California Supreme Court Clarifies PAGA's Position When "Individual PAGA Claims" Were Compelled to Arbitration

California Supreme Court Clarifies PAGA’s Position When “Individual PAGA Claims” Were Compelled to Arbitration

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On July 17, 2023, the Supreme Court of California decided an important issue of state law raised by the United States Supreme Court’s decision in Viking River Cruises, Inc. v. Moriana, 142 S.Ct. 1906 (2022). Cruises on the Viking River found that the Federal Arbitration Act (FAA) requires the execution of an agreement to arbitrate California Attorneys General Act (PAGA) claims arising out of alleged violations of the California Labor Code against the named plaintiff, notwithstanding California’s prior authority that PAGA claims cannot be “divided” into “representative” and “individual” components. In a brief paragraph at the end of his decision to Cruises on the Viking River, the United States Supreme Court held that a PAGA plaintiff lacks legal standing to pursue PAGA claims arising from alleged Labor Code violations committed against other employees when claims arising from violations against the named plaintiff have been “disposed of” to arbitration. However, because statutory standing is a matter of state law, state courts were not bound by the US Supreme Court’s interpretation, a point Justice Sotomayor signaled in a concurrence. In Adolph v. Uber Techs., Inc.At the. S274671, 2023 WL 4553702 (2023), the California Supreme Court disagreed with the U.S. Supreme Court’s interpretation of the PAGA standing requirement and held that a PAGA plaintiff retains standing to sue for alleged violations of the Labor Code committed against non-party employees when claims arising out of alleged violations against the plaintiff have been compelled to arbitrate.

The California Attorneys General Act

PAGA is a California state statute that allows an “injured employee” to file a lawsuit to recover civil penalties for violations of the California Labor Code “on behalf of himself and other current or former employees.” Civil penalties that are recoverable under PAGA would only be enforced by state agencies in the absence of the statute. Of the penalties recovered in a PAGA action, 75% are awarded to the California Labor & Workforce Development Agency and 25% are awarded to affected employees, and plaintiffs’ attorneys may also seek to recover their attorneys’ fees and costs. Before Cruises on the Viking River, California courts have held that agreements to arbitrate individual class claims are enforceable, but agreements to arbitrate individually PAGA claims are not. In the context of class action, arbitration agreements serve as a powerful tool to limit the scope of claims that can be brought against employers, and Cruises on the Viking River gave the promise that they can serve the same function in PAGA cases.

O adolph Decision

The California Supreme Court in adolph started by recognizing Viking River Cruises’ holding that the FAA supersedes California’s rule that “PAGA claims may not be divided into individual and non-individual claims.” The California Supreme Court has adopted the terminology of the United States Supreme Court in referring to PAGA claims arising from alleged violations of the Labor Code against the named plaintiff as “individual PAGA claims” and PAGA claims arising from alleged violations against other employees as “non-individual PAGA claims”. adolph held that to be entitled to pursue non-individual PAGA claims, the plaintiff must satisfy only two requirements: the plaintiff must be someone (1) “who was employed by the alleged infringer” and (2) “against whom one or more of the alleged violations were committed.” These two permanent elements flow from the PAGA definition of “injured employee” and the prior decision of the California Supreme Court in kim v. Reins Int’l California, Inc., 9 cal. 5th 73 (2020).

The California Supreme Court held that under the statutory definition of an “injured employee,” a PAGA plaintiff whose individual PAGA claims are bound to arbitration under Cruises on the Viking River does not lose legitimacy to enforce non-individual PAGA claims in court. The Court drew an analogy with its decision in kim that a plaintiff settling an individual non-PAGA claim for damages does not lose standing to enforce PAGA claims. Although kim addressed only the permanent impact of the does not pay Individual damage claims, the Supreme Court of California ruled that the situation in kim was sufficiently similar to a plaintiff whose individual PAGA claims are compelled to arbitration to find that “(a) arbitrating a plaintiff’s individual PAGA claim does not nullify the fact of infringement or extinguish the plaintiff’s status as an injured employee.”

Defendant Uber raised a number of arguments against that conclusion, which the California Supreme Court rejected. Uber argued that when an individual PAGA claim is compelled for arbitration, the claim is no longer present in the lawsuit and therefore the plaintiff does not meet the standing PAGA requirement as he is no longer a person “against whom one or more of the alleged violations” in the lawsuit “was committed”. The California Supreme Court was not persuaded by this argument and held that an order compelling individual claims to arbitration does not “separate” them from the action. The Court also rejected Uber’s arguments that the PAGA wording, providing that PAGA claims can be brought “on its own behalf and that of other current or former employees” imposes an additional permanent element beyond the legal definition of “injured employee” and that the plaintiff must have a financial interest in a PAGA claim.

Uber also argued that allowing non-individual PAGA claims to proceed in court while individual PAGA claims proceed in arbitration would result in the plaintiff’s status as an “injured employee” being re-examined after arbitration on the same matter, in violation of the FAA and Cruises on the Viking River. The California Supreme Court found this concern to be unfounded because “the lower court may exercise its discretion to stay non-individual claims pending the outcome of the arbitration pursuant to section 1281.4 of the Code of Civil Procedure,” and any arbitral award finding that the plaintiff is not an injured employee would be binding on the court upon confirmation of the award.

adolph is a disappointing decision and threatens to undo many of the benefits employers have gained from Cruises on the Viking River. A positive aspect of adolph opinion is the Court’s observation that the lower court may stay non-individual PAGA claims when individual PAGA claims are bound for arbitration, and a favorable decision in arbitration will be issued preclusively on the plaintiff’s status as an injured employee in court. Employers who continue to enforce individual arbitration agreements in PAGA actions must argue that such a stay is mandatory under the Civ Code. Proc. § 1281.4, which uses the word “shall.” There is also an untested argument that from adolph California’s own interpretation of statutory rules conflicts with the FAA.

Employers should review their arbitration agreements and carefully consider, in consultation with their employment lawyer, whether and under what circumstances they should have and/or enforce agreements providing for the arbitration of individual PAGA claims in light of the new decision.

