Federal Appeals Court Concludes that Employer Violates Fair Credit Reporting Act by Including Liability Waiver in Mandated Disclosure

gavelEmployers procuring credit reports for applicants or current employees must navigate exacting disclosure and procedural requirements under the Fair Credit Reporting Act (FCRA).  In a question of first impression in the federal courts of appeal, the U.S. Court of Appeals for the Ninth Circuit recently ruled in Syed v. M-I, LLC that a prospective employer violated the FCRA when it obtained a job applicant’s consumer report after including a liability waiver in the required disclosure document.  The FCRA imposes procedures for procuring and using a “consumer report,” defined essentially as information procured by a consumer reporting agency bearing on an applicant’s “credit worthiness, credit standing, credit capacity, character, general reputation, personal characteristics or mode of living,” for establishing eligibility for employment.  These procedures include requiring that before obtaining the consumer report, the prospective employer disclose that it may obtain the applicant’s consumer report for employment purposes and provide the means for the applicant to withhold authorization.

Although the prospective employer in this case, M-I, provided the mandated disclosure, it incorporated into the same document an agreement that the applicant, Sarmad Syed, waive his right to sue M-I and its agents for violation of the FCRA.  Syed filed a class action lawsuit against M-I seeking statutory damages, punitive damages and attorney’s fees and costs.  Continue reading

U.S. Supreme Court to Decide Validity of Class Action Waivers

us-supreme-court-4Circuit Split on Class Action Waivers

The U.S. Supreme Court has  agreed to review the validity of class action waiver clauses in employment arbitration agreements to resolve a conflict among the federal appellate courts.  As our firm has explained in prior blog posts, the U.S. Court of Appeals for the Ninth Circuit – the federal appellate court for the Western United States – has concluded in Morris v. Ernst & Young, LLP that a company violates the National Labor Relations Act (NLRA) by requiring employees to sign agreements precluding them from bringing class actions or other collective actions regarding their wages, hours, or other terms and conditions of employment.  The U.S. Court of Appeals for the Fifth Circuit in NLRB v. Murphy Oil USA, Inc. has concluded to the contrary that the NLRA does not invalidate collective action waivers in arbitration agreements, and the U.S. Court of Appeals for the Seventh Circuit in Epic Systems Corp v. Lewis has agreed with the Ninth Circuit’s position.  The Supreme Court has granted review in all three cases and consolidated the appeals because they raise an identical issue.

Given the current eight-member configuration of the Supreme Court, it is uncertain whether the Court’s review Continue reading

Trump Picks Fast Food Restaurant CEO Andrew Puzder as Labor Secretary: Seismic Shift Is Anticipated in Agency’s Rulemaking and Enforcement

By: Andrew J. Sommer

President-elect Donald Trump has chosen Andrew Puzder as his Secretary of Labor, according to Trump’s transition team. Puzder is the CEO of CKE Holdings, the parent company of Carl’s Jr. and Hardee’s, and has been a vocal critic of the Obama Labor Department’s overtime regulations and efforts to increase the federal minimum wage. As labor secretary, Puzder will oversee the federal apparatus that investigates violations of minimum wage, overtime and workplace safety laws and regulations.

An increase in the federal minimum wage and an expansion in overtime eligibility have been priorities for the outgoing Secretary of Labor Thomas Perez. On Perez’s watch, the DOL has issued new overtime regulations increasing the minimum salary threshold level in order to qualify an employee as exempt from overtime. Puzder has denounced this new overtime rule, the status of which is presently uncertain after a Texas federal court temporarily blocked the rule from taking effect. The U.S. Court of Appeals for the Fifth Circuit has just granted the DOL’s request to expedite its appeal from the preliminary injunction order. The appeal is unlikely to be decided before Donald Trump is inaugurated as the next president on January 20, 2017.

Accordingly, under Puzder’s leadership, the DOL could very well withdraw the pending appeal before a decision is issued by the Fifth Circuit and otherwise not support the new overtime rule. Even if the overtime rule eventually takes effect, Puzder’s arsenal will include the authority to engage in rulemaking to roll back or modify the overtime rule, consistent with the notice and comment process under the federal Administrative Procedures Act. In an op-ed piece earlier this year in Forbes, Puzder said that the overtime regulation will “add to the extensive regulatory maze the Obama Administration has imposed on employers, forcing many to offset increased labor expense by cutting costs elsewhere.” He expressed the opinion that this cost cutting would result in reduced opportunities, bonuses, benefits and promotions.

