We recently informed you of the California legislature’s passage of AB 1513, which – if signed by the Governor – would establish new requirements for compensating piece-rate workers for their non-productive time (“NPT”) and would create a safe harbor for employers currently facing lawsuits regarding this issue.  We are receiving a lot of inquiries regarding the effects and applications of AB 1513 and will provide new useful information regarding these issues as questions arise.

Safe Harbor – To obtain the litigation safe harbor, an employer must pay its piece-rate employees for under-compensated rest and recovery periods (“R&R”) and for other miscellaneous non-productive time (“other NPT”) for the period of July 1, 2012 – December 31, 2015.  One payment option: paying 4% of each employee’s gross earnings over those same 42 months minus a credit for any amounts already paid for R&R and Other NPT.

• NEWSFLASH: The credit for payments made toward other miscellaneous NPT cannot exceed 1% of the employee’s gross earnings in that period, but there is no cap on the credit for R&R already compensated.  This means that employers could be credited for every dollar and cent already paid to each employee for his or her R&R time, constituting significant savings in this payment option!

• NEWSFLASH: Also, unlike the other Actual Sums Due payment option, this 4% Gross Earnings option does not require the employer to pay 10% interest on the sums due!

On September 3, 2015, the Ninth Circuit issued its decision in the case of Alcantar v. Hobart Service, providing useful clarifications on two key issues regularly involved in current wage and hour class action lawsuits.  First, the Ninth Circuit reversed the district court’s denial of class certification because the lower court had improperly evaluated the merits of the plaintiffs’ case rather than focusing on whether the questions presented were common to the class. Second, the Ninth Circuit affirmed the district court’s dismissal of the plaintiffs’ Private Attorneys General Act (“PAGA”) claim because the plaintiff failed to comply with PAGA’s notice requirements by neglecting to disclosed his allegations against the employer did not contain sufficient facts to comply with the notice requirement.

As hourly employees, the potential class of plaintiffs in Alcantar were compensated for the time spent driving to and from different assignments in company assigned vehicles. They were permitted – but not required – to take their company vehicles home at night.  The plaintiffs claimed they were entitled to be fully compensated for their commutes in their work vehicles.  Their employer did not pay for that time because the plaintiffs could have left their work vehicles at their branch office and driven their personal vehicles to and from home.  The plaintiffs would have been liable for any break-ins or damage to their vehicles left at the branch offices, which did not provide sufficient or secure parking space, and thus they argued they had no choice but to drive their work vehicles home at night.

A California Appellate Court recently ruled that the Federal Arbitration Act (“FAA”) preempts California Labor Code section 229.  That section provides that “unpaid wages claimed by an individual may be maintained without regard to the existence of any private agreement to arbitrate.”  The FAA preempts state laws that would otherwise invalidate arbitration agreements where the contract involves “interstate commerce,” which the court found existed.

In Khalatian v. Prime Time Shuttle, Inc., Khalatian was an airport shuttle van driver for Prime Time Shuttle.  Khalatian’s main job was to pick up and drop passengers off at Los Angeles International Airport.  Khalatian and Prime Time Shuttle entered into a contract for binding arbitration of “any controversy or claim between the parties arising out of or relating to this Agreement . . .”  

The agreement further expressly stated that Khalatian was an independent contractor, not an employee.  In the lawsuit, Khalatian contended he was an employee and brought forth 11 various wage and hour causes of action against Prime Time Shuttle, as well as other employment-related claims.  He sought to avoid the arbitration agreement, claiming among other things, that it was prohibited by section 229.  

California’s Paid Sick Leave (“PSL”) law went into effect just two months ago, and in that time, the law has already undergone one major amendment, as we previously advised on July 14, 2015. Now, the Division of Labor Standards Enforcement (“DLSE”) has issued an Opinion Letter (“OL”) addressing the applications of the time periods set forth in the law. Not such a great start for new legislation.

The law as written requires 24 hours or three days of PSL, based on a standard eight-hour day/40-hour week schedule. The legislature did not consider harvesters and other agricultural workers who work a varying schedule that often requires at least 10-hour days, or employers whose employees have elected an alternative workweek schedule. The OL, dated August 7, 2015, addresses this issue and clarifies that employees should be given the greater of either 24 hours or three days of PSL, regardless of whether the frontloading or accrual method is selected. This means that employees whose regular work day is 10 hours would get the greater of 24 hours or three 10-hour days.

