Monday, October 6, 2014

Can California ban arbitration?

California and the U.S. Supreme Court have been engaged in a vigorous back and forth regarding arbitration for many years. In Southland Corp. v. Keating, 465 U.S. 1 (1984), the Supreme Court overturned a ban on arbitration imposed by the California Franchise Investment Law, because it violated the Federal Arbitration Act. That Act provides: "A written provision in any maritime transaction or a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction, or the refusal to perform the whole or any part thereof, or an agreement in writing to submit to arbitration an existing controversy arising out of such a contract, transaction, or refusal, shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C. section 2.

The ensuing years have seen the Supreme Court rebuff various attempts to get around the Act's requirement that courts must enforce arbitration agreements. Perry v. Thomas, 482 U.S. 483 (1987) (California could not refuse to enforce arbitration of wage disputes); Preston v. Ferrer, 552 U.S. 346 (2008) (California Labor Commissioner's authority could not supplant that of the arbitrator); AT&T Mobility LL C v. Concepcion, 563 US 321 (2011) (California cannot refuse to enforce arbitration agreements that bar arbitration of class actions).

Two recent developments, one from the California Supreme Court and one from the California Legislature promise to keep the conflict alive:

In Iskanian v. CLS Transportation Los Angeles, LLC, 59 Cal.4th 348 (2014), the California Supreme Court refused to enforce an arbitration clause that required the claimant to waive representative claims under the Private Attorneys General Act of 2004, because enforcement would violate public policy. CLS filed a petition for certiorari with the Supreme Court on September 22, 2014.

On September 30, 2014, Governor Brown signed Assembly Bill 2617, which bars enforcement of arbitration agreements that are extracted as a condition of entering into a contract for goods or services, to the extent that such an agreement purports to include claims based on the right to be free from any violence, or intimidation by threat of violence. It seems unlikely that the statute will survive a challenge under the Federal Arbitration Act.

Wednesday, September 17, 2014

What Is A "No Poaching" Claim?

Some employee lawyers have invoked antitrust laws to target large employers who allegedly have agreed not to solicit, or "poach," employees from their competitors. The  term got public attention in 2011, when a class action lawsuit filed against a number of tech companies, including Adobe, Google, Intel and Apple, alleged that they agreed not to solicit each other's employees. In re High-Tech Employee Antitrust Litigation, Case No. 11-CV-02509-LHK (N.D. Cal.) When she denied summary judgment in March 2014, U.S. District Lucy Koh cited evidence of bilateral written agreements with nearly identical terms, and strict enforcement to find that there was sufficient evidence of collusion to create a triable issue. On August 8, 2014, Judge Koh denied approval of a proposed settlement that would have paid class members an average of $3,750 each. The case is set for trial on April 9, 2015.

On September 8, 2014, a class action complaint was filed on behalf of employees of visual effects and animation companies, alleging that Dreamworks, Pixar, Lucasfilm and Sony (among others) had conspired to suppress employee wages through use of no-solicitation agreements. Nitsch v. DreamWorks Animation SKG, Inc., Case No. 3:14-cv-04062-VC (N.D. Cal.).

In May 2014, the U.S. Department of Justice settled a no poaching case against eBay for having agreed with Intuit not to solicit each other's employees. It had reached similar settlements with several of the companies that are the targets of the class action lawsuit pending before Judge Koh in 2010.

Thursday, August 28, 2014

California Supreme Court Says Franchisor Not Liable For Harassment By Franchisee's Employee

Although Domino's Pizza exercises some control over the conditions at its franchisees' pizza stores, it does not exercise enough control to qualify as the employer of those who work in the stores. So the California Supreme Court has ruled in a case alleging sexual harassment at a franchisee's store. Patterson v. Domino's Pizza, LLC, Case No. S204543 (Aug. 28, 2014).

In a 4-3 decision, the Court explained that its ruling turned on the common law principles of agency and respondeat superior. Those principles look to the degree of control exercised over the employee's performance of employment duties. To be an employer, the entity must have day-to-day authority over such matters as hiring, firing, direction, supervision and discipline. In the case before it, the agreement between Domino's and its franchisee left such matters in the hands of the franchisee. The fact that a Domino's representative had told the franchisee that the alleged harasser should be fired did not establish control over the discipline process.

