Labor Employment Law Blog

California Passes New Electronic Discovery Act Effective Immediately

updates@antitrustlawblog.com (Sheppard Mullin) — Wed, 01 Jul 2009 23:15:30 +0000

On June 29, 2009, Governor Schwarzenegger signed into law California's Electronic Discovery Act, which is effective immediately. All discovery propounded or responded to must now comply with the new law. These rules are very similar to the recent revisions to the Federal Rules of Civil Procedure, and bring California in line with the federal e-discovery standards.

]]> Under the new Act, the party requesting production of electronically stored information (ESI) may specify the format in which it should be produced (e.g., native format, or TIFF, with or without certain metadata, etc.). If no format is specified, the responding party must produce the ESI in either the same format as it is ordinarily kept (likely in native format or an archived/compressed format) or in a "reasonably usable" form. The responding party need only produce the ESI in one form. If a requesting party fails to specify the format of production in its request, and the responding party produces the ESI in a "reasonably usable format," the requesting party cannot then compel a different form of production.

A responding party can resist production of ESI on the grounds that it is not “reasonably accessible.” The factors for determining inaccessibility are undue burden and cost. If a responding party claims that ESI is inaccessible, though, it must still identify the types or categories of sources of ESI that it asserts are not reasonably accessible.

A responding party can resist production of ESI that it claims is not reasonably accessible by moving for a protective order or by opposing or objecting to the subpoena or request. The responding party has the burden of proving that the ESI is not reasonably accessible. Once that burden is met, the burden shifts to the requesting party to show good cause for production despite the fact that the ESI is not reasonably accessible.

If good cause is shown, the court may still order production with conditions, including cost-shifting. The factors that the courts may consider in determining good cause are similar to the federal criteria, including: the existence of more accessible sources; duplicative nature of the discovery sought; the cost of accessing the ESI versus the party’s need for the discovery; the importance of the issues involved; the amount in controversy; and the parties’ resources.

California Court of Appeal Rejects Anti-SLAPP Motion in a Retaliation and Wrongful Termination Case

updates@antitrustlawblog.com (Sheppard Mullin) — Wed, 01 Jul 2009 21:22:42 +0000

The anti-SLAPP statute (Strategic Lawsuit Against Public Participation), California Code of Civil Procedure section 425.16, is commonly used outside the employment litigation context to test the merits of a lawsuit at an early stage in the litigation. A recent case, McConnell v. Innovative Artists Talent and Literary Agency, Inc. illustrates the hesitation of courts to allow these motions in employment litigation.

]]> McConnell, issued by the California Court of Appeal in the Second Appellate District on June 25, 2009, concerns a dispute involving an employment contract between Innovative Talent and two of its Agents. The Agents, while still employed, filed a lawsuit seeking to have the Court declare that they had the right to terminate their employment agreements at will, and to enjoin Innovative from enforcing certain provisions of the agreements. In response to the lawsuit, Innovative immediately sent the Agents letters containing revised job descriptions that forbade the Agents from coming to the office, talking to its clients and employees, having any access to Innovative emails, files or its databases. The Agents promptly opened their own talent agency and amended their complaint to include causes of action for retaliation and wrongful termination.

Innovative responded to the Agents' two new causes of action by filing a special motion to strike using the anti-SLAPP statute. Innovative argued that the revised job description letters were protected speech under the statute because the letters were an integral part of its investigation and evaluation of the Agents' lawsuit. The McConnell Court disagreed and denied Innovative's motion for two primary reasons. First, the letters did not mention the lawsuit, Innovative's investigation, or specifically discuss any of the substantive claims at issue in the Agents' complaint. Second, the Agents' claims for retaliation and wrongful termination were not based on the letters, but based on Innovative's conduct – modifying the Agents' job duties.

McConnell reflects a growing trend to carefully scrutinize the contents of alleged protected speech in connection with anti-SLAPP motions. In light of McConnell, counsel for employers will want to consider carefully whether the statute protects the communication at issue before filing what may be a futile motion.

Carefully Drafted Vacation Plans Will Be Enforced

updates@antitrustlawblog.com (Sheppard Mullin) — Wed, 01 Jul 2009 00:36:50 +0000

On June 29, 2009, a California Court of Appeal enforced an employer's vacation plan as it was written rather than as the employee asked the Court to interpret it. Accordingly, the Court dismissed plaintiff's claims.

]]> In Owen v. Macy's, Inc., the Court confirmed that California law permits an employer to offer new employees no vacation time. If a written company policy forewarns new employees that their compensation package does not include paid vacation during their initial employment, then no vacation pay is earned and none is vested. When such a policy is in place, as it was in this case, employees cannot claim any right to vested vacation during their initial employment because they know in advance that they will not earn or vest vacation pay during this period.

