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Vol. 2013, No. 5 May 2013
Michael C. Sullivan, Editor-in-Chief
Best Practices in Drafting
Independent Contractor
Agreements
Inside This Issue
Best Practices in Drafting Independent
Contractor Agreements
RAYMOND W. BERTRAND, HALEY M. MORRISON &
BRIT K. SEIFERT .............................................. 147
By Raymond W. Bertrand, Haley M.
Morrison & Brit K. Seifert
In an Era of Mandatory Arbitration, Don’t
Forget the Board
PEDER J. V. THOREEN ...................................... 157
The Fair Employment and Housing
Commission’s Final Act - New Disability
Regulations - Is a Not-So-Fond Farewell
for Employers
CAROLYN RASHBY & SHIVA SHIRAZI
DAVOUDIAN...................................................... 163
BOTH SIDES OF THE BAR
Will Gentry Survive Concepcion? A Discussion
with Two Prominent Practitioners Regarding
How the California Supreme Court May
Answer This and Related Questions
ZACHARIAH H. ROWLAND ................................. 169
CASE NOTES .............................................. 174
Damages Under FEHA............................. 174
Donning And Doffing................................ 175
Federal Employment................................. 176
Federal Tort Claims Act........................... 176
Merit Systems Protection Board .............. 177
Protected Concerted Activity ................... 178
Sovereign Immunity .................................. 178
Seniority .................................................... 179
Wage and Hour......................................... 180
Wal-Mart Class Actions ........................... 181
CALENDAR OF EVENTS ......................... 182
EDITORIAL BOARD AND AUTHOR
CONTACT INFORMATION..................... 184
Introduction
In a recent national survey, more than 40 percent of
companies reported that they had increased their use
of independent contractors over the previous two
years.1 This trend is likely to continue. Companies
can hire independent contractors to complete specific
tasks or projects without investing time and resources
into training, and without facing thorny issues related to
employee terminations. Use of independent contractors
can also provide financial certainty: companies can
agree to pay workers for services rendered without
worrying about extra costs like overtime compensation,
expense reimbursement, vacation pay, workers’ compensation insurance, unemployment insurance, or
payroll taxes. Use of contracted workers is also likely
to grow as businesses respond to the Affordable Care
Act’s2 health insurance mandates, which do not apply to
independent contractors. In sum, the independent
contractor business model offers companies an edge
in a competitive global marketplace.
As business reliance on contracted workers increases,
however, a worrisome parallel movement continues
nationwide. Federal and state governments, and
contractors themselves, are increasingly claiming that
1
Press Release, Right Management, Two in Five Firms
Use More Independent Contractors (Apr. 6, 2011), available
at http://www.right.com/news-and-events/press-releases/
2011-press-releases/item21314.aspx.
2
Patient Protection and Affordable Care Act (‘‘PPACA’’
or ‘‘Affordable Care Act’’), Pub. L. No. 111-148, 124 Stat.
119 (Mar. 23, 2010).
(Continued on page 149)
CA Labor & Employment Bulletin
148
EDITORIAL BOARD
Michael C. Sullivan, Editor-in-Chief
Matthew Jedreski, Executive Editor
Deborah J. Tibbetts, Associate Editor
Paul, Plevin, Sullivan & Connaughton LLP
San Diego
Nancy L. Abell
Paul Hastings LLP
Los Angeles
Ray Bertrand
Paul Hastings LLP
San Diego
Nicole A. Diller
Morgan, Lewis & Bockius LLP
San Francisco
Barbara A. Fitzgerald
Morgan, Lewis & Bockius LLP
Los Angeles
Lynn Matityahu Frank
Frank & Feder
San Diego
Joshua Henderson
Seyfarth Shaw LLP
San Francisco
Lynne C. Hermle
Orrick, Herrington & Sutcliffe LLP
Menlo Park
Alan Levins
Littler Mendelson, P.C.
San Francisco
Tyler M. Paetkau
Hartnett, Smith & Paetkau
Redwood City
William B. Sailer
QUALCOMM Incorporated
San Diego
Charles D. Sakai
Renne, Sloan, Holtzman & Sakai
San Francisco
Arthur F. Silbergeld
Dickstein Shapiro LLP
Los Angeles
Walter Stella
Miller Law Group
San Francisco
Peder J. Thoreen
Altshuler Berzon LLP
San Francisco
Bill Whelan
Solomon Ward Seidenwurm & Smith, LLP
San Diego
M. Kirby Wilcox
Paul Hastings LLP
San Francisco
May 2013
REPORTERS
Travis Anderson
Sheppard Mullin Richter & Hampton LLP
San Diego
G. Samuel Cleaver
Proskauer Rose LLP
Los Angeles
Michael J. Etchepare
Paul, Plevin, Sullivan & Connaughton LLP
San Diego
Paul M. Huston
Paul Plevin Sullivan & Connaughton LLP
San Diego
Jolene Konnersman
Mitchell Silberberg & Knupp LLP
Los Angeles
April Love
Littler Mendelson, P.C.
Houston
Bernadette M. O’Brien
Floyd, Skeren & Kelly, LLP
Calabasas
Brian M. Ragen
Seltzer Caplan McMahon Vitek
San Diego
Lena Ryan
Orrick, Herrington & Sutcliffe LLP
San Francisco
Angela T. Mullins
Paul, Plevin, Sullivan & Connaughton LLP
San Diego
Brit K. Seifert
Paul Hastings LLP
San Diego
Donald P. Sullivan
Wilson Elser Moskowitz Edelman & Dicker LLP
San Francisco
COLUMNISTS
Brian M. Ragen
Seltzer Caplan McMahon Vitek
San Diego
Corrie J. Klekowski
Paul, Plevin, Sullivan & Connaughton LLP
San Diego
Phyllis W. Cheng
Director, Dept. of Fair Employment and Housing
This publication is designed to provide accurate and
authoritative information in regard to the subject matter
covered. It is provided with the understanding that the
publisher is not engaged in rendering legal, accounting,
or other professional service. If legal or other expert assistance is required, the services of a competent professional
should be sought.
From the Declaration of Principles jointly adopted by a
Committee of the American Bar Association and a
Committee of Publishers and Associations.
A NOTE ON CITATION: The correct citation form for
this publication is: 2013 Bender’s Calif. Lab. & Empl.
Bull. 147 (May 2013).
EBOOK ISBN 978-0-3271-6747-1
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CA Labor & Employment Bulletin
149
May 2013
Best Practices in Drafting Independent Contractor Agreements
By Raymond W. Bertrand, Haley M. Morrison & Brit K. Seifert
(Continued from page 147)
companies are ‘‘misclassifying’’ these workers as independent contractors, rather than as employees, in order
to evade payroll taxes and other employment-related
expenses.3 If successful, a misclassification challenge
can expose the company to significant liability under
multiple tax and employment laws.4
Given these competing trends, it is essential for any
organization relying on an independent contractor to
3
The federal and state governments are stepping up misclassification enforcement efforts. President Obama’s proposed
2012 budget included a request for more than $15 million plus
107 full-time positions to target, investigate and prosecute independent contractor misclassification. U.S. Dep’t of Labor
(‘‘DOL’’), FY 2012 Department of Labor Budget in Brief, at
47, available at http://www.dol.gov/dol/budget/2012/PDF/
FY2012BIB.pdf. Fourteen states have signed memoranda of
understanding with the DOL’s Wage and Hour Division to
share information about companies using independent contractors and coordinate enforcement efforts. News Release No. 122496-KAN, DOL Wage & Hour Div., US Labor Department,
Iowa Workforce Development Sign Agreement to Reduce
Misclassification of Employees as Independent Contractors
(Jan. 17, 2013), available at http://www.dol.gov/opa/media/
press/whd/WHD20122496.htm. States have similarly enacted
laws aimed at worker misclassification. For examples, California
law has added civil penalties ranging from $5,000-$15,000 per
employee for ‘‘willful’’ independent contractor misclassification, and $10,000-$25,000 per employee for a ‘‘pattern and
practice’’ of misclassification. Cal. Lab. Code § 226.8.
4
Such liability may include the following: federal and
state income tax payments, Social Security (or Federal Insurance Contributions Act (‘‘FICA’’) taxes, Medicare and
Federal Unemployment Tax Act (‘‘FUTA’’) taxes, and penalties and interest for failing to withhold and pay taxes; liability
for violating the Fair Labor Standards Act (‘‘FLSA’’) for
failure to pay minimum wages or overtime pay; liability for
employee benefits, vacation and sick pay, stock options and
pension plan contributions, and vesting; liability for unreimbursed business expenses; liability for failure to pay state
workers’ compensation insurance; and a variety of penalties.
Non-financial consequences also are serious. Responsible
company officials may be held personally liable for some
such payments, and some laws impose criminal sanctions
(including incarceration) on company officers or agents for
intentionally misclassifying workers.
take steps that carefully establish and preserve that relationship. And the first such step is a carefully reasoned
independent contractor agreement.
This article addresses the best practices for drafting
such independent contractor agreements, including,
the importance of having a written, customized agreement, the overriding legal considerations and how they
drive the drafting process, and essential and optional
provisions.
Is a Written Independent Contractor Agreement
Really Necessary?
Yes, a written contract is necessary, and it should be
customized to the particular relationship, for several
key reasons.
First, a written contract defines the terms of the engagement so both sides are clear on the nature of the
relationship and the parties’ expectations. In contrast,
an oral agreement carries with it the risk that the parties
had different understandings, and will provide little
help if a later dispute results in a legal proceeding.
Second, the very fact that a written agreement exists is
evidence that the parties intended to create an arrangement different from most employment arrangements. A
contractor’s express agreement that he or she intends to
work as an independent contractor under specified
terms can, under the right circumstances, be exceedingly powerful against any later claim that he or she
believed that he or she was an employee. It should be
customized, however, and not a form contract. Courts
give little credence to form agreements in this context,
generally finding them not a very meaningful indicator
of the parties’ own understandings.
Third, the exercise of crafting the agreement can, in and
of itself, help the parties think through key aspects of
the relationship. The process enables the parties to
discuss the reasons for certain provisions, and what
they mean for the day-to-day work relationship.
Finally, a customized contract enables the parties to
include additional provisions that are important to them,
such as requiring the contractor to protect and preserve
CA Labor & Employment Bulletin
confidential and proprietary information, requiring assignment of inventions, and refraining from unfair
competition.
The Business Must Understand the Contract’s
Limits
There are limits to even the most carefully written independent contractor agreement. If the company treats the
contractor like an employee, the written agreement will
be of little use. Courts ignore or give little weight to
written agreements and the titles they use if the parties’
daily activities suggest an employment arrangement.
There are also certain ‘‘hot-spot’’ industries and/or
jurisdictions where a particular industry or position is
presumed to use employees. In such cases, it will be
exceedingly difficult to overcome that presumption
even with an extremely well-considered, carefully
written agreement. For example, in certain locales,
such as New York and Pennsylvania, state laws create
a presumption that construction workers are employees,
not independent contractors.5
In other words, an independent contractor agreement is
essential to safeguarding a true independent contractor
relationship. It cannot, however, serve as a panacea if
the facts or applicable law preclude the characterization.
Legal Considerations That Drive the Drafting
Process
A well-written contract of any kind takes into account
legal issues, and independent contractor agreements are
no exception. In order to establish the relationship and
guard against future misclassification challenges, these
contracts should be written with particular focus on the
factors that the Internal Revenue Service (‘‘IRS’’) or
another government agency will examine to assess
proper classification. This is easier said than done,
however, as no single, uniform test governs independent contractor status. Different tests apply depending
on the law that is implicated.
5
See N.Y. Lab. Law § 861-c; H.B. 400, Pa. Gen. Assemb.
194th Sess. (Act No. 2010-72) (mandating employee treatment of construction workers unless specific criteria are
met, and imposing monetary penalties and incarceration
against employers or their officers or agents for misclassifying
such workers as independent contractors and failing to make
unemployment and workers compensation payments or
contributions).
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May 2013
For example, the IRS analyzes twenty factors6 grouped
into three categories. These factors indicate (1) ‘‘behavioral control’’ (whether the company had the right to
direct and control how the individuals perform their job
tasks), (2) ‘‘financial control’’ (whether the contractor
has unreimbursed business expenses, is free to advertise
and seek out other business opportunities, payment
terms, and can realize a profit or loss), and (3) the
‘‘type of relationship’’ (whether a written contract
describes the intended relationship, if employee benefits are provided, the permanency of the relationship,
and if the work performed is a key aspect of the company’s regular business).7 The separate ‘‘economic
reality’’ test applies to a court or Department of Labor
(‘‘DOL’’) challenge asserting employee status for
Fair Labor Standards Act (‘‘FLSA’’)8 purposes.9 This
6
See Internal Revenue Manual, Chapter 4600 Employment Tax Procedures, Exhibit 4640-1 (1986) (‘‘Internal Rev.
Man. Ex. 4640-1’’). The 20 factors are instructions; training;
services integration; services rendered personally; hiring,
supervising, and paying assistants; whether the relationship
is a continuing one; whether work hours are set; if full-time
is required; if work is performed on company premises; if
work must be performed in a certain order or sequence set;
if oral or written reports are required; if payment is by the
hour, week, or month; which party pays business and traveling
expenses; which party furnishes tools and materials; if the
worker has a significant financial investment; if the individual
realizes a profit or loss from the deal; if the individual works
for more than one company at a time; whether the contractor
makes services available to the general public; whether the
company can ‘‘discharge’’ the individual; and if the contractor
can terminate the relationship without liability. Internal
Revenue Ex. 4640-1.
7
Internal Rev. Man. Ex. 4640-1, supra note 6.
8
29 U.S.C. § 201 et seq.
9
See, e.g., Wal-Mart May Face Wage Suit from
Contracted Workers, Law360 (Jan. 8, 2013) (reporting that
the court in Carrillo v. Schneider Logistics Inc., No. 2:11-cv08557 (C.D. Cal. Jan. 7, 2013), tentatively allowed a motion
to amend the complaint to add Wal-Mart as a defendant in an
FLSA case brought by employees of a contractor hired by
Wal-Mart to run certain warehouses; plaintiff’s counsel
reported as saying: ‘‘We contend that Wal-Mart is a joint
employer and the principal on whose behalf the other contractors acted as agents, and that it was an aider and abettor of
their violations and was negligent in retaining the other
contractors, knowing of their violations, . . . Its role in these
warehouses is the same as its role in the 100 percent Wal-Mart
run warehouses, which is to minutely scrutinize every activity
that occurs in the warehouse. . . . As a matter of economic
reality, Wal-Mart is liable for the wage violations inflicted
upon the workers.’’).
CA Labor & Employment Bulletin
test examines whether, as a matter of economic reality, the individual is economically dependent upon
the company for which it renders services or,
whether he or she is in business for himself or herself,
instead.10
Yet a different analysis applies if the contractor or
the Equal Employment Opportunity Commission
(‘‘EEOC’’) (or similar state agency) later sues the
company for discrimination under federal law. To bring
these claims, the individual must qualify as an
‘‘employee’’ as evaluated under the anti-discrimination
laws,11 which generally rely on common law agency
principles of master/servant.12 The overarching issue is
‘‘the hiring party’s right to control the manner and
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May 2013
means by which the product is accomplished.’’13 State
laws may also employ their own analyses.14
Choosing just one such test and writing the contract
to address its elements is risky because this approach
could still fall short under a different analysis. Someone
may qualify as an independent contractor under the IRS’s
test for federal income tax purposes, but be deemed an
employee under the DOL’s ‘‘economic realities’’ inquiry.
