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Piplack v. In-N-Out Burgers (CA4/3 G061098 3/7/23) PAGA | Arbitration Post-Viking River Cruises
Defendant In-N-Out Burgers appeals from the trial court’s denial of its motion to compel arbitration of the claims of plaintiffs Tom Piplack and Donovan Sherrod for penalties under the Labor Code Private Attorneys General Act of 2004 (Lab. Code, § 2698 et seq.; PAGA). Defendant argues the recent decision of the United States Supreme Court in Viking River Cruises, Inc. v. Moriana (2022) ___ U.S. ___ [142 S.Ct. 1906] (Viking), rendered while defendant’s appeal was pending before this court, requires plaintiffs’ individual PAGA claims to be arbitrated and all remaining representative claims dismissed for lack of standing. Plaintiffs contend the agreement does not require arbitration of individual PAGA claims, defendant waived its right to arbitration by participating in trial proceedings, plaintiff Sherrod is not bound by the arbitration agreement because he entered it before reaching the age of majority and disaffirmed it after reaching that age, and that plaintiffs have standing to pursue representative PAGA claims in court even if their individual claims are sent to arbitration.
We conclude the arbitration agreements require individual PAGA claims to be arbitrated and defendant did not waive its right to compel arbitration. Accordingly, as to plaintiff Piplack, we reverse—his individual PAGA claim must be arbitrated. As to plaintiff Sherrod, we remand for the trial court to consider his arguments regarding disaffirmance in the first instance, as those arguments were not properly briefed or decided in the trial court because they were irrelevant under pre-Viking law.
The standing question associated with the representative PAGA claims presents us with a dilemma. On the one hand, the California Supreme Court, in the case Kim v. Reins International California, Inc. (2020) 9 Cal.5th 73 (Kim), provided us with a recent, definitive, and (most importantly) binding interpretation of the relevant portions of PAGA controlling standing. We read Kim as recognizing two (and only two) requirements for standing under PAGA, neither of which is affected in any way by moving the individual component of a PAGA claim to arbitration. On the other hand, in Viking, the United States Supreme Court, citing the very same Kim case, concluded a plaintiff whose individual PAGA claim is compelled to arbitration loses standing to pursue representative PAGA claims. (Viking, supra, ___ U.S. at p. ___ [142 S.Ct. at p. 1925].)
Despite the deep deference we afford the United States Supreme Court, even on purely state law questions where the United States Supreme Court’s opinions are only persuasive, not binding, we conclude we must follow Kim and hold that plaintiffs retain standing to pursue representative PAGA claims in court even if their individual PAGA claims are compelled to arbitration. We simply cannot reconcile the Viking decision’s standing analysis with the Kim decision.
Nwauzor v. The Geo Group, Inc. (9th Cir. 21-36024 & 22-35026 3/7/23) Washington Minimum Wage Act | Civil Immigration Detainees
In a case in which federal civil immigration detainees— who are held in the Northeast ICE Processing Center (“NWIPC”), a private detention center in Tacoma, Washington, operated by GEO Group—challenge GEO’s practice of paying them less than the State’s minimum wage to work at the detention center, the panel certified the following questions to the Washington Supreme Court:
1) In the circumstances of this case, are the detained workers at NWIPC employees within the meaning of Washington’s Minimum Wage Act (“MWA”)?
2) If the answer to the first question is yes, does the MWA apply to work performed in comparable circumstances by civil detainees confined in a private detention facility operating under a contract with the State?
3) If the answer to the first question is yes and the answer to the second question is no, and assuming that the damage award to the detained workers is sustained, is that damage award an adequate legal remedy that would foreclose equitable relief to the State in the form of an unjust enrichment award?
Galaza v. Mayorkas (9th Cir. 21-15464 2/28/23) Aviation and Transportation Security Act | Preemption over Rehabilitation Act
The panel affirmed the district court’s order dismissing, as preempted by the Aviation and Transportation Security Act (“ATSA”), Anna Galaza’s claim against the Transportation Security Administration (“TSA”) alleging discrimination in violation of the Rehabilitation Act.
Galaza alleged that she suffered two injuries while working for the TSA as a Transportation Security Officer, also known as a screener. Galaza’s doctor cleared her to return to a permanent limited-duty position. After undergoing vocational rehabilitation, Galaza remained unable to fulfill the duties of a TSA screener and was terminated from employment with the TSA.
The ASTA establishes basic qualifications for the position of ATSA security screener, and vests the Administrator of the TSA with the authority to determine additional employment standards and training for security screeners. The Rehabilitation Act protects qualified individuals with disabilities from being subjected to discrimination under activity conducted by any Executive agency because of his or her disability. 29 U.S.C. § 794(a).
The panel joined the First, Fifth, Seventh, and Eleventh Circuits in holding that the ATSA, as applicable to security screeners, preempts the Rehabilitation Act. The ATSA authorized the Administrator of the TSA to set aside employment standards for security screeners as necessary to fulfill the TSA’s screening functions under the ATSA. A statutory note to the ATSA provides that the Administrator is authorized to do so notwithstanding any other provision of law. The panel held that use of the phrase “notwithstanding any other provision of law” reflected legislative intent to preempt the provisions of the Rehabilitation Act.
Galaza contended that preemption was unnecessary because the two statutes could be harmonized, and preemption was foreclosed by explicit language in the Whistleblower Protection Act (“WPEA”). The panel declined to address the issue whether the WPEA made the Rehabilitation Act generally applicable to security screeners because this issue was not raised in the district court. In addition, Galaza was terminated over two years before the WPEA took effect, and the WPEA did not apply retroactively.