The Court reiterated that the California Labor Code does not require that an employer provide its employees with any paid vacation at all, contractually or as matter of policy, as part of the employee compensation package. The Court rejected plaintiff's argument that the department store's initial six-month waiting period – during which an employee earns zero vacation credit – was unlawful.

The Court reasoned that the company's policy was analogous to an employer's written vacation policy that prevents an employee from earning additional vacation compensation when the employee has "maxed out" or reached the "cap" on unused vacation time – which have been held to be enforceable in California. At the same time, the Court reminded California employers that they are not allowed to deprive employees of accrued but unused vacation rights. In other words, California employers may not have "use it or lose it" vacation policies.

The lesson for employers is that they need to have carefully drafted vacation plans. If vacation policies are poorly drafted, employers can end up having to pay vacation pay on termination of employment when the Company never intended to do so. Prudent employers will work with their labor and employment counsel to ensure that their policies produce the desired results.

Form I-9 Remains Valid Beyond Current Expiration of 06/30/2009

updates@antitrustlawblog.com (Sheppard Mullin) — Wed, 01 Jul 2009 00:34:45 +0000

On June 26, 2009, the United States Citizenship and Immigration Services announced that the current Employment Eligibility Verification Form I-9 (Rev. 02/02/09) linked below will remain valid for usage beyond its current expiration date of 06/30/2009 by employers in verifying the employment eligibility of employees.

]]> Employment Eligibility Verification Form I-9

Employers Should Carefully Consider Whether To Sue Former Employees For Threatened Trade Secret Misappropriation Based On Recent California Court of Appeal Decision Awarding Over $1.6 Million To Former Employees

updates@antitrustlawblog.com (Sheppard Mullin) — Thu, 18 Jun 2009 19:39:10 +0000

A recent decision by a California Court of Appeal should give employers pause before they use California's trade secret laws to try to stifle competition in violation of California law.

In the case of FLIR Systems, Inc. v. Parrish, the Court of Appeal affirmed a decision by the trial court awarding $1,641,216.78 in attorneys’ fees and costs to two former employees who successfully defended a trade secret action brought by their former employer. The Court agreed with the trial court that the action was filed and maintained in bad faith within the meaning of the California Uniform Trade Secrets Act.

]]> In this case, two former employees of Indigo Systems Corporation ("Indigo") left Indigo and decided to start a new company based on a business plan developed by one of them years ago when he was self-employed. The former employees discussed their plans with Indigo. When Indigo's parent company, FLIR Systems, Inc. ("FLIR"), passed on the idea set about to find a new business partner, the former employees entered into negotiations with Raytheon Company ("Raytheon") after assuring Indigo and FLIR that they would not appropriate any of Indigo's trade secrets.

FLIR became concerned that the new company would undermine its market share and sued for injunctive relief and damages on the theory that the former employees would inevitably misappropriate trade secrets, arguing threatened misappropriation. Raytheon pulled out of the deal with the former employees and the former employees then advised FLIR and Indigo that they were not moving forward with the new company.

At the trial for a permanent injunction, the trial court found no misappropriation or threatened misappropriation of trade secrets. The trial court also found that the action was brought in bad faith based on a theory of "inevitable disclosure" – a theory previously rejected by the California Supreme Court because it conflicts with California's strong public policy in favor of employee mobility.

The Court of Appeal agreed with the trial court that FLIR and Indigo brought the action for injunctive relief to stifle competition because they were concerned that the proposed new company would have been a direct competitive threat. FLIR and Indigo had no evidence or even a reasonable suspicion that the former employees had misappropriated trade secrets or had threatened to do so, or that FLIR and Indigo had suffered any damages or were threatened with imminent harm. The Court of Appeal held that "Mere possession of trade secrets by a departing employee is not enough for an injunction."

This case provides employers with an important reminder of California's strong public policy in favor of employee mobility and the right to compete with a former employer. Employers cannot use the California Uniform Trade Secrets Act to do an end-run around California Business and Professions Code section 16600 by, for example, bringing a trade secret action against a former employee to prevent them from forming a competing business or joining a competitor unless there is evidence of threatened or actual misappropriation of trade secrets. Filing a trade secret action simply to preserve a competitive advantage in the marketplace is risky and could result in expensive sanctions. Employers should consult with counsel and carefully consider their motivation for filing any trade secret action and the evidence they have to support such a claim before the action is filed. A former employer's honest assessment of the strength of the case and motivation for litigating should continue throughout the litigation.