DHS Announces New Form I-9 and Remote Verification for Employers E-Verify

DHS Announces New Form I-9 and Remote Verification for Employers E-Verify

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The Department of Homeland Security (“DHS”) announced on July 21, 2023, they will post a revised version of the Form I-9 on August 1, 2023. DHS also announced an improved version remote verification flexibility using video for E-Verify employers, both for clearing I-9s created during the pandemic and in the future.

Major changes to Form I-9 to be posted on August 1

  • Employers can use the current Form I-9 (10/21/19) until October 31, 2023
  • Effective November 1, 2023, all employers must use the new Form I-9
  • Reduces Sections 1 and 2 to a single-sided sheet
  • Trainer/Translator Certification Supplement
  • Supplement for Reverification and Rehiring
  • Acceptable additional documents and guidance for automatic extensions
  • For E-Verify employers, includes a box to indicate special remote verification of documents

New Alternative Procedure Enabling Remote Verification for Employers E-Verify Just

Effective August 1, 2023, employers enrolled in E-Verify will be able to follow a new flexible procedure for remotely verifying supporting I-9 documents.

  • Step 1: Applicant (post-offer) or Employee copies or photographs their supporting I-9 documents (front and back) and mails them to the employer (or through another form of transmission).
  • Step 2: The employer reviews the documents to ensure they appear reasonably genuine.
  • Step 3: The employer conducts a live video interaction (i.e., Zoom, Teams, Google Meet, FaceTime, etc.) with the candidate or employee to ensure that the documentation is reasonably related to them. The candidate or employee must present the same documents already transmitted to the employer a second time during the face-to-face interaction.
  • Step 4: Employer checks the alternative procedure box on Supplement B of the new form I-9 for new employees hired on or after August 1, 2023. Or, if the employee was hired during the pandemic, the employer notes “Alternative Procedure” in the additional information box on the previous form I-9 and completes this task by August 30, 2023.
  • Step 5: The employer retains supporting documents (paper or digital) and attaches them to the I-9. (In the past, only List A documents were copied. With the new remote flexibility, the E-Verify employer must now copy and retain all List A or List B and C documents.)

Clearing Pandemic I-9s for Employers E-Verify – Through August 30

Employers who were participating in E-Verify and created an E-Verify case for employees whose documents were examined remotely during the COVID pandemic (March 20, 2020 – July 31, 2023), can now choose to use the new alternative live video procedure from August 1, 2023 to satisfy the document physical examination requirement by August 30, 2023.

The employer must note “alternative procedure” with the date of the video exam in the additional information box on page 2 of the previous version I-9. The employer must not create a new case in E-Verify.

E-Verify employers hiring remote employees on or after August 1, 2023 must use the new Form I-9 and complete Supplement B that designates the alternate procedure.

Non-E-Verify Employers Clearing Pandemic I-9s By Aug.

Employers who were not enrolled in E-Verify during COVID-19 flexibilities must complete an in person physical exam by August 30, 2023 for all employees hired during the pandemic.

Avoiding Discrimination Using E-Verify

Employers should be aware of the following key issues:

  • E-Verify should only be used on new hires. The only exception is employees working under a covered federal contract that requires mandatory E-Verify.
  • An I-9 should never be filled out until an offer is made and E-Verify should never be used until the I-9 is completed.
  • Employers who were not enrolled in E-Verify at the time they initially performed a remote review of an employee’s documents under the COVID-19 flexibilities between March 20, 2020 and July 31, 2023 cannot use the qualifying video flex on employees hired since then, unless the employee was hired after the employer enrolled in E-Verify.
  • A remote employee may choose to come into the employer’s office to personally review their I-9 documents.
  • All employers who enroll in E-Verify and are using an I-9 digital software program that interfaces with E-Verify are required to have all users participate in mandatory anti-discrimination training.

DOJ Immigrant and Employee Rights (IER)

While employers should always strive to have perfect I-9s, if they have any questions about whether someone is authorized to work (whether a new hire or someone on an automatic extension), they should consult an attorney. The DOJ will keep employers strictly responsible for any inadvertent denial of employment due to a misunderstanding of whether an employee is authorized to work. Along with that comes a heavy Civil Investigation Demand, mandatory training, fines and public shaming.

consult the lawyer

When you encounter any unusual I-9 issues, consult an experienced employment attorney to avoid creating liability, both on integration and terminations. Sheppard Mullin can help with employment issues, immigration issues and any export control and licensing issues.

Stay tuned

As this new rule unfolds, we are available to provide additional guidance to employers.

California Court of Appeals clarifies that an employer's obligation to reimburse expenses depends on whether they were a direct consequence of job duties, not directly caused by the employer.

California Court of Appeals clarifies that an employer’s obligation to reimburse expenses depends on whether they were a direct consequence of job duties, not directly caused by the employer.

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On July 11, 2023, the California Court of Appeals in Thai v. IBM found that whether an employer is required to reimburse expenses incurred by an employee working from home depends on whether the expenses were a direct consequence of the employee’s performance of duties, rather than whether the expenses were directly caused by the employer. This case matters to all employers whose workforce has suddenly started working from home as a result of the COVID-19 pandemic, and to employers who continue to allow employees to work from home today.

Background Thai v. IBM

Thai, a former IBM employee, needed internet access, a computer and a headset, among other things, to perform his duties. IBM has provided these items to its employees working in its offices. Then the COVID-19 pandemic hit. On March 19, 2020, Executive Order N-33-20 was signed by Governor Newsom, who required all individuals except critical infrastructure workers to stay home. IBM instructed its employees, including Thais, to work from home in accordance with the Order. Thai claimed that he and other employees personally paid for internet and phone services and other items needed to perform their jobs from home, but were not reimbursed by IBM.

A lawsuit was filed in which Thai and another worker claimed a cause of action under the California Private Attorneys General Act (PAGA), alleging that IBM failed to reimburse employees for work-from-home expenses incurred following Governor Newsom’s order in violation of Labor Code Section 2802. The statute requires employers to reimburse employees for reasonable and necessary business expenses incurred by the employee as a direct result of performing their duties. IBM objected, and the San Francisco County Superior Court upheld the objection, noting: “Plaintiffs cannot allege that IBM’s instructions to employees to work from home (were) the direct and independent cause of Plaintiffs and Appellees incurring necessary business expenses. . .” The Court concluded that the Governor’s Order was an “intervening cause” and IBM was merely instructing employees to work from home in response to the Order. Thus, there was no requirement that IBM reimburse employees for their work-from-home expenses under Section 2802.