Other immediate measures that Puzder could take to shift or reverse the direction of the DOL would be to modify interpretive guidance issued under the Obama Administration. For instance, Puzder will likely modify an administrative interpretation by the DOL’s Wage and Hour Division regarding the joint employer doctrine. Under Obama, the DOL has cracked down on employee misclassification and been vocal about its belief that most workers should be treated as employees, insinuating that in a majority of cases, it would hold employers accountable for the specific obligations of an employer-employee relationship. The Wage and Hour Division has offered an administrative interpretation under the Fair Labor Standards Act and Migrant and Seasonal Agricultural Worker Protection Act that broadened the definition of joint employment. Under that doctrine, two employers may be responsible for the violations of each other because of how they jointly use the same employees or because of the control an employer exercises over the employees of an intermediary employer such as a contractor or staffing agency.

Puzder’s authority to impact regulatory and enforcement actions will extend to the DOL’s administration of guest worker programs, allowing foreign nationals to immigrate to the United States and work on a temporary basis, as well as the DOL’s coordination with the Department of Homeland Security over the enforcement of immigration laws in the workplace. It is uncertain what will happen under a Labor Secretary Puzder, whose past immigration stance is at odds with the President Elect’s. In an op-ed piece Puzder authored in The Wall Street Journal last year, he counseled Republican presidential candidates to come up with a vision of how to deal with immigration, including the 11 million undocumented workers already in the country. He supported a “path to legal status” that would be “short of citizenship” so long as the undocumented pass a background check, pay a fine and learn English, among other measures.

Ultimately, employers may benefit most from Puzder’s authority to reallocate agency resources away from agency enforcement actions for labor law violations. Under Obama, the Wage and Hour Division has been very active in enforcing labor laws and investigating industries and workplaces with a history of labor law violations. Puzder could slow down enforcement and conduct fewer investigations. The first few months of a Puzder Labor Department may be telling as we continue to read the tea leaves to assess how employers will be affected by the change in administration.

More New Laws for California Employers

By Andrew J. Sommer

Following a flurry of activity in the final days of California’s legislative session, this past month Governor Jerry Brown has signed into law various employment bills addressing everything from state employee pensions to expanding overtime eligibility and regulating employment agreements. This continues the tide of new employee-friendly laws in the Golden State. Below is a summary of the major new state laws impacting private sector employers.

In Monumental Shift, California Bars Employers from Selecting Out-of-State Forums for Resolving Employment Disputes

Historically, employers have had the option of writing into an employment agreement the requirement that disputes arising from that agreement be litigated in an out-of-state court provided that there is some connection to that state forum by, for example, the employer maintaining a corporate headquarters there. However, in enacting Senate Bill (SB) 1241, California has by legislative fiat barred employers from requiring that California employees litigate any resulting disputes out of state.

Specifically, SB 1241 prohibits any contract entered into, modified or extended on or after January 1, 2017 from requiring an employee who primarily resides and works in California to litigate or arbitrate outside of California “a claim arising in California.” Employers are also prohibited from using such contracts to deprive employees of any substantive protection under California law.

A significant concern is that SB 1241 authorizes employees to bring lawsuits to bar enforcement of voidable agreements due to forum selection and choice of law provisions, and in doing so may recover attorney’s fees. Accordingly, it is imperative that employers ensure that, as of the first of the year, any such agreements entered into with employees, including confidentiality, executive and severance agreements, not require litigation or arbitration of disputes outside of the state, or the waiver of California employment law protections. Just as significant, an employer’s attempt to enforce such an unlawful contract may place it in the defensive position of battling a lawsuit by a plaintiff’s attorney whose motivation is the recovery of attorney’s fees.

There is one notable exception, however. SB 1241 exempts from its provisions any contract with an employee who is individually represented by legal counsel in negotiating the terms of the agreement. Consequently, if employers are negotiating a severance or settlement with a current or former employee represented by counsel, it is important that this representation be memorialized in the agreement should the employer consider selecting another state’s forum or laws for any resulting dispute. It should be noted here that this law does not impact existing California law that requires the application of California substantive law to employment disputes where there is an important public policy interest at issue.

Limitation on Criminal Background Inquiries Now Includes Juvenile Court Proceedings

California Labor Code section 432.7 prohibits an employer from asking an applicant for employment to disclose, or from using as a factor in determining any condition of employment, information concerning an arrest or detention that did not result in a conviction, a referral or participation in any pre-trial or post-trial diversion program, and a conviction that has been judicially dismissed or ordered seal. AB 1843 amends this law to prohibit as well any inquiry into “an arrest, detention, processing, diversion, supervision, adjudication or court disposition that occurred while the person was subject to the process and jurisdiction of juvenile court law.”

