Wednesday, May 15, 2019

No Question of Timing – Dynamex Applies Retroactively, Ninth Circuit Court of Appeals Says

It makes a big difference whether a worker is an employee or an independent contractor. Employees benefit from the protections of labor, employment, and other valuable statutory protections that do not cover independent contractors.

The breadth of “employee” status has been clarified under developing California law. Last year, the California Supreme Court decided the landmark case Dynamex Operations W. v. Superior Court (2018) 4 Cal.5th 903, about which Bryan Schwartz Law has written previously. This case established the “ABC” test for determining whether a worker is an employee or an independent contractor, with a presumption that a worker is an employee, i.e., with the burden on putative employers to demonstrate that workers are independent contractors. Id. at 957. To meet this burden, the putative employer must show (a) that the worker is free from the control and direction of the hiring entity, (b) the worker performs work outside the usual scope of the entity’s business, and (c) the worker is engaged in an independently established trade, occupation, or business. Id. at 964. Failing to demonstrate any one of these elements is sufficient to show an employee-employer relationship. Id. at 964.

But does the Dynamex test apply retroactively to cases arising before it was decided? It does, according to the decision in Vazquez v. Jan-Pro Franchising International, Inc., which the Ninth Circuit Court of Appeals issued on May 2, 2019. Workers for international janitorial giant Jan-Pro filed this case in 2008, alleging Jan-Pro implements a business model to misclassify workers as independent contractors and escape the company’s minimum wage and overtime responsibilities. Jan-Pro contracts with franchises of “master owners,” which in turn contracts with “unit franchisees.” Master owners themselves do not clean but instead engage in various managerial or administrative duties; unit franchisees clean. The plaintiffs, janitorial workers at unit franchisees, alleged they were misclassified as independent contractors.

The case had a tortured procedural history with over a decade of litigation, dispositive decisions, and appeals in federal and state courts in California, Georgia, and Massachusetts. In the Ninth Circuit, Jan-Pro argued that a judicial ruling in Georgia had already decided the issue, thereby conclusively resolving the Ninth Circuit case as well under the doctrine of res judicata. Regardless, Jan-Pro argued, the Dynamex decision should not apply retroactively to cases arising before it was decided in 2018.

The Ninth Circuit rejected both arguments. The Court disposed of the res judicata arguments on grounds specific to the procedural history of the litigation. In brief, the Court held that the Massachusetts plaintiff was not in privity with the California plaintiffs, nor did he legally represent their interests—the California plaintiffs could not lose their day in court simply because of a similar case involving someone else on the east coast.

Next the Court addressed the important issue at stake for California workers: whether the Dynamex decision applied retroactively. The answer was a resounding “yes.” California’s judicial decisions traditionally apply retroactively, even when overruling past precedent. The Court adhered to this traditional rule, drawing further support from other California courts’ retroactive application of the Dynamex decision and the California Supreme Court’s summary denial of a petition to modify Dynamex to clarify that it was prospective only. Notably, despite its considerable impact on the lives of workers and employment law practice, the Dynamex decision did not create new law but instead hewed close to the fundamental purpose of existing California law. Because the lower court had dismissed the workers’ claims on summary judgment before Dynamex was decided, the Ninth Circuit remanded the case for a decision in light of Dynamex.

If you believe you are misclassified as an independent contractor and should enjoy the same rights as an employee, contact Bryan Schwartz Law.

Tuesday, April 9, 2019

You Can’t Split This Baby—Employees Cannot be Forced to Arbitrate Parts of PAGA Claims, Appeals Court Rules

Arbitration agreements are more and more popular among employers (and the United States Supreme Court) as a way to get out of concerted actions brought by wronged employees. In California, they cannot be enforced to stop state prosecution of wage claims through qui tam representative plaintiffs under the Private Attorney General Act (“PAGA”), Cal. Lab. Code § 2698 et seq. See Iskanian v. CLS Trans. Los Angeles, LLC (2004) 59 Cal.4th 348, 382-92.

