Arbitration Agreements

Co-authored by David S. Baffa, Candice T. Zee, and Alexius Cruz O’Malley

Seyfarth Synopsis: The U.S. Supreme Court has agreed to decide whether workplace arbitration agreements containing class and collective action waivers are enforceable under the FAA, notwithstanding the provisions of the NLRA.

Earlier today, the United States Supreme Court granted and consolidated three petitions for certiorari, to consider whether employers can require employment-related disputes to be resolved through individual arbitration, and waive class and collective proceedings, are enforceable under the Federal Arbitration Act, notwithstanding the provisions of the National Labor Relations Act.

Three circuits—the Second, Fifth, and Eighth—have concluded that agreements that waive class and collective proceedings, thus requiring that claims be arbitrated on an individual basis, are fully enforceable. Two circuits—the Seventh and Ninth Circuit—as well as the National Labor Relations Board, have concluded that waivers in mandatory arbitration programs are unenforceable because the waivers prevent employees from engaging in concerted activities under the National Labor Relations Act.

The National Labor Relations Board asked the Supreme Court to review and reverse the Fifth Circuit’s ruling, in which the Court rejected the Board’s position that such agreements unlawfully interfere with employees’ NLRA rights to engage in concerted activity for their mutual aid or protection.

Two employers also asked the Supreme Court to review decisions by the Ninth and Seventh Circuits in which the courts found the class waivers to be unlawful. The U.S. Supreme Court has consolidated all three cases and oral argument likely will be held in March.

The U.S. Supreme Court has decided time and again that the Federal Arbitration Act strongly favors private resolution of disputes, and that agreements to arbitrate that include these waivers must be afforded great deference and should be enforced. See AT&T Mobility LLC v. Concepcion, 563 U.S. 321 (2011); American Express Co. v. Italian Colors Restaurant, 570 U.S. ––, 133 S. Ct. 2304 (2013). Because the Supreme Court has not directly addressed these agreements in the context of employment arbitration or considered whether Section 7 of the National Labor Relations Act prohibits such agreements, the courts have come to opposite conclusions.

This critically important question has significant implications for employers, in that identical contractual provisions might be considered lawful and enforceable within some circuits, but not in others. Employers, particularly multi-state employers utilizing uniform arbitration agreements across the country, have been grappling with the uncertainty of the efficacy of their arbitration agreements for years. Stay tuned.

Authored by Simon L. Yang

Seyfarth Synopsis: When the California Supreme Court said no to PAGA waivers in its 2014 Iskanian ruling, we asked whether employers would boldly go where few have gone before and implement arbitration agreements requiring arbitration of PAGA claims. A recent California Court of Appeal decision issued in Perez v. U-Haul Company of California warrants revisiting that question.

Many employers stayed the course in 2014 and continued including PAGA waivers within their arbitration agreements, since numerous federal district courts continued disagreeing with and refusing to apply Iskanian’s logic.

And even when in 2015 the Ninth Circuit instructed federal district courts to apply Iskanian, many employers continued using arbitration agreements with PAGA waivers, since PAGA litigation could be severed and stayed while a plaintiff’s individual claims were arbitrated. If the employer prevailed on the individual claims in arbitration, the plaintiff would not be an aggrieved employee, would not have standing under PAGA, and would thus be unable to pursue mooted PAGA claims.

By 2016 plaintiffs have made the availability of that option scarcer. To avoid having to prove standing by prevailing on their individual claims before pursuing otherwise stayed PAGA claims, plaintiffs now commonly prefer to file PAGA-only lawsuits, without alleging individual claims.

The two putative Perez class representatives, however, had pursued both individual and PAGA claims. Predicting and seeking to avoid a stay of their PAGA claims, the Perez plaintiffs hopped onto the PAGA-only bandwagon by amending their complaints to allege a PAGA cause of action only—abandoning their individual claims, their roles as potential class representatives, and putative class members’ individual rights.

U-Haul fought back and sought to require arbitration of the predicate issue of whether the plaintiffs themselves had been subject to any Labor Code violations. Even though U-Haul was not seeking to preclude the PAGA cause of action but only to arbitrate the individual issues determinative of plaintiffs’ standing for their PAGA claims, the Court of Appeal rejected U-Haul’s argument. It reasoned that no individual issues remained at issue and that U-Haul’s arbitration agreement explicitly precluded arbitration of any representative issues.