California Court Of Appeal Clarifies Rules Regarding Tips

updates@antitrustlawblog.com (Sheppard Mullin) — Thu, 04 Jun 2009 00:48:41 +0000

On June 2, 2009, the California Court of Appeal in San Diego issued a decision clarifying California's rules regarding tip-sharing among employees. In doing so, the Court of Appeal reversed the trial court which had awarded the plaintiff class $86 million in restitution.

]]> Jou Chau, a former Starbucks "barista," brought a class-action challenging Starbucks' policy permitting certain service employees, known as shift supervisors, to share in tips that customers place in a collective tip box. Chau alleged that the policy violated California Labor Code section 351 that reads in pertinent part:

"No employer or agent shall collect, take, or receive any gratuity or a part thereof that is paid, given to, or left for an employee by a patron . . . .Every gratuity is hereby declared to be the sole property of the employee or employees to whom it was paid, given, or left for."

Rejecting plaintiff's arguments, the Court concluded that an employer can require the equitable allocation of tips placed in a collective tip box for those employees providing service to the customer. The Court explained that there is no California law prohibiting an employer from allowing a service employee to keep a portion of the collective tip, in proportion to the amount of hours worked, merely because the employee also has limited supervisory duties.

The evidence at trial showed that Starbucks stores are staffed by several categories of employees: baristas, shift supervisors, assistant store managers, and store managers. Baristas are entry-level, part-time hourly employees responsible for customer service related tasks, such as working the cash register and making coffee drinks. Shift supervisors are also part-time hourly employees who perform all the duties of a barista, but are also responsible for some additional tasks, including supervising and coordinating employees within the store, opening and closing the store, and depositing money into the safe. Shift supervisors have no authority to hire or fire baristas, and have no authority to discipline a barista verbally or in writing or to issue unsatisfactory performance reviews. Shift supervisors are not considered part of "management," and are viewed by baristas as more experienced employees who essentially perform the same job as baristas. In contrast, store managers are full-time salaried employees who have the authority to recruit, hire, promote, transfer, schedule, discipline, and terminate baristas and shift supervisors.

The evidence at trial showed that each Starbucks customer is served by a customer service "team," rather than by an individual employee. The team consists of one or more baristas and one or more shift supervisors, who each rotate jobs throughout the day. These jobs include operating the cash register, making coffee drinks, serving pastries, clearing tables, cleaning bathrooms, washing dishes, and stocking product. Shift supervisors spend more than 90% of their time performing the same service tasks as do the baristas. Store managers and assistant store managers may assist in these duties, but they generally spend only a "very small amount of time" doing so.

Starbucks mandated that the only employees eligible to share in the weekly collective tips are "all baristas and shift supervisors who worked that week." Store managers and assistant managers are prohibited from receiving any portion of these tips.

Under Starbucks' policy, the tip boxes are used only for customers who want to pay a collective tip for the entire service team. If a customer wishes to give an individual tip to a barista or a shift supervisor, the employee is entitled to keep that tip, and is not required to place the tip in the collective tip box.

The Court concluded that even if shift supervisors could legally be considered "agents," Starbucks did not violate Section 351 by permitting shift supervisors to share in the tip proceeds that were left in a collective tip box for baristas and shift supervisors. The Court reasoned that because Section 351 does not prohibit a shift supervisor from keeping gratuities given to him or her for his or her customer services, there is no logical basis for concluding that Section 351 prohibits an employer from allowing the shift supervisor to retain his or her portion of a collective tip that was intended for the entire team of service employees, including the shift supervisor. In this situation, the shift supervisor keeps only his or her earned portion of the gratuity and does not "take" any portion of the tip intended for services by the barista or baristas.

While this decision provides some clarity regarding California's tip-allocation rules, employers should not read too much into this decision. If Starbucks had had a policy permitting its store managers to share proceeds from a collective tip box, the result presumably would have been different. This decision was based on the undisputed facts showing that the vast majority of the time shift supervisors and baristas performed the same jobs; these employees rotate jobs and work as a "team" throughout the day; customers intend that their tips placed in the collective tip boxes collectively reward all of these service employees; and Starbucks manner of dividing the collective tips among the service employees (based on the time worked by each employee) is fair and equitable. The Court's legal reasoning and conclusions would not be controlling in a different factual situation.

Recent Federal District Court Ruling Provides Insight Into How To Draft An Enforceable Intellectual Property Assignment Provision In An Employment Agreement

updates@antitrustlawblog.com (Sheppard Mullin) — Thu, 04 Jun 2009 00:36:30 +0000

A recent ruling by the U.S. District Court for the Northern District of California provides important insight for employers in how to properly draft intellectual property assignment provisions that comply with California law.