There is also no guarantee regarding which test may be
implicated. Generally, the contract is written long before
a worker status challenge arises, and when it is still
impossible to know whether it will be the IRS, DOL,
contractor, or another entity claiming misclassification.
Finally, none of the tests are easy-to-apply, nor do they
have ‘‘bright-line’’ rules. Multiple factors make up each
13
10
Five factors guide the ‘‘economic realities’’ inquiry: (1)
the degree of control exercised by the company; (2) the extent
of relative investments by the individual and company; (3) the
degree to which the individual’s opportunity for profit or loss
is determined by the company; (4) the skill and initiative
required in performing the job; and (5) the permanency of
the parties’ relationship. These factors are nonexhaustive
and no one factor controls. Hopkins v. Cornerstone Am.,
545 F.3d 338, 343 (5th Cir. 2008) (reciting these principles
and noting that ‘‘each factor is a tool used to gauge the
economic dependence of the alleged employee, and each
must be applied with this ultimate concept in mind’’).
11
See, e.g., Ernster v. Luxco, Inc., 596 F.3d 1000, 1003
(8th Cir. 2010) (‘‘alleg[ing] age discrimination in violation of
the [Age Discrimination in Employment Act (‘‘ADEA’’)] and
the [Iowa Civil Rights Act]. Both statutes protect employees
but not independent contractors.’’).
12
The United States Supreme Court in Nationwide Mutual
Insurance Co. v. Darden, 503 U.S. 318, 323-24 (1992), held
that when a federal statute defines ‘‘employee’’ in a manner
that ‘‘is completely circular and explains nothing,’’ then courts
are to use the common-law test, derived primarily from the
Restatement (Second) of Agency, § 220(2) (1958). This
common law test, or some version of it, also has been
applied to decide ‘‘employee’’ status under other federal
statutes. See, e.g., Berger Transfer & Storage v. Central
States, Se. & Sw. Areas Pension Fund, 85 F.3d 1374, 1378
(8th Cir. 1996) (applying the test on an Employee Retirement
Income Security Act (‘‘ERISA’’) claim).
Darden, 503 U.S. at 323-24. Factors examined are the
skill required; the source of the instrumentalities and tools; the
location of the work; the length of time for which the individual is engaged; whether the hiring party has the right to
assign additional projects; the extent of the contractor’s
discretion over when and how long to work; the method of
payment (e.g., by the time or by the job); whether the
contractor is in business; whether the work performed is
part of the regular business of the hiring party; whether
employee benefits are provided; and the tax treatment of the
contractor.
14
See, e.g., Mass. Gen. Laws ch. 149, § 148B (one of the
most stringent state-level independent contractor statutes, this
statute places the burden on the company or organization to
demonstrate that a worker satisfies each of the three prongs of
the so-called ‘‘ABC’’ test in order to be classified as an independent contractor; the worker must (a) be free from the
company’s control and direction in performing the service,
‘‘both under his contract for the performance of service and
in fact’’; (b) the services provided must be rendered outside of
the company’s usual place of business; and (c) the individual
must be engaged in an independent trade, occupation or business of the same nature as the company); Or. Rev. Stat.
(‘‘ORS’’) § 670.600(2) (for purposes of state revenue department and licensing boards, an ‘‘independent contractor means
a person who provides services for remuneration and who, in
the provision of the services: (a) Is free from direction and
control over the means and manner of providing the services,
subject only to the right of the person for whom the services
are provided to specify the desired results; (b) Except as
provided in subsection (4) of this section, is customarily
engaged in an independently established business; (c) Is
licensed under ORS chapter 671 or 701 if the person provides
services for which a license is required under ORS chapter
671 or 701; and (d) Is responsible for obtaining other licenses
or certificates necessary to provide the services.’’).
CA Labor & Employment Bulletin
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May 2013
will render - but should not dictate how the
services will be performed on a day-to-day
basis. It helps to state that the contractor is
responsible for determining when, where and
how he or she will carry out the work, or that
the contractor is responsible for the method,
manner and means of delivering the final
product or result. Caveat: as noted earlier,
however, simply saying that the contractor is
free to perform without supervision will not
make it so. The parties’ actions must mirror
this provision.16
test, and no guidance exists as to how many (or which)
factors must be satisfied to tip the balance one way or
the other.
At the same time, when drafting the agreement, it is
important to bear in mind that the key determinant of
independent contractor status across most employment
and tax laws is the company’s degree of control over the
individual worker. The more control the company retains whether or not that control is actually exercised - the more
likely the individual will be found to be an ‘‘employee.’’
As the IRS says: ‘‘In determining whether the person
providing service is an employee or an independent
contractor, all information that provides evidence of
the degree of control and independence must be
considered.’’15 This standard should guide the process of
writing the contract, too.
Contract Terms To Be Sure to Include - and
Language To Be Sure to Exclude
Certain provisions should be included in virtually all
independent contractor agreements, unless a unique
reason makes it unwise. Also, the language used in
each provision should be carefully considered because
certain words bear legal significance and should be used
only if they help to establish contractor status.
Titles and Names: The agreement should be
properly-titled. Here, and throughout, the
nomenclature matters. The document should
be called something like ‘‘Consulting Agreement,’’ ‘‘Independent Contractor Agreement,’’
or ‘‘Services Contract,’’—but not ‘‘Employment
Agreement.’’ Likewise, the parties should be
properly identified and characterized. Nowhere
in the document should the individual contractor be referred to as an ‘‘employee’’ nor
the company referred to as the ‘‘employer.’’
The contract should affirmatively state that the
contractor is engaged as an independent contractor. Once a complete draft of the contract
exists, it should be reviewed from start to
finish solely to eliminate any ‘‘employment’’sounding language.
Nature of Contract Services and Contract Specifications; No Directions and No Control: The
contract should specify the particular purpose
for the engagement - the services the contractor
15
See IRS, Independent Contractor (Self-Employed) or
Employee?, available at http://www.irs.gov/Businesses/
Small-Businesses-&-Self-Employed/Independent-Contractor(Self-Employed)-or-Employee%3F.
Term/Duration of Engagement: Generally speaking, an engagement for a specific period of time,
or for the duration of a particular project,
suggests independent contractor status. Engagements for long or indefinite periods of time or
with no stated end-date, suggest employment
status. For this reason, the independent contractor agreement should describe the finite
term of the engagement, and if possible, state
that it will terminate upon conclusion of the
project. Any penalties for prematurely ending
the contract should be listed.
Less convincing for contractor status, but an option, is a
term allowing either side to terminate on 30 days’ notice
(e.g., so the company can locate a replacement
contractor). The contract should not reserve the right to
terminate at any time, however; such a provision smacks
of an at-will relationship, which is generally found in the
employment context.
16
Pay/Compensation: Contractor payments should
be treated in a manner consistent with independent contractor status - and inconsistent with
employment status. Payments should be in the
form of a lump sum, as agreed upon as the cost
of a job, or in the form of lump-sum payments as
progress is made or using piecework payments.
Periodic (hourly, weekly, or monthly) payments
should be avoided because they look like wages.
The company should consult a tax advisor to
secure professional advice regarding tax treatment. In many cases, this may mean that the
See, e.g., ‘‘An Advisory from the Attorney General,
Amendments to Massachusetts Independent Contractor
Law,’’ Advisory 2008/1, at p. 3 (‘‘An employment contract
or job description indicating that an individual is free from
supervisory direction or control is insufficient by itself to
classify an individual as an independent contractor under
the Law.’’).
CA Labor & Employment Bulletin
contractor will complete an IRS Form W-9
Request for Taxpayer Identification Number
and Certification;17 the company will not make
employment-related withholdings for taxes
(e.g., FICA, FUTA, etc.); and the company
will issue a Form 1099-MISC, which is most
commonly used to report payments made to
contractors for services.
Non-Exclusivity: Restrictions on a contractor’s
ability to work for other companies suggests
control and employment status, not independent
contractor status.18 Consequently, the contract
should not provide for an exclusive engagement
and, if possible, should expressly state that the
contractor is free to undertake other work
arrangements during the term of the contract
(subject to the confidentiality, non-compete
and related obligations addressed below), and
may continue to make his or her services available to the public.
If an exclusive arrangement is desired, a company may be
able to accomplish it in fact by establishing an ambitious
timeframe for completion of the project, so as to prevent
the contractor from taking on other work simply due to
time constraints. The fact that he or she could have taken
on additional work can shore up the independent
contractor characterization if it is later challenged.
Hours: If possible, the contract should expressly
grant the contractor’s right to work those hours
he or she deems necessary to perform under the
contract, as this discretion shows the contractor
is in control, not the company.19
Location of Worksite or Performance of
Services/Premises: If possible, the contract
should leave to the contractor the decision of
where to perform the work, again, to demonstrate control by the contractor.
17
Expenses: The contract should expressly state
that the contractor is responsible for paying
business expenses related to furnishing services
under the contract, such as the cost of equipment, tools, office space and support services.
The company should limit reimbursement for
Available at http://www.irs.gov/pub/irs-pdf/fw9.pdf.
18
See Rev. Rul. 87-41, 1987-1 C.B. 296 (‘‘An independent
contractor is free to work when and for whom he/she
chooses.’’).
19
See Rev. Rul. 87-41, 1987-1 C.B. 296 (‘‘The establishment of set hours of work by the person or persons for whom
the services are performed is a factor indicating control.’’).
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May 2013
those expenses to the greatest extent possible,
as reimbursement suggests employee status.
One negotiating point if the contractor objects
to assuming business expenses is to write up the
overall contract payment amount to cover the
costs of the reasonably foreseeable expenses.
Provisions Protecting Company Property, Trade
Secrets and Inventions: Unfortunately, independent contractor agreements often include
no mention of a company’s confidential information, trade secrets and inventions. Yet
consultants may have as much, or possibly
even more, access than employees to such valuable intellectual property and confidential data.
Thus, it is important to address these issues.
Non-disclosure/Confidentiality: This provision basically states that the contractor
(and his or her delegates or assistants) will
not disclose or use confidential (including
proprietary) information during or after the
contract term, other than as required in
course of engagement.
Inventions: This provision addresses the
company’s ownership of inventions, discoveries, developments, etc. by the contractor in
the course of performing the services, and
assigns any contractor rights to such inventions and discoveries to the company. The
contract should also establish the same obligations and rights as to any delegates or
assistants engaged by the contractor to
perform the contract.
The company should be careful to ensure that the
above-listed provisions are drafted in compliance with
the applicable state law(s).
Some companies may already have separate agreements
addressing these matters. Such outside agreements may
be used with independent contractors so long as certain
protections are in place. For example, the outside agreement should not use employment-type language, such as
referring to the individual signing it as an ‘‘employee.’’
Also, the independent contractor agreement should not
state that it sets forth the entire agreement of the parties
as to the relationship. Instead, it should expressly reference the separate confidentiality/inventions agreement(s).
Any such agreements may be presented to the contractor
for signature along with the independent contractor agreement at the outset of the arrangement.
CA Labor & Employment Bulletin
Optional Provisions
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May 2013
Other potential disclaimer provisions include:
Though not essential, the following additional provisions may be appropriate:
Assistants/Right to Delegate: In appropriate
contexts, a contract may expressly state that the
contractor may hire delegates to assist in
performing all or some of the services under the
contract. Such a provision bolsters independent
contractor status.20 If this topic is addressed, the
contract should also expressly state that the
contractor, not the company, bears full responsibility for hiring, overseeing and paying such
assistants/delegates.
Indemnification: An issue that may trigger negotiation between the parties is whether to include
an indemnification clause. The clause may be
narrowly drafted to cover a specific issue. Or, it
may be broader, and require the contractor to
indemnify the company, perhaps up to a stated
financial amount, for losses or damages resulting
from the contractor’s services.
There is no right or wrong rule here. If a company
desires indemnification, then it should want to take
steps to verify the financial ability of the contractor to
fulfill an indemnification promise, e.g., proof of valid
insurance coverage, the contractor’s affirmance in the
agreement that he/she will continue to carry such insurance, etc.
Disclaimers and Language Expressly Denying
Certain Aspects of the Relationship
Affirmatively addressing a feature of the relationship
may not always be enough. It is therefore important
that the contract state what the relationship is not.
For example, actually stating that the worker is engaged
as an independent contractor and is not being hired as
an employee, can be powerful proof later if there is a
dispute about the contractor’s status. To further bolster
this distinction, the contract may go on to state that the
parties - and particularly, the individual - understand the
difference between a contractor role and an employee
role, and would not have entered into this arrangement
had it been an employment arrangement. Having the
contractor ascribe his/her initials next to these provisions, indicating his/her understanding, is also prudent.
20
See Rev. Rul. 87-41, 1987-1 C.B. 296 (stating that if
services must be rendered personally, then presumably, the
company is interested in the methods and not just the end
result).
No employee benefits: The common law masterservant test, in particular, examines whether
employee benefits were provided by the
company to the contractor.21 Expressly stating
that the contractor is not eligible for, nor
provided, such benefits meets this factor head-on.
No training/meetings: If true, the contract
should expressly state that there is no requirement that the contractor undergo training by the
company, nor attend workplace employee meetings, in order to provide services under the
contract.22
No progress reports: If possible, expressly
stating that no periodic or regular written or
oral progress or status reports will be required
from the contractor to the company can bolster
contractor status.
The decision as to whether to include disclaimer provisions should be based on factors such as the particular
services being provided, the work history between the
parties, the relative likelihood of a challenge to the worker’s status, the company’s past practices, the industry in
which the company does business, and unique aspects of
the governing law.
Conclusion
It has never been riskier for companies to use independent contractors, yet businesses are increasingly turning
to this worker model because of the relative independence and efficiency that it offers, among other things.
Starting off on the right foot with a tailored, wellanalyzed, and clearly written independent contractor
21
Nationwide Mutual Ins. Co. v. Darden, 503 U.S. 318,
324 (1992) (‘‘In determining whether a hired party is an
employee under the general common law of agency, we
consider the hiring party’s right to control the manner and
means by which the product is accomplished. Among the
other factors relevant to this inquiry are . . . the provision of
employee benefits’’) (internal citation omitted).
22
See Department of the Treasury, IRS, Independent
Contractor or Employee?, IRS Publication 1179 (3-2012)
(‘‘Training - if the business provides you with training about
required procedures and methods, this indicates that the business wants the work done in a certain way, and this suggests
that you may be an employee.’’). On a related note, to the
extent the contractor possesses certifications, such as a professional license, etc., required to perform under the contract, it is
helpful to reference those pre-existing credentials, either in
the body of the agreement or in the opening recitals.
CA Labor & Employment Bulletin
agreement can safeguard the relationship and offer
the company important protections.
Raymond W. Bertrand, Esq., is a partner in the Paul
Hastings Employment Law practice whose practice
focuses on leading large and complex litigation
matters in state and federal courts, in cases involving
all aspects of employment law, including wage-hour,
wrongful termination, breach of contract, trade
secrets, discrimination, harassment and retaliation.
