plaintiff’s attorney will not care.

For example, the plaintiffs’ data analyst will claim that the time records show “violation rates,” even if the employer argues there is no violation at all because the employee lawfully waived the meal period or voluntarily chose to delay or shorten it. Employers must understand the rules and be prepared to defend themselves with the facts. Sound time-keeping practices and employee training can aid employers to overcome a false picture painted by a plaintiff’s attorney. As a pure legal matter, time records can provide evidence of violations, but do not dispositively prove they occurred. Similarly, they can provide evidence of compliance just as they can offer evidence of violations. Plaintiffs’ attorneys use the pejorative references to a “violation rate,” like a reference to alleged “wage theft,” in an effort to stigmatize and denigrate the employer before the court.

c. Lax Practices Lead To Problems

Employers often allow themselves to be vulnerable to meal period claims by having lax practices or allowing employees to control if and when to take meal periods and when to clock back in after they begin. For instance, even if an employer directs employees to take 30 minute meal periods before the fifth hour of work and provides employees the opportunity to take them, problems are likely to surface if employees are allowed to begin them late or clock back in when they wish.

Imagine a company with 100 employees that fails to monitor employee time-keeping each shift and allows employees flexibility. Assume the company has lawful policies, but allows employees to take and record meal periods as they wish. It would not be surprising if 75 of the 100 employees either choose to start their meal periods late, clock back in before taking 30 minutes, forget to record meal periods they took or just did not eat because they were not hungry or wished to leave early because of child care issues.

In this case, while the employer believes it did nothing wrong, the records show a 75% “violation rate.” Astonishingly, this is not unusual. Yet, employers who do not carefully and routinely monitor their records have no clue what story the records will tell until it is too late. Once the records are completed, they cannot be unwritten.

d. Employers Can Rebut The Presumption Of A Meal Period Violation

It can be anticipated that plaintiff’s attorneys will argue to the court that time records demonstrate actual violations of the law, even though an employer may be able to rebut the presumption of a non-compliant meal period by demonstrating facts showing that no actual violation occurred. For example, an employer may identify an affirmative defense, such as the fact that the employee signed a meal period waiver, was paid a premium for the late, short, or missed meal period, or was provided a timely, compliant meal period, but voluntarily chose to delay, shorten, or skip it. If the employer establishes a defense, the employee will not be entitled to a missed-break premium according to the rationale articulated by the Supreme Court in the Brinker Restaurant and Donohue decisions.

Nonetheless, the plaintiff’s attorneys will vigorously argue that these are violations and where there is smoke, there is fire. The employer will then be put on the defensive and be forced to operate from a credibility deficit. Even if it can overcome the presumption of violations and resulting problems, it will incur substantial expenses in its effort to do so. Are there steps employers can take?

3. Best Practices Require Planning And Policing

Employers often become embroiled in disputes because they fail to give sufficient attention to the impact of time records that tell the wrong story and come back to haunt them. As noted earlier, this is illustrated by situations where employers have lax policies or attempt to provide employees flexibility to structure their own schedules or meal periods. In such cases, employers or their supervisors do not insist that employees take and record their meal periods in a manner that directly shows strict meal period compliance.

If an employer or its supervisors allow employees to take meal periods when they choose, delay them past the fifth hour of work, or return early if they are done eating, their time records create a distorted picture. Such “employee friendly” practices can result in harmful time records that indicate serious compliance problems.

a. Train, Coach And Direct Supervisors To Comply With The Law

Because the ability to demonstrate compliance is key, the best practice requires that employees be directed to take and record meal periods of at least 30 minutes that begin before the end of the fifth hour of work. Employees who work more than 10 hours in a day should be directed to take and record a second meal period that begins before the end of the tenth hour of work. Supervisors should be trained and directed to enforce the law and the employer’s policies so the time records support the story the employer wants told – the employer’s policies, practices and time records comport fully with California law.

b. Didn’t The Supreme Court Say That Employers Need Not “Police” Meal And Rest Periods?

A popular notion exists that the Supreme Court announced in the landmark Brinker Restaurant decision that employers technically need not “police” meal and rest periods. Even though the statement appears in Brinker, as a practical matter, that pronouncement is a fiction. If an employer fails to take control over meal and rest period compliance and time records, it will invite problems and likely face adverse consequences. Worse yet, it may face enormous liability if time records suggest there are high “violation rates” and attorneys use those records against the employer.

c. The Naranjo Decision Provides Additional Guidance

The California Supreme Court’s 2022 decision in Naranjo v. Spectrum Security Services offers helpful insights that can further assist employers. The opinion stated unambiguously that the payment of premiums for late, short or missed meal periods “chops off” liability under the Labor Code for PAGA and waiting time penalties as well as missed-break premiums under Labor Code Section 226.7. When such premiums are earned and owed, they should be timely paid and listed on pay stubs.

4. Additional Best Practices

The best practice requires that time records be accurate and tell a story that helps the employer defend any claims. They should show widespread compliance by demonstrating meal periods were provided and taken in a timely manner and are at least 30 minutes long. There are a number of proactive strategies employers can implement to achieve this goal. They begin with training supervisors and managers to enforce the law and the employer’s rules. While it is often said that employers are not obligated to “police” employees, the reality emphasizes the importance of directly monitoring, overseeing, and policing employees so that time records demonstrate strict compliance with the law. Thus, they can indeed become an employer’s strong ally or enemy. If they suggest widespread violations, even when contrary evidence can be introduced, an employer may operate from a credibility deficit that can be extraordinarily costly and difficult to overcome.

5. Valuable Resources

The importance of wage-hour litigation is underscored by the number of cases filed every day and the enormous costs employers pay to defend and settle lawsuits. Lawsuits alleging meal and rest period violations are among the most common cases employers are forced to defend. Yet, while employers spend huge sums defending such cases, most expend far less energy and resources structuring policies and practices that maximize their ability to wage a successful defense.

Because of the importance of the topic, Castle Publications has prepared several publications that examine this topic in detail and provide an in-depth legal analysis as well as suggestions for implementing compliant policies and practices. Two of those publications written by Sheppard Mullin attorney and partner Richard J. Simmons are the Wage And Hour Manual For California Employers and the specialized publication, California’s Meal And Rest Period Rules: Proactive Strategies For Compliance, which devotes over 190 pages to the topic of meal and rest periods and contains helpful appendices that include sample forms and policies.

To read more articles like this one, subscribe to the ALERT Newsletter today!


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.

U.S. SUPREME COURT LIMITS ABILITY TO USE PAGA ACTIONS TO SIDESTEP ARBITRATION OBLIGATIONS

On June 15, 2022, the U.S. Supreme Court published its game-changing decision in Viking River Cruises, Inc. v. Moriana, 142 S.Ct. 1906, 2022 WL 2135491 (2022). The Supreme Court concluded in its 8 to 1 decision that the Federal Arbitration Act (“FAA”) aids employers with arbitration agreements to prevent representative claims based on the Private Attorneys General Act of 2004 (“PAGA”). The decision prevents plaintiffs’ attorneys from sidestepping employees’ agreements to arbitrate employment disputes by pursuing representative PAGA actions in court. It does allow an employee’s individual PAGA claim to be arbitrated.

