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CALIFORNIA SUPREME COURT HOLDS COURTS LACK INHERENT AUTHORITY TO STRIKE PAGA CLAIMS ON MANAGEABILITY GROUNDS

The Private Attorneys General Act of 2004 (“PAGA”) is arguably the most impactful and draconian legislation ever added to the California Labor Code’s wage and hour provisions. It was purposely designed by pro-plaintiff advocates in 2003 to make the playing field uneven with a stacked deck of lopsided anti-employer rules. Without adding a single new substantive legal requirement, like new meal period, rest period or overtime rules, it created new enforcement and procedural standards that are fundamentally unfair to employers of all sizes and include enormous financial burdens for employers to defend themselves even if they have committed no violations of state law.

1. PAGA’s One-Sided Approach To Wage-Hour Enforcement

By creating a stacked deck that includes formulaic statutory penalties, a one-sided attorneys’ fee provision that allows employees to recover fees whenever they prevail while preventing employers from doing the same, PAGA is a poster child for oppressive California employment laws. It creates obvious impediments to fair and just outcomes while providing plaintiffs’ lawyers a simple means to file thousands of boilerplate PAGA claims to suck millions of dollars in fees from employers, often based on hyper-technical or made-up claims. Thus, while employees individually receive modest recoveries under the statute, often when employers are bludgeoned into compromising claims to avoid disastrous defense costs, the lion’s share of every recovery goes to plaintiffs’ attorneys and the State of California. Yes, the State has an incestuous relationship with plaintiffs’ lawyers bringing PAGA actions because it receives 75% of all penalties awarded. Employees typically receive a small portion of the balance because much of the remaining 25% pot, often 30% of the settlement or more, is paid to attorneys and third parties that administer settlements.

2. The Supreme Court’s Decisions Uniformly Support Aggressive PAGA Litigation

The California Supreme Court has repeatedly aligned itself with anti-business and anti-employer factions that have used PAGA, a unique California law that has not been copied in any other state, to savagely attack small and giant companies alike. Plaintiffs’ lawyers file an average of one to three dozen new PAGA claims every day in California. The cost of defense, even for tiny employers, can spell economic death for a company, even if no violation has ever been proven or has ever been committed. The Supreme Court’s anti-business bias is so apparent that it has never issued a decision interpreting PAGA that favors a business or employer.

The most recent example of this pattern appears in the Supreme Court’s January 18, 2024 decision in Estrada v. Royalty Carpet Mills, Inc., Cal.5th (2024), ironically a case that quotes from the authors’ publication (California’s Private Attorneys General Act (PAGA) – Litigation and Compliance Manual, by Richard J. Simmons, Ryan J. Krueger and Tyler J. Johnson) criticizing the one-sided features of PAGA that make the defense of PAGA claims prohibitively expensive for employers.

Estrada itself examined conflicting decisions of two California courts of appeal that reached contrary conclusions as to whether trial courts have the inherent authority to strike a PAGA claim on manageability grounds. Compare Estrada v. Royalty Carpet Mills, Inc., 76 Cal.App.5th 685 (2022), with Wesson v Staples the Office Superstore, LLC., 68 Cal.App.5th 746 (2021). After granting review to consider the conflict, the Supreme Court concluded that, unlike the authority that exists to bar class action claims, ‘trial courts lack inherent authority to strike PAGA claims on manageability grounds.” It added, “while trial courts may use a vast variety of tools to efficiently manage PAGA claims, given the structure and purpose of PAGA, striking such claims due to manageability concerns – even if those claims are complex or time intensive – is not among the tools trial courts possess.”

In conducting this analysis, the Supreme Court also addressed due process considerations raised in the lawsuit while declining to decide the hypothetical questions of whether a defendant’s right to due process can ever support striking a PAGA claim and, if so, the narrow circumstances under which such striking would be appropriate.

3. Background In Estrada Case

The employer, Royalty Carpet Mills (“Royalty”), operated two facilities. An employee who worked at one of those facilities, Estrada, filed a complaint alleging various claims, including claims relating to meal periods and PAGA penalties for various alleged Labor Code violations. The trial court initially certified a class of non-exempt employees. Following a bench trial, the trial court decertified two meal period subclasses because there were too many individualized issues to support class treatment. The trial court also dismissed the PAGA claim seeking penalties for alleged meal break violations with respect to persons other than the named plaintiffs, finding it was unmanageable. The court of appeal then reversed the order dismissing the PAGA claims and directed the trial court to hold a new trial on the claims. It left it to the trial court’s discretion to determine whether additional witnesses or other evidence should be allowed.

Royalty appealed the decision, claiming that California trial courts have inherent authority to strike PAGA claims on manageability grounds. It also argued that retrial of the plaintiffs’ representative PAGA claim would violate its right to due process. Royalty asserted that trial courts must have discretion to strike PAGA claims in order to preserve the due process rights of defendants.

4. Supreme Court’s Review Of PAGA

The Supreme Court provided a general overview of some of PAGA’s provisions along with a description of its purpose. It began by noting that PAGA provides for civil penalties for various Labor Code violations and authorizes “aggrieved employees,” acting as private attorneys general, to recover those penalties, i.e., in “representative” enforcement actions. Notably, a PAGA plaintiff may seek penalties for violations involving aggrieved employees other than the plaintiff.

Without commenting on the inherent problems raised by the State of California’s enormous financial stake in large recoveries, the Supreme Court observed that civil penalties recovered on a PAGA claim are split between the state and aggrieved employees, with 75% of civil penalties going to the state and 25% going to aggrieved employees. While suggesting that employers should take any gripes to the California Legislature regarding PAGA’s unfair provisions, it overlooked the fact that the state reaps hundreds of millions of dollars from PAGA lawsuits.

5. Comparison Of PAGA Actions With Class Actions

Few in California understand the significant differences between PAGA litigation and class action litigation as many assume PAGA actions are simply a type of class action. One of the most valuable passages in the Estrada decision entails the Supreme Court’s explanation that there are material differences between class actions and PAGA actions that the public fails to understand.

It explained that a class action plaintiff can raise a multitude of claims because he or she represents a multitude of absent individuals. In contrast, a PAGA plaintiff represents a single principal, the California Labor and Workforce Development Agency (“LWDA”), that has a multitude of claims. Because PAGA actions do not adjudicate individually held claims, the Supreme Court observed that due process rights of third parties are not paramount. While non-party employees as well as the government are bound by the judgment in a PAGA action as to a claim for civil penalties, non-party employees are not bound with respect to remedies other than civil penalties.

And PAGA does not make other potentially aggrieved employees parties or clients of a plaintiff’s counsel, does not impose on a plaintiff or plaintiff’s counsel any express fiduciary obligations, and does not subject a plaintiff or plaintiff’s counsel to scrutiny with respect to the ability to represent a large class. On the other hand, the adequacy of a plaintiff and plaintiff’s counsel raise important considerations germane to class certification. As a bottom line, while plaintiffs must meet the burden of demonstrating they satisfy the requirements of Section 382 of the Code of Civil Procedure to certify a class claim, those requirements need not be satisfied to pursue a PAGA action. This is one reason why PAGA actions are easier for plaintiffs’ attorneys to bring and litigate. And employees cannot be hit with attorneys’ fee awards under PAGA, even if their case is baseless.

6. Manageability

Manageability issues frequently receive significant attention in cases where plaintiffs seek to certify a proposed class action. As explained by the Supreme Court, the term “manageability” encompasses two related but distinct concepts. First, the term refers generally to the degree to which techniques may be used before and during trial to fairly and efficiently adjudicate an action.

Second, the term may be used more specifically to refer to a factor utilized in determining whether a class may be certified. This factor looks to whether issues pertaining to individual proposed class members may be fairly and efficiently adjudicated. Under federal law, manageability refers to the rule that a court consider “the likely difficulties in managing a class action” in determining whether the class action certification requirements of predominance and superiority are met. The Supreme Court has instructed courts to consider the manageability of a class action in determining certification, as in Duran v. U.S. National Ass’n., 59 Cal.4th 1 (2014).

a. Affirmative Defenses Must Be Addressed

In certifying a class action, a court must conclude that litigation of individual issues, including those arising from affirmative defenses, can be managed fairly and efficiently. Whether in a given case affirmative defenses should lead a court to approve or reject certification will hinge on the manageability of any individual issues. The Supreme Court reiterated the importance of this principle in wage and hour cases. Where a plaintiff “seeks class certification based on allegations that the employer consistently imposed a uniform policy or de facto practice on class members, the party must still demonstrate that the illegal effects of this conduct can be proven efficiently and manageably within a class setting.”

b. The Power Of Trial Courts To Dismiss Claims Is Very Narrow

Royalty argued that the power to strike a claim is an inherent power of the court in every case. The Supreme Court rejected this assertion, stating that a trial court’s power to dismiss claims in the name of judicial economy is limited and operates in circumstances that were not present in the case before it. This led the Supreme Court to state that trial courts possess only a narrow inherent authority to dismiss claims based on limited circumstances such as cases (1) involving a failure to diligently prosecute an action, (2) where the complaint has been shown to be fictitious or a sham such that the plaintiff has no valid cause of action, i.e., frivolous claims, or (3) where there is egregious misconduct. While these scenarios recognize that courts may dismiss some types of egregiously inappropriate claims, the circumstances where that is allowed are tightly constrained and narrow.

c. Class Action Manageability Requirements Cannot Be Grafted Onto PAGA Claims

The Supreme Court specifically rejected Royalty’s argument that trial courts possess the power to dismiss PAGA claims on manageability grounds – just as they do with class claims. It recognized, once again, that class claims differ significantly from PAGA claims in ways that make it inappropriate to impose a class action-based manageability requirement on PAGA actions.