]]> In 2007, Plaintiff Applied Materials, Inc. ("Plaintiff") filed a lawsuit against Advanced Micro-Fabrication Equipment and its China and Asia subsidiaries (collectively "Defendants") alleging misappropriation of trade secrets and unfair business practices. Specifically, Plaintiff alleged that several of its former employees who had gone to work for Defendants had violated the intellectual property assignment clause ("Assignment Clause" or "Clause") contained within their employment agreements with Plaintiff ("Employment Agreements").The Assignment Clause stated:

In case any invention is described in a patent application or is disclosed to third parties by me within one (1) year after terminating my employment with APPLIED, it is to be presumed that the invention was conceived or made during the period of my employment for APPLIED, and the invention will be assigned to APPLIED as provided by the Agreement, provided it relates to my work with APPLIED or any of its subsidiaries.

Plaintiff alleged that inventions disclosed in several of Defendants' patent applications were conceived by Plaintiff's former employees within one year of the conclusion of their employment with Plaintiff. Accordingly, Plaintiff contended that the inventions belonged to Plaintiff pursuant to the Assignment Clause.

Defendants filed counterclaims seeking a declaratory judgment that the Employment Agreements were unenforceable non-compete agreements under California Business & Professions Code § 16600. Defendants contended that the Employment Agreements violated section 16600 by assigning "any invention" to Plaintiff even if the invention was the result of independent research, development, and investment of the employee personally or his/her new employer. Defendants argued that such an agreement placed an "economic penalty" on Plaintiff's employees for continuing to carry out work in their field.

Plaintiff countered that the Assignment Clause was an appropriate method of protecting its trade secrets because it did not make assignment of the invention mandatory but merely created a rebuttable presumption that inventions disclosed during the one-year time period were conceived while the employee worked for Plaintiff.

Relying on the plain language of the Assignment Clause, the District Court found that the assignment was mandatory and did not merely create a presumption that a former employee could rebut to retain ownership over the inventions. The Court found that the use of the word "presumed" in the Assignment Clause simply meant that the Plaintiff would presume inventions disclosed during the one year post-employment period were conceived during the period of employment and that based on this presumption, any such inventions would be assigned to Plaintiff. The Court emphasized the fact that the Clause did not state that an employee could rebut the presumption or state how an employee would do so. The Clause failed to mention any set of circumstances under which a former employee could retain ownership over an invention disclosed during the one year post-employment period.

Having found that the Assignment Clause contained mandatory language requiring the assignment of any invention disclosed within one year of leaving Plaintiff's employ, the Court addressed whether the Assignment Clause violated California prohibition on employee non-compete agreements. Assignment clauses function as unlawful non-compete provisions where they require an employee to assign an invention conceived after departing from an employer's service. However, such clauses are enforceable to the extent they "relate to ideas and concepts which were based upon secrets or confidential information of the employer…" Armorlite Lens Co. v. Campbell, 340 F. Supp. 273, 275 (S.D. Cal. 1972).

The Court ruled that the Assignment Clause at issue was an unlawful non-compete provision because the scope was not limited to inventions based on Plaintiff's confidential information. The Assignment Clause was overly broad with respect to subject matter and temporal scope: "Since the Court finds that the Assignment Clause touches post-employment inventions, regardless of when they were conceived or whether they were based on Applied's confidential information, the Clause necessarily operates as a restriction on employee mobility."

The Court's ruling is important for two reasons. First, it reiterates that in order to have an assignment provision within an employment agreement enforced under California law, it is imperative that the provision relate to ideas and concepts which are based upon secrets or confidential information of the employer. Employers should tailor the scope of the provision to specifically protect the employer's confidential information. Second, the Court's ruling suggests an alternative means of crafting an enforceable assignment provision that may greatly benefit employers. If the Plaintiff employer in this case had merely created a rebuttable presumption as opposed to a mandatory assignment, the assignment provision might not have violated section 16600. If the assignment clause makes it clear that an employee may rebut the presumption and provides facts and circumstances under which a former employee may retain ownership over an invention, a court is more likely to find the provision enforceable. This potentially benefits employers because it would shift the burden of proof to the former employee to rebut the presumption. Rather than having to prove that the former employee used confidential information, a court would presume that the former employee did so. It would be incumbent upon the former employee to prove otherwise. While the provision must still not be overly broad, a properly drafted rebuttable presumption provision increases the likelihood of enforceability.

