When Minor Employees Reach Majority, Employers Should Reaffirm Employment Contract to Preserve Arbitration Rights

By Craig T. Reese, Esq., The Maloney Firm, APC

A recent California appellate court opinion, Sarah Coughenour v. Del Taco, LLC (November 20, 2020) Appellate No. E072772, San Bernardino Super. Ct. Case No. CIVDS1831552 (“Coughenour”), addresses the applicability of an arbitration clause in an existing employment agreement after a minor reaches the age of majority during employment.

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Guidance for California Employers

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Many employers choose to include arbitration clauses in their employment agreements which mandate that disputes be resolved through private arbitration rather than by the courts.  As the Coughenour decision shows, however, employers must be vigilant to maintain these arbitration rights.  While minors may enter into employment contracts in California, such employees have a statutory right to disaffirm employment contracts, including agreements to arbitrate disputes.1

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To avoid disaffirmance issues, a California employer who hires minor employees should institute strict protocols to ensure employee reaffirmance or ratification of all employment contracts and agreements upon reaching the age of majority.  For example, an employer’s human resources department could set calendar reminders for the 18th birthday of minor employees, and ask such employees to re-execute any employee agreements after reaching majority.   Failure to do so may result in the employer waiving rights set forth in the agreements. 

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Coughenour v. Del Taco, LLC

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In Coughenour, Plaintiff was 16 years old when hired by Defendant Del Taco, LLC (“Del Taco”).  Upon her employment, Plaintiff signed a “Mutual Agreement to Arbitrate” which mandated that disputes between herself and her employer were to be arbitrated (the “Agreement”).  Plaintiff continued to work for Del Taco for four months after her 18th birthday.  Plaintiff then resigned and filed a civil lawsuit against Del Taco in Superior Court, alleging sexual harassment, wage and hour violations, and other claims under the Labor Code and the Fair Employment and Housing Act (“FEHA”).  In response, Del Taco filed a motion to compel arbitration, citing to the Agreement.

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The trial court denied Del Taco’s motion, finding that Plaintiff had effectively disaffirmed the Agreement by filing her lawsuit against Del Taco.  The Court’s finding was based on Family Code Section 6710, which allows a person to disaffirm a contract entered into as a minor before reaching majority age, or within a reasonable time afterward.2 Del Taco appealed.

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Appellate Review

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At issue in Del Taco’s appeal was the interpretation of the “reasonable time” standard in Family Code Section 6710 pursuant to which a person may disaffirm a contract.  Del Taco argued that because Plaintiff continued to work for employer for four months after reaching the age of majority, she had ratified the Agreement.  Del Taco further argued that because she did not formally disaffirm the contract prior to filing her lawsuit nearly eight months after reaching majority, disaffirmance had not occurred within a reasonable time.

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The appellate court affirmed the trial court’s finding that Plaintiff had effectively disaffirmed the Agreement, writing: “Coughenour’s continued employment does not constitute a ratification of the Agreement and an acknowledgment that she was giving up her right to disaffirmance. . .. To hold that Coughenour impliedly ratified the Agreement by continuing to work at Del Taco for four months after she turned the age of 18 would go against the policy ‘of the law to protect a minor against himself and his indiscretions and immaturity.’”3

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The appellate court further addressed Del Taco’s argument that Plaintiff’s disaffirmance had not occurred within a reasonable time, noting that in the absence of clear statutory guidance, what constitutes a reasonable time must be determined by the specific circumstances at issue:

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“Here, Coughenour worked for almost two years for Del Taco until she reached the age of 18. After she reached majority age, she quit her position after four months and filed her lawsuit within four months of quitting. . .. The filing of the lawsuit was notice that she disaffirmed the Agreement. The trial court did not abuse its discretion by concluding that Coughenour disaffirmed the Agreement within a reasonable time.”

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In so finding, the appellate court confirmed that Plaintiff was not bound by the Agreement’s arbitration terms and could proceed with her suit against her former employer in the court system.

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Coughenour demonstrates one of the many challenges faced by employers in maintaining contract rights.  A conversation with qualified counsel can help employers with questions or concerns regarding employment agreements or employee disaffirmance issues.

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About the Author:

Craig Reese is an attorney at The Maloney Firm, APC.  If you have questions regarding this alert, he can be contacted at creese@maloneyfirm.com.