Decision of the Court of Appeal

On appeal, the Court of Appeal reversed the decision of the lower court in favor of the employer. The plaintiffs argued that the lower court’s decision was inconsistent with the plain language of Section 2802. The relevant statutory language reads: “The employer shall indemnify its employee for all expenses or necessary losses incurred by the employee in direct consequence of the dismissal of his or her duties, or his obedience to the employer’s instructions. . .”

Plaintiffs argued that the statutory investigation required by the statute is whether the employee incurred expenses “as a direct result of the performance of his duties,” not whether the employer himself was the cause of the employee working from home. In its published decision, the Court of Appeal concurred, indicating that, according to the plain language of the statute, the employer’s obligation to reimburse depends on whether the expenses were actually a consequence of the employee’s employment obligations, not whether the employer’s order to working from home was a proximate cause of expenses.

IBM argued that work-from-home expenses must be “inherent” to their business or their “benefit” be reimbursable, and that they were not here, as working from home was for a public health benefit. The Court rejected the argument, noting that Section 2802 does not contain “inherent” or “benefit” language, but even if such language was consistent with the statute, the expenses here were inherent in IBM’s business and the work was performed on behalf of IBM. from IBM. The Court also rejected the employer’s attempts to equate its employees’ remote work expenses with licensing expenses that are portable to different employers and not a consequence of the employee’s work obligations to a specific employer, as well as generally usable expenses. under all circumstances.

The Court did not address what expenses are considered “reasonable” or the extent to which an employer must reimburse an employee for expenses incurred for personal and work reasons.

To remove

All employers whose employees have worked from home during the COVID-19 pandemic and/or continue to work from home today should review their telecommuting and expense reimbursement policies in light of this ruling to ensure they are in compliance with Section 2802. Employers should consult experienced professionals with legal advice for guidance due to the uncertainty in the law regarding reimbursement of expenses in the hybrid working world.

What does the death knell of affirmative action mean for employers?

What does the death knell of affirmative action mean for employers?

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In late June, the US Supreme Court decision in Students for Fair Admissions, Inc. v. President and Fellows of Harvard CollegeNos. 20-1199 and 21-707, 2023 WL 4239254 (USA June 29, 2023), banned race-based affirmative action in higher education. Splitting along ideological lines, the Court’s conservative supermajority ruled, 6 to 3, that the college admissions programs at Harvard and the University of North Carolina violated the Equal Protection Clause of the Fourteenth Amendment. The monumental decision, which set aside 45 years of precedent allowing racially aware admissions policies to target a diverse student body, shook the world of higher education.

But colleges and universities are unlikely to be the only entities affected by Students for Fair Admissions. The decision also raises difficult questions for private employers. While it did not address employers or employment statutes, such as Title VII of the Civil Rights Act of 1964, its rationale and rationale should alert employers that workplace diversity programs may no longer be on secure constitutional grounds. Chief Justice Roberts wrote in the majority opinion that “(e) to eliminate racial discrimination means to eliminate it altogether.” SFFA, 2023 WL 4239254 in *12. This categorical assertion leaves little room for racially conscious initiatives in other contexts.

A Cultural Shift

The Court’s decision in Students for Fair Admissions will affect students today and employees tomorrow. The decision will likely lead to a growing wave of Title VII “reverse discrimination” litigation, opening the door for lower courts — and perhaps eventually the Supreme Court — to reaffirm Title VII’s requirement that race not be considered in hiring ( and dismissal) of employees.(1) Furthermore, the effects Students for Fair Admissions will reverberate in the workplace in other ways. The decision will almost certainly spur a cultural shift in hiring, the initial wave of which can already be felt.

Chief Justice Roberts’ opinion was based heavily on Grutter v. bullyingis, 539 US 306, 123 S. Ct. 2325, 156 L.Ed. 2d 304 (2003). Bigger held that the Equal Protection Clause did not prohibit the University of Michigan Law School’s restricted use of race in its admissions process to achieve the compelling interest of educational benefits resulting from a diverse student body. Bigger also reaffirmed Judge Powell’s opinion by announcing the judgment of a fragmented Court in Regents of the Univ. from california v. bake, 438 US 265, 98 S. Ct. 2733, 57 L. Ed. 2d 750 (1978) “as the touchstone for constitutional analysis of racially aware admission policies”. See Grutter539 US at 323. But Bigger it contained a caveat with considerable social and cultural implications—a caveat over which the Chief Justice of the Supreme Court hung the majority’s hat. Specifically, the Bigger The Court perceived affirmative action as a time-limited concept. Justice O’Connor’s majority opinion held that race could be used as a factor in college admissions only as long as necessary to promote a compelling interest in gaining the educational benefits that result from having a diverse student body. I went. at 342-43. While the Bigger The court prophesied: “(We expect that 25 years from now, the use of racial preferences will no longer be necessary to further the interest approved today.” I went. at 343.

According to Chief Justice Roberts and the other five Republican-appointed judges, that day has arrived—five years ago. In their view, the “racial preferences” involved in affirmative action are no longer necessary to achieve diversity in schools. The ultimate goal, as the Court historically conceived it, was to arrive at a place where the promises of the Equal Protection Clause could be realized without any regard to race. Declaring racial discrimination “unpleasant in all contexts”, SFFA, 2023 WL 4239254, at *15, most concluded that affirmative action programs at Harvard and UNC (and by implication, countless other institutions) did not satisfy the rubric of “tight scrutiny” applicable to race-based classifications. The days of expressly considering race in the pursuit of a more diverse and equitable student population are over.