Naranjo v. Spectrum Security Services, Inc. (CA2/4 B256232A 2/27/23) Premium Pay
In California, if an employer unlawfully makes an employee work during all or part of a meal or rest period, the employer must pay the employee an additional hour of pay. (Lab. Code, § 226.7, subd. (c).) In Naranjo v. Spectrum Security Services, Inc. (2019) 40 Cal.App.5th 444 (Naranjo II), we held, as relevant here, that this extra pay for missed breaks (commonly referred to as “premium pay”) does not constitute “wages” that must be reported on statutorily required wage statements during employment (§ 226) and paid within statutory deadlines when an employee leaves the job (§ 203). The Supreme Court reversed this portion of our holding, concluding: “Although the extra pay is designed to compensate for the unlawful deprivation of a guaranteed break, it also compensates for the work the employee performed during the break period. [Citation.] The extra pay thus constitutes wages subject to the same timing and reporting rules as other forms of compensation for work.” (Naranjo v. Spectrum Security Services, Inc. (2022) 13 Cal.5th 93, 102.)
The Supreme Court then remanded the matter to this court to resolve two issues the parties addressed in their respective appeals, but that we did not reach based on our conclusion about the nature of missed-break premium pay: (1) whether the trial court erred in finding Spectrum Security Services, Inc. (Spectrum) had not acted “willfully” in failing to timely pay employees premium pay (which barred recovery under § 203); and (2) whether Spectrum’s failure to report missed-break premium pay on wage statements was “knowing and intentional,” as is necessary for recovery under section 226. (Naranjo v. Spectrum Security Services, Inc., supra, 13 Cal.5th at p. 126.)
After receiving supplemental briefing following remand, we conclude as follows: (1) substantial evidence supports the trial court’s finding that Spectrum presented defenses at trial—in good faith—for its failure to pay meal premiums to departing employees and therefore, Spectrum’s failure to pay meal premiums was not “willful” under section 203; and (2) because an employer’s good faith belief that it is in compliance with section 226 precludes a finding of a knowing and intentional violation of that statute, the trial court erred by awarding penalties, and the associated attorneys’ fees, under section 226.
Galarsa v. Dolgen California, LLC (CA5 F082404A 2/24/23) Arbitration| Post-Viking River Cruises
Plaintiff Tricia Galarsa sued her former employer, Dolgen California, LLC (Dollar General), to recover civil penalties under the Private Attorneys General Act of 2004 (PAGA; Lab. Code, § 2698 et seq.) for various Labor Code violations suffered by her or by other employees. Dollar General moved to compel arbitration, which the superior court denied. In November 2021, we affirmed the trial court’s order. That affirmance was vacated by the United States Supreme Court when it granted Dollar General’s petition for writ of certiorari and remanded the case for further consideration in light of Viking River Cruises, Inc. v. Moriana (2022) 596 U.S. ___ [142 S.Ct. 1906] (Viking River).
First, we conclude Viking River and the Federal Arbitration Act (FAA; 9 U.S.C. § 1 et seq.) do not invalidate the rule of California law that a provision in an arbitration agreement purporting to waive an employee’s right to pursue representative actions is not enforceable as to representative claims pursued under PAGA. Second, the severability clause in the arbitration agreement allows the unenforceable waiver provision to be stricken from the arbitration agreement. Third, we interpret the surviving provisions of the agreement to require arbitration of the PAGA claims that seek to recover civil penalties for Labor Code violations suffered by plaintiff. Consequently, those claims must be sent to arbitration in accordance with the principles established by Viking River and the FAA.
We further conclude the PAGA claims seeking to recover civil penalties for Labor Code violations suffered by employees other than plaintiff may be pursued by plaintiff in court. Thus, we disagree with the United States Supreme Court’s conclusion that California law requires the dismissal of those claims. More specifically, we conclude plaintiff is an aggrieved employee with PAGA standing and the general rule against splitting a cause of action does not apply to the two types of PAGA claims.
Therefore, the order denying Dollar General’s motion to compel arbitration is reversed in part and affirmed in part.
Wood v. Kaiser Foundation Hospitals (CA4/1 D079528 2/24/23) Healthy Workplaces, Healthy Families Act | Lab. Code § 248.59(e) Statutory Interpretation
The judiciary’s responsibility to interpret statutes often places courts in the position of trying to decide how the Legislature would have resolved an issue we strongly suspect it never actually considered. We endeavor, as best we can, to be prognosticators. Sometimes, however, our role in statutory interpretation is more that of a detective. The Legislature included a provision or used a particular term in a statute, and it is our job to uncover what it had in mind when it employed those words. In this case we function largely as detectives, hopefully more like Sherlock Holmes than Inspector Clouseau.
California’s Healthy Workplaces, Healthy Families Act of 2014 (the Act) (Labor Code, § 245 et seq.) generally requires employers to provide eligible employees with at least three paid sick days per year. The Labor Commissioner and the Attorney General are charged with enforcing this law. Violators may be assessed compensatory as well as liquidated damages, plus civil penalties. (§ 248.5.)
The last clause of section 248.5, subdivision (e) is the focus of this appeal. It provides that “any person or entity enforcing this article on behalf of the public as provided for under applicable state law shall, upon prevailing, be entitled only to equitable, injunctive, or restitutionary relief . . . .” (Ibid.) It would seem fairly obvious that the Legislature had something specific in mind when it used the phrase, “enforcing this article on behalf of the public as provided for under applicable state law.” It was envisioning some kind of enforcement action. But what was it? In particular, did the Legislature mean to include—and thus restrict—actions by aggrieved employees to recover civil penalties under the Labor Code Private Attorney General Act of 2004 (PAGA) (§ 2698 et seq.) as defendant Kaiser Foundation Hospitals (Kaiser) contends? Or instead, as plaintiff Ana Wood argues, did the Legislature have in mind an entirely different statutory scheme, the Unfair Competition Law (UCL) (Bus. & Prof. Code, § 17200 et seq.)?