Nevertheless, employers have sought ways to force PAGA actions out of court and into arbitration, arguing that PAGA claims for wages should go to arbitration, while only the statutory PAGA penalties could remain before a court. A handful of cases in the Courts of Appeal have dealt with this issue, one of which, Lawson v. ZB, N.A., (2017) 18 Cal.App.5th 705, is pending before the California Supreme Court. Bryan Schwartz Law has submitted an amicus brief to the California Supreme Court in this case.

On March 28, 2019, a California appellate court issued another decision rejecting this argument, adding to the list of decisions protecting PAGA enforcement in this rapidly developing area of the law.  See Zakaryan v. The Men’s Wearhouse, Inc. (Mar. 28, 2019) __Cal.App.5th__. To understand why Zakaryan is noteworthy, we must understand the legislative intent behind PAGA. Before PAGA was enacted in 2003, California struggled to enforce the worker protections in the Labor Code. The financial crisis was in full effect, and the state government could not afford to oversee California’s massive workforce. So it decided to let employees enforce the Labor Code themselves, on behalf of the state, provided that first they comply with some straightforward procedures and the state decides not to take the case itself. Cal. Lab. Code § 2699.3. A PAGA action is “brought by an aggrieved employee on behalf of himself or herself and other current or former employees.” Cal. Lab. Code § 2699. PAGA also provides for penalties to be assessed against liable employers. Cal. Lab. Code § 2699(f). The state gets 75% of any PAGA award, while the employee gets 25% plus reasonable attorney fees and costs. Cal. Lab. Code §§ 2699(g)(1), (i).

Employers have tried to contract around PAGA using arbitration agreements. It hasn’t worked. Although arbitration agreements can waive employees’ class action rights (Epic Systems Corp. v. Lewis, 138 S.Ct. 1612 (2018)), employers cannot force the state to arbitrate its claims, which are vindicated through PAGA. Iskanian, 59 Cal.4th at 378-92. The suing representative plaintiff just stands in the state’s shoes. Id at 386-87. Because an employee cannot contractually waive a right belonging to the state, an arbitration agreement cannot waive an employee’s right to proceed under PAGA.

Despite this, The Men’s Wearhouse tried to argue that a PAGA claim for wages should go to arbitration. The California Court of Appeals didn’t buy it in Zakaryan (Mar. 28, 2019) __Cal.App.5th__.

Plaintiff Zakaryan worked for The Men’s Wearhouse as a store manager from 2002 until 2016, before suing under PAGA, alleging that the company wrongfully misclassified its store managers as exempt from California’s overtime and meal and rest break laws. The Men’s Wearhouse moved to send the portion of Mr. Zakaryan’s claims involving underpaid wages to arbitration. It lost, and appealed.

After a careful analysis of PAGA and arbitration law, the appellate court rejected The Men’s Wearhouse’s argument for two reasons. First, splitting the PAGA claim would violate California’s “primary rights theory,” under which “one injury gives rise to only one claim for relief.” A PAGA claim, the court ruled, involves “one and only one ‘particular injury’—namely the injury to the public that the ‘state labor law enforcement agencies’ were created to safeguard.” Therefore, a PAGA claim cannot be split between a court and arbitration.

Second, sending part of the case to arbitration would run contrary to labor and arbitration law. PAGA awards the state 75% and the aggrieved employee the remainder of “a single civil penalty,” the court observed, which could not be properly heeded if portions of the civil penalties were syphoned off to arbitration. Moreover, “a PAGA claim is, fundamentally, a representative claim,” in which the suing employee represents other aggrieved employees in a suit brought on behalf of the state. As such, there was no individual portion of the claim to break off in an arbitration proceeding. In addition, Mr. Zakaryan had elected to pursue claims under PAGA’s representative action mechanism rather than his individual claims. Forcing him to arbitrate as if he had brought individual claims would effectively hijack his case. Finally, splitting the PAGA action would send the most important aspect of the claim to be determined—the employer’s liability—to the arbitrator, thereby circumventing the state’s right to have its enforcement action heard in court.

The California Supreme Court will soon decide this issue in Lawson.

If you have California wage claims and your employer is trying to force you into arbitration, contact Bryan Schwartz Law.