Though Iskanian explicitly acknowledged that PAGA claims might be arbitrated, the Perez court then went full dictum. It opined that even if U-Haul’s arbitration agreement did not preclude its argument for arbitrating the plaintiff-specific issues determinative of PAGA standing, the PAGA cause of action could not be split between arbitration and litigation. But Iskanian doesn’t preclude this. What it precluded was the waiver of the right to pursue PAGA claims at all.

While it may be the case that an arbitration agreement cannot specify that an individual claim be created in a PAGA-only lawsuit, an arbitration agreement should be able to specify that representative claims be arbitrated—and specify that streamlined procedures be applied. Once again, will some enterprising employers consider going boldly where few have gone before?

Authored by Alex Passantino

‘Twas the week before Christmas, 2-0-1-5
When the poetry elves on the blog came alive.
Crafting their rhymes with a purpose so clear:
Presenting the wage-hour gems of the year.

In January, for new regs in this year our breath bated.
Then for six painful months, we speculated and waited.
And just as we geared up to celebrate Independence,
Out came a proposal that will create more defendants.

With a salary level that for 10 years has been flat,
They looked at New York’s and said “higher than that.”
More than double the old; and then they got clever …
The proposed sal’ry level will increase for forever.

Anticipated changes to duties caused quite a fuss
When DOL said “If you’ve got some ideas, just tell us.”
Of the Department’s proposal, employers were understandably wary,
So we wrote down some ideas on how to make it less scary.

Nearly 300 thousand comments they have to review,
It will be late into next year before they are through.

Next up on the list of your wage-hour joy,
Are the efforts to change what it means to employ:
ContractorsJoint employment. Fissured industry.
Interns. The “third way” and gig economy.

Economic realityRight to control.
They’re integral to your business? Now you’re in a deep hole.
So many angles, it can drive you berserk.
As agencies and courts figure out what is “work.”

And if divergent decisions bring you a sense of elation,
Then please focus attention on class certification.
Approvals, denials, and some decerts, too.
No matter the side, there’s a case for you.

But as summer approached, there arose quite a stir,
A case that’d explain what the class cert rules were.
A Supreme explanation, o my-o, o me-o
We’d learn about class via Bouaphakeo.

They’ve argued, but there’s no decision, not yet,
And a limited ruling on records might be all that we get.
But the cases keep coming. Their numbers broke the charts.
Whether giant class actions or cases broken in parts.

And the response to those filings? The employers’ retort?
A wide range of ways to get them out of court.

Some cases get mooted. Some cases do not.
At Genesis’s open question, SCOTUS might take a shot.
Does an offer of judgment that’s not been accepted
Mean the plaintiff cannot proceed with his class as expected?

Increasingly used as a litigation life saver
Arbitration agreements with a class action waiver;
And when asked if state laws could class waivers prevent, yo,
The Supremes laid the smack-down to dear Sacramento.

With all of these options, it comes as a surprise then,
That one resolution keeps on getting the Heisman.
For reasons that many cannot understand,
To settle wage claims courts think they must hold your hand.

That’s our year in review, we whipped you right through it.
Next year? The new regs and a mad dash to review it.
But before 2015 joins the past’s ranks,
You keep on reading our blog, and for that we give thanks!

THANKS TO ALL OF OUR READERS. BEST WISHES FOR A HAPPY, HEALTHY, AND PROSPEROUS NEW YEAR!

Authored by Simon L. Yang

As discussed by our Consumer Class Defense Blog, this week’s Supreme Court decision in DirecTV, Inc. v. Imburgia reversed a California Court of Appeal that had applied the California Consumer Legal Remedies Act’s prohibition of class waivers in arbitration agreements. According to the lower court’s decision, an arbitration agreement’s terms—directing application of the “law of your state”—permitted the court to effect the California law’s ban on class waivers. But as DirecTV reiterated, courts cannot ignore the Supreme Court’s 2011 decision in AT&T Mobility LLC v. Concepcion, which held that the Federal Arbitration Act (“FAA”) trumps contrary state laws when it comes to class waivers.

But on the same day the Supreme Court reaffirmed that California’s continuing hostility to honoring class waivers is impermissible, the Supreme Court also declined an opportunity to weigh in on California’s similar hostility to “PAGA waivers” in arbitration agreement. By denying a petition to review in CarMax Auto Superstores California, Inc. v. Areso, the Supreme Court left standing California’s “Iskanian rule” that holds PAGA waivers—or representative action waivers concerning claims under California’s Private Attorney General Act—are unenforceable.

