Settling for More: 9th Circuit Rules on Standards for Class Action Settlements

In most circumstances, opposing parties can resolve a legal dispute among themselves out of court until a court case is over. Class cases are different. To settle a class case, the parties have to ask the court hearing the case for approval.

This is because in class action settlements, absent class members waive their claims in exchange for the benefits of the settlement. Without notice of the settlement and its key terms, class members could waive their legal claims without realizing it, having a say in the terms of the agreement, or having the opportunity opt out of the agreement. This implicates absent class members’ due process rights.

To protect absent class members’ rights, the hearing court has a special duty to ensure that sufficient notice is provided to class members. The court must also take care that the settlement itself is fair. While courts usually balance and adjudicate competing interests in an adversarial context, the settling parties are in agreement in the context of a class action settlement. Especially concerning is the prospect that the parties could bargain away absent class members’ rights in order to secure a quick resolution that may not be in the class’s best interest.

Earlier this month, the 9th Circuit Court of Appeals rejected a class action settlement agreement in the high-profile class action case Murphy v. SFBSC Management. A pair of erotic dancers filed a class action case on behalf of 4,681 putative class members who currently or previously worked as erotic dancers for SFBSC Management’s 11 adult entertainment clubs in San Francisco, alleging that they had been misclassified as independent contractors when they should have been classified as employees. Bryan Schwartz Law has blogged about the distinction between employees and independent contractors here and here.

The parties settled and sought court approval. The trial court preliminarily approved the settlement, providing for notice of the settlement agreement to be sent to the class members’ last known mailing addresses, posted at the nightclubs’ dressing rooms, and posted online on a website created for this purpose. Initially, 1,546 notices were returned as undeliverable; after the settlement administrator performed address traces and resent notices, 560 notices remained undeliverable. Many class members lodged objections on several bases, but the court approved the settlement. The objectors appealed.

On appeal, the 9th Circuit agreed with almost all of the objectors’ complaints about the settlement agreement and the notice process.

I.                    Adequacy of the Notice

The objectors attacked the notice of class settlement in two ways. First, they argued that the notice did not inform class members that other similar lawsuits had been filed by other erotic dancers. The 9th Circuit rejected this claim—the only argument the objectors raised that the court rejected—holding that the class notices did not need to provide information to class members regarding related cases. Likewise, the notice did not need to describe any objections to the settlement agreement that had been raised.

Second, the objectors argued that the process of distributing the notice was insufficient. In particular, the objectors argued that the failure to provide any electronic notice (besides the website) was not the best practicable notice under the circumstances. The 9th Circuit agreed, noting that as many as 12% of the class received no notice by mail. In addition, the posters hung in the dressing rooms could only be viewed by current employees, whereas the class included former employees as well. Importantly, electronic notice may have been warranted if “reasonably calculated to appraise all class members of the settlement,” including email or even social media or “relevant online messaging boards.”

II.                 Standard of Review

Before the court examined the fairness of the agreement, the court first clarified the standard for courts to assess class action settlements. A court reviewing a class action settlement before the class has been certified requires a higher standard of fairness and a more probing inquiry. Reviewing courts should be on the lookout for subtle signs of collusion between the parties. The trial court in this case had begun its analysis with a presumption of fairness where a settlement was the product of arms-length negotiations between experienced attorneys. This standard was incorrect. The 9th Circuit also stated that it would not accept the mere presence of a neutral mediator as conclusive proof that the settlement was fair.

III.              Fairness of the Agreement

Next, the court examined several aspects of the settlement agreement that indicated possible unfairness. One of these was a clear sailing agreement with regards to attorneys’ fees. Under the provision, SFBSC Management agreed not to contest class counsel’s request for up to $1,000,000 in attorneys’ fees. The 9th Circuit observed that such agreements could be indicia that the agreement was reached at the expense of the class’s interests, especially in light of the high amount of attorneys’ fees requested.

The free sailing provision in this case called for attorneys’ fees greater than the net $864,115 to be distributed to the class. The parties arrived at the high amount of attorneys’ fees as a percentage of the total benefit of the settled claims, including the estimated value of two other areas of relief provided in the settlement agreement: (1) a Dance Fee Payment Pool, and (2) injunctive relief. Objectors challenged the sufficiency of the valuations for each, which had been set at $1,000,000 each.

Under the settlement agreement, class members could elect to receive payment from the Dance Fee Payment Pool of up to $1,000,000 in lieu of a lump sum cash settlement share. This money would come from the charges that the nightclubs would ordinarily retain from customer payments per dance. Dancers who selected this option could receive up to $8,000, but dancers had a limited amount of time in which to accrue payments from the Dance Fee Payment Pool.  

The court likened the Dance Fee Payment Pool to coupons, with reduced value to the class. This option had an expiration date, was not transferable, and required class members who no longer worked with SFBSC Management to do business with it again in order to claim the value. The 9th Circuit held that a court approving a class action settlement could not rely on such valuations except in the rare instance when non-monetary relief could be valuated exactly. Here, the parties did not put forth any evidence to support their valuation of the coupons.

Similarly, the 9th Circuit was troubled by the $1,000,000 valuation of the injunctive relief. The settlement agreement provided that SFBSC Management would allow dancers to elect whether to work as employees or independent contractors, each with its own form of compensation and employment structure. The court faulted the trial court for failing to make any findings specifically justifying the valuation of this benefit at $1,000,000.