The Supreme Court’s unabashedly hostile view of racially conscious policies designed to increase the inclusion and participation of historically disadvantaged minorities in American life could have significant hiring implications. Employers must now pause and consider what the Court’s decision means for the hiring process. On the day of decision, EEOC Commissioner Andrea Lucas wrote an article about Students for Fair Admissions’ impact in the workplace. She noted that: “Ill-structured voluntary diversity programs pose legal and practical risks for companies. These risks existed prior to the Supreme Court ruling today. Now they can be even bigger.”

While the Court’s opinion did not change the federal anti-employment discrimination laws, they now stand on more precarious foundations—both socially and legally. The Supreme Court announced that the United States has reached the point where no special consideration should be given to an individual’s race in achieving diversity in higher education. It doesn’t take a huge leap to translate this conclusion into the work context. Because Title VII already mandates a color-blind approach to hiring and termination, employers and employees already inclined to agree with that conclusion now have legal dictates – and an understanding Supreme Court – to motivate other courts to follow the strict approach to Title VII review, that takes no account of a person’s “background circumstances”. As anticipated, this shift could have a major impact on corporate diversity initiatives and talent pipelines.

Paving the way for Title VII litigants

Title VI and Title VII are two separate, though similar, parts of the Civil Rights Act of 1964. Title VI – at issue in the Students for Fair Admissions— governs discrimination in higher education. Title VII governs discrimination in employment. While the case did not directly address Title VII, it may provide a direct on-ramp for Title VII litigants who wish to have a “color-blind” workplace.

Currently, affirmative action plans are only allowed in the workplace in very restricted (and usually remedial) environments. However, race-conscious employee programs are common. Many employers have diversity statements or programs, affinity groups, race-specific mentoring and support programs, special internships or scholarship positions for individuals from diverse backgrounds, and much more. These programs have been the subject of “reverse discrimination” lawsuits with varying degrees of success. In some jurisdictions, courts have amended the first part of the prima facie Title VII claim of discrimination to require a demonstration of “substantive circumstances (which) support the suspicion that the defendant is the unusual employer who discriminated against the majority.” shea against kerry, 961 F. Supp. 2d 17, 31 (DDC 2013), aff’d, 796 F.3d 42 (DC Cir. 2015). Other courts do not require such a display and are dedicated to a rigorous review of the traditional elements of Title VII. see for example, Smith v. Lockheed-Martin Corp.644 F.3d 1321, 1325, n.15 (11th Cir. 2011).

Litigants who believe they have been harmed by these types of diversity initiatives will no doubt try to translate the Court’s color-blind view of the questionable constitutionality of such initiatives from higher education to the workplace. And, unfortunately for the employers who have honed and developed these diversity initiatives, future litigants now have persuasive legal support to bolster their Title VII arguments. In particular, Justice Gorsuch’s concurrence emphasized the transferability of Title VI to Title VII. He stated:

If this exposition of Title VI sounds familiar, it should. Right next door, in Title VII, Congress made it illegal. . . for an employer. . . discriminate against any individual. . . because of that individual’s race, color, religion, sex or national origin. . . This Court has also long recognized that when Congress uses the same terms in the same statute, we must presume that they “mean the same.” And that presumption certainly makes sense here, for, as Justice Stevens recognized years ago, “(b) both Title VI and Title VII” codify a categorical rule of “individual equality, without regard to race.” . .

But the dissent does not dispute that everything said here about the meaning of Title VI follows the precedent of this Court. . . interpreting materially identical language in Title VII. . . The words of the Civil Rights Act of 1964 are not like mood rings; they don’t change their message from one moment to the next.

Students for Fair Admissions2023 WL 4239254, at *51, 56 (Gorsuch, J., agreeing) (internal citations omitted).

Between the dictates of Justice Gorsuch’s concurrence and the restrictive color-blind approach called for by Justice Roberts’ majority opinion, there’s plenty of fodder for future Title VII litigants. And these litigants can get support not only from the Supreme Court but also from the EEOC. Reflecting on the decision, EEOC Commissioner Andrea Lucas pretty much adopted Roberts’ color-blind approach to the workplace. “(The EEOC’s mission) is to prevent and eliminate discrimination, not to impose ‘equitable’ outcomes,” she said. But at what cost? See SFFA, 2023 WL 4239254, at *95 (Jackson, J., concurring) (“There are Gulf-sized racial differences in the health, wealth, and well-being of American citizens.”). Time will tell.


(1) Notably, Title VII already mandates a color-blind approach to hiring and terminating employees. see for example, Smith v. Lockheed-Martin Corp., 644 F.3d 1321, 1325, n.15 (11th Cir. 2011). Despite this, lower courts are divided on the rigor with which this requirement is enforced. Thus, Title VII claims resulted in mixed results.

Supreme Court facilitates ability for employers to appeal denials of motions to compel arbitration in Federal Court

Supreme Court facilitates ability for employers to appeal denials of motions to compel arbitration in Federal Court

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In Coinbase, Inc. v. Bielski, the United States Supreme Court resolved a circuit split on whether district courts should stay proceedings while an interlocutory appeal of a denial of a motion to compel arbitration is ongoing. The Supreme Court held that they should.

Abraham Bielski filed a putative class action lawsuit against Coinbase, Inc. in United States District Court: Northern District of California, alleging that Coinbase failed to replenish funds fraudulently withdrawn from users’ accounts. Coinbase filed a motion to compel arbitration based on the User Agreement, which provides for the resolution of disputes through binding arbitration. The District Court denied the request to compel arbitration. Coinbase filed an interlocutory appeal with the Court of Appeals for the Ninth Circuit under the Federal Arbitration Act, 9 USC § 16(a), and decided to stay the District Court proceedings pending appeal. The District Court denied Coinbase’s motion to stay, and the Ninth Circuit Court of Appeals upheld the District Court’s decision not to stay the proceeding based on Ninth Circuit precedent, which states that an appeal to the denial of a motion to compel arbitration does not automatically suspend district court proceedings. Most other Appellate Courts, however, have held that a district court must stay proceedings while an interlocutory appeal of a motion to compel arbitration is pending. Thus, the Supreme Court granted certiorari to settle the division of the circuit.

In a 5-4 decision authored by Justice Kavanaugh, the Supreme Court reversed the Ninth Circuit and held that district courts must stay proceedings while an interlocutory appeal on the issue of arbitrability is ongoing.