Even though this is the third time that the Supreme Court has passed up an opportunity to invalidate the Iskanian rule, employers shouldn’t jump to conclusions that this week’s action in DirecTV and inaction in CarMax suggests that the Supreme Court is tacitly approving the Iskanian rule.

The Supreme Court simply may be deferring the question, since a petition for rehearing en banc is pending before the Ninth Circuit in Sakkab v. Luxottica Retail North America, Inc. Unlike several prior federal district court decisions that considered the Iskanian rule and found it inconsistent with both the FAA and Concepcion, the Ninth Circuit upheld the Iskanian rule in Sakkab. The Supreme Court might be waiting to see how the en banc panel addresses the Iskanian rule and take up that decision, if necessary. Or the Supreme Court may believe review is not procedurally proper because the CarMax decision is not final, since it did not hold PAGA claims to be non-arbitrable but held only that representative claims under PAGA could not be waived entirely.

In any event, while employers can all take solace from DirecTV’s reaffirmation of Concepcion, employers need not despair that CarMax means the Iskanian rule shall remain the law of the land (in California) forever. Maybe an en banc Ninth Circuit panel will deliver justice. If not, maybe the Supreme Court finally will weigh in. The only certainty is we’ll keep you posted.

Authored by Andrew Scroggins

As expected, the Fifth Circuit once again has rejected the NLRB’s highly controversial position that the National Labor Relations Act (“NLRA”) prohibits employers from requiring mandatory arbitration agreements that preclude employees from filing class or collective claims in any forum.

The Fifth Circuit first took up the issue nearly two years ago, when it set aside the NLRB’s D.R. Horton, Inc. decision.  In the Fifth Circuit’s view, the strong congressional policy contained in the Federal Arbitration Act (“FAA”), which requires the enforcement of arbitration agreements “as written,” was not overcome by the NLRA’s general provisions protecting the rights to organize and to engage in various forms of protected concerted activity.  Most courts (including the Second Circuit and Ninth Circuit) to address the issue since then have followed suit.

Despite the courts’ dim view, the NLRB has been undeterred and continues to press its D.R. Horton rationale.  One such decision is Murphy Oil USA, Inc., 361 NLRB No. 72 (Oct. 28, 2014).  The facts are these:  Murphy Oil’s new hires signed binding arbitration agreements that included a waiver of the right to commence or participate in a group, collective or class action.  Despite having signed the agreement, several employees filed an FLSA collective action in federal court.  Murphy Oil filed a motion to dismiss and compel arbitration on an individual basis, which the court granted.

The plaintiffs did not appeal the district court’s dismissal order. Instead, they pursued unfair labor practice charges with the NLRB, contending that the arbitration agreement interfered with their rights under Section 7 of the NLRA to engage in protected concerted activity.

In a 3-2 decision, the Board majority invalidated Murphy Oil’s arbitration agreement, concluding that the “reasoning and result” of the D.R. Horton decision were correct, notwithstanding that it had been “rejected by the U.S. Court of Appeals for the Fifth Circuit and viewed as unpersuasive by decisions of the Second and Eighth Circuits.”

Murphy Oil petitioned the Fifth Circuit to review the decision. The court declined the NLRB’s request to hear the case en banc, and at oral argument the panel pointedly reminded the agency it would follow circuit precedent.  Unsurprisingly, then, the Board’s order was set aside by the court of appeals to the extent it conflicted with the earlier D.R. Horton decision.

Unfortunately for employers, the Fifth Circuit did not add to its earlier decision, offering only a matter of fact statement: “Our [D.R. Horton] decision was issued not quite two years ago; we will not repeat its analysis here.  Murphy Oil committed no unfair labor practice by requiring employees to relinquish their right to pursue class or collective claims in all forums by signing the arbitration agreements at issue here.”

The Fifth Circuit did uphold the Board’s order with respect to its conclusion that the arbitration agreement suggested that employees were prohibited from filing unfair labor practice charges with the Board. The court declined to hold that agreements must include an express statement of employees’ right to do so, but also opined that such a statement would be helpful in the event that “incompatible or confusing language appears” elsewhere in the agreement.