The court was also wary of the enhancement awards called for in the settlement agreement for the named plaintiffs, to be taken from the general settlement fund. While the court was not concerned by the $5,000 enhancement payments in recognition of the plaintiffs’ efforts to represent the class and prosecute the case, the court found suspect the $20,000 enhancement payment for the general release the plaintiffs signed. The court saw no service to the class compensated by this enhancement. As such, the court viewed the enhancement as evidence of a potential side deal between the named plaintiffs and the employer, at the class’s expense, giving rise to a potential conflict of interest.

The court also looked at the settlement agreement’s reversionary effect. If class members did not cash their checks, those amounts would have reverted to SFBSC Management, rather than being redistributed to the class or a charitable organization that furthers the beneficial goals of the litigation. The 9th Circuit observed that reversionary agreements can indicate unfairness to the class, especially when coupons are involved. Combined, these factors drove the 9th circuit to reverse the trial court’s approval of the settlement agreement and remand for further proceedings.

If you have a dispute with your employer, contact Bryan Schwartz Law today.

Giving Thanks for Worker Protections—California Supreme Court and California Legislature Limit Arbitration Agreements in Employment

The California Supreme Court handed down a decision earlier this year that adds to the growing body of law surrounding mandatory arbitration agreements and delivering a victory for employees. The case is Oto, L.L.C. v. Kho (2019) 8 Cal.5th 111. This decision, plus the California Legislature’s recent legislation in AB-51, limit the extent to which employers can attempt to force their employees into binding arbitration.

Employers increasingly require their employees to sign mandatory arbitration agreements. By these agreements, employees waive their right to pursue employment actions against their employers by any means besides binding arbitration. The arbitration process often favors employers and effectively stymies employees’ efforts to vindicate their rights, protecting employers that wish to skirt the law. Employers’ reliance on mandatory arbitration has ballooned following the past decade of U.S. Supreme Court cases whittling away at employees’ right to vindicate their employment grievances in court or through an administrative proceeding. Given that mandatory arbitration agreements are so widespread, Bryan Schwartz Law has blogged about them many times, including here, here, here, here, and here.

One of the ways in which an employee may be able to escape from the requirements of a mandatory arbitration agreement is by arguing that the agreement itself is invalid, using the same legal arguments that could be made as to any contract. Oto v. Kho addressed one of these contract defenses in particular: the doctrine of unconscionability.

A contract might be unconscionable in one of two ways. First, the contract could be procedurally unconscionable. This means that the circumstances in which the contract was formed were so unfair that one of the parties could not have agreed to it based on their own free will.

Second, the contract could be substantively unconscionable. This means that the terms of the contract themselves are so unfair against one party that a court will refuse to enforce the contract.

Both were present in Oto v. Kho, the California Supreme Court ruled. The plaintiff in the case, Ken Kho, worked for One Toyota in Oakland, California, for three years before he was presented with several documents, including a mandatory arbitration agreement, by a low-level employee. Kho, whose first language is Chinese, was forced to sign the agreement immediately without a chance to review the agreement first. Later, Kho filed a complaint with the California Labor Commissioner against One Toyota for unpaid wages. One Toyota moved to compel arbitration on the eve of a hearing before the Labor Commissioner and refused to participate in the proceedings before the Labor Commissioner any further. The proceedings took place without One Toyota, and the Labor Commissioner entered an award for Kho.

The trial court vacated the award but did not compel arbitration. The court of appeal reversed, holding that, despite the apparent procedural unconscionability, the agreement was not substantively unconscionable.

The California Supreme Court disagreed. First, several aspects of the formation of the agreement smacked of procedural unconscionability. The agreement was presented to Kho at his workplace, along with other employment-related documents. No one explained the document or provided a copy in Kho’s native language, but he was required to sign it in order to keep his job. If Kho had insisted on taking the time to review the documents, his pay would have been reduced because he was paid on a piece-rate basis. The agreement was communicated to Kho by a low-level employee, indicating that One Toyota would not entertain any request for explanation. Furthermore, the low-level employee waited for Kho to review and execute the agreement, which created the impression that Kho was expected to do so immediately. One Toyota did not give Kho a copy of the executed agreement.

Moreover, the language of the agreement was rife with complex legalese and convoluted sentences. This dense paragraph was printed on tiny font; the court of appeal characterized it as “visually impenetrable.” The agreement’s deceptive nature was also apparent in how it characterized the responsibility for the costs of arbitration. The agreement set forth that the costs of arbitration would be split between the parties unless controlling case law provided otherwise, without noting that the controlling decision in Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, created an exception to this default rule in employment cases. Taken together, these aspects of the agreement demonstrated that it “did not promote voluntary or informed agreement.”

Second, the agreement was substantively unconscionable. It provided no indication as to how one could bring an action in arbitration, as the agreement required. The process set forth in the mandatory arbitration agreement was as complex and intricate as the process for civil litigation, requiring arbitration to be initiated through the filing of a complaint and setting forth specific motions and discovery procedures. These procedures ran counter to the supposed benefits of arbitration—its purported speed and efficiency. The Court was also concerned that the arbitration agreement all but required claimants to hire legal counsel due to the complexity of its procedures, forcing employees to incur attorneys’ fees, whereas employees bringing wage claims have access to free legal assistance from the Labor Commissioner. Given that Kho’s mandatory arbitration agreement was both procedurally and substantively unconscionable, it was unenforceable.

