Employment Law - December 2016

by Manatt, Phelps & Phillips, LLP
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Manatt, Phelps & Phillips, LLP

In This Issue:
  • Voters Embrace Minimum Wage Increases, Legalized Marijuana
  • In Third-Largest Award, SEC Gives $20M to Whistleblower
  • Iskanian Blocks Arbitration Of PAGA Claims, California Appellate Panel Affirms
  • NLRB Finds Handbook Rules Violate NLRA
  • No ADA Violation for Employee Who Wasn't a "Qualified Individual"

Voters Embrace Minimum Wage Increases, Legalized Marijuana

Why it matters

While employers wait to see the impact of Donald Trump's forthcoming presidency, voters made their feelings clear on two employment-related issues: minimum wage and marijuana. Four states that considered a rate hike for minimum wage workers approved the increase, with Arizona, Colorado, and Maine all set for a jump up to $12 per hour by 2020 and Washington reaching even higher to $13.50. Each of the measures passed by a comfortable margin and two of the states—Arizona and Washington—included paid sick leave in their new laws. As for marijuana use, voters in eight states approved the legal use of the drug, with California, Maine, Massachusetts, and Nevada permitting the recreational use of marijuana by adults and Arkansas, Florida, Montana, and North Dakota signing on to medical marijuana. Employers in the states remain free to enforce drug- and alcohol-free workplace policies, however, as none of the measures required accommodations for use (medical or otherwise) in the workplace.

Detailed discussion

As the impact of the 2016 election continues to reverberate, one thing is certain: voters nationwide overwhelmingly approved of increases to the minimum wage and the legal use of marijuana.

Of the five states that considered a bump in hourly payments for minimum wage workers, four passed the measures by comfortable margins, with two of the states also adopting paid sick leave. The only state to reject an increase in hourly payments was South Dakota, where the change was limited to workers under the age of 18.

In Arizona, Proposition 206 passed by almost 60 percent to raise the minimum wage from the current rate of $8.05 per hour to $12 in 2020. The increase will occur in stages, moving to $10 in 2017, $10.50 in 2018, and $11 in 2019 before hitting $12 on January 1, 2020. Beginning January 1, 2021, the minimum wage in the state will be based on increases in the cost of living.

The ballot measure also included a provision establishing paid sick leave in Arizona, with workers eligible to earn one hour of paid sick time for every 30 hours worked. Those employees who work for an employer with 15 or more employees can accrue or use up to 40 hours per year, while those who are employed by an entity with fewer than 15 workers are limited to accrual or use of 24 hours of paid sick leave per year.

Paid sick leave will take effect in Arizona on July 1, 2017.

Colorado voters approved Amendment 70 and will be adjusting the state's hourly wage from $8.31 to $9.30, $10.20, $11.10, and $12 on the first day of the year beginning January 1, 2017 and ending January 1, 2020. After 2020 the minimum wage will be based on the Consumer Price Index for the state. Similarly, Citizen Initiative Question 4 in Maine will increase the current rate of $7.50 per hour to $12 as of January 1, 2020, with steps of $9, $10, and $11 along the way, followed by cost of living increases each year after that.

In Washington, Initiative 1433 will raise the current rate of $9.47 to $11 beginning January 1, 2017, followed by increases each year to $11.50, $12, and finally $13.50 on January 1, 2020. Each September after that the state's Department of Labor and Industries will calculate the minimum wage for the following year based on inflation. Tips, gratuities, and service charges are not included in the calculation of an employee's hourly wage, pursuant to the new law, instead considered additional wages.

Initiative 1433 also provides paid sick leave for employees in the state. Beginning January 1, 2018, workers will accrue 1 hour of paid sick leave for every 40 hours worked, with no cap on the number of hours that can be accrued in one year. Employees can use the leave for their own illness, injury, or health condition, as well as to care for a family member or when the place of business or a child's school is closed for a health-related reason.

Paid sick leave can be used starting on the 90th calendar day of employment, but employers are not required to pay employees for any accrued and unused paid sick leave upon the separation of employment.

On the marijuana front, eight states legalized some form of use of the drug—still illegal under federal law—whether medical or recreational. Californians are now able to possess and grow marijuana with the passage of Proposition 64, with state-licensed businesses set to sell recreational amounts of the drug. In Nevada, Question 2 was approved by voters to permit those aged 21 and older to possess up to 1 ounce of cannabis or 1/8 of an ounce of cannabis concentrate. Smoking or consuming marijuana in public remains a crime in the state, however.

