Adolph v. Uber: The Future of CA Arbitration Agreements

[Chantelle Egan] (0:00 - 1:01)
Hello and welcome to Medina McKelvey's webinar around regarding Iraqi Uber technologies where we're going to be talking today about updates and changes in the landscape of arbitration when it comes to employment practices. I'm here today with my partner Tim Nelson who is the leader of our wage and hour practice group. My name is Chantelle Egan. I am the advice and counsel practice group leader here at Medina McKelvey and today we're going to walk through just some of the basics about arbitration agreements to level set and then we're going to talk through the history of arbitration agreements and really how things have evolved in the last year. There's been a lot of development and then focus on how the most recent case it off the Uber technologies has changed the landscape and what you can expect when you're preparing to defend against PAGA and class action suits as well as what are some changes that you can make for compliance.

[Tim Nelson] (1:01 - 3:52)
So we wanted to start out by just generally describing what arbitration is. Many of you may not really know what arbitration is, haven't had experience with arbitration agreements, kind of understand the difference between arbitration and you know just a normal run-of-the-mill lawsuit in court. So the important thing to remember about arbitration is that it is private adjudication. So you're taking a dispute between an employee and an employer and you're taking it out of the civil court system and you're putting it into a private adjudication system called arbitration. Arbitrations are generally run by neutral arbitrators. The arbitrators can be either retired judges or attorneys. Sometimes they have specialization in employment law, sometimes they don't, but they're the ultimate, either the retired judge or the attorney is the ultimate decider in the case. You don't have a civil court judge. The arbitration process is more relaxed and streamlined than civil court. For any of you who have been through a lawsuit before, you know that there are strict procedures that have to be followed with respect to discovery, motions, trial, all of that stuff. It's very different in arbitration. The structure is much more relaxed and much more streamlined. The arbitrator can choose how much discovery to allow. The arbitrator can choose how long the hearing is going to be. The arbitrator can choose whether or not to allow motions and what kind of motions. It's definitely a more relaxed and streamlined process. Theoretically, arbitration is quicker. We've been seeing a backlog in civil court these days because of COVID. Criminal cases are taking priority, and so we're seeing some courts that are setting civil cases two years or even further out. That's not across the board, but generally the process to get a civil case from inception to trial is much, much lengthier than it would be in arbitration. Finally, the appeal rights in arbitration are significantly different than in civil court. In civil court, you get a judgment. You can appeal that to the appellate court. If you don't like that decision, you can appeal that to the Supreme Court at either the federal or state level. Generally speaking, arbitrations don't have those appeal rights that you would have in civil court. That's just a general understanding of what arbitration is.

[Chantelle Egan] (3:52 - 5:52)
Arbitration agreements are absolutely everywhere. You download an app. Part of accepting that you were willing to download the app is, yes, of course, I accept this arbitration agreement. Those ones that we all scroll through to get through the end. You started a new doctor. Very frequently, you'll see an arbitration agreement there. They really are everywhere. There is a difference between the consumer arbitration agreements that we see in our everyday life and we interact with quite frequently and those in the employment context. In a consumer agreement, those can be mandatory. Before you download that app or make that purchase or are willing to use a certain type of software, by clicking that button, you're saying, yes, this is absolutely mandatory and I don't pass go other if I sign that arbitration agreement or not. Likewise, there are very few disclosure requirements. It's much more easy to enforce. Now, an employment agreement, while it can be mandatory, it has to survive very, very strict scrutiny to show that the employee or the applicant had an element of choice when they were deciding whether or not to sign the arbitration agreement. Likewise, there's numerous bells and whistles when it comes to making sure that the employee has full disclosure as to the terms. Not only are there required terms, but it really focuses also on formatting and has the person had sufficient time to review. Ultimately, they're much harder to enforce. Very frequently, there is motion practice having to, once a matter is filed in court, that the employer attorneys need to file a motion to compel arbitration in order to actually have the agreement enforceable.

[Tim Nelson] (5:52 - 7:05)
We wanted to discuss the pros and cons of arbitration. Chantelle and I are going to go back and forth on this one. One of the biggest pros of arbitration is you don't have a judge or a jury. We know juries can be very unpredictable. When you take a case out of civil court and put it into arbitration, you don't have to worry about the unpredictability of a jury. Judges likewise can be unpredictable. We don't really have control over which judge we are assigned to. If a lawsuit is filed against one of our clients, it might get assigned to a judge that has a plaintiff background or has decided employment cases in favor of employees in the past. We have no control over that. We do have one challenge that we can use in certain circumstances, but after that, it's out of our hands. In the arbitration process, you have a single arbitrator. Most likely, there is a selection process. You don't normally get your top selection, but you do have some input into that process.

[Chantelle Egan] (7:05 - 7:52)
At the same time, an arbitrator wants to be somebody who is desirable to both plaintiff and defendant's bar. Just as Tim mentioned, there may be a panel that you're deciding from. Very frequently, what we see is something we call the arbitrator's compromise. This is one of the negatives to an arbitration agreement. Instead of getting a de facto win, for example, a motion for summary judgment and getting a full defense judgment, you may have an arbitrator that lets more claims through. At the end of the day, after a hearing has both the employer side and the employee side win a little bit and lose a little bit in order to have, in essence, the decision be more equal.

[Tim Nelson] (7:52 - 8:27)
Another pro to arbitration agreements and arbitration in general is that it's quicker. As I discussed in a prior slide, arbitrations generally are quicker than civil court. Discovery can be done much more quickly and efficiently. The hearing itself can be done much more quickly and efficiently. The process in civil court can drag out significantly, which can lead to higher legal fees. In arbitration, that process is much more streamlined.