The Court acknowledged that the Federal Arbitration Act does not specifically say whether district court proceedings must be suspended pending resolution of an interlocutory appeal. Yet the Court, citing Griggs v. Provident Consumer Discount Company., 459 US 56 (1982), held that a clear underlying principle against which Congress enacted the Federal Arbitration Act was that an appeal removes a district court from its jurisdiction over any aspect of a case involved in the appeal. When the question of the arbitrability of a case is on appeal, the entire case is involved in the appeal by definition, and therefore the district court proceedings must be stayed. The Court explained that its decision reflects common sense, as any other decision would fail to protect the most basic benefits of arbitration: efficiency, less expense and less intrusive discovery. Without a stay, parties could be coerced into settling, especially in class actions, to avoid costly lawsuits. The Court also recognized that, without a stay, the district court will waste judicial resources that could be devoted to other matters.

The dissent, authored by Judge Jackson, criticized the majority for departing from the traditional approach which, according to Judge Jackson, grants the trial judge the discretion to determine whether the underlying case should be stayed. Judge Jackson argued that the majority continued to invent new rules that perpetually favored defendants seeking arbitration.

travel key

While this is a consumer class action case, it does apply to California labor litigation. California state courts already require lower court courts to stay proceedings while the denial of a motion to bind arbitration is pending appeal, including in employment cases. Under Bielskifederal courts of the Ninth Circuit must stay litigation in which an employer appeals the denial of a motion to compel arbitration.

* Mahmood Jeewa is a summer associate at the company’s Century City office.

Supreme Court raises the bar for Title VII religious accommodations

Supreme Court raises the bar for Title VII religious accommodations

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On June 29, 2023, the US Supreme Court issued a rare unanimous decision in Groff versus DeJoy, and set a higher standard for employers to meet when denying religious accommodations under Title VII of the Civil Rights Act 1964 (“Title VII”). Before Groff, employers were free to deny a religious accommodation that imposed “more than a de minimis cost” on the employer’s business. Following Groff, however, employers must now show that the burden of granting a religious accommodation “would result in substantially increased costs in relation to conducting their specific business”. This case has implications for all employers evaluating requests for employee religious accommodations and must be carefully considered when granting or denying such requests.

Gerald Groff, the plaintiff in Groff, was an evangelical Christian rural mailman employed by the United States Postal Service (“USPS”) in Pennsylvania. Groff believed that Sundays should be devoted to worship and rest rather than work. During Groff’s employment, the USPS contracted with a third-party e-commerce site to deliver its packages on Sundays and scheduled Groff, among other carriers, to work on Sundays. Although Groff requested a religious accommodation to be excused from Sunday service, his request was denied. When Groff refused to report to work on Sundays, other team members were forced to take over his duties. According to the USPS, this resulted in significant disruptions to its business, multiple employee complaints, and at least one union complaint from an employee required to take over Groff’s shifts. The USPS subjected Groff to progressive discipline as he refused to report to work for more than twenty Sunday shifts. Groff resigned and sued the USPS for religious discrimination in violation of Title VII.

Under Title VII, employers are required to accommodate an employee’s religious beliefs and practices unless doing so would impose “undue hardship” on the conduct of the employer’s business. Before Groffcourts assessed whether a requested accommodation imposed an “undue burden” under the test established by the Supreme Court in the 1977 case Trans World Airlines, Inc. v. hardison, which considered that an accommodation imposed an undue burden when it required an employer to bear “more than a de minimis cost”. Applying hardison, both the lower court that initially reviewed Groff’s case and the United States Court of Appeals for the Third Circuit upheld the USPS decision to deny Groff’s request for accommodation. More specifically, the Third Circuit sustained that Groff’s waiver request imposed more than a de minimis cost because it “imposed it on his coworkers, disrupted the workplace and workflow, and lowered employee morale.”

Groff appealed to the Supreme Court, asking it to reconsider Hardison’s “de minimis cost” test. Instead, Groff urged the Court to adopt the test to assess whether a requested accommodation constitutes an “undue burden” under the Americans with Disabilities Act (“ADA”), which requires an employer to demonstrate that the accommodation would impose a “significant hardship or expense.” The USPS, on the other hand, asked the Court to state hardison and submit to the US Equal Employment Opportunity Commission’s interpretations of what constitutes an “undue burden” in the context of religious accommodation.

In a 9-0 opinion authored by Justice Alito, the Supreme Court overturned the Third Circuit, ruling that it applied the wrong test to Groff’s Title VII claims. However, the Court declined to adopt the tests proposed by Groff or the USPS, holding that both went “too far”. Analyzing hardison and the language of Title VII, the Court determined that the “cost de minimis” test was a misinterpretation of the hardisonis holding and set the bar too low. As Judge Alito noted, this standard, “if taken literally, suggests that even a pittance may be too much for an employer to be forced to bear.” Instead, the Supreme Court held that the proper test for determining whether a requested religious accommodation imposes an undue burden under Title VII is whether it “would result in a substantial increase in costs in relation to the conduct of its particular business”, taking into account ” all relevant factors in question, including the specific accommodations in question and their practical impact in light of the nature, size and cost of operating an employer”. Judge Alito concluded that the Third Circuit’s application of the “cost de minimis” test “may have led the court to reject a number of possible accommodations, including those involving the cost of paying incentives or the administrative costs of coordinating with other stations. close with a broader set of employees,” and noted Groff for reconsideration under the new test, noting that the USPS may still prevail.

In light of Groff, an employer’s refusal of an employee’s request for religious accommodation becomes more difficult to justify. While the standard for religious accommodations remains lower than the standard for disability-related accommodations under the ADA, a demonstration of “substantially increased costs” is not insignificant. Employers who are faced with requests for religious accommodation should carefully assess the nature of the request and the impact on their individual business and explore all available alternatives before denying a request. We will continue to monitor the impact of the Supreme Court decision on Groff and provide updates as they become available.

