Second Division Deems Arbitration Agreements Unconscionable and Executed by Fraud

Securing employee's consent to arbitration agreement by means of unconscionability and fraud is not acceptable. 

In a decision recently certified for publication on October 22, 2021, the California Court of Appeals, Second Division, reviewed two versions of arbitration agreements executed between a group of employers and their employees. The decision stems from a class action lawsuit, Yeni Najarro et. al. v. Horizon Personnel Services Inc. et. al., wherein the employees filed eighteen employment related claims against their employers. The employers attempted to hide behind the different versions of arbitration agreements and compel the employees to dispute their claims before an arbitrator which would have prevented the employees from filing a lawsuit in court.

However, the Appellate Court determined that the arbitration agreements were unenforceable as the employee's consent to arbitration was secured by unconscionable terms and fraud in the execution of the agreements. This post will briefly highlight the big picture points of the Appellate Court's decision, and demonstrate how employees can overcome unfair arbitration agreements provided by their employers.

Arbitration Agreement Impact on Employees

We have written before the employers prefer arbitration for various reasons, but arbitration agreements may have a negative impact on employees and disadvantages employees after signing arbitration agreements. It is important to remember that there is an inherent imbalance of bargaining power at the time of hiring - with employers tending to hold all the power over employees. Many employers use this advantage by including arbitration clauses that deprive employees of their right to have their day in court - which was the situation in the Najarro case - and restrict employees in many other ways. The Srourian Law Firm and its attorneys have experience overcoming unfair arbitration agreements and securing employee's employment rights to have their day in court.

What makes an Arbitration Agreement Unconscionable?

In the Najarro class action lawsuit, although there was an arbitration agreement between the employers and employees which delegated power to an arbitrator to preside over and resolve disputes between employers and individual employees, the courts typically have the power to review all agreements or contracts for enforceability.

Unconscionability is one argument employees may raise to have an unfair agreement deemed unenforceable. In California, unconscionability is referred to as the absence of meaningful choice on the part of one party to a contract, and the contract terms unreasonably favor the other party involved in the contract. Unconscionability can be procedural - meaning that during the negotiation process one party may be oppressed or surprised due to having unequal bargaining power. Unconscionability can also be substantive - meaning the substance of the terms will result in overly harsh results to one party and one-sided favorable results to another party.

Applying the doctrine of unconscionability, the Second Division determined that one version of the arbitration agreement was unfair to employees, and therefore unenforceable, because the arbitration agreement (1) forced employee's to waive their right to file a class action lawsuit for employment related claims, (2) the employers did not countersign the agreement, which is required to demonstrate mutual intent to enter into an agreement, and (3) the employees were not provided a meaningful opportunity to negotiate the terms of the arbitration agreement with their employers. Here, the employees were pressured into signing arbitration agreements that took away their power to file a class action lawsuit in court. Underlying the lawsuit was the fact that the employees had difficulty understanding and speaking the English language which the court later addressed in its discussion of fraud in the execution of agreements.

What is Fraud in the Execution?

One key aspect of the Second Division's ruling in Najarro is the court's discussion of fraud in the execution of arbitration agreements and the implications it may have for employees that speak and or read English as a second, or maybe even third or fourth language. In California, a claim for fraud in the execution is not subject to arbitration where the facts can demonstrate that there was not mutual assent between employer and employee to enter into an agreement. Fraud in the execution of an agreement occurs when an employee signs an agreement but is deceived by the employer as to the nature of the agreement; and, the employee does not fully grasp the terms that he or she is agreeing to. In the event that this happens, the court will review the facts underlying the lawsuit in relation to the contract terms to determine whether or not the agreement is void or unenforceable.

In the Najarro lawsuit, the employees were not proficient at reading Spanish and English, nor were they proficient at speaking English. Additionally, the employers - taking advantage of the obvious language barrier - merely handed the arbitration agreements to the employees and referred to the agreement as being "unimportant". Moreover the employers took advantage of the employees by pressuring them to essentially "take it or leave it" when it came to accepting the offer for employment. The employers conditioned the employees employment on on whether or not the employees signed the arbitration agreement.

Basically, the employees were compelled by the employers to sign the arbitration agreement if they wanted to be employed. The employees were not given a reasonable opportunity to read the arbitration agreements or at least have an attorney interpret the agreement for them so that they could understand exactly what they were agreeing to, and what employment rights were being waived. When a situation like this happens, as was the case in Najarro, the court is likely to deem an agreement void or unenforceable because there is no clear intent or mutual assent that the disadvantaged party - here it was non-English speaking employees that also struggled to read Spanish and English - to mutually enter into an arbitration agreement waving vital employment rights.