Massachusetts voters agreed with a ballot measure legalizing the growth, use, and possession of marijuana for those aged 21 and older. Individuals may possess up to 10 ounces of marijuana at home and 1 ounce in public pursuant to Question 4. The state's northern neighbor, Maine, also signed off on recreational use of the drug with Question 1, under which individuals may possess, transport, and use up to 2.5 ounces of marijuana and grow, cultivate, process, or transport up to six marijuana plants.

Medical marijuana use was also approved by voters in Arkansas (where the new law has already taken effect), Florida (set to take effect January 3, 2017), Montana (where medical marijuana was legal but the new measure lifted restrictions on dispensaries), and North Dakota (a measure approved by almost 64 percent of voters).

Just one state voted down a marijuana-related ballot measure. For the second time, Arizona disapproved of a law that would have legalized the recreational use of marijuana for adults (allowing 1 ounce of marijuana and the growth of up to six marijuana plants) by a close vote, with 52 percent of voters against the measure and 48 percent in favor.

Despite the continued expansion of legalized marijuana, little should change for employers. Several of the new laws—including in California, Massachusetts, and Nevada—expressly provide that employers may continue to enforce drug- and alcohol-free workplace policies.

To read Proposition 206, click here.

To read Proposed Initiative 101, click here.

To read Citizen Initiative Question 4, click here.

To read Initiative 1433, click here.

In Third-Largest Award, SEC Gives $20M to Whistleblower

Why it matters

The Securities and Exchange Commission (SEC) awarded its third-highest whistleblower award last month, providing $20 million to a whistleblower "who promptly came forward with valuable information that enabled the SEC to move quickly and initiate an enforcement action against wrongdoers before they could squander the money." The agency used the sizable award to encourage other whistleblowers to come forward and report potential securities law violations. Since the creation of the SEC's whistleblower program in 2012, the agency has handed out more than $130 million, including a record-setting award of $30 million in September 2014 and the second-highest amount of $22 million, awarded this summer.

Detailed discussion

When the Dodd-Frank Wall Street Reform and Consumer Protection Act was passed in July 2010, the new law mandated the creation of a whistleblower program operated by the SEC. Once the agency established final rules in 2011, the Office of the Whistleblower paid out its first award in 2012.

Since then, the SEC has paid out more than $130 million to whistleblowers. Whistleblower awards can range from 10 to 30 percent of the money collected by the SEC when the monetary sanctions exceed $1 million. This year has been an especially busy period for the Office of the Whistleblower, which has awarded roughly $75 million so far, including seven of the top ten largest payments to whistleblowers, with the second-highest award of $22 million in June and most recently the third-highest award of $20 million.

In that case, the agency said the award was justified because the whistleblower "promptly came forward with valuable information that enabled the SEC to move quickly and initiate an enforcement action against wrongdoers before they could squander the money."

The SEC did not disclose any information that would have revealed the whistleblower's identity, but a partially redacted order for the action revealed that the whistleblower was originally granted a much lower amount. The whistleblower contested the preliminary determination, and the agency changed course, determining an award of $20 million was appropriate.

"[The claimant's] assistance to the Commission given the specific facts and circumstances of this case merits a [redacted] upward adjustment to the award recommendation in the Preliminary Determination," according to the order. "Put simply, by promptly coming forward with information about the Defendants' wrongdoing, and by subsequently alerting the Commission about [redacted], [the claimant] enabled the Commission to move quickly to shut down the [redacted] and to obtain a near total recovery of investors' funds—in excess of [redacted]—before the Defendants could squander those monies."

Two other claimants were not as lucky, with the SEC affirming the preliminary determination that they should not receive an award because "neither provided original information that led to the success of the Covered Action."

The SEC leveraged the $20 million award to urge other whistleblowers to step forward. "This whistleblower alerted us with a valuable tip that led to a near total recovery of investor funds," Jane Norberg, chief of the SEC's Office of the Whistleblower, said in a statement. "Sizeable awards like this one should encourage whistleblowers everywhere that there are real financial incentives to promptly reporting potential securities law violations to the SEC."

To read the SEC's partially redacted order, click here.