Perhaps the only surprising aspect of the decision is the court’s mild tone toward an agency that continues to flout the court’s authority. For example, Murphy Oil had pressed for a contempt order or sanction to address what it had characterized as the Board’s “defiance” of the D.R. Horton decision.  The court declined to do so (“We do not celebrate the Board’s failure to follow our D.R. Horton reasoning, but neither do we condemn its nonacquiescence.”), but its reasoning is perplexing.  As the court pointed out, employers typically can chose among several circuits when challenging a decision by the Board, so the “Board may well not know which circuit’s law will be applied on a petition for review.”  However, to date no circuit has taken a contradictory view – a point the court had earlier noted, when it explained that “several of our sister circuits have either indicated or expressly stated that they would agree with our holding in D.R. Horton if faced with the same question.”

Similarly, in its decision, the Board had award attorneys’ fees and expenses that the charging party had incurred to oppose Murphy Oil’s successful district court motion to compel arbitration – an action the Board concluded had been taken “with an illegal objective.” The Fifth Circuit also refused to enforce that portion of the order, but again the language is soft: “Though the Board might not need to acquiesce in our decisions, it is a bit bold for it to hold that an employer who followed the reasoning of our D.R. Horton decision had no basis in fact or law or an ‘illegal objective’ in doing so.  The Board might want to strike a more respectful balance between its views and those of circuit courts reviewing its orders.”

In the end, the Fifth Circuit’s Murphy Oil decision is unlikely to change the status quo.  While the precedent in this circuit has been bolstered, the decision seems unlikely to deter the Board from charting its own course, both within and without this circuit, and continuing to invalidate arbitration agreements that contain class and collective action waivers.

 

 

Co-authored by Tim Rusche and Adam Vergne

Sound advice that the world has lived with since 1512…until recently flushed by the Ninth Circuit. Not so quick to discard 500 years of wisdom, however, the Supreme Court has agreed to consider whether this idiom will rest in peace or be given new life. It recently accepted review of Zaborowski v. Managed Health Network Inc., in which the Ninth Circuit refused to compel arbitration of a putative class and collective action alleging that the defendant avoided paying overtime by improperly classifying counselors as independent contractors.

In 2013, U.S. District Judge Susan Illston found the underlying arbitration agreement so permeated with unconscionability that the entire agreement should be thrown out with the dirty water. The court held that the agreement was procedurally unconscionable because it was a condition of employment not subject to negotiation and buried in the employment contract, thereby creating “unfair surprise.” The court also pointed to the agreement’s six month limitations period, arbitrator selection process, fee shifting provision, prohibition on punitive damages, and the fees associated with filing an arbitration to find it substantively unconscionable. Ultimately, the district court denied arbitration and refused to sever the agreement’s bad provisions from the good because the dirty water “so permeated” it.

This refusal to parse the bathwater will take center stage when the Supreme Court hears oral argument during the upcoming term.

Notably, the Ninth Circuit panel affirming the decision split on that issue. The majority noted, “the Federal Arbitration Act expresses a strong preference for the enforcement of arbitration agreements” and “we may have reached a different conclusion” but ultimately concluded the district court did not abuse its discretion.

The dissent, authored by Judge Ronald Gould, concluded the Supreme Court’s 2011 decision in AT&T Mobility LLC v. Concepcion mandated that courts not reflexively dump the entire tub by “creat[ing] a presumption in favor of severance” so long as the agreement could still be enforced after severing the unconscionable provisions. Judge Gould even included a blackline of the arbitration provision—pictured below—striking the unconscionable provisions that could be thrown out with the bathwater while saving the remainder. 

Should the Supreme Court provide new life to our favorite German idiom, it will have a profound effect on the extent to which employers can use waivers in arbitration agreements to avoid class and collective actions and provide guidance about whether employers may include novel or more favorable language in agreements. In the meantime, the case provides an important reminder that employers must take great care when crafting arbitration agreements to avoid provisions that will taint the entire bath.

Authored by Emily Barker

This week, in Sakkab, et al v. Luxottica Retail North America, Inc., the Ninth Circuit ruled that an employee cannot waive the right to bring a representative action under the Private Attorneys General Act (“PAGA”) through an arbitration agreement or any other means. In so doing, it found the California Supreme Court’s “Iskanian Rule”—which essentially says that pre-dispute agreements to waive PAGA claims are unenforceable under California law—was not preempted by the Federal Arbitration Act (“FAA”).

