Key California Employment Law Cases: March 2020

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Scalia v. Employer Solutions Staffing Group, LLC, 951 F.3d 1097 (9th Cir. 2020) 

Summary: Neither the Fair Labor Standards Act nor federal common law provide an employer with a right to seek contribution or indemnification from another joint employer.

Facts: Employer Solutions Staffing Group (“ESSG”) was a staffing company that recruited employees and contracted with other companies to place those recruits at job sites belonging to third parties. ESSG also handled administrative tasks, such as payroll processing. In 2012, ESSG contracted with Sync Staffing to place recruited employees at a job site run by TBG Logistics. From 2012 to 2014, TBG Logistics sent payroll spreadsheets to Sync Staffing, which then forwarded them to ESSG for payroll processing. ESSG’s payroll processing for TBG Logistics was handled by a single ESSG employee, who initially processed the payroll spreadsheets correctly. However, a Sync Staffing employee later called the ESSG employee and instructed her to process all TBG Logistics hours as “regular hours” instead of overtime. The ESSG employee complied even though (1) the Sync Staffing employee offered no explanation; (2) she knew the employees were not being paid overtime; (3) ESSG had trained her on the requirements of the Fair Labor Standards Act (“FLSA”); and (4) an error message was triggered each time she changed the overtime hours to regular hours. The ESSG employee continued to process all payroll spreadsheets in this manner until ESSG’s relationship with TBG Logistics and Sync Staffing ended. By that time, more than 1,000 violations had occurred. In 2016, the Secretary of Labor (the “Secretary”) sued ESSG, Sync Staffing, TBG Logistics, and another company. ESSG brought cross-claims against the other defendants for contribution or indemnification. The district court dismissed those claims. After reaching consent judgments against the other defendants, the Secretary moved for summary judgment against ESSG.  The district court granted summary judgment in favor of the Secretary and ordered ESSG to pay unpaid overtime wages and liquidated damages. ESSG appealed.   

Court's Decision: The Court of Appeals for the Ninth Circuit affirmed. The court held that the FLSA does not provide employers with a right to contribution or indemnification. Because the FLSA’s text does not expressly provide a right to contribution or indemnification, the Ninth Circuit considered the four factors set forth in Northwest Airlines, Inc. v. Transport Workers Union of America, 451 U.S. 77 (1981), to determine if one existed by implication. Applying the four factors, the Ninth Circuit noted that: (1) the FLSA’s text says nothing about a right to contribution or indemnification; (2) the “statutory scheme” of the FLSA resembles the Equal Pay Act and Title VII of the Civil Rights Act of 1964, neither of which provide an implied right to contribution for employers; (3) the FLSA provides comprehensive statutory remedies; and (4) the FLSA’s legislative history provides no indication that Congress intended to create a right to contribution or indemnification for employers. The court also concluded that there is also no such implied right under federal common law. The court explained that the FLSA does not contain broad, sweeping language in need of shaping by the courts, but rather embodies a “comprehensive legislative scheme” that “integrates procedures for enforcement.” The court also rejected ESSG’s argument that joint and several liability under the FLSA necessarily implies a right to seek contribution, explaining that it had previously rejected that argument. The court further rejected ESSG’s argument that allowing it to seek contribution or indemnification from other employers would encourage employers to be more proactive about complying with the FLSA, as that was a public policy question better left to Congress. 

Practical Implications: Although the FLSA imposes joint and several liability against joint employers, each employer is exclusively responsible for its own violations and is precluded from seeking indemnity or contribution from other joint employers, even if it relied on instructions and requests from those other joint employers. Employers should consistently ensure that all of their agents are acting in compliance with the law. 

Kim v. Reins Int’l Cal., Inc., No. S246911, 2020 WL 1174294 (Cal. Mar. 12, 2020)

Summary: Plaintiffs who settle individual claims for Labor Code violations continue to be “aggrieved employees” and retain standing to pursue a claim under the Labor Code Private Attorneys General Act of 2004.

Facts: Plaintiff worked as a training manager for a restaurant operated by Reins International California, Inc. (“Reins”). Plaintiff, and other training managers, were classified as exempt from overtime laws. Plaintiff later sued as an individual and a class representative under the Labor Code Private Attorneys General Act of 2004 (“PAGA”), claiming he and other training managers had been misclassified. Reins moved to compel arbitration of the “individual claims” pursuant to an enforceable arbitration agreement. The trial court granted the motion. Reins and Plaintiff then settled Plaintiff’s individual claims for $20,000. Reins then moved for summary adjudication of the PAGA claim on the ground that the Plaintiff lacked standing, reasoning that Plaintiff’s rights had been “completely redressed” by the settlement. The trial court concluded Plaintiff was no longer an aggrieved employee and, therefore, lacked PAGA standing. Judgment was entered for Reins, and the California Court of Appeal affirmed. The California Supreme Court granted review.

