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Don’t Get Cute with The Required Form of Statutory Disclosures

May 16, 2022 By Israel Samuels LLP Leave a Comment

Here is a lesson for those who do not follow the letter of disclosure laws. In the recent Fourth Appellate District Court appeal in the case of Hebert v. Barnes & Noble, Inc., the Appellate Court held Barnes & Noble, Inc. must stand trial because its Fair Credit Reporting Act (FCRA) Disclosure Notice to prospective employees, while containing all of the content required to be disclosed, was not a stand-alone document as required by the FCRA as it included extraneous language unrelated to the topic of consumer reports. The Court also held that Barnes & Noble, Inc. could potentially be held liable for willfully violating the FCRA since at least one of the company’s employees was aware of the extraneous information in the disclosure before the disclosure was displayed to job applicants, the company may not have adequately trained its employees on FCRA compliance, and/or the company may not have had a monitoring system in place to ensure its disclosure complied with the FCRA.

It is imperative that required statutory disclosures be presented with the required content and in the font, type, size color, shape and format required by law. If your statutory disclosures are required for any of your business operations have your
business attorney periodically review those disclosures to assure they are legally compliant. The last thing any employer wants is liability because they used the wrong size or color font.

The information presented is not intended to be, and does not constitute, “legal advice.” Because each situation varies, and only brief summary information is provided here, you should not use this information as a basis for action unless you have independently verified with your own counsel that it applies to your particular situation.

Licensed Contractors Should Not Hire Unlicensed Subcontractors

May 9, 2022 By Israel Samuels LLP Leave a Comment

California Business and Professions Code section 7031 is part of the Contractors’ State License Law. It imposes strict and harsh penalties for a contractor’s failure to maintain proper licensure. It states a general rule that, regardless of the merits of the claim, a contractor may not maintain any action, legal or equitable, to recover compensation for the performance of any act or contract unless the contractor is duly licensed at all times during the performance of that act or contract.

Contractors and Subcontractors are governed by this licensing law. Both owners and general contractors are entitled to protection against illegal subcontracted work by unlicensed persons. Therefore, an unlicensed contractor may not recover compensation for his or her work from either the owner or the general contractor.

This inability of an unlicensed contractor to receive compensation was recently driven home in the California Sixth Appellate Court case of Kim v. TWA Construction, Inc. In Kim, Kim and her husband (Kim) hired TWA Construction, Inc. (TWA) to construct a home on a wooded lot. Early in the construction, a subcontractor hired by TWA to do tree-trimming damaged a large eucalyptus tree that was partly owned by Kims’ neighbor. The neighbor sued Kim, Kim cross-complained against TWA for negligence and indemnity, and TWA cross-complained against Kim for, among other things, breach of contract. During trial Kim and TWA settled with the neighbor but proceeded to trial on their cross-complaints.

At trial, TWA presented no evidence that the subcontractor who worked on the eucalyptus tree was licensed to perform tree trimming work. The jury returned special verdicts finding TWA was 100 percent at fault for the neighbor’s damages and that Kim had paid TWA $10,000 for the tree trimming services performed by TWA’s subcontractor. The trial court entered judgment in favor of Kim for $10,000 on Kim’s cross-complaint and also in favor of Kim and Truong on their cross-claims against TWA.

TWA appealed. TWA contended the judgment must be reversed because the trial court erred in its interpretation of the relevant licensing statute, Business and Professions Code section 7031.3. In addition, TWA asserted the trial court misinterpreted the construction agreement, and substantial evidence did not support the jury finding that Kim paid TWA $10,000 for tree trimming. The Appellate Court affirmed the judgment in favor of Kim.

The Appellate Court noted, “The California Supreme Court has not directly addressed the factual situation presented here as applied to section 7031(a), where a licensed general contractor seeks compensation from an owner for work performed by an unlicensed subcontractor.” However, after a review of the intent and purpose of the law, the Appellate Court, it held:

To nevertheless enable a contractor to recover compensation for the performance of unlicensed work, simply because the work was accomplished by hiring a subcontractor, would circumvent the purpose of section 7031 and render meaningless the section 7031 bar and expansive definition of contractor to include work performed “by or through others. [Cites Om.]”