Buyer Beware: Delaware Courts Continue to Refuse to Enforce Agreement-Based Noncompetes

Buyer Beware: Delaware Courts Continue to Refuse to Enforce Agreement-Based Noncompetes

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In a blog earlier this year, we discussed the Delaware Chancery Court’s refusal to impose a non-competitive business sale on Kodiak Building Partners, LLC x Adams. We then ask ourselves if codes represented a one-off decision or boded a trend that might make business buyers hesitate. The Delaware courts appear to have answered the question. In what constitutes a notable trend for business buyers, Delaware courts twice more refused to enforce non-compete in the sale of a business analysis.

In The decision issued by the Delaware Court of Chancery in January of this year, the Delaware court declined to enforce certain restrictive clauses in the context of a partnership agreement. sSeveral of Defendant’s former partners have signed partnership agreements that restrict them from engaging in a competing business for a period of one year after their departure from the partnership. The Defendant alleged that the limited partners’ non-compliance with the covenants exempted it from its obligation to pay the limited partners certain sums owed to them under the terms of the partnership agreement. The “competing forfeiture provision” “serves(d) as a financial disincentive, rather than a barrier per se to obtaining employment with a competitor,” and the Delaware court chose to apply the more lenient sale of a standard of business to your applicability analysis.

Even applying the lenient standard, the Delaware court found the non-compete to be unenforceable, arguing that the worldwide geographic scope was too broad. Furthermore, the court found that the scope of the prohibited activities was excessively broad, in part because it included activities competitive not only with the Defendant entity, but also with any of its affiliates. The court noted that the extent of the restriction could result in a partner unwittingly engaging in competitive activity. This latter analysis is consistent with some FTC rulings we discussed earlier. here. The Delaware court refused to dismiss the non-compete, finding it wholly unenforceable.

So in Intertek Test Systems v. Eastman, 2023 WL 2544236 (Del. Ch. March 16, 2023), the Delaware court found unenforceable a non-compete provision contained in a stock purchase agreement. The agreement contained several restrictive clauses restricting the Defendant from competing with the acquired business. The court found the geographic scope restricting the Defendant’s employment to “anywhere in the world” to be too broad because the acquired business operated only nationally. “The incongruity between the geographic scope of the agreement and that of the (acquired) business” led the court to conclude that non-competition was unreasonable. How not two issues already discussedthe Delaware courthouse in Intertek test he refused to write the alliance in blue pencil. The court opined that reviewing the noncompete to save the buyer – a sophisticated part in the court’s eyes – “would be unfair”.

This trio of cases represents a shift in how Delaware courts, typically non-competitive, view restrictive clauses, even those in the context of selling a business. As we routinely advise, buyers must ensure that non-competitors, even in the context of selling a business, are strictly tailored to protect the legitimate business interests acquired in the transaction. Buyers cannot rely on courts to save overly broad covenants, redraft or otherwise modify them to make them enforceable.

The end of non-competition in New York?  State legislature passes non-compete ban, approaching threshold

The end of non-competition in New York? State legislature passes non-compete ban, approaching threshold

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Executive Summary

A comprehensive bill that would effectively ban all new non-compete agreements (and potentially affect provisions and agreements that act as a in fact uncompetitive) for all employees, regardless of salary or income level, is headed to New York Governor Kathy Hochul’s desk.

The New York State Senate passed Bill No. S3100A on June 7 and the New York State Assembly passed its counterpart Bill No. A1278B on June 20, 2023 (the “Bill”). If signed by the Governor, New York Labor Law would be amended to prohibit any non-compete agreement entered into or modified after the effective date of the bill. Advance proposed legislation going through the legislative process which, if enacted, would make such prohibition retroactive to existing non-compete agreements.

These developments follow in the footsteps of similar laws already in place in several states (California, Minnesota, North Dakota and Oklahoma) and similar federal attacks on non-competitors through the prohibition proposed by the Federal Trade Commission (FTC) and General Counsel of the recent memorandum of the National Labor Relations Board.

The acquaintances-acquaintances: a broad definition of non-competitors

The Bill defines a “non-compete agreement” as “any agreement, or provision contained in any agreement, between an employer and a covered individual that prohibits or restricts such covered individual from obtaining employment, upon completion of employment with the employer included as a part of the agreement”.

Notably, the Bill explicitly makes an exception for an agreement that “sets out a fixed term of service or prohibits the disclosure of trade secrets, disclosure of confidential and proprietary client information, or solicitation of employer clients that the covered individual is aware of during employment, provided that such agreement does not restrict competition”. The bill further states that it does not affect “any other provision of federal, state, or local law, rule, or regulation.” As such, it appears that the current reasonableness test under New York common law would still apply to restrictive clauses excluded from the bill’s coverage. In other words, confidentiality agreements and client non-solicitation agreements would still apply if they were reasonable in time and area, necessary to protect the legitimate interests of the employer, not harmful to the general public, and not too burdensome for the employee.

The known-unknowns: what the bill is silent about

Unfortunately, the bill is silent on whether or not it applies to employee non-solicitation agreements. The bill also does not contain an exception for non-compete agreements signed in connection with the sale of a business. And while the definition and scope are broad and comprehensive, it is unclear whether the bill’s prohibitions would extend to retention, equity or forfeiture provisions that may or may not be linked to post-employment competitive activity.

As described below, the Bill is intended to apply only to contracts entered into or modified after its effective date. However, other provisions make clear the impact the bill has on non-compete agreements entered into prior to its effective date. The bill states elsewhere that “(e) every contract by which anyone is prevented from engaging in a lawful profession, trade or business of any kind is void” and allows for a civil action to be brought after an employer any step to enforce the “non-compete agreement”.

The Private Right of Action

The Bill provides covered workers with a private right of action to bring a civil action against an employer who “seeks(s), requires(s), demands or accepts a non-competition from any covered individual” . This civil action must be filed within two years from the date (i) of the signature of the prohibited non-competition; (ii) the employee or contractor becomes aware of the prohibited non-compete agreement; (iii) termination of employment or contractual relationship; or (iv) the employer takes any action to enforce the non-compete agreement.

Effective Date and Impact on Existing Provisions

The Bill establishes that it will come into effect 30 (thirty) days after its enactment and will only apply to contracts entered into or modified from the effective date.