AT&T Corp. v. Hulteen: Pregnancy Leave and The Last Days of Disco

updates@antitrustlawblog.com (Sheppard Mullin) — Wed, 20 May 2009 22:33:14 +0000

In 1978, Congress passed an amendment to Title VII making it illegal for an employer to discriminate against an employee on the basis of pregnancy, childbirth, or pregnancy-related conditions. The amendment, also known as the "Pregnancy Discrimination Act" ("PDA"), went into effect in 1979. This week, the United States Supreme Court held that it is not generally impermissible for an employer to apply a bona fide seniority system (a scheme having no discriminatory terms that allots additional rights and benefits to employees relative to their length of creditable employment) in effect prior to 1979 to pregnancy leaves taken prior to 1979—even if that seniority system would violate the PDA if enacted today.

]]> In AT&T Corp. v. Hulteen, four female employees brought an unlawful discrimination suit against AT&T challenging the company's application of a seniority system with an accrual calculation that treated pregnancy leave less favorably that other disability leave prior to 1979. All four plaintiffs took pregnancy leave between 1968 and 1976. While AT&T changed its accrual calculation in 1979 to comply with the PDA, it did not make retroactive adjustments to the plaintiffs' seniority accrual calculations. As a result, each plaintiff had between 63 and 261 less days of credit toward pension benefits than she would have if she had taken her pregnancy leave after 1979.

The Supreme Court found in favor of AT&T. In a 7 to 2 opinion, the Court held that "an employer does not necessarily violate the PDA when it pays pension benefits calculated in part under an accrual rule, applied only pre-PDA, that gave less retirement credit for pregnancy than for medical leave in general." The Court explained that seniority systems are afforded special treatment under the law. As long as there is no evidence that the pre-PDA system was enacted with an intent to discriminate pursuant to the law in place at the time, employers are permitted to give them current effect when calculating pension payments. In AT&T's case, the Court found no evidence of discriminatory intent.

While this case can be seen as a victory for employers, the holding was carefully tailored to the specific benefit policy at issue. Thus, employers should still consult with legal counsel when giving current effect to pre-PDA policies that differentiate pregnancy leave from other types of disability leave.

Dress and Grooming Policies in the Workplace

updates@antitrustlawblog.com (Sheppard Mullin) — Fri, 15 May 2009 21:28:54 +0000

In an effort to satisfy customers and maintain a desired company image, many employers have dress and grooming policies. As a general rule, employers are legally allowed to establish reasonable dress and grooming requirements that serve legitimate business interests. However, two recent cases remind employers that there are limits on what grooming standards employers can impose on employees.

]]> In Xodus v. Wackenhut Corp., 106 FEP Cases 278 (N.D. Ill 2009), the court held that the plaintiff had stated a colorable case of religious discrimination with his claim that the company discriminated against him when it denied him a security guard position because he would not cut his dreadlocks to comply with the company's grooming policy. Plaintiff was a Rastafarian/Hebrew Israelite. Both parties agreed that the plaintiff did not specifically identify his religion during the interview, only that he refused to cut his hair because of his "beliefs." The court explained that a claimant is not required to identify a particular religion in order to prove religious discrimination. The Southern District of New York also reached a similar conclusion in allowing a plaintiff's race discrimination claim to go forward in Burchette v. Abercrombie & Fitch Stores, 106 FEP Cases 266 (S.D.N.Y. 2009). In Burchette, the plaintiff, an African-American female, alleged that she was ordered to remove blonde highlights in her hair and was told she could only have a dark or "natural" hair color --- while Caucasian employees were allowed to have a variety of hair colors and styles.

In order to avoid discrimination claims of various kinds, prudent employers will review each case on its facts and ensure that their supervisors are correctly applying the policy and will make exceptions in appropriate cases. Furthermore, in the event a dress or grooming policy differentiates between male and female employees, employers need to make sure that the policy does not disproportionately impact one group more than the other.

California Court of Appeal Rejects Anti-SLAPP Motion in Trade Secrets/B&P Section 16600 Case

updates@antitrustlawblog.com (Sheppard Mullin) — Thu, 07 May 2009 16:57:34 +0000

In World Financial Group, Inc. v. HBW Insurance & Financial Services, Inc. the California Court of Appeal for the Second Appellate District rejected an Anti-SLAPP motion to strike in a breach of contract, theft of trade secrets, and unfair competition case. The defendants moved to strike the complaint under California's Anti-SLAPP statute, claiming that their activities in soliciting the customers and employees of their previous employer were protected speech involving a "matter of public interest," namely their pursuit of employment under the public policies expressed in California Business and Professions Code section 16600 (California's prohibition against restraint of trade). The court upheld the trial court's denial of the motion, finding that solicitation of customers in a business context was not protected activity for the purposes of the anti-SLAPP statute.

