The California legislature continues to enact increasingly employee-favorable legislation (with a few exceptions.) Issues related to employee and independent contractor classifications and the Dynamex decision are at center stage of the discussion and likely to have the most impact for California businesses. Also, the legislature is reintroducing numerous employment bills addressing paid family leave, harassment, and discrimination as well as proposing legislation on new topics.
Click here to read the Maloney Firm’s 2019 Mid-Year Employment Law Update.
California Supreme Court Clarifies Standards For Seeking Costs In Arbitration Pursuant To CCP Section 998
By Carl Mueller, The Maloney Firm, APC
In Heimlich v. Shivji, published May 30, 2019, the California Supreme Court overturned an appellate court’s holding that “required” a trial court to hear a timely request for fees pursuant to a rejected 998 offer if an arbitrator refused to hear it. I previously wrote an article discussing the opinion Seeking Costs Under CCP § 998, which concluded with:
In short, the Court of Appeal ensured that the costs provision under CCP § 998 is available to parties in arbitration – at least those in AAA – notwithstanding whether the arbitrator will consider the request for fees.
In that case, one party (Shivji) made a CCP § 998 offer that was rejected, and then Shivji prevailed on the merits. After the issuance of the final award, Shivji’s counsel emailed the arbitrator seeking costs pursuant to CCP § 998, but the arbitrator refused to consider the request. The appellate court ruled that in that situation, the trial court must consider the fee request if the arbitrator does not. The Supreme Court overruled the appellate court, holding that the trial court lacked the authority to overturn the arbitrator’s refusal to consider the timely fee request:
We hold a request for costs under section 998 is timely if filed with the arbitrator within 15 days of a final award. In response to such a request, an arbitrator has authority to award costs to the offering party. However, if an arbitrator refuses to award costs, judicial review is limited. The Court of appeal erred in relying on a narrow exception to those limits for failure to consider evidence. We reverse.
Notably, the Supreme Court made clear that evidence of a CCP § 998 offer may be given in arbitration either before or after the issuance of a final award:
With certain limits, evidence of a 998 offer may be presented before or after an arbitrator’s final award on the merits. While Shivji would not have been categorically prohibited from advising the arbitrator of the rejected 998 offer sooner, his proffer six days after the final award was timely.
Specifically, the Supreme Court held that overlapping common law and statutory schemes allow an arbitrator to consider evidence of the rejected CCP § 998 offer and a request for costs “within 15 days after issuance of a final award.” However, a trial Court lacks the authority to overturn an arbitrator’s failure to consider such a request for costs, as in the instant case, because the “court’s power to correct or vacate an erroneous arbitration award is closely circumscribed.” This holding is based on the well-established rule that “[o]rdinary errors in ruling on costs are not subject to correction, nor do they serve as the basis for vacating an award.”
In addition to its holding on the merits, the Supreme Court’s decision points out a trap for the unwary practitioner, which any litigator that ventures into arbitration must take to heart:
Insofar as appears from the record, Shivji did not seek a stipulation that would allow the parties jointly to advise the arbitrator of a 998 offer. Instead, he chose to wait until shortly after the arbitrator’s merits award to raise the issue. While Shivji was legally entitled to do so, he ran the risk that the arbitrator would erroneously refuse to award costs, leaving him without recourse under the narrow ground for vacation or correction contained in the statutory scheme.
As such, introducing a CCP § 998 offer into evidence at arbitration and requesting leave to make a post-award request for costs should be on any litigator’s arbitration check-list.
The Maloney Firm is proud to announce that Greg Smith and Vanessa Willis have been named to the 2019 Rising Stars list in Southern California Super Lawyers Magazine.
This is the fourth consecutive year that Greg has received this distinction and the first for Vanessa. The honor is bestowed on only the top 2.5% of attorneys who are under age 40.
Please join us in congratulating them!
Know Your ABCs: Dynamex ABC Test Applies Retroactively
By Vanessa Willis, The Maloney Firm, APC
On May 2, 2019 in Vazquez v. Jan-Pro Franchising International, Inc. No. 17-16096 (9th Cir. 2019), the Ninth Circuit held that the landmark 2018 Dynamex decision applies retroactively. The Dynamex decision adopted the more stringent ABC test for determining independent contractor status. Under Dynamex, to establish that a worker is an independent contractor, the employer must prove that the worker: (a) is free from control and direction in the performance of his or her work, both under the contract for the performance of the work and in fact; (b) performs work that is outside the usual course of the hiring entity’s business; and (c) is customarily engaged in an independently established trade, occupation, or business of the same nature as the work that he or she is performing for the hiring entity. Dynamex Corporations West, Inc v Superior Court (2018) 4 Cal. 5th 903, 916-917.
The Vazquez case involved a decade-long dispute between janitorial workers classified as independent contractors and Jan-Pro Franchising International. The court ruled that janitors working for a franchise-structured cleaning firm could not be classified as independent contractors and found that “franchise context” doesn’t change how Dynamex should apply.
The Ninth Circuit concluded that Dynamex applies retroactively largely because the Dynamex Court stated it was merely “clarifying” existing law rather than changing it, and remanded the case to the district court for further proceedings in which the new “ABC” test is to be applied retroactively. The Ninth Circuit rejected two main arguments for applying Dynamex only prospectively. First, the Court noted the default rule that judicial decisions have retroactive effect and Dynamex did not fall into any exception to that rule. Second, the Court held that applying Dynamex retroactively did not violate due process.
