Arbitration Clauses: What to do When Current Employees Won’t Sign

My colleague, Travis Stokes, prepared this blog on arbitration agreements.  We often recommend that our clients use arbitration agreements with employees.  You can avoid a jury and the process is quicker and streamlined.  You can also stay out of the public eye. 

California courts often try to limit the scope, value or effectiveness of arbitration agreements.  In my opinion, courts "create" an issue so that an employee can stay in the court system.  This blog describes how one court prevented an employer from arguing that the employee's behavior constituted an acceptance of an arbitration agreement. 

Recently, employees working for our clients have asserted claims, and filed complaints in court.  Travis has been successful in removing those cases out of the courts and into arbitration.  Arbitration agreements must be carefully drafted.  Please, don't do it on your own.  Call Travis! 

Many employers recognize the value of implementing an arbitration policy for workplace disputes.  Requiring new hires to sign an arbitration agreement before beginning employment usually presents no problems.  The more difficult question is what to do when an employer implements a new policy requiring all employment disputes to be submitted to binding arbitration and current employees refuse to sign.  Is the arbitration agreement valid if the employee continues to work for the company after being presented with the arbitration agreement?  More specifically, does it matter if the employee simply remains on the job and says nothing (and signs nothing) as opposed to an employee who actually objects to the arbitration agreement and states that (s)he has no intention of arbitrating any claims?  Although recent case law sheds some light on these questions, the answer is far from clear.

   

Courts have acknowledged that when an employer changes a condition of employment such as imposing an arbitration clause, and the employee remains on the job, the employee has impliedly agreed to the changed terms.  (Craig v. Brown & Root (2000) 84 Cal.App.4^th 416.)  To be sure, the Craig court concluded that because the employer mailed the already working employee a brochure that contained the arbitration agreement, and because the employee continued to work for the company for approximately another four years thereafter, an “implied-in-fact” contract was created and the employee was bound by the terms of the arbitration agreement.  Thus, the employee was compelled to submit her claims to arbitration. 

Nevertheless, in the more recent decision of Bayer v. Neiman Marcus Holdings, Inc. (N.D. Cal. Nov. 8, 2011) No. CV 11-3705 MEJ, 2011 U.S. Dist. LEXIS 129277, 2011 WL 5416173, the opposite conclusion was reached based on some different facts.  In Bayer, the already-working employee actually advised the company (verbally and in writing) that he did not accept the newly proposed arbitration agreement.  Although the employee continued to work for the company for another four years after the implementation of the arbitration policy, the Bayer court distinguished the Craig decision by explaining that when an employee expressly rejects the new contract term no implied-in-fact agreement is reached.  Thus, the Bayer court rejected the precedent set in Craig and refused to compel arbitration. 

Bayer is currently on appeal to the Ninth Circuit, and it will be interesting to see if the appellate court clarifies this issue of implied-in-fact agreements versus express rejection of a contract.  For now, employers should realize that implied acceptance of a newly implemented arbitration agreement (such as remaining in employment) may not be sufficient to compel the employee to arbitration and, consequently, the company will be forced to litigate the employee’s claim.

What Does March Madness Cost You?

I am a BYU alumnus.  My team played Tuesday at 6 pm California time, after the workday.  By the way, BYU overcame the biggest deficit in NCAA tournament history -- 25 points and won. 

BYU is on TV, and the Internet (CBS Sports if you are interested) right now -- smack in the middle of the workday.  62 other teams play today and tomorrow and I guarantee your company has a few alums of the schools in the tournament.  But they won't be watching, right???  Wrong!

I am told 8.4 million hours will be lost from workplaces this month due to the Madness.  This equates to $192 million lost. 

What do you do?  Do you monitor employees computer use?  Do you tolerate it?  Perhaps you go one step further -- to create camaraderie at work you sponsor a pool and bet on the games. 

I hope you don't sponsor betting pools.  But you can be sure your employees are part of a few of them!  You certainly have a few things to consider.

Follow the Money

The California Supreme Court heard oral arguments a few days ago in Kirby v. Immoos Fire Protection, Inc.  Kirby claimed, among other things, that his employer did not provide rest periods, and therefore was liable for the one-hour of pay for each violation. 

Kirby did not prevail on this claim.  The employer moved for attorneys' fees under Labor Code section 218.5.  This section states that the court shall award attorneys' fees to the prevailing party in any action alleging non-payment of wages.  Employer contended that the one-hour premium is considered a wage; therefore, it was entitled to fees from Kirby. 

