2018 in labor law is a tale of two court systems

A year of major worker-friendly rulings in California courts and pro-employer ones from the federal bench are the latest chapter in the story of an ever-growing legal gap between the two bodies of law, attorneys on both sides say.

"I've been seeing this trend not only in litigation and judicial decisions, but also in legislative activity. We have a dichotomy between the federal system and California. A lot of decisions have been pro-employer at the federal level, but California is a different story," said Benjamin Ebbink of Fisher & Phillips LLP.

Ebbink specifically mentioned the U.S. Supreme Court's upholding of class action waivers in Epic Systems Corp v. Lewis, which strengthened the Federal Arbitration Act. The conservative-majority high court is also poised to further gird arbitration, a key class-action defense tool for companies, when it rules on other cases argued in October.

"It's very much a tale of two jurisdictions, in the sense that almost every development out of the federal government is positive for employers," said Jack Schaedel of Scali Rasmussen. "The confirmation of [Justice Brett Kavanaugh] solidifies a 5-4 majority that will likely rule in their favor in about every case that reaches the Supreme Court."

On the flip side, Ebbink mentioned key rulings in the California Supreme Court. In Dynamex Operations West, Inc. v. Superior Court, the state high court instituted a worker-presumptive test for independent contractors which has been called nearly impossible to satisfy.

In another, Troester v. Starbucks Corp., the court decided that the federal "de minimis" defense for not compensating small pieces of time did not apply to a store manager who clocked out before locking up the store as required by company policy.

"I don't see the California Supreme Court's decisions being 'progressive' so much as being practical," said Kevin F. Ruf of Glancy Prongay & Murray LLP, who gave the real parties' arguments in Dynamex.

In the area of independent contractors, the Dynamex decision lays out a much simpler and more definitive test than the traditional Borello standards -- where "none of the factors is dispositive but all are to be considered," Ruf noted. "The ABC test gives businesses a clear road map to determine if they can legally hire independent contractors in a given context. Troester informs businesses that they should categorically pay their employees for all work time, and should not look for discounts for so-called de minimis tasks."

Rex Heinke of Akin Gump Strauss Hauer & Feld LLP

The de minimis doctrine appears in the federal Fair Labor Standards Act, but appears to conflict with the California Labor Code's mandate to compensate "all hours worked."

One California-level challenge, said Rex S. Heinke of Akin Gump Strauss Hauer & Feld LLP, is extant Industrial Welfare Commission rules. The agency was established in 1913 and defunded by the state Legislature in 2004. Its 18 wage orders regulating the workplace remain in effect, enforced by the California Department of Industrial Relations.

"I think one of the difficulties in California is that the [commission] is gone, but it left behind all these rules, and there's no government agency around to consider changing those rules in light of changes in the economy," he said. "What it left you with was a lot of rules which are unclear and ambiguous, and if it was around, people could petition for clarification."

According to Heinke, who represented Starbucks in Troester, the courts filled that interpretation vacuum.

"The California Supreme Court has made it clear that if the law is ambiguous, it should be interpreted in favor of the employee. Employers have to take that reality into consideration," he added.

In one such case, the court enforced a section of Wage Order 7 that requires seating for employees when the job allowed it, such as for cashiers in Kilby v. CVS Pharmacy, Inc. In its wake, Wal-Mart and Rite Aid reached settlements for $65 million and $18 million respectively, along with instituting pilot programs for cashiers to sit.

The Private Attorneys General Act, which allows plaintiffs to seek class relief in the interest of labor enforcement, has seen an expanded role in the past year according to attorneys. In light of the federal courts' upholding of arbitration, the California law is the best way to pursue class relief when an arbitration agreement is present in employment contracts.

"I would say that in 2018, there is a continuing emphasis on PAGA," said Glenn Danas of Robins Kaplan LLP, pointing to the seating settlements as well as one against Uber.

He also noted the California Supreme Court's decision to take on two cases that could expand PAGA's powers. "This year shows how significant PAGA's continued role is going to be," Danas said.

Another prominent U.S. Supreme Court case demonstrates how California has moved in lockstep opposition to the federal government. In Janus v. AFSCME, the court overturned the legality of union fees charged to nonmembers in the public sector. The state Legislature, following a deluge of lawsuits against unions seeking to recoup the fees retroactively, introduced a law to protect unions from retroactive collections.

"Big picture, this is an intensification of something that's already been in motion for some time, which is the continued pulling away as the federal courts interpret the federal law in a more pro-employer way. The California Legislature has continuously reacted to that, which means that is ever more the case that from a legal standpoint, California is another country," said Gina M. Roccanova of Meyers Nave Riback Silver & Wilson PLC.

"Janus is a great example. You have the U.S. Supreme Court strike down agency fees, and the Legislature is ready with a new statute that basically protects union membership," she said.

With President Donald J. Trump and a divided Congress in Washington, and Governor-elect Gavin Newsom armed with a Democratic supermajority in the state Legislature, attorneys expect the trend to continue. Worker advocacy groups that sponsored bills Gov. Jerry Brown vetoed have already signaled an intent to reintroduce them under the new leadership.

"The entire federal apparatus is much more accommodative of employers and less seeing itself as protecting employees against employers; that's definitely the way California sees itself," said Schaedel.

Schaedel, Ebbink, and Heinke all observed that the divergence presents challenges for employers in California, all of whom need to stay vigilant about the changing landscape and the legal gaps to stay compliant and minimize exposure.

"You have to take anything positive at the federal level with a grain of salt because the courts and Legislature here are going in a different direction," Ebbink said. "The things you see at the federal level ... you sort of see an equal and opposite reaction here."