Expanded Overtime Eligibility to Certain Classes of Employees

Governor Brown just signed into law several bills that expand overtime eligibility for certain categories of employees. Under existing law, California’s agricultural workers are entitled to overtime wages when they work more than 10 hours in a work day or more than 60 hours in a work week. Assembly Bill (AB) 1066 incrementally lowers the threshold hours for qualifying for overtime wages so that they are consistent with California’s standard overtime rule.

Beginning January 1, 2019, agricultural workers will be eligible for overtime after nine and a half hours worked in a work day, or work in excess of 55 hours in a work week. Beginning January 1, 2020, that overtime threshold will be reduced to nine hours in a workday or 50 hours in a work week. The following year, that number will be reduced to eight and a half hours in a work day or 45 hours in a work week. Eventually, effective January 1, 2022, the overtime basis will be in line with state law, i.e., eight hours in work day or 40 hours in a work week.

To address the concerns of small, independent farms, for businesses with 25 or fewer employees the multi-year phase in is deferred until 2022. The new law also vests with the Governor authority to temporarily suspend the scheduled implementation of the overtime requirements provided that implementation of the scheduled state minimum wage increase is suspended as well.

Similarly, California has expanded overtime protections for teachers employed by private elementary and secondary schools. Existing law exempts from overtime those private school teachers earning at least twice the state minimum wage for full-time employment and meeting other criteria. AB 2230 revises the earning standard for this exemption effective July 1, 2017. On or after that date, the law provides that the overtime exemption applies to private school teachers earning: 1) no less than 100 percent of the lowest salary offered by any school district; or (2) no less than 70 percent of the lowest salary offered by the school district or county in which the private elemental or secondary academic institution is located. In either instance, the comparable position must require a valid California teaching credential and not be pursuant to an emergency permit, intern permit or waiver.

Another new employment law impacts domestic workers. Specifically, SB 1015, removes the sunset provision to the Domestic Worker Bill of Rights, which granted overtime protections to California’s privately hired domestic workers. Thus, this bill has made the law’s provisions permanent.

New Disclosures Required Regarding Protected Leave

AB 2337 requires that California employers provide specific written disclosures to employees upon hire concerning the existing entitlement to leave due to domestic violence, sexual assault or stalking under Labor Code section 220.1. The bill tasks the California Labor Commissioner with developing a form that employers may elect to use to comply with this provision.

Takeaways for Employers

As a result of these developments, we recommend that California employers update their template employment agreements to ensure that the forum selection and choice of law provisions are compliant. It is also important that any existing employment agreements modified or extended on or after January 1, 2017 be similarly updated.

California employer should modify their job applications to make clear that any inquiry into an applicant’s criminal background excludes juvenile court proceedings, among other categories of prohibited inquiry under existing law. In addition, employers are advised in light of AB 2337 to update their employee handbooks to ensure that employees are notified of their right to leave due to domestic violence, sexual assault or stalking, as well as protection from retaliation for exercising those rights.

Ninth Circuit Rules that Agreements Precluding Employees from Bringing Class Action Claims Violate Federal Labor Law

In a sweeping ruling with far-reaching implications for California employers, the Ninth Circuit Court of Appeals – the federal appellate court for the Western United States – has concluded in Morris v. Ernst & Young, LLP that an employer violates the National Labor Relations Act (NLRA) by requiring employees to sign agreements precluding them from bringing class action or other collective actions regarding their wages, hours, or other terms and conditions of employment.

This decision presents a significant departure from existing, ever evolving law that employers have been navigating in considering class action waivers. In 2014, the California Supreme Court in Iskanian v. CLS Transportation Los Angeles, LLC held that class action waivers in arbitration agreements are enforceable under the Federal Arbitration Act (FAA) but that representative claims under the Labor Code Private Attorneys General Act of 2004 (PAGA) are unwaivable under California law. The PAGA has been an egregious enforcement mechanism permitting employees to bring collective actions seeking penalties and attorneys’ fees for wage and hour violations, no matter how minor. The Ninth Circuit in Sakkab v. Luxottica Retail North America, Inc. subsequently ruled that the FAA does not preempt California’s Iskanian rule prohibiting the waiver of representative claims under PAGA.

