Supreme Court Denies Class Arbitration

Posted by on May 1, 2019 in Newsflash | 0 comments

In a decision announced April 24, 2019, the Supreme Court of the United States overturned a Ninth Circuit decision allowing a class to arbitrate claims against their employer. The case arose after a Lamps Plus, Inc. employee was duped into revealing 1,300 employees’ tax information to a hacker. Among those employees whose information was disclosed was Frank Varela. Varela filed suit against Lamps Plus in federal court on his own behalf and on behalf of all employees whose information was similarly disclosed. Lamps Plus moved to compel the individual claim to arbitration, and to dismiss the class claim. Lamps Plus relied on the arbitration clauses signed by all of its employees who were included in this class. The federal court granted Lamps Plus’ motion to compel arbitration, but allowed the class claim to be arbitrated. Lamps Plus appealed to the Ninth Circuit, which upheld the decision. Relying on the statement that “[a]rbitration is strictly a matter of consent,” SCOTUS overturned the Ninth Circuit’s decision, allowing only Varela’s individual claim to be arbitrated. In Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., SCOTUS found that an arbitration clause which was silent on class arbitration could not allow for class arbitration to be compelled. Although the Ninth Circuit distinguished this case from Stolt-Nielsen because the arbitration clause at issue here was ambiguous regarding class arbitration, SCOTUS found Stolt-Nielsen was controlling. In Stolt-Nielsen, the parties had specifically stipulated that the arbitration provision was silent on class arbitration. Because the parties had stipulated to this and courts will not infer consent to participation in class arbitration without an affirmative contractual basis to do so, SCOTUS declined to allow class arbitration. In Lamps Plus’ case, SCOTUS found that despite the ambiguity in the arbitration provision, Lamps Plus had not provided the necessary affirmative contractual basis to allow class arbitration to be compelled. In other words, Lamps Plus had not expressly consented to be subjected to class arbitration under this arbitration provision. Whereas the majority opinion focused on Lamps Plus’ rights, Justice Ginsburg’s dissenting opinion, joined by all of the other dissenting justices, focused on Varela’s rights. Namely, Varela and the other class members’ right to bring a class claim against Lamps Plus. This dissenting opinion found the majority’s focus on Lamps Plus’ rights to be misplaced. As the party with substantially more bargaining power, Varela and the class’ rights should have been the main focus. The majority disregarded whether Varela and the class members had given up their right to bring a class claim against Lamps Plus – either in court or through arbitration. Varela, following this opinion, will have the opportunity to arbitrate his individual claim, and each and every other class member may do the same. However, in light of the low prospective damage award and Lamps Plus’ ability to out-arbitrate Varela and the other class members, it seems unlikely that any significant number of class members will choose to pursue their claims against Lamps Plus. This was the concern of all dissenting opinions: that by disallowing class arbitration without a clear surrender of the right to class claims, Varela and the class members were being deprived of their right to pursue their claims in any meaningful way, and effectively, Lamps Plus was walking away from a significant wrongdoing scot free. Companies who manufacture or...

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Is Your Website Complying with Privacy Laws?