[Chantelle Egan] (8:27 - 10:00)
As that piece about being quicker, one of the things that is really interesting as a residual from COVID is during COVID, because of backlog in civil court, as Tim mentioned, actually there was a surge in parties being willing to not contest arbitration and move forward. For a time there, the arbitration getting to hearing was actually taking something somewhat similar to a typical court case. That seems to have waned now that we're in our third year post the COVID first arriving on the scene. It wasn't quite as quick as it used to be. Additionally, there is an added expense having arbitration. One of the requirements, and this is what I was talking about earlier, that there's particular requirements for an employment arbitration agreement. One of them is that the employer has to bear the cost of the arbitration. What I mean by that is that anytime that you're having a meeting with the arbitrator, the hearing of the arbitrator, the arbitrator is preparing a written report as to the final judgment. All of that, they're going to be billing on an hourly basis. It's the employer's responsibility to cover those costs, as well as the additional costs such as the conference room space and things of that nature. In terms of the immediate costs, you can end up feeling more expensive than a litigation separate and apart from the attorney's fees.

[Tim Nelson] (10:00 - 11:03)
Back to the pro side, another benefit to arbitration is the relaxed rules. As I said earlier, arbitration, there are some basic ground rules that each arbitrator provider has in place, but the arbitrator has a lot of discretion to decide evidentiary issues, discovery issues, motion issues, all of those things. In civil court, you get served with formal discovery. You have 30 days to respond. You have to assert all your objections. There's motions to compel and all of those things. It's different in arbitration. You can have different deadlines to respond to discovery. You can have limits on discovery. There's all sorts of ways that an arbitrator can use to move the case forward more efficiently. Those relaxed rules can actually be to the benefit of the employer.

[Chantelle Egan] (11:03 - 11:52)
While those relaxed rules typically are a benefit to the employer, making sure that all the evidence gets in and also making sure that discovery is limited in scope, it's also less predictable. You could end up with an arbitrator that has their own set of rules, as Tim was highlighting, that there's a lot of discretion on the side of the arbitrator. It's harder to predict exactly what the arbitrator is going to require or, for example, what they will let in is evidence because they've decided to take a very relaxed approach, whereas the evidentiary rules, for example, are very strict in the court context. It's more feasible to predict what may or may not be permitted for hearing.

[Tim Nelson] (11:52 - 12:23)
Last but not least, one of the benefits of arbitration is that the arbitrator's award is binding and final. That's great if you win. For employers, if the arbitration goes well and you get a really good decision from the arbitrator, that's binding and final. You don't have to worry about the process being dragged out as the plaintiff files appeal after appeal and you get hung up in the appeals court. Your award is binding and final.

[Chantelle Egan] (12:23 - 12:52)
Conversely, if the outcome was not what you liked and you didn't think it was fair, you have no recourse. While there's numerous benefits to having finality and once the order's been issued, it is over, you can move forward, you're not going to get bogged down in appeals and have things dragged on for years, it does close the door if you're dissatisfied with the outcome.