1 Family Code § 6700 et seq.

2 Family Code § 6710(“Except as otherwise provided by statute, a contract of a minor may be disaffirmed by the minor before majority or within a reasonable time afterwards or, in case of the minor’s death within that period, by the minor’s heirs or personal representative.”)

3 Citing Berg v. Traylor (2007) 148 Cal. App. 4th 809, 818.

Employer Alert: California Minimum Wage Increases January 1, 2021

As California continues to be hit with COVID-19, employers in California must remember the minimum wage is going up again soon. On January 1, 2021, the State of California’s minimum wage will increase to $13.00 per hour for employers with 25 or fewer employees and $14.00 per hour for employers with 26 or more employees. These increases apply to all employers in the State of California.

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In the next few years, all of California will be moving closer to a minimum wage of $15.00 per hour. On January 1, 2022, the State of California’s minimum wage will be going up to $14.00 per hour for employers with 25 or fewer employees and $15.00 per hour for employers with 26 or more employees. On January 1, 2023, all employers in California will be required to pay a minimum wage of $15.00 per hour.

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Remember that on July 1, 2020, the minimum wage went up in the City of Los Angeles and for unincorporated areas in Los Angeles County. For small businesses (25 or fewer employees) and non-profit corporations, the minimum wage is $14.25 per hour.  For all other employers (26 or more employees) the minimum wage is $15.00 per hour. On July 1, 2021, these areas will all be at $15.00 per hour no matter how many employees. Employers also need to remember the impact minimum wage increases have on the salary requirements for exempt employees. To be properly classified as exempt, the employee must earn a salary of at least twice the applicable minimum wage for a full-time employee.

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For more information on the minimum wage, please visit these resources:

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Minimum Wage

Minimum Wage Ordinance

Minimum Wage Unincorporated Areas

Raise the Wage LA

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If you have questions regarding this article, contact The Maloney Firm at 310.540.1505.

Prop. 22, the ABC Test, and the Future of Independent Contractors

By Nicholas Grether, Esq., The Maloney Firm, APC

In 2018, the California Supreme Court’s decision in Dynamex Operations West, Inc. v. Superior Court, 416 P. 3d 1 (2018), seemingly established a bright-line rule for using independent contractors in California.  Under the ABC Test created by the Supreme Court in Dynamex, a worker is considered an employee and not an independent contractor, unless the employer can prove that the following conditions are met:

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  • (A) The person is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact.
  • (B) The person performs work that is outside the usual course of the hiring entity’s business.
  • (C) The person is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.

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Despite the seemingly rigid nature of the ABC test, some key questions were left unanswered.  Would there be any exemptions for professions where workers typically operate as independent contractors?  What about the app-based gig economy?  Does the Dynamex decision apply retroactively? 

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AB 5, AB 2257, and Prop. 22

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To answer the first question, in 2019, the California Legislature passed AB 5, which codified Dynamex and the ABC test in the California Labor Code.  AB 5 was amended in September 2020 by AB 2257 to add additional exemptions.  For more on AB 2257 and the exemptions, click here.

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On Election Day, California voters chose to provide app-based businesses such as Uber and Lyft with an additional exemption allowing their drivers to be considered independent contractors by passing Proposition 22.[1] The new exemption applies to app-based rideshare and delivery drivers and provides the drivers with a healthcare subsidy, a minimum earnings guarantee, compensation for vehicle expenses, and insurance to cover on-the-job injuries.  While opponents of Proposition 22 argued that this does not go far enough and only applies to companies like Uber, Lyft, and DoorDash, the drivers will now be considered independent contractors.

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Does Dynamex Apply Retroactively?

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Election Day also brought us a step closer to whether or not the decision in Dynamex will operate retroactively.  On Tuesday morning, the California Supreme Court heard oral argument in Vazquez (Gerardo) et al. v. Jan-Pro Franchising International, Inc., S258191, to answer that question.  While the general rule is that judicial decisions apply retroactively, California makes an exception for when a decision changes a settled rule.  The attorneys argued as to whether Dynamex was a change in the law or if it simply created a brighter line to clarify and develop existing law.  Now that oral argument is complete, we wait on the California Supreme Court to rule on the issue. 

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What Can Businesses Do? 

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As always, having clear policies and employment agreements will be useful in the event there is any litigation over classifying workers as independent contractors. Consult with employment attorneys to determine if any of the exemptions apply.  Use common sense.  Does your business expect to have any control over the contractor?  What type of work is the contractor performing? If the business has in the past or continues to use independent contractors, make sure to consult with an employment attorney to assess any potential for liability. 

