Saturday, April 18, 2015

Are No Rehire Agreements Unlawful Under California Law?

Settlement agreements with employees often provide that the employee will never again seek employment with the settling employer. Such provisions are probably essential to reaching settlement in some cases. A recent decision from the Ninth Circuit calls into question their validity.

California Business and Professions Code section 16600 provides that "every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void." The provision clearly bars any agreement between an employer and an employee that the employee will not participate in any business in competition with the employer after the termination of employment.

In Golden v. California Emergency Physicians Medical Group, Case No. 12-16514 (9th Cir. Apr. 8, 2015), the challenged provision was part of the settlement of a lawsuit by a doctor for loss of his staff membership at a medical facility. It stated that the doctor "shall not be entitled to work or be reinstated at any [employer]-contracted facility or at any facility owned or managed by [the employer]." The doctor had agreed to the term orally in open court, but then refused to sign a written settlement agreement. The trial court ordered the settlement enforced based on the proceedings in open court, The trial court held section 16600 in apposite reasoning that the challenged provision was not a covenant not to compete, but a statement of intent that the employer chosed not to employ the doctor at any of its facilities.

The Ninth Circuit ruled that the literal terms of section 16600 might apply, and ordered the trial court to "determine in the first instance whether the no-employment provision constitutes a restraint of a substantial character to [the doctor]'s medical practice." Citing a 1916 California Supreme Court case, the Court of Appeals stated that the statutory prohibition extends to any restraint of a substantial character. (See Chamberlain v. Augustine, 156 P. 479 (Cal. 1916).) Because no reported California decision had addressed the question, the Ninth Circuit was predicting what the California Supreme Court would rule if the question were presented. Although the federal district courts in California must follow the decision, California courts are free to ignore it.

Saturday, March 14, 2015

Are Ride Share Services Employers?

Recent news reports about class action lawsuits against Uber and Lyft provide an opportunity for revisiting the standards that courts and enforcement agencies use to determine whether an employment relationship exists between the provider of labor and the recipient of the benefits of the labor. Uber is the subject of a lawsuit entitled O'Conner v. Uber Technologies, Inc., currently pending in the United States District Court for the Northern District of California, where it is being heard by Judge Vince Chhabria, under Case No. 13-CV-03826-EMC. The Lyft case is in the same district, where it is being heard by Judge Edward Chen -- Cotter v. Lyft, Inc., under Case No. 13-CV-04065-VC.

In both cases, the judges denied summary judgment motions by the defendants, on the grounds that there were triable issues as to whether the companies were employers of their drivers, The question to be decided at trial in each case is whether the drivers are independent contractors or employees entitled to the protections of the wage and hour laws. The answer turns on the amount of control that each company exercises over the manner and means by which the drivers provide services.

Under the venerable case of S.G. Borello & Sons, Inc. v. Dep’t of Indus., 48 Cal. 3d 341 (1989), California law (which applies in both cases) presumes that anyone who provides services to another is an employee. The burden is on the presumptive employer to show otherwise by analyzing the following factors: (1) the right to control the work, (2) the alleged employee's opportunity for profit or loss depending on his managerial skill, (3) the alleged employee's investment in equipment or materials required for his task, or his employment of helpers, (4) whether the service rendered requires a special skill, (5) the degree of permanence of the working relationship, and (6) whether the service rendered is an integral part of the alleged employer's business. For a practical, question and answer approach to applying the California standard, see the Employment Development Department's Employment Determination Guide.

The federal standard under the Fair Labor Standards Act is similar. For example, in Bonnette v. California Health & Welfare Agency, 704 F.2d 1465, 1470 (9th Cir. 1983), the Ninth Circuit stated that the determination must be based on the economic realities of the situation, including whether the alleged employer (1) had the power to hire and fire the employees, (2) supervised and controlled employee work schedules or conditions of employment, (3) determined the rate and method of payment, and (4) maintained employment records.

Cases involving taxi drivers may provide some guidance as to how the Uber and Lyft cases will ultimately turn out. In Yellow Cab Cooperative v. Workers' Compensation Appeals Bd., 226 Cal.App,3d 1288 (1991), the California Court of Appeal ruled that a cab driver was an employee of Yellow Cab for purposes of workers compensation. Although the driver provided services under a written lease with Yellow Cab and was responsible for his own expenses, Yellow Cab exercised substantial control over the manner and means by which the driver provided the services. It marketed the service and had dispatchers who directed the drivers to calls. It instructed drivers on matters of behavior toward the public, personal appearance, and keeping their cabs clean. The company could require drivers to return to the yard. It barred them from working for other companies.