Friday, March 1, 2019

On-Call Scheduling Practice Ruled a Violation of Employees’ Rights

On February 4, 2019, the Court of Appeals for California’s Second District ruled in favor of retail employees in an important decision about on-call work time in Ward v. Tilly’s, Inc., Case No. B280151. This decision is a major victory for on-call employees who have to set aside time for shifts they might not get to work. You can find the opinion here.

The employer, Tilly’s, a clothing and accessories retailer, required their employees to call two hours ahead of some shifts to find out if they were actually needed. These on-call shifts had concrete start and end times, and Tilly’s instructed its employees to plan as if they were definitely going to work the shifts. Some on-call shifts were scheduled immediately after an employee’s regular shift, in which case the employee would learn whether she was needed during her regular shift. Although Tilly’s could reprimand or even fire employees for failing to call in before their on-call shifts, they were not paid for any on-call shifts they did not work, nor were they paid for the two hours between calling in and the start of the on-call shift.

A scheduling scheme like Tilly’s puts workers, especially low-wage workers, in a tough spot. An employee scheduled for a potential shift has to plan her day as if she will work the shift, despite not having the guarantee of compensation. This stressful arrangement means setting up child care or care for aging relatives, pursuing additional employment, rearranging health care appointments and education schedules, or foregoing sleep, personal hygiene, or leisure, even though an employee may not know whether she will be called in to work until just two hours before her potential shift. In essence, Tilly’s required their employees to block out their time for work without the assurance of being paid.

The plaintiff filed a putative class action suit against Tilly’s, challenging this scheduling practice. Tilly’s argued that the lawsuit did not state a cause of action—that everything the employee said Tilly’s did, in Tilly’s view, was legal. The Superior Court in Los Angeles agreed and threw out the case.

The Court of Appeals reversed, ruling that Tilly’s on-call scheduling scheme violated the law, specifically Wage Order 7 (Spanish) (Chinese). The Industrial Welfare Commission has issued 17 Wage Orders, including Wage Order 7, to regulate wages and work conditions for California workers. Wage Order 7 requires employers to pay employees for “[e]ach workday an employee is required to report for work, but is not put to work . . . .” Wage Order 7-2001 (8 Cal. Code Regs § 11070). Tilly’s argued that the phrase “report to work” requires an employee’s physical presence at the workplace when a shift starts.

Not so, said the Court of Appeals. The Court of Appeals drew attention to the unbalanced burdens that Tilly’s on-call scheduling scheme placed on its workers. The scheme benefited Tilly’s immensely: “This permits employers to keep their labors costs low when business is slow, while having workers at the ready when business picks up. It thus creates no incentive for employers to competently anticipate their labor needs and to schedule accordingly.” Ward, Case No. B280151, at *22. In contrast, the scheme “impose[d] tremendous costs on employees. . . . [O]n-call shifts significantly limit employees’ ability to earn income, pursue an education, care for dependent family members, and enjoy recreation time.” Id. at *22. These burdens affect employees not just during their on-call potential shifts, but for the two hours between the phone call and the shift itself. Id. at 22-23. The Court of Appeals held that Wage Order 7 was designed to prevent unfair scheduling practices such as this, and determined that the phrase “report for work” included the act of calling in. Id. at 23, 25. The wage orders covering workers in other industries use the phrase “report to work” in the same way as Wage Order 7.

In conclusion, the Court of Appeals pronounced that “if the employer directs employees to present themselves for work by logging on to a computer remotely, or by appearing at a client’s job site, or by setting out on a trucking route, then the employee ‘reports for work’ by doing those things. And if . . . the employer directs employees to present themselves for work by telephoning the store two hours prior to the start of a shift, then the reporting time requirement is triggered by the telephonic contact.” Id. at 25-26. This conclusion is similar to a California Supreme Court decision that an employer cannot require its employees to keep their pagers and phones on to remain on-call during their rest breaks, which Bryan Schwartz has blogged about before. See Augustus v. ABM Sec. Servs., Inc., 2 Cal.5th 257, 269 (2017).

If your employer has asked you to call in before scheduled shifts to determine if you are needed to work, please contact Bryan Schwartz Law today. Click here for more information about Bryan Schwartz Law.

