A Not-So Happy New Year for California Employers: 2014 Legislative Update

It has become an annual New Year’s tradition in California -- employers getting up to speed on a host of new employment laws that will affect them in the coming year. The California Legislature was busy in 2013 imposing new burdens on employers for 2014 and beyond. We previously blogged about an increase in the state minimum wage and a statutory clarification of the definition of sexual harassment, but those new laws are only the tip of the iceberg. Here’s our annual summary of the most important new laws affecting California employers.

  • Expanded Whistleblower Protection (SB 496): California law already prohibits employers from retaliating against employees who report the employer’s violation of state or federal law to a government or law enforcement agency. SB 496 expands whistleblower protection in several ways. First, it prohibits retaliation against internal whistleblowers, so an employee who reports suspected violations within the company is entitled to whistleblower protection to the same extent as an employee who reports violations to a government agency or law enforcement. Second, SB 496 provides whistleblower protection for reports of violations of local ordinances and regulations, as well as state and federal statutes. Third, SB 496 provides whistleblower protection to employees whose duties include the disclosure of legal compliance issues, which overturns case law excluding such employees from whistleblower protection.
  • Immigration-Related Practices (AB 263/SB 666)AB 263 and SB 666 create a variety of new anti-retaliation provisions, most (but not all) of which relate to immigration-related practices. These bills provide:
    •  It is unlawful for an employer to engage in “unfair immigration-related” practices against an employee in retaliation for exercising a legal right. “Unfair immigration-related practices” include requesting more or different documents than are required under federal immigration law or refusing to honor documents that, on their face, reasonably appear to be genuine; using E-Verify to check the employment authorization status of a person at a time or in a manner not required under federal law; and threatening to file or filing a false police report or threatening to contact or contacting immigration authorities. An employee’s protected activity under the new law includes filing a complaint or informing any person of an employer’s violation of the Labor Code, seeking information regarding whether an employer is in compliance with the Labor Code, and informing a person of his or her potential rights under the Labor Code or assisting another person in asserting those rights. The new law creates a rebuttable presumption that an adverse action taken within 90 days of the employee exercising a protected right is retaliatory. Violation of the law can result in an injunction against the employer, damages, penalties and attorneys’ fees, and the suspension or revocation of business licenses held by the employer.
    • Employers are prohibited from taking adverse action against employees for updating their personal information, unless the updates are directly related to the job. It appears that this part of the new law is intended to prohibit the termination of an employee who provided a false social security number or other information at the time of hire, but who later receives a valid work permit or social security card.
    • It is unlawful for an employer to retaliate against an employee for complaining that the employee is owed unpaid wages. Violation of this provision carries a civil penalty of up to $10,000 per occurrence.
    • It is not necessary for employees to exhaust administrative remedies through the Labor Commissioner in order to sue the employer for violation of any law over which the Labor Commissioner has jurisdiction.
  •  Discrimination Based on Military or Veteran Status (AB 556): AB 556 adds “military and veteran status” to the list of categories protected from employment discrimination under the California Fair Employment and Housing Act. The bill defines “military and veteran status” to include members or veterans of the U.S. Armed Forces, U.S. Armed Forces Reserve, U.S. National Guard and California National Guard. 
  • Recovery Periods for Outdoor Workers (SB 435): State law imposes a penalty of one hour’s pay for each day that an employee is required to work during a meal or rest period. SB 435 expands this penalty to situations in which an employer fails to provide a “recovery period” that is otherwise required by law. A “recovery period” is defined as a cool down period afforded an employee to prevent heat illness. Employers with outdoor employees should confirm they are in compliance with CalOSHA regulations regarding heat illness prevention, including providing access to shade and allowing employees to take a cool down period of at least five minutes when the temperature exceeds 85 degrees Fahrenheit.
  • Victims of Domestic Violation, Sexual Assault and Stalking (SB 400): Under existing law, employers are prohibited from taking adverse action against employees who are victims of domestic violence or sexual assault who need time off in connection with court proceedings or to seek medical attention as a result of these crimes. SB 400 extends these protections to employees who are victims of stalking. The new law also requires employers to provide reasonable accommodations for such victims. These requirements are the same reasonable accommodation requirements and procedures that exist under California’s disability discrimination laws.
  • Limitation of Employer’s Recovery of Attorneys’ Fees in Wage Cases (SB 462): Attorneys’ fees can be recovered by the prevailing party when an employee brings an action for non-payment of wages. SB 462 provides that employers who prevail in these cases can only recover attorneys’ fees only if the court finds that the employee brought the action in bad faith. SB 462 does not define “bad faith” and makes recovery of attorneys’ fees much more difficult for employers. 
  • San Francisco Employers - Flexible Work Schedules: A new San Francisco ordinance requires employers of 20 or more employees to consider an employee’s request for flexible work arrangements to accommodate caregiver responsibilities. When an employee makes a written request for a flexible work arrangement, the employer must meet with the employee within 21 days of the request, and within 21 days after the meeting the employer must provide a written response confirming or denying the request. If the employer denies the request, it must provide a bona fide business reason for the denial. An employee whose request was denied can file a complaint with the San Francisco Office of Labor Standards Enforcement, which has the authority to investigate whether the employer complied with the ordinance’s procedural requirements.