The FAA generally preempts any law that creates a special rule disfavoring arbitration or conflicts with the FAA’s objectives. The Luxottica Court found that the Iskanian Rule was simply a ground for the revocation of any contract. “The rule bars any waiver of PAGA claims, regardless of whether the waiver appears in an arbitration agreement or a non-arbitration agreement.” The Court also held that it did not conflict with the FAA’s  purposes and thus was not preempted.

What the Ninth Circuit’s blessing of the Iskanian Rule will ultimately mean for California employers is still open to debate. The decision appears contrary to the United States Supreme Court holding in AT&T Mobility LLC v. Concepcion. There, the High Court held that the FAA preempted a California rule banning class action waivers in arbitration agreements because a rule “[r]equiring the availability of classwide arbitration interferes with fundamental attributes of arbitration,” namely its informality, and “creat[ed] a scheme inconsistent with the FAA.” Because the rule stood as an  obstacle to the accomplishment and execution of the full purposes and objectives of Congress, it was preempted.

The Luxottica court attempted to distinguish PAGA actions by noting that unlike class actions, PAGA actions are not relegated to any particular procedure for resolution by due process. Since parties may agree to more informal measures of resolution for PAGA claims, it is possible to structure an arbitration agreement to align with the aims of the FAA. But as pointed out by the dissent, this “reasoning overlooks the simple fact that, by preventing parties from limiting arbitration only to individual claims arising between two contracting parties, the Iskanian rule interferes with the parties’ freedom to craft arbitration in a way that preserves the informal procedures and simplicity of arbitration.”

The dissent likewise highlights that while PAGA actions do not require the procedural formality of a class action, there will still need to be some mechanism to determine the number of other employees affected by the labor code violations, the number of pay periods that each of the affected employees worked, etc. This would require multiple, individual fact determinations regarding employment status and discovery of a breadth not normally conceived of in arbitration. “All of these additional tasks and procedures necessarily make the process substantially slower, substantially more costly, and more likely to generate a procedural morass than non-representative, individual arbitration”—all of which are contrary to the FAA’s aims.

And there is yet another piece of the Luxottica decision, not highlighted by the dissent, which seems to rest on circular logic, contra Concecpcion. The Luxottica Amici argued that  the Iskanian Rule conflicts with the FAA’s purpose to overcome judicial hostility to arbitration because it prohibits arbitration of individual PAGA claims. The Luxottica court summarily rejected this argument claiming Iskanian expressed no preference as to whether individual PAGA claims are litigated or arbitrated. “[The Iskanian Rule] provides only that representative PAGA claims may not be waived outright … [it] does not prohibit the arbitration of any type of claim.”

But this determination begs the question—when could an employee ever bring an individual PAGA claim if he is never allowed to waive his right to bring the claim in a representative capacity? The Iskanian Rule as adopted by the Ninth Circuit then would seem to squarely prevent arbitration of individual PAGA claims and should therefore be preempted under Concepcion.

While California employers must wait and see if the most-oft reversed Circuit lives up to its reputation, they are not out of options entirely when it comes to structuring cost-saving arbitration agreements.

It should be noted that both the Iskanian and Luxottica decisions left open the possibility of claim bifurcation through arbitration agreements.  That is, a court can compel an employee’s non-PAGA claims to arbitration, leaving only PAGA claims in court if the agreement makes clear this is the parties’ intent. For this reason, employers may wish to continue to include representative action waivers in their arbitration agreements, stating explicitly that to the extent not enforceable, the provisions applicable to PAGA claims are severable, do not void the entire agreement, and that it is the parties’ intent in such cases that the PAGA claims alone remain in court.

While such a provision could at first blush appear to increase costs by subjecting the employer to suits in two fora, one other factor should be considered. Neither the Iskanian Rule nor the Luxottica holding precludes setting the procedural order of adjudication of a PAGA claim by agreement; it mandates only that such claims cannot be waived. Employers thus could conceivably include provisions in their agreements providing that non-PAGA claims subject to a class action waiver must be adjudicated in arbitration before adjudication of any PAGA claims. This would essentially stay any PAGA claims in court until the arbitration was completed.

Such provisions would seem to be in line with the purposes of PAGA and the Luxottica decision. PAGA claims can only be brought by an “aggrieved” employee, so allowing a determination of whether the employee is aggrieved through individual arbitration prior to subjecting the employer to a PAGA suit would seem to comport with the statute. Likewise, the Luxottica reasoning is heavily based in the theory that employers can structure their agreements to allow for a streamlined PAGA adjudication in keeping with the goals of the FAA.