The decision is expected to increase interest in the use of arbitration agreements as a means to prevent “shakedown” lawsuits, such as the cookie-cutter PAGA actions alleging identical claims against hundreds of employers. It accomplishes this outcome by invaliding a California decision that had allowed representative actions to proceed in court despite an employee’s agreement to arbitrate all disputes on an individual basis.

1. The California Supreme Court’s Iskanian Decision Is Preempted

By disagreeing with a 2014 decision of the California Supreme Court, Viking River Cruises shields employers from representative PAGA claims if they have well-drafted arbitration agreements containing class action waivers. The U.S. Supreme Court confirmed that an employee’s “individual PAGA claims” can be arbitrated if the employee either initiates arbitration that includes such claims or is directed by a court to arbitrate such claims on an individual basis. Thus, the Supreme Court determined that the plaintiff (Moriana) who brought a PAGA action against Viking River Cruises in court could be ordered to arbitrate her individual Labor Code claims, including her individual PAGA claim. It further determined that the pending enforcement action filed on behalf of other employees under PAGA should be dismissed.

a. PAGA Claims Are Not Indivisible

This holding rejected the conclusion of the California Supreme Court announced in its famous 2014 decision in Iskanian v. CLS Transportation Los Angeles, LLC, 59 Cal. 4th 348 (2014). Iskanian held that employers cannot rely on class and representative action waivers to compel arbitration of PAGA claims on an individual basis because PAGA plaintiffs litigate as proxies on behalf of the state. Iskanian also viewed PAGA claims as indivisible claims that cannot be split so that an employee can arbitrate an individual PAGA claim while litigating the non-individual (“representative”) PAGA claim in court.

b. Individual vs. Representative Claims

The U.S. Supreme Court disagreed with the California Supreme Court over this key issue. It concluded that the FAA preempts Iskanian’s rule insofar as it precludes division of PAGA actions into individual and non-individual claims and thus prevents employees from pursuing their individual PAGA claims in arbitration. In other words, the Iskanian rule prohibiting the splitting of PAGA claims is preempted by federal law to the extent a plaintiff’s “individual PAGA claim” arising from a violation she alleges she personally suffered cannot be split off from the non-individual (“representative”) PAGA claims arising out of events involving other employees. Because that rule in Iskanian is preempted, Viking River Cruises was entitled to compel arbitration of Moriana’s individual PAGA claim. Further, because it determined the plaintiff lacked statutory standing to continue to maintain her non-individual claims in court, the Supreme Court reversed the judgment of the California Court of Appeal and concluded the correct course is to dismiss her remaining claims.

2. Background

a. Viking’s Class Action Waiver And Severability Clause

Viking River Cruises, Inc. (“Viking”) is a company that offers ocean and river cruises around the world. When she was hired as a sales representative by Viking, Angie Moriana signed an agreement to arbitrate any dispute arising from her employment. The agreement contained a “Class Action Waiver” providing that in any arbitral proceeding, the parties could not bring any dispute as a class, collective or representative PAGA action. Significantly, it also contained a severability clause specifying if the waiver was found invalid, any class, collective or representative PAGA action would presumptively be litigated in court. But under the severability clause, if any “portion” of the waiver remained valid, it would be “enforced in arbitration.”

b. The PAGA Action

Despite the agreement, Moriana filed a PAGA action in state court after leaving her position. She alleged she was an aggrieved employee under PAGA because Viking failed to pay her final wages in a timely manner under the Labor Code. She also asserted an array of other Labor Code violations allegedly sustained by other employees, including minimum wage, overtime, meal period, rest period, pay stub and other claims. Notably, she did not claim she personally suffered each of these other violations.

Viking moved to compel arbitration of Moriana’s “individual PAGA claim” meaning the claim that arose from the violation she allegedly suffered. It also moved to dismiss her other PAGA claims. After the trial court denied the motion, the California Court of Appeal affirmed, holding that categorical waivers of PAGA standing are contrary to state policy. Critically, it also held that PAGA claims cannot be split into arbitrable individual claims and nonarbitrable “representative” claims.

3. Individual Claims Include Violations Sustained By The Plaintiff

In evaluating the preemption question before it, the U.S. Supreme Court found it important to distinguish “individual PAGA claims,” which are premised on Labor Code violations “actually sustained by the plaintiff,” from “representative” PAGA claims arising out of events involving other employees. The Supreme Court used the term “individual PAGA claim” to refer to claims based on Labor Code violations “suffered by the plaintiff.”

a. Iskanian Adopted Two Relevant Rules

The Supreme Court addressed two separate rules found in the Iskanian decision. It found that Iskanian’s “principal rule” prohibits waivers of “representative” PAGA claims. This rule prevents parties from waiving representative standing to bring PAGA claims in either a judicial or arbitral forum. But Iskanian also adopted a “secondary rule” that invalidates agreements to separately arbitrate or litigate “individual PAGA claims for Labor Code violations that an employee suffered,” on the theory that resolving victim-specific claims in separate arbitrations does not serve the deterrent purpose of PAGA.

b. Moriana Could Not Sidestep The Obligation To Arbitrate

The Supreme Court held that Iskanian’s prohibition against wholesale waivers of PAGA claims is not preempted by the FAA. The FAA thus did not preempt the “principal rule” prohibiting a waiver of PAGA standing. But Iskanian’s rule that PAGA actions cannot be divided into individual PAGA claims and non-individual (representative) claims is preempted, so Viking was entitled to compel arbitration of Moriana’s individual claim. After deciding that Moriana could not sidestep her obligation to arbitrate her individual PAGA claim concerning the payment of her final wages, the Court addressed what should occur with respect to Viking’s efforts to dismiss the non-individual (representative) claims she initiated based on alleged violations suffered by other employees.

4. Key Features Of The Supreme Court’s Decision

The Supreme Court summarized several features of its decision in its conclusion. They include the following rulings:

1. The FAA preempts the rule in Iskanian insofar as it precludes division of PAGA actions into individual and non-individual claims through an agreement to arbitrate. That holding compelled reversal of the California Court of Appeal’s decision.

2. Viking’s agreement purported to waive “representative” PAGA claims. Under Iskanian, this provision was invalid if construed as a wholesale waiver of PAGA claims. Because that aspect of Iskanian is not preempted by the FAA, the agreement remains invalid if it is interpreted in that manner.

3. But the severability clause in the agreement provides that if the waiver provision is invalid in some respect, any “portion” of the waiver that remains valid must still be enforced “in arbitration.” Based on this clause, Viking was entitled to enforce the agreement insofar as it mandated arbitration of Moriana’s individual PAGA claim – the claim based on Labor Code violations she allegedly suffered herself.

4. The lower California courts refused to enforce the agreement based on the Iskanian rule that PAGA actions cannot be divided into individual and non-individual claims. Because that rule is preempted, Viking is entitled to compel arbitration of Moriana’s individual PAGA claim.

5. The Supreme Court framed the remaining question by asking what the lower courts should have done with Moriana’s non-individual claims, which may not be dismissed simply because they are “representative.” The Supreme Court found that PAGA provides no mechanism enabling a court to adjudicate non-individual PAGA claims once an individual claim has been committed to a separate arbitration proceeding.

