Practical, Take-Away Points From Recent United States and California Supreme Court Decisions

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Practical, Take-Away Points From Recent United States and
California Supreme Court Decisions
Over the past couple of weeks, the U.S. Supreme Court and California Supreme Court have issued several important, employment-law decisions. Below we offer you our perspective on what these decisions mean to employers as a practical matter. This E-Alert is not intended to summarize the intricacies of the legal reasoning in each of the decisions (which we certainly are happy to discuss with you individually, if you are interested), but simply to “bottom line” for you the practical, real-life implications of these decisions for employers.

Iskanian v. CLS Transportation Los Angeles, LLC (California Supreme Court, June 23, 2014) – Class-Action Waivers In Arbitration Agreements Held Enforceable, While Waiver Of Right To Pursue Representative Action Under PAGA Held Not Enforceable.

In Iskanian, the California Supreme Court provided both good news and bad news for employers. First, the Court allowed class-action waivers to be enforced in a valid arbitration agreement. The Court recognized that, according to the rationale of recent U.S. Supreme Court decisions, the Federal Arbitration Act (“FAA”) preempts (rendering unenforceable) earlier California Supreme Court decisions that have invalidated class-action waivers in arbitration agreements as contrary to public policy. Likewise, the California Supreme Court rejected, as have all of the federal appellate courts that have considered the argument, the argument that class-action waivers violate the National Labor Relations Act (“NLRA”).

In contrast to its employer-friendly holding as to class-action waivers, the California Supreme Court also held that employees cannot waive their right to bring representative-action, Private Attorneys General Act (“PAGA”) claims. PAGA is a provision in the California Labor Code that authorizes an employee to bring, purportedly on behalf of the state, a representative action against an employer for civil penalties for alleged Labor Code violations. The Court stated that waivers of an employee’s right to pursue a representative action under PAGA violate public policy and, further, that the FAA does not preempt state law as to this question.

Bottom line: For most of our clients, the Iskanian decision now will put class-action waivers in FAA-governed arbitration agreements squarely within our clients’ risk tolerance. The decision makes clear that the California Supreme Court’s long-held resistance to class-action waivers in suitable arbitration agreements has now been put to rest. While a definitive answer to the argument that such waivers violate the NLRA can only issue from the U.S. Supreme Court, the clear trend in the U.S. Courts of Appeal rejects this argument. At the same time, unless and until the U.S. Supreme Court considers the FAA-preemption argument as to Iskanian’s PAGA-related holding, that holding renders PAGA waivers presumptively invalid. Accordingly, we encourage our clients to contact us: (1) to ensure that your current arbitration agreement protects you to the greatest extent possible from class actions by including a class-action waiver; (2) to ensure that your current arbitration agreement does not contain a PAGA representative-action waiver (assuming you do not wish to be a “test case” in this regard); and (3) to discuss whether you wish for potential, representative-action PAGA claims against your company to be expressly excluded from the arbitration agreement (and, instead, be litigated in court with full rights of appeal) or to be included within the arbitration agreement.

National Labor Relations Board v. Noel Canning (U.S. Supreme Court, June 26, 2014) – President Obama’s “Recess” Appointments To The NLRB Were Not Constitutionally Valid.

In Noel Canning, the U.S. Supreme Court held that President Obama’s appointment in January 2012 of three nominees to the National Labor Relations Board without Senate approval was not constitutionally permissible. The Obama administration had claimed that these appointments (along with tens of others to other federal agencies) had been validly made pursuant to the “recess appointments” clause in the U.S. Constitution.

Bottom line: We expect this decision to have no practical significance to our clients who are not professors of Constitutional Law. The decisions of the then-improperly composed NLRB, issued between January 2012 and August 2013, are now invalidated. However, we expect the current Board (which is now constituted with a majority of Democratic appointees whose appointments are not subject to question) to reissue the invalidated decisions.

Salas v. Sierra Chemical Co. (California Supreme Court, June 26, 2014) – California Statute Extending State-Law Employment Protections To All Workers “Regardless Of Immigration Status” Is Not Preempted By Federal Immigration Law.

In Salas, the California Supreme Court considered and rejected the argument that federal immigration laws preempt in its entirety a 2002 California statute declaring that “all protections, rights and remedies available under state law, except any reinstatement remedy prohibited by federal law, are available to all individuals regardless of immigration status . . . .” At the same time, the California Supreme Court held that the federal immigration laws do bar an award of damages to an employee for any period of time after an employer’s discovery of the employee’s ineligibility to work in the United States.

Bottom line: Salas emphasizes the broad protections afforded all employees in California, even those persons who may not have been lawfully permitted to work in the United States. Employers must be scrupulous in affording rights afforded by California law to all employees. However, some monetary damages and reinstatement continue to remain unavailable to a plaintiff who is not legally authorized to work in the United States.

Duran v. U.S. Bank National Association (California Supreme Court, May 29, 2014) – Trial Court’s Use Of “Representative Sampling” In Misclassification Class Action Constitutes Reversible Error.

In Duran, the California Supreme Court overturned a $15 million verdict awarded against an employer in a class action involving allegations that the company had misclassified numerous employees as being exempt, outside salespersons. Over the employer’s repeated objections, the trial court both certified a class action as an appropriate vehicle for determining liability and damages, and decided that liability and damages would be assessed and extrapolated over the entire class according to what the court determined was a “representative sample.”

The California Supreme Court found that this trial-management approach violated the rights of the employer, not on the basis that such sampling could never be appropriate, but because, in the case before it, the sampling had not been developed with proper, expert input or with adequate opportunity for the defense to impeach the model and/or to present individual issues in its defense.

Bottom Line: Duran emphasizes the importance of understanding and using statistics properly in defending employment and wage-and-hour class actions, from the outset of the case (including in the employer’s opposition to a motion to certify a class) through to trial. It is critical that class actions be handled by litigators experienced in defending these unique cases and, in association with statisticians and economists, in analyzing, presenting, and responding to statistical analyses and arguments.

Ayala v. Antelope Valley Newspapers, Inc. (California Supreme Court, June 30, 2014) – High Court Reverses Trial Court’s Refusal To Certify Class Action.

In Ayala, the California Supreme Court reversed a trial court’s refusal to certify a class action as to whether newspaper carriers working for a newspaper publisher were improperly classified as independent contractors. The California Supreme Court held that the trial court had misidentified the proper, substantive-law inquiry as to which individual and common questions needed to be weighed to determine whether class certification was appropriate. The trial court had focused on how much control the company actually exercised over each carrier. According to the trial court, individual issues would predominate over common ones and, therefore, the trial court had denied class certification. By contrast, plaintiffs’ counsel had urged the trial court to consider the common question how much control the company had a right to exercise over the carriers. The California Supreme Court sent the case back to the trial court to determine whether, as to the latter question, there actually were variations on a carrier-by-carrier basis and, if so, whether those variations were manageable. Citing earlier decisions, the Court reminded lower courts, “Individual issues do not render class certification inappropriate so long as such issues may be effectively managed.”

Bottom Line: While some pundits have viewed the California Courts of Appeal’s decisions after Brinker as making class certifications an uphill battle for plaintiffs’ counsel, Ayala reminds us that class actions remain alive and well and that opposition to class certification is a highly contentious matter with an evolving legal standard. Thus, these cases must be handled by counsel with expertise in both the underlying, substantive law at issue and the case law governing class actions.

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