The California Legislature also made a foray into mandatory arbitration provisions, amending the Fair Employment and Housing Act (“FEHA”) to protect employees against forced arbitration. The amendment, AB-51, makes it an unlawful employment action to require any current or prospective employee to waive the right to pursue their FEHA claims in court or any other forum—in other words, employers cannot require employees to sign mandatory arbitration provisions as a condition of employment. The new legislation, set to take effect on January 1, 2020, also includes a provision prohibiting employers from retaliating against any employee because of their refusal to agree to mandatory arbitration.

If you have an employment dispute against your current or former employer, contact Bryan Schwartz Law.

Attorney’s Fees Awarded When Whistleblower Acted in the Public Interest

Have you ever blown the whistle on illegal activity in the workplace and then been retaliated against? Did you have trouble finding a lawyer who would represent you? California protects whistleblowers, but defendants sometimes argue that whistleblower retaliation claims under California Labor Code section 1102.5 (California’s general whistleblower statute) do not require defendant to pay the whistleblower’s attorney’s fees. Attorney’s fees awards are critical to helping whistleblowers get their day in court. Because most people can’t afford to hire an attorney on an hourly basis, laws that allow for the recovery of attorney’s fees allow attorneys to take cases on a contingency basis – the attorney only gets paid if you get paid. An award of attorney’s fees also means that the attorney’s payment doesn’t have to come out of the amount you recover. You get your recovery and the attorney gets her fees, without the attorney having to take her fees out of your recovery (typically at least 1/3 to 40% of your recovery).

Attorney’s fees awards are available under California Code of Civil Procedure section 1021.5 where the case involves the enforcement of an important right affecting the public interest if: (1) a significant benefit, monetary or non-monetary, has been conferred on the general public or a large class of persons; (2) the necessity and financial burden of private enforcement, or of enforcement by one public entity against another public entity, are such as to make the award appropriate; and (3) such fees should not in the interest of justice be paid out of any recovery (i.e., the attorneys should not be paid out of what the employee recovers). The question is, does a violation of 1102.5 warrant the recovery of attorney’s fees as outlined in 1021.5? Can whistleblowers recover their attorney’s fees?

The California Court of Appeals recently said yes.

In Hawkins v. City of Los Angeles (2019) 40 Cal.App.5th 384, two employees blew the whistle on illegal activity happening in the City of Los Angeles’ Department of Transportation. Todd Hawkins and Hyung Kim were hearing examiners who reviewed parking violations. When people challenged parking tickets, Mr. Hawkins and Mr. Kim decided whether those people had in fact violated parking laws or if the City had gotten it wrong and needed to issue a refund for the fines they had charged.

Both men complained internally that their supervisor was pressuring them to change decisions from “not liable” to “liable” – in other words, saying people had violated parking laws when they hadn’t and cheating people out of refunds for the fines they had paid. Both men were then fired for speaking up.

They sued for whistleblower retaliation under 1102.5, the California Bane Act, and other claims. They also filed claims with California’s Labor and Workforce Development Agency seeking PAGA (Private Attorneys General Act) penalties. The matter went to a jury trial, and the jury found in the employees’ favor on their 1102.5 and Bane Act claims, awarding Hawkins $238,531 and Kim $188,631 in damages. The trial court then assessed a $20,000 PAGA penalty, and subsequently awarded the employees $1,054,286.88 in attorney’s fees. The City appealed.

The Court of Appeals upheld the jury’s verdict, upholding the award of attorney’s fees for whistleblower retaliation under 1102.5. As the Court explained,

Here, the City argues that a significant benefit was not conferred on the public because all the action did was remedy retaliation for whistleblowing. However, the City ignores the trial court’s finding that the action also conferred a significant public benefit because the public is entitled to fair hearings with respect to parking citations. The Vehicle Code entitles the public to “an independent, objective, fair, and impartial review of contested parking violations.” (Veh. Code, § 40215, subd. (c)(3).) Plaintiffs’ action revealed that, for years, the City had been pressuring, sometimes successfully, hearing examiners to change decisions, usually to find that refunds were not warranted. In short, the public had been deprived of independent and impartial hearings. Instead, the City undermined the process provided by the Vehicle Code to generate revenue.

Mr. Hawkins and Mr. Kim were whistleblowers under 1102.5 who satisfied the requirements under 1021.5 of acting in the public interest, warranting their recovery of attorney’s fees.