Posted by on May 1, 2019 in Newsflash | 0 comments

A hot button topic as of late has been the collection of personal data online, whether it be information actively inputted by the user or information passively collected by the websites themselves. The issue is whether and to what extent the users of these websites should be able to block the websites from collecting their data. The internet has become an integral part of daily life, so much so that perhaps there is no way an average person can avoid giving up some level of privacy. The European Union and California, however, have enacted privacy laws to curb the amount of information websites may gather without being granted permission to do so. In 2016, the European Union adopted the General Data Protection Regulation (GDPR). The GDPR was the first marked attempt by a governmental body to significantly regulate the collection of personal information online. The policy behind the GDPR was that every person has a right to privacy with respect to his or her personal information. The GDPR became effective in May of 2018, and many companies with websites were prompted to update their policies as a result. The most significant changes the GDPR brought were the creation of new rights for individual internet users to access the information companies had gathered about them, the imposition of new requirements for data management for companies, and the creation of a new fine scheme. Shortly after the GDPR went into effect, California enacted its own privacy laws which regulate largely the same area as the GDPR. California’s privacy laws are not set to become effective until 2020, but companies would be well served to become familiar with the new laws and make any and all necessary updates to their privacy policies and beyond. California’s privacy laws provide protections to California residents, defined as any person “enjoying the benefit and protection of [California’s] laws and government” who is in California for more than a temporary or transitory purpose. While this class of persons is not surprising, the class of businesses which will be bound to abide by the new privacy laws is vast. The laws provide that all for profit entities which both collect and process the personal information of California residents and do business in California will be subject to these laws, so long as they meet one of the following criteria: (a) the business generates over $25 million in annual gross revenue per year; (b) the business receives or shares over 50,000 people’s personal information per year; or (c) the business derives 50 percent or more of its annual revenue by selling California residents’ personal information. For purposes of California’s privacy laws, “personal information” means “information that identifies, relates to, describes, is capable of being associated with, or could reasonably be linked, directly or indirectly, with a particular consumer or household.” “Household” is not defined explicitly, but will certainly expand the definition of personal information beyond that attributed to it before. This personal information can include what is normally considered personal information, e.g. names, social security numbers, driver’s license number, but will also include less obvious information which could be used to reasonably identify a person, e.g. device identifiers and other tracking technologies. There are four main new rights given to individuals under the new privacy laws: (1) individuals have...

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Proposed State and Federal Employment Law Changes Could Significantly Impact Companies

Posted by on Apr 1, 2019 in Newsflash | 0 comments

Employers, especially in California, are required to comply with a vast and complex set of laws regarding their employees. Proposals to change some of the more well-known laws have been submitted at both state and federal levels. In California, AB 5 was introduced as a placeholder bill in December 2018. This bill intends to codify the Dynamex decision which was published last April. Dynamex adopted a new test to determine when a worker is an employee rather than an independent contractor, and has caused many employers to rethink its classification procedures. At the federal level, the Department of Labor (DOL) published for comment its long awaited proposal for the overtime rule in the Federal Labor Standards Act (FLSA). This law provides a test to determine when an employee is eligible for overtime pay under the FLSA. Part of the test involves the employee’s salary. The DOL’s proposed change increases this salary amount. California’s AB 5 We covered the Dynamex decision when it was published in 2018 here. In this decision, the California Supreme Court adopted Massachusetts’s ABC test for determining whether a worker is an employee or an independent contractor. In short, this test analyzes: (a) whether the hiring entity exercises significant control over the worker, (b) whether the worker is engaging in activities which are within the hiring entity’s regular course of business, and (c) whether the worker is engaged in an independently established trade, occupation, or business doing the services the worker is providing for the hiring entity. Importantly, Dynamex made clear that workers would be presumed to be employees, and that it is up to the employer to prove the worker is in fact an independent contractor. The Dynamex decision has left significant confusion and uncertainty in its wake. To curtail this, AB 5 was introduced at the beginning of California’s legislative season, and is aiming to codify Dynamex‘s ABC test as well as clarify some of the uncertainty surrounding the test. Notably, AB 5 is also reportedly intending to broaden the reach of this test. The Court in Dynamex was careful to note the ABC test would only apply to Wage Order issues – meaning it would not apply for discrimination, harassment, and other claims not covered by the Wage Orders. AB 5 intends to broaden the ABC test to apply to these additional claims. AB 7 was also introduced at the beginning of the legislative season as a placeholder bill. This bill intends to disregard the Dynamex decision and go back to the Borello test which had previously been used to determine whether a particular individual is an employee or an independent contractor. Department of Labor’s Overtime Rule A number of state and federal laws provide a statutory framework governing overtime. The FLSA is one of those laws, providing that employers must pay their employees who work more than 40 hours in one week at least 1.5 times their regular rate of pay. However, one exception to this rule, the “white collar exception,” operates to allow employers with employees who meet certain criteria to be exempt from the FLSA’s overtime rules. The basic test to determine whether an employee falls within the FLSA’s “white collar exception” is: (a) whether the employee is paid a predetermined and fixed salary, not based on hours, (b) whether...