The Court recognized that each case would have to be considered on its facts, and that there may be circumstances in which a franchisor has exercised sufficient control to render itself a joint employer with its franchisees. But, the mere existence of a franchise agreement specifying standards, procedures and requirements to ensure product quality and customer service, and to protect trade names, public reputation and commercial image will not be sufficient.

The opinion asserts that the result is consistent with the rulings in an "apparent majority" of decisions in other states. See, for example, Kennedy v. Western Sizzlin Corp. (Ala. 2003) 857 So.2d 71.

Friday, August 15, 2014

California Employers Must Pay Employees for Required Use of Personal Cell Phones

According to a recent Court of Appeal decision, Labor Code section 2802 requires employers to reimburse employees who must use their personal cell phones for work-related calls. Cochran v. Schwan's Home Service, Inc., Case No. B247160 (Aug. 12, 2014).

Section 2802 provides: "An employer shall indemnify his or her employee for all necessary expenditures or losses incurred by the employee in direct consequence of the discharge of his or her duties, or of his or her obedience to the directions of the employer, even though unlawful, unless the employee, at the time of obeying the directions, believed them to be unlawful." Labor Code section 2804 makes any agreement by which an employee purports to give up the right to indemnification null and void.

Prachasaisoradej v. Ralph's Grocery Co., 42 Cal.4th 217 (2007) illustrates the outer boundaries of the requirement. The plaintiff in that case challenged a profit sharing plan that provided employees with additional compensation based on a store's profits after deducting operating expenses. The Supreme Court upheld the plan against the argument that employee pay was being reduced by expenditures that were the employer's responsibility. "The Plan was not illegal, we conclude, simply because, pursuant to normal concepts of profitability, ordinary business expenses, such as storewide workers' compensation costs, and storewide cash and merchandise losses, were figured in, along with such other store expenses as the electric bill and the cost of goods sold, to determine the store's profit, upon which the supplementary incentive compensation payments were calculated. By doing so, Ralphs did not illegally shift those costs to employees. After fully absorbing the expenses at issue, Ralphs simply determined what remained as profits to share with its eligible employees in addition to their normal wages."

In the Cochran case, the Court of Appeal explained that the test for determining whether the employer must reimburse is not whether the employee incurred an added expense, but whether the employer, in the absence of reimbursement, "would receive a windfall because it would be passing its operating expenses onto the employee." Even though employees might have cell phone plans that did not require them to pay for the minutes of usage devoted to the employer's purpose, the employer was not entitled to the "windfall" of not paying for those minutes on its own.

Monday, August 4, 2014

Are Franchisors Joint Employers With Their Franchisees

The recent announcement by the NLRB's Office of the General Counsel that it has authorized complaints against McDonald's USA for NLRA violations allegedly committed at franchised restaurants raises the general issue of potential franchisor liability for labor and employment violations by their franchisees. Reported decisions on the subject are scarce. In two cases decided over 45 years ago, the NLRB refused to find that a franchisor was a joint employer. Speedee 7-Eleven, 170 N.L.R.B. 1332 (1968) and S.G. Tilden, Inc., 172 N.L.R.B. 752 (1968). If any of the current complaints proceed to adjudication, the NLRB, and then the federal courts, will determine whether the NLRA's definition of employer includes franchisors.

The issue has arisen under other laws. For example, the California Supreme Court has under review a Court of Appeal decision holding that Domino's could be held liable for sexual harassment by one of its franchisee's employees. The case was argued in June 2014. For a discussion of the decision rejecting liability, see this blogpost.

Employees have also sought to hold franchisors liable for wage and hour violations by franchisees. For example, earlier this year, class action lawyers in California, New York and Michigan filed lawsuits claiming that McDonald's was responsible for wage and hour violations by its franchisees.

For a newspaper columnist's view on the issue, see the LA Times Michael Hiltzik's column "The NLRB-McDonald's ruling could be the beginning of a franchise war."