                The Court of Appeals also upheld the award for attorney’s fees for Mr. Hawkins’ and Mr. Kim’s PAGA claim. This is a big deal: in an unpublished portion of the opinion, the Court explains that an individual whistleblower under 1102.5 can still be representative of a broader group of people, as required by PAGA, when that individual whistleblower is furthering the public interest. The Court distinguishes another case, Kahn v. Dunn-Edwards Corp. (2018) 19 Cal.App.5th 804, where the plaintiffs’ PAGA claim was denied because it wasn’t representative:

 We express no opinion as to the correctness of Kahn’s holding. Whether correct or not, we do not interpret Kahn so literally as to hold that a plaintiff whose prefiling notice uses the incorrect pronoun—I instead of we and my instead of our—fails to comply with the Labor Code’s administrative procedures. Rather, we must determine whether the prefiling notice, as a totality, gave the requisite notice. Plaintiffs’ prefiling notices are materially different than the notice in Kahn. Their notices referred to complaints that Walton-Joseph had hearing officers change written decisions from not liable to liable. Hawkins referred to Walton-Joseph’s actions “in coercing employees, including Claimant to change their decisions.” (Italics added.) Similarly, Kim referred to another hearing examiner who had complained to government officials about the conduct. Thus, the notices here expressly referred to conduct not limited to the individual complainants. They complained about conduct that impacted them and fellow hearing examiners, as well as the public. We therefore conclude that plaintiffs complied with section 2699.3 [PAGA].

While attorneys cannot cite to the above portion of the Hawkins opinion, it’s worth noting the Court’s implicit suggestion to use the pronoun “we” in PAGA claims to forestall any argument from the defendant employer that the plaintiff does not have a viable PAGA claim.

Hawkins strengthens whistleblower protections, making it more likely that whistleblower cases will be brought to court – and therefore making it more likely that the harms whistleblowers uncover will be remedied. Hawkins will be a key case moving forward to combat public corruption and the silencing of those who dare to speak truth to power.

Bryan Schwartz Law has written about attorney’s fees for whistleblower retaliation and PAGA before. If you believe that you were retaliated against for exposing illegal activity at your workplace, please contact Bryan Schwartz Law today.

New (Watered-Down) Overtime Pay Rule Announced By Department of Labor

This week, the U.S. Department of Labor announced a final rule that starting January 1, 2020, 1.3 million more American workers will be eligible for overtime pay under the Fair Labor Standards Act (FLSA). The final rule expands the definition of who “non-exempt” workers are, i.e. workers who are subject to minimum wage and overtime pay requirements. “Exempt” workers are exempt from minimum wage and overtime pay requirements. Exempt workers include, for example, those meeting the tests (including the salary-basis test) for the white-collar exemptions as executive, administrative, or professional employees.

The rule is a watered-down version of an Obama Administration proposal, which would have expanded overtime pay to around 4 million workers by raising the maximum salary for which non-exempt workers are entitled to overtime pay to $47,000 a year for full-time work, a highly-compensated employee (“HCE”) exemption level of $147,000, and (perhaps most importantly) tying future increases to the cost of living. That proposal was met by fierce opposition from various business groups, who teamed up with some Republican-controlled states to take the Obama Administration to court, resulting in the rule being blocked by a conservative federal judge in 2017.

Here are the main changes the new rule makes:

·         raises the “standard salary level” to qualify for a white-collar exemption from the current level of $455 per week (equivalent to $23,660 per year for a full-year worker) to $684 per week (equivalent to $35,568 per year for a full-year worker);

·         raises the total annual compensation level for “HCEs from the current level of $100,000 to $107,432 per year;

·         allows employers to use nondiscretionary bonuses and incentive payments (including commissions) that are paid at least annually to satisfy up to 10 percent of the standard salary level; and

·         revises the special salary levels for workers in U.S. territories and in the motion picture industry.

What the new rule does not do is tie the standard salary level to the rate of inflation. Adjusted for inflation, the $23,660/year would rise to a current minimum salary level for non-exempt status of $55,000/year. By also allowing employers to take nondiscretionary bonuses and commissions into account in determining how much employees make and therefore if they’re eligible for overtime pay, the rule immediately undercuts the impact of the relatively small increase provided to the standard salary level. That 10% caveat creates room for confusion and discretion on the part of employers that could adversely affect the very workers the rule is supposedly designed to help. The $107,432/year level for HCEs is also laughably low for many parts of the country where such a salary is much closer to the average.

After 15 years of no updates to overtime pay eligibility, any update is welcome. But once again, the Trump Administration does far less than is needed (and far less than was approved by the prior Administration) to help vulnerable workers. The bottom line: If you make less than $35,568 a year for full-time work, starting next year, you’re more likely to be entitled to overtime pay. But, your employer can count up to 10% of your earnings from things like bonuses and commissions to determine if you qualify for overtime. Note that this new rule doesn’t affect the “outside sales exemption.”

Bryan Schwartz Law has written about overtime issues before here. If you believe you were denied overtime pay you were owed, contact Bryan Schwartz Law today.

Congratulations on Your Courage, Governor Newsom!

It is very easy to be cynical about politicians. This is nothing new, but the cynicism has to be at an all-time high based on the extent of media coverage devoted to the current, corrupt, dishonest, morally bankrupt, cowardly occupant of the Oval Office.

As such, it is worth taking a moment to recognize a politician - California's Governor - who acts with real courage. Gavin Newsom did something brave today when he signed into law Assembly Bill 5 (AB5), taking a strong, cutting-edge position toward the developing gig economy and how it affects average Californians. Misclassification of workers as "independent contractors," as Governor Newsom sagely recognized in his signing message, is further "hollowing out" our middle class, and contributing to the erosion of basic worker protections that all people of conscience should agree upon - the minimum wage, paid sick days, and health insurance benefits.

Uber and other gig economy companies are a powerful financial force. By the Governor's strong position today - which more politicians should emulate - he says something unequivocally true: all of us, standing together, are stronger than any corporation.