By contrast, in Yellow Taxi Co. v. NLRB, 721 F.2d 366 (D.C. Cir. 1983), a federal court of appeals ruled that taxis drivers were not employees under the National Labor Relations Act. There the company's written lease provided that the driver paid a fixed rental, regardless of his or her earnings on a particular day, and retained all the fares collected without having to account to the company in any way. That created a "strong inference" that the company did not control the manner and means of providing services.

Note that the Fair Labor Standards Act exempts drivers for "an employer engaged in the business of operating taxicabs" from the overtime rules (although not from the minimum wage requirement). See 29 U.S.C. section 213(b)(17).

For news reports on the denial of summary judgment motions in the Uber and Lyft lawsuits, see Juries To Decide Landmark Cases Against Uber and Lyft in Forbes, Judges back drivers in lawsuits against Uber, others in The Boston Globe, Judges Rule Lawsuits Over Lyft, Uber Drivers Should Proceed in The Wall Street Journal, and Uber and Lyft drivers' class-action lawsuits will go to jury trials in The Los Angeles Times.

Monday, February 16, 2015

Arbitration Update

The California Supreme Court continues to make law on enforcement of arbitration agreements. In Armendariz v. Foundation Health Psychcare, 24 Cal.4th 83, 99 Cal.Rptr.2d 745, 6 P. 3d 669 (2000), the Court ruled that an arbitration award on a claim under the Fair Employment and Housing Act (FEHA) is not enforceable unless the arbitrator issue a written arbitration decision that explains the essential findings and conclusions on which the award is based. The purpose of the requirement is to assure effective judicial review to ensure that the arbitrator has complied with the statutory requirements. The extend of such judicial review has not been clear.

In Pearson Dental Supplies, Inc. v. Superior Court, 48 Cal.4th 665 (2010), the Court affirmed a Court of Appeal decision vacating an award that deprived the employee plaintiff of a hearing on his FEHA claim by misinterpreting a relevant tolling statute, and then failing to explain in writing why the plaintiff would not benefit from the tolling statute.The Supreme Court explained that the challenged award had an employee subject to a mandatory arbitration agreement from obtaining a hearing on the merits of a claim, but cautioned that not all legal errors would necessarily be reviewable.

In the most recent case, Richey v. Autonation, Inc., Case No. S207536 (Jan. 29, 2015), the award in an FMLA/CFRA case denied relief to the employee based on application of an "honest belief" standard applied by some federal courts, but not yet adopted in California. Although the Court had the opportunity to determine whether that was an error, and whether such an error was grounds for vacating an arbitration award, it passed. Instead, the Court ruled that, even if there had been an error, it was harmless. The evidence that the employer had fired the employee for a knowing violation of company policy was overwhelming. Articulation of the correct standard for review must await another case.

Friday, October 31, 2014

Class Action Waivers

Disputes over the enforceability of class action waivers are percolating in several forums. Most recently, the National Labor Relations Board has rejected federal courts of appeals rulings that upheld class action waivers against attacks that they violate the National Labor Relations Act. In Murphy Oil USA, Inc., Case No. 10-CA-038804 (Oct. 28, 2014), the Board ruled that extracting a class action waiver as a condition of employment and then enforcing it in a judicial forum violates employees' right under section 7 of the NLRA to engage in concerted activities. Because section 7 applies regardless of whether the workplace is unionized or not, all employers risk an enforcement action by the Board if they obtain class action waivers from their employees.

As the Murphy Oil opinion itself recognizes, judicial reception to the Board's position has been hostile. It originally announced that position in the D.R. Horton case. The Fifth Circuit declined to enforce that decision in D.R. Horton, Inc. v. NLRB, 737 F. 3d 344 (5th Cir. 2013). Two other circuits have refused enforcement of Board rulings based on the Board's rejection of class action waivers. See Owen v. Bristol Care, Inc., 702 F.3d 1050 (8th Cir. 2013) and  Sutherland v. Ernst & Young LLP, 726 F.3d 290 (2d Cir. 2013).

In the mean time, as mentioned in a previous post, California courts are dealing with the enforcement of arbitration agreements that do not include class claims. In Iskanian v. CLS Transportation Los Angeles, LLC, 59 Cal.4th 348 (2014), the California Supreme Court ruled that an arbitration agreement with a class action waiver was enforceable, but that PAGA claims covered by the agreement could not be waived. A petition for certiorari is pending in the U.S. Supreme Court. There is a split in the courts of appeal about who decides whether an arbitration clause provides for arbitration of class claims. The Second District Court of Appeal in Los Angeles has ruled that the question is for the arbitrator. Sandquist v. Lebo Auto., Inc., 228 Cal. App. 4th 65 (2014). Division Three of the Fourth District Court of Appeal in Santa Ana has ruled that it is for the court. Network Capital Funding Corp. v. Papke, 2014 Cal. App. LEXIS 907(Cal. App. 4th Dist. Oct. 9, 2014)

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.