Parton | Sell | Rhoades ~ News & Commentary

A Poorly Drafted Employee Arbitration Agreement Today Can Have Drastic Consequences Tomorrow

2014-08-11T10:53:00.000-07:00

A recent California appellate decision highlights the present flux in the state of the law regarding employee arbitration agreements and the painful consequences of a poorly drafted employee arbitration agreement.

In 2013 the California Supreme Court ruled (in Sonic-Calabasas A, Inc. v. Moreno (2013) 57 Cal.4th 1109, 1124) that employees may be forced by arbitration agreements to waive their right to file wage and hour claims with the Labor Commission.

In a recent decision, published on August 6, 2014, a California Court of Appeal interpreted an employee arbitration agreement that was drafted in 2001 – i.e., before Sonic-Calabasas when employees could not be forced to arbitrate any Labor Commission claims. The arbitration agreement signed by the employee in this case applied to “all disputes arising from employment” except for any “matters governed by the California Labor Commissioner” and “any matter within the jurisdiction of the California Labor Commissioner.”

In denying the employer’s petition to compel arbitration of an employee’s wage and hour class action, the trial court, and Court of Appeal, interpreted that arbitration agreement as excluding any claim the employee could have filed with the Labor Commission, regardless of whether she actually did file such as claim.

Due to the clumsy language of this arbitration clause, the employer now faces an expensive wage and hour class action rather than arbitrating the minor claim of a single employee.

In a scathing description of this poorly-drafted arbitration agreement, the Court of Appeal noted:

Employer asserts that when the agreement was written it believed employees could not waive their right to administrative [Labor Commission] Berman hearings as a condition of employment. It recognizes this is no longer the law but asserts this was the reason “within the jurisdiction” was included in the agreement. If this was Employer”s intention [however] the arbitration agreement was poorly drafted because the language used plainly exempted all statutory wage claims regardless of the forum of litigation. …. there were many ways Employer could have clarified only statutory wage claims actually brought before the Labor Commissioner would be exempted [from arbitration].

If Employer intended to exclude [from arbitration] only statutory wage claims brought in one forum over another it could have narrowly drafted and defined the phrases “matters governed” and “matter[s] within the jurisdiction” to mean “claims actually filed with the commissioner” or “claims being litigated in a Berman hearing.” Alternatively, Employer could have clarified employee was agreeing to arbitrate “statutory wage claims not brought before the Labor Commissioner.”

The lesson to be learned is, with the law regarding employee arbitration agreements presently in a state of flux, employers would be well advised to have qualified counsel review their employee arbitration agreements to ensure they apply to the widest permissible range of employee claims. Please contact Jim Parton or Frank Conway with any questions on this topic.

The recent case is Rebolledo v. Tilly's, Inc. (Cal. Ct. App., July 8, 2014, G048625) 2014 WL 3855179 – certified for publication on August 6, 2014.

Time Warner Burned by the “Commissioned Employee Overtime Exemption.”

2014-07-16T16:06:00.004-07:00

The California Supreme Court recently addressed a novel issue regarding the “commissioned employee overtime exemption,” which provides that employees are not entitled to overtime pay if (1) they earn 1½ times minimum wage, and (2) commissions represent more than half their compensation. The Court held that commissions earned in one month but paid in another month cannot be allocated to the month in which they were earned for purposes of meeting the minimum earning requirement of the commissioned employee overtime exemption.

In this case, Time Warner account executives were paid only minimum wage for many weeks in which they worked overtime but did not earn any commission. However, employees received large paychecks in other periods during which they were paid commissions per the comp plan (i.e., when the customer made payment). Claiming that it met the minimum earnings requirement for the commissioned employee exception to the overtime requirement, Time Warner argued that it should be permitted to allocate the commission wages paid in one month to another month in which they were actually earned. The California Supreme Court rejected that argument, leaving Time Warner liable to a class of account executives for each week in which they worked overtime and were not actually paid 1½ times minimum wage. In reaching its conclusion, the Court looked to the language of some Labor Code statutes (such as sections 204 and 226) that speaks in terms of wages “earned during that pay period.” The Supreme Court also noted that its conclusion was “consistent with the purpose of the minimum earnings requirement. Making employers actually pay the required minimum amount of wages in each pay period mitigates the burden imposed by exempting employees from receiving overtime. This purpose would be defeated if an employer could simply pay the minimum wage for all work performed, including excess labor, and then reassign commission wages paid weeks or months later in order to satisfy the exemption's minimum earnings prong.”

This case serves as a reminder that employers would be well advised to periodically have their comp plans reviewed by qualified counsel with an eye toward identifying potential blind spots like basic error made by an employer as large as Time Warner.

Please contact Jim Parton or Frank Conway for more information regarding a review of your employee compensation plans for compliance with current wage and hour requirements.

The case is Peabody v. Time Warner Cable, Inc. (Cal., July 14, 2014, S204804) 2014 WL 3397770

An Architect Owes Duty of Professional Care to Future Owners of a New Residential Building

2014-07-07T15:52:00.002-07:00

A homeowners association on behalf of its members sued a condominium developer and various other parties over construction design defects that allegedly make the homes unsafe and uninhabitable for significant portions of the year. Two of the defendants were architectural firms, which allegedly designed the homes in a negligent manner and also played an active role throughout the construction process, coordinating efforts of the design and construction teams, conducting weekly site visits and inspections, recommending design revisions as needed, and monitoring compliance with design plans. The final decisions regarding how the homes would be built were made by the developer of the project rather than defendant architectural firms.

The trial court held that the homeowners association could not state a claim against the defendant architectural firms, reasoning that an architect who makes recommendations but not final decisions on construction owes no duty of care to future homeowners with whom it has no contractual relationship. The Court of Appeal, however, reversed the trial court, concluding that an architect owes a duty of care to homeowners in these circumstances, both under the common law and under the Right to Repair Act (Civ. Code, § 895 et seq.).

The California Supreme Court affirmed the Court of Appeal’s decision and held that an architect owes a duty of care to future homeowners in the design of a residential building where the architect is a principal architect on the project — that is, the architect, in providing professional design services, is not subordinate to other design professionals. The duty of care extends to such architects even when they do not actually build the project or exercise ultimate control over construction.

Implications of the Court’s Decision

Frankly, we are not clear why the California Supreme Court accepted review of the Court of Appeal’s decision. In our view it has long been the law in California that a design professional owes a duty, and can be liable, to current and future purchasers of residential and commercial property where the design professional had significant involvement in the design and/or construction oversight of a construction project. We note that the California Supreme Court emphasized that the design professional must be a principal participant in the project rather than a mere sub-consultant to other design professionals, contractors or material suppliers involved in the project (distinguishing an earlier case, Weseloh Family Ltd. Partnership v. K.L. Wessel Construction Co., Inc. (2004) 125 Cal.App.4th 152). Consequently, in our view the battle-lines will now shift for design professional involved in construction defect cases to arguing that they did not function in a principal capacity on the project, but rather were so minor and so subordinate to the role or judgment of other design professionals as to foreclose the their liability in negligence to third parties.

The case is Beacon Residential Community Association v. Skidmore, Owings & Merrill LLP et. al., California Supreme Court, Filed July 3, 2014, No. S208173.

If you have any questions regarding the impact of this decision on construction defect litigation, please contact Ralph R. Rhoades, who has 30+ years of experience defending these claims.