6. Under PAGA’s standing requirement a plaintiff can maintain non-individual (representative) PAGA claims in an action only by virtue of also maintaining an individual claim in that action. Consequently, when an employee’s own dispute is pared away from a PAGA action, the employee is no different from a member of the general public, and PAGA does not allow such persons to maintain suit.

7. Finally, because Moriana lacks statutory standing to continue to maintain her non-individual claims in court, the correct course is to dismiss her remaining claims.

5. The California Legislature And Courts May Get Involved

Many practitioners forecast future involvement of the California Legislature and courts. Justice Sotomayor’s concurring opinion in Viking River Cruises signaled the possibility of future developments. Her opinion observed that the “Court faithfully applies precedent to hold that California’s anti-waiver rule for claims under [PAGA] is pre-empted only ‘insofar as it precludes division of PAGA actions into individual and non-individual claims through an agreement to arbitrate.’” However, she remarked that California is not powerless to address its sovereign concerns. While the FAA poses no bar to the adjudication of Moriana’s “non-individual” PAGA claims, PAGA itself “provides no mechanism to enable a court to adjudicate non-individual PAGA claims once an individual claim has been committed to a separate proceeding.” Thus, Moriana lacks “statutory standing” under PAGA to litigate her “non-individual claims separately in state court.

However, the concurring opinion explained that is not necessarily the end of the story. Rather, California courts will have the last word in an appropriate case if the Supreme Court’s understanding of state law is wrong. Alternatively, even if the Supreme Court’s understanding is right, the California Legislature is free to modify the scope of statutory standing under PAGA within state and federal constitutional limits. Such a legislative change would probably apply prospectively, so it would only affect future cases.

6. Lessons Learned

Until that time occurs, employers with properly drafted arbitration agreements should be able to rely on Viking River Cruises to compel arbitration of an employee’s individual claims, including an individual PAGA claim arising from alleged Labor Code violations against that employee. They can also seek to dismiss or stay any non-individual claims asserted for different employees in court. It is predictable that the plaintiffs’ bar, which has a substantial financial interest in lobbying for PAGA actions, will seek legislative reform.

Employers with arbitration agreements should review those agreements, including their features regarding severability and the arbitration of individual PAGA claims, to make certain they reflect the teachings of Viking River Cruises. Likewise, employers who do not have such arbitration agreements may wish to discuss their potential value with experienced employment lawyers.

Employers should also monitor other activity in this area, such as the Ninth Circuit Court of Appeal’s rehearing in Chamber of Commerce v. Bonta, a case examining the validity of AB 51, anti-arbitration legislation enacted by the California Legislature in 2019. The federal district court concluded that AB 51 was likely preempted by the FAA. In a 2-to-1 decision, the Ninth Circuit disagreed and determined that some portions of AB 51 are not preempted, prompting the Chamber of Commerce to request a rehearing en banc. The Ninth Circuit issued an order in February 2022 noting that a majority of the panel agreed that consideration of the Chamber’s petition for rehearing en banc should be deferred until the Supreme Court decided Viking River Cruises. Further activity in the case is now anticipated.

7. PAGA Reform Initiative

In 2021, a proposed ballot initiative was drafted to replace PAGA with a new system that would discourage excessive litigation and provide a different and improved method for claim resolution that would allow employees to receive 100% of penalties recovered. The initiative, called the “California Fair Pay And Employer Accountability Act of 2022,” described its objective of eliminating shakedown lawsuits, producing quicker resolutions, avoiding prolonged and costly court cases, and providing penalties to workers, not lawyers or the state.

If approved, the initiative would amend Labor Code Sections 2698 – 2699 and several other statues, in order to replace current private attorney actions with employment enforcement exclusively in the hands of independent state regulators. The California Labor Commissioner’s office would handle violations, award penalties directly to employees, and eliminate PAGA’s litigation incentives that allocate 75% of penalties to the State of California while enabling plaintiffs’ attorneys to profit at the expense of employees and employers. It would not allow “stacking” penalties under separate Labor Code provisions.

Efforts to allow a vote on the ballot initiative in 2022 were delayed because of a timing issue relating to the ability of election officials to verify the collection of over 600,000 valid signatures. Those backing the measure reportedly will now seek to qualify the measure for the 2024 general election.

The Supreme Court described the primary issues in the case as whether the “premium” of an extra hour of pay for missed breaks constitutes “wages” that must be (1) reported on statutorily required pay stubs (called “wage statements”) during employment and (2) paid within statutory deadlines when an employee leaves the job. The court definitively concluded that the answer is yes. In fact, earned premiums must be reported even if they have not been paid. Although the extra pay is designed to compensate for the unlawful deprivation of a guaranteed break, “it also compensates for the work the employee performed during the break period.” The court determined that the extra pay thus serves the dual purpose of providing a remedy for the deprivation of breaks while simultaneously constituting wages subject to the same timing and reporting rules as other forms of compensation for work. It is anticipated that many employers will react to the decision by evaluating “auto-pay” systems that flag and trigger the payment and reporting of missed-break premiums in specific situations.

To read more articles like this one, subscribe to the ALERT Newsletter today!


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.

EMPLOYER CALLING EX-EMPLOYEES “CRIMINALS” AND “LIARS” MUST DEFEND DEFAMATION LAWSUIT

California has a proud history of supporting free speech rights, even unpopular and arguably defamatory speech, on the grounds that people should not be punished for speaking on topics that are in the public interest or relate to ongoing litigation. In 1992, California became the first state to enact an anti-SLAPP statute (the acronym SLAPP stands for “Strategic Lawsuit Against Public Participation”). California’s anti-SLAPP laws provide a mechanism for a defendant to file a special motion to strike a complaint where the allegations arise from the defendant’s protected speech. The issue of whether certain speech is protected under the anti-SLAPP statute or rises to the level of defamation, often comes up in the context of employment disputes, where one or both parties make serious accusations against the other. Drawing the line between what speech is and is not protected by the anti-SLAPP statute can become especially complicated. In Lawler v. Guillon Enterprises, __ Cal.App.5th __ (2022), the California Court of Appeal issued an unpublished decision further clarifying when an employer has crossed that line.

1. Jury Verdict And Judgment Against The Employer

The three plaintiffs in Lawler were former employees of Crush Steakhouse in Ukiah, California (“Crush”). After leaving Crush, they filed lawsuits against the restaurant and its parent company for gender and pregnancy discrimination, sexual harassment, and various wage and hour claims. In March of 2020, the court entered a judgment in favor of the plaintiffs for $305,000 against Crush, $125,000 against a Crush manager who was found to have sexually harassed two of the plaintiffs, and $135,000 in attorney’s fees and costs.

2. Letter Defaming The Plaintiffs Sent To Crush Employees

After the court finalized the judgment one of Crush’s co-owners wrote a letter, which was later distributed to 80 Crush employees, stating that due to the judgment, the restaurant would be permanently closing. The co-owner wrote that the three plaintiffs “conspired” to sue Crush and were awarded by the jury “for lying on the stand” and doing a “great acting job.” The co-owner then referred to the plaintiffs’ attorney as being “crooked” whose “only accomplishment” was to “teach witness[es] how to lie in court.” The letter ended by referring to the plaintiffs as “criminals.”