Mr. Bertrand can be reached at raymondbertrand@
paulhastings.com.
Haley M. Morrison, Esq. is an associate in the Paul
Hastings Employment Law practice who represents
employers in a wide variety of employment-related
155
May 2013
matters, including employment discrimination, harassment, and wage and hour cases, in both single plaintiff
and class action litigation. Ms. Morrison can be
reached at [email protected].
Brit K. Seifert, Esq. is an attorney in the Paul Hastings
Employment Law practice who counsels and represents
employers in connection with day-to-day workforce
talent management issues, including the onboarding
process, disciplinary issues and terminations, and
compliance with federal, state and local employment
laws. Ms. Seifert can be reached at [email protected].
CA Labor & Employment Bulletin
156
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Also from Matthew Bender:
California Employers’ Guide to Employee Handbooks and Personnel Policy
Manuals, by Morrison & Foerster LLP
2012 Revisions by Paul Hastings LLP
This handy volume and accompanying CD offers an all-inclusive roadmap to
writing, revising and updating employee handbooks. More economical than
competing guidebooks, this volume is a vital reference that helps you draft appropriate content, speeding additional research with cross-references to the Wilcox
treatise, California Employment Law. Sample policies cover the following: technology use and security; blogging; cell phone use; company property, proprietary
and personal information; employment-at-will; anti-harassment policies; work
schedules and overtime; and much more. Order online at Lexis.com or by
calling 1-800-223-1940.
May 2013
CA Labor & Employment Bulletin
157
May 2013
In an Era of Mandatory Arbitration, Don’t Forget the
Board
By Peder J. V. Thoreen
Introduction
In an era in which the United States Supreme Court has
increasingly protected employers’ ability to enforce
arbitration agreements that they require as a condition
of employment, the National Labor Relations Board
(‘‘NLRB’’ or ‘‘Board’’) has re-invigorated the National
Labor Relations Act1 (‘‘NLRA’’ or ‘‘Act’’) as a source
of employee rights to challenge such agreements.
Recently, in Supply Technologies LLC,2 the Board reaffirmed that arbitration agreements perceived to
restrict employees’ right to access the Board’s
processes are unlawful. The decision arguably extends
the relevant jurisprudence beyond prior decisions,
potentially requiring employers to expressly inform
employees when signing an arbitration agreement
that by doing so, they are not waiving their right to
petition the Board for relief. This article discusses the
Supply Technologies decision in the context of the
trends in related Supreme Court cases and earlier
Board decisions.
Discussion
Conflicting Currents
Mandatory, pre-dispute arbitration agreements, often
required as a condition of employment, have garnered
much attention from the Supreme Court in recent years.
In a series of decisions, the Court has strongly endorsed employers’ right to impose such agreements on
employees and to insist that they be enforced according
to their terms, including broad definitions regarding
the types of claims subject to mandatory arbitration
and limitations on the manner in which arbitration
must proceed, such as prohibitions on class or joint
arbitration.3
For example, in 2009 in 14 Penn Plaza LLC v. Pyett,4
which held that a provision in a collective bargaining
agreement requiring the arbitration of federal statutory
claims under the Age Discrimination in Employment
Act5 (‘‘ADEA’’) was enforceable, the Court distanced
its own statements in prior cases ‘‘that were highly
critical of the use of arbitration for the vindication of
statutory antidiscrimination rights.’’6 It noted that these
were based on ‘‘a misconceived view of arbitration that
this Court has since abandoned.’’7 Indeed, as long ago
as 1989 the Court recognized that earlier case law
‘‘rest[ing] on suspicion of arbitration as a method of
weakening the protections afforded in the substantive
law to would-be complainants, . . . has fallen far out of
step with our current strong endorsement of federal
statutes favoring this method of resolving disputes.’’8
This perspective has recently been evident in the
Court’s 2011 decision holding that the Federal Arbitration Act (‘‘FAA’’)9 preempts a state law rule prohibiting
class action waivers in consumer arbitration agreements
where they effectively exculpate the defendant from its
own wrongdoing,10 and its 2012 decision holding that a
federal statute’s right-to-sue language was insufficient
to guarantee the right to a judicial forum.11
4
556 U.S. 247 (2009). To view Supreme Court briefs
related to the 14 Penn Plaza LLC case, go to 2007 U.S.
Briefs 581 on Lexis.com. To view oral argument transcripts,
go to 2008 U.S. Trans. LEXIS 71.
5
29 U.S.C. § 621 et seq.
6
Pyett, 556 U.S. at 265.
7
556 U.S. at 265.
8
The Supreme Court has expressly recognized this trend
away from an historical judicial hostility to arbitration.
1
29 U.S.C. § 151 et seq.
2
359 NLRB No. 38 (2012).
3
Rodriguez de Quijas v. Shearson/American Express,
Inc., 490 U.S. 477, 480 (1989) (noting the ‘‘outmoded
presumption of disfavoring arbitration’’ and the erosion of
‘‘ ‘the old judicial hostility to arbitration’ ’’ (quoting Kulukundis Shipping Co. v. Amtorg Trading Corp., 126 F.2d
978, 985 (2d Cir. 1942)).
9
For more on this trend, see Peder J. V. Thoreen, Alienable Rights? The Past, Present & Future of the Prohibition
Against Private FLSA Settlements, 2012 Bender’s Cal. Lab. &
Empl. Bull. 405, 411-12 (Dec. 2012).
9 U.S.C. § 1 et seq.
10
AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740
(2011) .
11
CompuCredit Corp. v. Greenwood, 132 S. Ct. 665
(2012).
CA Labor & Employment Bulletin
At the time of this writing, the Court is considering
whether the FAA ‘‘permits courts, invoking the
‘federal substantive law of arbitrability,’ to invalidate
arbitration agreements on the ground that they do not
permit class arbitration of a federal-law claim.’’12 The
Court also currently has before it the question whether
‘‘an arbitrator acts within his powers under the Federal
Arbitration Act . . . by determining that parties affirmatively agreed to authorize class arbitration, . . .
based solely on their use of broad contractual language
precluding litigation and requiring arbitration of any
dispute arising under their contract.’’13 If recent
history is a guide, it is likely that these questions will
be answered in the negative.
The Board, however, famously bucked this trend with
its 2012 decision in D.R. Horton, Inc.14 In that case, the
Board considered the validity of a mandatory arbitration agreement prohibiting class arbitration in light of
Section 7 of the NLRA.
Section 7 guarantees workers’ rights ‘‘to self-organization,
to form, join, or assist labor organizations, to bargain
collectively through representatives of their own choosing,
and to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or
protection.’’15 Section 8(a)(1) of the NLRA makes it an
unfair labor practice for an employer ‘‘to interfere with,
restrain, or coerce employees in the exercise of the rights
guaranteed in’’ Section 7.16
158
May 2013
the extent that it prohibited employees from pursuing
disputes on a joint, class or collective basis.17 The maintenance of the class prohibition thus constituted an
unfair labor practice in violation of Section 8(a)(1).
It is against this backdrop that the Board issued its
decision in Supply Technologies and re-affirmed
another doctrine impeding efforts by employers to
channel all disputes with their employees into
private, individual arbitration.
Supply Technologies
Unlawful Policies Impairing Access to the Board
The broader context for the decision in Supply Technologies is Board law regarding the circumstances
in which workplace policies unlawfully impair
employees’ NLRA rights. In Lutheran Heritage
Village-Livonia,18 the Board considered when workplace rules may violate Section 8(a)(1) of the Act
because they ‘‘reasonably tend to chill employees in
the exercise of their Section 7 rights.’’19 The Board
began with the uncontroversial conclusion that, where
a rule ‘‘explicitly restricts activities protected by
Section 7 . . . we will find the rule unlawful.’’20 The
Board then established three circumstances in which a
workplace rule violates Section 8(a)(1) even though it
does not expressly restrict Section 7 activity, holding
that such violation depends on a showing that:
(1) employees would reasonably construe the
language to prohibit Section 7 activity; (2) the
rule was promulgated in response to union
activity; or (3) the rule has been applied to
restrict the exercise of Section 7 rights.21
The Board in D.R. Horton held that the employer’s
arbitration agreement violated employees’ Section 7
right to engage in ‘‘concerted protected activity,’’ to
Thus, for example, the Board in Lutheran Heritage
concluded that workplace rules prohibiting abusive or
profane language did not violate Section 8(a)(1)
because (a) they ‘‘do not expressly cover Section 7
activity,’’ (b) there was ‘‘no basis for a finding that a
12
See Brief for Petitioner, Am. Express Co. v. Italian
Colors Rest., No. 12-133, United States Supreme Court
(Dec. 21, 2012), at i, available at http://www.americanbar.
org/content/dam/aba/publications/supreme_court_preview/
briefs-v2/12-133_pet.authcheckdam.pdf.
13
See Brief for Petition, Oxford Health Plans v. Sutter,
No. 12-135, United States Supreme Court (Jan. 2013), at (i),
available at, http//www.americanbar.org/content/dam/aba/
publications/supreme_court_preview/briefs-v2/12-135_
pet.authcheckdam.pdf (quotation marks and internal citation omitted).
14
15
16
17
D.R. Horton is currently on appeal in the Fifth Circuit.
Oral argument took place on February 5, 2013. At the time
this article was submitted for publication, no opinion had been
issued. For more on how class action prohibitions interfere
with employees’ Section 7 rights, see Peder J. V. Thoreen,
Class Action Prohibitions in Mandatory Arbitration Agreements and Employees’ Section 7 Rights, 2011 Bender’s Cal.
Lab. & Empl. Bull. 97 (Apr. 2011).
18
343 N.L.R.B. 646 (2003).
357 NLRB No. 184 (2012).
19
343 N.L.R.B. at 646.
29 U.S.C. § 157.
20
343 N.L.R.B. at 646.
29 U.S.C. § 158(a)(1).
21
343 N.L.R.B. at 647.
CA Labor & Employment Bulletin
reasonable employee would interpret a rule prohibiting
such language as prohibiting Section 7 activity,’’ and
(c) there was no evidence that the challenged rules
‘‘have been applied to protected activity or that [they
were] adopted . . . in response to protected activity.’’22
Among the specific types of activities protected by
Section 7 is access to the Board’s processes.23 Thus,
an employer commits an unfair labor practice in violation of Section 8(a)(1) if it impairs employees’ access to
the Board. Supply Technologies addressed whether a
mandatory arbitration agreement could have this impermissible effect.
The Decision, Its Antecedents, and Its Implications
Supply Technologies involved a grievance-arbitration
program, called ‘‘Total Solutions Management’’ or
‘‘TSM,’’ pursuant to which employees were required
to arbitrate all
claims relating to [their] application for
employment, [their] employment, or the termination of [their] employment;
claims under any federal[,] state, or local
statute (including, but not limited to, the Age
Discrimination in Employment Act, Title VII
of the Civil Rights Act, Sections 1981 through
1988 of Title 42 of the United States Code,
ERISA (the Employee Retirement Income
Security Act), Worker Adjustment Relocation
and Notification Act, the Americans with
Disabilities Act, the Fair Labor Standard[s]
Act, the Family and Medical Leave Act, the
Sarbanes-Oxley Act, the Equal Pay Act and
the Uniformed Services Employment and
Reemployment Rights Act . . . .24
Only three types of claims were expressly excluded
from TSM – criminal matters, claims for workers’
compensation, and claims for unemployment compensation benefits.25
159
May 2013
requirement that federal statutory claims must be
brought under TSM, reasonable employees reading
the Agreement would understand it to restrict their
right to file unfair labor practice charges or otherwise
access the Board’s processes.’’26 The Board noted that
although the NLRA was not specifically identified as
one of the statutory claims subject to arbitration, all
of the statutes identified in the nonexhaustive list are,
like the NLRA, ‘‘concerned with workplace rights,’’
while the ‘‘short description of excluded claims states
that they are the only claims excluded.’’27
Although the TSM expressly preserved the parties’
right to ‘‘file a charge or complaint with a government
agency’’ and left them ‘‘free to cooperate with a government agency that might be investigating a charge or
complaint,’’ the Board held that this was insufficient.28
It noted that, in contrast to the language specifically
naming the statutes expressly covered by TSM, ‘‘no
statute or government agency is named here. Nor does
this language explain that filing an administrative
charge is intended to be an exception to the broad and
nonexhaustive list of claims that, according to [other
provisions] of the Agreement, ‘must’ be brought in
TSM.’’29
In the end, the Board held that ‘‘the language leaves the
scope of TSM ambiguous, at best.’’30 It held that such
ambiguity should be resolved against the drafter, the
employer, noting that when it intended to make a provision clear and unambiguous – such as the language
making clear that employees’ continued employment
was conditioned on signing the agreement – it did so.31
For all of these reasons, the Board concluded that
‘‘reasonable employees would understand TSM as
interfering with the right to file unfair labor practice
charges or otherwise access the Board’s processes,’’
and that its maintenance therefore violates Section
8(a)(1).32
As the Board noted,33 its decision finds support in a line
of prior NLRB cases. In 2006 in U-Haul Co.,34 for
The Board concluded that in light of TSM’s ‘‘broad
scope, its three limited exceptions, and its specific
22
26
359 NLRB No. 38, slip op. at 2.
27
359 NLRB No. 38, slip op. at 2.
28
359 NLRB No. 38, slip op. at 2.
29
359 NLRB No. 38, slip op. at 2.
30
359 NLRB No. 38, slip op. at 3.
31
359 NLRB No. 38, slip op. at 3-4.
32
359 NLRB No. 38, slip op. at 4.
359 NLRB No. 38, slip op. at 2.
33
See 359 NLRB No. 38, slip op. at 3.
359 NLRB No. 38, slip op. at 2.
34
347 N.L.R.B. 375 (2006).
343 N.L.R.B. at 647.
23
See, e.g., Braun Elec. Co., 324 N.L.R.B. 1, 3 (1997)
(‘‘[T]he rights secured by Section 7 include ‘the right to
unionize, the right to engage in concerted activity for
mutual aid and protection, and the right to utilize the
Board’s processes.’ ’’ (quoting Bill Johnson’s Rests. v.
NLRB, 461 U.S. 731, 740 (1983)).
24
25
CA Labor & Employment Bulletin
example, the Board held that a mandatory arbitration
policy requiring arbitration of numerous specified statutory claims as well as ‘‘any other legal or equitable
claims and causes of action recognized by local, state,
or federal law or regulations,’’ violated Sections 8(a)(1)
and (4) of the Act.35 While the policy did not expressly
restrict employees from resorting to the Board, ‘‘the
breadth of the policy language, referencing the policy’s
applicability to causes of action recognized by ‘federal
law or regulations,’ would reasonably be read by
employees to prohibit the filing of unfair labor practice
charges with the Board.’’ 36 The NLRB held that
language explaining that arbitration was limited to
claims that a ‘‘court of law’’ could adjudicate was insufficient to clarify that the policy did not extend to the
filing of charges with the Board.37
A year later, in Bill’s Electric, Inc.,38 the Board held
unlawful another mandatory grievance and arbitration
policy. In that case, the policy informed job applicants
that participation in the grievance and arbitration
process did not constitute a waiver of any Board
requirements for timely filing of unfair labor practice
charges. But the Board noted that the employer emphasized that grievance and arbitration was the exclusive
method of dispute resolution, subject only to limited
judicial review, and any applicant or employee
seeking to pursue a charge before the Board before
completing the arbitration process would have to pay
the costs of any litigation to compel compliance with
that process.39 The Board concluded that such a policy
‘‘would reasonably be read by affected applicants and
employees as substantially restricting, if not totally
prohibiting, their access to the Board’s processes.’’40
In 2011, the Board rejected another mandatory arbitration agreement in 2 Sisters Food Group, Inc.41 In that
case, the policy was expressly limited to claims ‘‘that
may lawfully [] be resolve[d] by arbitration.’’ 42
Although it was urged that this language salvaged the
35
347 N.L.R.B. at 377-78. Section 8(a)(4) makes it an
unfair labor practice ‘‘to discharge or otherwise discriminate
against an employee because he has filed charges or given
testimony under this Act.’’ 29 U.S.C. § 158(a)(4).