Oregon Court of Appeals Upholds Enforceability of Employer Arbitration Agreement

In the recent case Hatkoff v. Portland Adventist Medical Center, the Oregon Court of Appeals affirmed enforcement of a company arbitration provision in an employee handbook requiring that a former employee bring his employment discrimination claims in binding arbitration. The Court’s opinion offers a straight-forward application of the law regarding the enforceability of arbitration agreements, and the outcome is probably not surprising.  Nevertheless, it contains a helpful and well-reasoned survey of the current state of Oregon law in this area, and provides another helpful case for Oregon employers interested in resolving employment disputes using arbitration or similar alternative dispute resolution (“ADR”) procedures. 

Arbitration Agreements Are Upheld Where They Are Not “Unconscionable”

Arbitration is a form of private ADR in which the parties agree to waive the right to go to court and instead adjudicate disputes privately before an arbitrator. In the employment context, arbitration can be a cost-effective and quicker alternative to litigation.  While the details of arbitration agreements can vary greatly, they may frequently be confidential (lawsuits are public proceedings), provide more limited procedures (especially with respect to discovery), require trial before a neutral arbitrator (not a jury), and provide a limited right to appeal. In general, Oregon courts, like most courts, uphold such employment arbitration agreements as long as they are not “unconscionable,” either procedurally (with respect to how the agreement was formed) or substantively (with respect to its terms).

The Oregon Court of Appeals applied this analysis to find Portland Adventist’s “Grievance and Arbitration Procedure” in an employee handbook was not unconscionable. It found the agreement was not substantively unconscionable, because while it did waive the right to a jury trial (like all arbitration agreements), it did not unreasonably limit the employee's rights or remedies that would be available in court. Interestingly, the Court specifically held that the fact the agreement required that employees file a complaint within 90 days of the complained-of employment action was not substantively unconscionable, even though the applicable statute of limitations was one year. The Court also went on to find the agreement was not procedurally unconscionable: the employee, a sales and marketing professional, signed multiple acknowledgments that he received the employee handbook containing the arbitration agreement and was aware of what he had signed.

Law On Arbitration Continues To Develop

Despite the fact that many cases come out similarly to Hatkoff and the law on arbitration agreements is generally favorable for employers, the enforceability of such agreements is routinely litigated in employment cases. For that reason, and also because the unconscionability analysis is very fact-specific and the outcome can be very different in each case, arbitration continues to be a “hot” and fluid area of employment law both in Oregon and around the country. 

Sometimes that fluidity leads to conflicts in the law, such as between courts and legislatures.  For example, since 2008 Oregon has had a statute, ORS 36.620(5), that prohibits employee arbitration agreements under certain circumstances where the agreement does not contain “magic words” provided in the statute, and where the employee does not have at least 72 hours advance written notice before starting work (the legislature lowered the advance notice requirement to 72 hours in 2011; it originally required 14 days). However, that Oregon statute itself may be unenforceable, because it may be preempted by a federal statute, the Federal Arbitration Act (“FAA”), that strongly endorses the use of arbitration and contains no such limitation.  Several federal district courts in Oregon have found that ORS 36.620(5) is preempted by the FAA, and have enforced arbitration agreements that did not provide the advance notice required by that statute, although no Oregon state appellate court has yet considered the issue (the agreement in Hatkoff preceded the Oregon statute, so it was not a factor in the analysis in that case).

