Choppy Seas: California Supremes sink Bell II while NLRB tacks left

To call wage and hour law in California unsettled is like saying Mike Tyson was a pretty good boxer.  Two recent decisions, one by the National Labor Relations Board (NLRB) and one by the California Supreme Court  illustrate the lack of any consistency in decisions and the political tensions between left and right.  Perhaps more than any other field of employment law, wage and hour litigation is overtly political.  Conservatives and evangelicals view meal and break time claims as “Extortion cases” while other more moderate views consider the right to overtime as a fundamental legislative barrier to barrier to worker exploitation.  The two views took new twist and turns in the NLRB decision D.R. Horton, Inc. Case No. 12-CA-25764( January 3, 2012) and the California Supreme Court Decision in Harris v. Liberty Mutual, SI56555 (December 29, 2011).  In Horton, the NLRB ruled that workers could not be forced to waive their right to bring class actions by means of compulsory arbitration agreements which explicitly require arbitration and forbid class actions either before a court or in arbitration.  Conversely, the California Supreme Court essentially reversed its landmark ruling in Bell v. Farmers Ins. Exchange (2001) 87 Cal. App. 4th 805 in finding that insurance adjusters working for Liberty Mutual were exempt employees.  In so doing, our local Supremes effectively subordinated California law to Federal regulation; an act of judicial capitulation that will likely have profound consequences.  An analysis of the se two decisions and links to them follow.

In Horton, the NLRB considered whether the defendant employer violated the National Labor Relations Act (NLRA)by requiring all workers, as a condition of employment,  to waive the right to file class actions for wages and other benefits whether at arbitration or in court. The Board found that such coerced agreements violate section 7 of the NLRA, which gives employees the right to act together for mutual aid or protection.  The Court rejected the claim by the Defendant that the agreement –in the context of employees subject to the NLRA – did not violate the Federal Arbitration Act (FAA) which tends to make all employment-related arbitration provisions, no matter how onerous or one-sided–  enforceable.  The Board clearly found that the employees had the right to bring “employment-related claims on a classwide or collective basis in court or before an arbitrator.” Slip. op at 3.

In Horton, Plaintiffs sought relief under the Fair Labor Standards Act (FLSA) for unpaid overtime.  The key to the decision is that the prohibition against class actions violated the right to “collective action” under the NLRA.  Plaintiffs’ counsel wisely chose to challenge the anti class action clause under the NLRB rather than argue a right under the FLSA to collective action or to try to persuade a court that the agreement was unconscionable.  The reason for this round about route is the United States Supreme Court (SCOTUS).  This court, in its majority conservative makeup embraces vigorously any limitation on collective action and virtually rubber stamps restrictive arbitration agreements.  In particular, SCOTUS is a huge fan of the Federal Arbitration Act (FAA) and routinely strikes down States’s efforts (usually by California) to moderate the use and misuse of arbitration agreements.  Recently, in a much criticized case, AT&T Mobility v. Concepcion, 131 S.Ct. 1740 (2011), the Court struck down a decision of the California Supremos in Discover Bank v. Superior Court (2005) 30 Cal.Rptr.3d 76 which has applied California’s judge made unconscionability test to arbitration clauses.  According to SCOTUS, the FAA is the supreme law of the land and no consumer contract (including employment) is ever likely to be unconscionable by barring class actions and by mandating arbitration.  Plaintiffs in Horton recognized the roadblock and made a very neat end-run around it through the NLRA.  However, the battle is not over: next stop is either the 11th Circuit or the D.C. Circuit and then most likely the supremes once again.  If Scalia and Thomas still hold the whip hand then all the work may have been in vain.

But while the Feds moved to the center, a chastened California Supreme Court headed right. Harris v. Liberty Mutual (supra) is a major disappointment to the Plaintiff’s bar.  In 2001 the Bell decision allowed white collar functionaries –people with no real power and very limited independence – to receive overtime benefits.  The industry in question –insurance – re-tooled and went back for a do-over.  This time they won.  This case is troubling for two reasons.  First, it follows the lead of Federal courts which have limited the principles of the “Administrative Exemption” to the traditional factory setting and have rejected overtime claims unless the employee(s) have been engaged in some form of manual labor (c.f. United Parcel Service v. Superior Court (2011) Cal. App.4th 57. ).  Second, it follows Federal regulation where that regulation is more restrictive than state regulation or case law.  It has long been the most basic principle of construction that Federal regulation, in the overtime context, is followed or is persuasive, only where it is more beneficial to the employee than the State variant.  While California looks to federal regulation for guidance, it does so only where the regulation is consistent with, or is more protective of, the worker than California law.  The courts are bound to follow whichever law or regulation  provides the greatest protection.  Aguilar v. Association for Retarded Citizens (1991) 234 Cal. App. 3d 21, 34-5.  Where a federal regulation limits or reduces the protections offered under California’s statutes and wage orders, the federal rule or regulation is disregarded.  E.g.  Department of Labor Standards Enforcement (DLSE) rule 51.1.5.1 (“DLSE will disregard the language of 29 CFR §541.107 and rely upon the language of 29 CFR §541.207 to define the term ‘discretion and independent judgment’ in each of the exempt classifications.”)  In short, while federal regulations can provide guidance to California courts, that guidance is no longer persuasive (or even relevant) where California statutes, regulations, or public policy differ from the federal by providing greater protections: “Federal regulations are of little if any assistance in construing state regulations which provide greater protections to workers.” Morillion v. Royal Packing Co. (2002) 22 Cal. 4th 575, 593-94.

Unfortunately, Harris seems to ignore this well settled precedent and rely exclusively on restrictive Federal interpretations.  The clear implication of this case is that the California Supreme Court will be looking east for direction rather than leading the way as it has done in years past.  Harris has to be chalked up as a major victory for those who feel that the right to overtime is “extortion”. Choppy seas indeed.

Board finds that certain mandatory arbitration agreements violate federal labor law

See the case document: Frances Harris v. The Superior Court of Los Angeles County