Iskanian Blocks Arbitration Of PAGA Claims, California Appellate Panel Affirms

Why it matters

In the latest interpretation of Iskanian v. CLS Transportation, a California appellate panel affirmed a trial court's ruling that a worker's Private Attorneys General Act (PAGA) claim could not be sent to arbitration. Bernadette Tanguilig claimed Bloomingdale's violated state labor law with regard to the payment of meal breaks, and the national retailer responded with a motion to compel arbitration pursuant to an employment agreement. Relying on Iskanian, a trial court judge denied the motion, and the appellate panel affirmed. "[R]egardless of whether an individual PAGA cause of action is cognizable, a PAGA plaintiff's request for civil penalties on behalf of himself or herself is not subject to arbitration under a private arbitration agreement between the plaintiff and his or her employer," the court wrote. "This is because the real party in interest in a PAGA suit, the state, has not agreed to arbitrate the claim."

Detailed discussion

Bloomingdale's employee Bernadette Tanguilig filed suit against her employer in 2014, alleging that the national retailer failed to provide its commission-earning employees with paid rest periods, minimum wage for noncommission-producing activities, complete and accurate wage statements, and timely payment of their wages. The complaint was a representative action on behalf of herself and fellow employees pursuant to the state's PAGA.

Pursuant to an employment agreement accepted by Tanguilig, Bloomingdale's moved to compel arbitration. The agreement required signatories to submit "all employment-related legal disputes, controversies or claims" to a four-step dispute resolution process that culminated in final and binding arbitration and prohibited an arbitrator from "consolidat[ing] claims of different [employees] into one proceeding" and from "hear[ing] an arbitration as a class or collective action."

Before Bloomingdale's filed its motion to compel, the California Supreme Court issued its decision in Iskanian v. CLS Transportation. In that case, the state's highest court upheld the general enforceability of class waivers in mandatory employment arbitration agreements but carved out an exception for employees to bring representative actions under PAGA, holding that "an arbitration agreement requiring an employee as a condition of employment to give up the right to bring representative PAGA actions in any forum is contrary to public policy."

A trial court denied Bloomingdale's motion to compel. On appeal, the employer argued that Iskanian was wrongly decided because the Federal Arbitration Act (FAA) should preempt California's bar against the compelled waiver of a PAGA representative action. Alternatively, the employer contended that Tanguilig should be required to arbitrate the individual element of her PAGA claim.

The appellate panel made quick work of the employer's suggestion that it should depart from Iskanian. As an inferior state court, the appellate court was bound to follow the California Supreme Court's holding, the panel wrote, particularly in the absence of a contrary opinion from the U.S. Supreme Court on issues of federal law. Further, "we note that the Ninth Circuit has ruled that Iskanian correctly decided the federal question, thus superseding conflicting prior federal court decisions cited by Bloomingdale's," the court added.

"We conclude that Iskanian definitively resolves the arbitrability of the representative claim," the appellate court said. "The representative action waiver in the Agreement is unenforceable under state law and this California rule is not preempted by the FAA. Tanguilig's purported waiver of her right to bring a representative PAGA action is unenforceable."

As for Bloomingdale's second argument, that the individual portion of Tanguilig's PAGA claim should be compelled while the representative portion of the claim should be stayed, the panel found it "less than clear whether an 'individual' PAGA cause of action is cognizable, even in a judicial forum. Permitting pursuit of only individual penalties appears inconsistent with PAGA's objectives." At least three appellate courts have concluded that a single representative PAGA claim cannot be split into an arbitrable individual claim and a nonarbitrable representative claim, the court noted.

"We need not decide this question either, since we conclude that, regardless of whether an individual PAGA cause of action is cognizable, a PAGA plaintiff's request for civil penalties on behalf of himself or herself is not subject to arbitration under a private arbitration agreement between the plaintiff and his or her employer," the panel concluded. "This is because the real party in interest in a PAGA suit, the state, has not agreed to arbitrate the claim."

Or, as the California Supreme Court put it in Iskanian, "a PAGA claim lies outside the FAA's coverage because it is not a dispute between an employer and an employee arising out of their contractual relationship. It is a dispute between an employer and the state, which alleges directly or through its agents—either the [Labor and Workforce Development] Agency or aggrieved employees—that the employer has violated the Labor Code."