First, it explained that manageability bears upon questions of superiority and the predominance of common issues. These are requirements unique to the class action context. In determining whether a class action may be maintained, courts consider whether common issues predominate and whether a class action is a superior method of adjudication. However, an employee’s representative action seeking penalties under PAGA need not satisfy class action requirements. For instance, there is no authority suggesting that superiority is a requirement for a representative PAGA action.

Second, unlike class claims, PAGA claims are effectively administrative enforcement actions and imposing a manageability requirement would impede the effectiveness of such actions. In response to Royalty’s contention that different incentives exist in privately brought PAGA actions as compared to government enforcement actions, the Supreme Court showed little agreement or sympathy, noting, for example, that the one-way attorney’s fee provision in PAGA incentivizes litigation.

The Supreme Court responded that such a concern is better addressed to the Legislature, citing Simmons, et al, California’s Private Attorneys General Act (PAGA) – Litigation and Compliance Manual, § 1.2, published by Castle Publications, LLC. It noted that the book discusses PAGA’s attorney’s fees provision and stated, “The perception of PAGA thus varies based on the prism through which it is examined.” It was further quoted to observe, “plaintiffs are able to leverage PAGA’s one-way attorney’s fee provision and penalty structure to their advantage because they have no concern regarding an adverse fee award,” and “as a result, many employers encounter pressure to settle PAGA cases, even when they believe they have done nothing wrong, because they wish to avoid the substantial costs of defending litigation that presents a risk of paying both sides’ attorney’s fees.”

Third, unlike with class actions, PAGA’s specific statutory provisions make it inappropriate to impose a manageability requirement on PAGA claims.

7. The Due Process Issues Raised In PAGA Actions Will Be Resolved In Future Cases

The Supreme Court identified the due process issues raised by Royalty, but declined to resolve them because they were “hypothetical” due process claims that were not presented by the facts of the case before it. It did, however, stakeout certain ground and remark generally about some due process rights.

In a significant passage, it responded to Royalty’s argument that defendants, including employers in class and representative actions, have a due process right to present their affirmative defenses. The Supreme Court agreed, stating that “defendants must have an opportunity to present proof of their affirmative defenses.” It then pointed out there are limitations, noting that the right to present an affirmative defense does not carry with it a concomitant right to present the testimony of an unlimited number of individual employees in support of such affirmative defense. Rather, such adjudication is to occur “within whatever method the court and the parties fashion to try these issues.” The defendant must be permitted to introduce its own evidence, both to challenge the plaintiffs’ showing and to reduce overall damages. No case has yet addressed the right to litigate an affirmative defense as to each individual class member in a class claim.

The Supreme Court declined to express any opinion as to the hypothetical questions of whether, and under what circumstances, a defendant’s right to due process might ever support striking a PAGA claim. It thus left open the possibility that it could.

8. While Trial Courts Cannot Strike A PAGA Claim Entirely On Manageability Grounds, They Do Have Other Tools To Manage PAGA Cases

The Supreme Court explained that trial courts have “numerous tools” to manage complex cases generally, and PAGA cases in particular, that do not involve striking a PAGA claim. It also made clear that all of those case management tools remain undisturbed by the Estrada decision. It pointed out that the Judicial Council has described many of the tools that courts may use in managing discovery, other pretrial proceedings, and the trial of complex cases, including cases involving PAGA claims.

The Supreme Court also emphasized that the holding that trial courts lack inherent authority to strike a PAGA claim on manageability grounds does not preclude trial courts from limiting the types of evidence a plaintiff may present or using other tools to assure that a PAGA claim can be effectively tried. It also intimated that a trial court can limit the evidence to be presented at trial or otherwise limit the scope of the PAGA claim without striking the claim altogether.

Interestingly, the Court observed the implications of the fact that the plaintiff has the burden of proving a PAGA claim. Because of this burden and the ability of a trial court to limit the presentation of evidence, “it behooves the PAGA plaintiff to ensure that trial of the action is manageable so the maximum number of potential violations may be established.” The trial court’s power to limit the presentation of evidence may encourage plaintiffs’ counsel to be prudent in their approach to PAGA claims and ensure they can efficiently prove alleged violations to unrepresented employees. “If a plaintiff alleges widespread violations of the Labor Code by an employer in a PAGA action but cannot prove them in an efficient manner, it does not seem unreasonable for the punishment assessed to be minimal.” Further, a trial court may issue substantive rulings, including those on demurrer, or on motions for summary judgment or judgment notwithstanding the verdict to efficiently adjudicate an action in cases in which a plaintiff pleads the claim in such an overbroad or unspecific manner that the plaintiff is unable to prove liability as to all or most employees.

The Supreme Court summed up this discussion by stating it did not foreclose the possibility that a defendant could demonstrate that a trial court’s use of case management techniques “so abridged the defendant’s right to present a defense”, that its right to due process was violated. However, that showing had not been made in the case before it.

Finally, the court offered a gratuitous statement regarding the impact of PAGA actions on judicial resources. It stated: “In considering the potentially large amount of judicial resources that it may take to manage a single representative PAGA action, one must also bear in mind that such action may reduce the judicial resources that would otherwise be expended to manage many individual PAGA claims and prevent the underenforcement of California law.”

9. Conclusion

The Supreme Court’s conclusion acknowledged the challenges presented by complex cases, including representative PAGA actions. It left undisturbed various case management tools designed to ensure that such cases are efficiently, fairly, and effectively tried. It affirmed the court of appeal’s judgment and confirmed it had properly reversed the trial court’s order dismissing, on manageability grounds, the PAGA claim.

There is no question that plaintiffs’ attorneys will herald the Estrada decision as yet another victory in a long line of California Supreme Court decisions that exhibit an anti-business bias. The suggestion that employers direct any concerns regarding state laws to the Legislature is tantamount to asking Stephen King, the author of horror and suspense novels, to compose children’s bedtime stories. Fixing California laws to reduce hardships for employers is not what the Legislature does. That is why businesses have initiated a protracted referendum process in hopes of achieving some relief. In the meantime, Estrada will have the predictable effect of increasing PAGA litigation, driving up settlement costs, and placing greater burdens on employers. This will, in turn, discourage businesses from coming to or growing workforces in California.

While the proponents of PAGA steadfastly maintain it is deigned to benefit employees and reduce the burdens of government enforcement agencies created and heavily funded to enforce state laws, the 20-year history of PAGA demonstrates beyond question that the primary beneficiaries are plaintiffs’ attorneys. For those naively suggesting that requests for relief from PAGA’s one-sided rules should be directed to California’s Legislature, that has proven to be an act of futility for employers. Sadly, it has become clear that the plaintiffs’ bar, state appellate courts, and Legislature are aligned in their efforts to use PAGA as one of many platforms to undermine businesses, not afford them relief. One must wonder whether the gigantic revenue PAGA provides the State of California obscures any objective assessment of its overall impact on the business communities’ interest in growing California’s economy.

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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.

MODIFICATIONS TO CALIFORNIA’S CRIMINAL HISTORY RULES TAKE EFFECT OCTOBER 1, 2023

California’s Fair Chance Act, which is also known as the “ban the box” law, generally prohibits California employers from asking job candidates about their criminal history prior to making a conditional job offer. It also imposes several other requirements on employers that consider criminal history information when making employment decisions.