3. The Plaintiffs Defamation Lawsuit And The Trial Court’s Denial Of The Anti-SLAPP Motion

A few months after the restaurant’s co-owner distributed the letter, and after the restaurant filed for bankruptcy, the three plaintiffs filed a defamation lawsuit against various entities owned and controlled by the author of the letter. In response to the defamation lawsuit, the defendants filed an anti-SLAPP motion. Defendants argued that the letter contained protected speech under two separate provisions: first that it constitutes “litigation activity” (Cal. Code of Civil Procedure Section 425.16(e)(2)); and second that it was written in connection with a “public issue” (Cal. Code of Civil Procedure Section 425.16(e)(3) and (e)(4)). Defendants argued that the “public issue” involved the question of whether unlawful activities occurred at Crush and whether the restaurant would close as a result of the lawsuit.

The trial court denied the defendants’ anti-SLAPP motion. The court found that the challenged statements did not fall under either section. First, the court concluded that the letter was published to Crush employees only, not to the general public, and that it concerned “details of Plaintiffs’ experiences” that were not of public significance. The court noted that while the circumstances of the restaurant’s closing may have been a legitimate public concern, that did not insulate the allegedly defamatory statements. And second, the court concluded that the letter was not written in connection with a judicial proceeding because there was no case involving Crush pending at the time the letter was published. Moreover, if the letter was intended to inform employees about the closure and pending bankruptcy, referring to the plaintiffs as liars and criminals, was unnecessary in the court’s view.

The defendants appealed the order allowing the defamation claims to proceed past the pleading stage. The Court of Appeal affirmed the order denying the defendants’ anti-SLAPP motion.

4. The California Supreme Court’s FilmOn.com Test

The Court of Appeal took issue with the defendants’ characterization of the letter as being made to address concerns in the “public interest.” The court reasoned that it is not sufficient that the challenged speech in some manner relates to the public interest. Rather, to prevail on an anti-SLAPP motion, defendants must show that the statements “contribute to” the public debate about those issues. In reaching this conclusion, the court relied heavily on the California Supreme Court’s decision in FilmOn.com Inc. v. DoubleVerify Inc., 7 Cal.5th 133 (2019).

In FilmOn.com, the defendant, DoubleVerify, provided clients with paid confidential reports including information from websites that its clients may want to advertise on. These confidential client reports note if, according to DoubleVerify, a website contains “Adult Content” or “Copyright Infringement.” FilmOn.com filed suit claiming that these labels discouraged potential advertisers. The defendant responded to the lawsuit with an anti-SLAPP motion, which the trial court granted, and the appellate court affirmed.

The California Supreme Court reversed the appellate court’s ruling, finding that the confidential client reports were not in the public interest as contemplated by the statute. According to the Supreme Court, when analyzing whether a communication is in the “public interest” courts must “not only [analyze] its content, but also [] its location, its audience, and its timing.” The Court recognized that while the “Adult Content” label on a website is important, in order to be protected speech, the statement must actually contribute to public debate. And because DoubleVerify’s confidential reports were solely for business purposes, they were “too remotely connected to the public conversation [regarding adult content and copyright infringement] to merit protection under the [anti-SLAPP law’s] catchall provision.” FilmOn.com, supra, at 140.

The Court in FilmOn.com went on to establish a two-party test to determine whether alleged wrongful conduct by the defendant falls under the anti-SLAPP’s statutes “catchall provision.” First, as to the challenged speech, trial courts must determine whether the statement implicates a public issue or is of an issue of public interest. This may include any of the following categories that constitute a “public interest”: (1) a person or entity in the public eye; (2) conduct that could directly affect a large number of people beyond the direct participants; or (3) a topic of widespread public interest. And second, assuming the alleged conduct is sufficiently in the public interest, in determining whether to apply anti-SLAPP protections, a court must then consider the “functional relationship” between the challenged speech and the public conversation about the matter. Id. at 149-150. The “functional relationship” is determined by considering context (including the identity of the speaker), the audience, and the apparent purpose of the speech. Id. at 142-144, 152.

5. The Co-Owner’s Letter Does Not Constitute Protected Speech

Turning back to the letter authored by Crush’s co-owner, the court in Lawler applied the FilmOn.com standard and agreed with the trial court that the author of the letter, and his companies, could be sued for defamation by the three plaintiffs. First, the court questioned whether the challenged statements in the letter actually implicated a public issue. In addition to the fact that the three plaintiffs were not public figures, whether or not they were liars or criminals (the allegations made in the letter) was not a topic of widespread public interest. Second, the co-owner published the letter to the restaurant’s employees, not to the general public. Third, the audience who received the letter (i.e., other employees) had no role or authority to weigh in on the restaurant’s closing—the purported public interest according to the defendants—as they had no ownership interest in the restaurant. And finally, despite calling the plaintiffs “criminals” and accusing them of perjury, the court noted that nothing in the challenged letter suggested that the author intended to involve the criminal justice system.

Turning to the defendants’ argument that the letter was protected because it was made in the context of ongoing legal enforcement proceeding and review by a “judicial body,” the court stated that in order to fall under the litigation exception, the “challenged speech must be aimed at achieving the objects of the litigation.” Lawler at 16. Here, the statements in the letter were not directed to anyone with an interest in the “enforcement proceedings” but instead to the restaurant’s employees.

6. Conclusion

The Lawler case offers an important reminder to employers who want to publicly call out an ex-employee/plaintiff for bringing what the employer considers to be baseless claims against the employer. While the anti-SLAPP statute certainly allows an employer to make a variety of statements, including statements which in other contexts may be considered defamatory, the line on what is and is not acceptable is not always clear. For that reason, before hitting “send” on an email which could end before a court, it is important to consult with an attorney to help navigate the line between protected speech and defamation.

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About The Author

Adam R. Rosenthal is a Partner in Sheppard Mullin’s Labor and Employment Practice Group in the firm’s San Diego (Del Mar) and Los Angeles offices. Mr. Rosenthal represents a broad spectrum of employers in all areas of employment law before federal and state courts, the American Arbitration Association and JAMS. He has significant trial and arbitration experience in single plaintiff and class action cases involving wage and hour disputes such as allegations of missed meal and rest breaks, unpaid overtime, off-the-clock work and time shaving, wrongful termination, sexual harassment and disability discrimination, defamation, misclassification of manager “exempt” employees, and non-compete agreements and trade secrets.

Adam frequently lectures on employment law issues to in-house legal departments, trade associations and business and HR groups. He has written a number of articles and is also the co-author of the Employer’s Guide to COVID-19 and Emerging Workplace Issues.

Mr. Rosenthal represents national and international clients in retail, transportation, high-tech, manufacturing, healthcare, biotech, financial services, food services and non-profit organizations. He received his law degree from the University of California, Davis in 2006 and his undergraduate degree from the University of California, Los Angeles, cum laude.

POTENTIAL IMPACT OF ABORTION DECISION IN DOBBS V. JACKSON ON EMPLOYMENT

On June 24, 2022, the U.S. Supreme Court issued its decision in Dobbs v. Jackson Women’s Health Organization, No. 19-1392 (June 24, 2022) holding that access to an abortion is not a right protected by the U.S. Constitution. The decision gave individual states the authority to regulate abortions. This decision has many practical implications for employers across the U.S., especially since state laws governing abortions now differ considerably across the country.