]]> By way of background, a group of four employees left World Financial Group ("WFG") -- an insurance, pension, and financial services company -- for one of its direct competitors, HBW Insurance and Financial Services. During their employment with WFG, each employee signed an "Associate Membership Agreement" that included a provision prohibiting the employee, for a period of two years after termination, from soliciting customers of WFG, or soliciting or hiring employees of WFG. It also prohibited them from disseminating or disclosing any confidential information or trade secrets of WFG in perpetuity. When the employees began soliciting WFG clients for HBW, WFG sued, alleging breach of contract, breach of implied covenant, conversion, theft of trade secrets, unfair competition, intentional and negligent interference with prospective business advantage, and unjust enrichment.

In response, HBW and the employees employed an increasingly popular strategy. They moved to strike under California Code of Civil Procedure section 425.16, the anti-SLAPP statute. They argued that the conduct giving rise to WFG's claims (the use of information in solicitation of customers) was "protected activity" or protected speech for the purpose of anti-SLAPP. They tied this activity to "the pursuit of lawful employment pursuant to Business and Professions Code section 16600" and "workforce mobility and free competition," which are matters of public interest and are protected by public policy.

The court summarily rejected this argument. To begin with, the court stated that "the fact that a broad and amorphous public interest can be connected to a specific dispute is not sufficient to meet the statutory requirements of the anti-SLAPP statute." The court noted that the conduct and speech in question was entirely in a business context and was done in the pursuit of private financial gain. The speech in question was "incidental" to the business torts on which the action was premised. The court noted that it was not as if the defendants were speaking about 16600, or informing the public about employee mobility. They were instead soliciting business for their new employer. In short, the solicitation of customers was not a matter of public interest, despite the fact that it was connected by a "broad generality" to the policies expressed by Section 16600.

The Second District's complete rejection of an anti-SLAPP motion based on Section 16600 calls into question the strategy of employing this type of motion in employee raiding, trade secrets, and confidential information cases. In essence, defendants can expect to lose unless they can show that the speech in question directly addressed or informed the public about a matter of public interest. Private speech, or speech in pursuit of business or commercial goals, will not suffice, nor will tying the speech to a generalized matter of public interest.

Some Employers are Seeking Alternatives to LayoffsApril 27, 2009, The National Law Journal

updates@antitrustlawblog.com (Sheppard Mullin) — Mon, 04 May 2009 22:13:48 +0000

As employers struggle in the most challenging economic climate the United States has seen since the Great Depression, they face difficult cost-cutting decisions on a daily basis in an effort to survive. Most common among those decisions is whether an employer should reduce its work force to minimize costs. It seems as if not a day goes by without employers from various business sectors deciding to reduce their work force by tens, hundreds or even thousands of employees in order to avoid having to close their doors forever.

]]> While a work force reduction certainly is an alternative for many employers, it is an unpleasant option that takes an economic and emotional toll both on employers and employees. Work force reductions often require an employer to provide employees with notice periods required by statute, contract or business needs. In addition, employers are often required to expend a significant amount of money in severance payments to employees who are included in the work force reduction. An employer may be forced to spend considerable amounts in legal fees to make sure that the work force reduction is conducted in accordance with applicable employment laws. Furthermore, work force reductions can significantly damage employee morale as employees see trusted co-workers and friends lose their jobs and begin to worry about the security of their own positions with the company.

Employers should understand that, even in this economic climate, there are alternatives to work force reductions. Many of these options allow employers to accomplish some or all of their economic goals without taking a measure as extreme as reducing their work force.

Click here to read the article.

H1N1 Virus Protections

updates@antitrustlawblog.com (Sheppard Mullin) — Fri, 01 May 2009 21:18:30 +0000

The Swine Flu virus has obviously been in the news. If your Company has not already done so, it may wish to provide the attached information to all employees.

Click here for more information.

California Court Of Appeal Finds Arbitration Clause Enforceable

updates@antitrustlawblog.com (Sheppard Mullin) — Thu, 16 Apr 2009 21:42:21 +0000

In Roman v. Superior Court, Case No. B209855, Gabriela Roman, a former employee in Flo-Kem's accounts receivable department, brought suit against Flo-Kem for alleged violations of the Fair Employment and Housing Act, including disability discrimination, as well as a claim for wrongful termination in violation of public policy. Before beginning her employment, Roman had signed a short arbitration agreement that was attached to the last page of her employment application. This arbitration agreement was a single paragraph clause which stated in pertinent part that "I agree, in the event I am hired by the company, that all disputes and claims that might arise out of my employment with the company will be submitted to binding arbitration." The clause also incorporated the rules of the American Arbitration Association ("AAA") in effect at the time. Further, the arbitration clause was the last paragraph of the seven-page employment application and clearly marked with a separate heading. Roman had initialed next to the clause, signifying that she had read it, in addition to signing the application.