36
347 N.L.R.B. at 377.
37
347 N.L.R.B. at 377-78.
38
350 N.L.R.B. 292 (2007).
39
350 N.L.R.B. at 296.
40
350 N.L.R.B. at 296.
41
42
160
May 2013
policy because employees would understand that the
policy did not prohibit filing of charges with the
Board, the NLRB disagreed: ‘‘[T]he limiting language
in the Respondent’s arbitration policy does not by its
terms specifically exclude NLRB proceedings, and
‘most nonlawyer employees’ would not be sufficiently
familiar with the limitations the Act imposes on mandatory arbitration for the language to be effective.’’43
But while Supply Technologies’ general holding is,
thus, well grounded in prior cases, the dissent argued
that the decision pushed the doctrine importantly
beyond existing case law. The dissent found the
majority opinion ‘‘particularly disturbing’’ for two
reasons.44 First, the dissent argued, the opinion allegedly distorts the first prong of the second stage Lutheran
Heritage test, i.e., whether employees would reasonably construe the language to prohibit Section 7
activity. Under the majority’s approach, ‘‘in a nonunion
setting, an individual mandatory arbitration agreement
for the resolution of employment disputes will be
deemed ambiguous and unlawful unless (a) it expressly
exempts claims arising under the Act from its coverage,
or, possibly, (b) it covers such claims but expressly
states without qualification that employees may still
pursue such claims and gain relief through the
Board’s processes.’’45 ‘‘In other words,’’ the dissent
urged,
the test [under Supply Technologies] is not
whether ambiguous language would reasonably tend to interfere with employees’
Section 7 rights. The test is simply whether
the language is ambiguous. If it is – that is, if
it fails to expressly guarantee the right to file
unfair labor practice charges with the Board
and to access the Board’s processes –
nothing can save the language from being
unlawful.46
The dissent complained that this approach ‘‘goes far
beyond even the most strained out-of-context majority
readings in recent cases of work rules found unlawful
under the first prong of the Lutheran Heritage secondstep test.’’47
Second, the dissent found
43
357 NLRB No. 168, slip op. at 2 (quoting U-Haul, 347
N.L.R.B. at 378).
44
359 NLRB No. 38, slip op. at 4.
45
359 NLRB No. 38, slip op. at 5.
46
359 NLRB No. 38, slip op. at 5.
47
359 NLRB No. 38, slip op. at 5.
357 NLRB No. 168 (2011).
357 NLRB No. 168, slip op. at 2 (internal quotation
marks omitted).
CA Labor & Employment Bulletin
even more disturbing . . . the apparent continuing antipathy of the Acting General
Counsel and a Board majority towards
private mandatory dispute resolution programs
in the nonunion setting. Although the Board
has never so held, it is difficult to avoid the
implication from this case that any private
dispute resolution system for individual
employees in a nonunion work force is
unlawful unless it is [] nonmandatory[.]48
Quoting the Supreme Court, the dissent concluded
that this supposed ‘‘reluctance to sanction any form of
mandatory dispute resolution in nonunion work forces
cannot be reconciled with the well-recognized ‘liberal
federal policy favoring arbitration agreements.’ ’’49
48
49
359 NLRB No. 38, slip op. at 5.
359 NLRB No. 38, slip op at 5 (quoting Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 26 (1991)).
161
May 2013
Conclusion
Regardless of whether the Board’s decision in Supply
Technologies is as radical as the dissent suggests, it
represents a significant re-assertion of the Board’s influence and a stand against the trend of Supreme Court
cases broadly enforcing the terms of mandatory predispute arbitration agreements. However, much remains uncertain as Supply Technologies and D.R.
Horton wend their way through the appellate process,
and we await the Supreme Court’s decisions in other
arbitration-related cases currently pending before it.
Peder Thoreen is a partner at Altshuler Berzon LLP in
San Francisco, a litigation firm that specializes in labor
and employment, environmental, constitutional,
campaign and election, and civil rights law.
CA Labor & Employment Bulletin
162
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163
May 2013
The Fair Employment and Housing Commission’s Final
Act - New Disability Regulations - Is a Not-So-Fond
Farewell for Employers
By Carolyn Rashby & Shiva Shirazi Davoudian
Introduction
Prior to its demise at the close of 2012, the California Fair
Employment and Housing Commission (‘‘FEHC’’)
approved new disability regulations under the Fair
Employment and Housing Act1 (‘‘FEHA’’). The regulations, which took effect on December 30, 2012, make a
number of significant changes and clarifications to the
then-existing disability rules, and provide important
guidance for employers on the duty to provide reasonable
accommodations and to engage in the interactive process.
This article provides an overview of the key changes and
highlights of the new regulations to assist California
employers in understanding their new obligations.
Broad Definition of Disability
The Statement of Purpose to the new regulations specifies
that the definition of disability should ‘‘be construed
broadly in favor of expansive coverage’’ for employees
and applicants.2 In keeping with this, the regulations state
that the ‘‘primary focus’’ in FEHA cases is no longer on
whether the employee is, in fact, disabled but on whether
the employer has provided reasonable accommodation,
and whether all parties have complied with their obligations to engage in the interactive process.3
The regulations also expand the definition of ‘‘disability’’
by including some new protected categories. For example, the regulations now include a ‘‘special education’’
disability, which is a health impairment or disorder that
requires or has required special education or related
services.4 It covers difficulties in the acquisition and use
of listening, speaking, reading, writing, reasoning or
mathematical abilities.5 The regulations also include a
new category for ‘‘perceived potential’’ disabilities – that
is, when the employer regards, perceives or treats the
employee as having a disability that has no present
1
disabling effect but may become a disability in the
future.6 In short, as a result of the expanded definition of
disability and these new categories, it will be easier for an
individual to establish that he or she is disabled for
purposes of coverage under the FEHA.
The new regulations also provide useful guidance
on the existing FEHA requirement that, in order to
rise to the level of a disability, a physical or mental
impairment must ‘‘limit’’ a ‘‘major life activity.’’ The
regulations explain that the impairment ‘‘limits’’ a
major life activity if it makes the achievement of
that major life activity ‘‘difficult.’’7 The determination
of what meets the standard of ‘‘difficult’’ requires an
individualized assessment considering, for example,
what most people can perform with little or no difficulty; what the individual’s peer group can do with little
or no difficulty; and what the individual would be able
to do with little or no difficulty in absence of the
disability.8
What’s An Essential Job Function?
Under the FEHA, to be considered a ‘‘qualified’’ individual with a disability, the employee or applicant must
be able to perform the essential functions of the job with
or without a reasonable accommodation. The determination of whether certain duties are essential requires a
fact-intensive analysis, but the regulations provide
practical guidance on what are considered ‘‘essential
job functions.’’9 In particular, a job function may be
considered essential because, for example, it is the
reason the position exists, there are a limited number
of employees among whom performance of that function can be distributed, or the function is highly
specialized, so that the employee is hired for his or
her expertise to perform that function.10
Cal. Gov’t Code § 12900 et seq.
6
2 C.C.R. § 7293.6(d)(6).
2
2 C.C.R. § 7293.5(b).
7
2 C.C.R. § 7293.6(l)(3).
3
2 C.C.R. § 7293.5(b).
8
2 C.C.R. § 7293.6(l)(3)(A).
2 C.C.R. § 7293.6(d)(3).
9
See 2 C.C.R. § 7293.6(e).
2 C.C.R. § 7293.6(d)(3).
10
2 C.C.R. § 7293.6(e)(1).
4
5
CA Labor & Employment Bulletin
The regulations also list various types of ‘‘evidence’’
that should be considered to determine whether a particular function is essential, including: the employer’s
judgment; the amount of time spent performing the
function in question; the work experience of past
incumbents in the job; the current work experience of
employees in similar jobs; reference to job functions in
performance reviews; the legitimate business consequences of not requiring the individual to perform the
function; and ‘‘accurate, current job descriptions.’’11
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May 2013
accommodation that is effective.16 The employer
cannot require an employee to accept an accommodation,
but may inform the employee that refusing an accommodation may render the employee unable to perform the
essential job functions and, therefore, unqualified.17
The regulations also provide new guidance on some
specific types of accommodations, as follows:
Practically speaking, the emphasis on ‘‘accurate’’ and
‘‘current’’ job descriptions means that employers should
be careful to regularly update their job descriptions to
reflect the realities of each position’s job duties.
Employers should also ensure that annual performance
evaluations focus on the employee’s performance of
essential job functions.
Focus on Reasonable Accommodation
The regulations clarify that an employer has an affirmative duty under the FEHA to make a reasonable
accommodation for the known disability of an applicant
or employee, unless the employer can establish that,
after engaging in the interactive process, the accommodation would be an undue hardship on the employer.12
The regulations also make a number of other clarifications and changes to the reasonable accommodation
requirement. For example, the regulations include a
laundry list of examples of reasonable accommodations,
such as transfers, job restructuring, modifications to policies or supervisory methods, additional training, leaves of
absence, reassignment to a vacant position, additional
training, and more.13 The regulations also clarify that
while employers do not have to eliminate or lower quantity or quality standards as a reasonable accommodation,
an employer is required to provide a reasonable accommodation to enable a disabled employee to meet the
quality and quantity standards.14
Furthermore, an employer must consider any and all
reasonable accommodations of which it is aware or
which are brought to its attention by the employee,
except accommodations that create an undue hardship.15
The employer must consider the employee’s preferred
accommodation, but has the right to select another
11
Leaves of absence. When a disabled employee
cannot presently perform the job’s essential
functions or otherwise needs time off for treatment or recovery, holding a job open for the
employee while on leave may be a reasonable
accommodation. The new regulations, however,
make it clear that leave is a reasonable accommodation only where it will likely allow the
employee to return to work at the end of the
leave with or without further accommodation,
and employers do not have to provide an ‘‘indefinite’’ leave as a reasonable accommodation.18
Furthermore, when an employee can continue to
work with a reasonable accommodation, the
employer cannot require that the employee
take a leave of absence.19 On the other hand,
an employer is not required to provide leave
when an alternative accommodation would be
just as effective.20
The regulations also underscore that leaves
beyond the 12-week limit under the Family
and Medical Leave Act21 (‘‘FMLA’’) and California Family Rights Act22 (‘‘CFRA’’) may be
required as a reasonable accommodation. There
is no specified amount of leave that must be
provided, and requests for leaves beyond the
12-week FMLA/CFRA period must be evaluated on a case-by-case basis.23
Reassignment to a vacant position. The regulations elaborate on when reassignment to a
vacant position is a reasonable accommodation.
In particular, reassignment is an accommodation when the employee cannot perform the
essential functions of his or her own job even
16
2 C.C.R. § 7293.9(e).
17
2 C.C.R. § 7293.9(f).
18
2 C.C.R. § 7293.9(c).
2 C.C.R. § 7293.9(c).
2 C.C.R. § 7293.6(e)(2).
19
12
2 C.C.R. § 7293.9(a).
20
2 C.C.R. § 7293.9(c).
13
2 C.C.R. § 7293.6(p)(2).
21
29 U.S.C. § 2601 et seq.
2 C.C.R. § 7293.9(b).
22
Cal. Gov’t Code §§ 12945.2, 19702.3.
2 C.C.R. § 7293.9(e).
23
2 C.C.R. § 7293.9(c).
14
15
CA Labor & Employment Bulletin
165
May 2013
a traumatic brain injury or a mental disability
like depression.32 Assistive animals may be any
trained animal, not just dogs.
with an accommodation; accommodating the
employee in his or her own position is an
undue hardship; the employer and employee
agree that reassignment is preferable to other
accommodations; or the employee requests
reassignment in order to be closer to medical
treatment.24
Employers may require that assistive animals be
free from offensive odors, display appropriate
habits for the work environment, not engage in
dangerous behavior and be trained to provide
assistance for the employee’s disability.33 And
if an employee requests permission to bring an
assistive animal to work, the employer may
require a letter from the employee’s healthcare
provider explaining ‘‘why the animal is necessary
as an accommodation to allow the employee to
perform the essential functions of the job.’’34
When reassignment is a reasonable accommodation, the employer’s duty is to first look to vacant
comparable (in terms of pay, benefits, etc.) positions for which the employee is qualified. If no
such comparable jobs are available, the employer
can look to lower grade or lower paid positions.25
The employer is NOT required to create a new
position for disabled employees, unless the
employer does this in other situations.26
Finally, the regulations emphasize that a
disabled employee is entitled to preferential
consideration of reassignment to a vacant
position over other applicants and existing
employees.27 This means that an employee is
not required to compete for the vacant position.
On the other hand, an employer is not required
to ignore a bona fide seniority system.28
‘‘Fully healed’’ policies. The regulations specify
that employers may not impose ‘‘fully healed’’
or ‘‘100 percent healed’’ policies that require an
employee to be free of work restrictions in order
to return to work following an illness or
injury.29 Rather, the employer must conduct an
individualized assessment of the employee’s
ability to perform the essential functions with
or without an accommodation.30
The Interactive Process
Failure to engage in the interactive process violates
the FEHA - separate, apart from, and in addition to a
violation of the duty to provide a reasonable accommodation. The new regulations stress the importance of the
interactive process and provide lengthy guidance on the
interactive process obligations of employers and
employees. The regulations underscore that an employer’s failure to engage in a timely, good faith interactive
process to identify or implement a reasonable accommodation for a disabled employee may result in legal
proceedings and liability.