Each case will depend on the specific facts, so it is important to consult with an experienced labor law attorney to assess the specifics of your case to determine if your employment rights are being violated by an unconscionable arbitration agreement.

Free Consultation

Srourian Law Firm, with locations in Los Angeles, Westwood, Woodland Hills, and Orange County is experienced in all aspects of employment law including arbitration agreements and filing class action lawsuits, and have aggressively represented employees in Los Angeles, Hollywood, Santa Monica, Orange, Irvine, Anaheim, Santa Ana, Newport Beach, Costa Mesa, Fullerton, Tustin, Mission Viejo, San Clemente, Garden Grove, Laguna Niguel, Brea, Fountain Valley, Aliso Viejo, Yorba Linda, Westminster, Laguna Hills, Cypress, and La Habra.

If you or someone you know suffered employment violations, you may have certain employee rights under state and federal law, and may be entitled to compensation as a part of a class action lawsuit. Please contact us to speak with one of our lawyers for a free consultation.

 

 


California Appellate Court Upholds Employee's Calculation of Unpaid Wages

In a decision submitted for official publication on October 14, 2021, the Court of Appeal of the State of California Second Appellate District Division Four upheld a trial court’s decision to enter judgment in favor of a warehouse employee for wage violations claims filed in a lawsuit against his former employer. The trial court awarded the employee $99,394.16, of which $42,792.00 accounted for unpaid overtime wages. The case, Byron Jerry Morales v Factor Surfaces LLC et. al., reaffirms California Labor Code and principles of employment law when calculating an employee’s regular rate of pay.

Case Background

Byron Jerry Morales was a warehouse employee employed by Factor Surfaces LLC. The company hired Morales in 2016. Morales performed a variety of duties, vital to the financial success of the company. Morales cleaned and sanitized the warehouse; he accepted shipments of supplies and equipment; he facilitated and personally made deliveries and pick-up of workplace materials; and, he engaged in customer service relations.

In 2018, the employment relationship between Morales and Factor soured, when Factor terminated Morales’s employment, after Morales asked to be compensated for unpaid overtime wages.

In 2019, Morales filed a lawsuit against his former employer, alleging that the company retaliated against him; the company violated California law by failing to maintain and provide employee records and wage statements; the company failed to pay overtime wages, along with meal and rest break compensation; and, for wrongful termination.

The Trial

At trial, Factor Surfaces LLC and its agents Gregory and Bianca Factor, both testified that the company was unable to produce as evidence Morales’s employment records and wage statements as required by statute. The employment records and wage statements would have indicated, at minimum, Morales’s regular rate of pay along with the number of days and hours he worked.

However, the company claimed that the records went “missing” after a truck owned by the company was stolen from inside a gated community. Supposedly, Morales’s employment records were inside the truck, and although the stolen truck was later recovered, the records were not. The company also testified that Morales was not paid commissions for sales.

Morales, however, was able to provide evidence at trial of his regular rate of pay and wage history with his former employer. Prior to March 9, 2018, Morales worked a full-time schedule at his former employer: 8:00 a.m. to 6:00 p.m. Monday through Friday and 9:00 a.m. to 5:00 p.m. on Saturdays. After March 9, 2018, Morales stated that he worked two (2) or three (3) Saturdays per month. Morales estimated that prior to March 9, 2018, he earned eighteen (18) hours of overtime per week, and after March 9, 2018, he earned approximately fourteen (14) hours of overtime per week because he was not working every Saturday.

Morales testified and provided evidence in the lawsuit that his regular rate of pay in 2016 was $120.00/per day, and that he received a three percent (3%) commissions on sales, which at the end of 2017, was reduced to one and a half percent (1.5%). Without explanation, the company cut Morales’s commission on sales to zero (0%). Also, at some point during Morales’s term of employment the company increased his weekly wages to $150.00/per day.

The burden is on employers to maintain records of an employee's time worked, duties performed, and wage history.

The Trial Decision

The issues of the trial ultimately boiled down to two questions: (1) which side of the lawsuit, Morales or Factor Surfaces, was more credible or believable based on their testimonies and evidence presented at trial; and (2) whether the trial court should accept Morales’s calculation of his regular rate of pay which included unpaid overtime wages and commission sales?