1. Travel Benefits For Employees Seeking Out-of-State Abortions

Many employers have implemented policies that reimburse employees who travel out-of-state for abortion services, when those employees live in states where access to abortions are prohibited or highly restricted. Employers should discuss these policies with counsel to ensure compliance with state and federal law. One option employers are considering is to provide travel benefits under an existing group health plan. Another option is provide benefits under a Health Reimbursement Arrangement (“HRA”) or through an Employee Assistance Program (“EAP”). Employers could also consider providing the benefits as general taxable reimbursements or as a separate policy outside of an existing health plan. Again, because such programs are so new and the law is evolving, employers should discuss these options (or any others) with counsel prior to implementation. There may be potential tax concerns, ERISA concerns, and ACA issues, among other things. Employers may also want to discuss their options with insurance brokers or their human resources professionals to determine the options available under their current plans.

On a related note, employers may want to review their fully-insured healthcare plans to see if any changes have been made to their policies that might limit coverage for reproductive healthcare services. On the other hand, employers who provide healthcare to their employees through self-insured plans may have the ability to revise their plans to include coverage for additional services in this regard.

2. Aiding And Abetting Laws In Some States

In this post-Dobbs world, some states have enacted “aiding and abetting” laws, with some laws stating that providing reimbursement for abortion expenses is considered “aiding and abetting” an illegal abortion.

For example, Texas has enacted laws that allow individuals to file civil actions against entities that “knowingly engage in conduct that aids or abets the performance or inducement of an abortion, including paying for or reimbursing the cost of an abortion through insurance or otherwise.” In fact, Texas lawmakers have already warned several high profile employers (including a law firm) who have publicized their support for travel reimbursements that they would be violating Texas law if they move forward with such reimbursements. The lawmakers further warned that the employers could be subject to civil and criminal prosecution under the laws.

These laws will certainly be challenged and so much is unknown at this point. Thus, it will be important to stay abreast of the various state “aiding and abetting” laws and continue to consult with counsel in this regard.

3. Employees’ Medical Information

If an employer receives information about an employee’s need or request for an abortion (or any information about the employee’s health), the employer must ensure that it keeps such information confidential and separate from any personnel file.

In the current landscape, some employers are attempting to avoid such confidentiality issues by requiring employees to only provide travel receipts, not documentation of the underlying procedure, to qualify for any abortion-related benefits.

4. Federal Anti-Discrimination Laws May Be Triggered

The Pregnancy Discrimination Act (“PDA”) prohibits employment discrimination based on pregnancy, childbirth, or related medical conditions. Federal courts around the country have held that the PDA prevents employers from taking adverse employment actions against employees because of an employee’s decision to have an abortion, decision not to have an abortion, or the contemplation of an abortion. Similarly, courts have also held that Title VII of the Civil Rights Act of 1964 protects employees from being fired for having an abortion or contemplating an abortion. This means that an employer could be found to violate the PDA and/or Title VII if it pressured an employee to have, or not to have, an abortion in order to keep her job.

5. Employers Could Infringe On “Protected Activity”

In this politically-charged environment, employers should also be mindful of certain laws that protect specific types of expression in the workplace. For example, the National Labor Relations Act (“NLRA”) prohibits retaliation against employees who discuss the terms and conditions of employment, commonly referred to as “protected concerted activity.” It is possible that employees who discuss or advocate for their employer to provide benefits to women seeking abortion-related services, advocate for their employer to take a certain public stance on the issue, or protest their employer’s position on the issue, may be considered to be engaging in “protected activity” under the NLRA.

6. The Future Is Still Uncertain

These are only a few issues that may come up in the employment context in the post-Dobbs world, but there are certain to be other issues in the future, as the laws in various states continue to evolve. Further, federal and state agencies will likely provide guidance on how Dobbs impacts various employment laws. Moreover, it is inevitable that plaintiffs (whether employees, state governments, or someone else) will file lawsuits relating to employers’ Dobbs-related decisions. Employers across the country will have to wait to see how such lawsuits turn out.

To read more articles like this one, subscribe to the ALERT Newsletter today!


About The Author

Rachel Patta Howard is an associate in Sheppard Mullin’s Labor and Employment Practice Group in the firm’s Century City office. Ms. Howard represents employers in a variety of industries including financial services, banking, retail, healthcare, manufacturing, and entertainment. She has successfully litigated and favorably resolved cases involving allegations of discrimination, retaliation, harassment, failure to accommodate, wrongful termination, trade secret misappropriation, and defamation, as well as wage and hour cases, including representative and class actions. Additionally, Rachel advises and counsels clients on day-to-day employment issues including internal investigations, discipline and terminations, leaves of absence, the interactive process, reasonable accommodations, personnel policies, and other wage and hour compliance issues.

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

Ms. Howard received her law degree, as well as her undergraduate degree, from the University of California, Los Angeles.

CDC ISSUES UPDATED COVID-19 GUIDELINES RELAXING CERTAIN PROTOCOLS

On August 11, 2022, the Centers for Disease Control and Prevention (“CDC”) issued new guidelines for individuals to follow to minimize the impact of COVID-19. The CDC stated that it modified its previous guidelines because there is now significantly less risk of severe illness, hospitalization and death from COVID-19 compared to earlier in the pandemic. The CDC’s guidelines now focus more on individual responsibility. This may help employers by allowing them to relax some of their COVID-19 workplace protocols and policies. That said, the CDC has no enforcement authority and its guidance is only advisory. Therefore, employers in states like California that still have COVID-19 emergency regulations and orders in place must continue to follow any protocols required by state and local governments.

1. Main Components Of The Updated Guidelines

The CDC’s updated guidelines focus on the following:

COVID-19 Vaccination And Boosters: The CDC’s guidelines no longer differentiate any protocols based on vaccination status. Nonetheless, the CDC continues to promote the importance of individuals getting vaccinated and staying up to date with COVID-19 boosters because protection against severe disease diminishes over time, especially against current and evolving variants.

Quarantining: Previously, the CDC instructed that close contacts who are not current with boosters should quarantine for five days and self-monitor for symptoms as a precaution. However, the CDC no longer recommends quarantining following COVID-19 exposure, regardless of vaccination status. Instead, the CDC now recommends that close contacts should (1) wear a mask for 10 days and (2) get tested on day 5.

Isolation: The CDC recommends that individuals who have tested positive for COVID-19, or who are symptomatic and suspect they have COVID-19, should isolate from others for at least 5 days (note: day 1 is the first full day after symptom onset or after specimen collection for asymptomatic individuals). The recommended duration of isolation depends on the following:

o Asymptomatic Or No Fever And Improving Symptoms: After 5 days, if asymptomatic or if the individual is fever-free for 24 hours without the use of medication and symptoms are improving, the individual can end isolation and return to work (but should continue to wear a mask until day 10, as detailed below).

o Fever Remains Or Symptoms Not Improving: After 5 days, if the individual still has a fever or other symptoms have not improved, the individual should continue to isolate until those symptoms improve.

o Individuals With Moderate Or Severe Illness: If the individual has a (1) “moderate illness” (shortness of breath or difficulty breathing), (2) “severe illness” (hospitalization), or (3) weakened immune system, the individual should isolate through day 10. The CDC also advises that individuals with a severe illness or weakened immune system consult with a doctor before ending isolation.

