The California Supreme Court has issued its opinion in Estrada v. Royalty Carpet Mills, Inc. (S274340, Jan. 18, 2024), resolving a split of authority regarding whether claims brought under the Private Attorneys General Act (PAGA) may be stricken where there is no manageable way to try them. Unfortunately for California employers, the answer is no. This outcome is disappointing to those hoping that the Supreme Court might have done something more in Estrada to curb the abuse of PAGA, which too often becomes a vehicle through which overreaching, unmanageable claims are alleged in shakedown lawsuits in an attempt to extract windfall settlements. The present state of affairs is a sober reminder that, now more than ever, PAGA is broken and needs to be fixed.

Despite its holding, Estrada recognizes that PAGA manageability is a concern. In particular, Estrada distinguishes a trial court’s inability to dismiss PAGA claims outright on manageability grounds from the various tools that remain available to courts to efficiently manage such claims. Indeed, the opinion acknowledges the “challenges” presented by the complexities of PAGA actions, and it leaves “undisturbed” the various case management tools courts can and should use to ensure that such claims are “efficiently, fairly, and effectively tried.” So, while motions to strike PAGA claims for unmanageability alone are no longer viable, the focus on PAGA manageability is far from over. To the contrary, Estrada reminds plaintiffs of the need to be practical in bringing appropriately tailored claims capable of being effectively tried. Nothing in Estrada prevents trial courts from insisting that plaintiffs provide a trial plan showing how their claims would be tried, and Estrada reminds courts that they may limit PAGA claims and/or testimony or other evidence offered at PAGA trials to ensure manageability. Estrada even preserves the possibility of striking a PAGA action altogether where the claims are so unmanageable as to deprive a defendant of due process.

The American workplace has changed significantly since the passage of the Family and Medical Leave Act (“FMLA”) over 25 years ago. The ubiquitous use of technology, such as email, instant messaging applications, laptops, and cellphones, have made working from home more commonplace and blurred the lines between home and work life. In some industries or work cultures, managers expect employees to be accessible at most hours of the day, even when taking approved leaves of absence. The need for employees to respond to employer inquiries while out of the office is even more likely when employees have valuable institutional knowledge about company business or clients that the employer needs.

While employee accessibility may just be part of the modern workplace, contacting an employee on FMLA protected leave may subject an employer to a claim of FMLA interference. But employees on FMLA leave are not completely firewalled from all contact. As one court found, “[f]ielding occasional calls about one’s job while on leave is a professional courtesy that does not abrogate or interfere with the exercise of an employee’s FMLA rights.”[1] So, when does reaching out to an employee of FMLA leave rise to the level of interference?

With California’s new pay transparency and pay reporting obligations under S.B. 1162 now in effect, employers are seeking answers on various open questions for complying with the new law. As we previously reported, S.B. 1162 requires employers with 15 or more employees to include pay scale information in each job posting for positions in California, as well as disclose information to current California employees upon request. Failure to comply with these requirements can result in significant civil penalties (ranging from $100 to $10,000 per violation) and possible government investigations or private lawsuits.

Although we are still waiting for more formal guidance, California Department of Industrial Relations (DIR) recently released new Frequently Asked Questions (FAQs) that provide some key interpretations of S.B. 1162.