[Tim Nelson] (12:52 - 26:11)
Okay, one more piece of background before we get into the meat of the cases, including the Adolph case. It's important in this discussion about arbitration agreements to understand the difference between a wage and hour class action and a PAGA action. The Adolph case pertains to PAGA actions and I'll explain what that is, but it's important to understand the difference. A class action generally is a lawsuit that's filed by one, maybe two or three individual employees on behalf of all of your non-exempt hourly employees in California. And the way a class action works is it will cover all of those non-exempt hourly employees, both current and former, going back up to four years until the date the case resolves or the class is certified. In a class action, the employees do not have to do anything to participate in the case, they're automatically in. In a class case, you might have an employer who has the best of intentions, who has near perfect compliance with the labor code, none of that really matters. It's a strict liability standard. If you have a labor code violation, that's all that matters. Doesn't matter the intent behind it, doesn't matter if you are close to perfect, you basically have to be perfect. And so the question is, did the employer violate the law or didn't they? It's like an audit. In the class context, the employees are seeking damages and statutory penalties. And what that means is an employee who didn't receive a meal break, let's say they had a non-compliant meal break, they're entitled to an hour of pay at their regular rate. That's a damage actually, and it's wages. So the employee is trying to recover those lost wages on their own behalf and on behalf of all non-exempt hourly employees in California. Those are fixed amounts. So in the case of a meal break, it's an hour of pay at the regular rate. If it's an overtime claim, you can calculate if there were 15 minutes of unpaid time at the overtime rate, you can calculate what that is. And in this process, employers can be penalized multiple times for the same violation. So there can be statutory penalties, there can be damages, you know, the lost wages, interest, all of those things kind of stacked on top of each other. In a class case, the court needs to approve each claim as a class action. So what that means is, let's say the employee, it's typical in these cases, the employee says the employer violated the labor code in eight different ways. So at some point, the court is going to have to decide, okay, can that employee represent all the other non-exempt hourly employees on each of those claims? And most cases, the court is going to find at least one or two claims that can go forward as a class action. So the employer might win on a couple of claims where the court says, okay, there might be something here, but this employee can't represent all the other employees on this claim, there's just too many differences, it's too difficult to sort that out, that might happen. But the employer is likely to lose on at least some of those claims where the court says, okay, this employee can represent all the other non-exempt employees on this claim. And then finally, in a class action, the exposure at trial for even smaller businesses can typically be in the six or even seven figures. So it's very easy for these employees that bring these cases to calculate damages and penalties into the hundreds of thousands or even millions of dollars. So that's a class action. A POGA case is a little bit different than that. Well, it's significantly different than that. Let me just put it that way. So a POGA case is a case for civil penalties. So on top of whatever happened to those employees, the state is also entitled to penalties for those violations of the labor code. And that's what a POGA case is. Years ago, the legislature passed legislation that allows an employee to represent the state of California and extract civil penalties for labor code violations from employers. So a key difference here is an employee who brings a POGA claim, they only need to show one violation of the labor code, and then they can seek penalties on behalf of all those other violations. Another difference is the time period covered by a POGA case is only one year and 65 days from when the complaint is filed until the case resolves. So it's a little bit different than a class case where you could go back up to four years. Another key difference is that the court does not need to approve the employee representing other employees. So that's a key difference between a class action and a POGA. What that means is any employee can go in as long as they suffered from one labor code violation, they can go and they can represent all the other non-exempt employees, and the court doesn't have to approve that. That's just built into the statute. And all of the employees are automatically in. There's no opt out. There's nothing like that. They're automatically part of the case. Similar to a class action, the good intentions or near compliance of the employer don't matter. Perfection is the standard for the most part. Now, one of the key differences here is that judges have discretion to reduce civil penalties under the POGA. So if the employer loses, and let's say there's $100,000 in penalties, the judge has discretion to reduce those penalties. So it's a little different than a class action. The problem with that is that you have to get all the way through trial to get that reduction. So when you mediate a POGA case, we certainly will always make the argument that penalties will be reduced. But in reality, you won't know that until you're already through trial and the judge says, okay, I'm going to reduce these penalties. The other thing about a POGA case is that the employer is liable for civil penalties for each violation per employee per pay period. So let me rephrase that a little bit. It's calculated on a per pay period basis. So let's say that you have an employee who has a missed meal break in a pay period. Okay, they're going to be entitled to a civil penalty for that missed meal break. They're going to be entitled to a civil penalty for the wage statement that is incorrect because it doesn't have the premium for that meal period. And there's a number of different, other different penalties that they can also be liable for in that pay period. But to calculate your POGA exposure, it's per employee per pay period. And then as I sort of explained there, the penalties can stack on top of each other and they can stack on top of the class action damages. Another difference is that POGA penalties don't 100% go to the employees, whereas the class damages, those will go to the employees once you cut out the plaintiff's lawyers cut for attorney's fees. POGA penalties go to the state, 75% to the state of California, 25% to the affected employees. So it really is a penalty structure that is designed to basically punish an employer for labor code violations. And then it funds the Labor and Workforce Development Agency, which is the agency that's responsible for making sure that employers are following the labor code. And then finally, I talked about judges having discretion to reduce penalties. POGA penalties are expensive. Like a class case, they can be six or seven figures, even for smaller businesses. We see cases all the time where, you know, smaller businesses, you go to a mediation and the, you know, the penalty calculation is well into the seven figures. So it, you know, POGA can be very, very difficult for an employer to get through and can be very costly. So with that background, POGA versus class cases, we want to talk about three cases, recent cases that have changed the landscape a bit with respect to arbitration. So the first one is the Viking River case. Many of you may already know about the Viking River case. We actually did a webinar on this case last year. And basically the summary of the Viking River case was the POGA statute, California's POGA statute, made it all the way up to the United States Supreme Court. And as you may or may not know, the United States Supreme Court is a lot more employer friendly than the California Supreme Court. The California Supreme Court, we like to say, you know, they haven't found a provision of the labor code that punishes employers that they don't like. The United States Supreme Court is a little different. And so the POGA statute made it up to the United States Supreme Court. The issue in that case was whether an employee could waive POGA claims through an arbitration agreement. Now, this is an important point, and this is why we talked about the difference between class and POGA cases. There's a whole line of authority, both at the United States Supreme Court level and California Supreme Court level, that says that an employee can waive class claims in an arbitration agreement. So you can have an employee sign an arbitration agreement that says the employee agrees to bring only their individual claims in arbitration, and they can't pursue class claims. As you can imagine, that's a huge benefit to employers. So the United States Supreme Court, California Supreme Court have basically said that that is permissible. You can have an employee waive those claims. So the issue in Viking River was, can an employee waive POGA claims through arbitration agreement? And the key holdings from Viking River were, number one, an individual, so there's a difference between an individual POGA claim and a representative POGA claim. An individual POGA claim is this employee that brought the lawsuit, they, you know, let's say they suffered or they alleged they suffered from three labor code violations. Those three labor code violations are going to trigger POGA penalties. That's the individual POGA claim. Now that employee is also seeking civil penalties on behalf of all the other employees. Those are the representative POGA claims. So what the United States Supreme Court in Viking River said was, you can actually sever the individual POGA claims from the representative POGA claims, and then the individual POGA claims can be sent to arbitration. So you can send those claims to arbitration. The arbitrator is going to decide whether or not that employee suffered any labor code violations. Meanwhile, now you have these representative POGA claims. What happens with those? And the question was whether those claims could be waived. And what the Viking River decision, the United States Supreme Court said is no, you cannot waive those representative claims. And there's a whole line of authority and reasoning about why they came to that conclusion. But what they did say was, if you take the individual POGA claims, you separate those out, you send those to arbitration. Now you have these representative claims, that employee no longer has standing to maintain a representative POGA claim. So those claims needed to be dismissed. So essentially they were waiving the representative POGA claims because that employee no longer had standing to assert the representative POGA claims. However, before employers jumped for joy and we thought it was the death of POGA, the United States Supreme Court said that this issue of standing really is an issue of state law. And it's an issue that the California courts needed to decide. And in fact, Justice Sotomayor, in her concurring opinion in Viking River, she made that point that it's the state courts that need to decide this issue. The United States Supreme Court, it's not their place to make that decision. And she essentially invited California courts to decide this issue of what happens to the representative claims when the individual claims are sent to arbitration.