Here are some highlights:
Initiating the interactive process. The employer
must initiate the interactive process when 1) an
employee with a known disability requests an
accommodation; 2) the employer otherwise
becomes aware of the need for accommodation;
or 3) the employer becomes aware of the need
because the employee has exhausted protected
leave and indicates the need for continued
accommodation.35 The employer must grant
the individual’s requested accommodation, or
reject it ‘‘after due consideration’’ and initiate
discussions with the individual regarding alternative accommodations.36
Engaging in the interactive process. When the
need for accommodation is not obvious, the
Assistive animals. Allowing an assistive animal
in the workplace may be a reasonable accommodation.31 ‘‘Assistive animals’’ includes
guide, signal and service animals, as well as
‘‘support’’ animals that provide emotional or
other support, such as where the employee has
24
2 C.C.R. § 7293.9(d)(1).
25
2 C.C.R. § 7293.9(d)(2).
26
2 C.C.R. § 7293.9(d)(4).
27
2 C.C.R. § 7293.9(d)(5).
32
2 C.C.R. § 7293.6(a)(1).
28
2 C.C.R. § 7293.9(d)(5).
33
2 C.C.R. § 7293.6(a)(2).
29
2 C.C.R. § 7293.9(i).
34
2 C.C.R. § 7294.0(e).
2 C.C.R. § 7293.9(i).
35
2 C.C.R. § 7294.0(b).
2 C.C.R. § 7293.6(p)(2)(B).
36
2 C.C.R. § 7294.0 (c)(1).
30
31
CA Labor & Employment Bulletin
employer may request ‘‘reasonable medical documentation’’ of the need for the accommodation.37
However, the employer may not inquire about the
underlying medical cause of the disability.38
Also, when needed to advance the interactive
process, the employer should analyze the job
and its essential functions, as well as consult
experts to assess a requested accommodation or
alternatives.39 The employer, in consultation with
the employee, must identify potential accommodations and assess the effectiveness of each one in
enabling the individual to perform the essential
job functions.40 Finally, if an employee is unable
for physical or mental reasons to engage in the
interactive process, that will not amount to a
breach of the interactive process obligation on
the part of the employee or employer.41 This
could arise, for example, if the employee has a
physical or mental impairment that makes it difficult to communicate.
Medical documentation. The regulations
explain that ‘‘reasonable medical documentation’’ will include a confirmation that there is
a disability and a need for an accommodation.42
Where necessary to help with the interactive
process, it may also include a description of
the physical or mental limitations that must be
met to accommodate the employee. Medical
documentation, however, need not disclose the
nature of the disability.43 In addition, employers
are reminded that any medical information it
obtains through the interactive process must
be kept confidential and separate from the
employee’s personnel file.44
Burdens of Proof and Defenses
While much of the emphasis in the new regulations is
on expanding employers’ obligations and employees’
rights, the regulations also expressly provide that it is
the employee (or applicant) who has the burden of proof
to establish that he or she ‘‘is a qualified individual
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May 2013
capable of performing the essential functions of the
job with or without reasonable accommodation.’’45
Notably, the regulations specify that to prevail on a
claim of disability discrimination, an employee must
only establish by preponderance of evidence that his
or her disability was ‘‘one of the factors that influenced’’ the challenged employment action.46 Since the
regulations were approved, however, the California
Supreme Court has upped the ante on an employee’s
burden of proof in ‘‘mixed motives’’ cases. In Harris v.
City of Santa Monica, the supreme court held that where
an employee demonstrates that discrimination was a
‘‘substantial motivating factor’’ for an employment
decision, and the employer proves that it would have
made the same decision anyway, the employee cannot
recover damages, backpay or reinstatement.47 A court,
however may still award the employee injunctive or
declaratory relief, as well as attorneys’ fees and costs.
The regulations also address the ‘‘health and safety’’
defense to a failure to accommodate claim. An
employer may assert this defense only after it has
engaged in the interactive process and determined that
there is no reasonable accommodation that allows the
individual to perform the job in a manner that would not
endanger the health or safety of the employee or others
because the job imposes ‘‘an imminent and substantial
degree of risk’’ to the employee or others, as
applicable.48 The regulations make clear that asserting
a ‘‘future risk’’ to health and safety is not a defense.49
Additionally, the regulations set forth several factors to
help evaluate the merits of the health and safety
defense, including the duration of the risk, the nature
and severity of the potential harm, the likelihood and
imminence of the harm occurring, and relevant information about an employee’s past work history.50 The
regulations require an analysis of these factors based
on ‘‘a reasonable medical judgment that relies on the
most current medical knowledge’’ and/or ‘‘objective
evidence.’’51 However, in light of the prohibition on
inquiring about the underlying medical condition for a
disability, employers may find it difficult to obtain the
37
2 C.C.R. § 7294.0(c)(2).
38
2 C.C.R. §§ 7294.0(c)(2), (3).
45
2 C.C.R. § 7293.7(a).
2 C.C.R. §§ 7294.0(c)(5), (6).
46
2 C.C.R. § 7293.7(b).
56 Cal. 4th 203, 232-33, 235 (Feb. 7, 2013).
39
40
2 C.C.R. § 7294.0(c)(7).
47
41
2 C.C.R. § 7294.0(d)(3).
48
2 C.C.R. §§ 7293.8(a)-(c).
42
2 C.C.R. § 7294.0(d)(1).
49
2 C.C.R. § 7293.8(d).
2 C.C.R. § 7294.0(d)(1).
50
2 C.C.R. § 7293.8(e).
2 C.C.R. § 7294.0(g).
51
2 C.C.R. § 7293.8(e).
43
44
CA Labor & Employment Bulletin
167
May 2013
medical evidence needed to support a health and safety
defense in a particular situation.
2.
Update job descriptions to reflect essential and
marginal job functions, and regularly review
them to ensure that they are current.
Pre-employment Inquiries
3.
The new regulations prohibit the following pre-employment inquiries, regardless of whether they are made on
an application form, on a pre-employment questionnaire, in a job interview, or any other time before a
job offer is made.52
Ensure that written performance evaluations
assess an employee’s performance of essential
job functions. This documentation can be
important evidence to help establish whether a
particular task qualifies as an essential function.
4.
Take the obligation to engage in the interactive
process seriously and view the process as
employer-driven.
5.
Keep careful records of the company’s accommodation efforts and communications with the
employee or applicant.
6.
Explore any and all reasonable accommodations of which the company is aware or which
are requested by the employee, bearing in mind
that the undue hardship defense is difficult to
establish.
7.
Remember that an employer is not required to
grant the employee’s preferred accommodation
so long as there is another effective accommodation.
8.
Use care surrounding the medical documentation process – do not request information
regarding the medical condition underlying a
disability, and keep medical information confidential and separate from the employee’s
personnel file.
9.
Train managers regarding the reasonable accommodation and interactive process obligations.
Do you have any disabilities?
Have you been treated for [certain] diseases or
conditions?
Are you receiving or have you received
workers’ compensation?
What prescription drugs are you taking?
Have you ever had a job-related injury?
Have you ever left a job due to physical or
mental limitations?
Have you ever been hospitalized?
Have you ever taken medical leave?
Employers may ask, however, whether an applicant can
perform the job’s essential functions. Also, if an applicant requests accommodation or the employer has a
reasonable belief that an applicant requires an accommodation, the employer may make ‘‘limited inquiries
regarding such reasonable accommodation.’’53
10 Best Practices
While the regulations impose a number of new obligations on employers and create new rights for employees,
they also provide important compliance guidance for
employers on how to navigate the reasonable accommodation process. Here are best practices employers can
follow to help ensure a smooth accommodation process,
and avoid disputes:
1.
Keep in mind that the definition of disability
is broad. In many cases the existence of a
disability will be obvious or confirmed by a
health care provider – in which case it is important promptly to switch gears to the reasonable
accommodation process.
52
2 C.C.R. § 7294.1(b)(2).
53
2 C.C.R. § 7294.1(b)(3).
10. Finally, all employers, and particularly those that
are faced with the need to explore reasonable
accommodations for a disabled employee, are
encouraged to take the time to read the new regulations to gain a clear understanding of their rights
and obligations in the accommodation process.
Carolyn Rashby is Special Counsel with Miller Law
Group, where she represents and counsels management
on a wide range of employment matters, including wage
and hour, leaves of absence, discrimination, harassment,
and employee handbooks and personnel practices. She
has written hundreds of articles and employer compliance materials touching on all aspects of California
employment law and is a regular presenter in the firm’s
Employment Law Update webinar series.
CA Labor & Employment Bulletin
Shiva Shirazi Davoudian is an Associate with Miller
Law Group. She defends employers on a wide range
of employment law matters, including discrimination,
sexual harassment, disability, and wage and hour
claims. Ms. Davoudian also represents employers in
disputes involving unfair competition and misappro-
168
May 2013
priation of trade secrets, and has defended clients in
traditional labor law matters before the National Labor
Relations Board and arbitrated disputes arising under
collective bargaining agreements.
CA Labor & Employment Bulletin
169
May 2013
BOTH SIDES OF THE BAR
Will Gentry Survive Concepcion? A Discussion with
Two Prominent Practitioners Regarding How the
California Supreme Court May Answer This and
Related Questions
By Zachariah H. Rowland
Background
The enforceability of class-action waivers in arbitration
agreements has been a hotly debated legal topic since
the United States Supreme Court’s decision in AT&T
Mobility LLC v. Concepcion.1 Among other things, Concepcion expressly held that California’s ‘‘Discover Bank
Rule,’’2 finding class-action waivers in consumer arbitration agreements unconscionable, was preempted by the
Federal Arbitration Act3 (‘‘FAA’’) because it specifically
disfavored or interfered with the enforcement of arbitration agreements.4 Additionally, Concepcion held that
requiring class arbitration of such claims, absent the
parties’ agreement to do so, likewise interfered with the
streamlining purpose of arbitration and was, therefore,
also preempted by the FAA.
Two years after its decision in Discover Bank v.
Superior Court,5 the California Supreme Court separately addressed the viability of class-action waivers
in the context of arbitration agreements dealing with
statutory employment claims in Gentry v. Superior
Court.6 The Gentry Court held that trial courts should
examine a number of factors to determine whether
‘‘disallowance of the class action will likely lead to a
less comprehensive enforcement of overtime laws.’’7 If
so, according to Gentry, the trial court should invalidate
the class-action waiver in the agreement in order to
ensure that the employees can ‘‘vindicate their unwaivable rights . . . .’’8
Whether Concepcion overruled Gentry is an open question, at least for the moment. Last year, the California
Supreme Court granted review of two appellate decisions that provide contradictory answers.9 In Iskanian v.
CLS Transportation Los Angeles, LLC, the Second
Division of the Second District Appellate Court held
that Concepcion overruled Gentry and, therefore, the
trial court ‘‘properly declined to apply the Gentry test
[] by enforcing the arbitration agreement according to
its terms.’’10
In contrast, in Franco v. Arakelian Enterprises, Inc.,11
the First Division of the Second District Appellate
Court found that Gentry was unaffected by Concepcion
and still good law. Specifically, the Franco Court noted
that Gentry survived because it ‘‘is not a categorical
rule gainst class action waivers but is a multifactor
test. . . .’’12 The supreme court’s consideration of
Franco has been deferred pending the Iskanian
decision.13
With respect to Iskanian, the California Supreme Court
has presented the general issues as follows: (1) Did
8
1
131 S. Ct. 1740 (2011). To view Supreme Court briefs
related to the AT&T Mobility, LLC case, go to 2007 U.S.
Briefs 976 on Lexis.com. To view district court motions, go
to 2005 U.S. Dist. Ct. Motions 1167. For pleadings, go to 2005
U.S. Dist. Ct. Pleadings 7280.
2
See Discover Bank v. Superior Court, 36 Cal. 4th 148
(2005).
42 Cal. 4th at 463.
9
Compare Iskanian v. CLS Transportation Los Angeles,
LLC, 206 Cal. App. 4th 949, review granted, 2012 Cal.
LEXIS 8925 (Sept. 19, 2012) with Franco v. Arakelian Enterprises, Inc., 211 Cal. App. 4th 314 (2012), review granted,
2013 Cal. LEXIS 1762 (Feb. 13, 2013).
10
206 Cal. App. 4th 949, 961 review granted, 2012 Cal.
LEXIS 8925 (Sept. 19, 2012).
3
9 U.S.C. § 1 et seq.
4
Concepcion, 131 S. Ct. at 1750-51.
211 Cal. App. 4th 314 (2012), review granted, briefing
deferred, 2013 Cal. LEXIS 1762 (Feb. 13, 2013).
5
36 Cal. 4th 148 (2005).
12
6
42 Cal. 4th 443 (2007).
13
7
42 Cal. 4th at 463.
11
Franco, 211 Cal. App. 4th at 372.
Franco v. Arakelian Enterprises, Inc., No. S207760,
2013 Cal. LEXIS 1762 (Feb. 13, 2013).
CA Labor & Employment Bulletin
170
May 2013
Court noted that it ‘‘had no occasion in Discover
Bank to consider whether a class action or class
arbitration waiver would undermine the plaintiff’s statutory rights.’’ Arguably, the Court is
signaling that the holding of Concepcion does
not directly control that of Gentry because the
latter rule is distinguishable.
Concepcion ‘‘impliedly overrule’’ Gentry ‘‘with respect
to contractual class action waivers in the context of nonwaivable labor law rights?’’; (2) Does Concepcion
‘‘permit arbitration agreements to override the statutory
right to bring representative claims under the Labor
Code Private Attorneys General Act of 2004’’
(‘‘PAGA’’);14 and (3) Did the employer-defendant
‘‘waive its right to compel arbitration?’’15
TIM WILLIAMS: Gentry was founded on the
idea that statutory rights serving important
public policies – e.g., ensuring proper payment
of minimum and overtime wages to employees
required by the Labor Code – are not waivable
by contract, and that neither California law nor
the FAA permit waivers of such rights to be
enforced. Discover Bank, by contrast, banned
class-action waivers in the consumer context
(1) under an unconscionability analysis, and
(2) for rights that were not arising from
statute. The California Supreme Court recognizes this distinction, and appears focused on
the core issue of whether Concepcion applies
broadly, or is limited in its application and
does not reach the Gentry rule. It is also possible
that the supreme court will consider the application of the federal National Labor Relations
Act’s18 prohibition against contracts of employment that seek to prohibit workers from
pursuing collective actions in furtherance of
exercising their rights to engage in concerted
activities.
In anticipation of the Court’s ruling later this year, we
sought the opinions of respected practitioners from the
plaintiffs and defense bars - Tim Williams of Pope,
Berger & Williams and Meryl Maneker of Wilson
Turner Kosmo, respectively, on these and related
issues.
1.
What does the California Supreme Court mean
by ‘‘non-waivable labor law rights’’ with
respect to the first issue in Iskanian, and why
would the question be tailored so narrowly?
MERYL MANEKER: This is a reference to
the key holding of Gentry - that a class action
waiver should not be enforced if it ‘‘implicates
unwaivable statutory rights’’ and, after an
assessment of several factors the Gentry Court
identified, a determination that proceeding as a
class action ‘‘is likely to be a significantly more
effective practical means of vindicating’’ the
rights of the employees.16 The specific factors
are the modest size of any potential recovery,
the potential for retaliation against potential
class members, the potential lack of knowledge
of their rights on the part of absent class
members and any other obstacles to a vindication of the rights asserted.
2.
The issue is framed in this manner in order to
distinguish Gentry and Iskanian from Concepcion. In the latter case, the United States
Supreme Court held that California’s ‘‘Discover
Bank rule’’ - which ‘‘classif[ied] most collective-arbitration waivers in consumer contracts
as unconscionable’’ - was preempted by the
FAA. 17 In Gentry, the California Supreme
14
TIM WILLIAMS: The Discover Bank rule
failed because the FAA makes agreements to
arbitrate claims generally enforceable, but
Discover Bank categorically invalidated
consumer contracts that contained class-action
waivers and was, as a result, inconsistent with
the FAA. By contrast, the FAA does not enforce
agreements that serve to waive claims. Under
Gentry, arbitration agreements that prevent
effective vindication of unwaivable statutory
Cal. Lab. Code § 2698 et seq.