Thus, the Appellate Court decided that section 7031 bars even a licensed general contractor in California from bringing an action for compensation for an act or contract performed by an unlicensed subcontractor where a license is required.

It is essential the general contractors only hire licensed subcontractors. It is just as essential that contractors maintain their licenses in good standing if they want to be compensated for their work. If you are uncertain whether a licensed contractor is necessary, or discover a contractor you have hired is unlicensed, contact your legal counsel to assist you with the complex issues that arise when unlicensed contractors are involved.

Compensable Commute Time Reminder for California Employers

May 2, 2022 By Israel Samuels LLP Leave a Comment

With COVID restrictions mostly lifted, many employees have started to return to worksites, although many employees remain remote or partially remote. Now that employees have returned to commuting, it is a good time for employers to evaluate whether commute time for certain employees is compensable.

Under the California Wage Orders, hours worked are the time during which an employee is subject to the control of the employer and includes the time the employee is “suffered and permitted” to work. Thus, as a general rule, the time an employee spends commuting to and from the office or similar worksite is not compensable.

There are some circumstances where time spent commuting to a worksite may be compensable.

Travel to a worksite via employer-provided transportation may be compensable. In 2000, the California Supreme Court held that where the employer requires its employees to meet at a designated place, use the employer’s transportation to and from the worksite, and prohibits employees from using their own transportation, the time spent on the employer transportation is compensable.

On the other hand, if the use of employer-provided transport is completely voluntary, the time spent commuting on such transport is not compensable.

Employee travel over a substantial distance from the assigned workplace to a distant worksite to report to work on a short-term basis may be compensable. In part, it will depend on how long the new worksite is assigned.

According to the California Labor Commissioner, the travel time is measured by the difference between the time it normally takes the employee to travel from his or her home to the assigned worksite and the time it takes the employee to travel from home to the distant worksite. This could calculate to no compensable time if, for instance, the travel time is less from the employee’s home to the distant worksite than the employee’s normal commute.

Certain employees are not assigned to a specific workplace and have a reasonable expectation that they will be routinely required to travel reasonable distances to job sites on a daily basis. If an employee has no regular job site, travel time to the
new job site each day is not compensable.

Be aware, compensation paid for drive time is separate from potential reimbursement obligations an employer may have for mileage and other business expenses when an employee travels for work.

If you are an employer with concerns over whether you must pay employees for commute time, contact your employment or business attorney for legal advice on how to comply with California’s employee commute time rules.

DMV DUI Hearing Officer Structure Violates Due Process

April 25, 2022 By Israel Samuels LLP Leave a Comment

In California DUI Lawyers Association v. California Department of Motor Vehicles, the Second Appellate District confronted a challenge to the way the Department of Motor Vehicles administers hearings over pre-trial suspension of driver’s licenses for driving under the influence charges and will forever change the procedure – unless the case is overruled on appeal.

The Department of Motor Vehicles (DMV) conducts administrative hearings to determine whether automatic suspension of a driver’s license is warranted after a driver has been arrested for driving under the influence. At these hearings, the DMV mandates that the hearing officers simultaneously act as advocates for the DMV and as triers of fact. The DMV also authorizes its managers to change hearing officers’ decisions, or order the hearing officers to change their decisions, without notice to the driver.

Based on these practices, the California DUI Lawyers Association and its counsel (collectively, CDLA) sued the DMV and its director for injunctive and declaratory relief. CDLA alleged three causes of action:

violation of 42 United States Code section 1983 affecting due process rights under the Fourteenth Amendment to the United States Constitution (section 1983);
violation of due process rights under Article I, Section 7 of the California Constitution (state due process); and
“illegal expenditure of funds” under Code of Civil Procedure section 526a (section 526a)

CDLA alleged the lack of a neutral hearing officer, and the ex-Garcia communications between DMV managers and hearing officers, violate drivers’ rights to procedural due process under the California and United States Constitutions.

CDLA and the DMV each moved for summary judgment, or in the alternative, summary adjudication. The trial court held CDLA did not have taxpayer standing to assert its claims. The trial court granted the DMV’s motion for summary judgment on that basis and denied CDLA’s motion for summary judgment.