[Chantelle Egan] (26:11 - 27:43)
So in January of 2023, the Ninth Circuit weighed in on arbitrations here in California. And as some of you may know, there was a statute, AB 51, which stated that employee agreements could not be mandatory. They must be voluntary, was in essence the thrust of the statute in the employment context. The federal court weighed in, and in particular the Ninth Circuit, in a rehearing and found that the FAA, which is the Federal Arbitration Act, preempted this statute. And what that means is that the California statute that had prohibited mandatory employment agreements was no longer good law because it violated federal law. So as a result of this of this case, it made it clear that mandatory arbitration agreements, at least for now, are permissible in California. Now, simply because this statute has been preempted by federal law does not mean that you have carte blanche to have a mandatory arbitration agreement. There's numerous other factors that must be analyzed when determining whether or not a mandatory arbitration agreement is something called unconscionable. So this doesn't just give you a free pass, but at least now employers have an option about whether or not they want to do voluntary or mandatory arbitration agreements.

[Tim Nelson] (27:43 - 40:34)
Okay, so let's talk about Adolf versus Uber. This is likely the reason a lot of you are here today. So this is a case that we've been anticipating since the Viking River decision came out. And the Adolf case is a California Supreme Court case where they addressed this issue left open by the United States Supreme Court in Viking River, which was what happens to the representative pocket claims when the individual pocket claims are compelled to arbitration. And, you know, if you haven't read up on the Adolf decision yet, and you were holding out hope that the California Supreme Court would agree with the United States Supreme Court, I hate to be the bearer of bad news, but the answer is no. That did not happen. What happened was the California Supreme Court basically said that this issue of standing, so if an individual's individual pocket claims are sent to arbitration, they still have standing to pursue the representative pocket claims in court. And those representative pocket claims, you cannot waive those. So the Adolf decision basically didn't do much for employers at all. But we're going to talk more about what the practical impact is of the case. But what the court said was they're still standing. So basically the California Supreme Court sort of endorsed this procedure where the individual pocket claims can be sent to arbitration. And then what happens with the representative pocket claims is that they're stayed at the trial court level until the arbitration proceeds. And then once that arbitration is complete, then that individual can pursue their representative claims in court. There is an important point in the Adolf versus Uber case, though, that we wanted to highlight, and that is Justice Liu, who wrote the opinion. He suggests that if the plaintiff is found to not be an agreed employee in arbitration, what that means is the arbitrator finds that that employee, that plaintiff did not suffer a labor code violation, then that judgment, you know, that decision could be entered as a judgment in the trial court. And then that judgment could be used to find that that plaintiff does not have standing to assert the representative pocket claims. So there is this slight, you know, beacon of hope in there. If you are able to get the individual pocket claims into arbitration, and the arbitrator finds that that plaintiff did not suffer any labor code violations, then that plaintiff, there's an argument that plaintiff should not be able to pursue the representative pocket claims in court. So that's the key of the Adolf decision. So we distilled it down, we distilled these cases down into five key takeaways. The first one is that arbitration agreements are still heavily favored under the Federal Arbitration Act. So that's kind of the theme running through all these cases is that courts are still heavily favoring arbitration agreements under the FAA. Number two is that wholesale waiver of pocket claims and arbitration agreements is not permissible, but not like class claims that can be waived in an arbitration agreement, but the individual component of a pocket claim is arbitrable. So you could have an arbitration agreement that requires an employee to arbitrate their individual pocket claims. The third takeaway is that mandatory arbitration agreements are not completely unlawful. We're going to talk more about before we all run out and, you know, roll out mandatory arbitration agreements. We're going to talk a little bit more about that, but it's important to know that, you know, with the Chamber of Commerce decision, mandatory arbitration agreements are not completely unlawful. And then number four, the plaintiff in a POGA action is likely still going to have standing to maintain the representative component of the POGA claim in civil court. Now that depends on if the arbitrator finds that that plaintiff did not suffer any labor code violations, but as we all know, the labor code is very difficult to comply with 100%, even, you know, the best employers with the best policies, best practices, there are still mistakes made or sometimes, you know, employees take matters into their own hands. And so it's hard to prove that a particular employee didn't suffer from at least one labor code violation. And let me take a step back for just a second, because I think I didn't mention this earlier, but under California law, for an employee to have standing to assert a POGA claim, it's very, very easy. All they have to do is show that they were an employee of the employer, and number two, that they suffered from at least one labor code violation. That's it. And as long as they suffered from one labor code violation, they can seek civil penalties on behalf of other employees for labor code violations that didn't even occur to them. So rest breaks, meal breaks, all of the litany of labor code violations that we always see. As long as that plaintiff can show one labor code violation, they have the requisite standing. The fifth takeaway here is that litigation of the individual POGA claims and arbitration may impact the viability of the representative POGA claim in court. So like I said before, if the arbitrator finds that that plaintiff did not suffer any labor code violations, which is a tall order, but it's possible, then there's an argument under the Adolph case that that plaintiff no longer has standing to assert the representative POGA claims on behalf of other employees. So those are the five key takeaways. Now is the fun part. What's next? What do these three decisions mean for arbitration? So going back to the point about mandatory arbitration agreements, they're not per se unlawful, but you still have to worry about unconscionability. So without getting too far into the weeds, a court has to decide whether or not to enforce an arbitration agreement. And one of the things that courts look at in determining whether or not to enforce an arbitration agreement is, is the agreement unconscionable? And there's a whole host of factors that courts use to answer that question. But one of the things that courts look at is, is this a mandatory arbitration agreement? Was the employee forced to sign it? Was there coercion? Was there duress? Was there economic pressure? All of those things are factors that a court's going to look at to determine whether or not to enforce an arbitration agreement. So the fact that an arbitration agreement is mandatory is one of the things that a court is going to look at to decide whether or not to enforce an arbitration agreement. Another key point from all these cases is class action waivers and arbitration agreements are still the way to go. They're enforceable and they're going to cut off the class liability. So when you get hit with one of these cases, these employees, if they sign an arbitration agreement with a class action waiver, they're not going to be able to pursue any class claims. Another thing we see on the horizon is you're not going to be able to get rid of, most likely you're not going to be able to get rid of pocket claims with arbitration agreements. You can send the individual pocket claim to arbitration. I am hearing some rumbling, some arguments about potentially getting the representative pocket claims dismissed. I haven't seen anything that I feel is compelling on that argument and I would be surprised if California courts would find that. But this is a time for creativity and we know that plaintiff's lawyers are going to be creative, defense lawyers are going to be creative, but generally speaking you're not going to be able to get rid of pocket claims through arbitration agreements. What you can do though is compel the individual pocket claims to arbitration and leave the representative pocket claims in court, which those claims will likely be stayed while the arbitration goes forward. So the question then becomes, is that a good thing? And there are advantages and disadvantages to compelling individual pocket claims to arbitration and staying the representative claims in court. The advantage is you're delaying the representative claims. So the arbitration we talked about, it's efficient, but it's still going to take at least a few months. Meanwhile, your representative claims are just going to be stayed in court. You're not going to have to do discovery on those. You're not going to have to worry about those. You're going to be focused on the arbitration. So in some cases, that's actually an advantage. Another advantage is you have a chance in arbitration to find that the plaintiff is not an aggrieved employee. Now, like I said before, that's a difficult task, but if you do succeed on that, then you can go into court and say, this plaintiff cannot assert these representative claims. They don't have standing. They're not an aggrieved employee. And then another advantage is this process will create procedural roadblocks for the employee. They're going to have to fight a motion to compel arbitration. Then they're going to have to file their demand for arbitration. They're going to have to adjudicate their claims in arbitration. There's all these procedural steps that they're going to have to take before they can actually sink their teeth into the representative claims, which is what they really want. The lawyers are driving this and the value is in the representative claims. That's what they really want. So you put those claims on ice and force them to arbitrate these individual claims. That's a procedural advantage for the employer. So let's talk a little bit about the disadvantages. As Chantelle mentioned earlier, arbitration can be expensive. You've got an individual sending their claims to arbitration. Maybe their claims are worth $4,000 dripping wet. It's going to cost you tens of thousands of dollars in arbitration to arbitrate that claim, those claims, because the employer is paying the cost of the arbitrator. Arbitrators can charge anywhere from $500 an hour. I saw one recently where their hourly rate was $1,000 an hour. The employer is paying that. So depending on how long the hearings are, how many motions you file, things like that, the arbitration costs will mount and will be very expensive. Another disadvantage is I think, and we haven't seen this play out yet, this is such new law, such new landscape that we haven't seen a lot of this play out yet, but if the employer prevails in arbitration and the employee is found to not be an aggrieved employee, the lawyers can always ask the court that's handling the representative claims, they can ask for discovery to see if they can find another employee. And I think a lot of courts are going to allow that. So even though you knocked out one of the employees, they're going to be able to do some, likely be able to do some discovery to find another employee to replace that person. And then finally, almost finally, another disadvantage is your pocket violations may be continuing. So if you pause that representative claim in court, that doesn't stop the meter running, so to speak, as to violations that are occurring. So your liability for those representative pocket claims is going to continue to accrue while that case is staying. And then the last thing I would just say is, this could lead to more arbitrations, which is the cost issue, right? You're going to be paying your lawyers to do these arbitrations. You're going to be paying the arbitrator. It can just get really, really costly. So those are some of the advantages and disadvantages that we see of where these cases are headed. We're going to go ahead and skip that slide. We covered all that. So we're going to talk about the hallmarks of an enforceable arbitration agreement.