The trial court’s answer to the first question: Morales. In this case, the employee was found to be more credible than the former employer. Morales established that he performed work for the company that was not properly compensated; and, he provided sufficient evidence to demonstrate the amount and extent of work he performed. The burden then shifted to Factor Surfaces to provide accurate and complete employee records and wage statements as required by California law, and the employer could not. The best defense the company could raise was the documents were stolen. With that, the trial court accepted Morales’s calculation of his regular rate of pay while employed by Factor Surfaces. In result, the company filed an appeal challenging the trial court’s acceptance of the employee’s calculation of regular rate of pay.

The Appeal

The Court of Appeal reminds us that – under California Labor Code Sec. 510(4) – overtime pay means “any work performed by an employee in one workday, and work performed in excess of forty (40) hours in any one work week, must be compensated at no less than one-half time times the employee’s regular rate of pay.” Generally, commission workers receive compensation for their commission sales based on a different formula under California law.

However, in this case, because the employee was found to be more credible than the former employer; and the employer failed to provide any records as evidence, the Court of Appeal agreed that the trial court’s acceptance of Morales’s calculation of his regular rate of pay which included unpaid overtime wages and weekly commission sales was proper.

What does this mean?

What this means for employees is that the Court of Appeal is signaling one way to protect job interests against the unfair labor practices of employers. Employees may be able to do this by keeping copies of their wage statements, records of time worked, and work performance. The Court reiterates “where the employer has failed to keep records required by statute, the consequences for such failure should fall on the employer, not the employee. In such a situation, imprecise evidence by the employee can provide a sufficient basis for damages.”

The Court is saying that, even if the employee is not able to provide precise records, if the employee can at least present credible or believable testimony and records of the employee’s wage history and hours worked, it may be sufficient to shift the burden to the employer to prove otherwise; and, if the employer cannot prove otherwise, then it may lead to recovery of commission sales, unpaid overtime wages, and damages in a lawsuit. $25,000.00 of Morales’s award was for emotional distress damages.

Employees should practice saving and cataloguing their pay stubs or weekly paychecks; track missed meal or rest break periods; track duties performed at work and hours worked; and, track the number of wages earned from commission sales. This information could prove to be vital in a lawsuit for damages.

Each case will depend on the specific facts, so it is important to consult with an experienced labor law attorney to assess the specifics of your case to determine if you are owed additional compensation and unpaid overtime wages from your employer.

Free Consultation

Srourian Law Firm, with locations in Los Angeles, Westwood, Woodland Hills, and Orange County is experienced in all aspects of employment law including wage, labor, meal and rest break violations in the workplace, and have aggressively represented employees in Los Angeles, Hollywood, Santa Monica, Orange, Irvine, Anaheim, Santa Ana, Newport Beach, Costa Mesa, Fullerton, Tustin, Mission Viejo, San Clemente, Garden Grove, Laguna Niguel, Brea, Fountain Valley, Aliso Viejo, Yorba Linda, Westminster, Laguna Hills, Cypress, and La Habra.

If you or someone you know suffered employment violations, you may have certain employee rights under state and federal law, and may be entitled to compensation as a part of a class action lawsuit. Please contact us to speak with one of our lawyers for a free consultation.


California Supreme Court Decides Non-Discretionary Payments Are To Be Included When Calculating Overtime Pay

In a published opinion, Ferra v. Loews Hollywood Hotel LLC, 11 Cal. 5th (2021), the California Supreme Court examined the issue of whether the state legislature intended the term "regular rate of compensation" as it is used under California Labor Code Section 226.7(c) has the same meaning as the term "regular rate of pay" pursuant to California Labor Code Section 510(a), so that an employer's calculation of overtime or premium pay owed to an employee must account for the employee's hourly wages and non-discretionary payments for work performed by the employee during missed meal or break and recovery periods. The Court determined that it does!

What are non-discretionary payments?

Non-discretionary payments are payments for an employee's work that are owed under a prior contract, agreement or promise between the employer and the employee. Non-discretionary payments are not determined at the sole discretion of the employer, meaning that an employee will have meaningful input when arriving at the agreement to receive non-discretionary payments from an employer. Examples of non-discretionary payments or wages include hiring bonuses, attendance bonuses, individual or group production bonuses, and incentive bonuses.

California Supreme Court rules Non-Discretionary Payments must be accounted for when calculating Overtime or Premium Pay for work performed by employee during missed meals, breaks, and recovery time. 