This opinion has major implications, especially for California employers that rely on independent contractors, including gig economy companies. The Ninth Circuit’s decision also has particularly important application to businesses that use a franchise model. Employers should not only make sure that new workers are classified correctly according to Dynamex, but also revisit existing independent contractor agreements to verify they conform to the standards established by Dynamex. As a result of this decision, employers may see an uptick in wage and hour lawsuits and businesses may be subject to liability for misclassifying workers as independent contractors even before the test became law.
The Maloney Firm is proud to be a Silver Sponsor of this year’s South Bay Women’s Conference, an annual event that centers on awarding scholarships to deserving South Bay women to pursue business degrees.
Back from the Dead: When an Arbitration Clause May Survive an Agreement to Terminate the Agreement Containing the Arbitration Clause
By Gregory M. Smith, The Maloney Firm, APC
On April 23, 2019, in the matter of Oxford Preparatory Academy v. Edlighten Learning Solutions, the California Court of Appeal, Fourth Appellate District, held that parties can still be bound to an arbitration provision in a written agreement, even after they mutually agree to terminate the agreement containing the arbitration clause.
In December 2015, Oxford Preparatory Academy (“Oxford”) and Edlighten Learning Solutions (Edlighten”) entered into: (1) an Affiliation Agreement); (2) a Personnel Services Agreement); and (3) a Management Services Agreement (collectively “the Agreements”). The Management Services Agreement contained an arbitration provision, which was incorporated by reference into the other Agreements, which stated: “Any controversy or claim arising out of this Agreement, or the breach thereof, shall be settled by arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association, and judgment upon the award rendered by the arbitrator(s) may be entered in any court having jurisdiction.”
Only a few months later, the parties entered into an agreement to “terminate the Affiliation Agreement, the Management Services Agreement, and the Personnel Services Agreement … by mutual consent upon the terms set forth herein.” The Termination Agreement stated that effective June 17, 2016, “all rights and obligations of [the parties] under the [Agreements] shall cease” but that the obligations of each party to pay for the services rendered prior to the termination date survived the termination of the Agreements. The Termination Agreement also included an integration clause which stated: “There are no agreements, understandings, commitments, representations or warranties with respect to the subject matter hereof except as expressly set forth in this Agreement. This Agreement supersedes all prior oral or written negotiations, understandings and agreements with respect to the subject matter hereof.”
Thereafter, Oxford sued Edlighten for failure to timely pay as required by the survival clause, and Edlighten moved to compel arbitration pursuant to the clause in the Management Services Agreement. The trial court denied the petition because: “(1) the parties explicitly agreed in writing to terminate all three agreements and to extinguish ‘all rights and obligations’ under them, with only two specified exceptions; and (2) the parties’ right and obligation to resolve their dispute through arbitration is not among the rights and obligations” surviving termination of the agreements.
The Court of Appeal disagreed with Oxford and the trial judge. The Court ruled “The Termination Agreement does not demonstrate any intent that it would supersede the Arbitration Clause, or, for that matter, any other right or obligation which arose under the parties’ agreements before the termination date.” The Court reasoned that the use of the phrase “shall cease” in the Termination Agreement indicated that the parties had no intent to terminate any rights that were already vested to the parties (including arbitration), instead the Termination Agreement “merely divided the rights and obligations of the parties on a temporal basis.” Further, the Court ruled that because the Termination Agreement was silent as to any repudiation of the arbitration clause, it fell outside of the “subject matter” of performance specified in the integration clause.
The lesson to be learned from the case is that clarity is always paramount when drafting a document creating, amending, or terminating an agreement. Leaving a term silent and hoping that a court might see it your way may lead to unintended consequences. Instead, parties and their counsel should seek to maximize the clarity of the bargains they strike. This is even more important in the context of arbitration because, as Oxford Preparatory Academy v. Edlighten Learning Solutions demonstrates, there is a judicial presumption in favor of arbitration, even after the parties terminate the underlying agreement.
Attorney Lisa Von Eschen is a panelist at the Daily Journal’s Women Leadership in Law Conference again this year. The Maloney Firm is proud to be sponsoring this inspiring day for women attorneys on May 9th at the Montage Beverly Hills.
Two recent California Court of Appeal decisions concerning timekeeping, overtime, misclassification, and reporting time may affect your business practices.
The California Court of Appeal in Terry Furry v. East Bay Publishing, LLC held that if an employer fails to keep accurate records of an employee’s work hours, even “imprecise evidence” by the employee “can provide a sufficient basis for damages.” Click here to read more.
Also, the California Court of Appeal ruled in a split decision that employees subject to on-call scheduling must be paid reporting time pay, even when the employee only has to make a short call to determine if they are needed, but does not physically report to work. In Ward v. Tilly’s, Inc., Case Number B280151, the Court held that Tilly’s on-call policy triggered the “Reporting Time Pay” provision of California’s Wage Order 7, which applies to the retail industry. Click here to read more.
Congratulations to Patrick Maloney for being named to the 2019 Southern California Super Lawyers list, an honor bestowed upon only 5% of attorneys. This is the fifth consecutive year that he has been honored.
Super Lawyers, a Thomson Reuters business, is a rating service of outstanding lawyers from more than 70 practice areas who have attained a high degree of peer recognition and professional
achievement. The annual selections are made using a patented multiphase process that includes a statewide survey of lawyers, an independent research evaluation of candidates and peer reviews by
practice area. The result is a credible, comprehensive and diverse listing of exceptional attorneys.
2018 has been a year of change for California employers, including a landmark new test for determining whether workers may be classified as independent contractors and a host of #MeToo inspired legislation. To get ready for 2019, our employment team has put together a review of the state’s new laws of which businesses should be aware effective January 1st, and an update on important cases decided and pending in the state and federal courts.
Click to read the 2019 Employment Law Update