In December 2022, the California Civil Rights Council proposed significant modifications to the regulations regarding the Fair Chance Act. On July 24, 2023, California’s Office of Administrative Law approved several of the proposed modifications. Specifically, the Civil Rights Council approved amendments to regulations: (1) pertaining to the consideration of conviction history prior to a conditional offer of employment; (2) pertaining to consideration of certain types of conviction records; (3) governing what employers must do when they intend to rely on criminal records to rescind a conditional job offer; (4) covering labor contractors, union hiring halls, and client employers; (5) prohibiting disparate treatment; (6) used to determine adverse impact; (7) outlining procedural requirements; (8) covering situations when an employer seeks the Work Opportunity Tax Credit provided under Section 51 of the Internal Revenue Code; and (9) defining terms used in Section 11017.1 of Title 2 of the California Code of Regulations.

The new regulations take effect October 1, 2023. The key modifications are summarized below:

• Expanded Definition Of “Applicant” – Employers are prohibited from inquiring into and considering criminal history information of an applicant until after the employer has made a conditional offer of employment. The new regulations clarify that “applicant” includes “existing employees who have applied or indicated a specific desire to be considered for a different position with their current employer; and an existing employee who is subjected to a review and consideration of criminal history because of a change in ownership, management, policy, or practice.”

• Expanded Definition Of “Employer” – The new regulations clarify that “employer” includes “any direct and joint employer; any entity that evaluates the applicant’s conviction history on behalf of an employer, or acts as an agent of an employer, directly or indirectly; any staffing agency; and any entity that selects, obtains, or is provided workers from a pool or availability list.”

• Job Advertisements – Employers cannot state in job advertisements, postings, applications or other materials that individuals with a criminal history will not be considered for hire.

• Exemption – The regulations currently exempt employers who are required by law to conduct a criminal background check. However, the new regulations clarify that the exemption does not apply if the law requires another entity, such as an occupational licensing board, to conduct the criminal background check.

• Voluntary Disclosure Of Criminal History May Not Be Considered – If an applicant voluntarily discloses their criminal history prior to receiving a conditional offer, the employer must not consider the information. Additionally, an employer is prohibited from considering any other conviction history information until after making a conditional offer of employment, unless an exception applies.

• Individualized Assessment Factors – The current law requires an employer’s individualized assessment to include consideration of the following factors: (a) the nature and gravity of the offense or conduct, (b) the time that has passed since the offense or conduct and/or completion of the sentence, and (c) the nature of the job held or sought. The new regulations provide clarity regarding these factors by listing several examples of what may be considered as part of the assessment.

• Consideration Of Rehabilitation/Mitigating Circumstances – Currently, the law requires employers to consider evidence of rehabilitation or mitigating circumstances, if the individual provides such evidence. The new regulations provide a broad list of examples of such evidence.

• Time Period To Respond To Pre-Adverse Action Notice – If an employer sends a written notice of the employer’s preliminary decision (e.g., pre-adverse action letter) to the applicant or employee, the applicant or employee has at least 5 days from the date of receipt of the notice to respond. The new regulations clarify that if the notice if transmitted through a format that does not provide a confirmation of receipt (e.g., mailing the notice without tracking delivery), the notice shall be deemed received 5 calendar days after the mailing is deposited for delivery for California addresses, 10 calendar days after the mailing for addresses outside of California, and 20 calendar days for addresses outside of the United States. If notice is provided through email, the notice is deemed received 2 business days after it is sent.

• Work Opportunity Tax Credit – An employer seeking the Work Opportunity Tax Credit (“WOTC”) is not exempt from the regulations. An employer may require an applicant to complete IRS form 8850 (“Pre-Screening Notice and Certification Request for the Work Opportunity Credit”) before making a conditional offer, as long as the information gathered is only used for the purpose of applying for the WOTC. Additionally, an employer may not inquire as to an applicant’s basis of their qualification for the WOTC. An employer may require an applicant to complete the U.S. Department of Labor Employment and Training Administration form 9061 (“Individual Characteristics Form (ICF) Work Opportunity Tax Credit”) only after a conditional offer has been made. Any information relating to the WOTC application must be maintained in a confidential file separate from the personnel file.

With the October 1, 2023 effective date fast approaching, California employers should consult with their legal counsel to review their policies, procedures and new-hire documentation and applications and update them accordingly in order to comport with the new regulations, which add many new restrictions for employers and expand the reach of the Fair Chance Act.

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About The Author

Bryanne Lewis is an attorney in the law firm of Sheppard, Mullin, Richter & Hampton LLP in Los Angeles. She represents employers in employment matters, including wage and hour class and representative actions, and discrimination, harassment, retaliation and wrongful termination actions. Bryanne also counsels employers on a broad range of employment-related issues, including wage and hour issues, leaves of absence and accommodations, and personnel decisions. Ms. Lewis received her B.A. from Loyola Marymount University and her J.D. from Loyola Law School, cum laude, Order of the Coif.

Bryanne is a frequent contributor to the ALERT Newsletter as well as Sheppard Mullin’s Labor and Employment Law Blog.

SUPREME COURT EXTENDS LIABILITY FOR EMPLOYMENT DISCRIMINATION TO BUSINESS ENTITIES ACTING AS EMPLOYER’S AGENT

The California Fair Employment and Housing Act (“FEHA”) generally prohibits “any employer” from making a medical or psychological inquiry of an applicant. It also states that the term “employer” includes any person regularly employing five or more persons, or any person acting as an agent of an employer, directly or indirectly.

On August 21, 2023, the California Supreme Court addressed a question posed by the Ninth Circuit Court of Appeals regarding the scope of potential liability under the FEHA in Raines v. U.S. Healthworks Medical Group, __Cal. 5th __ (2023). Specifically, the Ninth Circuit asked the following question: “Does California’s Fair Employment and Housing Act, which defines “employer” to include “any person acting as an agent of the employer permit a business entity acting as an agent of the employer to be held directly liable for employment discrimination?” The Supreme Court concluded that an employer’s business-entity agent can be held directly liable under the FEHA for employment discrimination in appropriate circumstances when the agent has at least five employees and carries out FEHA-regulated activities on behalf of an employer.

1. Facts

Two plaintiffs, Kristina Raines and Darrick Figg, filed a proposed class action alleging that they received offers of employment that were conditioned on the successful completion of pre-employment medical screenings to be conducted by U.S. Healthworks Medical Group (“USHW”), who was acting as an agent of the plaintiffs’ prospective employers. The plaintiffs claimed that as part of its medical screenings, USHW required job applicants to complete a written health history questionnaire that included numerous health-related questions having no bearing on the applicant’s ability to perform job-related functions. The plaintiffs complained these questions covered details of the applicant’s health history, including whether the applicant has, and/or has ever had, (1) venereal disease, (2) painful or irregular vaginal, discharge or pain, (3) problems with menstrual periods, (4) irregular menstrual period, (5) penile discharge, prostate problems, genital pain or masses, (6) cancer, (7) mental illness, (8) HIV, (9) permanent disabilities, (10) painful/frequent urination, (11) hair loss, (12) hemorrhoids, (13) diarrhea, (14) black stool, (15) constipation, (16) tumors, (17) organ transplant, (18) stroke, or (19) a history of tobacco or alcohol use.

Kristina Raines received an offer from Front Porch Communities and Services for a position as a food service aide, but the offer was conditioned on her passing the pre-employment medical screening conducted by USHW. Raines alleged that she responded to most of the questions on the written questionnaire, but she declined to answer the question about the date of her last menstrual period. She alleged that the exam was then terminated and Front Porch revoked its offer of employment.

Darrick Figg received an offer from the San Ramon Valley Fire Protection District to serve as a member of the volunteer communication reserve, but his offer, too, was conditioned on his passing the pre-employment medical screening conducted by USHW. Figg alleged that he answered all the questions, successfully passed the screening, and was hired for the position.

Raines filed a state court action against Front Porch and USHW. The defendants removed the action to federal court. The operative complaint alleged claims under the FEHA, the Unruh Civil Rights Act, the unfair competition law, and common law right of privacy. The district court granted the defendants’ motion to dismiss, concluding that the FEHA does not impose liability on the agents of a plaintiff’s employer. The plaintiffs appealed the dismissal. After holding oral argument, the Ninth Circuit asked the California Supreme Court to answer the question described above.

2. The Issue Presented

The Supreme Court viewed the case as presenting a question regarding the proper interpretation of the definition of “employer” in the FEHA. Based on its examination of the indicators of legislative intent, the Supreme Court concluded that the agent-inclusive language in Government Code Section 12926(d) permits a “business-entity agent” of an employer to be held directly liable for violation of the FEHA when it carries out FEHA-regulated activities on behalf of an employer. Notably, the Supreme Court recognized the value of federal authorities and cited numerous federal anti-discrimination statutes and cases that supported its conclusion.