"Because a PAGA plaintiff, whether suing solely on behalf of himself or herself or also on behalf of other employees, acts as a proxy for the state only with the state's acquiescence and seeks civil penalties largely payable to the state via a judgment that will be binding on the state, the PAGA claim cannot be ordered to arbitration without the state's consent," the appellate panel wrote.

This understanding of a PAGA claim does not conflict with the purposes of the FAA, the court said, because the FAA aims to ensure an efficient forum for the resolution of private disputes—not qui tam citizen actions on behalf of the government for the purposes of enforcing state law.

To read the decision in Tanguilig v. Bloomingdale's, Inc., click here.

NLRB Finds Handbook Rules Violate NLRA

Why it matters

Continuing its crackdown on employee handbooks, a divided National Labor Relations Board (NLRB) ruled that an employer's rules against "insubordination or other disrespectful conduct" and "boisterous or other disruptive activity in the workplace" violated the National Labor Relations Act (NLRA). Concerned that an absent coworker might be fired, an inspector called the coworker at home to warn him. The coworker responded with a complaint to management that the inspector should not have called him and the inspector was terminated for violating a rule found in the employee handbook prohibiting "insubordination or other disrespectful conduct" and "boisterous or other disruptive activity in the workplace." He then filed a charge with the NLRB. An administrative law judge first determined that the phone call constituted protected concerted activity and then found the handbook rule to be overbroad, striking it down. The entire NLRB agreed that the inspector's termination violated the NLRA, but the panel split on the validity of the rules. While the majority found the rules ran afoul of the statute, a dissenting member disagreed, pushing instead to create a balancing test for workplace rules that takes into account the legitimate justifications associated with the disputed rules and any potentially adverse impact on NLRA-protected activity.

Detailed discussion

Missouri-based Component Bar Products manufactures and sells precision machined products for the automotive and other industries. James Stout worked as a roving parts inspector at the manufacturing facility, where Shawn Burgess worked the night shift.

One day in January 2015, Stout noticed that Burgess was not at work and asked a supervisor what was going on. The supervisor replied, "He doesn't work here anymore." Concerned that Burgess was going to get fired, Stout called his coworker on his cellphone and said, "I don't think you have a job and [the supervisor's] upset with you." Burgess hung up on Stout and called the company to say he did not appreciate that a fellow employee called to tell him he was fired.

Both Stout and Burgess were terminated later that day. Burgess was fired for his absence, while the employer determined that Stout would be discharged for violating the personal conduct and disciplinary action policy found in the company's handbook. Among other rules, the handbook prohibited "insubordination or other disrespectful conduct" and "boisterous or disruptive activity in the workplace."

Stout filed a charge with the NLRB. An administrative law judge (ALJ) ruled Component Bar Product's handbook rules violated Section 8(a)(1) of the NLRA because employees could reasonably construe the prohibitions to include protected Section 7 activity. Stout's phone call to Burgess was protected concerted activity under the NLRA, the ALJ said, so his termination also violated the statute.

The employer appealed and a divided panel of the NLRB upheld the ALJ's order.

First, the panel ruled that the ALJ applied the correct standard—that an employee could reasonably construe the handbook rules to include protected Section 7 activity—to find that the rules violated the NLRA. Secondly, the panel agreed that Stout engaged in protected concerted activity when he called Burgess and that the employer violated Section 8(a)(1) for terminating him based on this activity.

"Stout called his coworker to warn him that his job was in danger and to try to help him retain his employment," the NLRB wrote. "By his actions, Stout sought to join together with his coworker to help him avoid an adverse employment action and thus engaged in concerted activity."

The panel ordered the employer to stop maintaining and enforcing the challenged handbook rules, offer Stout full reinstatement, and make him whole for any loss of earnings.

While the panel unanimously affirmed the ALJ's ruling that Stout's termination violated the NLRA, one of the three members dissented with regard to the legality of the handbook rules. The "reasonably construe" test used by the ALJ and the panel majority should be repudiated, Philip A. Miscimarra argued, and replaced with a balancing test "that takes into account (i) the legitimate justifications associated with the disputed rules and (ii) any potential adverse impact on NLRA-protected activity."

"Facially neutral" employer rules—those that do not expressly restrict Section 7 activity, were not adopted in response to NLRA-protected activity, and have not been applied to restrict NLRA-protected activity—should not be declared unlawful "only if the legitimate justifications an employer may have for maintaining the rule are outweighed by its potential adverse impact on Section 7 activity," Miscimarra wrote.