]]> Litigation commenced and Flo-Kem responded to Roman's Complaint and served written discovery. It then responded to Roman's written discovery with objections and moved to compel responses to the discovery it had served, as well as taking Roman's deposition. Approximately two months after Roman filed her Complaint, Flo-Kem moved to compel arbitration based on the clause in Roman's employment application. The trial court granted Flo-Kem's motion.

On appeal, Roman argued that the arbitration clause was unenforceable. She claimed that the arbitration clause was part of the "take it or leave it" conditions of the employment application. While the Court acknowledged that many employees are without other employment options, it noted that the arbitration clause had been clearly marked and was not hidden in any way.

The Court also found that the "I agree" language of the arbitration clause did not mean that the agreement only applied to Roman. In stating that "all disputes and claims" were covered, the arbitration clause applied to both parties. Reading the arbitration clause as a whole indicated its intent to be binding on Roman and Flo-Kem.

Roman also contended that the arbitration clause was unenforceable because it did not meet the minimum arbitration safeguards set forth in Armendariz v. Foundation Health Psychare Services, Inc. (2000) 24 Cal.4th 83. Roman claimed that the arbitration clause violated Armendariz by (1) limiting her discovery, (2) abridging her right to seek relief from the Department of Fair Employment and Housing, and (3) forcing her to split the arbitration costs with Flo-Kem. Her first argument was that the arbitration clause limited her right to discovery because it allowed the arbitrator to determine what discovery was sufficient for arbitration. However, the Court pointed out that arbitration does not need to provide for all discovery available in a civil court and that Armendariz approved of arbitrator determined discovery. In addition, Roman claimed that because the arbitration clause covered all disputes, it precluded her legal right to file an administrative claim with the Department of Fair Employment and Housing. The Court ruled that it interpreted the arbitration clause as having no such restriction.

Finally, Armendariz requires the employer to pay for the costs of arbitration. Armendariz, 24 Cal.4th at 110-111. Here, the arbitration clause incorporated the 1997 rules of the AAA, which stated that the employee and employer would split arbitration costs. The Court decided to sever this portion of the arbitration clause, so as to leave the agreement enforceable and further the public policy promoting arbitration.

The Court also found that while Flo-Kem had responded to Roman's Complaint and conducted some discovery, that it had not waived its right to seek arbitration. The Court listed six factors in determining whether the right to seek arbitration was waived: (1) whether a party's actions were inconsistent with the right to arbitrate, (2) whether the parties were substantially involved in the preparation of the lawsuit, (3) whether a party delayed in seeking arbitration, (4) whether the party seeking arbitration had filed a counterclaim without asking to stay the court proceedings, (5) whether important intervening steps not available in arbitration had taken place, and (6) whether the delay in seeking arbitration affected, misled, or prejudiced the opposing party.

Flo-Kem's discovery responses had consisted only of objections rather than substantive answers. No formal hearings had taken place. Thus, the Court ruled that even though some initial litigation had taken place, Roman would not be prejudiced by arbitration. The mere fact that a party participated in litigation and the party opposing arbitration incurred expenses and costs was not enough to waive one's right to arbitration.

This case is instructive in showing employers that the phrase "I agree" alone does not make an arbitration agreement unenforceable. Also, participating in litigation does not automatically waive an employer's right to seek arbitration. However, it is advisable for an employer seeking arbitration to do so early to avoid waiving this right.

California Court Of Appeal Finds Class Action Waiver To Be Unconscionable

updates@antitrustlawblog.com (Sheppard Mullin) — Tue, 24 Mar 2009 18:52:31 +0000

On March 10, 2009, the California Second District Court of Appeal in Franco v. Athens Disposal Company, Inc., B203317 held that an arbitration agreement with class action waiver and Private Attorneys General Act (PAGA) waiver is unenforceable.

]]> Following the termination of his employment, the plaintiff, a former garbage truck driver for Athens Disposal Company, filed a class action complaint against Athens alleging denial of meal and rest periods, overtime, and violation of the California Labor Code and Business and Professions Code. Plaintiff also sought civil penalties under the PAGA, which provides an aggrieved employee the right to recover civil penalties "on behalf of himself ... and other current or former employees." In response, Athens filed a motion to dismiss and a petition to compel arbitration pursuant to an arbitration agreement signed by the plaintiff. The arbitration agreement contained a provision waiving class arbitrations and also precluded an employee from acting in “a private attorney general capacity,” which would bar plaintiff’s enforcement of the Labor Code on behalf of other employees.