Thank you, Governor Newsom.

In ZB, California Supreme Court Chips Away at PAGA's Protections for Workers' Rights

On Thursday, the Supreme Court of California ruled that there is no Private Attorneys General Act of 2004, California Labor Code § 2698, et seq. (PAGA) claim for the penalty relating to the "amount sufficient to recover underpaid wages" in California Labor Code § 558(a)(2).  In ZB, N.A. v. Superior Court¹, the Court ostensibly teed up the question, on which there was a split of authority, of whether the rule that PAGA claims could not be compelled to arbitration applied to a PAGA penalty requiring restitution of underpaid wages, under California Labor Code § 558, to resolve a split in authority.  The result - that there is no underpaid wage PAGA penalty in the first place - is a disappointing blow to protections for workers' rights.

In reaching this decision, the Court concluded that the amount specified by the phrase "amount sufficient to recover underpaid wages" is not a "civil penalty" but is instead compensatory relief that may be recovered in addition to, and separate from, the civil penalties.  It further analogized § 558 to California Labor Code § 1197.1, which provides for the recovery of "an amount sufficient to recover underpaid wages" in addition to the section's civil penalties, and concluded that the Legislature must have intended for the civil penalties to be separate from the "amount[s] sufficient" described in each respective section.

The Court opined that its decision would "enhance and streamline enforcement of the Labor Code's overtime and workday requirements."  But it is difficult to see how removing a valuable arrow from the State's PAGA enforcement quiver can further these goals.  Less clear still is how the Court's decision can be squared with the Legislature’s clear intent to permit PAGA plaintiffs to recover the full measure of relief that would be available to the State in a public enforcement action and preserve the deterrence scheme that the Legislature envisioned.  These points are particularly salient, as this firm has previously written, because arbitration has the effect of killing statutorily-protected claims and emboldens law-violating employers by further skewing the playing field against workers.

Moving forward, the ZB decision has the impact of limiting the scope of potential PAGA recovery, although legislative amendment could restore the full measure of PAGA relief that, we believe, was originally intended.  Regardless, PAGA will continue to be an important enforcement tool for the State, aided by the workers themselves and their advocates.  Importantly, ZB did nothing to disturb the Court's prior holding in Iskanian v. CLS Transportation Los Angeles (2014) 59 Cal.4th 348, that PAGA is a qui tam statute where workers stand in the shoes of the State in prosecuting wage claims, with waivers of the State's prosecutorial authority unenforceable as a matter of state law.  Iskanian has survived repeated challenges in the Ninth Circuit Court of Appeals, and has been denied certiorari time and time again by the U.S. Supreme Court.

If you are seeking to assert wage claims representing your co-workers and are facing an employer who seeks to force you into individual arbitration, contact Bryan Schwartz Law.

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1 On August 29, 2018, Bryan Schwartz Law, on behalf of the California Employment Lawyers Association (CELA), submitted an amicus brief supporting affirmance of the Court of Appeal decision, as discussed in a prior blog post.

Can You Be Fired For Being Gay? The Supreme Court Will Soon Decide.

Next month, the Supreme Court will hear three cases about workplace discrimination. Under Title VII of the 1964 federal Civil Rights Act, it's illegal for an employer to discriminate against an employee on the basis of sex. What "sex" encompasses is what's at issue in these cases. Up until now, federal law has treated "sex" to include gender only, meaning an employer can't discriminate against you just because you're a man or a woman. The question at issue in these cases is whether the word "sex" also encompasses sexual orientation and gender identity. If you identify as LGBTQ+, are you protected from discrimination in the workplace? That's what SCOTUS will soon decide.

In one case, a transgender woman was fired from her job after revealing that she was transgender and would be dressing in accordance with the female dress code for the office. In the other two cases, gay men were fired because of their sexual orientation. 28 states currently have no protections for LGBTQ+ employees in the workplace (although a few of those states protect public sector workers). The Obama Administration had interpreted federal non-discrimination statutes to include discrimination on the basis of sexual orientation and gender identity, but the Trump Administration reversed course, and is essentially saying an employer may fire someone for being gay or transgender, without consequences under Title VII. That shouldn't be surprising coming from an Administration that implemented a transgender military ban (which Bryan Schwartz Law has written about before); denies citizenship for the foreign-born, adopted children of gay couples; and nominates judges to the federal bench who are openly hostile to LGBTQ+ people. The Democrat-controlled House passed the Equality Act earlier this year, which would enshrine LGBTQ+ workplace protections into federal law, but the Republican-controlled Senate has not advanced the Act, making the Supreme Court's upcoming hearing especially important.

In this climate, and given the current composition of the Supreme Court, LGBTQ+ advocates and allies are understandably worried. Some are hopeful that since these cases don't involve interpreting the Constitution (as was required in the same-sex marriage case of Obergefell), but rather a statutory interpretation of Title VII, some of the conservative justices who voted no in Obergefell might vote yes in these cases. Advocates also hope that Chief Justice Roberts will remember what he famously said in 2015 when the Court heard arguments about same-sex marriage: “I’m not sure it’s necessary to get into sexual orientation to resolve this case. I mean, if Sue loves Joe and Tom loves Joe, Sue can marry him and Tom can’t. And the difference is based upon their different sex. Why isn’t that a straightforward question of sexual discrimination?” Excellent question, Chief Justice. We look forward to your answer - which could come anytime between next month and next summer.