15
See California Courts, Appellate Courts Case Information, Supreme Court, Case Summary, Iskanian v. CLS Transp.
Los Angeles, No. S204032, available at http://appellatecases.
courtinfo.ca.gov/search/case/mainCaseScreen.cfm?dist=0
&doc _id=2019694&doc_no=S204032.
16
17
In Franco, California Court of Appeal held
that Concepcion does not overrule Gentry
because ‘‘[Gentry] is not a categorical rule
that invalidates class-action waivers.’’19 Is
the holding of Gentry really different from
Discover Bank such that Concepcion does
not overrule it? If so, how?
Gentry, 42 Cal. 4th at 451, 463.
18
29 U.S.C. § 151 et seq.
Concepcion, 131 S. Ct. at 1746.
19
Franco, 211 Cal. App. 4th at 368.
CA Labor & Employment Bulletin
171
May 2013
‘‘class arbitration is inconsistent with the
FAA.’’23 If the so-called ‘‘Discover Bank
rule’’ is preempted by the FAA, as the
Supreme Court held in Concepcion, the rule
articulated in Gentry, which the California
Supreme Court stated was a clarification of its
holding in Discover Bank,24 is as well.
rights are unlawful, and nothing in the FAA
operates to save such contracts just because
they happen to concern arbitration. While
Concepcion held that states may not prevent
the enforcement of class-action bans in arbitration agreements if class proceedings are
unnecessary to ensure vindication of rights,
Concepcion did not supplant the FAA principle
that some arbitration agreements may be
unlawful and unenforceable.
3.
Additionally, Concepcion did not address
whether a class action ban is enforceable when
it prevents vindication of unwaivable statutory
rights; instead, it held that the FAA prohibits
bans if individual arbitration assures vindication
of rights. In fact, the Supreme Court has
previously held that arbitration agreements
that operate as ‘‘a prospective waiver of a
party’s right to pursue statutory remedies’’ are
against public policy.20 Further, the Court found
that a party agreeing to arbitrate claims does not
waive ‘‘the substantive rights afforded by the
statute.’’21 Lower courts have similarly invalidated arbitration agreements that seek to
undermine statutory rights.
The Second Circuit in In re American Express
Merchants’ Litigation (‘‘In re American
Express’’),25 held that Concepcion does not
apply in the context of a class action lawsuit
brought to vindicate a federal statutory right
where pursuit of the claim on an individual
basis would be economically infeasible. How
does the economic feasibility analysis play out
in the context of statutory labor law rights, as
opposed to the consumer context analyzed
by the Court in Concepcion?
MERYL MANEKER: The issue of economic
feasibility should have the same impact in the
employment context - it is not a basis to enforce
class-wide arbitration. In the consumer context,
the Concepcion Court rejected the argument that
class arbitration was necessary ‘‘to prosecute
small-dollar claims that might otherwise slip
through the legal system,’’ holding that
‘‘[s]tates cannot require a procedure that is
inconsistent with the FAA, even if it is desirable
for unrelated reasons.’’26 Arguably, employment claims are more economically feasible
than consumer claims as they can result in far
greater recoveries.
MERYL MANEKER: I have to respectfully
disagree with that statement. While the Gentry
court did not ‘‘say categorically that all class
arbitration waivers . . . are unenforceable,’’22
that has been the practical effect of its ruling.
Most of the cases since Gentry that have considered whether a particular class-action waiver is
enforceable have found it is not.
TIM WILLIAMS: California public policy
favors the full and prompt payment of wages
due an employee. The California Supreme
Court has emphasized that because of the
economic position of the average worker, it is
essential to the public welfare that a worker
promptly receive his earned pay. ‘‘[W]ages are
not ordinary debts . . . [and because] of the
economic position of the average worker, and
in particular, his dependence on wages for the
As to the question of whether there is a difference between the Gentry and Discover Bank
cases, in my view, there is not. Both cases invalidated a class-action waiver or provided a basis
for doing so. In addition, both cases endorsed
and would allow the pursuit of class claims in
arbitration. However, the Supreme Court was
quite clear in Concepcion that the FAA embodies a strong policy favoring arbitration and
20
Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth,
Inc., 473 U.S. 614, 637, n.19 (1985).
23
Concepcion, 131 S. Ct. at 1751.
24
Gentry, 42 Cal. 4th at 452.
21
Preston v. Ferrer, 552 U.S. 346, 359 (2008) (citing
Mitsubishi, 473 U.S. at 637, n.19). To view Supreme Court
briefs related to the Preston case, go to 2006 U.S. Briefs 1463
on Lexis.com.
22
Gentry, 42 Cal. 4th at 463.
25
667 F.3d 204, reh’g en banc denied, 681 F.3d 139 (2nd
Cir. 2012), cert. granted, 133 S. Ct. 594 (Nov. 9, 2012).
26
Concepcion, 131 S. Ct. at 1753.
CA Labor & Employment Bulletin
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May 2013
whether it will be pursued.30 Similarly, Concepcion did not ban representative actions, nor did
it foreclose employees’ right to bring certain
types of claims.
necessities of life for himself and his family, it is
essential to the public welfare that he receive his
pay promptly.’’27 The prompt payment of wages
serves society’s interests through a more stable
job market.28 Without a class vehicle,
employees may be unable or unwilling to
pursue claims for unpaid wages because the
size of an award may be outweighed by the
cost of litigation, because the employees face
the prospect of retaliation by employers, and
because many individuals have no idea that
they are owed certain minimum protections
afforded by California employment laws. As
Gentry recognizes, only when those and other
factors demonstrate that preventing a class
action would operate to preclude effective enforcement of rights should class action bans be
invalidated.
4.
MERYL MANEKER: The Concepcion rule
should operate the same in representative
actions as it does in class actions. However,
the California Supreme Court has held that
representative actions brought on behalf of
aggrieved employees under PAGA are not
necessarily the same as class actions, and thus,
may not be governed by the same procedural
rules. This is because a representative action is
‘‘a substitute for an action brought by the
government itself.’’31 For this reason, a representative plaintiff need not seek and obtain class
certification in order to maintain a representative action under PAGA.32 Nonetheless, the
principles underlying Concepcion - the strong
policy and statutory scheme favoring arbitration, and the incompatibility of arbitration and
class actions - are no less important in the representative action context and should govern.
The second issue before the California
Supreme Court in relation to Iskanian deals
with ‘‘representative suits’’ brought under
PAGA. Why would the Concepcion rule
operate differently when applied to a claim
brought under PAGA?
5.
TIM WILLIAMS: PAGA representative suits
allow private individuals to pursue rights as
attorneys general on behalf of the State of California. Barring that type of representative action
would absolutely eliminate a public benefit, and
such an entitlement provided to the public is not
waivable. PAGA claims are not subject to class
certification, and thus, are not affected by a
class-action waiver. PAGA claims are also not
within the purview of the FAA because (among
other reasons) the FAA does not bind non-party
governmental agencies (here, the California
Labor & Workforce Development Agency) to
private arbitration agreements. The United
States Supreme Court has long-recognized that
the FAA operates as a forum-selection clause to
determine where a claim will be pursued,29 not
27
Pressler v. Donald J. Bren Co., 32 Cal. 3d 831, 837
(1983), superseded on other grounds by Cal. Lab. Code
§ 98.2.
28
Fundamentally, is the class-action device a
substantive right, a procedural mechanism
that promotes efficient litigation, or some
combination of both?
MERYL MANEKER: That is a little bit of a
trick question! While, technically speaking,
class actions are procedural creations, the
impact of the use of the device on a case and
the possible repercussions - at least from a
defense perspective - are so significant, that it
really does affect the substantive positions of the
parties, or at least that of the defendant. Specifically, the risks and resources involved in
defending an individual claim for overtime
pay are far less significant than those involved
in defending a putative or actual class claim, or
a representative claim for the same relief.
TIM WILLIAMS: Class actions operate in
federal and state courts only as a function of
statute and rules that specifically create them to
exist in civil cases. They are a clearly procedural
right, but because the class device ultimately
30
EEOC v. Waffle House, 543 U.S. 279, 295, n.10 (2002).
To view Supreme Court briefs and other documents related to the
EEOC case, go to 1999 U.S. Briefs 1823 on Lexis.com. To view
oral argument transcripts, go to 2001 U.S. Trans. LEXIS 57.
Kerr’s Catering Serv. v. Dep’t of Industrial Relations,
57 Cal. 2d 319, 326-327, cert. denied, 371 U.S. 818 (1962).
31
Arias v. Superior Court, 46 Cal. 4th 969 (2009).
29
32
See Arias v. Superior Court, 46 Cal. 4th 969 (2009).
Scherk v. Alberto-Culver, 417 U.S. 506, 519 (1974).
CA Labor & Employment Bulletin
operates to vindicate the rights of persons who
cannot or would not take action to enforce their
rights, class actions are absolutely also a substantive mechanism that provide remedies otherwise
unattainable. In my practice, and having litigated
dozens of class actions over the past 15 years, I
have been told by scores of employee classmembers that they either had no idea an employer
was violating the law, or they had no ability to
take action. In either circumstance (or for many
other reasons), without the recovery provided
through a class action, the employer would have
successfully violated labor laws without appropriate restitution.
6.
If Gentry and In re American Express are
eventually overruled, what will be the
impact on class-action litigation in the
employment context?
TIM WILLIAMS: If Gentry is overruled
entirely, including permitting the waiver of
PAGA representative actions, then I would
expect there to be a continuing increase by
employers to implement arbitration agreements
with class-action waivers. Gradually, it would
likely become common practice for employers
to establish, along with general company policies and procedures, agreements that ban class
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May 2013
and/or representative actions with the expectation that employees will naturally consent to the
waiver as a condition of employment. For
employers, incurring the costs of arbitration
proceedings might be far less expensive than
fighting class actions and, as a result, employment class actions might become a rarity.
MERYL MANEKER: If arbitration is enforced in both cases, I would anticipate that,
over time, employers will implement arbitration
agreements that satisfy the requirements of California and federal law, and that these will
include class-action waivers. I would anticipate
that we will eventually see a decline of employment class-action litigation, but I do not think it
will be immediate and expect there will be
numerous additional challenges to arbitration
agreements and class-action waivers before
we do.
A decision in In re American Express is expected
later this Spring and in Iskanian later this year.
Mr. Rowland is an associate at Balestreri Potocki &
Holmes who is interested in labor and employment law
in California.
CA Labor & Employment Bulletin
174
May 2013
CASE NOTES
DAMAGES UNDER FEHA
Wynona Harris v. City of Santa Monica, No. S181004,
Calif. Sup.; 2013 Cal. LEXIS 941.
The California Supreme Court ruled on Feb. 7 that,
under California’s Fair Employment and Housing Act
(FEHA), when a jury finds that unlawful discrimination
was a substantial factor in the termination of an
employee but the employer shows that the same decision would have been made absent such discrimination,
a court may not award damages, back pay or an order
of reinstatement but may award declaratory or injunctive relief and reasonable attorney fees and costs.
Wynona Harris was hired as a bus driver trainee in
October 2004 by Big Blue Bus, the Santa Monica,
Calif., city-owned bus service. During Harris’ 40-day
training period, Harris had an accident, which the city
deemed ‘‘preventable.’’ No passengers were on the bus
and no one was injured, but the accident cracked the
glass on the bus’ back door.
In November 2004, Harris successfully completed her
training period, and the city promoted her to the position of probationary part-time bus driver. In that
position, Harris was an at-will employee. At some
point during her first three-month probationary evaluation, Harris had a second preventable accident in which
she sideswiped a parked car and tore off its side mirror.
On Feb. 18, 2005, Harris reported late to work and
received her first ‘‘miss-out.’’ Big Blue Bus’ guidelines
noted that most drivers get one or two late reports, or
‘‘miss-outs,’’ a year, but more than that suggested a
driver had a ‘‘reliability problem.’’ The guidelines
further noted that a miss-out would result in 25
demerit points and that probationary employees were
allowed 50 demerit points.
On March 1, 2005, Harris’ supervisor gave her a written
performance evaluation covering her first three months
as a probationary driver. Addressing Harris’ overall
performance, her supervisor indicated she needed
‘‘further development.’’
On April 27, 2005, Harris received her second miss-out.
She had accompanied her daughter to a juvenile court
hearing and failed to timely notify her dispatcher that
she would be late for her shift.
Transit Services Manager Bob Ayer investigated the
circumstances of Harris’ miss-out. In early May 2005,
Ayer recommended to his supervisor, the assistant
director, that the miss-outs remain in Harris’ file. Ayer
claimed that the assistant director asked him to examine
Harris’ complete personnel file. He did so and told the
assistant director that Harris was not meeting the city’s
standards for continued employment because she had
two miss-outs and two preventable accidents and had
been evaluated as needing ‘‘further development.’’
On May 12, 2005, Harris ran into her supervisor,
George Reynoso. Harris’ uniform shirt was hanging
loose, and Reynoso told her to tuck it in. Harris then
confided in Reynoso that she was pregnant. Reynoso
asked Harris to provide a doctor’s note clearing her to
continue to work.
On May 16, Harris gave Reynoso a doctor’s note
permitting her to work with some limited restrictions.
That same day, Reynoso attended a supervisors’
meeting and received a list of probationary drivers
who were not meeting standards for continued employment. Harris was on the list. Her last day on the job was
May 18, 2005.
In October 2005, Harris sued the City of Santa Monica
in the Los Angeles County Superior Court, alleging that
she was fired because she was pregnant, a form of
gender discrimination. The city denied her allegations
and asserted as an affirmative defense that it had legitimate, nondiscriminatory reasons to fire her as an atwill, probationary employee.
The case was tried to a jury. The city asked the court to
instruct the jury according to California Jury Instructions BAJI No. 12.26, which pertained to its mixedmotives defense. The court denied the request, and
instead the jury was instructed according to California
Civil Jury Instruction (CACI) No. 2500. This instruction directed the jury that Harris had to prove that her
pregnancy was a ‘‘motivating factor/reason for the
discharge.’’ ‘‘Motivating factor’’ was defined according
to BAJI No. 12.01.1 as ‘‘something that moves the will
and induces action even though other matters may have
contributed to the taking of the action.’’ By special
verdict, the jury found by a vote of 9-3 that Harris’
pregnancy was a motivating reason for the city’s decision to fire her. It awarded Harris $177,905 in damages,
CA Labor & Employment Bulletin
of which $150,000 were for ‘‘non-economic loss,
including mental suffering.’’
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May 2013
DONNING AND DOFFING
The city moved for judgment notwithstanding the verdict
and a new trial. The city argued, among other things, that
the trial court’s refusal to give the jury a mixed-motive
instruction deprived the city of a legitimate defense. The
Superior Court rejected this argument. Harris then sought
attorney fees, and the court awarded her $401,187. The
city appealed.
Clifton Sandifer, et al. v. United States Steel Corporation, No. 12-417, 2013 U.S. LEXIS 1116 (February 19,
2013).
A Second District Court of Appeal, Division Eight,
panel found that the requested instruction was an accurate statement of California law and that the trial court
had committed prejudicial error. At the same time, the
Court of Appeal determined that there was substantial
evidence supporting the jury verdict that Harris had
been fired because of pregnancy discrimination, and it
remanded for a new trial. Harris then petitioned the
California Supreme Court for review to decide
whether BAJI No. 12.26’s mixed-motive instruction is
correct.