What happened in Ferra?

Non-discretionary payments were at the heart of the issue underlying the Ferra lawsuit filed before the California Supreme Court. Jessica Ferra, a bartender employed by Lowes Hollywood Hotel LLC, filed a lawsuit against Loews alleging that the company failed to include her non-discretionary payments - specifically quarterly incentive payments - when calculating her regular rate of pay for overtime or premium payments owed to her for work performed during missed meals, and rest break periods as required by the California Labor Code Section 510(a). Loews argued that under its interpretation of the law, Jessica was only to be compensated her hourly wage - or regular rate of compensation - under California Labor Code Section 226.7(c), meaning that the company should not have to include quarterly incentive payments in calculating overtime or premium payments that Jessica accrued while working through her meal and rest break time.

At trial and on appeal, Jessica Ferra lost both times, meaning the trial court and appeals court agreed with Loews that "regular rate of compensation" and "regular rate of pay" had two different definitions, despite being used interchangeably throughout the California Labor Code and by the Industrial Welfare Commission (IWC). However, the California Supreme Court granted review of Ferra's lawsuit and reversed the lower court decisions. Essentially, the California Supreme Court found Loews' interpretation of the law to be incorrect, and that "regular rate of compensation" and "regular rate of pay" have the same meaning under California wage and labor laws.

To arrive at the conclusion that "regular rate of compensation" under Labor Code Section 226.7(c) and "regular rate of pay" under Labor Code Section 510(a) are synonymous, the California Supreme Court unpacked in detail the lengthy legislative history behind the creation of the Industrial Welfare Commission (IWC); the Court reviewed the state legislature's adoption of California Labor Code Sections 226.7(c) and 510(a); and, it discussed how California's wage and labor policies are intended to mirror federal law where consistent, mainly, the Fair Labor and Standards Act (FLSA). The underlying goal of California and Federal wage and labor laws are meant to protect employees from meal and rest break violations by penalizing employers for non-compliance with meal and rest break laws.

Key Takeaways

One key takeaway from the Ferra lawsuit for employees is that regular rate of compensation and regular rate of pay are synonymous or have the same meaning. The California Supreme Court noted during its discussion of the legislative history that the Industrial Welfare Commission adopted an overtime or premium pay requirement for meal or rest break period violations using the term "regular rate of compensation", while at the same time the IWC issued an adopted wage order revising overtime policies that included use of the term "regular rate of pay". In short, Loews' interpretation was wrong as the Court outlined several instances in California's legislative history where "compensation" and "pay" along with "regular rate" were used interchangeably to describe how employees wages are to be calculated. Ultimately, Ferra determined that employees are entitled to receive non-discretionary wages or payments as part of the calculation for the employee's pay - or compensation - for overtime work performed during missed meal and rest break time.

The second key takeaway from the Ferra lawsuit for employees is that the California Supreme Court ruled that its decision would have retroactive application in workplaces throughout California. What this means is that employees in California may be owed additional overtime or premium pay for non-discretionary wages or payments accrued for work performed by the employee during missed meal and rest break periods that were not calculated in the employee's regular rate of compensation or regular rate of pay. Each case will depend on the specific facts, so it is important to consult with an experienced labor law attorney to assess the specifics of your case to determine if you are owed additional compensation and unpaid wages from your employer.

Free Consultation

Srourian Law Firm, with locations in Los Angeles, Westwood, Woodland Hills, and Orange County is experienced in all aspects of employment law including wage, labor, meal and rest break violations in the workplace, and have aggressively represented employees in Los Angeles, Hollywood, Santa Monica, Orange, Irvine, Anaheim, Santa Ana, Newport Beach, Costa Mesa, Fullerton, Tustin, Mission Viejo, San Clemente, Garden Grove, Laguna Niguel, Brea, Fountain Valley, Aliso Viejo, Yorba Linda, Westminster, Laguna Hills, Cypress, and La Habra.

If you or someone you know suffered employment violations, you may have certain employee rights under state and federal law, and may be entitled to compensation as a part of a class action lawsuit. Please contact us to speak with one of our lawyers for a free consultation.


California Protects Warehouse Employees Against Unfair Labor Practices

California issues new legislation for warehouse distribution centers.