The Appellate Court reversed the judgment, with instructions to vacate the orders granting the DMV’s summary judgment motion and denying CDLA’s summary judgment motion. On remand, and after further briefing, the trial court address the merits of the parties’ motions.

The trial court denied both parties’ motions for summary judgment, but (1) granted the DMV’s motion for summary adjudication of CDLA’s first cause of action (section 1983); and (2) granted CDLA’s motion for summary adjudication of its second (state
due process) and third (section 526a) causes of action. The trial court concluded the DMV’s structural design allowing for ex Garcia managerial interference with the hearing officers’ decision making violated due process under the California
Constitution, and thus constituted waste under Code of Civil Procedure section 526a. The trial court also granted the DMV’s motion for summary adjudication on the following issue:
“As a matter of law, the DMV hearing officer’s dual role as advocate for the DMV and trier of fact does not violate due process.”

The trial court entered judgment in favor of the DMV on the first cause of action (section 1983), and in favor of CDLA on the second (state due process) and third (section 526a) causes of action. The judgment enjoined the DMV from maintaining or implementing a structure allowing managerial interference with hearing officers’ decision-making through “ex Garcia communications or command control.” It also found CDLA to be the prevailing party for purposes of an award of attorneys’ fees.

California DUI Lawyers Association v. California Department of Motor Vehicles was a consolidated appeal. CDLA appealed from the judgment contending the trial court erred by: (1) granting the DMV summary adjudication on the issue of whether a hearing officer’s dual roles as advocate for the DMV and adjudicator violated drivers’ due process rights; and (2) granting the DMV’s motion for summary adjudication of CDLA’s first cause of action under section 1983. The parties also both appealed from the post-judgment award of attorneys’ fees.

The Second Appellate District Court of Appeal concluded, based on the undisputed facts, that CDLA was entitled to judgment as a matter of law on each of its causes of action. and attorneys’ fee award did not constitute an abuse of discretion in light of CDLA’s additional success on appeal, although the Appellate Court remanded the matter to the trial court to reevaluate the amount of fees awarded to CDLA and to calculate the amount of fees and costs CDLA incurred on appeal.

This case opens for litigation those DUI arrests that did not result in conviction and whether such defendants can recover compensation for violation of their due process rights. However, if this applies to you, you may want to wait before you call
your attorney. The DMV may still appeal this matter. Consult with your legal counsel before taking any action.

California Law Requiring Diverse Corporate Boards Declared Unconstitutional

April 18, 2022 By Israel Samuels LLP Leave a Comment

On April 1, 2022, a Los Angeles Superior Court Judge, Terry Green, granted summary judgment in favor of individuals represented by D.C.-based nonprofit Judicial Watch, declaring Assembly Bill 979 (“AB 979”) to be unconstitutional and granting an “injunction preventing the expenditure of taxpayer funds on the implementation of the measure.”

AB 979 required publicly held corporations with a principal executive office in California to have at least one member from an “underrepresented community” on their board of directors by December 31, 2021.

A director from an underrepresented community included “an individual who self-identifie[d] as Black, African American, Hispanic, Latino, Asian, Pacific Islander, Native American, Native Hawaiian, or Alaska Native, or who self-identifie[d] as gay, lesbian, bisexual, or transgender. Companies in violation of AB 979 faced fines of $100,000 for first violations and $300,000 for repeated violations.

Judicial Watch claimed AB 979 violated the Equal Protection Clause of the California Constitution by using taxpayer funds to enforce a quota based on race, ethnicity, sexual preference, and transgender status. California disagreed. It argued AB 979
was necessary to reverse a culture of discrimination and proclaimed that no companies had been fined and no tax dollars had been used to enforce the measure.