[Chantelle Egan] (40:34 - 48:20)
So as Tim highlighted earlier, that there is this back and forth about whether voluntary or mandatory arbitration agreements are the way to go. And part of it is that we have to remember that ultimately the courts are going to have to determine whether or not an arbitration agreement is something called unconscionable and whether it can survive the scrutiny of the court. So when you're trying to make sure that you're crafting an arbitration agreement that's enforceable, you want to make sure that you've baked into it a way that really shows that the employee that you're asking to sign this agreement has some element of choice in it. So for example, obviously, voluntary, they can decide yes or no. There's great evidence that they had some element of choice here. And mandatory, on the other hand, while it remains permissible, it really the larger picture of how the arbitration agreement is structured, how it is rolled out, really comes into play. So for example, if it's mandatory, the courts have come out that they are going to look in depth to make sure that even though it's mandatory, there still is that element of choice, if you will, by the employee. So for example, if you're looking to have an employee find a mandatory arbitration agreement, giving it to them as a new hire at the time that they're signing their conditional offer letter and with a large runway so that the employee can really make the choice as part of their job search, do I want to sign this arbitration agreement in order for me to work here, I'm going to sign the arbitration agreement, and they're making that choice as they're presented with the offer letter before, for example, they've, you know, quit their other job. Likewise, there's a long runway. So they have time to consider it that it is, you know, you know, 21 days, for example, before they're before they're scheduled to start. So they have time to go and go to an attorney and get their perspective on whether or not that they should sign it. So and then conversely, if we're looking at trying to roll out mandatory arbitration agreements to existing employees, the scrutiny becomes that much more exact, because in essence, what you're saying is, if you don't sign this, I am going to fire you. And so that becomes an even higher bar for an employer while mandatory agreements are permissible for them to overcome. Additionally, there's a lot of things that come about with the formatting and the exact terms that are in an arbitration agreement to ensure that it's enforceable. One of the hallmarks of an enforceable arbitration agreement is that it is a standalone document. Very frequently, we'll see arbitration agreements embedded into handbooks, or just incorporated into the terms of the offer letter. It's a very hard time with standing scrutiny, they really need to be a standalone document that the employee can consider. And one of the foundational things that you should be asking yourself as you are evaluating whether or not your agreements are enforceable is like the element of transparency. Is it clear and obvious to what the employee is agreeing to? When an agreement is standing alone, then it is much more obvious that this is a document that they need to carefully look at, carefully examine, and it's not hidden, or trying to be snuck into other terms and conditions of the employment. Additionally, when we talk about terms, there's many key terms, but probably one of the most important based on what we've learned here today is that you have very clear class and collective action waivers in the document. If you don't have a class waiver, then all the things that Tim has been talking through in terms of the benefits, you're not going to be able to take advantage of necessarily. You could, for example, be facing a class action in arbitration. You really want it to be very clear that they're giving up that right in the arbitration agreement. There's other key terms, probably the most important is severability. And as evidenced by this webinar today, the law on arbitration agreement is in flux. And there was three landmark cases in just the last 12 months that have changed how it is that we approach and think about arbitration agreements. By having a severability clause in there, you can say, hey, look, if the law changes and a piece of this is no longer lawful, we can just cordon it off, have it cut off the agreement, it doesn't exist anymore, but the remainder of the terms remain enforceable. And that gives you a lot more security that you can rely on, for example, older arbitration agreements, assuming they have other key elements. Additionally, you're really going to want to have it very clearly spelled out that the employee is waiving their right to a jury trial. I can't emphasize enough the power here of using bold, using spacing so that things are very clear with very clear headings, so that also that these key terms are very noticeable. So very frequently when we're going to court in order to enforce these arbitration agreements, we're talking about, for example, the, you know, agreement to waive a jury trial, that's in caps or in bold, it's right next to where the employee has signed, they must have seen it. There's also other key terms, for example, it is required that the arbitrator prepares a written findings at the end so that the ultimate outcome is memorialized in writing. And we also want to make sure that the employees understand the rules and jurisdiction and how it is that they can pursue an arbitration if they become interested. And as I mentioned earlier, this theme of transparency and formatting is so essential, more so than frankly a lot of the other documents that we deal with in the employment context. Really taking a strong, hard, critical look at your rollout process for arbitration agreements is going to help when you enforce it down the road. So for example, if you're handing an employee a voluntary arbitration agreement, ensuring that they have a means to either print it out or handing them a hard copy so that they can indeed go to a lawyer. And that, for example, that that term is memorialized in the arbitration agreement, that they have that right to see a lawyer. Making sure that you are having employees sign a document that they are acknowledging receipt of the arbitration agreement. That's really helpful that you can show that they received the document on x date and then a week later is when they actually signed the document and brought it in. That gives you evidence that they truly had time to reflect on the terms. Additionally, this is really a time for you to embed your culture as well as your priorities as a company to explain to the employees about the benefits of arbitration agreements and why as a company that you think arbitration agreements would be beneficial to the employees. Would be beneficial to the employees. However, if you have a voluntary agreement and part of your rollout process is, you know, going around and strong harming everyone and designing it, that's going to cut against your argument that it truly was voluntary and that the employee had elements of choice.