Under the frontloading method, while an “8 and 40” worker would receive three days or 24 hours of leave at the beginning of each year (which may be defined as the beginning of the calendar year, anniversary date, or other twelve-month basis), an agricultural worker covered by Wage Order 14 would receive three days or 30 hours of leave at the beginning of the year. Similarly, under the Accrual Method, which requires that an employer provide one hour of PSL for every 30 hours worked, employers may limit the use of PSL to 24 hours or three days within each “year” (which is any twelve-month basis as defined by the employer’s policy). Again, employees who work 10-hour days should receive the greater of 24 hours or three 10-hour days.

On August 31, 2015, the California Legislature sent AB-465 to the Governor for his signature or veto.  This bill – sponsored by the California Labor Federation and the AFL-CIO – seeks effectively to bar the use of arbitration agreements as a mandatory condition of employment.
If the bill becomes law, it would prohibit employers from requiring employees to waive any legal rights or remedies in order to get or keep their jobs.  In other words, an employer could not require current or prospective employees to sign arbitration clauses under the threat that the employees would lose or not get their jobs if they do not sign.

Currently, if an arbitration agreement is required as a condition of employment, this is merely one of many factors considered by courts in deciding whether the agreement is enforceable.  The bill, however, would entirely prohibit such a waiver starting January 1, 2016, and would render unenforceable any arbitration agreements required as a condition of employment if entered into on or after that date.  This January 1, 2016 date would pose particular problems for employers of seasonal workers who sign new employment agreements with arbitration clauses in each new year or for each new season.

AB-465 is also especially concerning to employers who are subjected to wage and hour class actions because arbitration agreements are so effective in defending against class actions.  California courts have only recently come in lock step with federal courts in terms of requiring employees to comply with the terms of their employment agreements containing binding arbitration clauses and in enforcing class action waivers in the agreements.

In that regard, AB-465 would require an employer trying to enforce an arbitration clause to prove it was entered into knowingly and voluntarily by the employee, and not as a required condition of employment.  This is problematic because: (1) employees are much less likely to willingly execute waivers of their rights – like arbitration clauses and class action waivers – if they are not required to do so; (2) employers may be forced to provide additional incentive (monetary or otherwise) to obtain such waivers from their employees; and (3) employers would have to alter their policies and practices with regard to their employment handbooks and arbitration agreements in order to better document the processes and incentives used to obtain voluntary, executed waivers.  Notably, the bill includes an exclusion from the waiver prohibitions for employees who are represented by legal counsel in negotiating the terms of any waiver of legal rights, but few employees can afford to hire attorneys to negotiate their employment agreements.

Counsel To Management:

If this bill becomes law, it may not hold up to legal scrutiny based upon recent California and federal court rulings because it appears to be preempted by the Federal Arbitration Act. Nevertheless, employers should keep abreast of whether the bill is enacted and be prepared to modify their policies and practices for documenting and obtaining executed arbitration agreements with class action waivers, which will remain an extremely valuable tool in defending employment and wage and hour litigation.  The Governor must soon sign or veto AB-465 or it will become law even without his action, and we will provide further update at that time.  Please contact The Saqui Law Group with any questions regarding arbitration agreements and their enforceability.

“Read it before you sign it” is worthy advice for anyone. The concept applies to employers who should be sure to “read it before you draft it” as a California security company found out to its detriment this week. In Universal Protection Service, LP v. Superior Court the employer required its employees sign arbitration agreements which incorporated the American Arbitration Association’s (AAA) National rules by reference. What Universal Protection Service (“UPS”) discovered later is that those rules provide for class arbitration, which it was understandably not enthusiastic about.

Generally, arbitration is cheaper and faster than traditional litigation for resolving individual employment disputes. However, this intention may not be the reality when it comes to class arbitrations which require a much heavier lift for the arbitrator, who is paid a significant daily fee and may have little experience with class actions. Normally, the gateway issue of whether a dispute falls within the scope of an arbitration agreement is a question for a Court to decide unless the agreement grants that power to the arbitrator. Where the agreement is silent, a court will decide the scope of the agreement.

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