Judge Green issued an order agreeing with Judicial Watch that AB 979 violates the Equal Protection Clause of the California Constitution on its face because:

It “treats similarly-situated individuals – qualified potential corporate board members – differently based on their membership (or lack thereof) in certain listed racial, sexual orientation, and gender identity groups. It requires that
a certain specific number of board seats be reserved for members of the groups on the list – and necessarily excludes members of other groups from those seats.”
The use of suspect categories is not justified by any compelling interest. “The broader public benefits produced by well-run businesses do not fit that bill. On the other hand, while remediation of discrimination can be a compelling interest, the state must define a specific arena in which the discrimination has occurred … [c]orporate boards are not such an arena … The Legislature did not even attempt to limit its investigation or its findings to California corporations,
though jurisdictional restrictions ensured that only California corporations would be covered by the law. And even supposing that corporate boards were a sufficiently specific arena, neither the Legislature nor the Secretary [of State] has produced the combination of (a) valid statistical comparisons and (b) anecdotal testimony which could serve as “convincing evidence” of discrimination in that arena.”
The statute is not narrowly tailored to serve the compelling interests offered. “The Legislature made no attempt to conduct a demographic survey of the qualified talent pool of potential board members…[and]…made no attempt to obtain disclosure from California corporations regarding the current demographics of their boards…. The Legislature and the Secretary [of State] blame a “secretive, insular” selection process for the problem with current board compositions. Yet there has
been no attempt to improve that process, nor has any good explanation been offered for that lack of effort.”

California Employment Law Update believes this decision may impact another lawsuit Judicial Watch filed against the State challenging a 2018 law (Senate Bill 826) requiring a minimum of one female director on corporate boards. It believes it may also impact the Securities and Exchange Commission approval of a rule proposed by Nasdaq, set to go in effect this year, that will require companies listed on its exchange to have “at least one director who self-identifies as a female,” and to have “at least one director who self-identifies as Black or African American, Hispanic or Latinx, Asian, Native American or Alaska Native, Native Hawaiian or Pacific Islander, two or more races or ethnicities, or as LGBTQ+,” or explain why they do not.

The current California Secretary of State has yet to comment on whether or not she will appeal this decision.

How Salon & Spa Owners Can Comply with California Wage & Hour Laws

April 11, 2022 By Israel Samuels LLP Leave a Comment

Pre-pandemic salons and spas faced liability for the following compensation structures:

Paying commissions to employees who were not selling goods or services; and
Paying by piece rate (e.g., per treatment or service), (complicated because of requirements related to payment for nonproductive time, and specific requirements for paystubs).

These payment structures, when performed improperly also implicated additional wage and hour issues, such as failure to pay minimum wage and overtime payments, and failure to properly pay meal and rest breaks.

Labor Code Section 204.11 complicated the matter as it changed the definition of the term “commission” in this context. The Code specifies that wages paid to employees who are licensed under the Barbering and Cosmetology Act, and provide services for which such a license is required, are commissions only if: (1) the employee’s base hourly rate is at least two times the state minimum wage in addition to commissions paid; and (2) the employee’s wages are paid at least twice during each calendar month on days designated in advance by the employer as regular paydays.

With the re-opening of salons and spas back to their full capacity we suspect that the Department of Labor Standards Enforcement (DLSE) will again step-up enforcement. Thus, to avoid an enforcement action many salon and spa owners are asking what the best compensation structure is for their spas and salons? It will all depend on the owner’s particular situation and predilection. Here are three payment options:

Option 1: Rather than pay on a commission basis, salon and spa employers can pay their employees an increased hourly rate. This increased hourly rate could be based on a blended rate depending on the treatments offered. In this manner, there would be no commission structure.

Option 2: Pay the employee 2x the California minimum wage plus agreed-upon commission. Spas can choose to pay by California’s permissible commission structure, which requires complying with Labor Code Section 204.11, and having a
signed commission agreement.

Option 3: Spas can pay by piece rate, in compliance with Labor Code section 226.2

If you operate a spa or salon in California, take note and give your business or employment attorney a call for a review and discussion. The resumption of full services post-pandemic will also bring the resumption of new wage claims by employees and the DLSE.

Mandatory Arbitration Provisions in Browsewrap Website Terms and Conditions

April 4, 2022 By Israel Samuels LLP Leave a Comment

This month, in Berman v. Freedom Financial Network the United States Court of Appeals for the Ninth Circuit revisited the issue of whether websites can enforce mandatory arbitration clauses in hyperlinked “terms and conditions” that most users never read. The Ninth Circuit affirmed a District Court order denying the motion to compel arbitration brought by the defendant digital marketing company in response to a claim that the digital marketing company violated the Telephone Consumer Protection Act by directing telemarketing activity obtained from consumer information provided by visits to the defendant’s websites.