3. Holding

The Supreme Court answered the Ninth Circuit’s question as follows: “The California Fair Employment and Housing Act, which defines “employer” to “include[]” “any person acting as an agent of an employer” . . . permits a business entity acting as an agent of an employer to be held directly liable as an employer for employment discrimination in violation of the FEHA in appropriate circumstances when the business-entity agent has at least five employees and carries out FEHA-regulated activities on behalf of an employer. We do not decide the significance, if any, of employer control over the act(s) of the agent that gave rise to the FEHA violation, and we also do not decide whether our conclusion extends to business-entity agents that have fewer than five employees. We base our conclusion on our interpretation of the FEHA’s definition of employer (§ 12926, subd. (d)); we express no view of the scope of a business-entity agent’s possible liability under the FEHA’s aider and abettor provision (§ 12940, subd. (i)).”

The Raines decision has potentially far-reaching significance on FEHA liability and the potential exposure faced by “business-entity agents” of employers who carry out FEHA-regulated activities. It also reminds readers of the adage that “bad facts make bad law.” The Supreme Court made a point of quoting the list of questions posed in the pre-employment health history questionnaire that was made a condition of employment even though the questions themselves played no direct role in deciding whether USHW was an “employer.” It also emphasized the harsh consequences of an individual’s unwillingness to answer highly personal questions having nothing to do with the ability to perform job-related functions. In reading the decision, it quickly became clear that the Supreme Court wished to send a message and was prepared to take steps to make the agent who posed those questions accountable. It did exactly that.

Raines reminds employers to exercise caution when delegating roles to other entities to carry out functions relating to the hiring process, such as pre-employment screening and background checks. If an applicant loses an employment opportunity because of the FEHA-regulated activities of an agent, the prospective employer cannot shield itself from accountability simply by claiming it did not pose the questions directly or it did not know the applicant’s rights were being violated. It is evident that the potential significance of the decision is not limited to preemployment activities. Further, neither the employer nor its business-entity agent will be able to escape accountability by claiming that the agent will not directly employ the applicant or some unlawful discrimination allegedly occurred in connection with a post-hire action.

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About The Author

U.S. SUPREME COURT CLARIFIES RELIGIOUS DISCRIMINATION AND UNDUE HARDSHIP STANDARDS

Title VII of the Civil Rights Act of 1964 requires employers to accommodate the religious practices of their employees, unless doing so would impose an “undue hardship on the conduct of the employer’s business.” Based on the U.S. Supreme Court’s 1977 landmark decision in Trans World Airlines, Inc. v. Hardison, 432 U.S. 63 (1977), many lower courts interpreted “undue hardship” to mean any effort or cost that is “more than . . . de minimis.” On June 29, 2023 the Supreme Court “clarified” what Title VII requires in the unanimous decision in Groff v. DeJoy, Postmaster General, 143 S.Ct. 2279 (2023), without overruling its 1977 decision in Hardison.

1. Background

The litigation was initiated by Gerald Groff, an Evangelical Christian who believes for religious reasons that Sunday should be devoted to worship and rest, not “secular labor” and the transportation of “worldly goods.” Groff began his employment with the United States Postal Service (“USPS”), which has more than 600,000 employees. He became a rural carrier associate, a job that required him to assist regular carriers in the delivery of mail.

When he took the position, it generally did not involve Sunday work. But within a few years, that changed. In 2013, USPS entered into an agreement with Amazon to begin facilitating Sunday deliveries, and in 2016, USPS signed a memorandum of understanding (“MOU”) with the union that set out how Sunday and holiday parcel delivery would be handled. During a two-month peak season, each post office would use its own staff to deliver packages. At all other times, Sunday and holiday deliveries would be carried out by employees (including rural carrier associates like Groff) working from a regional hub.

The MOU specifies the order in which USPS employees are to be called for Sunday work outside the peak season. With Groff unwilling to work on Sundays, USPS made other arrangements. During the peak season, Sunday deliveries that would have otherwise been performed by Groff were carried out by the rest of the staff, including the postmaster, whose job ordinarily does not involve delivering mail. During other months, Groff’s Sunday assignments were redistributed to other carriers assigned to the regional hub. Throughout this time, Groff continued to receive “progressive discipline” for failing to work on Sundays. Finally, in January 2019, he resigned.

2. The Lower Court Decisions

Groff filed suit under Title VII, asserting that USPS could have accommodated his Sunday Sabbath practice “without undue hardship on the conduct of USPS’s business.” The district court granted summary judgment to USPS, and the Third Circuit Court of Appeals affirmed, construing Hardison to mean “that requiring an employer to bear more than a de minimis cost to provide a religious accommodation is an undue hardship.” The Third Circuit concluded that exempting Groff from Sunday work “imposed on his coworkers, disrupted the workplace and workflow, and diminished employee morale.” The Supreme Court agreed to review the decision, recognizing that the case presented the Supreme Court’s first opportunity in nearly 50 years to explain the contours of Hardison.

3. The Supreme Court Vacated The Third Circuit’s Decision

The Supreme Court held that merely showing “more than a de minimis cost” does not suffice to establish undue hardship or a defense to religious discrimination under Title VII. Instead, in determining an employer’s undue hardship defense, Hardison referred repeatedly to “substantial” burdens, and that formulation better explains the decision. The Supreme Court described Hardison to mean that “undue hardship” is shown when a burden is substantial in the overall context of an employer’s business. A fact-specific inquiry is required to make this determination.

4. Substantial Increased Costs Must Be Shown

The Supreme Court stated it is enough to say that what an employer must show is that the burden of granting an accommodation would result in substantial increased costs in relation to the conduct of its particular business. Courts must apply the test to take into account all relevant factors in the case at hand, including the particular accommodations at issue and their practical impact in light of the nature, size, and operating cost of an employer.

The Court declined to adopt the elaborations of the applicable standard that the parties suggested, either to incorporate Americans With Disabilities Act caselaw or opine that the EEOC’s construction of Hardison had been basically correct. Even though the Court recognized that a “good deal” of the EEOC’s guidance was sensible, it found it imprudent to ratify in toto a body of EEOC interpretations that has not had the benefit of the clarification adopted by the Court in Groff.

5. Additional Clarifications Of Recurring Issues

The Supreme Court hastened to add clarifications regarding several “recurring issues.” First, it observed that Title VII requires an assessment of a possible accommodation’s effect on “the conduct of the employer’s business.” Impacts on coworkers are relevant only to the extent those coworker impacts go on to affect the conduct of the business. Further, a hardship that is attributable to employee animosity to a particular religion, to religion in general, or to the very notion of accommodating religious practice, does not provide a defense because it cannot be considered “undue.” Bias or hostility to a religious practice or accommodation thus cannot supply a defense.

Second, Title VII requires that an employer “reasonably accommodate” an employee’s practice of religion, not merely that it assess the reasonableness of a particular possible accommodation or accommodations. Faced with an accommodation request like Groff’s, it would not be enough for an employer to conclude that forcing other employees to work overtime would constitute an undue hardship. Consideration of other options, such as voluntary shift swapping, would also be necessary.

6. Conclusion

The Supreme Court clarified the Title VII undue-hardship standard. It then determined it was appropriate to leave the context-specific application of that clarified standard to the lower courts in the first instance. Because the Third Circuit assumed that Hardison prescribed a “more than a de minimis cost” test, it may have misled the court to dismiss a number of possible accommodations, including those involving the cost of incentive pay or the administrative costs of coordination with other nearby stations with a broader set of employees.

The Supreme Court did not foreclose the possibility that USPS will prevail, but thought it appropriate to leave to the lower courts to apply its clarified context-specific standard, and to decide whether any further factual development is needed. It vacated the judgment of the Third Circuit Court of Appeals and remanded the case to the Third Circuit for further proceedings consistent with its opinion.

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About The Author

NEW YORK MAKES WAGE THEFT A CRIMINAL LARCENY IN NEW AMENDMENT TO ITS PENAL LAW

On September 6, 2023, New York Governor Kathy Hochul signed legislation amending the New York Penal Law making wage theft a criminal larceny. Under the New York Penal Code: “[a] person steals property and commits larceny when, with intent to deprive another of property or to appropriate the same to himself or to a third person, he wrongfully takes, obtains or withholds such property from an owner thereof.” The amendment adds “compensation for labor services” to the definition of “property” applicable to larcenies.

Moreover, the penal code’s definition of “larceny” now also includes “by wage theft.” Specifically, “[a] person obtains property by wage theft when he or she hires a person to perform services and the person performs such services and the person does not pay wages, at the minimum wage rate and overtime, or promised wage, if greater than the minimum wage rate and overtime, to said person for work performed.”