If you've been discriminated against in the workplace because of your sexual orientation or gender identity, contact Bryan Schwartz Law today.

Fair and Square: California Supreme Court Recognizes Unruh Act Standing in Case Against Online Purveyor

California’s Unruh Civil Rights Act (“Unruh Act”) protect each person’s right to full and equal access to all California business establishments.  Cal. Civ. Code §§ 51(b)., 52. But the extent to which it applies to online forums presents an interesting question.

Earlier this month, the California Supreme Court weighed in with an important decision in White v. Square, Inc. The Court was asked by the Ninth Circuit Court of Appeals, the court hearing the case, whether a plaintiff may bring a claim under the Unruh Act when the plaintiff leaves a website after encountering discriminatory terms and conditions, without entering into any agreement with the service provider. According to the Court, the answer is yes.

The case involves bankruptcy attorney Robert White’s allegations against Square, a company that provides a service to allow individuals or businesses to receive and accept electronic payments. Mr. White wished to use this service for his bankruptcy practice. He visited the website multiple times, reviewed the documents filed in a previous lawsuit against Square and a bankruptcy law firm, and carefully reviewed the terms and conditions. However, when he visited the web page to register for services, he did not proceed because Square's terms and conditions prohibited the use of its services for certain businesses, including the practice of bankruptcy law. Based on his research, Mr. White believed he could not sign the agreement without committing fraud.

He then filed suit under the Unruh Act, but his case was dismissed. The trial court ruled that White could not proceed with his case because he lacked standing. Standing is a legal doctrine that covers who may bring a particular lawsuit. Generally, people can only bring lawsuits under the Unruh Act in which they themselves “ha[ve] been the victim of the defendant’s discriminatory act.” Angelucci v. Century Supper Club (2007) 41 Cal. 4th 160, 175. The California Supreme Court disagreed with the trial court, holding that Mr. White had sufficiently shown that he was injured by Square’s discriminatory terms and conditions.

The California Supreme Court had previously addressed standing under the Unruh Act with respect to physical stores, but the Court had not yet issued an opinion addressing online forums. In Koire v. Metro Car Wash (1985) 40 Cal. 3d 24, a male plaintiff sued several car washes that observed “Ladies’ Day,” on which female patrons were offered discount prices. The California Supreme Court held that the plaintiff established standing because his requests for the same discount price was turned down. In Angelucci v. Century Supper Club (2007) 41 Cal. 4th 160, a group of men sued a nightclub they frequented where they had been paying more than female patrons. The Court held that the men had standing to proceed under the Unruh Act because they had paid the unfair prices, even though they had not asked to pay the same rate as the female patrons. These brick-and-mortar cases demonstrated the broad reach of standing under the Unruh Act, the Court opined.

The California Supreme Court further likened Square’s website to a physical storefront with a sign that reads, “We sell on credit. (Black people must pay cash.)” According to the Court, a person who declines to enter the store has suffered the type of discrimination envisioned by the Unruh Act and has standing to sue under it. No different if the discriminatory posting were online. In another analogy, the Court compared Mr. White’s experience to that of “an individual who intends to take a drink at a shopping mall and leaves upon encountering unattended segregated drinking fountains.” The result remained the same with Square’s website, in the Court’s view of the Unruh Act.

The Court rejected Square’s arguments to the contrary. Square argued that Mr. White did not sign up for the service, so he was never actually subject to the discriminatory terms and conditions. But the Unruh Act protects against discriminatory terms that deter people from engaging a service to begin with, the Court countered. Similarly, the Court rejected the notion that Mr. White would have needed to show that Square had applied its allegedly discriminatory policy on a particular occasion to prevent Mr. White from patronizing the service in the first place. Square also raised the scepter of overlitigation should plaintiffs like White be allowed to proceed under the Unruh Act, but the Court rejected this argument as well, reasoning that such a consideration was for the legislature, not the courts.

The Court also rejected the reasoning of the Court of Appeals in Surrey v. TrueBeginnings, LLC (2008) 168 Cal. App. 4th 414. The plaintiff in Surrey had sought to patronize an online dating site but decided not to after he discovered that men were charged higher rates than women. The Court of Appeals held that the prospective patron lacked standing because he neither attempted to nor actually patronized the services. The White court expressly held the opposite.

If you have faced discrimination by a business or website, contact Bryan Schwartz Law today.

Fair is Hair: California Makes It Illegal to Discriminate on the Basis of Hair Styles

Last month, Governor Newsom signed a landmark anti-discrimination bill into law. This law takes aim at grooming policies that discriminate on the basis of race through restrictions against types of hairstyles.

Under the California Fair Employment and Housing Act (“FEHA”), employers cannot engage in certain employment actions, such as hiring, firing, promoting, or disciplining, on the basis of protected characteristics, including race. One might think that this prohibits discrimination based on hair styles that are historically associated with race. Not necessarily. FEHA does not say so explicitly, California courts have not considered the issue, and some federal courts have held the opposite. SB 188, which goes into effect at the start of 2020, seeks to clarify that race discrimination includes hair-based discrimination.