[Tim Nelson] (48:20 - 50:39)
So one last one last issue that comes up in the context of rolling out arbitration agreements. We we represent a lot of employers who come to us and they say, OK, we've been hit with a wage and hour class action, Paga action. We don't have arbitration agreements. We want to roll them out. You know, is it permissible to do that? The question then becomes, OK, what do you have to tell them about litigation that is currently pending against the company? And the answer is you can still roll out arbitration agreements even if there is pending litigation. There's actually some recent relatively recent authority that the arbitration agreements can actually apply retroactively. So you can you apply an arbitration agreement to an employee's claims that happen, you know, before they sign the arbitration agreement. But the question is, well, what do I have to tell them about this lawsuit? A lot of employers don't want their employees to know that, you know, a lawsuit is pending. And so the question is, what do I have to tell them when I give them an arbitration agreement? Generally speaking, it's our recommendation if you are asking employees to give up rights that they would have had in the pending litigation. The best practice is to provide a litigation disclosure and it lets the employees know that there is pending litigation. It lets them know that they are giving up their rights with respect to that litigation. And what that's going to do is I guarantee you when you go to enforce that arbitration agreement, you're going to get a challenge from the employee saying, you know, this case was already pending. I didn't know that I was giving up my rights or whatever. If you don't have this disclosure, if you have this disclosure, you make it very clear that this employee is part of this class, potentially part of this class or PAGA action, and that they're giving up rights with respect to that class or PAGA action. And then it's a knowing disclosure. So when you get that challenge from the employee, you can show the court, hey, we disclosed the litigation. They were free to contact the lawyers. They were free to do whatever they wanted. They understood what rights they were giving up. And then it's, you know, it's a knowing process that you can hopefully avoid the arguments about unconscionability.