The procedural setting of this case perfectly frames the issue as one of statutory interpretation. Wood filed a PAGA action against her former employer Kaiser seeking penalties for alleged violations of the Act. The trial court sustained Kaiser’s demurrer without leave to amend, determining that a PAGA action is one brought “on behalf of the public” and since it seeks only civil penalties, is prohibited by section 248.5, subdivision (e).
Following our independent review, we reach a different conclusion. As we explain, the statute’s text and history provide compelling evidence that the phrase “on behalf of the public as provided under applicable state law” in section 248.5, subdivision (e) was intended to refer to actions prosecuted under the UCL—not PAGA. Accordingly, we reverse the judgment of dismissal.
Lin v. Kaiser Foundation Hospitals (CA2/4 B314162 2/24/23) Disability Discrimination
Appellant Suchin Lin appeals from the trial court’s grant of summary judgment in favor of her former employer, respondent Kaiser Foundation Hospitals (Kaiser). Because the record discloses triable issues of fact on Lin’s claims, all of which relate to disability discrimination, we reverse the judgment.
As part of a round of employee layoffs, Kaiser planned, at least tentatively, to terminate Lin before Lin became disabled. Kaiser’s plan to terminate Lin before she became disabled, by itself, was (of course) not discrimination against Lin because of a disability. But Kaiser did not complete its layoff plans—or, a reasonable jury could find, make its final determination to terminate Lin—until after Lin had become disabled. On the record here, there was evidence from which a reasonable jury could conclude that Kaiser’s ultimate decision to terminate Lin was motivated, at least in substantial part, by concerns Kaiser had about Lin’s disability. That allows Lin’s complaint to survive summary judgment.
Helix Energy Solutions Group, Inc. v. Hewitt (US 21-984 2/22/23) FLSA Exemption
Respondent Michael Hewitt filed an action against his employer, petitioner Helix Energy Solutions Group, seeking overtime pay under the Fair Labor Standards Act of 1938, which guarantees overtime pay to covered employees when they work more than 40 hours a week. From 2014 to 2017, Hewitt worked for Helix on an offshore oil rig, typically working 84 hours a week while on the vessel. Helix paid Hewitt on a daily-rate basis, with no overtime compensation. So Hewitt’s paycheck, issued every two weeks, amounted to his daily rate times the number of days he had worked in the pay period. Under that compensation scheme, Hewitt earned over $200,000 annually. Helix asserts that Hewitt was exempt from the FLSA because he qualified as “a bona fide executive.” 29 U. S. C. §213(a)(1). Under applicable regulations, an employee is considered a bona fide executive excluded from the FLSA’s protections if the employee meets three distinct tests: (1) the “salary basis” test, which requires that an employee receive a predetermined and fixed salary that does not vary with the amount of time worked; (2) the “salary level” test, which requires that preset salary to exceed a specified amount; and (3) the job “duties” test. See 84 Fed. Reg. 51230. The Secretary of Labor has implemented the bona fide executive standard through two separate and slightly different rules, one “general rule” applying to employees making less than $100,000 in annual compensation, and a different rule addressing “highly compensated employees” (HCEs) who make at least $100,000 per year. 29 CFR §§541.100, 541.601(a), (b)(1). The general rule considers employees to be executives when they are “[c]ompensated on a salary basis” (salary-basis test); “at a rate of not less than $455 per week” (salary-level test); and carry out three listed responsibilities—managing the enterprise, directing other employees, and exercising power to hire and fire (duties test). §541.100(a). The HCE rule relaxes only the duties test, while restating the other two. As litigated in this case, whether Hewitt was an executive exempt from the FLSA’s overtime pay guarantee turns solely on whether Hewitt was paid on a salary basis. The District Court agreed with Helix’s view that Hewitt was compensated on a salary basis and granted the company summary judgment. The Court of Appeals for the Fifth Circuit reversed, deciding that Hewitt was not paid on a salary basis and therefore could claim the FLSA’s protections. The court so held based on its examination of the two regulations that give content to the salary-basis test. The majority first concluded that a daily-rate employee (like Hewitt) does not fall within the main salary-basis provision of §541.602(a), which states:
“An employee will be considered to be paid on a ‘salary basis’ . . . if the employee regularly receives each pay period on a weekly, or less frequent basis, a predetermined amount constituting all or part of the employee’s compensation, which amount is not subject to reduction because of variations in the quality or quantity of the work performed. Subject to [certain exceptions], an exempt employee must receive the full salary for any week in which the employee performs any work without regard to the number of days or hours worked.”
Second, the court held that “daily-rate” workers can qualify as paid on a salary basis only through the “special rule” of §541.604(b), which focuses on workers whose compensation is “computed on an hourly, a daily or a shift basis.” Because Hewitt’s compensation concededly did not satisfy §604(b)’s conditions, the court concluded that Hewitt, although highly paid, was not exempt from the FLSA. Reaching the opposite conclusion, a dissenting opinion determined that Hewitt’s compensation satisfied the salary basis test of §602(a) and that §604(b) is not applicable to employees who fall within the HCE rule.
Held: Hewitt was not an executive exempt from the FLSA’s overtime pay guarantee; daily-rate workers, of whatever income level, qualify as paid on a salary basis only if the conditions set out in §541.604(b) are met. Pp. 7–20.
(a) The critical question here is whether Hewitt was paid on a salary basis under §602(a). A worker may be paid on a salary basis under either §602(a) or §604(b). But Helix acknowledges that Hewitt’s compensation did not satisfy §604(b)’s conditions. And the Court concludes that Helix did not pay Hewitt on a salary basis as defined in §602(a), a conclusion that follows from the text and the structure of the regulations. Pp. 7–17.