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Maintaining the Protection You Intended Your Corporation to Provide

Posted by on Apr 1, 2019 in Newsflash | 0 comments

For corporate clients of Navigato & Battin, you likely received a letter in the mail accompanied by a questionnaire, asking about your corporation’s activities for 2018. One purpose of this questionnaire is to allow our office to draft unanimous written consents for your corporation’s shareholders and directors in lieu of annual shareholder and director meetings, should you wish to utilize these options. We published an article about the importance of annual minutes a while back, which can be found here. California requires all corporations to hold annual shareholders’ meetings where, at the very least, directors are elected. While California does not require annual meetings for the directors, we recommend the directors meet after the shareholders elect them. Luckily, California allows both shareholders and directors to execute unanimous written consents instead of holding these meetings. But why are these minutes or consents important? One of the main reasons corporations are formed is to protect those who own the corporation (i.e., the shareholders) from liability. For example, if a corporation enters into a contract requiring it to pay a certain amount of money each month and the corporation later defaults on the contract, the shareholders generally will not be liable for the amounts owed by the corporation. To avoid people taking advantage of this protection, the so-called “corporate veil” (which otherwise shields the corporation’s shareholders from liability) can be pierced if certain circumstances are found by a court, which may lead to individual shareholder liability for what seemed to have been corporate debts or liabilities. Piercing the corporate veil is a two-step process. First, a number of factors are considered to determine whether the shareholders have treated the corporation as an “alter ego.” These factors include: commingling of corporate and personal funds, failing to observe corporate formalities (including maintaining corporate minutes), and failing to contribute sufficient capital. Second, allowing the shareholders to be shielded from liability must result in an “injustice.” Based on the first step, it is critical to maintain your corporation’s annual minutes, whether they be in the form of actual minutes from a meeting or in the form of a unanimous written consent in lieu of the meeting. Additionally, funds belonging to the corporation must not be commingled with your personal funds, and vice versa. This factor is generally problematic with single-person corporations. However, it can be easily avoided with careful accounting to ensure corporate monies are deposited into the corporation’s bank accounts and only distributed to the shareholders through proper methods. Lastly, your corporation must be properly capitalized throughout its existence. The second step usually poses a trickier analysis. The basic idea, though, is that shareholders of a company should not be able to wrongfully hide behind the company to avoid liability which really should be assessed against the individual shareholders. Usually when a court finds the first step is satisfied, meaning one or more of the shareholders has treated the corporation as his “alter ego,” this second step is also satisfied. When a shareholder uses the corporation as his own personal piggy bank (commingling funds, not properly accounting for money being distributed to the shareholder and/or loaned or contributed to the corporation, and disregarding corporate formalities), it is more likely that a court may find that the shareholder should not be able to avoid individual liability...

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Employees Must be Compensated for Calling in to Confirm Shifts