In the end, every employer needs to weigh the pros and cons of continuing to address PAGA claims in arbitration agreements, and there is no one size fits all approach. Given the apparent conflict between the Luxottica/Iskanian rule and Supreme Court precedent, the possibility of relegating the PAGA claims alone to court and staying them pending individual arbitration, and the generally shortened statute of limitations period for PAGA claims, implementation of an arbitration agreement may yet offer substantial protections against class and representative actions.

Co-authored by David D. Kadue and Simon L. Yang

On Tuesday, January 20, 2015, the Court declined to take the case of CLS Transportation Los Angeles, LLC v. Iskanian, in which an employer asked the Court to reverse a ruling of the California Supreme Court. At issue was whether an employee who has agreed to submit all employment-related claims to arbitration, and who has also agreed to waive participation in class and representative actions, can evade that agreement and sue the employer under California’s Private Attorney General Act (“PAGA”). The California Supreme Court in June 2014 had sided with the suing employee.

Many observers expected that the case would be the latest episode in a drama that features a complicated relationship between two supreme courts. To simplify a bit, the U.S. Supreme Court traditionally has read the Federal Arbitration Act (“FAA”) to require the enforcement of private arbitration agreements by their terms. The California Supreme Court, meanwhile, has often searched creatively for some Cal-centric reason to deny enforcement to arbitration agreements.

Recent examples of the contrasting supreme viewpoints have occurred in the context of arbitration agreements that waive the procedural right to proceed or participate in a class action. The California Supreme Court once held, in both the consumer-claim context and in the employee-claim context, that a class-action waiver in an arbitration agreement is unenforceable, because any such waiver offends the California public policy favoring class actions. But then the U.S. Supreme Court, in Concepion v. AT&T Mobility, ruled in 2011 that the FAA preempts the California ban on class-action waivers. Concepion involved a consumer complaint. For several years, California courts resisted the clear implication that Concepcion also applies to employee complaints. Finally, in Iskanian, the California Supreme Court relented, acknowledging that, under the FAA, class-action waivers in arbitration agreements are enforceable, even in California.

But even then the Iskanian court also sounded a note of resistance, based on a special Cal-peculiarity: the court held that Concepcion does not apply to a PAGA claim. The rationale for creating this PAGA exception to Concepcion was that a PAGA claim differs from a class action in that PAGA plaintiffs act as private attorneys general, on behalf of the State of California—an entity that never agreed to arbitrate. Meanwhile, a dozen or more federal district court decisions repudiated this rationale, holding that the FAA, as interpreted by Concepcion, requires courts to enforce arbitration agreements calling for individual arbitration of PAGA claims, even if that enforcement keeps the plaintiff from acting as a private attorney general.

The employer petitioned the U.S. Supreme Court for a hearing on whether the California Supreme Court, in Iskanian, has once again strayed from the FAA’s true path. In supporting this request for intervention, the employer community explained that Iskanian’s rationale does not withstand scrutiny, for several reasons. First, the injuries that PAGA addresses are Labor Code violations that have harmed the suing “aggrieved employee.” The notion that this injury is really to the State of California is an overbroad legal fiction that could apply to any statutory claim—as California presumably has an interest in compliance with all of its statutes. This legal fiction contrasts with the actual governmental injury asserted in a true qui tam claim under the False Claims Act, in which a private party, on behalf of the government, alleges fraud on the government, after notifying the government of the claim and letting the government decide whether to sue for itself. Second, PAGA differs from a true qui tam action in that the State of California plays almost no role in a PAGA action. Under the False Claims Act, the government investigates the claims and a case cannot proceed as a qui tam action unless the government expressly consents, so the government plays a true gatekeeper role. Under PAGA, by contrast, the California Labor and Workforce Development Agency (“LWDA”) has a limited chance to investigate and intervene after the aggrieved employee gives written notice of a violation, and the LWDA almost never investigates. On the contrary, unless, within 33 days, the LWDA says it will investigate (a once-in-a-blue-moon occurrence), the aggrieved employee can sue, without any government oversight, so that the aggrieved employee may unilaterally dismiss the action. Third, the State of California rarely sees the 75% share of the civil penalties that PAGA nominally promises. Settlements of Labor Code claims often involve no PAGA penalty whatsoever. The only judicial oversight is to approve any PAGA penalty sought: if no PAGA penalties are allocated, the court has nothing to approve. Individual plaintiffs can thus use PAGA claims to pressure a greater settlement of their private claims, while producing nothing for the State. In short, because individuals control PAGA actions from start to finish, enabling them to seek recovery for their own alleged injuries, there is no good reason to distinguish PAGA claims from other wage and hour claims. As to all these claims, the FAA preempts any state public policy that would interfere with the enforcement of arbitration agreements. So why should PAGA be any different?