The path forward following Iskanian and Sakkab for California employers seeking to ensure legal compliance has been to require the waiver of traditional class actions, and not PAGA actions, to avoid running afoul of the law. There has been some security in this position and, indeed, last month the California Supreme Court in Sandquist v. Lebo Automotive, Inc. implicitly recognized the continuing enforceability of class action waivers in deciding a procedural question over whether the arbitrator or judge has authority to determine whether a particular agreement permits or prohibits class action arbitration.

Following Ernst & Young, however, employers located in the Ninth Circuit may now find themselves facing an unfair labor practice charge before the National Labor Relations Board, by seeking to enforce class action waivers or merely inserting such prohibition into arbitration agreements. The Ninth Circuit has reasoned that an employer’s arbitration agreement prohibiting class actions interferes with the right to engage in concerted activity under the NLRA for the purpose of collective bargaining or “other mutual aid or protection.” The Ninth Circuit found that the FAA, which recognizes the enforceability of arbitration agreements, must yield to federal substantive rights such as the right to engage in concerted activities under the NLRA.

It is important to note that the federal appellate courts are divided on this issue, with the Second, Fifth and Eighth Circuits concluding that the NLRA does not invalidate collective action waivers in arbitration agreements and the Seventh Circuit agreeing with the Ninth Circuit’s position. In all likelihood this issue will make it to the U.S. Supreme Court as the final arbiter but until then employers should tread lightly in drafting and seeking to enforce employee arbitration agreements barring collective actions.

EEOC Issues Revised Proposal to Collect Pay Data from Employers

The U.S. Equal Employment Opportunity Commission (EEOC) has announced the publication of its revised proposal to collect pay data through the demographic-related Employer Information Report, otherwise known as the EEO-1 Report. After an initial public comment period, EEOC has proposed changes such as moving the due date for the enhanced EEO-1 Reports from Sept. 30, 2017 to March 31, 2018, to allow employers more time to change their recordkeeping and reporting. The comment period for the revised proposal will remain open until August 15, 2016.

Under existing requirements, the EEO-1 Report must be filed annually with the EEOC by private employers with 100 or more employees as well as federal contractors with 50 or more employees that meet certain eligibility requirements. Significantly, private employers with fewer than 100 employees also are subject to this reporting requirement where they operate with an affiliated business as a joint enterprise such that together the group employs 100 or more employees. The EEO-1 Report presently requires the identification of the workforce by job category, and race/ethnicity and gender.

In late January 2016, the EEOC began soliciting public comments on proposed changes to the EEO-1 Report requiring that the data collection include information on pay ranges and hours worked for employers with 100 or more employees. As reported by the EEOC, federal agencies including the EEOC and Department of Labor “would use this pay data to assess complaints of discrimination, focus agency investigations, and identify existing pay disparities that warrant further examination.” Secretary of Labor Thomas E. Perez has stated that the “data collection also gives the Labor Department a more powerful tool to do its enforcement work, to ensure that federal contractors comply with fair pay laws and to root out discrimination where it does exist.”

The revised form will require reporting of employee numbers and total hours worked according to pay bands. These pay bands are based on calendar year W-2 income, which includes base salary as well as overtime pay, bonuses and commissions. These reports are designed to show pay discrepancies by race/ethnicity and gender within specific job categories.

While it remains to be seen how federal agencies will use this pay data, it will certainly provide fodder for agencies investigating or litigating discrimination claims. In addition, although the EEOC purports to maintain these EEO-1 Reports in confidence, private litigants are expected to seek this packaged pay data from employers as statistical evidence to support race or gender discrimination claims. This pay data can quite easily be taken out of context by plaintiffs’ attorneys, and employers may find themselves in the defensive position of explaining the non-discriminatory reasons for the pay differential.

 

California Takes Another Stab at Disability Access Reform But Again Falls Short

ADAOn May 10, 2016, California Governor Brown signed into law a measure aimed at encouraging small businesses to come into compliance with construction-related access requirements.  The law takes effect immediately.  The authors of Senate Bill 269 recognized that lawsuits are regularly brought by plaintiffs for personal financial gain, not out a desire to improve access for disabled individuals.  This certainly is not news to the state’s hospitality and retail businesses that have been routinely targeted by serial plaintiffs, with financial incentives to pursue multiple suits based on the availability of minimum statutory damages and attorney’s fees.  Yet, SB 269 does not go far enough in addressing the business community’s concerns and taming the surge in litigation in recent years. Continue reading