How employers will need to defend California employment lawsuits, Labor Commissioner actions and even arbitrations must evolve come the New Year due to changes in the law that become effective January 1, 2021. In this post, I identify and explain five important developments that businesses and their employment defense counsel need to be aware of and prepare for.

Managing a New Risk: Attorney’s Fees Awards to Whistleblowers

California Labor Code section 1102.5 sets out a broad basis for employees and former employees to sue their employers for alleged retaliation. Specifically, the statute authorizes employees to sue their employer for allegedly having suffered retaliation for complaining of the employer’s violation of a federal or state statute or a failure to comply with a federal, state or local legal requirement. The statute also allows employees to sue where they allege they suffered retaliation for refusing to participate on the job in a violation or noncompliance with the law.

Until now, section 1102.5 did not provide for prevailing employees to be awarded their attorney’s fees. That has now changed. Effective January 1, 2021, the court may award employees who win section 1102.5 claims their reasonable attorney’s fees, in addition to the employee’s potential recovery of penalties and being awarded reinstatement, back pay and damages.

The ability of 1102.5 plaintiffs to seek and potentially recover their attorney’s fees is a sea change in California retaliation litigation. First, in 1102.5 cases that are strong on the merits, plaintiffs’ ability to seek attorney’s fees awards, which, alone, may total six figures, may alter how the employer and its counsel assess the risk of such lawsuits and influence their litigation and settlement strategy. In short, particularly in strong retaliation cases, whatever risk of loss the employer feels it has will carry a greater price tag given the exposure to a fees award.

Secondly, retaliation cases with relatively smaller damages potential or that are tenuous on the merits may be viable cases for contingency fee plaintiff’s counsel given a premium to the case value they may feel the threat of recovering fees adds. In other words, potential 1102.5 cases that plaintiff’s counsel may have turned down in prior years may be cases plaintiff’s counsel now take and prosecute given the potential recovery of attorney’s fees.

Notably, employers who succeed in defeating 1102.5 lawsuits are not permitted by the new provision to be awarded their attorney’s fees against the plaintiff.

All things considered, we will see more 1102.5 actions brought because of this new prevailing plaintiff attorney’s fees provision, as well as employers and their litigators altering, in some cases, their risk assessment and strategy for resolving the cases.

The new attorney’s fees provision is added by an amendment to California Labor Code section 1102.5 made by Assembly Bill 1947 found here.

Claimants Involved in Arbitration will be Represented by the Labor Commissioner

As of January 1, 2021, where the employer files a petition to compel arbitration of claims pending before the California Labor Commissioner, the Labor Commissioner “shall have the right to represent the claimant in proceedings to determine the enforceability of the arbitration agreement,” regardless of whether the enforceability will be determined by a court or in arbitration. The new provisions require, of course, that the claimant ask for representation by the Labor Commissioner. The Labor Commissioner’s representation will be at no cost to the claimant.

Secondly, where a “wage claimant [is] unable to have their claim” decided by the Labor Commissioner because a court has ordered the claim to be arbitrated, “the Labor Commissioner shall represent the claimant” in the arbitration. Two conditions must be satisfied before the Commissioner is obligated to represent the claimant in arbitration, namely, the claimant must be “financially unable to afford counsel” and, secondly, the Labor Commissioner “determines, upon conclusion of an informal investigation, that the claim has merit.”  The new provisions do not otherwise limit the Labor Commissioner’s obligation to represent claimants in arbitration, whether by a minimum dollar sum in dispute or otherwise.

The COVID-19 pandemic continues to delay the Labor Commissioner’s processing of cases, with the Commissioner not yet burdened by the obligation to represent claimants involved in arbitration. There is certainly a question as to how effectively the Labor Commissioner will be able to meet its new arbitration-related obligations, at least so long as the pandemic hinders operations. Eventually, however, claimants’ right to counsel provided by the Commissioner could have the consequence of employers and their counsel confronting more capable opposition to petitions to compel arbitration and prosecution of claims in arbitration, particularly where claimants would not be able to hire private counsel.