The Ninth Circuit explained its duty was to determine “whether a valid arbitration agreement exists and, if so, whether the agreement encompasses the dispute at issue.” It further explained, clickwrap agreements, where a website displays a contract that must be agreed to with a click by the consumer, are routinely found enforceable. Conversely, courts less often enforce browsewrap, in which a user “supposedly manifests assent” by clicking to continue in the presence of a hyperlink to the terms and conditions. Courts hesitate to enforce these because consumers are frequently left unaware that contractual terms were even offered. A contract is enforceable in this context only when: “the website provides reasonably conspicuous notice of the terms to which the consumer will be bound,” and if the consumer clicks a button or checks a box to show unambiguous assent to those terms.

To be enforceable a website must provide “reasonably conspicuous notice of the terms to which the consumer will be bound.” In Berman, the Ninth Circuit found that the “terms and conditions” text was “tiny gray font” and displayed much smaller than the other nearby graphics and text. As held in Nguyen, a website is required and did not capture the user’s attention and secure her assent. It also instructed, if a hyperlink is used to redirect users to the terms and conditions, it must be “readily apparent.”

In Berman, the hyperlink was exhibited in the same text color as surrounding words, not clearly distinguishing its existence to consumers. Thus, the Ninth Circuit concluded, as did the District Court, the defendant did not provide “reasonably conspicuous notice.”

The second requirement to bind users to a contract without their actual knowledge is through an unambiguous manifestation of assent. The defendant argued that the plaintiffs clicking on the “continue” button satisfied this standard. The Ninth Circuit however found that “merely clicking on a button” does not show actual agreement. Further, the court held that “even close proximity of the hyperlink” to other buttons to be clicked is “insufficient to give rise to constructive notice.” The Ninth Circuit explained defendant could have easily included language specifying what exactly users were agreeing to with the clicking of “continue,” and offered suggestions for similar companies looking to create enforceable agreements.

The Ninth Circuit affirmed the district court’s denial of defendant’s motion to compel arbitration. If you have terms and conditions that contain a mandatory arbitration agreement for your website, see your business attorney for a review and employ those steps outlined by the Ninth Circuit in Berman.

California Courts Split on Whether Unmanageable PAGA Claims Can Be Dismissed

March 28, 2022 By Israel Samuels LLP Leave a Comment

In Wesson v. Staples the Office Superstore, LLC, the appellate court determined that courts have inherent authority to strike unmanageable PAGA claims. (Id. at pp. 766-767.) A contrary opinion has just been issued by the California Fourth Appellate District in Estrada v. Royalty Carpet Mills, Inc. The Estrada court recognized the concerns expressed in Wesson but reached an opposite conclusion. The Estrada court referenced what it found to be pertinent Supreme Court authority and determined that a court cannot strike a PAGA claim based on manageability. A Private Attorney General Act (PAGA) claim is a claim of an employee against an employer for employer wage and hour violations brought on behalf of all employees similarly affected that splits the recovery between the plaintiffs and State and permits recovery of statutory penalties, attorneys’ fees and other damages for all affected employees.

The Estrada court determined California Supreme Court cases made clear that PAGA claims are unlike conventional civil suits and, in particular, are not class actions. It reasoned that allowing dismissal of unmanageable PAGA claims would effectively graft a class action requirement onto PAGA claims, undermining a core principle of these authorities. It also decided it would interfere with PAGA’s purpose as a law enforcement mechanism by placing an extra hurdle on PAGA plaintiffs that is not placed on the state.

The Estrada court asserted that courts are not powerless when facing unwieldy PAGA claims. It opined courts may still, where appropriate and within reason, limit the amount of evidence PAGA plaintiffs may introduce at trial to prove alleged violations to other unrepresented employees. If plaintiffs are unable to show widespread violations in an efficient and reasonable manner, according to the Estrada court, it just reduces the amount of penalties awarded and should not lead to dismissal.

Employers faced with PAGA claims should immediately retain counsel to defend such actions. These cases are becoming the preferred choice of employee counsel as they are very expensive to defend.