(1) The text of §602(a) excludes daily-rate workers. An employee, Cite as: 598 U. S. ____ (2023) 3 Syllabus the regulation says, is paid on a salary basis only if he “receive[s] the full salary for any week in which [he] performs any work without regard to the number of days or hours worked.” Whenever an employee works at all in a week, he must get his “full salary for [that] week”— what §602(a)’s prior sentence calls the “predetermined amount.” That amount must be “without regard to the number of days or hours worked”—or as the prior sentence says, it is “not subject to reduction because” the employee worked less than the full week. Giving language its ordinary meaning, nothing in that description fits a dailyrate worker, who by definition is paid for each day he works and no others. Further, §602(a)’s demand that an employee receive a predetermined amount irrespective of days worked embodies the standard meaning of the word “salary.” The “concept of ‘salary’ ” is linked, “[a]s a matter of common parlance,” to “the stability and security of a regular weekly, monthly, or annual pay structure.” 15 F. 4th 289, 291. Helix responds by focusing on §602(a)’s use of the word “received,” contending that because Hewitt got his paycheck every two weeks, and that check contained pay exceeding $455 (the salary level) for any week in which he had worked, Hewitt was paid on a salary basis. But Helix offers no reason for hinging satisfaction of the salary-basis test on how often paychecks are distributed. And Helix’s interpretation of the “weekly basis” phrase is not the most natural one. A “basis” of payment typically refers to the unit or method for calculating pay, not the frequency of its distribution. And that is how neighboring regulations use the term. The “weekly basis” phrase thus works hand in hand with the rest of §602(a) to reflect the standard meaning of a “salary,” which connotes a steady and predictable stream of pay. Pp. 8– 12.
(2) The broader regulatory structure—in particular, the role of §604(b)—confirms the Court’s reading of §602(a). Section §604(b) lays out a second path for a compensation scheme to meet the salary-basis requirement. And that path is all about daily, hourly, or shift rates. An employee’s earnings, §604(b) provides, “may be computed on” those shorter bases without “violating the salary basis requirement” so long as an employer “also” provides a guarantee of weekly payment approximating what the employee usually earns. Section 604(b) thus speaks directly to when daily and hourly rates are “[ ]consistent with the salary basis concept.” 69 Fed. Reg. 22184. Reading §602(a) also to cover daily- and hourly-rate employees would subvert §604(b)’s strict conditions on when their pay counts as a “salary.” By contrast, when read as limited to weekly-rate employees, §602(a) works in tandem with §604(b), with §604(b) taking over where §602(a) leaves off.
Helix’s argument to the contrary relies on the premise that the HCE rule operates independently of §604(b). Even if so, a daily-rate worker like Hewitt is not paid on a salary basis under the plain text of §602(a). And supposing that the HCE rule incorporates only §602(a), and not §604(b), those two provisions still must be read to complement each other because §602(a) cannot change meanings depending on whether it applies to the general rule or the HCE rule. Regardless, Helix is wrong that the HCE rule operates independently of §604(b). The HCE rule refers to the salary-basis (and salary-level) requirement in the same way that the general rule does. Compare §541.601(b)(1) (requiring “at least $455 per week paid on a salary or fee basis”) with §541.100(a)(1) (requiring payment “on a salary basis at a rate of not less than $455 per week”). And the two provisions giving content to that requirement—explaining when a person is indeed paid on a salary basis—are §602(a) and §604(b). So both those provisions apply to both the general and the HCE rule. There is a difference between the HCE and general rule; it just has nothing to do with the salary-basis requirement. That difference instead involves the duties standard, which is more flexible in the HCE rule. Pp. 13–17.
(b) The Court’s reading of the relevant regulations properly concludes this case. Helix urges the Court to consider supposed policy consequences of that reading, but even the most formidable policy arguments cannot overcome a clear textual directive. See BP p.l.c. v. Mayor and City Council of Baltimore, 593 U. S. ___, ___. And anyway, Helix’s appeal to consequences appears less than formidable in the context of the FLSA’s regulatory scheme. Helix’s complaint about “windfalls” for high earners fails, as the HCE rule itself reflects Congress’s choice not to set a simple income level as the test for exemption. As to Helix’s cost-based objections, the whole point of the salary-basis test is to preclude employers from paying workers neither a true salary nor overtime. So too, Helix’s complaints about retroactive liability lack force because the salary-basis test is not novel, but rather traces back to the FLSA’s beginnings. Pp. 17–20.
15 F. 4th 289, affirmed.
KAGAN, J., delivered the opinion of the Court, in which ROBERTS, C. J., and THOMAS, SOTOMAYOR, BARRETT, and JACKSON, JJ., joined. GORSUCH, J., filed a dissenting opinion. KAVANAUGH, J., filed a dissenting opinion in which ALITO, J., joined.
Kappouta v. Valiant Integrated Services (9th Cir. 21-56310 2/17/23) Defense Contractor Whistleblower Protection Act | Statute of Limitations
The panel affirmed the district court’s dismissal of Sana Kappouta’s action under the Defense Contractor Whistleblower Protection Act against Valiant Integrated Services, LLC, and The Electronic On-Ramp, Inc.
Kappouta alleged that while at a bar at the U.S. embassy compound in Baghdad, Iraq, she was shoved by an intoxicated co-worker. After she reported the incident, her employer attempted to transfer her to a different position. After initially refusing the transfer, she was fired.
The panel held that to survive a motion to dismiss under the Defense Contractor Whistleblower Protection Act, 10 U.S.C. § 4701(a)(1)(A), a plaintiff must plausibly allege that: (1) she made a disclosure that she reasonably believed was evidence of a violation related to a Department of Defense contract; and (2) her employer discharged, demoted, or otherwise discriminated against her because of that disclosure.
As to the first element, the panel held that Kappouta did not plausibly allege a reasonable belief that her complaint about the shoving incident encompassed one of the acts described in § 4701(a)(1)(A)-(C), which include a violation of law related to a Department of Defense contract. The panel held that, in the context of a defense contract, a violation of law is related to the contract if it is related to the purpose of the contract or affects the services provided by the defense contractor to the Department of Defense. A disclosure is protected if a disinterested observer with knowledge of the operative facts would reasonably conclude that the disclosure evidences a violation of law related to a defense contract in this manner. The panel concluded that, under this standard, Kappouta’s complaint failed to allege a sufficient nexus between the shove and the Department of Defense-Valiant contract.
