This article is Part 1 of a two-part series providing an overview of recent California Supreme Court decisions in employment law.

The California Supreme Court issued several decisions during the past year that will affect employment law for California employers. We summarize the most important of these decisions below.

Iskanian v. CLS Transportation (June 23, 2014)

An employee filed a class action lawsuit, alleging Labor Code claims and claim under the Private Attorney General Act (PAGA). The employee had signed an arbitration agreement agreeing to submit “any and all claims” to binding arbitration before a neutral arbitrator. The Court considered whether the arbitration agreement could be used to require arbitration of the PAGA claim, and forego class-wide claims.

Based on the U.S. Supreme Court decision, AT&T Mobility LLC v. Concepcion, the Court held that class action waivers in arbitration agreements are enforceable. Employers vulnerable to class actions may desire arbitration agreements for this reason alone.

The Supreme Court treated “representative” cases under PAGA differently, however. When a plaintiff brings a PAGA action, she essentially steps into the shoes of the state’s Division of Labor Standards Enforcement and sues on behalf of the state. As such, the PAGA claim is really government versus employer, while the arbitration agreement is between the employee and the employer. As a result, if an employee asserts non-PAGA claims that aresubject to an arbitration agreement, a court may stay the court proceedings and allow the parties arbitrate the non-PAGA claims before trying the PAGA claims in court.

Salas v. Sierra Chemical (June 26, 2014)

An employee sued, alleging the employer failed to accommodate his disability and retaliated against him in violation of the Fair Employment and Housing Act (FEHA). The employer later learned that the employee used another person’s social security number to apply for the job. The employer attempted to use this “after-acquired” evidence of misconduct to bar the plaintiff’s claim, arguing that the employee would never have been hired had he been truthful.

The Court first decided that the federal immigration Reform and Control Act does not preempt California’s employment laws, including FEHA. The Court then addressed whether the employee’s “unclean hands” – lying may his application – precluded his claims under state law. The Court held that these defenses do not completely bar FEHA claims, but damages may be limited. Reinstatement, for example, would not be an available remedy to someone ineligible for employment. And a trial court could limit monetary damages from the date of the wrongful discharge date through the date the employer discovered the wrongdoing.

Paratransit, Inc. v. Unemployment Ins. Appeals Board (July 3, 2014)

The employee, a bus driver, was a member of a union. The union contract included a provision that stated: “All disciplinary notices must be signed by a Vehicle Operator when presented.” A passenger filed a complaint against employee. The employer disciplined employee, but the employee refused to sign the disciplinary notice. The employer discharged him for insubordination. The employer then contested the employee’s claim for unemployment benefits, arguing that he was insubordinate and disqualified for benefits.

An employee may be disqualified for unemployment benefits if he is fired for “misconduct.” The Court has defined misconduct as “willful or wanton disregard of an employer’s interest.” Here, the employee engaged in a single act of disobedience and did not have a record of prior reprimands. The Court concluded that although employee’s refusal to sign the notice may have justified his termination, it did not constitute “misconduct” sufficient to justify denying him unemployment benefits.

People ex rel. Harris v. Pac Anchor Transportation, Inc. (July 28, 2014)

The Federal Aviation Administration Authorization Act (FAAAA) preempts state laws “related to a price, route, or service of any motor carrier . . . with respect to the transportation of property.” The statute was intended to prevent states from enacting laws that impeded interstate commerce, such as tariffs, price regulations, and restrictions on the types of commodities a carrier can transport. The FAAAA does not preclude states from enacting safety regulations for motor vehicles; insurance, liability, or standard transportation rules; or certain other requirements.

Here, the State of California sued a trucking company under the Unfair Competition Law (UCL), claiming the company misclassified drivers as independent contractors and committed related wage and hour violations. The Court held that the UCL and Labor Code claims are laws of “general application whose effects on the carrier’s prices, routes, and services [are] remote.” Thus, any effect the California minimum wage and other employer recordkeeping requirements may have upon prices, routes, or services is too remote to trigger preemption, and the Court allowed the case to proceed.

Peabody v. Time Warner Cable (July 14, 2014)

The employer classified an employee as an exempt, “inside salesperson” under state law and did not pay her overtime pay. Employees may qualify for this exemption if their earnings exceed 1.5 times the state’s minimum wage and more than one-half of their total compensation is comprised of commissions.

The issue before the Court was how to calculate whether the employee’s earnings satisfied the above thresholds. In 10 months, employee had earned $74,464 in total compensation, of which $57,134 were commissions. That is more than 50% commissions for the 10-month period. However, the employer paid commissions bi-weekly, not weekly. As a result, in one workweek, the employee would earn a base rate of $9.61 per hour. In the second workweek, she would receive commissions, and her rate would far exceed the 1.5 times minimum wage required.

The employer argued that it could lawfully allocate commissions paid during the second pay period of each month to the first pay period of each month. The Court unanimously rejected that argument, stating that “an employer satisfies the minimum earnings prong … only in those pay periods in which it actually pays the required minimum earnings. An employer may not satisfy the prong by reassigning wages from a different pay period.” Therefore, to satisfy the inside sales exemption, the employee must earn more than 1.5 times minimum wage in each pay period. The commissions earned in a later period cannot be allocated back to prior periods.

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