Kirby argued that the lawsuit was governed by section 1194 of the Labor Code which awards attorneys' fees to the employee (but not the employer) if the lawsuit related to claims for minimum wages or overtime. 

The Court of Appeal sided with the employer, awarding $50,000 in attorneys' fees. 

Now the matter is in the Supreme Court.  Let's hope the court upholds the Court of Appeal decision.  It's just not fair that an employee can obtain attorneys' fees if (s)he wins, but the employer cannot.  The better rule is that articulated by the Court of Appeal.  I suspect that employees might think harder before filing a lawsuit for unpaid wages if (s)he knew (s)he might end up paying the employer's legal fees. 

What is good for the goose is good for the gander.  Let's hope we can report to you in a few weeks that the Supreme Court agrees.  Such a ruling could stem the tide of claims for meal and rest period violations. 

Do The Right Thing In The Right Way

One of my law school professors is credited with saying, "It's not enough to do the right thing.  One must do the right thing in the right way."  What great advice in life and in the workplace.  I was reminded of this adage after an event I watched where a person with very strong feelings criticized another over issues that were in part minor and in part not the other person's fault.  I was pleased to see the recipient of the bad behavior respond appropriately, addressing the issues as opposed becoming angry with the attacker. 

However, many employees don't respond in such a fashion.  Some will take the harsh criticism as a personal attack and lash out.  Others might sit meekly and take the abusive behavior then lash out behind the scenes, perhaps on Facebook or in emails or in the break room.  Sometimes an employee responses with poor service, and a "who cares" attitude.  Occasionally, the response is a complaint of harassment or the feigning of an injury. 

Before acting, even if you have reason to be upset, think about this modern day proverb.  Ask yourself, "Am I doing the right thing?"  And then ask the second question, "Am I acting in the right way?"  If you can answer yes to these questions then employees will more likely respond in the right way as well, recognizing that the criticism or discipline was imposed to correct the behavior and improve performance.  If the employee still does not respond correctly, then you might have a "problem" employee. 

You know what I say about problem employees -- they never get better.  At that point it is best to let the employee go, before a complaint can be lodged or an injury feigned -- actions that make termination of employment more difficult.  But until that time, treat your employees with respect and dignity by doing the right thing in the right way. 

AB 469 Notice to Employees at Time of Hire

One of the many laws that affected employers in California for 2012 is AB 469 called the Wage Theft Prevention Act of 2011.  It requires, among other things, that employers provide a notice to employees at the time of hire (conceivably so it is much easier to sue you).  The Department of Industrial Relations recently posted a template that employers can use to comply with the AB 469 notice requirement.  It is located at http://www.dir.ca.gov/dlse/LC_2810.5_Notice.pdf. 

Employment Lawyers Attacking Local Businesses

I have noticed over the past couple of months several out-of-area law firms sending letters to local businesses accusing them of wrongful employment practices.  The letters focus on wage and hour issues, and on appropriate record-keeping.  It appears that these lawyers may be aggressively marketing the Central Valley for cases that can result in substantial legal fees for those law firms.  In light of this apparent marketing push, I want to remind my clients of some of the areas that can result in litigation. 

Record of Hours Worked.  An employer is required to maintain time records of all non-exempt employees.  The records should include start time and ending time, and also time in and out on a meal period.  A time record should show actual times as opposed to merely a number of hours worked each day.  An employer is not required to keep time records of rest periods.  However, in some businesses, time records may be the only method of determining if employees are taking rest periods.  I recommend that employers use a certification on their timecards where employees can verify that the hours recorded are the actual hours worked, and that the employee was provided the opportunity to take all rest and meal periods. 

Record-keeping Requirement for Payroll Records.  Assembly Bill 469, which went into effect January 1, 2012, clarified the law in California regarding the retention of payroll records.  Payroll records must be maintained for a period of not less than 3 years.  (Labor Code § 1174.) 

An employer who receives either a written or an oral request to inspect or copy records pertaining to employment must comply within 21 calendar days.  (Labor Code § 226(b).)  Failure to timely comply can result in a penalty of $750.  (Labor Code § 226(f).) 

Paystub Rules.  Labor Code § 226 requires employers to include the following categories of information on paystubs accompanying paychecks:  (1) gross wages earned; (2) total hours worked*; (3) the number of piece-rate units earned and any applicable piece rate; (4) all deductions; (5) net wages earned; (6) the inclusive dates of the pay period; (7) the name of the employee and the last four digits of his or her social security number or an employee identification number other than a social security number; (8) the name and address of the legal entity that is the employer and, if the employer is a farm labor contractor, the name and address of the legal entity that secured the services of the employer; and (9) all applicable hourly rates in effect during the pay period and the corresponding number of hours worked at each hourly rate. 