The amendment permits the prosecution for wage theft to aggregate all nonpayments or underpayments to one employee into one larceny count. Similarly, the prosecution may aggregate nonpayments or underpayments from a “workforce” into a single larceny count. The amendment also now defines “workforce” as “a group of one or more persons who work in exchange for wages.” Larceny offenses are felonies when an offense involves at least $1,000.

Notably, the New York Labor Law already deemed wage theft as a misdemeanor for the first offense and a felony for the second or subsequent offense within six years of a conviction for a prior offense. An employer guilty of a misdemeanor for the first offense of wage theft is fined between $500 to $20,000 or imprisoned for not more than one year. Similarly, those guilty of a felony for the second or subsequent offense are subject to the either of the same penalties or both.

The amendment took effect on September 6. New York employers must be cautious to pay their employees appropriately, maintain accurate pay records demonstrating that they properly paid wages to their employees for all time worked, review all payroll and wage policies, and provide accurate wage statements. We will continue monitoring developments on how this amendment is prosecuted and any additional guidance, and provide updates as new information becomes available.

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About The Authors

Sean Kirby is a partner in Sheppard Mullin’s Labor and Employment Practice Group in the firm’s New York office. Mr. Kirby’s practice encompasses the defense of single plaintiff and class action discrimination, wrongful discharge and wage/hour claims, in addition to employment contract, restrictive covenant, whistleblower, sexual harassment, and related claims. He regularly represents clients in labor and employment litigations in federal and state courts, in arbitrations before the American Arbitration Association and the Financial Industry Regulation Authority, and in proceedings before various administrative agencies, including the Equal Employment Opportunity Commission, the U.S. Department of Labor and state agencies throughout the United States.

Mr. Kirby received his law degree from Fordham University and his undergraduate degree from LeMoyne College.

Maria A. Gomez is an associate in Sheppard Mullin’s Labor and Employment Practice Group in the firm’s New York office. Maria’s practice focuses on representing employers in a wide array of labor and employment subject areas including: wage/hours claims, the defense of single plaintiff and class action discrimination, harassment, retaliation, wrongful termination, and related claims. Maria also advises and counsels clients on various employment practices, such as new hire issues, terminations, employee classification, and restrictive covenants.

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. Gomez received her law degree from St. John’s University and her undergraduate degree from the State University of New York at Buffalo.

CALIFORNIA SUPREME COURT HOLDS REPRESENTATIVE PAGA CLAIMS MAY REMAIN IN COURT WHILE INDIVIDUAL CLAIMS, INCLUDING INDIVIDUAL PAGA CLAIMS, ARE ARBITRATED

No one who pays attention to the federal and state court systems would be surprised to learn that the U.S. Supreme Court and the California Supreme Court view the world differently. As the familiar narrative goes, the U.S. Supreme Court is controlled by conservative justices while the California Supreme Court is packed with liberal judges who are widely regarded as judicial policy-makers who repeatedly exhibit an anti-business and anti-employer bias. One need only review the employment law decisions published by each court in recent years to see the obvious trends and leanings.

The contrast between the two courts was on display on July 17, 2023, when the California Supreme Court issued its long-awaited decision in Adolph v. Uber Technologies, Inc., _ Cal. 5th _ (2023), a case involving the collision between the rights created under a California law, the Private Attorneys General Act of 2004 (“PAGA”), and the rights of parties to arbitration agreements who have expressly agreed to refer all matters arising from employment disputes to arbitration on an individual-only basis. Such agreements often include provisions that specifically waive the ability to bring or participate in class, collective, or representative actions.

1. The Conflict Between The Adolph And Viking River Decisions

In June of 2022, the U.S. Supreme Court examined the enforceability of such arbitration agreements in its decision in Viking River Cruises, Inc. v. Moriana, 142 S.Ct. 1906 (2022). There, the U.S. Supreme Court determined that a 2014 California Supreme Court decision (Iskanian) was preempted by the Federal Arbitration Act (‘FAA”) where it concluded that a plaintiff could not split off an individual PAGA claim that could then be ordered to arbitration on an individual basis. It also construed California law to provide that an individual ordered to arbitrate an individual PAGA claim lacked standing to pursue a non-individual (representative) claim under PAGA in court. As a result, the Supreme Court observed that plaintiff-Moriana’s non-individual claim should be dismissed so it could not remain in court.

In Adolph, the California Supreme Court had no choice but to defer to the U.S. Supreme Court’s decision regarding preemption of Iskanian’s anti-splitting rule under federal law, the FAA. However, it disagreed with Viking River’s conclusion that a plaintiff loses standing to pursue non-individual (representative) PAGA claims in court once the plaintiff’s individual claims are ordered to arbitration. Concluding that it had “the final word” on the meaning of California law, it found that a plaintiff’s non-individual claim can be stayed and remain in court while the individual claims are resolved in arbitration.

2. The Issue Raised In Adolph

The holding in Adolph that an employee’s PAGA claim can be stayed in court rather than dismissed will have a widespread impact on other PAGA cases. It will also influence the manner in which arbitration agreements and their severability provisions are written. While the decision includes a detailed review of PAGA’s purpose and legislative history, the Supreme Court limited the holding to a review of the question of PAGA standing where an employee is subject to an arbitration agreement that provides for individual-only adjudication.

The question before the California Supreme Court was whether an “aggrieved employee” who has been compelled to arbitrate claims under PAGA that are premised on Labor Code violations actually sustained by the employee maintains statutory standing to pursue PAGA claims arising out of events involving other employees in court. The Supreme Court held that the answer is yes.

To have PAGA standing a plaintiff must be an “aggrieved employee.” There are only two requirements. The plaintiff must (1) have been employed by the alleged violator, and (2) have suffered at least one of the alleged Labor Code violations. Where a plaintiff has brought a PAGA action that includes individual and non-individual claims, an order compelling arbitration of the individual claims does not strip the plaintiff of standing as an aggrieved employee to litigate PAGA claims in court on behalf of other employees.

3. Background Facts

Erik Adolph worked as a driver for Uber Technologies, Inc., delivering food to customers through the company’s Uber Eats platform. As a condition of his employment, Adolf was required to accept the technology services agreement. Because he did not timely opt out, he became bound by the arbitration provision in that agreement. The arbitration provision required Adolph to arbitrate, on an individual basis only, almost all work-related claims he might have against Uber.

a. The Arbitration Agreement

With regard to PAGA actions, the agreement stated: “To the extent permitted by law, you and Company agree not to bring a representative action on behalf of others under the [PAGA] in any court or in arbitration.” This was referred to as the “PAGA Waiver.”

The agreement also included a severability clause that stated if the PAGA Waiver was found unenforceable or unlawful for any reason, (1) the unenforceable provision would be severed from the arbitration provision; (2) severance of the unenforceable provision would have no impact whatsoever on the arbitration provision or the parties’ attempts to arbitrate any remaining claims on an individual basis pursuant to the arbitration provision; and (3) any representative actions brought under PAGA must be litigated in a civil court of competent jurisdiction.

b. The Litigation

In October 2019, Adolf sued Uber in superior court, alleging individual and class claims under Labor Code Section 2802 and California’s Unfair Competition Law. Adolph claimed that Uber misclassified him and other delivery drivers as independent contractors rather than as employees and, as a result, wrongfully failed to reimburse them for necessary business expenses. In February 2020, Adolph amended his complaint to add a claim under PAGA.

In July 2020, the trial court granted a motion by Uber to compel arbitration of Adolph’s individual Labor Code claims and dismissed Adolph’s class action claims. Adolph later amended his complaint to eliminate his individual Labor Code and class claims and retain only his PAGA claim for civil penalties.