Court's Decision: The California Supreme Court reversed. The court explained that the plain language of Labor Code section 2699(c) has only two requirements for standing as an “aggrieved employee” under PAGA: (1) the plaintiff must be someone “who was employed by the alleged violator,” and (2) the plaintiff must be one “against whom one or more of the alleged violations was committed.” The court reasoned that Plaintiff became an “aggrieved employee” when one or more Labor Code violations were committed against him, and the payment of remedies did not nullify these violations. PAGA standing is not premised on or linked to the continued existence of an employee’s injury. 

Practical Implications: Employers should understand that settling individual employment claims with employees does not preclude potential PAGA claims from those employees. Employers should expect an increase in the costs of litigating and settling wage and hours cases that include PAGA claims, and can no longer rely on individual settlements with employees to inoculate them against future PAGA actions brought for violations against those employees.

Walker v. Fred Meyer, Inc., No. 18-35592, 2020 WL 1316691 (9th Cir. Mar. 20, 2020) 

Summary: The Fair Credit Reporting Act’s requirement to provide a consumer report disclosure without any “extraneous information” includes removing information that may be helpful to a client, but is not specific to their privacy rights

Facts: Plaintiff applied for a job at Fred Meyer Inc.’s (“Fred Meyer”) supermarkets. Plaintiff was hired contingent on passing a background check. Upon hire, Fred Meyer gave Plaintiff many forms, including two documents concerning a background check. One of those two documents was a “Disclosure,” which informed new hires that Fred Meyer would perform a background check using General Information Services, Inc. (“GIS”). The second document was an “Authorization,” which sought a new hire’s authorization for GIS to conduct a background investigation through a variety of means, including “any public or private information source.” Plaintiff found these forms confusing, but signed both of them anyway. GIS later sent Plaintiff a letter with a copy of the consumer report it had procured about him. The letter provided a process to dispute the accuracy or completeness of the form with GIS, but did not provide Plaintiff with an option to discuss the report with Fred Meyer. A week later, GIS sent Plaintiff a second letter informing him that Fred Meyer had decided not to continue his employment. However, when Plaintiff contacted Fred Meyer’s human resources manager, she stated that she was not aware of the report or his termination. Plaintiff then filed a putative class action, alleging Fred Meyer had willfully violated the Fair Credit Reporting Act (“FCRA”) by: (1) providing an unclear disclosure form encumbered by extraneous information, in violation of 15 U.S.C. § 1681b(b)(2)(A); and (2) failing to notify Plaintiff in the pre-adverse action notice that he could discuss the consumer report obtained about him directly with Fred Meyer, in violation of 15 U.S.C. § 1681b(b)(3). Fred Meyer filed a motion to dismiss arguing that its disclosure form satisfied FCRA’s consumer report disclosure requirements, and that FCRA did not require that Plaintiff be provided with the opportunity to discuss his consumer report with Fred Meyer. The district court agreed and granted the motion to dismiss with prejudice.

Court's Decision: The Court of Appeals for the Ninth Circuit affirmed on the notice claim, and reversed on the disclosure claim. As to the disclosure claim, the Ninth Circuit had previously held that since a disclosure must be provided “in a document that consists solely of the disclosure,” a consumer report disclosure may not include any extraneous information, even if such information is related to the disclosure. In Walker, the court addressed, as a matter of first impression, what qualifies as part of the “disclosure.” The court held that beyond a plain statement disclosing that a consumer report may be obtained for employment purposes, “some concise explanation of what that phrase means may be included as part of the ‘disclosure’ required by § 1681b(b)(2)(A)(i),” such as a “brief[] descri[ption of] what a ‘consumer report’ entails, how it will be ‘obtained,’ and for which type of ‘employment purposes’ it may be used.” With this standard in mind, the court concluded that although two of the five paragraphs in the Disclosure appeared to have been included in good faith in order to provide additional useful information about an applicant’s rights to obtain and inspect information about GIS’s investigation, they could pull the applicant’s attention away from his privacy rights protected by FCRA and, accordingly, were “extraneous information” that violated FCRA’s standalone disclosure requirement. The court left for the district court to decide in the first instance whether the remaining language of the Disclosure satisfied the separate “clear and conspicuous” requirement of FCRA. As to the notice claim, the court affirmed, concluding that the right provided by FCRA to dispute inaccurate information in a consumer report does not require employers to provide job applicants or employees with an opportunity to discuss their consumer reports directly with the employer. 

Practical Implications: Employers who provide consumer report disclosures as required by the Fair Credit Reporting Act should ensure that disclosures do not provide any additional information outside the scope of privacy rights, even if it may be helpful to the employee.

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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