• Extraterritorial Application: One of the major open questions for S.B. 1162 was how to count employees to determine coverage. The FAQs state that the pay transparency requirements under S.B. 1162 will cover any employer that has at least 15 employees anywhere (even outside California) and at least one of those employees is in California.
• Applies to Remote Jobs: The FAQs clarify that the new law applies to any job that can be performed by someone based in California, either working in person or remotely. This means that the Labor Commissioner believes the pay scale disclosure requirements apply to any remote positions where the employer could potentially hire someone located in California.
• Pay Scale Cannot Be Linked to Job Postings: The FAQs state that pay scale information must be included directly within the job posting and cannot be linked in an electronic posting. Covered employers also cannot use a QR code in a paper posting that will take the applicant to the salary information. This interpretation is a departure from some other state pay transparency laws, such as Colorado, that permit employers to include links or QR codes in job postings to pay range information.
• Pay Scale Does Not Include Bonuses, Tips, or Other Benefits: The FAQs also clarify that “pay scale” means the salary or hourly wage range the employer reasonably expects to pay for a position and does not include bonuses, tips, or other benefits. If employers pay on a commission or piece rate, however, employers must include the piece rate or commission ranges they reasonably expect to pay for the position in the job posting. The Labor Commissioner noted that employers are free to include other forms of compensation to make its recruitment efforts more competitive but cautioned that such compensation would still be considered for equal pay purposes.
• Retaliation Remedies: S.B. 1162 requires that individuals must file a written complaint with the Labor Commissioner within one year of the date the individual learned a violation occurred. The FAQs state that employees may also file a claim for retaliation with the Labor Commissioner or by filing a civil complaint in court within one year of retaliation. The FAQs further provides that a prevailing plaintiff can be awarded reinstatement, back pay, interest, and other remedies. The Labor Commissioner can also impose civil penalties ranging from $100 to 10,000 per violation.

On July 17, the California Supreme Court issued its opinion in Adolph v. Uber Technologies, Inc. (S274671, Cal. Jul. 2023), holding that an employee who has been compelled to arbitrate claims under the Labor Code Private Attorneys General Act of 2004 (PAGA, Cal. Lab. Code § 2698, et seq.) that are “premised on Labor Code violations actually sustained by the [employee] maintains statutory standing to pursue ‘PAGA claims arising out of events involving other employees’ in court.”

The Viking River Decision

The California Supreme Court’s decision in Adolph follows in the wake of Viking River Cruises, Inc. v. Moriana, where—as we previously reported—the United States Supreme Court held that the Federal Arbitration Act (FAA, 9 U.S.C. § 1, et seq.) preempted California law as set forth in Iskanian v. CLS Transp. Los Angeles, LLC, 59 Cal. 4th 348 (2014), to the extent it precluded the division of PAGA actions into arbitrable individual claims and nonarbitrable non‑individual claims. Under Viking River, an employee’s agreement to arbitrate their individual PAGA claims may be enforced. The Supreme Court in Viking River also concluded that where the employee’s individual PAGA claims were no longer pending in court, the employee no longer had standing to maintain the remaining “non-individual” representative PAGA claims, warranting their dismissal. After Viking River, many trial courts have entered orders compelling individual PAGA claims to arbitration, with some courts electing to dismiss the remaining non‑individual PAGA claims consistent with Viking River, and several others choosing to stay the claims pending the individual arbitrations.

A split panel of the Ninth Circuit vacated in part a preliminary injunction barring enforcement of AB 51, the California law banning mandatory employment arbitration agreements.[1] But the Ninth Circuit found that the penalties for violation of this provision are preempted by the Federal Arbitration Act (FAA), so the enforcement path remains unclear.

How’d We Get Here?

AB 51 adds California Labor Code section 432.6, which bars employers from mandating that an employee agree to an arbitration agreement as a condition of employment. As we explained in our previous Commentary, on February 2020, a federal district court ruled that the law is preempted by the FAA because it puts arbitration agreements on “unequal footing with other contracts,” had the impact of disfavoring arbitration contracts, and impeded the objective of the FAA. The district court enjoined enforcement of AB 51, and the Attorney General appealed.

On August 20, 2024, a judge in the U.S. District Court for the Northern District of Texas granted a nationwide injunction against the Federal Trade Commission’s (“FTC’s”) rule banning non-competes with employees (the “Rule”). As we previously reported, the court foreshadowed this ruling last month when it issued a limited injunction, barring the Rule from applying only to the plaintiffs in that case. For now, employers can breathe a sigh of relief that the court has extended the injunction to all employers.