Garcia v. State Dept. of Developmental Services (CA3 C094235, filed 1/26/23, ord. pub. 2/21/23) POBRA | Statute of Limitations
This case concerns the statute of limitations in the Public Safety Officers Procedural Bill of Rights Act (Gov. Code, § 3300 et seq.; statutory section citations that follow are found in the Government Code unless otherwise stated). “As its title suggests, the act sets forth a list of basic rights and protections which must be afforded all peace officers . . . by the public entities which employ them.” (Baggett v. Gates (1982) 32 Cal.3d 128, 135.) One of these protections is described in Government Code section 3304, subdivision (d)(1) (section 3304(d)(1)). According to this provision, a public agency cannot discipline a peace officer “for any act, omission, or other allegation of misconduct” unless the agency completes its investigation and notifies the officer of its proposed discipline “within one year of the public agency’s discovery by a person authorized to initiate an investigation of the allegation of an act, omission, or other misconduct.”
In this appeal, we consider two competing interpretations on the application of this statute when an officer commits multiple types of misconduct that the agency discovers on multiple dates. Under the first interpretation, offered by appellant Luis Garcia, section 3304(d)(1)’s one-year limitations period begins to run on all acts of misconduct once the agency initiates an investigation into any one of these acts. But under the second interpretation, offered by Garcia’s employer, the limitations period begins to run on an act of misconduct only once the agency discovers that particular act.
The latter interpretation is the correct one. Section 3304(d)(1)’s text is clear that the limitations period for an act of misconduct begins to run on the date the agency discovers the misconduct, not the date it initiates an investigation into unrelated misconduct. Under this rule, as under similar discovery rules, each act of misconduct must be considered separately in determining the date the agency discovered the misconduct. Because the trial court here interpreted section 3304(d)(1) consistent with our own interpretation, we affirm the judgment.
Zhang v. Superior Court, 85 Cal.App.5th 167 (2022), review granted, 2023 WL 2028241 (Mem) (Feb, 15, 2023); S277736/B314386
Petition for review after denial of petition for writ of mandate. (1) If an employer files a motion to compel arbitration in a non-California forum pursuant to a contractual forum-selection clause, and an employee raises as a defense Labor Code section 925, which prohibits an employer from requiring a California employee to agree to a provision requiring the employee to adjudicate outside of California a claim arising in California, is the court in the non-California forum one of “competent jurisdiction” (Code Civ. Proc., § 1281.4) such that the motion to compel requires a mandatory stay of the California proceedings? (2) Does the presence of a delegation clause in an employment contract delegating issues of arbitrability to an arbitrator prohibit a California court from enforcing Labor Code section 925 in opposition to the employer’s stay motion? Review granted/brief due.
Chamber of Commerce v. Bonta (9th Cir. 20-15291 2/15/23) AB 51 | FAA Preemption
Affirming the district court’s grant of a preliminary injunction in favor of plaintiffs, a collection of trade association and business groups (collectively, the Chamber of Commerce), the panel held that the Federal Arbitration Act (FAA) preempted California’s Assembly Bill 51 (AB 51), which was enacted to protect employees from “forced arbitration” by making it a criminal offense for an employer to require an existing employee or an applicant for employment to consent to arbitrate specified claims as a condition of employment.
The panel explained that Assembly Bill 51 criminalizes only contract formation; an arbitration agreement executed in violation of this law is enforceable. California took this approach to avoid conflict with Supreme Court precedent, which holds that a state rule that discriminates against arbitration is preempted by the Federal Arbitration Act. Under Section 433 of the California Labor Code, an employer who violates AB 51 has committed a misdemeanor. See CAL. LAB. CODE § 433. But to avoid preemption by the FAA, the California legislature included a provision ensuring that if the parties did enter into an arbitration agreement, it would be enforceable. See Cal. Lab. Code § 432.6(f). This resulted in the oddity that an employer subject to criminal prosecution for requiring an employee to enter into an arbitration agreement could nevertheless enforce that agreement once it was executed.
The panel stated that Doctor’s Assocs., Inc. v. Casarotto, 517 U.S. 683 (1996), and Kindred Nursing Ctrs. Ltd. P’ship v. Clark, 137 S. Ct. 1421 (2017), make it clear that state rules that burden the formation of arbitration agreements stand as an obstacle to the FAA. Although the plaintiffs in Casarotto and Kindred Nursing were attempting to enforce an executed arbitration agreement, the Court’s rationale for invalidating state rules burdening the formation of arbitration agreements was equally applicable to a state rule like AB 51, which discriminates against the formation of an arbitration agreement but does not make an improperly formed arbitration agreement unenforceable. The panel concluded that the approach adopted by the Supreme Court in Casarotto and Kindred Nursing for determining whether the FAA preempts a state rule limiting the ability of parties to form arbitration agreements applies to state rules that prevent parties from entering into arbitration agreements in the first place. The panel further agreed with two sister circuits that the FAA preempts a state rule that discriminates against arbitration by discouraging or prohibiting the formation of an arbitration agreement. See Saturn Distrib. Corp. v. Williams, 905 F.2d 719, 723 (4th Cir. 1990); Sec. Indus. Ass’n v. Connolly, 883 F.2d 1114, 1123–24 (1st Cir. 1989).
Applying these principles to determine whether AB 51 was preempted by the FAA, the panel held that AB 51’s penalty-based scheme to inhibit arbitration agreements before they are formed violates the “equal-treatment principle” inherent in the FAA and is the type of device or formula evincing hostility towards arbitration that the FAA was enacted to overcome. Because the FAA’s purpose is to further Congress’s policy of encouraging arbitration, and AB 51 stands as an obstacle to that purpose, AB 51 was therefore preempted.