Yet, alas, on Tuesday the U.S. Supreme Court denied the employer’s petition. We thus expect to see continuing discord between federal and California courts on whether PAGA represents an exception to the general rule that courts should enforce arbitration agreements that waive class and representative actions.

Co-authored by Richard Alfred and Patrick Bannon

2014 saw no letup in the deluge of wage and hour litigation.  Year-to-year, federal wage and hour lawsuits filed in federal courts increased by another 4.7%, bringing the total increase in federal court wage and hour cases over the past decade to more than 238%.  With the increase in litigation in this area, several significant trends emerged or accelerated.

First, in Integrity Staffing Solutions, Inc. v. Busk, the Supreme Court unanimously ruled that for a pre-shift or post-shift activity to be compensable under the Fair Labor Standards Act it must be an “intrinsic element” of the job, something that an “employee cannot dispense if he is to perform his principal activities.”  Time passing through post-shift security screening does not meet this standard, the Court concluded, to the relief of retailers and other employers who might otherwise have faced massive exposure,

Second, federal courts applying the Iqbal/Twombly pleading standards have been requiring plaintiffs to include more specific facts  in their complaints.  For example, complaints that merely allege that plaintiffs worked more than 40 hours and were not paid overtime are likely to be dismissed in a growing number of federal circuits.  The Ninth Circuit, most recently joined this trend by requiring “a plaintiff asserting a violation of the FLSA overtime provisions [to] allege that she worked more than forty hours in a given workweek without being compensated for the hours worked in excess of forty during that week.”  Landers v. Quality Communs., Inc., 771 F.3d 638, 645 (9th Cir. Nov. 12, 2014).  Requiring specific allegations makes it harder for plaintiffs’ counsel to use one-size-fits-all complaints and requires greater investigation before filing a complaint.  It may also strengthen defendants’ ability to defeat or limit certification of class or collective actions by highlighting early in a case significant differences among plaintiffs and potential class members or opt-ins.

Third, the law continued to evolve in favor of the enforcement of agreements to submit wage and hour claims to bilateral arbitration.  In particular, waivers of the right to participate in class or collective actions or in “class arbitration” are increasingly allowing employers to resolve wage disputes on an individual employee basis.  Further, in 2014 the Third Circuit in Opalinski v. Robert Half Int’l. endorsed the Sixth Circuit’s Reed Elsevier v. Crockett decision in determining that the issue of who decides whether an agreement to arbitrate allows for class arbitration is an issue of arbitrability for the court to decide.  This trend continued in an unpublished Ninth Circuit opinion in Eshagh v. The Terminix Int’l. Company (12/22/14).  With no Circuit taking a contrary view, these circuit court rulings are likely to lead to greater consistency in entrusting the important issue of the availability of class or collective arbitration to courts, rather than arbitrators.

Fourth, plaintiffs’ counsel concerned about their ability to pursue a class or collective action continue to try out the strategy of filing multiple suits or claims against the same employer on behalf of numerous individual plaintiffs or smaller groups of plaintiffs.  In at least one large collective action last year that had been conditionally certified, experienced plaintiffs’ counsel agreed to the decertification of the collective and then filed 37 lawsuits throughout the country, in addition to hundreds of arbitration demands, using opt-ins from the collective action as individual plaintiffs and claimants.  The strategy backfired, however, when plaintiffs lost a jury trial and several motions for summary judgment in the Eastern District of Virginia, resulting in a finding that mortgage loan officers were properly classified as exempt outside salesmen.  Cougill, et al. v. Prospect Mortgage, E.D. Va., No. 13-cv-1433.

Fifth, the Supreme Court heard argument in December 2014 in two cases that will determine not only whether mortgage loan officers satisfy the FLSA’s administrative employee exemption, but also how much weight, if any, courts should give to the pronouncements of the U.S. Department of Labor.  In 2010, the DOL–without notice or an opportunity for public comment–withdrew a 2006 Opinion Letter stating that mortgage loan officers are generally exempt, and issued of an Administrator’s Interpretation stating just the opposite.  The Supreme Court’s decision is expected in the first part of 2015.