Although companies can continue using non-competes without regard to the Rule, they are not out of the woods yet. The FTC is considering appealing this ruling and continues to believe it can take individual enforcement actions against non-competes. Employers must also contend with the trend of states continuing to limit (and in some cases ban) non-competes and other regulators, like the National Labor Relations Board, taking enforcement against employment non-competes. Employers should consider taking this opportunity to review their non-compete agreements and practices to ensure they are prepared to navigate the evolving landscape for non-competes.

The U.S. Supreme Court’s decision in Viking River Cruises v. Moriana, 142 S. Ct. 1906 (2022), in June 2022 delivered a victory for California employers facing claims brought pursuant to the Labor Code Private Attorneys General Act of 2004 (PAGA), as we previously reported. Since then, the California state and federal courts have seen an influx of motions to compel arbitration of individual PAGA claims and to dismiss (or in the alternative stay) the non-individual PAGA claims. The first aspect of the Viking River decision – that individual PAGA claims can be compelled to arbitration – has been consistently followed by lower courts. And, despite various creative arguments by plaintiffs trying to distinguish Viking River’s holding from the specific facts and agreements in their cases, the vast majority of courts have granted motions to compel arbitration of individual PAGA claims.[1] However, the second aspect of the Viking River decision – that the remaining non-individual PAGA claims should be dismissed because they now lack a PAGA plaintiff to pursue them – has been met with mixed results.

On April 15, 2024, the U.S. Equal Employment Opportunity Commission (the EEOC) published its final Pregnant Workers Fairness Act (PWFA) regulation requiring covered employers to provide qualifying employees and applicants accommodations to perform their work duties safely and without retaliation. This alert covers key provisions of the final rule.

Effective June 18, 2024, under the PWFA and the EEOC’s regulations:

• In addition to current anti-discrimination laws protecting pregnant employees, covered employers will be required to affirmatively make reasonable accommodations related to the pregnancy, childbirth, or related medical conditions of qualified employees and applicants, unless the accommodation presents an undue hardship to the employer;
• The definition of individuals qualified to request an accommodation under federal law is expanded to include employees and applicants who may have a temporary inability to perform an essential job function due to pregnancy or a related condition;
• Qualified employees will not be required to show that the underlying condition meets a specific severity threshold, nor will they need to specify a condition on the non-exhaustive list of examples provided by the EEOC; and
• Employers will be restricted from requesting documentation to support a covered employee’s request in certain situations and are prohibited from retaliating against employees or applicants who request a pregnancy-related accommodation.

While the FTC was relatively quiet in 2023 on the non-compete front, California forged ahead with two amendments to its non-compete statute (Business and Professions Code section 16600) that, depending on how courts interpret them, could be one of the most significant developments in the California employee-mobility space in the last 10 years. One of the amendments (SB 699) extends California’s non-compete ban to those signed by out-of-state employees under out-of-state law and creates a private right of action. The other (AB 1076) makes it “unlawful” to enter into a non-compete with an employee and required employers to notify their current and former employees by February 14, 2024, that any such non-competes are void. Each raises at least as many questions as they answer, including the effect, if any, on the Private Attorneys General Act (PAGA), employee non-solicits, and extraterritoriality. New York state, meanwhile, made news for what it did not enact—a total ban on non-competes. But although New York’s governor vetoed the total-ban bill, the New York City Council introduced a non-compete bill of its own in February 2024 that would ban all non-competes in the city without exception. Below we survey the latest on the FTC’s proposed rule, California’s new non-compete amendments, the New York state ban that was vetoed, and the proposed ban that was recently introduced in the New York City Council.