Posted by on Mar 1, 2019 in Newsflash | 0 comments

For employees of Tilly’s, a clothing store, each work week consists of both scheduled shifts and what the company called “on call shifts.” For these on call shifts, employees are required to call their respective store two hours in advance of the on call shift, and during that call the employees are informed whether they are required to work the shift or not. In September of 2015, a Tilly’s employee filed suit against Tilly’s claiming these required call-ins for on call shifts were a violation of Wage Order 7. Wage Order 7 requires that any employee who reports to work and is not then put to work, or is only assigned to work half of the employee’s scheduled shift, be compensated for half of the scheduled shift. For example, if an employee is scheduled to work from 12 p.m. to 4 p.m., and reports to work but then is sent home without working at least two hours, the employee will be compensated for two hours. This Order was adopted in order to compensate employees for the “tremendous costs” of unpaid on-call shifts. The Court of Appeal found that, “in short, on-call shifts significantly limit employees’ ability to earn income, pursue an education, care for dependent family members, and enjoy recreation time.” The Tilly’s employee argued that by calling in to be told whether to report for the scheduled on call shift, the employee was “reporting” for work, which required the employee to be paid for at least half the scheduled time of the shifts for which the employee was ultimately told not to work. Tilly’s, on the other hand, argued that “reporting” for work meant physically presenting oneself for a shift, meaning that such an employee would actually need to physically show up at the store for his or her shift to be paid “reporting time” pay. Under Tilly’s definition of “reporting,” calling the store two hours before the on call shift would not be sufficient to trigger a duty to pay. The trial court agreed with Tilly’s and sustained Tilly’s demurrer to the employee’s complaint; however, the Court of Appeal disagreed with Tilly’s. The Court of Appeals found that while Wage Order 7 had been adopted in current form in 1979, long before the concept of an on call shift came to be, the situation this order originally intended to cure mirrored that which presented itself in this case. Originally, the order was enacted to achieve a two part goal: to properly compensate employees and to encourage proper notice and scheduling. The Court of Appeals found that by requiring its employees to call in two hours before the start of on call shifts, Tilly’s significantly hindered the employees’ activities not only during the on call shift itself, but also two hours before. Because of this significant hindrance, caused by Tilly’s ineffectively scheduling its employees’ shifts, the Court held Wage Order 7’s dual goals would be achieved. First, by requiring Tilly’s to pay reporting time for employees calling in to confirm on call shifts, Tilly’s would be required to internalize some of the costs of overscheduling. Second, by requiring this compensation, Tilly’s will be partially compensating employees “for the inconvenience and expense associated with making themselves available to work on call shifts.” Importantly, both Wage Order 7 and the...

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Subsidiaries Can Bind Parent Companies to Arbitration Clauses

Posted by on Mar 1, 2019 in Newsflash | 0 comments

A parent and subsidiary relationship exists when the parent company controls the subsidiary company, either through owning the majority of membership interests or stock. Regardless of this ownership, the parent and subsidiary are and remain two distinct entities, wholly separate from one another. While the two entities may share similar ownership and common interests, they do not share funds, bank accounts, corporate records, and so on. Based on their separate status, parents and subsidiaries usually cannot bind one another to contracts unilaterally. However, in a recent decision, a Court of Appeals held that a subsidiary can in fact bind its parent company to an arbitration provision, despite the parent company not signing the contract including the provision. In order for the subsidiary’s agreement to bind its parent entity, (1) the parent must control the subsidiary to such an extent that the subsidiary was a mere agent or instrumentality of the parent, and (2) the claims against the parent must have arisen from the agency relationship. In Cohen v. TNP 2008 Participating Notes Program, the parent company had created an LLC to raise funds for an endeavor. One of the investors who signed a subscription agreement required the agreement to include an arbitration provision, which was in fact included in the final agreement. When it came time to sign the agreement, an agent of the parent company signed the agreement on behalf of the subsidiary LLC. The agent’s title was noted as the LLC’s “managing member.” The Court of Appeal held the parent’s agent had acted on behalf of the LLC to the extent that the agent was also an agent of the LLC, because the agent signed the agreement as the LLC’s “managing member.” After the investments did not yield the promised returns, the investor initiated arbitration proceedings against the LLC and the parent company for breaching the subscription agreement. The parent company argued that because it was not a signatory to the agreement including the arbitration provision, it was not bound to arbitrate the investor’s claims. Because these claims arose directly from the breached subscription agreement, which the parent’s agent had entered into on behalf of the LLC, the Court of Appeal held the claims against the parent arose directly from the agency relationship between the parent and the LLC. The parent company, despite not having signed the agreement containing the arbitration provision, was compelled to arbitrate the investor’s claims. In order to avoid this type of accidental binding of parent or subsidiary companies to contractual provisions, parent and subsidiary companies should be mindful of the following: Carefully review contracts to ensure the correct entity is listed as a party to the contract. Ensure the signatory for each party is not an agent of another party, and is signing on behalf of the intended signatory. Allow the subsidiary to control its day-to-day operations. Conversely, limit the parent company’s control over the subsidiary to that of providing goals and direction. When persons have titles under both the parent and subsidiary, ensure they are acting on behalf of the correct entity when entering into contracts. If these types of parent-subsidiary issues may affect your business operations, call the attorneys at Navigato & Battin. We are available to review these relationships to help make sure one company is not inadvertently taking...