[Chantelle Egan] (50:39 - 60:18)
So we don't recommend that you wait until there's litigation in order to consider whether or not arbitration agreements are right for you and whether the arbitration agreements that you already have are compliant. This is really something that you should be proactive about. So, you know, I know we've been focusing a lot about class actions and representative actions, but let's just kind of start through, start analyzing this from a compliance perspective. And the number one thing that I want all of you to do after leaving this webinar is that if you have an existing arbitration agreement, it is essential that you're looking at that agreement or having an attorney, better yet, having an attorney review it. And it's not just the arbitration agreement itself, but it's all those related documents. So for example, when I was talking about the rollout process, if there is the communication that goes along with the arbitration agreement, you want to make sure that that's also going to survive scrutiny. Additionally, if you're having a mandatory arbitration agreement and you're issuing it to new hires, you're going to want to take a look at your offer letter so that your offer letter is clear that it is conditioned on the employee, not only reviewing the arbitration agreement, but also entering into the arbitration agreement because it's a condition of employment and making sure that they have a long enough time to consider it. I would also just recommend that similar to handbooks and things of that nature, that this be something that you adopt as just regular housekeeping in terms of analyzing your arbitration agreements. The law is just in such flux here that this should be part of your housekeeping of at least once a year, you're taking a look at these arbitration agreements and making sure that there is no changes that you want to make. Additionally, part of that analysis is determining whether or not it would be prudent to issue new arbitration agreements to individuals that have already signed them because there's been such a dramatic change in the law. It's all part of good housekeeping, keeping good hygiene in terms of making sure that your arbitration agreements are enforceable. You also want to just double check how it is that you're rolling out these updated agreements. Part of that is ensuring that you are having proper messaging. As I said earlier, this is really an opportunity for you to talk about the culture of your business, how this is a benefit to employees. Some of those pros that Tim walked through earlier, for example, quicker resolution, there's finality. All of those things are things that you can share with employees. Likewise, you always want to make sure that there's systems in place so that they have adequate time to review the document and go to an attorney. Making sure that every piece of the puzzle is evaluated, not just the document itself. Additionally, when you're updating an agreement, you want to think about what about the folks when you're doing a voluntary agreement? What if they don't sign? Is the ship sailed at that point? No, that's part of the rollout of the document. Making sure that you have a routine cadence for those individuals who have opted not to sign the arbitration agreement. Making sure that they have a renewed opportunity to consider the agreement and sign it perhaps at a later date. Now, once again, this is all part of the balancing when we talk about unconscionability. If you're handing them the document on a weekly basis, saying like, are you ready to sign now? Are you ready to sign now? That could be problematic. But alternatively, if it's perhaps on an annual basis where you're revisiting whether or not they want to sign an agreement, that may be something that would surpass scrutiny. Likewise, as I said earlier with the new hires, you really need to think about the onboarding process. Very frequently, people think of this as this is just the onboarding documents and we're just going to hand it to an employee on their first day. Especially if it's mandatory, that may be something that you don't want to do because you want to give them time in order to decide whether they want to take this job that has a mandatory arbitration agreement. Conversely, if it's a voluntary agreement, that may be something that's appropriate to include in the first day as part of the onboarding process. But once again, as you may be handing documents back and forth, you want to make sure that you have systems in place not to pressure the employee to sign in that instance. And I can't emphasize this enough, this number four, which is good record keeping. There's nothing more frustrating than knowing you have an arbitration agreement and not being able to find it. So one of the most powerful things is that right before class actions very frequently would be plaintiff's attorney, they're doing due diligence and they're asking for personnel file records. And as part of that, there's nothing better because Tim and I and the rest of us here at Medina McKelvey, endless joy to have as one of those first documents and signed arbitration agreement that is enforceable. That's really going to help you avoid a lawsuit or maybe have somebody be like, I'm not so interested in pursuing this anymore because I know that there's arbitration agreements in play, but you have to be able to find it. Likewise, you want to make sure that the record keeping is such that the whole document is filled out. Someone signed it, but there's not a date there or the agreement signed by the employee, but the company hasn't signed. Really want to make sure that the entire life cycle of making sure that the agreement is fully signed and executed and is stored in a place that you can easily retrieve it is a process that is seamless so that when you do need the agreement, you can find it. And as I mentioned earlier with the renewed request agreements, excuse me, renewed request to sign agreements, that's certainly a practice that we think with voluntary arbitration agreements is something that you should consider as a way to increase your signature rate. So one of the things that we do here at Medina McKelvey is we do wage and hour compliance plans and arbitration agreements are one piece of the puzzle when we're talking about making sure that you have adequate tools to protect your business from wage and hour losses. How we handle our compliance plan is that we really kind of look under the hood of your business to see what are the biggest risks from the labor code in the wage and hour context. And we're going to walk through it with you in a survey. One or two calls will walk through your timekeeping systems in order to really hit those hot button issues. Those questions that plaintiffs counsel are going to be wanting to know the answer to when they have a class action, what are the areas of potential liability? And also I would say as part of this survey call, it also is touching on those areas that you may not think about on a day-to-day basis, but could potentially have a great risk for you because it's your practices when it comes to rest breaks or premium payments or making sure you have an adequate document trail to prove that you're doing all the things that you need to do in order to comply with wage and hour rules. At the end, we provide a color-coded assessment. So it's very easy to read. You know, red means high risk, green means you're good to go. And we're going to, in that assessment, we're going to highlight for you not only the things that you're doing well, so you don't change those, but also what are the opportunities? The thing that I think is probably the most essential and the most helpful is, you know, I've certainly seen audits where they say, great, here's all the things that aren't working well. Our step three is actually giving you a prioritized action plan. We're going to go through with you and say, these are the things that you need to prioritize first, because it can be incredibly overwhelming because there's over 300 labor codes, 300 ways to violate the labor code, knowing which ones are the ones you have to fix, which are the ones that have the greatest risk, and helping you then navigate what's the order to tackle these tasks in. And then of course, we'll help you execute on all those compliance recommendations. And for those of you that complete the process, then we would issue a compliance certification that says that your company is in great wage and hour health, which can be very helpful if you're ever faced with a lawsuit. Additionally, one of the essential pieces of wage and hour is enforcement and monitoring. And piece of that is education, helping your employees understand what the rules are, and also helping your supervisors understand what the rules are and how to enforce and support them with the supervisor, excuse me, with the employees that they're leading. Our sister company, California Compliance Solution, offers numerous avenues to offer training through laptops, iPads, cell phones. But the thing that I'm most excited about is we're now rolling out a arbitration agreement product to help you really nail the rollout of the arbitration agreements in a way that we think would be defensible in court. And so now we're just curious if you have any questions. And Tim, I think that you can see the Q&A. We encourage you to put your questions into the Q&A box. I know that we're now at the top of the hour, so we'll stay a little bit longer in order to answer any of the questions that have been posted. But then, of course, you're more than welcome to email myself or Tim directly or call our office, and we can answer any of your questions at another date. Tim, is there any questions in the chat?