I hope you noticed the * under category #2.  You are not required to indicate total hours worked of any employee “whose compensation is solely based on a salary and who is exempt from payment of overtime” under Labor Code section 515 or a Wage Order.  Typically, the only categories of persons covered under this exception are managers, professionals and administrators.  Employees either exempt as outside sales or inside sales are generally paid at least in part on commissions.  Accordingly, under a strict reading of this exception, an employer is still required to list hours worked of an employee otherwise exempt from overtime if the employee’s compensation is not exclusively salary. 

The penalty for a violation of section 226 is a civil penalty in the amount of $250 per employee per violation in an initial citation and $1,000 per employee for each violation in a subsequent citation.  (Labor Code § 226.3.)  In addition, an employee “suffering injury as a result of a knowing and intentional failure by an employer” can seek damages of $100 per pay period, up to a maximum of $4,000.  (Labor Code § 226(e).)  The employee’s attorney is also “entitled to an award of costs and reasonable attorney’s fees.”  (Labor Code § 226(e).) 

Meal Periods.  We are all waiting for a ruling from the Supreme Court in the Brinker case.  However, that does not stop plaintiffs’ lawyers from contending that the employer did not provide a meal period to an employee.  If an employer interfered with the employee’s right, a “penalty” (which is really considered a wage) is imposed, calculated at the employee’s hourly rate of pay. 

These lawyers are also challenging employees’ on-duty meal periods.  Under the law, an on-duty meal period is permitted, provided that the employee signs an agreement and “the nature of the work prevents an employee from being relieved of all duty.”  I have many clients in various industries that employ workers who work alone.  This is common in the hotel, alarm, retail, including convenience stores and gas stations and other industries where employees work through the night.  Typically, due to the need for someone present at the facility, an employee is not permitted to leave for a meal period. 

The claim made by plaintiffs’ lawyers is that it is not the nature of the work, or any specific job activity, but rather the decision of the employer, that the employee cannot be relieved of duty.  If two employees were performing the same job, each could be relieved of duty.  Therefore, it is not the work that compels an on-duty meal period. 

This is a very artful claim.  Of course, there is no legal authority supporting the claim.  However, there is no legal authority expressly rejecting the claim.  This leaves employers in limbo with workers who work alone on a job and cannot leave.  I think the better argument is that the nature of the work is working without co-workers or supervision.  Leaving a post in such a position where an employee must be available for an emergency or to assist a customer, can result in inconvenience, discomfort and even harm.  Therefore, it is the nature of the work that compels an on-duty meal period. 

It should also be considered whether the inability to leave a post when an employee is working alone makes it impossible for the employee to take a 10-minute rest period.  Most of the overnight workers who are alone have nothing to do most of the time.  However, asking someone to be available to do something is considered “work.”  (Yes, sometimes doing nothing is work!)  An employer should ask itself whether a 10-minute rest period on the premises could be provided without jeopardizing services. 

Penalties for Late Payment.  An employee who is not paid all wages due at the time of termination is entitled to a penalty for waiting to be paid calculated at his/her daily wage, for a period of up to 30 days.  The one-hour penalties imposed for not providing employees with meal or rest periods are considered “wages.”  Therefore, non-payment of that penalty gives rise to these waiting period penalties. 

Conclusion.  We always advise clients to avoid claims.  Avoidance is cheaper than litigation.  In many cases alleging wage and hour or record-retention violations, the damages to the employees is relatively low, and perhaps even minimal.  However, the attorneys’ fees provisions of these statutes allow the lawyers to reap thousands, and hundreds of thousands, of dollars.  Many of you have heard me tell about the Fresno County case where the employee was awarded $42,000 (and after deducting fees and costs went home with about $19,000, only to be taxed on $42,000).  The employee’s lawyer was subsequently awarded $420,000. 

Please take these wage issues seriously.  If you have any concerns regarding your wage and hour or record-keeping practices, please call us. 

Calling The Boss An "F-ing Crook" -- Is This Language Protected By Law So Long As You Don't Hit Him?

Nick Aguirre took a sales job with Plaza Auto Center, a used car dealership in Yuma, Arizona.  At a tent sale held in the Sears parking lot, Nick asked where the restroom facilities were located, and where he could take a break.  A manager responded that salespeople are always on break waiting for customers. 