The California Court of Appeal concluded that the class action arbitration wavier was unconscionable. After explaining that the California Supreme Court's decision in Gentry v. Superior Court applied not only to the overtime claims, but to meal and rest period claims (because of an employee’s “unwaivable statutory right” to meal and rest periods), the Court found that the preclusion of the ability to proceed as a class would cause individuals to have difficulty obtaining counsel because potential damages would be modest, would increase the potential for retaliation against employees that proceeded individually, and employees might be unaware of their legal rights under California's Labor Code. The Court also found that a class action would serve to enforce important statutory policies and prevent further Labor Code violations.

The Court further held that the arbitration clause was unconscionable because it sought to prevent plaintiff from serving as a private attorney general, in conflict with PAGA. The Court explained that an action under PAGA is inherently a law enforcement action designed to protect the public and penalize the employer for past illegal conduct. Because Athens sought to nullify PAGA and preclude the employee from seeking civil penalties on behalf of other current and former employees, the agreement impeded Gentry’s goal of “comprehensive[ly] enforc[ing]” a statutory scheme through the imposition of “statutory sanctions” and “fines,” and thus the prohibition of PAGA was unconscionable. The Court noted that the class action waiver in the arbitration agreement by itself was unenforceable, which may have been severed from the arbitration agreement. However, when coupled with the employee’s waiver of action as a private attorney general, the entire agreement was unenforceable.

This case is one of several recent California cases in which the court has refused to enforce an arbitration agreement that precluded class arbitration. On March 17, the Second District again refused to enforce an employment arbitration agreement that required individual rather than class arbitration. See Sanchez v. Western Pizza Enters., Inc., Case No. B203961. In light of Franco, Sanchez (and Gentry), California employers with arbitration agreements should carefully examine those agreements and speak with an attorney regarding whether modifications to their arbitration agreements are warranted.

Employee Free Choice Act of 2009: A Radical Departure From Fundamental Labor Policy

updates@antitrustlawblog.com (Sheppard Mullin) — Thu, 12 Mar 2009 00:27:28 +0000

The Employee Free Choice Act of 2009 (H.R. 1409) was introduced in the United States House of Representatives on March 10, 2009. If passed by the Congress and signed into law by the President, the Employee Free Choice Act of 2009 will impact employers in three significant ways.

]]> First, where an employer opposes unionization, the Act eliminates the current requirement that a majority of employees must vote in favor of unionization, by private ballot in an organizing election, prior to the union being certified by the National Labor Relations Board (NLRB). Under the Act, “If the Board finds that a majority of the employees…has signed valid authorizations…the Board shall not direct an election but shall certify the individual or labor organization.” Under this provision, employers lose vital procedural safeguards designed to ensure that employees’ voices are heard through a private ballot free of intimidation and coercion.

Second, the Act requires companies and newly certified unions to enter into binding arbitration if they cannot reach agreement on an initial contract after 90 days of negotiations and 30 days of mediation. “The arbitration panel shall render a decision settling the dispute and such decision shall be binding upon the parties for a period of 2 years.” The decision cannot be appealed by either party.

Third, the Act dramatically increases the penalties employers face if found liable of discriminating against an employee in violation of the National Labor Relations Act (NLRA) . The NLRA currently provides that employees who are terminated for organizing activities are entitled to backpay and reinstatement. Employers who engage in other unlawful activities are subject to orders to cease such activities. If the unlawful conduct is egregious enough, an employer may be subject to a bargaining order – which means the employer is required to recognize and bargain with the union, even though the employer may have won the election. The Act would amend Sections 10 and 12 of the NLRA to provide penalties as follows: (1) if an employer is found to have discriminated against an employee for union organizing or other union-related activity before an initial collective bargaining agreement is signed, the employee is entitled to treble damages, in other words, the amount of backpay times three; and (2) Also, employers would be subject to civil penalties in an amount up to $20,000.00 for each unfair labor practice that the employer “willfully or repeatedly” committed during union organizing or other union-related activity. Unions, however, would not be subject to the penalty increase.

Employers must begin to prepare now for the EFCA’s potential passage and the effect that the Act will have on the workplace. The EFCA will dramatically shift the balance of power to unions in whatever form it ultimately takes. Sheppard Mullin conducts educational seminars for its clients on an ongoing basis. The EFCA has been and will continue to be discussed at upcoming seminars. We urge all to attend. Sheppard Mullin has also organized a rapid response team across California and in New York and Washington D.C. to respond immediately to questions and concerns about the EFCA and its effects. All members of the team are experienced labor lawyers with decades of cumulative experience with union organizing, negotiations and the NLRB.