Clifton Sandifer, an employee of United States Steel
Corp., filed a class complaint in the U.S. District
Court for the Northern District of Indiana against his
employer on behalf of 800 former and current hourly
workers. He alleged that U.S. Steel violated the Fair
Labor Standards Act (FLSA) by failing to compensate
him and the putative class for the time they spend
putting on and taking off their work clothes and
walking from the locker room to their work stations
and back.
The California high court determined that the Court of
Appeal was correct in overturning the damages verdict
and remanding for further proceedings. The court noted
that, given the variations in factual scenarios which might
give right to a mixed-motives defense, it would not
deliver an opinion on the type of evidence that would
generally be sufficient to show that discrimination
substantially motivated an adverse employment decision.
However, in this case, the court held, the jury should have
been instructed to decide whether discrimination was a
substantial motivating factor or reason, and the trial court
should decide on remand whether the evidence in Harris’s
case warranted the related instruction.
As to remedies, the court explained that if the plaintiff
shows by a preponderance of the evidence that discrimination was a substantial motivating factor, the
employer may attempt to show that it had legitimate,
non-discriminatory reasons that would have produced
the same result. If it does so by a preponderance of the
evidence, the plaintiff is not entitled to damages,
backpay, or reinstatement, but may be entitled to
declaratory or injunctive relief. California Government
Code section 12965 might also entitled the plaintiff to
attorney’s fees and costs.
References. See, e.g., Wilcox, California Employment
Law, Ch. 8, Leaves of Absence (Matthew Bender).
The U.S. Supreme Court on Feb. 19 agreed to hear
the appeal of a class lawsuit over what constitutes
‘‘changing clothes’’ under Section 203(o) of the Fair
Labor Standards Act.
The collective bargaining agreement (CBA) between
U.S. Steel and the workers’ union does not require
compensation for that time. However, Sandifer argued
that the FLSA does, in fact, require the compensation,
and overrides the CBA. Judge Robert L. Miller Jr. ruled
that the FLSA does not require that the clothes changing
time be compensated. However, he refused to dismiss
the portion of the case seeking compensation for the
travel time. U.S. Steel filed an interlocutory appeal.
Sandifer cross-appealed.
The Seventh Circuit U.S. Court of Appeals dismissed
the cross-appeal, finding that Sandifer did not seek
leave to appeal. The appellate panel then, in a May 8
opinion, ruled that Sandifer’s case had no merit and
should be dismissed.
Sandifer filed a petition for a writ of certiorari in the U.S.
Supreme Court on Sept. 10. He argues that the FLSA
requires employees to be paid from the time they first
engage in a principal activity. He claims that donning
and doffing safety gear required by the employer is a
principal activity ‘‘when it is an integral and indispensible
part of the activities for which the worker is employed.’’
However, under Section 203(o) of the FLSA, an employer
doesn’t need to compensate a worker for time spent ‘‘changing clothes’’ if that time is expressly excluded from
compensable time under the CBA. Sandifer asked the
high court to decide several questions, including what
constitutes ‘‘changing clothes.’’
The U.S. Supreme Court agreed to hear the appeal but
limited it to the first question regarding the definition of
‘‘changing clothes’’ under Section 203(o).
CA Labor & Employment Bulletin
To view Supreme Court briefs related to the Sandifer
case, go to 2012 U.S. Briefs 15243 on Lexis.com. To
view motions, go to 2007 U.S. Dist. Ct. Motions. For
pleadings, go to 2007 U.S. Dist. Ct. Pleadings 664256.
References. See, e.g., Wilcox, California Employment
Law, § 3.01[7], Donning and Doffing Time (Matthew
Bender).
FEDERAL EMPLOYMENT
Sheri Lynn Denney v. Office of Personnel Management, No. 2012-3094, 2013 U.S. App. LEXIS 2753
(Fed. Cir. February 8, 2013).
The Federal Circuit U.S. Court of Appeals on Feb. 8
upheld a decision by the Merit Systems Protection
Board (MSPB) sustaining an Office of Personnel Management’s (OPM) determination that extra pay, known as
‘‘availability pay,’’ should not be included in the calculation of a federal employee’s retirement annuity when that
pay was not earned during the three consecutive years
that the employee earned the most.
Sheri Lynn Denney served as a criminal investigator or
special FBI agent from 1983 until her retirement in
2008. From 1983 until early 2001, Denney was eligible
for and received ‘‘availability pay’’ under 5 U.S.C.
Section 5545(a). Availability pay is a form of
premium pay equal to 25 percent of the rate of basic
pay. To be eligible for availability pay, a criminal investigator must work at least 40 hours per week and
actually work or be available to work an additional
two hours per regular workday.
Beginning Feb. 25, 2001, Denney began working parttime and was no longer eligible for, and no longer
received, availability pay.
The basic method for calculating an annuity for an
employee such as Denney with full-time and part-time
service is a two-step process. The average pay is determined by using the annual rate of basic pay that would
be payable for full-time service in the position. Then the
benefit is computed by prorating the calculated average
pay in accordance with the employee’s ration of fulltime to part-time service.
In Denney’s case, the OPM determined that Denney’s
last three years of service, from 2006 to 2008, were her
‘‘high three’’ years because those were the three consecutive years of creditable service during which she
earned the most using annualized full-time basic pay
rates. In calculating average pay over the high three
years, OPM did not include availability pay because
Denney was not eligible for and did not receive availability pay during that period of time. For the second
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May 2013
step, the OPM calculated the ratio of Denney’s time
spent in full-time service to time spent in part-time
service at 85 percent.
Denney did not challenge OPM’s ‘‘high three’’ determination or its full-time to part-time ratio calculation.
However, she appealed OPM’s average pay calculation,
and the administrative judge reversed, finding that OPM
erred by not including availability pay during Denney’s
high three years of service. OPM appealed to the
MSPB, which sustained OPM’s annuity calculation.
Denney appealed to the Federal Circuit U.S. Court of
Appeals, seeking a ruling on whether her ‘‘average
pay’’ calculation should include availability pay.
The Federal Circuit affirmed. Although Denney was
eligible for and received availability pay under
§ 5545(a), the fact that she was ineligible during her
‘‘high three’’ years, OPM properly excluded availability
pay from its annuity calculation, the court found.
The panel also rejected Denney’s claim that she was
penalized for working part-time during her high three
years of service. Her full-time pay during the high three
years was actually greater without availability pay than
it had been during any of her earlier years of service
with availability pay. If availability pay had been
included during her high three years, it would not
produce an ‘‘equal pay for equal service’’ result, and
the statutory language does not support the method of
calculation for which Denney argued.
References. See, e.g., Labor and Employment Law,
Chapter 79, Federal Employment (Matthew Bender).
FEDERAL TORT CLAIMS ACT
Steven Alan Levin v. United States, et al., No. 11-1351,
2013 U.S. LEXIS 1864 (March 4, 2013).
A citizen may proceed with his lawsuit against the
United States alleging medical battery by a Navy
doctor acting within his scope of employment, the
U.S. Supreme Court ruled March 4.
Steven Levin claimed that he was injured as the result
of a cataract surgery performed by a U.S. Navy doctor.
Although Levin signed consent forms after discussing
the surgery with his doctor, he claimed that he orally
withdrew his consent in the operating room shortly
before the surgery began.
Levin initially filed an administrative claim. When his
claim was not favorably resolved, he sued the United
States for negligence and battery in the U.S. District
Court for the District of Guam. He also named the
Navy doctor as a defendant in his individual capacity.
The government certified that the doctor was acting
CA Labor & Employment Bulletin
in the scope of his employment and moved to substitute
the United States as defendant, based on the Gonzalez
Act and the Federal Employees Liability Reform and
Tort Compensation Act. The District Court granted the
unopposed motion.
The District Court then granted the government’s
motion for summary judgment as to Levin’s negligence
claim, in light of the absence of any expert evidence that
the medical treatment failed to meet the relevant standard of care. Levin did not appeal that ruling. The only
remaining claim was Levin’s battery claim against the
United States under the FTCA.
With regard to that claim, Levin argued that even if the
doctor’s conduct was not negligent, the operation
constituted battery because Levin had orally withdrawn
his consent to surgery. The District Court denied the
government’s motion for summary judgment on the
battery claim on the ground that a genuine issue of
material fact existed. However, it ultimately held that
the claim was barred by 28 U.S.C. Section 2680(h) and
thus dismissed it for lack of subject matter jurisdiction.
Levin appealed the dismissal of his battery claim. The
Ninth Circuit U.S. Court of Appeals affirmed. The appellate panel rejected Levin’s claim that 10 U.S.C. Section
1089(e) negates the FTCA’s preservation of sovereign
immunity against battery claims in 26 U.S.C. Section
2680(n). The panel also concluded that Levin could not
overcome the principle that waivers of sovereign immunity cannot be implied but ‘‘must be unequivocally
expressed.’’
Levin then petitioned the U.S. Supreme Court for
certiorari, which was granted. The case was set for
oral argument.
Levin’s attorney, James A. Feldman of Washington,
D.C., told the Court that ‘‘for cases covered by the
Gonzalez Act; that is, cases of medical malpractice
committed within the scope of employment by the
doctors of the certain specified agencies that Congress
has named for those cases, there is no intentional tort
exception, and therefore, you can bring an action
against the government.’’
Assistant to the Solicitor General Pratik A. Shah countered with an argument that Congress enacted the
Gonzales Act ‘‘[b]ecause it was primarily concerned
about conferring personal immunity. Every time the
Senate Report talks about the purpose of the bill — it’s
on page 1, heading: Purpose of the Bill — it says conferring personal immunity. Nothing about expanding the
Government’s tort liability.’’
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May 2013
Writing for the Court, Justice Ruth Bader Ginsburg
explained that Section 1089(e) of the Gonzalez Act
eliminates the FTCA’s intentional tort exception,
allowing Levin to sue the United States for medical
battery against a Navy doctor for acts performed
within the scope of his employment. Therefore, the
Ninth Circuit’s judgment was reversed.
All justices joined in the entire opinion except Justice
Antonin Scalia, who did not join in footnotes six
and seven, which address the Senate Report on the
Gonzalez Act.
To view Supreme Court briefs related to the Levin case,
go to 2011 U.S. Briefs 1351 on Lexis.com.
MERIT SYSTEMS PROTECTION BOARD
Ricky Williams v. United States Postal Service, No.
2012-3200, 2013 U.S. App. LEXIS 2886 (Fed. Cir.
February 12, 2013).
A former U.S. Postal Service (USPS) employee failed to
prove his claim that he was the victim of discrimination
when he was terminated after being absent without
leave (AWOL), the Federal Circuit U.S. Court of
Appeals ruled Feb. 12.
Ricky Williams was employed by the USPS. Between
March 3, 2008, and May 20, 2008, William was AWOL
for a total of 28 days, and the USPS removed him from
his position for failing to be in regular attendance.
Williams appealed his removal to the Merit Systems
Protection Board (MSPB). Before the MSPB, Williams
did not dispute that he was absent for the amount of
time identified by the USPS. However, he did argue that
he had requested leave for his absences under the
Family and Medical Leave Act (FMLA). He also
alleged that the USPS discriminated against him on
the basis of disability, that the agency discriminated
against him on the basis of age and gender and that
his removal was in retaliation for his having filed an
equal employment opportunity complaint. The administrative judge affirmed the USPS’s action.
Williams then petitioned the MSPB for review. The
MSPB denied the petition. Finally, Williams appealed
to the Federal Circuit U.S. Court of Appeals.
The Federal Circuit affirmed the MSPB decision, finding
that it was free of legal error. It rejected Williams’ argument that the MSPB failed to consider some 41 pages of
prehearing submissions. It also rejected his argument that
the MSPB’s decision was defective because the MSPB
allegedly both rejected and accepted the testimony of the
attendance control supervisor.
CA Labor & Employment Bulletin
Finally, the appellate panel rejected Williams’ claim
that he was discriminated against on the basis of age.
Finding first that it lacked jurisdiction to consider the
discrimination claim under Kloeckner v. Solis,1 the
court ruled that there was no evidence on the record
to support the claim. He had argued that two employees
who were younger than him and also had an AWOL
history had been treated more leniently than him, but
the court found that they were not similarly situated to
Williams. One had fewer absences and no AWOLs
during the period of Williams’ AWOLs.
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May 2013
complaint and notice of hearing on Nov. 30, 2012. The
SPCA failed to file an answer. The acting general
counsel then moved for default judgment.
PROTECTED CONCERTED ACTIVITY
The NLRB granted the motion, finding that the PSCA
had violated section 7 of the NLRA by interfering with,
restraining, and coercing employees in exercising their
rights under that section. It ordered the SPCA to cease
and desist from engaging in unfair labor practices, offer
Vane full reinstatement to her former job or a substantially equivalent position, make Vane whole for any
loss of earnings or other benefits and compensate
Vane for the adverse tax consequences in accordance
with the NLRB’s decision in Latino Express, Inc.2
In addition, the NLRB ordered that the SPCA remove
from its files any reference to Vane’s removal.
SPCA in Cattaraugus County, Inc. and Linda Vane,
No. 03-CA-090311, 2013 NLRB LEXIS 88 (February
22, 2013).
References. See, e.g., Lareau, National Labor Relations Act: Law and Practice, Chapter 4, Employees’
Rights (Section 7 of the Act) (Matthew Bender).
References. See, e.g., Labor and Employment Law,
Chapter 79, Federal Employment (Matthew Bender).
On Feb. 22, the National Labor Relations Board
(NLRB) ruled that a New York animal shelter must
reinstate a medical attendant who was fired after she
complained several times about her pay and working
conditions.
SPCA in Cattaraugus County Inc. is a not-for-profit
animal corporation in Olean, N.Y., that operates an
animal shelter and provides animal control to municipalities.
Since April 7, 2012, the SPCA has maintained a confidentiality policy that provides in part: ‘‘It is crucial to
the Organization that Employees and Board Members
do not publicly criticize, condemn or degrade other
SPCA Board Members, other SPCA Employees, or
SPCA policies.’’ On June 9, 10 and 15, 2012, SPCA
employee Linda Vane sent emails to the SPCA,
complaining about the wages, hours and working conditions at the SPCA and demanding that employees
receive their paychecks.
On June 15, Vane was removed from the position of
medical attendant. Two days later, Vane was sent a
letter by the SPCA threatening her with discharge if
she continued to engage in these activities.
Vane was discharged June 25.
Vane filed an unfair labor practice charge against the
SPCA, alleging violations of the National Labor Relations Act (NLRA). The acting general counsel issued a
SOVEREIGN IMMUNITY
Kim Millbrook v. United States, No. 11-10362, 2013
U.S. LEXIS 2543 (March 27, 2013).
At oral argument before the U.S. Supreme Court on Feb.
19, the attorney for a federal inmate suing the United
States for assault by corrections officers argued that
Section 26809(h) of 28 U.S.C. clearly provides a waiver
of sovereign immunity and ‘‘extends the waiver to any
claim for one of the six enumerated torts committed by
a Federal investigative or law enforcement officer acting
within the scope of his or her employment.’’