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Protecting Your Intellectual Property: Trade Secrets

Posted by on Feb 1, 2019 in Newsflash | 0 comments

This is the final installation of our four part discussion of intellectual property. Last month, we discussed patents and their protections.   When someone thinks of a trade secret, they may think of the Kentucky Fried Chicken recipe, or the Coca-Cola formula. But trade secrets can be more commonplace pieces of information such as a client list, business plan, and corporate minutes. California considers a trade secret to be any information which a company actively works to keep confidential, and which would lose value if it was widely known. This definition provides for a wide array of information to be considered trade secrets. Trade secret theft, or misappropriation, can be as simple as a former employee taking your client list and using it to contact potential clients on behalf of a new boss. In some cases, it can be so extreme as to be considered corporate espionage. One common trend in recent cases is that this type of theft is committed by employees. In order to be found liable for misappropriation of trade secrets, a company will have to prove an employee (1) acquired the information by improper means, and (2) used the information or disclosed it to a third party. An employee makes an improper acquisition if he acquires the information through theft, bribery, misrepresentation, or breach of a duty to maintain secrecy, to name a few ways. When a company is the victim of an employee who misappropriates trade secrets, the initial goal is to try and keep the disclosed information as secret as possible. The law provides a couple of ways to do this. For example, a company can file a temporary restraining order against the disclosing employee, asking a court to order the employee to destroy and/or unpublish any disseminations of the information, stop using the information, and to stop disseminating or using the information. A company may also file an application for a preliminary injunction (typically after the issuance of a temporary restraining order). Unfortunately, in some cases, by the time a company discovers its trade secrets have been misappropriated by an employee, it is simply too late to remove the information from the realm of public knowledge. In those cases, temporary restraining orders and preliminary injunctions will likely not be worth filing. Instead, these companies will seek to recover damages against the misappropriating employee. A company in this situation can recover the amount of money the company lost, including its loss of sales or goodwill, or the amount by which the misappropriating employee was enriched by using or disclosing the trade secret information. For example, if a former employee takes your client list and successfully steals away some of those clients, you may recover the amount of revenue you would have earned had you been able to serve those clients or the amount the former employee earned from those same clients.  In addition, if the misappropriation is found to be willful or malicious, you can recover punitive damages. A misappropriating employee’s new employer who uses or benefits from the misappropriated information may also be liable. While this award can end up being quite high, finding yourself litigating over this type of claim is not desirable. Instead, there are ways to protect your trade secret information to both deter would-be misappropriating employees and to...

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Another Reason to Ensure Your Company Pays Its Employees Correctly

Posted by on Feb 1, 2019 in Newsflash | 0 comments

Owners and officers of California companies have always been able to rest easy knowing that, absent extenuating circumstances, they would not be held personally liable for wage and hour law violations. Recently, though, a Court of Appeal issued a decision reversing this. Now, mistakes in calculating wages or underpayment of employees may end up costing not only employers large sums, but can end up being owed by the companies’ owners or officers. In Atempa v. Pedrazzani, two former restaurant employees brought claims against their former employer, Pama, Inc., and its owner, Pedrazzani. The employees’ claims included unpaid minimum wage and unpaid overtime. The employees also made a claim under the Private Attorney General Act (PAGA), which we have written numerous articles on before. The employees prevailed at trial, winning both their unpaid wages, a PAGA award, 75 percent of which is remitted to the State of California, and their attorney’s fees under PAGA. The trial court held Pama, Inc. and Pedrazzani jointly and severally liable for the award, even though Pedrazzani was not the employer of either employee. Shortly after the judgment was rendered, Pama, Inc. filed for bankruptcy, leaving Pedrazzani as the only party who would be on the hook to pay the award. Pedrazzani appealed. Pedrazzani did not challenge the judgment, but instead argued only that he should not be held personally liable for the award. Pedrazzani based his argument on the fact that he was not the employer of the two employees, nor was there any legal basis to find him liable for the company’s debts. In short, Pedrazzani sought to rely on the legal shield a corporation can provide. The Court of Appeal disagreed with Pedrazzani and found there was language within the statutes which allowed for some “other person” who “act[s] on behalf of the employer” to be liable for the civil penalties associated with the violations. In this case, that meant Pedrazzani, as the owner of Pama, Inc., was liable for the two employees’ unpaid wages and attorney’s fees. Because Pedrazzani had appealed, added to his bill were post-judgment interest and additional attorney’s fees incurred by the employees. This case adds to this list of reasons why employers must take steps to ensure they are in compliance with wage and hour laws. As illustrated here, company owners, officers, or other agents can be named personally in a lawsuit and held liable for these types of violations. As we discussed in last month’s article, minimum wage increased on January 1, 2019, in California. Companies who did not raise their employees’ wages as necessary are at risk and now their owners and officers may also be held personally liable for any unpaid wages. If your company has employees and you would like assistance in complying with California’s extensive wage and hour laws, call the attorneys at Navigato &...

