August 2017 Legal Update

By Jennifer Douglas Phillips | DP&F Labor and Employment Partner |

Richard Esparza v. KS Industries, L.P.  (August2, 2017) 2017 Cal.App. LEXIS 674

This case is a step forward for employers seeking to enforce arbitration agreements and limiting potential runaway Private Attorney General Act (“PAGA”) claims.   Employers with valid arbitration agreements can force employees to arbitrate unpaid wage claims even if the unpaid wages are sought as penalties under the Labor Code.  Since the 2014 California Supreme Court ruling in Iskanian v. CLS Transportation Los Angeles, LLC any penalties under the Labor Code, including those for unpaid wages, were considered exempt from arbitration if brought as part of a PAGA action. 

Esparza sought a PAGA action against KS Industries seeking civil penalties that would go to the state and unpaid wages that would go to individual aggrieved employees under Labor Code Section 558.  Under PAGA an aggrieved employee can stand in the shoes of the Labor Commissioner to collect civil penalties for all aggrieved employees impacted by specific Labor Code violations.  The civil penalties collected are then distributed 75% to the state and 25% divided among all the aggrieved employees.  In contrast, the unpaid wages are paid directly to the aggrieved employees. 

Esparza signed a valid arbitration agreement with KS Industries.  The trial court denied KS Industries motion to compel arbitration based on Iskanian.  The appellate court examined Iskanian and the Federal Arbitration Act and held that PAGA claims are excluded from arbitration if the recovery sought is strictly civil penalties.  The reasoning is that because the state of California is not a party to the arbitration agreement and the PAGA action for civil penalties is essentially an action in its name, those claims cannot be subject to the arbitration agreement between the employee and employer.   However, if the employee seeks unpaid wages for himself, even if those unpaid wages are considered “penalties” under the Labor Code, then those claims are subject to the binding arbitration agreement.

The appellate court sent the case back to the trial court for Esparza to clearly indicate if he was seeking unpaid wages.  If he is seeking unpaid wages the trial court is directed to stay the PAGA action pending the outcome of his individual arbitration hearing.  If he drops his wage claims then the PAGA action can proceed with the civil penalty portion only. 

This is a significant victory for employers.  It is also an opportunity to consider implementing an arbitration agreement if you do not currently have one.

Minnick v. Automotive Creations, Inc., (July 28, 2017) 13 Cal.App. 5th 1000

This case clarifies an employer’s right to limit vesting of vacation time for new employees.  It is well established law under the seminal case of Suastez v. Plastic Dress-Up Co., that once vacation is earned in California it cannot be taken away.  In this case Automotive Creations’ policy stated employees earned one week of vacation “after completion of one year service and a maximum of two weeks’ vacation after two years of service.”

Minnick left Automotive Creations after six months of service.  Automotive Creations did not pay him for any accrued vacation time in his final paycheck because he had not worked for the company for one year.  Minnick sued for accrued vacation wages on behalf of himself and similarly situated employees who left before completing one year of service.

The key is when vacation was earned under the employer’s policy.  In Suartez the policy at issue stated that employees earned a one-week vacation during the first year of employment.  In looking at that policy the court found the employee began accruing vacation time on the first day of employment and thus had “earned” the vacation wages as each day progressed.  If the employee left before the end of the first year the accrued vacation wages up until the last day of work would need to be paid out in the final paycheck.  In contrast, the Automotive Creations policy clearly stated that the vacation was not earned until after completion of one year service. 

California employers are not required to provide paid vacation.  Employers can also lawfully restrict the amount of vacation employees can accrue at any one time by placing caps on employees’ accrual.  By logical extension, the Minnick court clarified that an employer can properly decide it will provide paid vacation after a specified waiting period.  

The wording of the vacation policy is critical.  Make sure that any entitlement to vacation time is clearly defined to minimize any ambiguity as to when it is earned.

Revised New Form I-9 – Must Use Starting September 18, 2017

Just to keep us all on our toes the United States Citizen and Immigration Services (“USCIS”) issued a revised Form I-9.  The changes are not significant but employers must use it starting September 18, 2017. 

Notice of Rights of Domestic Violence, Sexual Assault and Stalking

Employers with 25 or more employees must give employees notice of their rights under Labor Code Sections 230 and 230.1 to take leave and/or to receive accommodations related to being the victim of domestic violence, sexual assault or stalking.  The notice must be provided at the time of hire and to current employees upon request. The notice requirement took effect July 1, 2017. The Labor Commissioner’s office recently published a notice with the required information.  Employers do not have to use the notice as long as substantially the same information is provided.  Employers can find the notice on the Labor Commissioner’s website at:

Four Pending Bills in California Legislature to Watch

1.     AB-1008 – Ban the Box:  This would extend to private employers the prohibition of asking applicants if they have ever been convicted of a crime.

2.     AB-168 – Prohibition of Salary History Inquiry:  We’ve been advising employers not to ask a job applicant salary history questions since passageto pay equity act prohibiting salary history as the sole basis of pay discrepancy.  Best not to even have that information in the file.  Now the legislature is hoping to make this law. If passed, this bill would also require employers to provide a pay scale for the position applied for to applicants upon request.

3.     SB-63 – Extends Baby Bonding Leave to Employers with 20 or more Employees:  California Family Rights Act (“CFRA”) requires employers to provide up to 12 weeks unpaid leave to employees to bond with a new child within one year of the child’s birth, adoption or foster care placement.  This law would extend the same entitlement to employees who work for employers with 20 or more employees within a 75 mile radius.  It extends only the baby-bonding entitlement of CFRA.  There would be no entitlement for time off for the employee’s serious health condition or the serious health condition of a family member.

4.     AB-1565 – Increase in Minimum Exempt Salary:   In reaction to the DOL’s failed overtime regulation, this law would increase the minimum threshold for exempt salary as of January 1, 2018 to $47,472 annually.  More specifically, this law would make the minimum monthly salary $3,956 or an amount no less than twice the state minimum wage for full-time employment, whichever is higher.   If not passed the minimum thresholds for exempt salary January 1, 2018 will be $43,680 ($10.50) for employers with 25 or fewer employees and $45,760 ($11.00) for those with 26 or more.  As of January 1, 2019 under existing law the salaries would be $45,760 ($11.00) and $49,920 ($12.00) respectively.  This proposed law would accelerate the increase in minimum salaries for the years 2018 and 2019 only.  Thereafter, the state minimum thresholds would automatically be higher.