The California Supreme Court has issued its opinion in Estrada v. Royalty Carpet Mills, Inc. (S274340, Jan. 18, 2024), resolving a split of authority regarding whether claims brought under the Private Attorneys General Act (PAGA) may be stricken where there is no manageable way to try them. Unfortunately for California employers, the answer is no. This outcome is disappointing to those hoping that the Supreme Court might have done something more in Estrada to curb the abuse of PAGA, which too often becomes a vehicle through which overreaching, unmanageable claims are alleged in shakedown lawsuits in an attempt to extract windfall settlements. The present state of affairs is a sober reminder that, now more than ever, PAGA is broken and needs to be fixed.

Despite its holding, Estrada recognizes that PAGA manageability is a concern. In particular, Estrada distinguishes a trial court’s inability to dismiss PAGA claims outright on manageability grounds from the various tools that remain available to courts to efficiently manage such claims. Indeed, the opinion acknowledges the “challenges” presented by the complexities of PAGA actions, and it leaves “undisturbed” the various case management tools courts can and should use to ensure that such claims are “efficiently, fairly, and effectively tried.” So, while motions to strike PAGA claims for unmanageability alone are no longer viable, the focus on PAGA manageability is far from over. To the contrary, Estrada reminds plaintiffs of the need to be practical in bringing appropriately tailored claims capable of being effectively tried. Nothing in Estrada prevents trial courts from insisting that plaintiffs provide a trial plan showing how their claims would be tried, and Estrada reminds courts that they may limit PAGA claims and/or testimony or other evidence offered at PAGA trials to ensure manageability. Estrada even preserves the possibility of striking a PAGA action altogether where the claims are so unmanageable as to deprive a defendant of due process.

Each year seems to bring significant developments in whistleblower law, and 2023 has been no exception. As whistleblower activity increases, so, too, has the scope of its protections. From state to federal government, from the SEC to the U.S. Supreme Court, courts and regulators in the last 12 months or so largely have made it easier for employees to raise whistleblower claims while making it harder for employers to defend them. Below are some of the highlights, including two important decisions effectively expanding the scope of protections under California’s general whistleblower law (Section 1102.5), a U.S. Supreme Court that seems to be leaning toward a ruling that may favor SOX plaintiffs, and an SEC enforcement action against a private company to enforce its whistleblower protection rule.

California Supreme Court Adopts Expansive Interpretation of Protected Activity Under California’s General Whistleblower Law

Section 1102.5 of the California Labor Code prohibits employers from retaliating against an employee “for disclosing information” reasonably believed to be a violation of state or federal law to a government agency or “to a person with authority over the employee, or to another employee who has authority to investigate, discover, or correct the violation or noncompliance.” For the last few years, there has been something of a circuit split in California on what it means to “disclose” in this context. Does Section 1102.5 protect employees who report suspected unlawful activity even if the recipient of the report already knows about it? Or does the law protect disclosure of only previously unknown information?

On May 30, 2023, the National Labor Relations Board’s (the “NLRB’s”) General Counsel Jennifer Abruzzo (the “General Counsel”) issued Memo General Counsel 23-08 (the “Memo”), expansively finding that non‑competes with employees violate the National Labor Relations Act (the “Act”), except in limited circumstances. As foreshadowed in her memo on the NLRB’s enforcement against overbroad non‑disparagement and confidentiality clauses related to the McLaren Macomb decision, the General Counsel claims, without clear legal authority or other support, that offering, maintaining, or enforcing non‑competes and non-solicits with employees violates Section 7 of the Act where they reasonably tend to chill employees from engaging in “concerted activities for the purpose of collective bargaining or other mutual aid or protection.” The Memo lists a variety of rationales, including non-competes with low-wage workers, to justify the General Counsel’s finding. The Memo, however, fails to articulate any clear examples of how non-competes interfere with traditional “concerted activities” protected by the Act, particularly in any manner to justify the sweeping scope of non-competes the Memo appears to find are unlawful. The Memo simply declares that non-competes are unlawful under the Act unless the employer can show that the non‑compete is “narrowly tailored to special circumstances justifying the infringement of employee rights.”