Kim Millbrook is an inmate at the U.S. Penitentiary,
Lewisburg Pennsylvania (USP-Lewisburg). He sued the
United States in the U.S. District Court for the Middle
District of Pennsylvania under the Federal Torts Claims
Act (FTCA), claiming that he was subjected to sexual
assault while housed in the Special Management Unit
(SMU) at USP-Lewisburg on March 5, 2010. He
alleges that on that date he was taken to the basement
of the SMU and forced to perform oral sex on one correctional officer while another officer held his neck and
a third stood by the door and watched.
The District Court concluded that the United States
was entitled to summary judgment because Millbrook’s
FTCA claim was precluded by Pooler v. United States.3
Millbrook appealed. The U.S. Court of Appeals for the
Third Circuit affirmed the District Court’s ruling on
1
133 S. Ct. 596, 603-07 (2012). To view Supreme Court
briefs related to the Kloeckner case, go to 2011 U.S. Briefs
184 on Lexis.com.
2
359 NLRB No. 44 (2012).
3
787 F.2d 868, 872 (3d Cir. 1986).
CA Labor & Employment Bulletin
April 23, 2012. Millbrook then petitioned the U.S.
Supreme Court for a writ of certiorari.
The high court agreed to consider whether 28 U.S.C.
Sections 1346(b) and 2680(h) ‘‘waive the sovereign
immunity of the United States for the intentional torts
of prison guards when they are acting within the scope
of their employment but are not exercising authority to
‘execute searches, to seize evidence, or to make arrests
for violations of federal law.’ ’’
Assistant to the Solicitor General Anthony A. Yang,
representing the United States (which reversed its position in December and supported the reversal and
remand), told the high court that ‘‘[t]he text and structure of the law enforcement proviso in the Federal Tort
Claims Act more generally makes clear that the proviso
unambiguously waives sovereign immunity for claims
arising under the six intentional torts listed for acts or
omissions of persons qualifying as Federal law enforcement officers while acting within their scope of
employment.’’
He added that nothing in the statute supports an argument by Jeffrey S. Bucholtz of King & Spalding in
Washington, the court-appointed amicus curiae to
present arguments in support of the Third Circuit’s
decision, that such officers should be acting in a law
enforcement capacity or exercising law enforcement
authority.
When asked by Justice Elana Kagan to explain what
might meet the ‘‘scope of employment’’ test but not
the ‘‘acting as a law enforcement officer’’ test, Yang
replied, ‘‘It could mean various things. It could mean,
for instance, something as limited as executing a search,
seizing evidence or making an arrest. . . . It could be
something incident to that, writing a report. . . . It
could be other things. Law enforcement officers often
aren’t doing the very things that we’re talking about.
They go on patrol, they talk to kids in schools. There are
all types of things that law enforcement officers might
do that don’t fall within what . . . one might think of as
what, you know, you see on television when officers are
making contact with the public in rather high stakes
incidents.’’
Bucholtz, in his arguments before the high court, asked
that the Third Circuit decision be affirmed. ‘‘[I]n the
first sentence of the proviso, the operative provision,
Congress referred to acts or omissions of investigative
or law enforcement officers of the United States.
Congress didn’t say any acts or omissions of investigative or law enforcement officers were covered. It didn’t
say all were covered. It just said acts or omissions of
law enforcement officers in the same way that the
179
May 2013
statute at issue in Lane4 referred to conduct of a
federal funding provider. And so what this Court
should do, we submit, is construe acts or omissions of
investigative or law enforcement officers of the United
States as limited to acts or omissions of those defined—
that defined class of persons in the relevant capacity,
where they’re acting as law enforcement officers,’’
Bucholtz told the high court.
To view Supreme Court briefs related to the Millbrook
case, go to 2011 U.S. Briefs 10362.
References. See, e.g., Labor and Employment Law,
Chapter 79, Federal Employment (Matthew Bender).
SENIORITY
Teamsters Local Union No. 523 v. National Labor
Relations Board, et al., No. 12-517, 2013 U.S.
LEXIS 1742 (February 25, 2013).
On Feb. 25, the U.S. Supreme Court denied a petition
for writ of certiorari in a case concerning whether the
placement of a previously unrepresented employee at
the bottom of the seniority roster constituted an unfair
labor practice.
Kirk Rammage began working for Interstate Bakeries
as a Dolly Madison bakery sales representative in the
1990s. In 1996-97, Interstate had purchased the Wonder
Bread/Hostess product lines. Rammage was moved
from a Dolly Madison warehouse to the Ponca City
Wonder Bread/Hostess warehouse, but he continued
to sell only Dolly Madison products. The other sales
representatives at the Ponca City warehouse sold only
Hostess and Wonder Bread products.
Teamsters Local Union No. 523 represented Interstate
Bakeries’ Dolly Madison and Wonder Bread/Hostess
sales representatives in separate units with separate
collective bargaining agreements. The Wonder Bread/
Hostess contract covered the sales representatives who
sold those products, including all of the Ponca City
sales representatives except Rammage. The Dolly
Madison contract covered sales representatives who
sold Dolly Madison products in Tulsa and Muskogee
but not in Ponca City. As a result, Rammage was not
represented by either unit and received company benefits
instead of benefits provided under either union contract.
In late 2005, Interstate Bakeries decided to stop differentiating between Dolly Madison and Wonder Bread/
Hostess routes, so that all sales representatives would
deliver and sell all products. Interstate Bakeries and the
union agreed that the separate collective bargaining
4
Lane v. Pena, 518 U.S. 187 (1996).
CA Labor & Employment Bulletin
units would also be consolidated. As a result, the
Wonder Bread/Hostess contract remained in effect,
and the employees covered by the Dolly Madison
contract were dovetailed according to unit seniority
with the Wonder Bread/Hostess sales representatives.
During this discussion, the union was informed of
Rammage’s employment and the fact that he was not
included in either bargaining unit. The parties agreed
that Rammage should be included in the merged collective bargaining unit, but there was some debate over
seniority. Rammage had the most seniority of any
sales representatives in Ponca City. His employer
wanted him to be dovetailed into the merged unit
along with the other Dolly Madison employees.
However, the union insisted that Rammage be placed
at the bottom of the merged unit’s seniority roster. Interstate Bakeries ultimately agreed to that.
As a result, Rammage was subsequently bumped from
his position in Ponca City by a sales representative with
higher union seniority and was forced to transfer to a
location 70 miles away.
Rammage filed unfair labor practice charges against
his employer and the union, and the National Labor
Relations Board (NLRB) general counsel issued a
consolidated unfair labor practice complaint. An
administrative law judge (ALJ) concluded that neither
the employer nor the union violated the National Labor
Relations Act (NLRA) by endtailing Rammage’s
seniority. A two-member panel of the NLRB disagreed
with the ALJ and concluded that the decision to endtail
Rammage’s seniority constituted an unfair labor practice on the part of both the union and the employer.
Interstate Bakeries did not object to this decision, but
the union filed a petition for review with the 10th
Circuit, which affirmed the NLRB’s decision.
However, after the U.S. Supreme Court’s decision in
New Process Steel v. NLRB (130 S. Ct. 2635 [2010]),
the NLRB’s decision was vacated, and the matter was
remanded. On remand, a three-member NLRB panel
reached the same result as the two-member panel. The
union again filed a petition for review.
The 10th Circuit found that the NLRB had reasonably
concluded that the union acted unlawfully, holding that
the dovetailing of the Dolly Madison employees alone
did no more to compromise the seniority roster than if
Rammage had also been dovetailed. The union violated
the NLRA by merging the bargaining unit at the
expense of a previously unrepresented worker for the
sake of protecting seniority. The NLRB’s decision was
therefore affirmed, and judgment was entered enforcing
its order.
180
May 2013
The 10th Circuit panel also agreed to a sanction of
$4,000 plus double costs against the union for its frivolous petition for review. Though it may have been
appropriate for the union to try to persuade the threemember panel to change its mind, it had no objectively
reasonable basis to believe it would do so by relying on
the same arguments it had already raised.
The union then petitioned the U.S. Supreme Court,
which denied certiorari.
To view Supreme Court briefs related to the Teamsters
Local Union No. 523 case, go to 2012 U.S. Briefs
10289.
References. See, e.g., Lareau, National Labor Relations Act: Law and Practice, Chapter 8, Employer and
Union Discrimination Affecting Terms and Conditions
of Employment (Sections 8(a)(3), 8(a)(4) and 8(b)(2))
(Matthew Bender).
WAGE AND HOUR
Joseph Timbang Angeles, et al. v. US Airways, Inc.,
et al., No. 12-5860, 2013 U.S. Dist. LEXIS 22423 (N.D.
Calif. February 19, 2013).
A California federal judge on Feb. 19 partially granted
a motion to dismiss a class complaint filed by former US
Airways Inc. employees seeking unpaid overtime,
wages for missed meal and rest periods and reimbursements for work-related expenses.
Joseph Angeles and Noe Lastimosa filed a putative
class action suit against US Airways, Inc. and 50
unnamed Does in the San Francisco County Superior
Court, alleging wage and hour violations. They alleged
that while they were employed as ramp agents for US
Airways, their employer failed to provide proper
compensation for all hours worked, meal periods and
rest breaks, accurate wage statements, and reimbursement for work-related expenses. The plaintiffs also
sought penalties based on these allegations, claiming
that they constituted unlawful business practices.
US Airways removed the case to the U.S. District Court
for the Northern District of California on Nov. 15, 2012.
On Nov. 26, US Airways moved to dismiss seven of the
employees’ eight claims under Federal Rules of Civil
Procedure 12(b)(1) and (6). The motion did not address
the plaintiffs’ allegation that they were required to use
their cell phones for business purposes without reimbursement in violation of California Labor Code
Section 2802.
U.S. District Judge Charles R. Breyer granted the
motion with respect to the company’s alleged failure
to provide meal breaks while deducting a meal period
CA Labor & Employment Bulletin
from the workers’ pay in violation of the Industrial
Welfare Commission Wage Order 9-2011, dismissing
that claim with prejudice, but denied the motion to
dismiss that same claim with respect to California
Labor Code Section 510.
Judge Breyer then dismissed claims two and three, alleging the failure to institute a uniform policy for meal
periods and rest breaks, with prejudice. He also
dismissed claim four, alleging the failure to provide
accurate wage statements, but without prejudice.
Finally, the judge denied in part and granted in part
the motion to dismiss claims six through eight, which
allege failure to pay all compensation due upon termination, violations of California Business and Professions
Code Section 17200 and violations of California’s wage
and hour laws.
References. See, e.g., Wilcox, California Employment
Law, § 3.01[11], Meal Period Time (Matthew Bender).
WAL-MART CLASS ACTIONS
Lynne Wang, et al. v. Chinese Daily News, Inc., Nos.
08-55483 and 08-56740, 2013 U.S. App. LEXIS 4423
(9th Cir. March 4, 2013).
On March 4, the Ninth Circuit U.S. Court of Appeals
vacated findings of commonality and predominance in a
wage-and-hour class action lawsuit brought by newspaper
employees and remanded the case for reconsideration in
light of the U.S. Supreme Court’s decision in Wal-Mart
Stores, Inc. v. Dukes.5
A number of employees, with Lynne Wang as the lead
named plaintiff, filed a class complaint on March 5,
2004, against Chinese Daily News Inc. (CDN) in the
U.S. District Court for the Central District of California.
They alleged violations of the Fair Labor Standards Act
(FLSA), California’s unfair business practices law and
the California Labor Code. The plaintiffs claimed that
CDN employees were made to work more than eight
hours per day and more than 40 hours per week without
overtime compensation. They also claimed that they
were denied meal and rest breaks, accurate and itemized
5
131 S. Ct. 2541 (2011). To view Supreme Court briefs
and other documents related to the Wal-Mart Stores, Inc. case,
go to 2010 U.S. Briefs 277 on Lexis.com. To view oral argument transcripts, go to 2011 U.S. Trans. LEXIS 30.
181
May 2013
wage statements and prompt payment of wages at
termination.
After the plaintiffs narrowed the class definition to
include only nonexempt employees at the Monterey
Park, Calif., facility, the District Court certified the
FLSA claim as a collective action and certified the
state law claims as a class action.
After a 16-day jury trial and three-day bench trial, the
District Court entered judgment in favor of the plaintiffs. On Sept. 27, 2010, the Ninth Circuit affirmed. The
matter was then appealed to the U.S. Supreme Court.,
which vacated and remanded on Oct. 3, 2011 for reconsideration in light of its decision in Wal-Mart Stores,
Inc. v. Dukes.
Relying on Dukes, the Ninth Circuit panel reversed the
District Court’s certification of the state law claims as a
class action under Federal Rule of Civil Procedure
23(b)(2).
The panel vacated the District Court’s finding of
commonality under Rule 23(a) and predominance under
Rule 23(b)(3) and also remanded for reconsideration in
light of Dukes. While the Dukes class comprised 1.5
million and the present class includes only about 200
employees, the Ninth Circuit found that there may be
significant differences among the class members.
The Ninth Circuit instructed the District Court to decide
whether there was a common question whose resolution
would resolve an issue central to each of the plaintiffs’
claims. This would require them to produce significant
proof that the employer operated under a general policy
of violating the law, under Ellis v. Costco Wholesale
Corp.6 Plaintiffs were not required to show that every
question in the case was susceptible to classwide resolution, the court explained; a single common question
would satisfy the commonality requirement under Fed.
R. Civ. P. 23(a)(2).
References. See, e.g., Wilcox, California Employment
Law, Chapter 9, Wage and Hour Class Actions
(Matthew Bender).
6
657 F.3d 970, 983 (9th Cir. 2011) (quoting Wal-Mart,
131 S. Ct. at 2553 (alteration omitted).
CA Labor & Employment Bulletin
182
May 2013
CALENDAR OF EVENTS
2013
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Westin St. Francis
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Aug. 22-23
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Aug. 26
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CA Labor & Employment Bulletin
183
May 2013
Oct. 9
NELI: Affirmative Action Workshop
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Oct. 10-11
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Dec. 5-6
NELI: Employment Law Conference
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CA Labor & Employment Bulletin
184
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May 2013
CA Labor & Employment Bulletin
185
May 2013
COLUMNISTS
Contact Information
Eye on the Supreme Court
Profile
DFEH Update
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REPORTERS
Contact Information
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Proskauer Rose LLP
Los Angeles
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(Public Sector)
Paul, Plevin, Sullivan & Connaughton LLP
San Diego
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Paul Plevin Sullivan & Connaughton LLP
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Paul Hastings LLP
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CA Labor & Employment Bulletin
186
EDITORIAL STAFF
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Miller Law Group
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Wilson Turner Kosmo LLP
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CA Labor & Employment Bulletin
187
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Also from Matthew Bender:
California Employers’ Guide to Employee Handbooks and Personnel Policy
Manuals, by Morrison & Foerster LLP
2012 Revisions by Paul Hastings LLP
This handy volume and accompanying CD offers an all-inclusive roadmap to
writing, revising and updating employee handbooks. More economical than
competing guidebooks, this volume is a vital reference that helps you draft appropriate content, speeding additional research with cross-references to the Wilcox
treatise, California Employment Law. Sample policies cover the following: technology use and security; blogging; cell phone use; company property, proprietary
and personal information; employment-at-will; anti-harassment policies; work
schedules and overtime; and much more. Order online at Lexis.com or by
calling 1-800-223-1940.
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