This article is Part 2 of a two-part series providing an overview of recent California Supreme Court decisions in employment law.

We continue below with brief summaries of the California Supreme Court’s key employment law opinions during the past year.  We also preview some important cases that the Court has accepted for review.

OTO, LLC v. Kho (August 29, 2019)

In OTO, the Court again considered the enforceability of an agreement to arbitrate claims before the  California Labor Commissioner.  The Court in Sonic Calabasas A, Inc. v. Moreno ruled that mandatory arbitration of wage claims could be enforceable, if the arbitration agreement provided “an accessible and affordable arbitral forum for resolving wage disputes.” 

Rather than focus on “public policy” concerns, which resulted in U.S. Supreme Court scrutiny in Sonic, the Court in OTO evaluated the agreement under the standard unconscionability analysis applicable to all contracts.  Agreeing with the lower court, the High Court found that the agreement had an “extraordinarily high” amount of procedural unconscionability.  

In cases involving a high degree of procedural unconscionability, substantive unconscionability need not be very high to invalidate a contract. The Court found sufficient substantive unconscionability to render the arbitration agreement unenforceable.

The Court found substantive unconsionability in part by comparing arbitration to the Labor Commissioner hearing procedures. For example, the arbitration agreement was silent as to how to commence arbitration proceedings, whereas the Labor Commissioner-mandated posters explain how to file Labor Commissioner claims.  The agreement incorporated the procedures contained in the California Arbitration Act, which the Court believed were too difficult for a lay person to follow. In contrast, the Court noted, the Labor Commissioner hearing procedures were easier to apply. The Court also found that OTO offered no legal assistance to Koh, while employees using the Labor Commissioner hearing process have access to free legal help from the agency.

Interestingly, the Court noted arbitration of wage claims under the California Arbitration Act might pass muster under less coercive circumstances. The result might have been different had OTO set out the terms of its agreement more legibly or understandably, or had it given Koh a reasonable opportunity to seek clarification or advice.  

In all, the Court in OTO did not foreclose arbitration of Labor Commissioner claims.  But the Court also did not issue clear guidance to employers regarding how to ensure arbitration provides the necessary “accessible and affordable arbitral forum for resolving wage disputes.”

ZB, NA v. Superior Court, September 12, 2019

The Court decided that the California Private Attorneys General Act of 2004 (PAGA) does not allow individuals to seek certain remedies provided under Labor Code section 558.

Section 558 authorizes penalties for violation of a variety of wage and hour violations. Before the passage of PAGA, only the Labor Commissioner could seek those penalties. PAGA “deputized” individual plaintiffs to act as “private attorneys’ general,” on behalf of themselves and “aggrieved employees.”   Of significance, these private attorney general claims are not arbitrable, as arbitration agreements are between the individual and the employer, while PAGA claims ostensibly are between the employer and the state.

Section 558  contains a remedy in addition to the normal, fixed dollar penalty per violation: “an amount sufficient to recover underpaid wages.” This amount, the statute provides, “shall be paid to the affected employee.” 

Disagreeing with lower courts, the Supreme Court held that these “underpaid wages” equivalents were not “penalties,” but rather a form of compensatory damages. Therefore, they were not included within PAGA’s grant of jurisdiction to private individuals. As a result, the plaintiff could not seek these wages in a PAGA action; nor would they be included in arbitration proceedings.

Cases Pending Review

The California Supreme Court has pending several cases that may significantly affect employers. In Donahue v. AMN Services, Inc., the Court will address whether employers can use time-keeping rounding practices upheld in the overtime pay context for meal periods.

In Frlekin v. Apple, Inc., the Court will address whether an employee should be compensated for time spent during required exit searches of packages or bags voluntarily brought to work.

In Kim v. Reins Internat. California, Inc., the Court will examine whether an individual may proceed with a representative Private Attorneys General Act (PAGA) claim after settling his or her individual claims.

In Oman v. Delta Airlines, Inc./Ward v. United Airlines, Inc., the Court will answer questions regarding the application of California’s wage statement and minimum wage laws to employees who work episodically and for less than a day at a time in California; or to employees who reside, receive wages, and pay taxes in California, but do not work in California.

In Stewart v. San Luis Ambulance, Ins., the Court will decide whether violations of meal period regulations which require payment of a premium wage give rise to claims for waiting time penalties under Labor Code 203 and claims for improper wage statements under Labor Code 226 where the employer did not include the premium wage in the employee’s pay or wage statements during the course of the violations.

Finally, in Cole v. CRST Van Expedited, the Ninth Circuit Court of Appeals submitted these questions to the Court for review: (1) Does the absence of a formal policy regarding meal and rest breaks violate California law? (2) Does an employer’s failure to keep records for meal and rest breaks taken by its employees create a rebuttable presumption that the meal and rest breaks were not provided?