In enacting SB 188, the California Legislature was concerned by the story of New Jersey high school wrestler Andrew Johnson, who was forced to choose either to cut his dreadlocks or forfeit a match. The Legislature also took note of Rafael Scott and Sheldon Lyke, two African-American men who were turned away from a Chicago nightclub because of their braided hair styles. Even outside the employment context, the Legislature noted in the findings section of SB 188, “hair remains a rampant source of racial discrimination with serious economic and health consequences, especially for Black individuals.”

However, leading federal court decisions have held that hair-based discrimination does not implicate the federal Title VII to the Civil Rights Act of 1964. Federal courts have generally held that federal civil rights applies only to “immutable” characteristics—characteristics a person is born with and cannot control. A New York federal court relied on this notion to rule that an American Airlines grooming policy prohibiting braided hairstyles did not discriminate on the basis of race. Rogers v. Am. Airlines, Inc., 527 F. Supp. 229, 232 (S.D. N.Y. 1981). In the court’s view, the policy did not discriminate on the basis of race because American Airlines employees could choose whether or not to braid their hair.

The 11th Circuit Court of Appeals reached a similar conclusion in EEOC v. Catastrophe Management Solutions, 852 F.3d 1018 (11th Cir. 2011) (“Catastrophe”). In that case, an employer rescinded an employment offer when it learned the prospective employee styled her hair in dreadlocks. According to the employer, the dreadlocks violated the company’s grooming policy, which required employees “to be dressed and groomed in a manner that projects a professional and businesslike image while adhering to company and industry standards.” Again relying on the idea that hair styles are not immutable traits, the 11th Circuit determined that the employer’s grooming policy was not discriminatory.

Some federal decisions have come out the other way. In Jenkins v. Blue Cross Mutual Hospital Insurance, Inc., 538 F.2d 164 (7th Cir. 1976) (“Jenkins”), an employee alleged that she was subject to racial discrimination because she wore an afro. The 7th Circuit Court of Appeals ruled that this allegation sufficiently expressed an actionable discrimination claim. But the Eleventh Circuit distinguished this case, reading it to hold that African-American hair texture is an immutable characteristic while African-American hair styles are not; the employee in Jenkins wore a “natural afro,” while the employee in Catastrophe chose to wear braids.  

The California Legislature passed SB 188 out of concern that state courts looking to the federal courts for guidance would agree with the Catastrophe court. To ensure there would be no confusion, the Legislature included in the section of findings and declarations, “The courts do not understand that afros are not the only natural presentation of Black hair. Black hair can also be naturally presented in braids, twists, and locks.”

In practical terms, SB 188 adds two subsections to FEHA clarifying that “Race” includes traits historically associated with race, including hair texture and protective hairstyles. The law also adds two new subjections to Section 212.1 of the Education Code to the same effect.

Two weeks after California passed SB 188, New York followed suit with a similar law. Perhaps other states will follow.

If you are facing racial discrimination in the workplace based on your hair style, contact Bryan Schwartz Law today.

Lamps Plus Dims the Future of Class Arbitration.

The Supreme Court dealt another blow to employees seeking to assert their workplace rights with its decision in Lamps Plus, Inc. v. Varela, 139 S. Ct. 1407 (2019), all but killing the possibility of concerted arbitration in most cases. Lamps Plus is centered around mandatory, pre-dispute arbitration agreements. Employees often sign mandatory arbitration agreements as a condition of their employment. When faced with unlawful conduct in the workplace, these agreements prevent employees from suing their employers in court. Instead, employees must adjudicate disputes in arbitration, which is often a process skewed toward employers. Bryan Schwartz Law has blogged about problems with arbitration several times, including here, here and here. Though the Supreme Court pretends that arbitration is a more efficient and cost-effective means of resolving a conflict, arbitration is really only more efficient and cost-effective to the extent that it kills statutorily-protected claims all together – nothing more than a windfall for law-breakers, harming workers and consumers and preventing law-abiding businesses from competing on a level playing field.

In Lamps Plus, the Court examined when arbitration claims could be brought on behalf of multiple employees in a single action. Often, employees with valid grievances cannot and would not sue their employers individually because the cost of hiring an attorney outweighs the value of their claims and litigation and arbitration are time-consuming, draining, and always raise fears of retaliation. Fortunately, employees can band together against an employer as a class or collective, allowing them to bring claims together that would be too costly and difficult to pursue as individuals.

Over the past decade, the Supreme Court has chipped away at the availability of both class actions in court and class arbitration through its interpretation of the Federal Arbitration Act (“FAA”). In 2010, the Court held that individuals cannot pursue class arbitration if it is not permitted by their arbitration agreement. Stolt-Nielsen S. A. v. AnimalFeeds Int’l Corp., 559 U.S. 662 (2010). In April of this year, the Supreme Court extended Stolt-Nielsen’s holding to include contracts that are ambiguous on the issue of class arbitration in its Lamps Plus decision. Like silent arbitration agreements, the Court held, ambiguous arbitration agreements do not provide employees the option of pursuing class arbitration.

In Lamps Plus, the company was alleged to have disclosed sensitive personal information belonging to 1,300 employees, including that of the plaintiff, Frank Varela.  As a result, Mr. Varela was the victim of identity theft. Mr. Varela sued Lamps Plus on behalf of himself and the other employees affected by the security breach.