The on-going feud between state governments and big tech companies intensified on September 22, 2021 when California Governor Gavin Newsom signed California Assembly Bill 701 (A.B. 701), making California the first state to impose regulations on companies that require warehouse distribution center employees to meet unfair productivity quotas. A.B. 701 - the Warehouse Distribution Centers Bill - amends the California Labor Code to include new provisions taking aim at companies like Amazon that implement unfair labor practices that exploit employees in order to fulfill delivery orders. A.B. 701 also prevents job seekers from being discriminated against when applying for or pursuing a different job if the job applicant filed to receive worker’s comp benefits during prior employment.

What is A.B. 701?

Generally, the purpose of California Assembly Bill 701 (A.B. 701) is to protect warehouse distribution center employees against impending job loss for failing to meet employer established productivity quotas. The author of the new law, California Assemblywoman Lorena Gonzalez states, “worker’s aren’t machines. We’re not going to allow a corporation that puts profits over worker’s bodies to set labor standards back decades just for same-day delivery.” The new law will protect both current and former workers employed at a warehouse distribution center.

What is a productivity quota?

A.B. 701 defines quota as a work standard under which an employee is assigned or required to perform at the specified productivity speed or perform a quantified number of tasks, or to handle or produce a quantified amount of material, within a defined time period and under which the employee may suffer an adverse employment action if they fail to complete the performance standard.

Essentially, a quota is created by the employer or company of which the employee is responsible to meet. The quota consists of the number of tasks the employee is expected to complete within a certain amount of time. The problem arises when the quota is unfair, yet employees are still expected to perform tasks to complete the quota, and if the employee cannot do so, then the employee may experience an adverse employment action.

What is an adverse employment action?

In California, an adverse employment action is viewed as any type of retaliatory action taken by an employer that is reasonably likely to have a negative effect on an employee’s job performance, opportunities for a promotion, or ability to seek employment elsewhere. The most common examples of an adverse employment action are job loss or termination, reduced wages, and demotion to a lower employment position or job title.

What changes will happen because of A.B. 701?

Currently, companies like Amazon are not held accountable for providing employees with adequate notice of their productivity quotas and the adverse employment actions that may occur for failing to meet those quotas. A.B. 701 requires companies to provide more transparency to warehouse distribution center employees. For example, the bill provides greater protections to warehouse distribution center employees in the following ways:

  • Employers must provide adequate notice to every existing and new employee in writing describing each quota the employee is responsible to meet;
  • Employers must provide notice to all employees in writing of any adverse employment actions that may result from failing to meet a quota;
  • Employees will not be required to meet a quota that violates the employee’s right to meal and rest or break time, including using the bathroom;
  • Employers are prohibited from taking any adverse employment action against an employee for not meeting a quota if the quota violates the employee’s right to meal and rest or break time, including using the bathroom;
  • Employees must receive productive time credit towards any quota for actions taken by the employee to comply with California’s health and safety laws for the workplace;
  • Employees may receive productive time credit towards any quota during meals and rest or break time if the employee is required to be on call during those times;
  • Current and former employees have the right to request a written description of each quota and a copy of the most recent 90 days of the employee’s performance towards meeting the quota if the employee believes the company created a quota that violates the employee’s right to meals and rest or break time.

Another key component of the new law is that employees will have the ability to file a lawsuit for injunctive relief to obtain court ordered compliance with the law against employers and companies. Employees that are successful in the lawsuit for injunctive relief may be awarded suspension of the unfair quota, the court may reverse an unlawful termination of the employee for not meeting a quota that violated the employee’s labor rights, the employer and company may be ordered to cover the employee’s costs and attorney’s fees for filing the lawsuit. Each case will depend on the specific facts, so it is important to consult with an experienced labor law attorney to assess the specifics of your case.

A.B. 701 is scheduled to take effect in California on January 1, 2022.

Free Consultation

Srourian Law Firm, with locations in Los Angeles, Westwood, Woodland Hills, and Orange County is experienced in all aspects of employment law including Warehouse Employee related health and safety violations in the workplace, and have aggressively represented employees in Los Angeles, Hollywood, Santa Monica, Orange, Irvine, Anaheim, Santa Ana, Newport Beach, Costa Mesa, Fullerton, Tustin, Mission Viejo, San Clemente, Garden Grove, Laguna Niguel, Brea, Fountain Valley, Aliso Viejo, Yorba Linda, Westminster, Laguna Hills, Cypress, and La Habra.

If you or someone you know suffered employment violations, you may have certain employee rights under state and federal law, and may be entitled to compensation as a part of a class action lawsuit. Please contact us to speak with one of our lawyers for a free consultation.