4. The California Supreme Court’s Analysis

The Supreme Court devoted a significant part of its analysis to a review of the history of PAGA, its one year statute of limitations, the effect of a PAGA settlement, and the inability to waive the right to bring a PAGA action.

a. PAGA Waivers

It stated that its decision in Iskanian v. CLS Transportation Los Angeles, 59 Cal. 4th 348 (2014), held that a pre-dispute categorical waiver of the right to bring a PAGA action is unenforceable. Iskanian also held unenforceable an agreement that, while providing for arbitration of alleged Labor Code violations sustained by the plaintiff employee (what Viking River called “individual claims”), compels waiver of claims on behalf of other employees (i.e., “non-individual claims”). Whether or not an individual claim is permissible under PAGA, a prohibition of representative (non-individual) claims frustrates PAGA’s objectives.

b. The Viking River Decision

Adolph disagreed with Viking River’s determination that Moriana’s non-individual PAGA claims should be dismissed. The California Supreme Court cited California decisions finding that Viking River did not disturb Iskanian’s rule that an arbitration agreement purporting to waive an employee’s non-individual claims is unenforceable as a matter of state law. It deferred to Viking River’s holding that the FAA preempted the rule of Iskanian insofar as it foreclosed the division of PAGA actions into individual and non-individual claims pursuant to an agreement to arbitrate. Viking River explained that such an anti-splitting rule is impermissible. Thus, it conceded that “Viking River requires enforcement of agreements to arbitrate a PAGA plaintiff’s individual claims if the agreement is covered by the FAA.” However, as noted below, it did not defer to Viking River’s finding that the non-individual PAGA claims should be dismissed rather than stayed.

c. The Court Focused On The Plaintiff’s Statutory Standing

After reviewing judicial precedents and the legislative history of PAGA, the Supreme Court addressed the narrow issue before it: whether an aggrieved employee who has been compelled to arbitrate individual claims premised on Labor Code violations actually sustained by the plaintiff maintains statutory standing to pursue non-individual PAGA claims arising out of events involving other employees in court. Viking River concluded that a PAGA plaintiff loses standing in this situation. Thus, it found that plaintiff-Moriana lacked standing to continue to maintain her non-individual claims in court and the correct course was to dismiss her remaining claims.

d. California Courts Have The “Final Word”

After framing the key issue in the case, the California Supreme Court chose to deviate from Viking River’s conclusion. It stated that the highest court of each state remains the final arbiter of what is state law. In other words, California courts will have the last word. Having given itself permission to resolve the issue it framed, the California Supreme Court declared that it was its obligation to ascertain the intent of the California Legislature so it could then effectuate the purpose of the enactment. It interpreted that intent in a manner that conflicted with the U.S. Supreme Court’s views in Viking River regarding PAGA standing.

5. Conclusion

The Supreme Court unanimously held that a plaintiff who files a PAGA action with individual and non-individual claims does not lose standing to litigate the non-individual claims in court simply because the individual claims have been ordered to arbitration. The Supreme Court reversed the judgment of the court of appeal and returned the case for further proceedings consistent with its opinion. It expressly limited its review to the question of PAGA standing and expressed no view on the parties’ other arguments regarding the proper interpretation of the arbitration agreement.

a. Class Claims, But Not PAGA Claims, Can Be Dismissed

Notably, the decision did not disagree with Viking River’s holding that employees can be compelled to arbitrate their individual claims, including their individual PAGA claims, when their arbitration agreement is subject to the FAA and provides for adjudication of claims on an individual-only basis. Nor did it disagree that the plaintiff’s class claims should be dismissed based on such an agreement. However, the Adolph decision preserves the ability of a PAGA plaintiff to pursue non-individual (representative) PAGA claims on behalf of other aggrieved employees in court. In short, the class claims can be dismissed while the PAGA claims can be pursued if the plaintiff is found to be an aggrieved employee.

b. The Significance Of The Arbitrator’s Decision

As a practical matter, this underscores the significance of the arbitrator’s determination of whether the plaintiff is or is not an aggrieved employee on the representative claims that are stayed in court. After the arbitrator issues a decision, any party may petition the court to confirm or vacate the arbitration award under Section 1285 of the Code of Civil Procedure.

Employers may therefore find it prudent to assess the potential outcome before deciding to compel arbitration. If the arbitrator finds the plaintiff is an aggrieved employee, i.e., the employee was employed by the employer and suffered at least one of the alleged Labor Code violations, that finding (if confirmed and reduced to a final judgment) would be binding on the court. Thus, the plaintiff would continue to have standing to litigate the non-individual (representative) claims in court. Conversely, if the arbitrator finds the plaintiff is not an aggrieved employee and the court confirms that determination and reduces it to a final judgment, the court would give effect to that finding. In that case, the plaintiff could no longer prosecute the non-individual claims due to lack of standing.

c. Moving Onwards

Employers are advised to consult with knowledgeable employment counsel regarding the combined impact of the Adolph and Viking River decisions. The decisions will have a widespread impact on pending and new PAGA cases and how they will be adjudicated in arbitration and in court. They will also influence the way arbitration agreements are drafted and enforced. Particular attention will be focused on provisions that contain class, collective and representative action waivers and severability clauses. One thing appears certain. It can be expected that arbitrators will be extremely busy. (For a detailed understanding of PAGA, readers are encouraged to review the publication, California’s Private Attorneys General Act (PAGA) Litigation And Compliance Manual by Attorneys Richard J. Simmons, Ryan Krueger, and Tyler Johnson of Sheppard Mullin. The book is available from Castle Publications, LLC.)

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EMPLOYERS FACE IMPORTANT DECISIONS AS SUPREME COURT BRIEFING IN CAMP V. HOME DEPOT TIME-ROUNDING CASE MOVES FORWARD

Employers in California and other states have used time-rounding practices for many decades based on principles announced by the U.S. Department of Labor (“DOL”), the California Division of Labor Standards Enforcement (“DLSE”), and state and federal court decisions. Although different kinds of time-rounding practices exist, the most common practice involves rounding time entries recorded on employees’ time records to the nearest five minutes or the nearest one-tenth or one-quarter of an hour. Such practices have normally been found lawful under California and federal law, provided they averaged out over a period of time, did not result in a failure to compensate employees properly for all time actually worked, and met additional standards.

More than 10 years ago, a leading California case allowing time rounding based on these principles was published in See’s Candy Shops, Inc. v. Superior Court, 210 Cal. App. 4th 889 (2012). Numerous subsequent opinions construing California and federal law reached the same conclusion. (The topic is examined in Section 7.18 of the Wage and Hour Manual for California Employers, 26th Edition, by Attorney Richard J. Simmons of Sheppard Mullin.)

A more recent California Court of Appeal decision raises questions about these earlier decisions and the validity of time-rounding practices under California law. This new case should prompt employers to reevaluate time-rounding policies and practices and the risks they may present.

1. The Camp v. Home Depot Decision

In 2022, a California Court of Appeal disagreed with earlier decisions in finding that an employer violated California law in a case where the employer rounded total time for each workday, Camp v. Home Depot, 84 Cal. App. 5th 638 (2022). The Camp decision is fundamentally at odds with the principles followed for decades by the U.S. DOL and California DLSE and many state and federal cases that had construed California law.

The California Supreme Court has agreed to review the Camp decision. If the Supreme Court determines that the court of appeal correctly decided the case, it could cause a seismic shift in California law that leads to a new wave of class action, PAGA and single plaintiff lawsuits. Worse yet, an adverse decision by the Supreme Court could be applied retroactively.

2. The Briefing Schedule

The Supreme Court has established a briefing schedule under which the parties are currently required to submit briefs between June 1 and the end of July. Amicus briefs will be due shortly thereafter. A hearing date has not yet been scheduled. Richard Simmons and Tyler Johnson of Sheppard Mullin have been retained to file employer-side amicus briefs in support of Home Depot. The authors of the ALERT are therefore able to offer a unique perspective on the case and will update readers regarding important developments.

3. Employers Should Consider Their Options While The Case Is Pending

Many practitioners and employers are skeptical about the possible outcomes the Supreme Court could reach in the Camp decision given its track record of reaching decisions in employment cases that are adverse to employer interests. Undoubtedly, some anticipate that the Supreme Court’s decision is a “forgone conclusion” and that it will find all or most kinds of time rounding impermissible under California law, even if it is lawful under federal law, the Fair Labor Standards Act. The possibility of such an outcome certainly exists. Thus, the Supreme Court might simply outlaw rounding in any form, regardless of whether it involves total-time rounding at the end of each day (like the practice found impermissible in Camp) or a system where each time punch is separately rounded. It might also determine that its decision should apply retroactively. Employers who believe this is likely or simply wish to limit their risk may consider ending their rounding practices as soon as possible, if they have not already ended them.

a. Weighing Possible Outcomes

Despite the possibility that the Supreme Court could issue a bad decision for employers, there are other possible outcomes. Under a more refined analysis, employers may wish to determine first whether they utilize rounding practices and, if so, what system is used. For instance, they can ascertain whether they round all time entries, including meal period punches, or just in and out punches at the start and end of a shift.

Rounding meal period punches is particularly risky in light of Donohue v. AMN, 11 Cal. 5th 58 (2012), but even that practice requires an analysis of an employer’s meal period policies. For example, rounding time when employers provide 30-minute meal periods is considerably more risky than rounding time for 60-minute meal periods, i.e., because employees generally receive over 30 minutes even after rounding. And, some employers lawfully do not record meal periods at all because of the exemption that exists in the Wage Orders where an employer’s operations cease entirely during meal periods, such as when the power is shut off in a work area or a bell system is used to signal the start and end of a meal period.