The changes summarized above are amendments to California Labor Code section 98.4 made by California Senate Bill 1384 found here.

Claimants Gain More Time to File Claims with the Labor Commissioner

The time in which claimants will have to file claims with the California Labor Commissioner for having been “discharged or otherwise discriminated against in violation of any law” under the Commissioner’s jurisdiction is extended from six months to one year effective January 1, 2021. As a consequence, in some number of cases, employers will not receive notice of such claims and their need to garner evidence for a longer period after the firing or other adverse action.

The extension of time is an amendment to California Labor Code section 98.7 that authorizes, in brief, the Commissioner to investigate such claims and file suit against the employer for relief including reinstatement. The amendment is made by California Assembly Bill 1947 found here.

The Sleeper! Successor Businesses will Face Liability for Unpaid Wage and Hour Judgments

Come January 1, 2021, businesses that take over the facilities, workforce, management or other features of an earlier business, or retain managers or owners from the earlier business, “shall be liable for any wages, damages, and penalties owed to any of the (earlier business’s) former workforce” pursuant to a final judgment, along with the earlier business remaining liable, as well, on the judgment. This new statute has received little or no public attention from other leading California employment defense practices. I am confident, however, that this development will prove to be enormously important.

Under the new statute, a second business is a “successor” to the earlier business (the “judgment debtor”) and will be subjected to liability on wage and hour judgments against the earlier business where the successor:

1. “Uses substantially the same facilities or substantially the same workforce to offer substantially the same services” as the judgment debtor.
2. “Has substantially the same owners or managers that control the labor relations as the judgment debtor.”
3. “Employs as a managing agent any person who directly controlled the wages, hours, or working conditions of the affected workforce of the judgment debtor.”

Or,

4.  “Operates a business in the same industry and the business has an owner, partner, officer, or director who is an immediate family member of any owner, partner, officer, or director of the judgment debtor.”

To be clear, this means that the successor business will be liable on a judgment entered in a lawsuit in which the successor was not a defendant and did not have the opportunity to defend itself. The new provision is obviously intended to prevent employers from avoiding liability for wage and hour violations by transferring the business operation into another corporation, selling the assets of the business, passing the business off to a family member, etc.

For businesses that may have been inclined to consider such transfers, the new statute may, first, dissuade them and, secondly, influence how they defend and, potentially, resolve significant wage and hour lawsuits.

In transactions involving the purchase and sale of businesses or their assets, the new statute will make all the more critical conducting exhaustive due diligence in order to ensure the prospective buyer identifies all wage and hour judgments against the prospective seller and resolving the liabilities before purchasing the seller’s assets.

The statute is new California Labor Code section 200.3, which is added by Assembly Bill 3075 found here.

The Trap! Expansion of the California Family Rights Act

The California Family Rights Act (CFRA) will expand in respects of historic magnitude effective January 1, 2021. Employers large and small are at risk of not keeping up with the changes and finding themselves in litigation.

CFRA provides eligible employees up to 12 weeks of job-protected, unpaid family care and medical leave each 12 months. Effective January 1, private sector employers with as few as five employees will be subject to CFRA, as opposed to CFRA applying to only employers of 50 or more employees as has been the law. Smaller employers are at risk of not fully understanding the scope and intricacy of their new obligations before the changes take effect.

CFRA will also require that eligible employees be given leave to care for ill grandparents, grandchildren and siblings for the first time as of January 1.

A more thorough explanation of the changes coming to CFRA effective with the New Year is provided in my post found here.

Closing

Being aware of simply the upcoming changes in California employment law is one thing. Appreciating how those changes should influence risk assessment and strategy in litigation is a different dimension. I hope these illustrations are helpful as you prepare for the New Year.

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