Other potential conflicts exist not between state and federal law, but between different parts of federal law.  As we have blogged about previously , just such a conflict has been brewing between the U.S. Supreme Court and the National Labor Relations Board (“NLRB”) over whether arbitration agreements can include waivers of class action claims—the Supreme Court says they can; the NLRB says they violate federal labor laws allowing employees to engage in “concerted activity” relating to working conditions. We are waiting to see how the federal appellate courts resolve that conflict.

Ultimately, Hatkoff will likely stand, not as a departure from existing law, but instead as the latest in a series of federal and state cases over the past few years that are broadly supportive of employer efforts to utilize arbitration and ADR to resolve employment disputes.  But, as we've said, this continues to be an evolving area of employment law, so employers will need to stay tuned to new developments.

In the meantime, here are a few things employers should keep in mind when crafting arbitration agreements to maximize the chance they will be enforceable:

  • Make sure your arbitration agreement, whether a stand-alone agreement or part of a handbook, is clear, understandable, and well publicized.  Include the "magic words" in ORS 36.620 to make it expressly clear to employees that arbitration involves waiving some legal rights, especially the right to a jury trial.  Employees should sign acknowledgments that they have received and understand the agreement.  
  • If you have employees who don't speak English as a first language, have a translated version of the agreement to ensure it is understood.
  • Give new employees the 72 hour advance written notice required by ORS 36.620 wherever possible.  While some courts have found that statute is preempted and unenforceable, there's no guarantee every court will.
  • Under ORS 36.620, current employees can only sign arbitration agreements at the time of "bona fide" promotion or advancement.  Again, courts may find this requirement is also preempted and unenforceable, but if you can comply with it, all the better.  
  • Arbitrators are paid by the parties, unlike judges.  While in theory the parties can split the cost, the agreement should not impose costs on employees unreasonably in excess of what they would pay to file a lawsuit in court.  Many employers agree to pay a large portion, or even all, of the arbitration fees.
  • Specify the rules and procedures that will apply.  The American Arbitration Association's ("AAA") specific rules for employment arbitration are one option; other state or local arbitration forums are other (and sometimes cheaper) options.

Above all, work with your employment counsel in the crafting and implementation of the agreement.  Many enforceability pitfalls can be easily avoided with careful planning, but the devil can be in the details.  That is especially true for any state-specific rules or "gotchas," as arbitration agreements may be perfectly enforceable in some states but not in others.

How Employers Can Reduce Litigation Costs

Employment litigation dominates court dockets around the country. And the swing to the left in the political arena is not likely to put a damper on the number of filings. Everyone knows that litigation is expensive. So . . . what can the employer do to reduce its expenses if it finds itself on the receiving end of an administrative charge or a lawsuit? 

1. Early Case Assessment


            Ask your attorney to provide you with an early comprehensive analysis of the case after he or she has interviewed key witnesses, reviewed key documents and researched legal issues. Doing so will give you important information about whether an early settlement is likely to save you money in the long run and give you a good idea of what you are in for if you don’t settle.


2. Manage your documents


            Use your in-house IT staff to image hard drives to save the cost of outsourcing. Do a thorough job of collecting documents from all relevant players so that your attorneys and their paralegals don’t have to charge you to do this work.


3. Decipher your documents


            Provide your attorney up front with a descriptive list of key players, identify key documents and provide a written narrative of the events in question. Anything you can do to compile information at the outset will save your attorney time.  Saving attorney time saves you money.


4. Consider early resolution


            Leave your pride and your principles at the door and consider an early, cheaper resolution. Yes, employers often say, “I’d rather pay my attorneys than the plaintiff,” but that sense of outrage wears off as litigation wears on.


5. Be open to technology


            Good attorneys use document management systems and other tools to help manage cases internally. Ask if you can be included in such systems to reduce the attorney’s need to communicate with you. For example, can you receive docketing notices automatically so that your attorney doesn’t have to send them to you?


6. Check your insurance


            Some employers carry employment practices liability coverage. It won’t cover all types of claims you might face (for example, a wage claim wouldn’t be covered and intentional conduct is typically excluded), and you may lose your right to select your own attorney, but, if you have it, you should notify your broker or carrier immediately by providing a copy of the charge or complaint. Other coverage (D&O, GCL) might also be in play.


7. Ask how you can save attorney time!


            Don’t hesitate to ask your attorney if there are tasks you can perform in-house to reduce attorney time.