Because all provisions of AB 51 work together to burden the formation of arbitration agreements, the panel rejected California’s argument that the court could sever Section 433 of the California Labor Code under the severability clause in Section 432.6(i), and then uphold the balance of AB 51. AB 51 provides no authority to delete Section 433, because the severability clause in Section 432.6(i) applies only to Section 432.6. In any event, the panel could not presume that the California legislature would want to invalidate a generally applicable provision such as Section 433.
Because AB 51 was preempted by the FAA, the district court correctly held that the Chamber of Commerce was likely to succeed on the merits of its claim for declaratory and injunctive relief. And because California did not challenge the district court’s holding that the remaining factors also weighed in favor of the Chamber of Commerce, the panel held that the district court did not abuse its discretion when it granted the Chamber of Commerce’s motion for a preliminary injunction.
Dissenting, Judge Lucero stated that the majority nullified a California law codifying what the enactors of the FAA and the Supreme Court took as a given: arbitration is a matter of contract and agreements to arbitrate must be voluntary and consensual. Judge Lucero stated that AB 51 operates in a substantively different manner than state rules previously struck down as preempted by the FAA. Unlike the state statutes in Kindred Nursing and Casarotto, which directly invalidated arbitration agreements, AB 51 regulates conduct preceding arbitration agreements. AB 51 ensures that arbitration agreements are entered on fair terms yet does not go so far as to invalidate arbitration agreements that are not. The majority’s application of Kindred Nursing and Casarotto to AB 51 improperly expanded prior jurisprudence.
Armstrong v. Michaels Stores, Inc. (9th Cir. 21-15397 2/13/23) Exercising Right to Arbitrate
The panel affirmed the district court’s order compelling arbitration in an employment dispute between plaintiff and her employer Michael Stores, Inc.
Plaintiff agreed to arbitrate any disputes regarding the terms and conditions of her employment, but when a dispute arose, she filed a complaint in federal district court. The district court ordered plaintiff to take her claims to arbitration, and the arbitrator ruled in favor of Michaels.
Plaintiff argued that Michaels waited too long to move for arbitration and therefore waived its right to the arbitral forum. The panel held that the record did not establish that Michaels chose to forgo arbitration. Michaels repeatedly reserved its right to arbitration, did not ask the district court to weigh in on the merits, and did not engage in any meaningful discovery. Michaels did not actively litigate the merits of the case for a prolonged period to take advantage of being in court. Although Michaels did not immediately move to compel arbitration, its actions did not amount to a relinquishment of the right to arbitrate.
Following the Supreme Court decisions in Epic Systems Corp. v. Lewis, 138 S. Ct. 1612 (2018), and Morgan v. Sundance, Inc., 142 S. Ct. 1708 (2022), the panel recognized that there was no longer a thumb on the scale in favor of arbitration, and that the party opposing arbitration no longer bore a “heavy burden” to show waiver of the right to arbitration. The panel held that, even with this lighter burden, plaintiff still failed to establish that Michaels acted inconsistently with exercising its right to arbitrate.
Petition after reversal of judgment. Under California law, are employers permitted to use neutral time-rounding practices to calculate employees’ work time for payroll purposes? Review granted, brief due.
Degala v. John Stewart Company (CA1/2 A163130 2/7/23) Privette Doctrine
Abraham Degala was attacked and seriously injured by unknown assailants while he was working at a construction site at the Hunters Point East-West housing complex in San Francisco. Degala, who was employed as a foreman by a subcontractor at the site, sued the general contractor and the owner of the site for damages, alleging that they breached their duty to take reasonable security precautions at the site, which was located in a high-crime area.
Defendants moved for summary judgment on the ground that Degala’s claims were barred by the Privette doctrine (as set forth in Privette v. Superior Court (1993) 5 Cal.4th 689 and subsequent cases), under which the hirer of an independent contractor is not liable for on-the-job injuries sustained by the contractor’s employees unless some exception applies. The trial court granted summary judgment, rejecting Degala’s argument that defendants could be liable to him under the Hooker exception to the Privette doctrine announced in Hooker v. Department of Transportation (2002) 27 Cal.4th 198, 201-202 (Hooker) which applies when the hirer retains control over any part of the contractor’s work and exercises that control in a way that affirmatively contributes to the plaintiff’s injury.
Because we conclude there are triable issues of fact as to whether the site owner and general contractor are liable to Degala under a retained control theory, we shall reverse.
Stone v. Alameda Health System (CA1/5 A164021M, filed 2/3/23, mod. 2/6/23) Labor Code | Sovereign Governmental Entity
It is ordered that the published opinion filed on February 3, 2023, be modified as follows:
1. After the last sentence in the last full paragraph on page 16, under the “Disposition” section beginning with “On remand, the trial court shall enter a new order overruling the demurrer as to the first, second, third, fifth, sixth, and seventh causes of action in the first amended complaint,” the following should be added:
Costs on appeal are awarded to appellants. (Cal. Rules of Court, rule 8.278(a)(3).)
This modification changes the judgment.
Stone v. Alameda Health System (CA1/5 A164021 2/3/23) Labor Code | Sovereign Governmental Entity
In this appeal from an order sustaining a demurrer without leave to amend, we are called upon to decide whether seven claims for violations of the Labor Code lie against respondent Alameda Health System. In answering that call, we address the following issues: (1) whether the “sovereign powers” doctrine renders respondent liable for certain Labor Code violations, notwithstanding the general rule of statutory construction exempting government agencies from such liability; (2) whether respondent is an exempt “municipal corporation” under section 220, subdivision (b); (3) whether respondent is an exempt “governmental entity” under section 226, subdivision (i); and (4) whether respondent can be sued under the Private Attorneys General Act (PAGA, § 2698 et seq.).