Masking: Individuals who have isolated because they are symptomatic or who have tested positive for COVID-19 should wear a mask around others for 10 days. As noted above, close contacts also should wear a mask for 10 days.

Employee Screening: The CDC no longer recommends that employers in most community settings use testing to screen asymptomatic employees without known exposures. Therefore, employers who still utilize testing as part of their overall COVID-19 safety protocols or as an accommodation for employees who are exempt from a mandatory vaccination policy may consider revising their policies.

Physical Distancing: The CDC’s updated guidelines state that physical distancing is now just one component of how individuals may protect themselves and others. To that end, the CDC recommends physical distancing should be considered for particular settings where the risk of exposure is higher due to local COVID-19 Community Levels and where there is a lack of ventilation.

2. The Impact Of The CDC’S Guidelines On California Employers

As discussed in the May 2022 edition of the ALERT (Volume 40 – Number 6), the California Division of Occupational Safety and Health’s (“Cal/OSHA”) COVID-19 Emergency Temporary Standards (“ETS”) outlines COVID-19 protocols that cover most California employees. Although the ETS historically has been based on CDC guidance, the current iteration of the ETS is effective through December 31, 2022. Therefore, it seems unlikely that Cal/OSHA will revise its ETS to align with the updated CDC guidelines and California employers should continue to follow the requirements of the ETS.

3. Conclusion

Presumably, state and local governments in the vast majority of states will follow the CDC’s updated guidelines for any state and local regulations and orders governing COVID-19 protocols that employers must follow. It also seems likely that federal OSHA will consider the updated guidelines when assessing an employer’s COVID-19 infection control efforts. Employers who wish to modify their protocols based on the updated guidelines should ensure that they check any applicable federal, state and local regulations and guidance that governs the workplace before implementing any modifications.

To read more articles like this one, subscribe to the ALERT Newsletter today!


About The Author

Robert K. Foster is an Associate with Sheppard, Mullin, Richter & Hampton LLP in the firm’s San Diego (Del Mar) Office. Mr. Foster represents employers in various types of employment litigation, including class action wage and hour claims; PAGA claims; and discrimination, wrongful termination, harassment and retaliation lawsuits. In addition, he also provides strategic advice to employers on a wide range of employment issues, including wage and hour compliance, employee classification, and OSHA matters. He is a frequent contributor to the California Labor and Employment ALERT Newsletter and several other articles and is a contributing author to the Employer’s Guide to COVID-19 and Emerging Workplace Issues.

Robert litigates actions involving trade secret claims, unfair competition and enforcement of restrictive covenants and non-competes. He also handles various commercial litigation disputes, including breach of contract, breach of fiduciary duty, fraud, tortious interference with contract, unfair competition and shareholder derivative claims.

NEW YORK CITY SALARY TRANSPARENCY LAW’S EFFECTIVE DATE PUSHED BACK TO NOVEMBER 1, 2022

On May 12, 2022, Mayor Eric Adams signed into law Int. 134, an amendment to New York City’s Salary Transparency Law (the “STL”). Int. 134 made a number of significant changes to the STL including, but not limited to, rolling back its effective date.

The STL amends the New York City Human Rights Law (“NYCHRL”) to require New York City employers with four or more employees (and at least one who works in New York City) to begin including the minimum and maximum salary range in any internal or external advertisement for a “job, promotion, or transfer opportunity.” As reported in our last issue, Int. 134 makes a number of changes to the STL, which are summarized below:

• While the STL was originally slated to take effect on May 15, 2022, Int. 134 rolls back the effective date to November 1, 2022.

• The original version of the STL required employers to provide a position’s “minimum and maximum salary.” Int. 134 clarifies that employers must articulate “the minimum and maximum annual salary or hourly wage,” and preserves the STL’s requirement that the range must encompass what the employer “in good faith believes at the time of the posting it would pay for the advertised job, promotion or transfer opportunity.”

• Int. 134 expressly excludes from the STL’s coverage “positions that cannot or will not be performed, at least in part, in the city of New York.” As a result, New York City employers do not appear to be required to include salary ranges in postings for positions that will definitively not be performed in New York City, such as office-based roles located outside the five boroughs. However, advertisements for fully remote positions will be covered, as they could theoretically be filled by an employee who lives in New York City. Likewise, positions that require periodic office attendance but could still possibly be filled by someone who lives in New York City (e.g., largely remote positions that require occasional attendance at an employer’s offices for meetings, or hybrid positions that require semi-regular attendance at an office within driving distance of New York City) also appear to be covered.

• While the STL originally extended a private right of action to anyone aggrieved by a violation of the law, Int. 134 curbs that right. In response to concerns regarding needless and/or opportunistic litigation expressed by the business community, a private right of action under the STL is now limited to a covered employer’s current employees, who may bring claims “in relation to an advertisement by their employer for a job, promotion, or transfer opportunity with such employer.” However, the New York City Commission on Human Rights (the “Commission”) may still pursue claims against non-compliant employers and seek fines and civil penalties in all circumstances.

• Violations of the STL may result in civil penalties up to $250,000, which is the maximum penalty contemplated under the NYCHRL. Int. 134 sets civil penalty for a first-time violation at $0, provided that the cited employer proves to the Commission that the violation has been cured to the Commission’s satisfaction within thirty (30) days of service of a complaint from the Commission.
No further formal guidance has been issued regarding the STL since Int. 134 passed. However, we anticipate receiving additional guidance from the Commission as the STL’s November 1 effective date approaches.

To read more articles like this one, subscribe to the ALERT Newsletter today!


About The Author

Brian D. Murphy is a partner with Sheppard, Mullin, Richter & Hampton LLP in the firm’s New York office. Mr. Murphy is an employment defense litigator defending management in all areas of employment law, with a particular focus on wage and hour class and collective action litigation under Rule 23 and the Fair Labor Standards Act, and class claims under the Fair Credit Reporting Act. In addition to defense litigation, Brian also provides counsel and advice to employers concerning workplace investigation of claims of discrimination, harassment, and retaliation, restrictive covenants, employment contracts, personnel policies, and reductions-in-force. Brian also develops training programs and conducts trainings for clients concerning appropriate workplace behavior and wage and hour compliance.

Mr. Murphy has written extensively throughout his career on a number of employment topics and has been published in the New York Law Journal, the National Law Journal, Law360, and Corporate Counsel. He is also the co-author of the Wage and Hour Manual for New York Employers.

EMPLOYEE WHO SETTLES INDIVIDUAL LABOR CODE CLAIMS NOT BARRED FROM FILING SUBSEQUENT PAGA ACTION

On July 21, 2022, in Howitson v. Evans Hotels, LLC, __ Cal.Rptr.3d __, 2022 WL 2866213 (2022), the Court of Appeal determined that an employee who settles individual claims against an employer for alleged Labor Code violations is not subsequently barred from bringing a Private Attorney Generals Act (“PAGA”) action against the same employer for the same Labor Code violations.