Nick also questioned the compensation policy.  He thought he should earn a draw against commissions.  He also complained when he sold a vehicle anticipating at least a $1,000 commission, but received only $150. 

Nick complained again when a manager indicated the cost of a repair would be taken equally from all salespersons' paychecks since no one would fess up to the accident.  The company told Nick that they had many people to choose from if he didn't like his job. 

After receiving information from an Arizona governmental agency indicating that at least a draw at minimum wage must be provided to salespersons, Nick confronted management.  They told him he could work elsewhere if he wanted to work for minimum wage.  Then a meeting was held and the managers told Nick he was too negative and asked too many questions.  They told him he didn't need to work at Plaza if he didn't like it.  That tweaked Nick and he raised his voice calling the boss a "fucking mother fucking," a "fucking crook" and an "asshole."  He told the boss he was stupid, that no one liked him, and that everyone gossiped about him.  He then stood up, pushed his chair aside and told Plaza that it would regret it if it fired him.  So Plaza fired him. 

Nick challenged the termination under the National Labor Relations Act ("NLRA").  He claims that he was engaged in concerted activity and that Plaza's action in firing him constituted an unfair labor practice. 

The matter was heard by an ALJ.  He held that while Nick was engaged in concerted activity, his outburst, complete with obscenities and personal attacks, resulted in a loss of protection under the NLRA.  The National Labor Relations Board ("Board") concluded that Nick's conduct was not so severe that Nick lost protection under the NLRA.  The case was appealed to the Ninth Circuit Court of Appeals. 

The issue in the case was whether Nick's outburst was so bad -- opprobrious -- that Nick lost the protection otherwise afforded him under the NLRA to engage in concerted activities regarding workplace conditions.  The court referred to the test developed in Atlantic Steel Co., 245 N.L.R.B. 814 (1979) as a framework in analyzing this matter.  Under Atlantic Steel, courts look at four factors to determine if a worker loses the protection of the NLRA because his/her acts are indefensible or abusive.  The factors are:  (1) The place of the discussion; (2) the subject matter of the discussion; (3) the nature of the employee's outburst; and (4) whether the outburst was provoked by the employer's unfair labor practice. 

According to the court, the fact that the meeting with Nick was held behind closed doors, and did not disrupt operations, weighed in favor of protection.  Moreover, the court concluded that Nick's outburst could not be separated from his complaints regarding workplace conditions (i.e., rest periods, restroom facilities, calculation of commissions, etc.).  And Plaza engaged in unfair labor practices by threatening to fire Nick if he did not stop complaining.  Thus three of the four factors weighed in favor of protection in spite of Nick's outburst. 

The critical factor, however, was the nature of the outburst.  The Board implied that absent physical contact, or the threat of physical violence, an outburst does not result in the loss of protection.  The court disagreed with the Board's position, noting prior cases that hold offensie and personally denigrating remarks alone can result in the loss of protection, whether or not physical violence is present.  Moreover, the court noted that the Board had adopted the ALJ's findings of fact and credibility.  These findings included a conclusion that Nick's behavior was belligerent, menacing and physically aggressive. 

In the end, the court remanded the case to the Board to either adopt all of the ALJ's findings, or to explain why it is not adopted the findings. 

What do we learn from this?  First, an employer shouldn't be a jerk.  Respond to an employee's legitimate concerns about pay, restroom facilities and the ability to take breaks.  Second, think twice before disciplining an employee for an emotional outburst.  If physical violence or a threat of violence is part of the outburst, there appears to be no question that an employee will lose the protection of the NLRA.  However, if physical violence is not part of the outburst, the nature of the outburst must be carefully weighed against the other three factors of the Atlantic Steel case.  In this particular case, employers can see that the Board does not consider the language quoted above (4th paragraph) so opprobrious as to negate protection of the NLRA. 

In my opinion, had the employer acted responsibly in responding to Nick's valid concerns, the matter would not have escalated to a confrontation.  I am not excusing Nick's behavior.  Frankly, I feel that such behavior, even if part of a larger discussion about working conditions, should not be condoned or protected. 

However, at times employees can feel as though they have nowhere else to turn and lash out as their only perceived means of finding assistance.  Providing employees with a viable outlet to communicate will foster goodwill, a fair means of airing grievances, and also a postive method of resolving differences. 

Bottom line:  My advice is to avoid the claim, adopt good HR practices that avoid confrontations.  If it does happen, then given the context, the behavior would be more likely sufficient to lose the protection of the NLRA and discipline would be appropriate.