As the legislature is out of session, Gov. Hochul will have 30 days to sign or veto the bill after it is delivered to her. The time it takes for a bill to be delivered to the governor is highly variable. Typically, the legislature waits for the governor to request the bill before handing it over. This can lead to significant delays. For example, during the 2019 legislative session, bills took an average of 114 days to be delivered to then-Governor Andrew Cuomo. In the past, interest groups have used this time to mobilize lobbying efforts to oppose or seek material modifications to bills. If the bill is not signed by the end of this calendar year, it will automatically be reintroduced at the beginning of the next calendar year.

Governor Hochul has not publicly indicated her position on this specific bill. However, based on her stated support for banning non-competitive deals for low-wage workers on the State’s 2022 agenda, it seems likely that she will support this bill, which passed both chambers of the legislature with majorities. significant.

If the governor does not act within those 30 days, the bill will not become law. The omission (pocket veto) will have the same effect as an affirmative veto.

Other changes on the horizon

In addition to S3100A/A1278, the New York State Senate recently passed Bill No. S6748, which would potentially bring more restrictions on non-compete agreements. S6748 contains language identical to the FTC’s proposed rule prohibiting most non-compete agreements stating:

“It is an unfair competitive method for an employer to enter into or attempt to enter into a non-compete clause with an employee; maintain a non-competition clause with the worker; or represent to a worker that the worker is subject to a non-compete clause when the employer has no good faith basis to believe that the worker is subject to an applicable non-compete clause.”

S6748 would also prohibit any contractual term that “has the effect of prohibiting the worker from seeking or accepting employment with a person or operating a business after completion of the worker’s contract of employment”, which goes far beyond the bill’s provisions. .

Furthermore, unlike the bill, S6748 would be explicitly retroactive, requiring employers to terminate existing non-competes and notify covered individuals that their non-compete agreements are void.

Before S6748 can become law, it must pass the New York State Assembly and be signed into law by Governor Hochul.

main conclusions

Employers in New York State should consult with an experienced attorney to determine the impact these bills will have on their workforce and make plans.

Additionally, employers must:

  • Immediately undertake a holistic review of all plans and provisions that potentially fall within the scope of the law to determine the impact of Bill and S6748 on its applicability. This would include:
    • Offer Letters, IP/Non-Disclosure Agreements, Termination Plans, Deferred and Equity Compensation Plans, Retention Agreements, Non-Solicitity Agreements, Non-Disclosure Agreements, etc.
    • Be prepared to review/repeal/amend such provisions if/when the bill and/or S6784 takes effect.
  • Identify and triage key personnel who are currently bound by non-compete provisions and other post-employment obligations, and engage in workforce contingency planning to mitigate potential flight risk.
  • Explore alternative and advanced avenues of information retention and protection that withstand the scrutiny of the bill and S6748.
  • For employers across states and across the country, assess how the changing landscape affects your approach to post-employment restrictions from an institutional and cultural perspective.
SCOTUS issues decision allowing state lawsuit against union for property damage caused during labor dispute

SCOTUS issues decision allowing state lawsuit against union for property damage caused during labor dispute

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As we previously reported here, in early 2023, the Supreme Court heard oral arguments in one of the most anticipated labor cases on the high court’s docket in decades to discuss whether the National Labor Relations Act (“NLRA” or “Act”) preempts lawsuits. state lawsuits for damages caused by unions during strikes. On June 1, 2023, the Supreme Court issued its decision in Glacier Northwest, Inc., dba Calportland v. International Brotherhood of Teamsters Local Union No. 174, US, No. 21 – 1449, reversing the decision of the Washington Supreme Court and holding that the employer’s civil liability claims were not anticipated by the Act.

The case revolves around property damage that Glacier, a concrete company, suffered during a strike led by drivers represented by Teamsters Local 174 (the “Union”) after contract negotiations broke down. In August 2017, drivers showed up for work and filled delivery trucks with custom premixed concrete, only to abandon the job, leaving at least 16 delivery trucks full of premixed concrete. This subjected the trucks to potential damage and therefore forced Glacier to pour all of the concrete to prevent damage to the delivery trucks causing loss of product.

The majority opinion authored by Judge Coney Barrett and joined by Chief Justice Roberts, and Justices Sotomayor, Kagan and Kavanaugh determined that the Union had failed to discharge its burden as the party claiming preemption under the Act. The Union’s preemption argument satisfied the first test of presenting “an interpretation of the NLRA that is not clearly contrary to its language and which has not been ‘authoritatively rejected’ by the courts or the Council”, but failed the second test of presenting ” enough evidence to allow the court to conclude that “the NLRA protects drivers’ conduct.

Taking advantage of the limitation of the right to strike provided for in art. Bethany Medical Center, 328 NLRB 1094 (1999), the majority concluded that the Union failed to take reasonable precautions to protect Glacier property from foreseeable, aggravated, and imminent danger due to the sudden cessation of work. The Court highlighted that the Union knew that concrete is a highly perishable product and that the Union was aware that Glacier would not have batched and prepared it for pouring into trucks unless the drivers showed up for duty and gave the impression that would deliver the concrete. By pretending that the drivers were going to deliver concrete and then abandoning the job after the concrete was mixed and poured into the trucks, the drivers not only destroyed the concrete, but also put Glacier trucks at risk of considerable damage, such as the loss of was predictable a perishable product. The Union executed the strike in such a way as to endanger Glacier’s property and waste the concrete it had prepared that day, thus the action lost NLRA protection and the Washington State Supreme Court erred. The Court reversed and referred for further proceedings not inconsistent with its opinion.

Judge Thomas authored an opinion concurring with the judgment and was joined by Judge Gorsuch. Thomas’ concurring opinion addressed how harmony preemption extends beyond standard preemption doctrine and effectively leaves states without the ability to deal with misconduct in the employment field or issue effective remedies in the employment context under state law. For Thomas, the majority opinion underscores the uniqueness of harmony preemption and relied on NLRB precedent to determine whether or not the state court has the power to adjudicate a state tort claim relating to an employment matter.