1. Plaintiff’s Individual And Proposed Class Action Lawsuit

In May 2020, Plaintiff Christina Howitson filed a lawsuit against her former employer, asserting individual and proposed class action claims based on numerous alleged Labor Code violations. Around the same time, Howitson served the Labor Workforce Development Agency (“LWDA”) with notice of her intention to file a PAGA action against that former employer. However, Howitson did not amend her complaint in her proposed class action to assert any PAGA claim. Shortly after the proposed class action/individual lawsuit was filed, Howitson accepted a settlement offer from the defendant in the form of a statutory “offer to compromise,” pursuant to Code of Civil Procedure Section 998. This offer provided, among other things, that judgment would be entered in favor of Howitson “in her individual capacity.” The trial court thereafter entered judgment in Howitson’s favor “in her individual capacity” and her lawsuit was dismissed.

2. Plaintiff’s Subsequent PAGA Lawsuit

Approximately 10 days after she accepted the settlement offer, Howitson filed a PAGA action against the same defendant, based on the same facts as her first lawsuit. The defendant filed a demurrer, arguing that this second lawsuit was barred by the doctrine of claim preclusion because the two lawsuits involved the same, or nearly the same, alleged violations of the Labor Code.

The trial court granted the defendant’s demurrer and dismissed the PAGA lawsuit. The court found that the PAGA claims were barred by claim preclusion because: (1) both lawsuits involved the same parties; (2) both lawsuits involved the same Labor Code violations; and (3) Howitson could have brought the PAGA claims in her first lawsuit.

3. The Appellate Court’s Decision

Howitson appealed the trial court’s ruling to the Court of Appeal. In analyzing whether Howitson was precluded from asserting her subsequent PAGA lawsuit, the Court of Appeal explained the doctrine of claim preclusion. The doctrine applies to matters which were raised or could have been raised in a prior action. For claim preclusion to apply: (1) the second lawsuit must involve the same “cause of action” as the first lawsuit; (2) there must be a final judgment on the merits in the first lawsuit; and (3) the parties in both lawsuits must be the same, or in privity with one another. The phrase “cause of action” means that the lawsuits seek to vindicate the same “primary right,” which is concerned with the alleged harm suffered, not the legal theory asserted.

Under this analysis, the court first determined that the “harm suffered” in each lawsuit was not the same. The first lawsuit asserted harms Howitson suffered individually and that the proposed class suffered, in which compensatory damages were sought for violations to the employees. By contrast, in the PAGA lawsuit, the harm suffered was to the state and general public, in which civil penalties would be assessed, even if there was no injury to the employees themselves. The court further explained that, even though both lawsuits involved the same alleged Labor Code violations, this fact was not dispositive because the plaintiff possessed the “primary rights” in the first lawsuit, whereas the state possessed the “primary rights” in the second lawsuit.

The court then determined, under similar reasoning, that the parties in both lawsuits were not the same. In the first lawsuit, Howitson was the real party in interest, whereas in the second lawsuit, the state was the real party in interest. Howitson was merely stepping into the shoes of the state in her second lawsuit.

Lastly, the court determined that no privity existed between the state and Howitson. The defendant argued that the two were in privity because Howitson became an agent of the state after she submitted her PAGA notice to the LWDA and the LWDA failed to respond. The court disagreed, finding that the state had no interest in the first lawsuit since it involved individual and proposed class action claims only and Howitson settled the lawsuit for her own individual benefit.

4. Takeaways

This case provides employers with something to consider when determining whether and how to settle Labor Code claims with an employee in his or her individual capacity. With such an individual settlement (when no PAGA lawsuit has been filed), an employer runs the real risk that the employee will later be permitted to bring a PAGA lawsuit for the same alleged Labor Code violations.

To read more articles like this one, subscribe to the ALERT Newsletter today!


About The Author

Rachel Patta Howard is an associate in Sheppard Mullin’s Labor and Employment Practice Group in the firm’s Century City office. Ms. Howard represents employers in a variety of industries including financial services, banking, retail, healthcare, manufacturing, and entertainment. She has successfully litigated and favorably resolved cases involving allegations of discrimination, retaliation, harassment, failure to accommodate, wrongful termination, trade secret misappropriation, and defamation, as well as wage and hour cases, including representative and class actions. Additionally, Rachel advises and counsels clients on day-to-day employment issues including internal investigations, discipline and terminations, leaves of absence, the interactive process, reasonable accommodations, personnel policies, and other wage and hour compliance issues.

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

Ms. Howard received her law degree, as well as her undergraduate degree, from the University of California, Los Angeles.

CALIFORNIA’S SUITABLE SEATING RULES REQUIRE NOTICE OF AVAILABLE SEATING

California law contains unique rules regarding seating for employees. Under the Wage Orders of the Industrial Welfare Commission, an employee is entitled to use a seat while working if the nature of the work reasonably permits the use of a seat. An employer is required, in that circumstance, to provide the employee with a suitable seat. These rules were recently examined by a California Court of Appeal in Meda v. AutoZone Inc., _ Cal. App. 5th _ (July 19, 2022). The court reversed summary judgment that had been granted to the employer because a triable issue of material fact existed as to whether the employer “provided” suitable seating to its customer service employees at the front of the store by placing seats at other workstations in a separate area of the store.

1. Background

The plaintiff, Monica Meda, worked as a sales associate for about six months at an AutoZone auto parts store operated by AutoZoners. After she resigned from her position, she filed a lawsuit asserting one claim under the Private Attorneys General Act of 2004 (“PAGA”). She claimed AutoZoners failed to provide suitable seating to employees at the cashier and parts counter workstations, even though some or all of the work required could be performed while sitting.

2. The Motion For Summary Judgment Should Not Have Been Granted

AutoZoners moved for summary judgment, arguing the plaintiff lacked standing to bring a representative action under PAGA because she was not aggrieved by AutoZoner’s seating policy. Specifically, it argued it satisfied the seating requirements by making two chairs available to its associates. The chairs were not placed at the cashier or parts counter workstations, but were in, or just outside, the manager’s office.

The plaintiff opposed the summary judgment motion, contending that AutoZoners did not “provide” seating as required because no one was told her chairs were available for use at the front counter workstations, she never saw anyone else use a chair at those workstations, and she was only given the option to use a chair as an accommodation after an on-the-job injury. The trial court agreed with AutoZoners and granted the summary judgment motion.

The court of appeal reversed. It began by pointing out that no published California authority had considered what steps should be taken by an employer to “provide” suitable seating within the meaning of the seating requirement. The court then concluded that when an employer has not expressly advised its employees that they may use a seat during their work and has not provided a seat at a workstation, the inquiry as to whether an employer has “provided” suitable seating may be fact-intensive and may involve a multitude of job- and workplace-specific factors. Accordingly, resolution of the issue at the summary judgment stage may be inappropriate. Because the undisputed facts created a triable issue of material fact as to whether AutoZoners “provided” suitable seating to its customer service employees at the front of the store by placing seats at other workstations in a separate area of the store, summary judgment was found improper.

The court explained that although two raised chairs were present in the store, they were not placed at the cashier workstation or the parts counter workstation, nor were they in the immediate vicinity of those workstations. While it did not suggest that an employer must always place a chair at or within a specific distance of a workstation, the proximity of a seat to an employee’s workstation is a relevant factor to be considered when assessing whether a seat has been provided for the employee’s use. This is particularly true where, as in the case at issue, the employer has not advised its employees that seats are available for their use by either directly informing the employees or including the seating policy in its employee handbook.