Wednesday, February 6, 2019

Federal Court Certifies Disability Discrimination Class Action Challenging Employer's Fitness for Duty Program

On February 5, 2019, the U.S. District Court certified a class of employees challenging their employer's company-wide Fitness-for-Duty ("FFD") program in Harris, et al. v. Union Pacific R.R. Co., Case No. 8:16CV381. The important opinion is available here. The issues in the case are similar to a disability discrimination class action that has been litigated since 2006 by Bryan Schwartz against the State Department, challenging the State Department's Foreign Service policies that unlawfully screen out applicants with disabilities. See Meyer, et al. v. Clinton (Dept. of State), discussed on this blog here and here. The Harris decision is an important step toward courts recognizing that policies that discriminate based upon disabilities can be ideal for class-wide challenges - as we have argued on this blog and at the American Bar Association's National Conference on Employment and Education Law Impacting Persons with Disabilities. 

Union Pacific, the employer, has a FFD program that requires employees in certain positions to disclose specific health conditions. Union Pacific's policies automatically exclude any employee who discloses one of these health conditions from employment and require them to have a fitness-for-duty evaluation. After the employee is evaluated, the records are sent to Union Pacific's retained medical professional, Dr. John Holland in Olympia, Washington, where Dr. Holland and his staff make all decisions regarding who is fit for duty. Dr. Holland and his staff do not conduct physical evaluations, and Union Pacific routinely ignores the medical opinions of outside doctors. 

Plaintiffs and the Class are previous or current employees of Union Pacific. Despite working for years for Union Pacific with no performance problems, many of the Class members were pulled from their jobs under Union Pacific's FFD program, and then excluded from their positions by Union Pacific, even though they had no problem fulfilling the essential functions of their jobs. Plaintiffs and the Class specifically challenge Union Pacific's "1% Rule"--the standard policy used by Dr. Holland to find employees unfit for duty if the employee's disclosed health condition has a risk of sudden incapacitation greater than 1% in the coming year. Plaintiffs assert three class claims under the Americans with Disabilities Act: (1) disparate treatment - pattern or practice of discrimination by implementing the FFD program in a manner that screens out individuals with disabilities; (2) disparate impact - the FFD program has an adverse impact on individuals with disabilities; and (3) unlawful medical inquiry - the FFD program's policies are not job-related and consistent with a business necessity.

Plaintiffs moved to certify the class to include all individuals who have been or will be subject to Union Pacific's FFD program as a result of a reportable health event since September 18, 2014 (the date the challenged FFD program was implemented) through the final resolution of the action. 

In the Court's analysis of Plaintiff's motion, the Court found that Plaintiffs had easily met the numerosity requirement of Rule 23(a) by presenting evidence of potentially 7,000 class members. Harris, et al. v. Union Pacific R.R. Co., Case No. 8:16CV381, Dkt. 307 at pp. 5-6. For commonality, the Court rejected Union Pacific's argument that each fitness-for-duty evaluation decision will vary based on the individual employee and individual job--finding that the challenged FFD policies are uniformly carried out nationwide by the same group of decision-makers (Dr. Holland and his staff). Id. at pp. 7-8.

The Court also held that Plaintiffs satisfied the typicality requirement of Rule 23(a) because all of the Class members are alleging discrimination claims against the same policies that have either resulted in the employees being discharged or constructively discharged by the "1% Rule." Id. at pp. 8-10. Plaintiffs also satisfied the adequacy of representation required by Rule 23(a) by demonstrating common interest with the putative class and that, as class representatives, they will vigorously prosecute the interests of the class through qualified counsel. Id. at p. 10.

Finally, the Court conducted an analysis under Rule 23(b) to determine if "questions of law or fact common to class members predominate over any questions affecting only individual members", and that a class action is the superior method for adjudicating the controversy at issue. Rejecting Union Pacific's arguments that individual issues and facts predominate, the Court held that questions of law are common to the class and predominate over any questions affecting only individual members. Id. at pp. 12-13. Because of the common questions of law and facts regarding the putative class, the Court also found that a class action is the superior, efficient method for adjudicating these claims because they all rely on common proof.