Observing that respondent conspicuously lacks many of the hallmarks of sovereignty, we hold that the sovereign powers doctrine applies. For similar reasons, we are guided by precedent to conclude that respondent is not a “municipal corporation.” (§ 220, subd. (b).) However, in the absence of such precedent, we do not exclude respondent from the category of “governmental entit[ies].” (§ 226, subd. (i).) Finally, we hold that there are at least some Labor Code violations for which a PAGA suit against respondent may proceed.
In their first amended complaint against respondent Alameda Health System, appellants Tamelin Stone and Amanda Kunwar alleged seven class action claims related to wages and hours, and six individual claims for race and sex discrimination. When respondent demurred, the trial court sustained the demurrer as to all seven class action claims. With respect to the first six, the trial court reasoned that respondent was a “statutorily created public agency” beyond the reach of the Labor Code sections and Industrial Welfare Commission (IWC) Wage Order invoked in the complaint. As to the seventh, a PAGA claim (PAGA, § 2698 et seq.), the trial court held that such an action would not lie because respondent is not a “person” within the meaning of section 18, there was no underlying statutory violation from which the PAGA claim could derive, and respondent’s “public agency” status exempted it from paying punitive damages.
We disagree with that reasoning and therefore reverse the order as to the first, second, third, fifth, sixth, and seventh causes of action. For the reasons given below, we affirm the order sustaining the demurrer as to appellant’s fourth claim.
The panel affirmed the district court’s order denying Xerox Business Services, LLC (“XBS”)’s motion to compel arbitration pursuant to a 2002 Dispute Resolution Plan (“2002 DRP”), arising from a putative class action brought by XBS call center agents alleging Washington state law employment compensation claims based on diversity jurisdiction.
Appellee Tiffany Hill worked at an XBS call center and was compensated according to a proprietary system of differential pay rates known as Achievement Based Compensation (“ABC”). Section 4 of the 2002 DRP required XBS and its agents to submit “all disputes” to binding arbitration for final and exclusive resolution. Hill never signed the 2002 DRP. XBS issued an updated DRP (“2012 DRP”). Following a long course of litigation, XBS filed a motion to compel individual arbitration by 2,927 class members who had signed the 2002 DRP. The district court found that XBS had waived its right to compel arbitration.
The panel noted that following Morgan v. Sundance, 142 S. Ct. 1708 (2022), this Circuit’s test for waiver of the right to compel arbitration consists of two elements: (1) knowledge of an existing right to compel arbitration; and (2) intentional acts inconsistent with that existing right. XBS challenged both prongs of the test.
XBS argued that until after class certification had been granted, and completion of the notice and opt-out period, there was no existing right to compel arbitration. XBS maintained that it lacked knowledge of an existing right to compel arbitration, and therefore it could not be charged with waiver of a non-existent right. The panel held that XBS was correct that the district court could not compel nonparties to the case to arbitrate until after a class had been certified and the notice and opt-out period were complete. However, XBS failed to appreciate that waiver was a unilateral concept. A finding of waiver by XBS looked only to the acts of XBS, and bound only XBS. Explicit relinquishment is not the only way to waive a right to arbitrate. The panel held that further undercutting XBS’s position was its own actions throughout the course of the litigation, in which XBS raised the 2012 DRP as to putative class members before the class had been certified and before it had the ability to move to enforce that agreement against them. The panel concluded that it was clear that XBS had knowledge of and knew how to assert its right to compel arbitration under the 2012 DRP well before class certification and notice was complete. XBS similarly possessed knowledge of the right to compel arbitration as against the signatories of the 2002 DRP sufficient to satisfy the first prong of the waiver test.
Concerning the second prong of the test for arbitration waiver – acts inconsistent with the right to arbitrate – the panel considered the totality of the parties’ actions. The panel held that here, there was little doubt that XBS acted inconsistently with its right to compel arbitration under the 2002 DRP. First, XBS many times explicitly asserted as a ground for obligatory arbitration the 2012 DRP without asserting the same for the 2002 DRP. Second, XBS further sought to take advantage of litigation in federal court by requesting extensive discovery on unnamed parties to the case—discovery which necessarily included signatories to the 2002 DRP. That Hill may not have been directly prejudiced by XBS’s requests concerning 2002 DRP signatories was immaterial after Morgan. XBS’s discovery behavior further substantiates the inferences drawn from the record suggesting that XBS was more interested in resolving this litigation, which included the 2002 DRP signatories’ claims, in court rather than in arbitration. Third, XBS actively litigated this case through filing a motion for partial summary judgment on the issue whether unnamed class members subject to XBS’s ABC pay scheme were “piecemeal” workers under Washington’s Minimum Wage Act. The panel rejected XBS’s argument that the language in the class notice itself demonstrated that it had not acted inconsistently with respect to the 2002 signatories. Considering the totality of the circumstances, the panel concluded that the district court properly found that XBS acted inconsistently with its right to compel arbitration under the 2002 DRP. Finally, the panel rejected XBS’s contentions that it would have been futile for it to have filed a motion to compel arbitration sooner than it did, and that, accordingly, its otherwise clear waiver of the right to compel arbitration should be excused. First, XBS argued that it would have been futile to file a motion to compel arbitration until after class certification because only then would unnamed class members be brought into the case, and only then would the district court have jurisdiction over those individuals. The panel held that waiver did not require a court to have jurisdiction over the beneficiaries of the waiver, it did not even require a lawsuit to have been filed. Second, XBS argued that it would have been futile to compel arbitration under the 2002 DRP before the Supreme Court decided Lamps Plus v. Varela, 139 S. Ct. 1407 (2019), because before Lamps Plus, it would not have been guaranteed individual arbitration under the 2002 DRP. The panel held that regardless whether arbitration were to be conducted individually or as a class, XBS would have had a valid right to compel arbitration under the 2002 DRP. In addition, XBS could not rely on Lamps Plus as establishing any new law with respect to arbitration agreements that are silent regarding class arbitration because that issue was decided nearly a decade earlier by Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 559 U.S. 662 (2010). The panel concluded that it would not have been futile for XBS to assert the 2002 DRP throughout the course of the litigation below in the same manner as it did the 2012 DRP.