3. Practical Observations

Suitable seating cases under PAGA have been filed throughout California in recent years. They are expensive and often difficult to defend. Employers can learn valuable lessons from the Meda case. In addition to recognizing the need to know when, where and how suitable seating must be provided, employers should take steps to advise their employees that seats are available for their use. The court explained that two ways of accomplishing this include directly informing employees that seats are available for their use or including a seating policy in the employee handbook. Using other means to disseminate notice may also prove helpful, such as by posting policies in the workplace.

To read more articles like this one, subscribe to the ALERT Newsletter today!


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.

SUPREME COURT FINDS STAFFING AGENCY’S SETTLEMENT AGREEMENT TOO NARROW TO PROTECT CLIENTS

On June 30, 2022, the California Supreme Court decided Grande v. Eisenhower Medical Center, _ Cal. 5th _ (2022). On the surface, the question before the Supreme Court was whether a settlement agreement entered into by a staffing agency was broad enough to extinguish claims against the agency and its client, a hospital to which it assigned nurses. Because the Supreme Court determined that it was not broad enough, the agreement did not prevent the nurse from bringing a separate lawsuit against the hospital. In the course of reaching this conclusion, it examined several sophisticated legal issues, such as questions regarding the legal principles of “claim preclusion” and “privity.” The decision includes troubling features as well as important lessons for staffing agencies and other employers seeking to settle employee disputes, including class action lawsuits.

1. Background

A staffing agency, FlexCare LLC, arranged for a nurse, Lynn Grande, to work at a hospital, Eisenhower Medical Center, on a temporary assignment. She performed work at the hospital for a very brief period in 2012. The nurse sued the staffing agency (but not the hospital) in Santa Barbara for alleged violations of California law, including the Labor Code. The parties settled the Santa Barbara lawsuit and the court entered judgment upon the settlement. The hospital was not a party to that initial lawsuit and, critically, the settlement agreement did not name the hospital as a released party.

The nurse then sued the hospital in Riverside based on the same alleged violations. The hospital argued that, because of the first judgment, “claim preclusion” foreclosed the nurse’s second suit. The court of appeal disagreed with another court of appeal decision that found claim preclusion existed based on similar facts. The Supreme Court granted review to resolve the tension in the case law resulting from the conflicting court of appeal decisions. It ultimately ruled that the nurse was able to bring the second lawsuit, this time against the hospital, and allege the same claims. The merits of her claims were never addressed.

2. The Concept Of “Privity”

The Supreme Court stated the core of the dispute concerned privity. It explained that judgments bind not only parties, but also “those persons in privity with parties.” It also explained that the nurse was a party to the initial judgment and the judgment could be used against her whether or not she was in privity with some other party. But for “claim preclusion,” the affirmative defense asserted by the hospital, that is not enough. The Supreme Court noted that claim preclusion can be asserted only by a party in the first action or someone in privity with a party in the first action. In the case before it, the hospital, a non-party to the first action, argued that it is in privity with a party (the staffing agency) so as to benefit from the claim-preclusive effect of a judgment that undoubtedly binds an opposing party (the nurse).

The Supreme Court disagreed with this argument, stating that privity requires the sharing of an identity or community of interest, with adequate representation of that interest in the first suit, and circumstances such that the non-party should reasonably have expected to be bound by the first suit. It determined that there was no such privity because of the hospital and staffing agency’s different legal interests. It thus affirmed the judgment of the court of appeal, clearing a path to the nurse’s Riverside action against the hospital.

3. The Scope Of The Release

The Supreme Court began its analysis by examining the text of the agreement giving rise to the first judgment in Santa Barbara. The agreement released the staffing agency, several individuals, a number of related entities, and the staffing agency’s “agents” and “representatives.” Significantly, the release did not name the hospital or specify a group of clients of the staffing agency, even though the underlying Santa Barbara complaint mentioned the facilities at which the plaintiff nurses worked. Nor was the hospital unambiguously an “agent” within the meaning of the agreement, notwithstanding the hospital’s participation in the nurse’s employment.

The Supreme Court also observed that the class defined in the Santa Barbara settlement agreement was different than the proposed class in the Riverside lawsuit filed against the hospital. Because the hospital was not released by the provisions in the settlement agreement or in privity with the staffing agency, the decision permits the nurse to pursue her wage-hour claims against the hospital. The Supreme Court reiterated the principle that claim preclusion can be asserted only by a party in the first action or someone in privity with a party in the first action. Even though the nurse can pursue her claims, the determination has no bearing on the merits of the nurse’s claims, including the class certification and substantive legal claims associated with her brief work assignment by a single staffing agency.

4. The Supreme Court’s Drafting Advice

The Supreme Court offered some practical advice to future litigants, noting they can specify that their releases extend both to the staffing agency and the agency’s clients when that result is intended. This lesson may prove useful to those who seek comprehensive settlements of disputes in the future, whether they involve a single plaintiff’s claims or class action claims. Employers who work with staffing agencies and those who use temporary employees who assert legal disputes should discuss these issues with their legal counsel. They are not limited to wage-hour disputes and can arise in connection with many different types of claims, such as discrimination, harassment, retaliation and wrongful termination claims.

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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.

SUPREME COURT HEARS ARGUMENTS IN ANOTHER MEAL & REST PERIOD CASE

On March 1, 2022, the California Supreme Court heard oral argument in another case that can be expected to have widespread impact throughout California, Naranjo v. Spectrum Security Services, Inc. Under California law, employers owe an extra hour of pay (often called a “premium”) under Labor Code Section 226.7 if they fail to provide meal and rest periods in accordance with the requirements of state law. The Naranjo case focuses on whether and to what extent the premiums owed will be treated as “wages” under the Labor Code. Specifically, it addresses the question of whether employers face additional penalties under Labor Code Section 203 for “waiting time penalties” and Section 226 for pay stub violations if they do not calculate and pay proper premiums for meal and rest period violations and report them on itemized wage statements (aka pay stubs). Labor Code Section 203 authorizes waiting time penalties of up to 30 days’ pay for a willful violation of California’s final pay rules. Section 226 establishes penalties for pay stub violations. (These rules are discussed in detail in the Wage and Hour Manual for California Employers by Attorney Richard J. Simmons of Sheppard Mullin. The new (25th) edition of the Manual was just published.)

In Naranjo, the court of appeal determined that penalties under Labor Code Sections 203 and 226 were not appropriate because the payment for a missed meal period is the payment for not providing a meal period. It is not a “wage” paid for time worked. This was consistent with the Supreme Court’s earlier decision in Kirby v. Immoos Fire Protection, 53 Cal. App. 4th 1326 (1993). Stated differently, the court of appeal found that failure to pay the statutory remedy of an extra hour of pay for meal or rest period violations is not an amount paid for labor or services performed and does not give rise to derivative claims under Section 203 for waiting time penalties or Section 226 for wage statement violations. If the Supreme Court reverses either or both aspects of this holding, employers will face even greater exposure to liability under California law.

The Supreme Court must issue its decision within 90 days of March 1, and is expected to issue it sooner. The ALERT will report on developments regarding the case.

To read more articles like this one, subscribe to the ALERT Newsletter today!


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.