Lamps Plus moved to kick the case out of court and into arbitration based on Mr. Varela’s arbitration agreement. The District Court granted Lamps Plus’s motion. However, it rejected Lamp Plus’s request for individual arbitration and instead authorized Mr. Varela to proceed with class arbitration.

The Ninth Circuit affirmed. The court determined that the language in Mr. Varela’s arbitration agreement was ambiguous on the issue of class arbitration. In resolving the ambiguity, the court applied the California legal principle requiring ambiguous contract terms be construed against the drafter, a doctrine known as contra proferentem. All fifty states apply contra proferentem because it encourages clear contract drafting. Lamps Plus 139 S. Ct. 1407 (Kagan, J., dissenting). Here, Lamps Plus submitted that the contract only conveyed consent to individual arbitration, while Mr. Varela argued that the contract implied consent to class arbitration. The court construed the meaning of the contract against the drafter, Lamps Plus. Thus, the court disagreed with Lamps Plus’s interpretation and ruled Mr. Varela could bring a class arbitration claim.

The Supreme Court rejected the Ninth Circuit’s application of contra proferentem and held that contracts ambiguous on the issue of class arbitration do not authorize class arbitration. In its reasoning, the Court relied heavily on a false distinction between individual and class arbitration. The majority opined that class arbitration does not achieve the FAA’s goals of making litigation faster, simpler and less expensive. Lamps Plus, 139 S. Ct. at 1416. According to the current Supreme Court majority, class arbitration “makes the process slower, more costly, and more likely to generate procedural morass than final judgement.” Id. (citing AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 348 (2011)).  Therefore, the Court concluded that the term “arbitration” does not intrinsically include class arbitration. The Court’s reasoning is based on the mistaken belief that individual arbitrations are indeed faster, simpler, and less expensive. Id. This leap of reasoning is unsupported, in fact, and contrary to the experience of this firm. Hundreds of individual arbitrations are not actually faster, simpler, or less expensive than a single class case.

The Court then decided how to interpret the ambiguity in Mr. Varela’s contract. The Court conceded that, normally, courts apply state law when interpreting contracts. Id. at 1415. Here, however, the Court held that the federal FAA conflicts with the state doctrine of contra proferentem, thereby displacing it. Id. at 1417-18.

According to the Court, the two laws conflict because, under the FAA, “[a]rbitration is strictly a matter of consent.” Id. at 1415 (quoting Granite Rock Co. v. Teamsters, 561 U.S. 287, 299 (2010)).  Contra proferentem, on the other hand, provides a method of contract interpretation that disregards consent between the parties in favor of a practical solution. Id. at 1418. Considering this manufactured conflict between supposed “consent” between parties under the FAA (which, as Justice Ginsburg explained in her dissent, is a fallacy) and standard principles of contract law, the Court decided that the FAA applies instead of contra proferentem. Id. Thus, the Court held employees cannot pursue class arbitration if their contracts are ambiguous on the issue. Id. Rather, arbitration agreements only authorize class arbitration when there is clear language that shows both parties intended to provide for class arbitration. Id.

This opinion inspired a flurry of dissents. In the main dissent, Justice Kagan argued that Mr. Varela’s contract was not ambiguous in the first place – it clearly allowed for class arbitration. Id. at 1428-29. Even if the contract were ambiguous, she argued, contra proferentem should apply because it does not conflict with the FAA. Id. at 1430-35. Justice Sotomayor’s dissent rejected the notion that class arbitration is fundamentally different from individual arbitration. Id. at 1427. She argued that consent to arbitration necessarily includes the ability for complainants to proceed as a class. Id. Justice Breyer argued that the Court of Appeals lacked jurisdiction altogether. Id. at 1422-23.

Justice Ginsberg crafted the most scathing dissent. She called out the disingenuity of the majority’s central premise that arbitration “is strictly a matter of consent.” Id. at 1421. In reality, people rarely have genuine choice when signing arbitration agreements. Rather, they are often a condition of employment. Id. When Congress passed the FAA in 1925, Ginsberg noted, Congress intended arbitration to simplify dispute resolution between businesses with equal bargaining power. Id. at 1420. This is a far cry from the role of arbitration today. Now, employers can force arbitration agreements on employees to insulate themselves from the consequences of unlawful employment practices. As Ginsberg argued in her dissent, mandatory individual arbitration thwarts “effective access to justice.” Id. at 1422.  

It is the unfortunate reality that a growing number of employees must agree to mandatory, pre-dispute, individual arbitration as a condition of employment. Nevertheless, employees may overcome arbitration agreements, or make employer’s pay in arbitration – employers sometimes fail to obtain arbitration consent from all employees, or waive a right to compel arbitration by proceeding in court extensively before moving to compel arbitration. Employers do not expect massive numbers of employees to file in arbitration – they hope employees will simply abandon their claims. However, mass filing of arbitrations by aggrieved employees sends a strong message: arbitration is not meant to be a get-out-of-jail free card. In California, employees have the option of bringing a representative action under the Private Attorneys General Act of 2004 (“PAGA”), standing in the shoes of the state, which cannot be compelled involuntarily to arbitration. With our vigilance, and notwithstanding the best efforts of the present U.S. Supreme Court to abandon workers’ rights to the whims of big business, workers’ claims may yet be vindicated. If you are an employee and have questions about a supposed arbitration agreement between you and your employer, contact Bryan Schwartz Law