E-Blasts

On July 26, 2016, Subway, known for its franchise of sandwich restaurant chains, entered into an agreement with the Department of Labor’s (“DOL”) Wage and Hour Division (“WHD”), with the hope that the Agreement will result in an increase in wage compliance at Subway franchises. The DOL anticipates that this Agreement will signal a new dedication to address significant wage compliance problems by cooperating directly with the employer. Employers, on the other hand, are holding their breath, waiting to see if such an Agreement will result in increased liability under the National Labor Relations Board’s (“NLRB”) joint liability standard.

The Agreement essentially only commits Subway, which the DOL states is the world’s largest franchisor, to compliance under the Fair Labor Standards Act (“FLSA”) laws that all employers are already bound to follow: laws including overtime and minimum wage requirements. The Agreement also provides that the WHD will provide compliance training materials; that Subway will share with the WHD its annual disclosures; and that both will meet quarterly to discuss compliance and ways to improve compliance, including using technology to improve aspects of payroll. Subway also agreed to “emphasize consequences” for non-compliance with its franchisees, and stated that it may “exercise its business judgment” in deciding how to address non-compliant franchisees.

     In a blow to employers, on August 22, 2016 in Morris v. Ernst & Young, the Ninth Circuit held that class action waivers are unenforceable in California. Deferring to the opinion given by the National Labor Relations Board (“NLRB”), the Court said that since the National Labor Relations Act (“the Act”) gives employees the right to seek to improve working conditions by initiating a lawsuit or some other type of action against their employer, and also provides that employees may act together or “in concert” for the purpose of collective bargaining or other mutual aid or protection, class action waivers are not enforceable.

A revised OSHA rule, Recording and Reporting of Occupational Injuries and Illness, which went into effect August 10, 2016, reduces the ability of employers to conduct post-accident/incident alcohol and drug testing, changes the manner in which injury and illness are reported, and prohibits any policies that may deter reporting of workplace injuries.

1. Blanket Drug Testing Deemed To Deter Workplace Incident Reporting

Under the new OSHA rule, blanket post-incident drug testing is no longer allowed because it may deter reporting of workplace injuries. Thus, all post-incident drug testing is now limited to “situations in which employee drug use is likely to have contributed to the incident and where a drug test can accurately identify impairment caused by drug use.” As support, OSHA submitted the following example:

Two California statutes, Labor Code sections 1101 and 1102, are intended to ensure an employee’s political freedom.  These statutes prohibit employers from adopting rules aimed at preventing employees from engaging in politics and make it unlawful for employers to threaten to terminate an employee for their political activity.  However, these laws do not mean employees have a right to pursue their political goals if it interferes with their ability to perform their job.

Arbitration agreements are a useful tool for employers to protect themselves from class action litigation. However, arbitration agreements alone do not necessarily prevent a case from proceeding in arbitration as a class action. On July 28, 2016 in Sandquist v. Lebo Automotive Inc., et al., the California Supreme Court addressed the question of who decides whether an arbitration agreement prohibits class wide arbitration—a court or the arbitrator.  


In Sandquist, Plaintiff was an employee at Defendants’ auto dealership. On Plaintiff’s first day of employment, his manager gave him numerous papers to sign, including an arbitration agreement. Plaintiff, who is African-American, filed individual and class claims against Defendants for pay discrimination based on race, being subjected to a hostile work environment, and passed over for promotions because of his race. Defendants moved to compel individual arbitration based on the arbitration agreement, which included a class action waiver, signed by Plaintiff on his first day of work. The trial court found the arbitration agreement enforceable and not unconscionable, and granted Defendants’ Petition to compel individual arbitration.

     Updating our previous e-blast regarding the legal challenge to AB 1513, on July 18, 2016, in Nisei Farmers League v. CA Labor and Workforce Development Agency et. al, the Court heard oral argument regarding Plaintiff’s request for a preliminary injunction against the enforcement of AB 1513 (CA Labor Code section 226.2). On July 25, 2016, the Court issued an order denying the request. As a result, the temporary restraining order previously issued by the Court expired on July 18, 2016. Pursuant to the Court’s order, companies have until July 28, 2016 to sign up with the Department of Industrial Relations (“DIR”) to indicate their intent to make AB 1513 payments if they have not yet done so.    

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