New statutes and decisions impact L&E mediations

Labor and employment practitioners are likely aware of numerous statutory changes and appellate level decision impacting this area of law. Several well-thought-out analyses of these changes and additions are available in various publications, newsletters, etc. However, I would suggest that several of these issues will directly or indirectly impact the mediation process, and that impact should be considered by attorneys.

Thus, the purpose of this article is not to concentrate on the meaning of new statues and significant wage and hour decisions made in 2019. Rather, it is to flag those issues which I believe should be considered as part of the mediation process. Practitioners are well advised to carefully review these changes in preparation for mediating a case.

Employee vs. Independent Contractor

The significant narrowing of an employer's ability to categorize people as independent contractors was first addressed in the "ABC test" set forth in Dynamex Operations West, Inc. v. Superior Court, 4 Cal. 5th 903 (2019). In response to that case, the Legislature enacted Assembly Bill 5 which, while codifying the use of the ABC test also contained limitations to the decision. By example, subsection (b) contains a list of occupations not impacted by Dynamex, thus rendering them subject to the more established Borello test. There are seven exceptions specifically listed in this subsection.

Subsection (c) contains exceptions for certain "professional services" provided by an individual under specific guidelines. There are eleven categories of professional services listed, as well as detailed evidentiary guidelines that must be met for the employer to be able to claim the applicability of the more lenient Borello test. The following subsections (d) and (e) contain other exemptions which may be applicable to your case.

Finally, keep in mind that AB 5 is being challenged in the courts by trucking companies and other business groups, and there may be movement in the Legislature to make changes. It is best to be up to date on these challenges.

No Rehire Provisions

In almost every wage and hour litigation I mediate whether an individual claim or a class action/PAGA claim, the employer seeks to include a "no rehire" term in the memorandum of understanding. AB 749 now prohibits including such a provision in a settlement document related to any pending claim which has been file with any administrative agency, in court, as part of an alternative dispute resolution process, or even through the employer's own grievance procedure.

There are exceptions, however, that the practitioner should be aware of prior to mediation. For example, if an employer has made a good faith determination that an employee has engaged in sexual harassment or assault, such a provision may be appropriate. In addition, the prohibition only applies to "no hire" provisions between employers and what are described as "aggrieved employees." Aggrieved employees are individuals who have brought actions in court, by way of administrative agencies, in the context of an alternative dispute process, or as part of an employer's internal dispute process. "No hire" provisions included as part of a non-dispute severance agreement are still permitted.

So, know your facts and be familiar with the new law. Doing so will enable the attorneys involved in a dispute to better draft/negotiate a memorandum of understanding on behalf of your client.

Delaying Arbitration

Senate Bill 707 addresses what the Legislature considers to be a growing problem with employers delaying arbitration proceeding, often by not paying the administrative entity (such as AAA or JAMS) the required case management fee in a timely manner. When this happens, the administrative entity can close its file, leading to substantial delays in what is supposed to be a speedy claim resolution procedure.

Under the new law, if an employer does not pay the required fees within 30 days of the demand for arbitration, the employer will be deemed to be in material breach of the arbitration agreement. At that point, the employer can no longer compel arbitration, and a number of remedies revert to the employee, including proceeding with the matter in court.

While this new law may not appear on its face to impact mediation, it certainly does. Employers should be hesitant to hold off commencing the arbitration process until mediation is complete. Rather, in light of the accelerated nature of arbitration, commence that process and then, if appropriate, schedule your mediation as early as possible -- subject to any necessary informal discovery required to make the mediation meaningful.

No PAGA Action for Wages Under Labor Code Section 558

Z.B. NA v. Superior Courty, 8 Cal. 5th 175 (2019), addressed the persistent question of whether both a civil penalty and unpaid wages can be recovered in a PAGA action. The decision by the California Supreme Court was a firm "no." The unpaid wages could be sought in a civil action under Labor Code Section 1194, or in an administrative action. But PAGA is not a vehicle to recover these unpaid wages.

Many attorneys whose cases I mediate are clearly aware of this clarification by the Supreme Court, and they adjust their positions at mediation accordingly. Both sides must consider the operative pleadings (i.e., is there a civil action also being pursued) in order to determine their respective positions. And, it should be remembered that the penalties under PAGA remain available to the plaintiff.

Who Is the Employer?

Frequently in mediation I see actions in which plaintiffs are seeking to hold franchisors or payroll companies liable for the alleged Labor Code violations of their franchisees or customers, respectively. Two recent cases have dealt directly with those questions.

In Goonewardene v. A.D.P., LLP, 6 Cal. 5th 817 (2019), the California Supreme Court held that a payroll company could not be held liable for the negligence or breach of contract of one of its clients. The interesting aspect of this decision is that it addressed a breach of contract and did not deal with Labor Code violations that might arguably be the result of errors by the payroll company, such as the miscalculation of overtime rates, or requirements for payroll check stubs. Counsel whose case in mediation involve such issues should be prepared to present their respective arguments in light of this case.

In Salazar v. McDonald's Corp., 939 F.3d 1051 (9th. Cir. 2019), the 9th U.S. Circuit Court of Appeals held that a franchisor could not be held liable for the Labor Code related violations of its franchisee. While McDonald's imposed quality control standards on its franchisee, it did not control the day to day activities of the allegedly aggrieved employees. This case is certainly "factually-driven," and the relevant facts should be construed before a decision to mediate is made. Having the wrong party at mediation, even if that party has very deep pockets, usually does nothing but delay and hinder the mediation process.

Lawyers Beware

It is certainly common for an attorney for one or more of the parties to sign a memorandum of understanding at mediation as "approved as to form and content." That practice will likely fade away in light of Monster Energy Co. v. Schecter, 7 Cal. 5th 781 (2019). In that case, the California Supreme Court held that an attorney who "approved as to form and content" may well be bound by the settlement's confidentiality terms.

The statutes and cases discussed in this article are not all-encompassing. Attorneys are well reminded that they should actively prepare for mediation. Analysis of all relevant law is critical to presenting your position with strength, and not wasting time on matters that will get in the way of resolving your case for the benefit of your client. 