Judge Alito authored an opinion concurring with the judgment and was joined by Judge Thomas and Judge Gorsuch. Alito’s agreement emphasizes the limitations of the NLRA’s protection of the right to strike and that such protection clearly does not extend to acts of trespassing or violence against employer property, which the Union has committed here.

Justice Jackson was the author of an individual dissenting opinion, stating that based on harmony preemption, the Supreme Court should not have issued a decision until the Board had ruled on the pending complaint filed by the General Counsel as to whether the Union’s strike conduct was legal or even protected by the NLRA. Judge Jackson believes that the majority misapplied the Board’s precedent in a way that threatens the development of labor law and erodes the right of workers to strike by interfering with the Board’s role in adjudicating labor disputes and resolving whether the conduct is legal or protected. by the NLRA. Jackson suggested that the correct course of action according to harmony would have been to overturn the decision of the Washington Supreme Court and resend with instructions to dismiss Glacier’s complaint without prejudice or stay the proceedings in light of the General Counsel’s complaint.

While the majority opinion is fact-specific and does not create a new standard altering whether all state tort claims for property damage as a result of a labor dispute are not anticipated by the NLRA, it does highlight that some consideration must be given to which Remedy Employers may seek to remedy property damage they may suffer as a result of the intentional conduct of a union.

NLRB drops standard for independent contractor status under NLRA

NLRB drops standard for independent contractor status under NLRA

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On June 13, 2023, the National Labor Relations Board (the “Board” or “NLRB”) overturned another business-friendly Board decision in favor of returning to a more employee-friendly standard for determining whether a worker is an employee. or an independent contractor under the National Labor Relations Act (“NLRA”). Independent contractors are exempt from NLRA rights and protections, including the right to form and join unions.

The Chamber’s decision in The Atlanta Opera, Inc. and Makeup Artists and Hairdressers Union, Local 798, IATSE372 NLRB No. 95 (June 13, 2023) (decision here) overturned the 2019 decision on SuperShuttle DFW, Inc., 367 NLRB No. 75 (2019) and reinstated the Council’s previous standard of decision in FedEx home delivery, 361 NLRB 610 (2014) (FedEx II).

By restoring the FedEx II standard, the Board emphasized that the review as to whether a worker was an independent contractor or employee would still be guided by the common law factors of the Agency (Second) Reformulation, Section 220, but also that “all incidents of the relationship must be assessed and heavy without any factor being decisive”. This is in stark contrast to the super shuttle standard, where the Board focused on a worker’s “business opportunity” as an animating principle for determining independent contractor status, rather than evaluating all common law factors equally.

In The Atlanta Opera, The Makeup Artists and Hairdressers Union, affiliated with IATSE, has filed a petition to represent the makeup artists, wigs and hairdressers (collectively the “stylists”) who have worked with the Atlanta Opera on its productions. The employer, the Atlanta Opera, stated that the stylists were independent contractors and therefore not covered by the NLRA.

On June 17, 2021, the Acting Regional Director issued a Decision and Election Direction concluding that the stylists were statutory employees in accordance with the Act. The employer filed a request for a review of the Decision of the Interim Regional Director and Director of Election, which was granted by the Board.

The Board used the employer’s request to review the Acting Regional Director’s Election Decision and Direction as an opportunity to potentially override super shuttle and guest briefing in order to determine the following:

  1. If the Board adheres to the independent contractor standard in super shuttle?
  2. If not, which standard should replace it? If the Board returns to default in FedEx IIin full or with modifications?

The Council ended up repealing super shuttleand re-established the standard and approach of its previous decision in FedEx II. Both decisions utilize the same common law factors, but differ in their approach to assessing how workers’ “entrepreneurial opportunity” affects the overall analysis of common law factors.

The Council determined that super shuttle could not be reconciled with common law agency principles, or Supreme Court or Council precedent, reasoning that neither had elevated or viewed “business opportunity” as a superfactor to guide the analysis of the overall effect of common law factors .

Instead, the Board re-established the standard that, in assessing independent contractor status, the Board will be guided by the non-exhaustive common law factors enumerated in the Agency (Second) Reformulation, Section 220 and will assess “all incidents of the ” with “no one likes to be decisive.”

The Board also explained that the proper use of “business opportunity” in the analysis is to view, in the context of weighing all relevant and traditional common law factors, whether the evidence tends to show that the alleged independent contractor is, in fact, providing services as part of an independent business and that the Board will only give weight to the actual business opportunity, not theory or potential.

With respect to the stylists in question, the Board concluded that most common law factors pointed to official status, including:

  • The extent of control by the employer – In The Atlanta Opera, the production director controlled the details of the stylists’ work;
  • Whether the work is generally done under the direction of the employer or by an unsupervised specialist – In The Atlanta Opera, the production director gave the stylists continuous feedback on their work;
  • Whether the employer or the individual provides instruments, tools and workplace – In The Atlanta Opera, the employer provided all instruments, tools and workplaces;
  • Payment method – In The Atlanta Opera, stylists were paid hourly with a fixed number of hours, and the employer could unilaterally determine whether overtime was required;
  • Whether or not the work forms part of the employer’s regular business – In The Atlanta Opera, the stylists’ work was an integral part of the employer’s business of presenting opera productions to clients; It is
  • Whether or not the principal is in business – In The Atlanta Opera, the employer is in business.

Although three factors—different occupation, skill, and tenure—weighed in favor of independent contractor status, they did not outweigh the factors that favored employee status. Finally, the Board considered whether the evidence demonstrated that the stylists provided services to the employer as part of their own independent business and determined that no, as the stylists had no proprietary interest in their work, they could not assign their positions, or hire replacements. , the employer made all the business decisions, and during productions there was no opportunity for a stylist to employ entrepreneurial strategies that might result in more income.

main conclusions

In another shift back to more employee and union friendly standards, it is likely that more workers will now fall under the employee rather than independent contractor classification for NLRA purposes. As President McFerran stated in the majority opinion of the The Atlanta Operaone of the intentions to return FedEx II is to avoid a broader exclusion from the NLRA’s statutory coverage than Congress intended. Thus, it will be imperative for employers to review any current agreements and employment arrangements they may have with contractors and be aware of any future new employment arrangements with contractors.