The Court based its decision on the fact that Plaintiffs' allegations demonstrate there are common central issues among the class that predominate over any other ancillary issues: namely, whether the company-wide fitness-for-duty program and uniformly applied "1% Rule" unlawfully discriminate against employees with disabilities. The Court also explained that class action prosecution is favored here, where the Plaintiffs are challenging a single cohesive policy using common proof and seeking common injunctive relief. The Court underscored that class action treatment is not prohibited just because some ancillary matters, like damages, vary among the Class, because they can be tried separately.

If you believe you have been subjected to disability discrimination by your employer, please contact Bryan Schwartz Law today. 

Tuesday, January 22, 2019

SCOTUS Allows Millions of Transportation Workers to Have Their Day in Court.

truck driver standing next to truckIn recent decades, the U.S. Supreme Court has largely sided with big business over workers, consumers, and small businesses when victims of wage theft, fraud, and monopolist market abuses[1] band together to prove their case in open court. This past week was a rare exception for potentially millions of transportation workers across the United States.

Brief Background

The FAA generally requires courts to enforce arbitration clauses according to the terms of such clauses, which businesses have forced on individuals in the workplace, in consumer contracts, and in many other contexts (e.g., nursing homes that allegedly cause their residents to die from substandard care). However, Section 1 of the FAA provides an important exception to this general rule, exempting “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce” from the otherwise strict enforcement of arbitration agreements. 9 U.S.C. § 1.

Upshot of the New Prime Decision

Writing for an 8-0 majority, Justice Gorsuch’s opinion in New Prime Inc. v. Oliveira contains two key takeaways: (1) transportation workers are entitled to their day in court even if both sides signed an arbitration agreement and the transportation workers are classified (or arguably misclassified) as independent contractors, and (2) before ordering workers, consumers, and others to secret, one-on-one binding arbitration under the Federal Arbitration Act (“FAA”), courts still have the power to decide whether any exceptions apply that would allow these groups to have their day in open court.

The Majority’s Reasoning in New Prime

The New Prime majority relied heavily on the text and structure of Sections 1-4 of the FAA to hold that a business cannot take away a court’s authority to decide whether the exception contained in Section 1 applies to a particular dispute. No. 17-340, 2019 WL 189342, at **3-4 (U.S. Jan. 15, 2019). The Court noted that Section 3’s mandate to enforce arbitration agreements according to their terms is limited by Section 1’s exclusion for “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.” Id. at *4 (citing 9 U.S.C. § 1).[2] Based on the FAA’s “terms and sequencing” of its statutory provisions, the Court concluded that “a court should decide for itself whether § 1's ‘contracts of employment’ exclusion applies before ordering arbitration.” Id.

Finding that it has authority to review whether the exception in Section 1 applies to Mr. Oliveira’s arbitration agreement with his former employer, the Court went on to address whether Mr. Oliveira’s written agreement with New Prime was a “contract[] of employment” as the term is used in Section 1 of the FAA. Here, the Court determined that the original meaning of “contracts of employment” in 1925 included both the modern idea of an employer/employee relationship and also true independent contractors. Id. at **6-7. The Court swatted down the company’s attempt to argue that the Court should ignore the plain text of the FAA, and instead make from whole cloth a general federal policy of compelling all disputes to arbitration. (“Unable to squeeze more from the statute's text, New Prime is left to appeal to its policy. … By respecting the qualifications of § 1 today, we respect the limits up to which Congress was prepared to go when adopting the Arbitration Act.”) (internal citations and quotation marks omitted). Id. at *9.

If you are a transportation worker like the lead plaintiff in the New Prime, Dominic Oliveira,[3] know that you are entitled to your day in court to recover your lost wages and expenses.

[1] Justice Kagan’s dissent in this case, Italian Colors, sums up the state of play well:

Here is the nutshell version of this case, unfortunately obscured in the Court's decision. The owner of a small restaurant (Italian Colors) thinks that American Express (Amex) has used its monopoly power to force merchants to accept a form contract violating the antitrust laws. The restaurateur wants to challenge the allegedly unlawful provision (imposing a tying arrangement), but the same contract's arbitration clause prevents him from doing so. That term imposes a variety of procedural bars that would make pursuit of the antitrust claim a fool's errand. So if the arbitration clause is enforceable, Amex has insulated itself from antitrust liability—even if it has in fact violated the law. The monopolist gets to use its monopoly power to insist on a contract effectively depriving its victims of all legal recourse.