[Tim Nelson] (60:18 - 63:54)
Yes. So first of all, the slides and the recording will be available. So that was one thing that came up. We will make those available. We have two questions about PAGA. The first question is, if the one violation occurs outside the statute of limitations, is that enough? If so, how far back can that one violation stretch back? That's an excellent question. That question hasn't been answered yet specifically, but the indication is from the California Supreme Court and the violation actually can occur outside the statute of limitations. And there's really no clear authority as to how far back that can go. So there was an earlier appellate court decision that the court in Adolph actually cited to, and it was on this issue of statute of limitations. The employee, their claim had arisen outside of the statute of limitations for a PAGA claim, and the court said that basically the standing requirements in California for a PAGA claim are so minimal that, like I said before, all you need is one violation of the labor code, and you need to have been employed by the employer, and that's it. So the Supreme Court in Adolph discussed those standing requirements in the context of statute of limitations. And I think the interpretation is going to be that yes, even if that violation occurred outside of the statute of limitations, that's enough for that person to bring a PAGA claim. Now, that doesn't mean that the PAGA claim stretches back to when that violation actually occurred. The one year and 65 days of your PAGA period is still going to be the governing time period. All that means is that the plaintiff themselves did not have to suffer a violation within that time period. So it's weird. I don't agree with it. I don't think it's right, but I think that's kind of the state of the law right now, and we'll probably see more litigation on that, and maybe we'll get some clarity from the appellate courts and the California Supreme Court. But right now, I think there's a pretty strong argument that an employee who suffered a violation outside the statute of limitations still has standing to bring that claim. The other question was, if a plaintiff has one violation and decides to raise a host of other alleged labor code violations that he or she didn't suffer, isn't the plaintiff still required to have a factual basis to allege those violations? The short answer is yes, you still have to prove the violations. But in order for that individual to have standing, they don't have to show that they suffered all of the labor code violations that they're alleging. All they have to show is one. Now, at the end of the day, the court isn't just going to take the plaintiff's word that these violations occurred with all of these employees. There's going to be a method in place to prove that these violations occurred across the group of employees. So you're going to have to have a factual basis. But the question that was sort of answered by Adolph is, if you have, let's say this employee, the only violation they can prove that happened to them was a rest break violation, can they then assert claims for meal break violations, overtime, minimum wage, all that? The answer to that is yes, they can assert those other claims. But ultimately, at the end of the day, they're still going to have to prove those claims.

[Chantelle Egan] (63:54 - 66:51)
There's also a few questions regarding arbitration agreements and innocent housekeeping, if you will. One of the questions was whether it's okay to keep the final signed page or copy of the arbitration agreement, or should we keep the entire document in the employee file? I strongly recommend that you keep the entire document, especially with the change in the law, you don't want there to be any ambiguity as to what it is that the employee signed. Additionally, something else to kind of keep in mind is there's this balance between having a document with all the bells and whistles in it, but also having a document that may be too long or too dense for an employee to read. So I would say in general, and obviously I'm speaking in generalities here, about a two-page or so document, two to three pages is probably the ideal length. Very frequently, a one-page document is not going to be enough. Where we see that is that there's all tends to be like teeny tiny font. So it's better to have it so that, you know, they can easily read everything with big font and have it be a couple more pages than trying to jam it all onto one page. And then of course, keep the whole document, not just the signed copy, because they may say, well, this is different than what I signed. So you want to have the entirety of the document. And for those of you that have voluntary arbitration agreements, there is not a strict and fast rule as to, you know, when it is that you should revisit it. I think the two things to keep in mind with a voluntary agreement is for the employees that have not signed the agreement, have opted not to, remember to give them future opportunities in order to consider signing it, but not doing so in an overly burdensome way. So really like no more than like once a year. And then two, for those employees that have signed the arbitration agreement, it should be part of a yearly housekeeping that you are analyzing that arbitration agreement and ensuring that the arbitration agreement that you've already had signed, that you can live with it. It's still in good shape. You don't need to issue new ones as a general matter, unless you absolutely have to. You don't want to issue a new voluntary agreement, because what if they decide not to sign the second version? And then that opens up a host of other issues, which I've litigated before. And it's just much cleaner to have, you know, a single document. However, there may be circumstances where the arbitration agreement you have is not going to be enforced by the court. And so then it becomes prudent. So for those that have actually signed, I would say there is not a strict rule as to when it would be appropriate to roll out a new one, other than there's been a change in a significant change in the law that your existing arbitration agreement doesn't provide you sufficient flexibility for. But really you want to be analyzing your arbitration agreements and your entire rollout process, at least on an annual basis. Are there any other questions?

[Tim Nelson] (66:51 - 67:24)
Doesn't look like we have any other questions. So I think we can, you know, thank you all for attending. We really appreciate it. We really appreciate the insightful questions. Like Chantelle said before, if you have any other questions that maybe you didn't think about during the webinar, or didn't have the opportunity to ask, you can reach out to either of us via email, via telephone. We're happy to answer any questions that you have. And we really appreciate your time today.