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Labor Laws Effective on January 1, 2019

Posted by on Jan 3, 2019 in Newsflash | 0 comments

Each year, Navigato & Battin compiles a list of California’s newly enacted labor laws which will go into effect in the New Year. For 2019, following another year of the #metoo movement, there are a number of new laws going into effect regarding sexual harassment in the workplace. In addition, the statewide minimum wage has once again increased. Among other things, this means that the salaries of all exempt employees should be reviewed to confirm that such employees meet the minimum applicable salary thresholds to maintain their exempt status. Anti-Harassment Training Requirements Government Code § 12950. This new law requires that for any company having five or more employees, every employee and supervisor must undergo anti-harassment training every two years. This is an expansion from the old law, which only required supervisors at companies with more than 50 employees to undergo such training. The Department of Fair Employment and Housing has currently published its interpretation of this law and states all employees must undergo this type of training in 2019, regardless of whether the company provided adequate training in 2018. In 2020, this requirement will be further expanded to include temporary or seasonal employees who must also undergo this training within 30 days of hiring or 100 hours worked. Confidentiality in Sexual Harassment Claims Code of Civil Procedure § 1001. We published an article on the passing of this law in more depth previously. This new law will make void any provisions in a settlement agreement relating to sexual harassment claims which call for confidentiality of the claims made against a company or its employees. This will include any settlements arising from civil or administrative claims of sexual assault, sexual harassment, gender discrimination, or retaliation. Certain limited portions of the settlements, however, may remain confidential. Civil Code § 1670.11. In addition to eliminating the use of confidentiality provisions, settlement agreements may not include waivers of a party’s right to testify regarding criminal conduct or sexual harassment. This law was enacted in partial response to settlement agreements containing similar provisions which had been entered into between members of the U.S. Olympic Gymnastics team and the U.S. Gymnastics Association regarding Larry Nassar. Civil Code § 47. This new law aims to protect victims of sexual harassment who file claims against their abusers, and bars defamation suits from being filed against them. Specifically, this new law adds protections for an employee’s complaints of sexual harassment to an employer based on credible evidence, made without malice, and communications between an employer and interested persons regarding a sexual harassment complaint. This law also provides protections to employers speaking about employees’ history with sexual harassment. Pre-Employment Salary History Labor Code §§ 432.3, 1197.5. Last year, a law was enacted which barred employers from asking candidates for their salary history. However, the law was ambiguous with respect to internal hires. The law has been amended to provide clarification about the applicability of this law to internal hires- a company which hires internally does not have to comply with the law barring any inquiry into compensation history and may inquire and use an internal candidate’s salary history. Additionally, employers are now able to inquire about a candidate’s “salary expectation” for a particular position, although employers should tread very carefully and be wary of asking anything further. Private...

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BREAKING NEWS: NavBat Wins Federal Jury Trial

Posted by on Dec 11, 2018 in Newsflash | 0 comments

2018-12-11 Press Release - Zhong Verdict FINAL

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