Sixth, President Obama has called on the U.S. Department of Labor to revise its regulations defining the FLSA’s “white-collar” exemptions.  The DOL has delayed its target date for issuing proposed revisions, with the current due date now set for February 2015.  The administration has stated that the new regulations should significantly increase the number of employees eligible for overtime.  Possible changes could include:  a substantial increase in the minimum weekly salary requirement (currently $455); a re-definition of an employee’s “primary duty” that requires exempt employees to perform a minimum percentage of their time on exempt work and/or eliminates the ability of managers to engage in management and non-exempt work concurrently.  If the proposed revisions survive expected opposition during the comment period from the business community and Congressional leaders and become final, they would be the most significant revisions to the wage and hour regulations in decades.

Last but certainly not least, 21 states have increased their minimum wage effective January 1, 2015.  Connecticut’s minimum wage will increase to the highest level, at $9.15 per hour.  Massachusetts is not far behind with its minimum wage rising to $9.00 per hour.  The Federal minimum wage remains at $7.25 per hour, except for workers on Federal construction and service contracts solicited on and after January 1, 2015 and for those on contracts awarded outside the solicitation process, whose minimum wage rises to $10.10 by President Obama’s  Executive Order implemented by the Department of Labor’s final rule.  Of course, in those states with a minimum wage greater than federal law, employers must pay their employees no less than the higher applicable state minimum wage.

These developments all but ensure that avoiding and defending wage and hour class and collection actions should remain a high-priority for employers in 2015.

 

Authored by Alex Passantino

It’s the week before Christmas, and we’ve accepted our mission,
The annual wage hour “sum-up” composition.
And to start it all off, we’ve got something nice,
‘Cause the Supreme Court addressed wage and hour stuff twice.

The year started out with the first one of those;
As Justice Scalia answered “What counts as clothes?”
With one simple phrase, the Court cleaned up a mess,
Clothes should be “commonly regarded as articles of dress.”

Gloves and hardhats, and fireproof suits,
And your shirt and your pants (and, presumably, boots),
They all count as clothes, from your toes to your face.
But not glasses, or plugs that can block out the bass.

Then later this year, the Court came back again,
To answer the question, “The clock, it starts when?
If you screen all your workers so they don’t steal your stuff,
And the clock stops before they’re in line, that’s enough.

The statute considered? ’Tis one that’s immortal.
The 68-year-old Portal-to-Portal.
With language so dated, it puts “whilst thou” to shame,
So we list the words here and we call them by name:

Principal Activity!  Integral! And Indispensable!
The words that define whether work is compensable.
The task’s required?  So what?  That’s not a fight you should pick.
You pay only those duties whose element’s intrinsic.

Now we leave SCOTUS cases and we turn to the rest,
The five or six topics our blog writers liked best.
Appearing so often, it borders on a fixation.
Are cases addressing increased decertification

And non-certification (you know what we mean).
Early on, or at trial, and all points in between.
Surveys kicked out.  Class reps were rejected.
Comcast has turned out to be nearly all we expected.

And even where Rio can dance on the sand,
Out came a case simply known as Duran.
If you’re asked to provide your trial proof logistics,
You can no longer just smile, shrug, and yell out “Statistics!”

So much litigation, so many cases to savor
And that’s only the issue of classbased arb waiver.
Add holding plaintiffs to standards when pleading a case,
And it kinda feels like employers are leading this race.

But just when you think wage claims might become less systemic,
We look at case numbers and declare “Epidemic!”
Interns, exemptions, independent contractor relations
Dominate dockets across the whole nation.

The government, too, makes employers squirm.
And this year, a new boss has gotten confirmed.
Those in restaurants, lodging, and others franchised,
Into DOL investigations, you’ll soon be baptized.

Now as we approach the end of the year,
And look forward to next, and the things we should fear,
At the top of the list, the elephant in the room,
Is the effort to make your exemptions go “Boom!

In early 2015, we’ll know what DOL may have planned,
If the rules out in Cali will apply ‘cross the land.
But before we say bye to the year that’s near past
Thanks for reading our blog.  You’ve made it a blast.

THANKS TO ALL OF OUR READERS. BEST WISHES FOR A HAPPY, HEALTHY, AND PROSPEROUS NEW YEAR!