Employers should also be mindful that the Supreme Court could surprise everyone and either affirm the permissibility of some types of time rounding under specific circumstances. Remember, while many argue that California has no de minimis doctrine because it rejected the federal standards in Troester v. Starbucks Corp., 5 Cal. 5th 829 (2018), Justice Krueger articulated standards that resemble a refined California de minimis standard that is more narrow than the federal standards. While many think it is unlikely, something of this nature could be cobbled together in Camp for time rounding so it is permitted, but only if tightly written conditions are met. Other practitioners may believe the Supreme Court will side with the See’s Candy Shop decision and affirm the permissibility of rounding practices that meet the standards set forth in that case.

b. Consult Your Attorneys

Some employers may simply want a recommendation from their attorneys of a “best and safest practice.” If so, it can be provided. Others will want a more in-depth discussion. Practitioners must be prepared to outline the potential outcomes in Camp, assess the employer’s level of risk tolerance and concerns about retroactivity of any decision, and ask how and why each employer rounds. For instance, did the employer implement rounding because it never considered alternatives to rounding, because of a study or economic analysis it performed, or for some other reason? These motivations may inform an employer’s decision of what steps are best in light of the upcoming decision in Camp and the possible outcomes that can occur. Suffice it to say that it is unlikely that all employers will choose the same path in addressing Camp’s possible outcomes. Employers are encouraged to consult experienced employment attorneys to consider their risks and options.

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EMPLOYEE TERMINATED AFTER FAILING TO RETURN FROM EXTENDED PREGNANCY LEAVE LOSES DISCRIMINATION, WRONGFUL TERMINATION, AND RELATED CLAIMS

A California Court of Appeal recently decided one of the most elaborate pregnancy discrimination and wrongful termination claims asserted under California law. The case included a number of claims based on the Fair Employment and Housing Act (“FEHA”). In Lopez v. La Casa De Las Madres, 89 Cal. App. 5th 365 ( 2023), the court of appeal affirmed summary judgment in favor of the employer who granted an employee several extensions of her pregnancy disability leave. However, the employer did not make accommodations that either were not needed due to a pregnancy-related condition or accommodations that were not enough to enable her to perform the essential functions of her position. The decision is historically significant. In reaching its conclusion, the court entered unchartered territory regarding California’s pregnancy and disability discrimination statutes.

1. Background

Gabriela Lopez filed an employment discrimination and wrongful termination lawsuit against La Casa de Las Madres (“La Casa”), a nonprofit organization that provides services to women and children who are victims of domestic violence. Lopez worked for La Casa at various times between 2002 and 2017 and became the shelter manager at La Casa’s residential center for domestic violence victims in 2014. She gave birth in September 2016, and did not return to work due to a series of events that gave rise to her lawsuit.

The trial court entered judgment in favor of La Casa following a bench trial. On appeal, Lopez argued the trial court misapplied provisions of the FEHA that require an employer to provide reasonable accommodations for a pregnancy-related condition. The court of appeal affirmed the trial court’s judgment. It concluded a cause of action under the FEHA, Government Code Section 12945(a)(3)(A), requires proof that: (1) the plaintiff had a condition related to pregnancy, childbirth, or a related medical condition; (2) the plaintiff requested accommodation of this condition with the advice of her health care provider; (3) the plaintiff’s employer refused to provide a reasonable accommodation; and (4) with the reasonable accommodation, the plaintiff could have performed the essential functions of the job.

The court of appeal determined that the trial court applied a correct understanding of these four elements. Further, contrary to the plaintiff’s contention, the trial court properly placed the burden on the plaintiff to prove that she had a “condition” related to pregnancy, and that she was able to perform the essential functions of her job with reasonable accommodation.

2. The Trial Court’s Decision

The trial court found that Lopez failed to carry her burden of proving one or more elements of each claim she pursued at trial. This included (a) her pregnancy discrimination and failure to prevent discrimination claim, (b) her disability discrimination claim, (c) her failure to accommodate disability claim, and (d) her wrongful termination claim.

Her pregnancy discrimination claim was based on a statute that makes it unlawful for an employer to refuse to provide reasonable accommodation for an employee for a condition related to pregnancy, childbirth, or a related medical condition, if the employee so requests, with the advice of the employee’s health care provider. The trial court found that Lopez failed to establish three elements it considered essential to this claim: that she (1) had a condition related to pregnancy; (2) could perform the essential functions of her job; and (3) was denied a reasonable accommodation, as requested on the advice of a health care provider. The court concluded that Lopez failed to establish that the condition for which she sought an accommodation (depression) was pregnancy related.

Further, even though clinical depression and post-partem depression are mental disabilities under the FEHA, Lopez failed to prove her claim because she did not prove that she was otherwise qualified to perform the shelter manager job given her need to avoid stressful duties. The trial court found that the elements of a failure to accommodate claims are: (1) the plaintiff has a disability covered by the FEHA; (2) the plaintiff can perform the essential job functions of the position; and (3) the employer failed reasonably to accommodate the plaintiff’s disability.

Finally, the trial court found that the claim Lopez was wrongfully terminated in violation of public policy (the policies in the FEHA) failed because the employer did not violate the FEHA.

3. The Significance Of The 2013 Decision In Sanchez v. Swissport

a. Providing Four Months Leave May Not Be Enough

The Supreme Court previously held that “an adverse employment action on the basis of disability is not prohibited [by the FEHA] if the disability renders the employee unable to perform his or her essential duties, even with reasonable accommodation. The court of appeal found the decision in Sanchez v. Swissport, Inc., 213 Cal. App.4th 1331 (2013), extremely important for several reasons. First, Sanchez did not support the employer’s argument that once an employee receives four months of pregnancy disability leave, she has no further right to any other accommodation under the FEHA. The court found that the issue was never addressed in Sanchez since the only accommodation the Sanchez plaintiff requested was for an additional period of disability leave.

b. The Employee Must Be Qualified To Perform Essential Job Duties

Second, Sanchez confirms the settled principle that “the FEHA does not prohibit an employer from discharging an employee with a physical or mental disability or medical condition who is unable to perform his or her essential duties, even with reasonable accommodations, or cannot perform those duties in a manner that would not endanger his or her health or safety, or the health or safety of others, even with reasonable accommodations.” Thus, the case did not support Lopez’s contention that she was not required to show that she was otherwise qualified to perform the essential functions of her job. Because it rejected her contention, the court of appeal disagreed that the trial court had committed any reversible error.

c. A Request For A Flexible Or Shortened Work Schedule Is Not A Request For Time Off For Therapy

The court also disagreed with Lopez’s claim that her employer failed to accommodate her request to take time off to attend therapy. The trial court determined that her employer would have accommodated her request to take time off for therapy, but she had submitted forms containing incomplete information. The forms she submitted recommended that, for an indefinite period, Lopez would require a flexible or shortened work schedule so she could leave work when she experienced stress.

4. The Court Rejected The Claim That A Request For A Modified Work Schedule Is A Reasonable Accommodation As A Matter Of Law

The court disagreed with Lopez’s claim that employers must always grant a request for a modified work schedule. Lopez sought to use this argument to challenge the trial court’s determination that the modification of “flexible/shortened workdays” was not a reasonable accommodation. Because the shelter manager needed to be available to make important decisions at any time and in an inherently stressful environment, the court found that an accommodation permitting Lopez to leave work whenever she experienced stress or anxiety was not a reasonable accommodation.

Likewise, the trial court justifiably determined that the offer of a temporary assignment to a data-entry position was a reasonable accommodation. It was an offer of a temporary reassignment until Lopez recovered from her unspecified disability.

Finally, the court rejected her claim that La Casa failed to prove its undue burden defense. The court concluded that the undue burden defense is an affirmative defense that only comes into play after a plaintiff has established that a specific requested accommodation was reasonable and thus required in the first place. Here, Lopez failed to prove she was denied a reasonable accommodation.

5. Conclusion

The court of appeal’s decision in Lopez covered significant new ground in the pregnancy and disability discrimination arena. Based on its analysis, the court affirmed the judgment of the trial court in favor of the employer. It also awarded the employer its costs.

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EMPLOYEE HANDBOOK AIDED EMPLOYER’S DEFENSE OF GENDER DISCRIMINATION AND RETALIATION CLAIMS

Employee handbooks often play a significant role in a variety of cases filed against employers. This includes wage-hour cases (such as meal and rest period, reporting time pay, vacation, and sick pay claims) as well as employment discrimination, wrongful termination and retaliation cases. Experience teaches that employee handbooks can either help employers defend such lawsuits or provide harmful evidence if policies are not properly drafted.