Employee Non- Solicitation Agreements May Be Upheld

March 21, 2022 By Israel Samuels LLP Leave a Comment

California disfavors post-termination restrictive covenants. However, the California Court of Appeal, in Blue Mountain Enters., LLC v. Owen, affirmed the enforceability under California Business & Professions Code § 16601 of a post-termination customer non-solicitation agreement.

Ordinarily, contractual provisions that prevent a person from engaging in a profession, trade, or business, including customer non-solicitation agreements, are void in California. Section 16601 of the California Business and Professions Code carves out a statutory exception to permit such agreements in contracts where individuals sell all of their interest, including goodwill, in a business.

In Blue Mountain v. Owen, Owen transferred his ownership interest in several real estate and construction-related firms to Blue Mountain Enterprises, LLC, as part of a joint venture with Acolyte Limited. Owen became Blue Mountain’s CEO as part of the transfer. The three-year post-termination non-solicitation provision was included only in Owen’s employment contract, but the joint venture, which included Owen’s transfer of his ownership interests, was carried out through four interrelated agreements entered into over the course of several days.

After Owen’s employment was terminated for cause, Owen established a competing construction services company and sent a letter to Blue Mountain customers that stated he was launching his new business with “greater perspective, more resources and a much stronger team.” Blue Mountain sought and obtained preliminary and permanent injunctive relief that prohibited Owen from soliciting its customers and then prevailed on its motion for summary judgment adjudication of its breach of contract claim.

On appeal, Owen unsuccessfully challenged the trial court’s orders. Owen contended that the non-solicitation covenant did not meet the requirements of section 16601 because the restrictive covenant was contained in his employment agreement and there was no explicit transfer of goodwill. The Court found that Owen’s transfer of his personal interest into Blue Mountain (a portion of which was later transferred to Acolyte) was sufficient to qualify for the exemption under section 16601. The Court also rejected Owen’s attempt to disavow the customer nonsolicitation covenant because it was found in his employment agreement. The Court stated:

Blue Mountain’s ability to enforce the non-solicitation covenant is not undone by the fact that this provision is found in one contract in a multi-contract joint venture rather than another.

The Court concluded that an explicit transfer of goodwill was not required to qualify for the exemption under section 16601 as the transfer of goodwill could be reasonably inferred.

The Court determined that Owen’s letter to Blue Mountain customers did more than simply announce his new business. It was deemed to “petition, importune and entreat” the customers to leave Blue Mountain for better opportunities with Owen’s new company.

By broadly construing the purpose and requirements of section 16601 the Court in Blue Mountain Enters., LLC v. Owen solidifies the exception in Section 16601 to the invalidity of customer non-solicitation covenants when a business owner
transfers or sells all of their interest in a business.

California May Revise Employee Background Check Requirements

March 14, 2022 By Israel Samuels LLP Leave a Comment

For employers who run background checks as part of their hiring process it is important to the employer that the background check be completed in a timely manner. Last year, in None v. Hamrick, the California Court of Appeals made that process appreciably more difficult by prohibiting searches of criminal court records with the use of a person’s birth date or driver’s license number.

In None v. Hamrick, a challenge was mounted to Riverside County Superior Court’s Public Access system, which allowed users to filter and search criminal records based on dates of birth and/or driver’s license numbers. The plaintiffs asserted the system violated Rule 2.507 of the California Rules of Court, which provides that electronic indexes of criminal case records must exclude, among other things, social security numbers, birth dates, drivers’ license numbers, financial information, and ethnicity, age, and gender designations.

As a result of the ruling in None v. Hamrick, employers’ ability to run routine and speedy background checks has become complicated and more time-consuming, especially in the case of applicants or employees with common first and/or last names. Just try to find the right John Smith without the use of a birth date or driver’s license number. The California Chamber of Commerce advises that some employers are reporting delays of multiple weeks in hiring as a result of the changes
in the background check process.

Fortunately for employers, this may change in the near future. Last month, a bill was introduced in the California State Senate that would reinstate more streamlined searches of court records. If passed, Senate Bill 1262 would require that publicly accessible electronic indexes of court records in criminal cases be searchable by driver’s license, date of birth, or both.

As of March 2, 2022, the new bill has been referred to the Committee on Public Safety.

Before employers run background checks they should analyze whether they should truly be required and, if so, discuss with their business attorney how to comply with the present state of the law.