To read the decision and order in Component Bar Products, Inc., click here.

No ADA Violation for Employee Who Wasn't a "Qualified Individual"

Why it matters

As the position held by the plaintiff required physical presence in the office—something that she was unable to do because of her fibromyalgia—she was not a "qualified individual" subject to the protections of the Americans with Disabilities Act (ADA), the Eleventh Circuit Court of Appeals has ruled. A full-time purchasing agent for the city of Tallahassee, the plaintiff was responsible for working directly with internal city department representatives and vendors, many of whom often arrived unannounced at the office. After her diagnosis with fibromyalgia, she requested and was granted several accommodations (including a change in office location and dress code), but still missed significant amounts of work. She then asked for permission to telecommute, but the city denied her request, determining that full-time, regular attendance was an essential function of the job. She took early retirement and filed an ADA lawsuit. Affirming summary judgment in favor of the employer, the Eleventh Circuit agreed that the plaintiff was not a "qualified individual" because she could not perform an essential function of her job with regular, full-time attendance in the office. Further, because her request to telecommute was not a reasonable accommodation, the plaintiff was unable to identify a material adverse action to support her retaliation claim, the court concluded.

Detailed discussion

Janet Garrison began working for the city of Tallahassee, Florida as a full-time purchasing agent in 2003. Part of her job involved working directly with internal department representatives, both in person and over the phone, as well as interacting with outside vendors, some of whom would arrive unannounced to the office for assistance. Garrison was also responsible for conducting vendor training sessions and serving on multiple committees for the selection of vendors.

In 2006 Garrison was diagnosed with fibromyalgia. Over the next six years she requested and was granted a number of reasonable accommodations by the city, including permission to wear comfortable clothes and noise-cancelling headphones, relocating her office closer to a restroom and her parking space closer to the building, and allowing a modified work schedule.

However, Garrison continued to miss significant amounts of work due to sporadic, unplanned absences and on average worked only 30.5 hours per week instead of her scheduled 40 hours. In 2013 Garrison requested that the city allow her to telecommute during flare-ups of her condition. City representatives discussed the request but expressed concern about her ability to interact with vendors if she were permitted to telecommute.

The city concluded that full-time, regular attendance was an essential function of Garrison's job and denied her request to telecommute. Instead, the city offered her the option of a citywide three-month job search for a position whose essential functions Garrison could perform.

Garrison took early retirement and then filed a lawsuit against the city, alleging it discriminated against her by not providing her with a reasonable accommodation and retaliated against her based on her disability in violation of the Americans with Disabilities Act (ADA). A trial court granted the employer's motion for summary judgment and the Eleventh Circuit Court of Appeals affirmed.

To be a "qualified individual" subject to the protections of the statute, a plaintiff must show that she is someone who can perform the essential functions of her job, with or without reasonable accommodation, the court explained. Whether a function is "essential" is determined on a case-by-case basis, including consideration of the employer's judgment about the essential functions of a position and any written descriptions the employer prepared before advertising or interviewing applicants for the position.

In addition to giving the city's judgment that Garrison's physical presence in the office during regular business hours was an essential function of her position "substantial weight," the court noted the plaintiff herself testified that her job required her to communicate regularly—both in person and over the phone—with internal department representatives and with external vendors, some of whom arrived at the office without prior notice.

"In light of this evidence, the district court concluded correctly that Garrison's position was customer-service oriented and that being physically present in the office during regular business hours was an essential function of Garrison's job," the federal appellate panel wrote. Garrison provided no evidence that other similarly situated purchasing agents were permitted to telecommute or work outside regular business hours, nor did she identify a single employee who was permitted to telecommute on the kind of regular, unscheduled, and long-term basis that Garrison had requested, the court added.

"Garrison has identified no reasonable accommodation that would have allowed her to perform the essential functions of her job," the Eleventh Circuit said. "Garrison has, thus, failed to establish that she was a 'qualified individual' for purposes of stating a prima facie case of discrimination under the ADA."

The plaintiff's retaliation claim fell as well, as she failed to identify a material adverse action taken against her. "Because Garrison's requests to telecommute and to work outside regular business hours were no reasonable accommodations, the city's refusal to grant Garrison's requests constituted no material adverse action," the panel wrote, affirming summary judgment in favor of the employer.

To read the opinion in Garrison v. City of Tallahassee, click here.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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