In the recent decision in Noumoff v. Checkers Drive-In Restaurants Inc., ___ F. Supp.2d ___, Case No. 1:20-cv-395 (S.D. Ohio Jan. 31, 2023), a federal district court in Ohio granted an employer summary judgment on a former employee’s gender discrimination and retaliation claims under Title VII of the Civil Rights Act of 1964 and Ohio law. The court cited the employer’s honest belief that the employee had committed multiple violations of its employee handbook provisions as a basis to deny the employee’s discrimination and retaliation claims.

1. Background

The action raised the question of whether the defendant, Checkers Drive-In Restaurants, discriminated against and mistreated the plaintiff, Patra Noumoff, during her employment and subsequent termination. The employer operated 265 restaurants across the country and owned the Rally’s Restaurant in Spring Grove, Ohio. The plaintiff was the general manager of the restaurant.

The employer had an employee handbook for all its locations. Multiple sections of the handbook were relevant to the litigation, including provisions titled “what we can expect from you,” “employee conduct and work rules” that provide examples of infractions that can result in discipline or termination, progressive discipline, “time keeping and pay,” and employee benefits provisions relating to taking vacation.

The plaintiff was terminated for several reasons, including making inappropriate adjustments to the time records of two lower employees, insubordination for taking vacation without proper approval, and other alleged misconduct. The plaintiff then filed a discrimination complaint with the Equal Employment Opportunity Commission, alleging gender discrimination and retaliation in violation of federal and Ohio law. She later filed a lawsuit asserting these claims.

2. The Employer’s Summary Judgment Motion

The employer moved for summary judgment, arguing that no genuine issue of material fact existed and that it was entitled to summary judgment on each claim as a matter of law. The federal district court in Ohio agreed that the employer was entitled to summary judgment on the employee’s gender discrimination claim as a matter of law. It began the analysis by stating that Title VII makes it unlawful for an employer to discriminate against any individual because of such individual’s, race, color, religion, sex, or national origin. So does Ohio law.

a. The McDonnell Douglas Analysis

The employee attempted to prove her gender discrimination claim with indirect evidence. Because she relied on indirect evidence, the court was required to apply the McDonnell Douglas Corp. v. Green, 411 U.S. 792 (2007) burden-shifting framework to her claim. Under this framework, the plaintiff has the initial burden to prove a prima facie case of gender discrimination. If the plaintiff satisfies her initial burden, the burden shifts to the defendant to articulate some legitimate, nondiscriminatory reason for the adverse employment action. Lastly, if the defendant satisfies its burden, the plaintiff must prove by a preponderance of the evidence that the stated reasons were pretext for discrimination.

To establish a prima facie case of gender discrimination, the plaintiff has the burden of showing: (1) she was a member of a protected class, (2) she was subject to an adverse employment action, (3) she was qualified for the position, and (4) others, similarly situated and outside the protected class were treated differently.

b. The Employee Handbook

After assuming the plaintiff established a prima facie case for gender discrimination, the court recognized that the burden shifted to the defendant. That burden is one of production, not persuasion. The court found that the employer met its burden. It provided evidence of multiple employee handbook violations committed by the plaintiff, who was a general manager. She received a written warning for her alleged failure to be courteous, a final warning for insubordination for taking vacation that was not previously approved, and allegedly violated the handbook by manipulating two employees’ time and thus their pay. “All alleged Handbook violations are grounds for termination.” Because the employer’s burden is only one of production, it satisfied its burden to establish that it had legitimate, nondiscriminatory reasons to terminate the employee.

That resulted in the transition of the burden to the plaintiff to establish that such reasons are pretext. She failed to do so. As the court pointed out, “the Defendant honestly believed that Plaintiff violated the Handbook on numerous occasions thereby warranting termination, and Plaintiff did not produce evidence to the contrary other than her own testimony and opinions.” Thus, she failed to establish any genuine issue of material fact as to whether the employer’s proffered reasons for the adverse employment actions were pretextual. The employer was therefore entitled to summary judgment on the gender discrimination and retaliation claims.

3. Practical Observations

Ultimately, the court concluded that the employer prevailed on the employee’s gender discrimination and retaliation claims. On a practical level, the employer’s good faith, honest reliance on multiple provisions of its employee handbook that cited examples of inappropriate conduct and rules for taking vacation proved extremely helpful to the employer. It demonstrates that drafting and administrating employee handbooks in a fair and logical manner can be invaluable.

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About The Author

WHAT THE END OF CALIFORNIA’S COVID-19 STATE OF EMERGENCY MEANS FOR EMPLOYERS

Throughout the COVID-19 pandemic, the California government has required employers to follow the most robust COVID-19-related laws and regulations in the country. However, California’s COVID-19 state of emergency officially ended on February 28, 2023. Shortly thereafter, the California Department of Public Health (“CDPH”) announced its vaccination and masking requirements for healthcare workers will expire on April 3, 2023. Despite these changes, Cal/OSHA’s COVID-19 prevention non-emergency regulations (the “Permanent Standard”) and other COVID-19 related laws remain in effect.

1. Cal/OSHA’s Permanent Standard

As detailed in the January 2023 edition of the ALERT, the Permanent Standard replaced Cal/OSHA’s COVID-19 Emergency Temporary Standards (“ETS”). The Permanent Standard eliminated multiple protocols required under the ETS, including employee screening (such as temperature and symptom checks) and exclusion pay. The Permanent Standard also limits the requirement for employers to make testing available to close contacts in the workplace and as required under outbreak protocols. But, employers still must notify close contacts of potential exposure “as soon as possible” and follow the worksite notification requirements under Labor Code Section 6409.6 (which remains in effect until January 1, 2024). Employers also must treat COVID-19 as a workplace hazard under Cal/OSHA’s IIPP regulations and therefore must address COVID-19 in their written IIPP (or a separate document), perform a COVID-19 hazard assessment, provide COVID-19 training, and investigate and respond to workplace exposures. The Permanent Standard became effective on February 3, 2023, and will remain in effect through February 3, 2025.

2. COVID-19 Leave Laws

As many employers know, California’s supplemental paid sick leave law expired at the end of 2022. Although multiple local supplemental paid leave ordinances initially remained in effect at the start of year, the majority have either ended or will end soon.

• Los Angeles: The City of Los Angeles rescinded its local emergency on February 1, 2023, which caused its supplemental paid sick leave requirement to sunset on February 15, 2023.

• Long Beach: The City of Long Beach voted to sunset its local supplemental paid sick leave effective February 21, 2023.

• Unincorporated Los Angeles County: On February 28, 2023, the Los Angeles County Board of Supervisors voted to end its COVID-19 emergency effective March 31, 2023, which means its supplemental paid sick leave and paid vaccine leave will expire April 14, 2023.

• Oakland: The City of Oakland has yet to announce the end of its local COVID-19 emergency and therefore its local supplemental paid sick leave obligations remain in effect.

• San Francisco: Employers with 100 or more employees worldwide must provide Public Health Emergency Leave (“PHEL”) of up to 80 hours to their San Francisco-based employees. Currently, COVID-19 still qualifies as a “public health emergency.”

3. New CDPH Orders And Guidance

On March 3, 2023, the CDPH issued orders modifying the state’s vaccination and masking requirements for healthcare workers and the state’s isolation guidance.

• Rescinding Of Vaccination Requirement: Effective April 3, 2023, California will no longer require COVID-19 vaccination for healthcare workers, including those in adult care, direct care, correctional facilities, and detention centers. Federal rules will continue to ensure that most health care workers remain vaccinated for COVID-19. Additionally, the EEOC’s guidance remains unchanged and contemplates an employer’s ability to have a generally applicable vaccination requirement, which appropriately accommodates medical conditions and sincerely held religious beliefs.

• Rescinding Of Masking Requirement: Effective April 3, 2023, California will no longer require masks in indoor high-risk and health care settings, including hospitals, long-term care, and correctional facilities. The CDPH explained that the reason for the delay is to allow local health departments and individual health care facilities to develop and implement plans customized to their needs and local conditions. Thus, healthcare employers still may continue to mandate masking based on individual factors such as their facility, patient demographics and community transmission rates.

• Updated Isolation Guidance: Effective March 13, 2023, an employee who tested positive for COVID-19 may end isolation after five days if symptoms are not present, or are mild and improving, and the employee is fever-free for 24 hours. Under the previous guidance, employees could return before ten days only if they tested negative on the fifth day or later. Because the Permanent Standard follows the CDPH’s isolation guidance, employers should modify their IIPP/COVID-19 prevention plan to incorporate the new guidance.

4. Conclusion

Although the COVID-19 state of emergency in California has ended, compliance with the state’s COVID-19 regulations and laws that remain in effect is still a concern for many California employers. Thus, employers should continue to monitor developments and modify their practices and procedures accordingly.

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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.