Judge VanDyke dissented. He wrote that under this court’s precedents, a defendant may waive a right to compel arbitration only by intentionally relinquishing it. That intention can be express or implied, but this court has refused to find implied waiver unless a defendant completes concrete acts inconsistent with the right to arbitrate. Here, XBS never took a single act inconsistent with its intent to arbitrate the claims of its call-center employees who had signed arbitration agreements, and this fact alone should end the analysis in this case. In addition, XBS advised named plaintiff Hill and the district court of its intent to compel arbitration against those employees should the putative class be defined to include them. During the extended litigation against Hill, XBS took no action that uniquely targeted class members and not Hill. Finally, XBS moved to compel arbitration against every class member with whom it had an arbitration agreement on literally the first day after it could do so.
Judge VanDyke wrote further that the majority avoids the outcome these facts require by transforming this court’s clear waiver rule into an opaque forfeiture rule. This break from precedent is premised on the majority’s misunderstanding of how much it may rely on its own preferences and instincts instead of on concrete acts to find waiver. None of the three purported “acts” of XBS the majority points to supports a conclusion of waiver because each “act” intentionally related to Hill, with whom XBS had no right to arbitrate. Further, the majority’s new forfeiture rule fails even on its own terms. XBS did nothing in this case to evince that it affirmatively intended to waive its right to arbitrate—it merely litigated against the named plaintiff Hill and opposed her attempts to certify a class. That should not be enough to intentionally waive a merits defense wholly inapplicable to the named plaintiff.
Rocha v. U-Haul Co. of Cal. (CA2/1 B322599 2/2/23) Arbitration
Plaintiffs and appellants Thomas Rocha and his brother Jimmy Rocha (the brothers) appeal following a judgment affirming an arbitration award that resolves an employment dispute between the brothers, their former employer, defendant and respondent U‑Haul Co. of California (U-Haul), and their former manager at U‑Haul, defendant and respondent Don Sandusky. On appeal, the brothers challenge the court’s order compelling their dispute to arbitration, arguing that the arbitration agreement they signed with U-Haul is unconscionable and thus unenforceable. We disagree and, accordingly, affirm the order compelling arbitration.
The brothers also challenge the court’s order, issued before the court ordered the matter to arbitration, denying them leave to amend their complaint. The proposed amendment includes a Labor Code cause of action against Sandusky for unpaid wages regarding work the brothers allegedly performed at Sandusky’s residence solely for his personal benefit. We see no basis on which the court could deny the brothers leave to assert such a claim.
The brothers’ proposed amendment also includes a claim for relief under California’s Private Attorney General Act (Lab. Code, § 2698 et seq.) (the PAGA) based on the Labor Code violations by U-Haul and/or Sandusky reflected in the proposed amended complaint. But the brothers cannot establish PAGA standing to bring a claim based on Labor Code violations by U‑Haul already alleged in the operative complaint, because the arbitrator found no such violations occurred, and that finding has issue preclusive effect. It would thus have been futile to allow the brothers to allege such a PAGA claim. The arbitrator’s finding does not affect the brothers’ ability to establish PAGA standing based on the proposed alleged Labor Code violation by Sandusky involving unpaid wages, however, and we see no other fatal deficiencies in the proposed PAGA claim against Sandusky.
Therefore, we conclude the court abused its discretion in denying the brothers leave to amend their complaint to add both PAGA and non-PAGA claims against Sandusky based on the unpaid wages violation they propose to allege. Accordingly, we reverse the court’s order to the extent it denies leave to amend to add such claims and reverse the judgment as it applies to Sandusky. In all other respects, we affirm the orders and judgment.
Clarkson v. Alaska Airlines (9th Cir. 21-35473 2/1/23) USERRA Paid Leave
The panel reversed the district court’s grant of summary judgment in favor of defendants Alaska Airlines, Inc., and Horizon Air Industries, Inc., and remanded, in a class action brought under the Uniformed Services Employment and Reemployment Rights Act (USERRA) by Casey Clarkson, a commercial airline pilot and military reservist.
Clarkson alleged that because the airlines provided paid leave for non-military leaves, including jury duty, bereavement, and sick leave, the airlines were also required to pay pilots during short-term military leaves of thirty days or less.
Under USERRA § 4316(b)(1), “a person who is absent from a position of employment by reason of service in the uniformed services” shall be “deemed to be on furlough or leave of absence” and shall be “entitled to such other rights and benefits not determined by seniority as are generally provided by the employer” to other employees on nonmilitary furloughs or leaves of absence. Under 20 C.F.R. § 1002.150, the “non-seniority rights and benefits to which an employee is entitled during a period of service are those that the employer provides to similarly situated employees.” If the benefits vary according to the type of leave, the employee must be given “the most favorable treatment accorded to any comparable form of leave when he or she performs service in the uniformed services.” To determine whether types of leave are comparable, the duration of the leave must be considered, as well as the purpose of the leave and the ability of the employee to choose when to take the leave.
The panel held that the district court erred in concluding that no reasonable jury could find military leave comparable to non-military leave. In reaching this conclusion, the district court erred by comparing all military leaves, rather than just the short-term military leaves at issue here, with the comparator non-military leaves. The district court also erred by disregarding factual disputes about each of the three factors in the comparability analysis: duration, purpose, and control. The panel held that because factual disputes existed, comparability was an issue for the jury.
The panel therefore reversed and remanded. It instructed that on remand, the district court should consider in the first instance the issue whether “pay during leave” was a standalone benefit that the airlines provided under their collective bargaining agreements to any employee on leave.