And here is the nutshell version of today's opinion, admirably flaunted rather than camouflaged: Too darn bad.

Am. Exp. Co. v. Italian Colors Rest., 570 U.S. 228, 240 (2013) (emph. added).

[2] The Court also drew upon the then-contemporary 1925 legal landscape in which “Congress had already prescribed alternative employment dispute resolution regimes for many transportation workers. And it seems Congress “did not wish to unsettle” those arrangements in favor of whatever arbitration procedures the parties' private contracts might happen to contemplate.” Id.

[3] You can learn more about Mr. Oliveira’s personal story here.

Tuesday, January 15, 2019

Supreme Court Favors Delegation Clauses, But Courts Retain Jurisdiction Over Formation Disputes

On January 8, 2019, the Supreme Court reversed the Fifth Circuit decision in Henry Schein, Inc. v. Archer and White Sales, Inc., Case No. 17-1272. 

The case is a business dispute in which plaintiff Archer and White seeks both money damages and injunctive relief. Defendant Schein moved to compel arbitration and Archer and White opposed, arguing that the dispute was not subject to arbitration because the complaint seeks injunctive relief, at least in part. The relevant contract provision states:

Disputes. This agreement shall be governed by the laws of the State of North Carolina. Any dispute arising under or related to this Agreement (except for actions seeking injunctive relief and disputes related to trademarks, trade secrets, or other intellectual property of [Schein]), shall be resolved by binding arbitration in accordance with the arbitration rules of the American Arbitration Association. The place of arbitration shall be in Charlotte, North Carolina.

Schein argued that because of the contract's express incorporation of the American Arbitration Association's rules, the parties agreed that questions of arbitrability, including the arbitrability issue raised by Archer and White, would be decided by an arbitrator. Archer and White responded that because they seek injunctive relief, which is excluded in the above provision, the court may resolve a threshold question of arbitrability if the argument for arbitration is "wholly groundless." The district court agreed and Schein's motion to compel was denied. The Fifth Circuit affirmed, citing its own precedent for a "wholly groundless" exception to enforcing a delegation clause. 

In his first Opinion, Justice Kavanaugh writes for a unanimous Supreme Court that when parties contract to delegate arbitrability questions to an arbitrator, a court may not override this agreement even if the court believes that arbitrability of the particular dispute is "wholly groundless." He explains that "[j]ust as a court may not decide a merits question that the parties have delegated to an arbitrator, a court may not decide an arbitrability question that the parties have delegated to an arbitrator."

However, citing First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938 (1995), and Rent-a-Center, West, Inc. v. Jackson, 561 U.S. 63 (2010), the Opinion clearly states that courts retain the power to decide whether there is "clear and unmistakable evidence" of a meeting of the minds to delegate arbitrability questions to an arbitrator. Rather than ordering the lower courts to grant Schein's motion to compel, the Court remanded to the Fifth Circuit to consider, in the first instance, the issue of whether the contract in fact delegated the arbitrability question to the arbitrator.

In employment law, workers' rights attorneys generally seek to avoid arbitration because of the ways in which arbitration agreements are being used not only to stop workers and consumers from vindicating their rights in a concerted manner, but also to exert control over the dispute resolution process, primarily by companies building repeat-customer relationships with certain preferred arbitrators.    

The Supreme Court's decision in Schein is prompting defense attorneys to advise their employer clients to review their arbitration agreements and include a clearly worded delegation clause. However, employers cannot circumnavigate the courts merely through the presence of a provision attempting to delegate questions of arbitrability to an arbitrator. Workers remain able to argue defenses to formation of such an agreement, and courts must hear these arguments. Workers, if you can argue that the defendant lacks "clear and unmistakable evidence" that the parties agreed to arbitrate, or that the parties agreed to delegate issues of arbitrability to an arbitrator, the Supreme Court has made clear, unanimously, that this argument must be heard by the court before compelling arbitration.