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While the success of Prop. 22 has demonstrated that large businesses are increasingly able to create their own employment laws, the same is unlikely to be true with smaller California businesses. Indeed, many industry and trade groups sought exemptions with little success and the California Legislature is likely to remain hostile to using independent contractors except in very limited situations.

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About the Author:

Nicholas Grether is an employment attorney in the Employment Law Department at The Maloney Firm, APC. If you have questions regarding this article, contact Nicholas Grether at ngrether@maloneyfirm.com.


[1] https://www.cnn.com/2020/11/04/tech/california-proposition-22/index.html

Getting Value For Your Bar Dues: Ethics And Third-Party Litigation Funding

By Carl I. S. Mueller, Esq., The Maloney Firm, APC

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All California Attorneys Should Review The State Bar’s Ethical Opinion Providing Guidance On Third-Party Litigation Funding Before Considering Litigation Funding

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The California State Bar’s Standing Committee on Professional Responsibility has issued Formal Opinion No. 2020-204 setting out the ethical considerations and disclosure requirements for attorneys whose clients are considering or utilizing third-party litigation funding. With litigation funders becoming more numerous and more creative in the funding structures offered, the committee’s opinion comes at an excellent time. Within the opinion, the committee points out the following issues and disclosures that attorneys must consider or make before utilizing third-party litigation funding:

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  • Duties of Competence and Communication: Pursuant to a lawyers’ duties of competence (Rule of Professional Conduct (“CRPC”) Rule 1.1(b)) and communication (CRPC 1.4(a)), an attorney must discuss whether third-party “litigation funding would assist in accomplishing the client’s goals. Such advice would likely need to include a discussion of the pros and cons of obtaining litigation funding and alternatives, if any.” To that end, in order to advise on a litigation funding contract, “the lawyer must understand how the terms of the funding agreement impact decisions in the litigation.”

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  • Duties of Independent Judgment and Loyalty: CRPC 2.1’s duty to provide “independent professional judgment” and the general duty of loyalty imposed on attorneys  interplays with CRPC 1.7’s proscription on an attorney accepting representation “if there is a significant risk that the representation will be materially limited by the lawyer’s relationship with a third person” to limit some possible litigation funding arrangements. Furthermore, CRPC 1.8.6 requires specific disclosures and waivers before a lawyer can accept payment from a third person for the representation of a client. In combination, all of these rules require an attorney to take care when considering third-party litigation funding that requires any of the following: (1) payments made directly to law firms rather than to the clients; (2) rights of review or information sharing requirements with litigation funders; and (3) control over any aspect of the litigation by a third-party funder. While the committee did “not reach a general conclusion that any particular degree of control is per se unethical,” the opinion serves as a warning that such a possibility exists, and warnings and waivers as to the above are a minimum requirement for attorneys considering such an arrangement.

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  • Protecting Confidential Information:  Importantly, attorneys must also consider CRPC 1.6, which bars an attorney from sharing confidential information without a client’s consent. To that end, it is paramount that attorneys seek and obtain a non-disclosure and confidentiality agreement with any third-party litigation funder before communicating any confidential information. Further, such an agreement may aid in protecting communications and work product from being discoverable. The committee cites Laguna Beach County Water Dist. v. Superior Court (2004) 124 Cal.App.4th 1453, 1459 for the proposition that such an agreement may shield work product shared with a litigation funder from discovery. However, as caselaw on these issues has not been developed to a point where a clear answer is known, an attorney must obtain informed consent from a client that such a waiver could occur before undertaking any sort of confidential communication with a third-party litigation funder or entering a litigation funding agreement.

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Although attorneys are often justified in asking exactly what, if any, value they receive in exchange for their bar dues, in this instance, Formal Opinion No. 2020-204 gives California lawyers something useful. By following the guidance therein, attorneys should be able to more effectively craft the appropriate disclosures and conflict waivers for their clients that wish to utilize third-party litigation funding, allowing the attorneys to avoid the headaches and expense of malpractice and breach of fiduciary duty claims.

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About the Author:

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Carl Mueller is a business litigation attorney that represents clients in all phases of civil litigation. Mr. Mueller’s practice has a focus on attorney-client disputes of all kinds. If you have questions regarding this article contact Carl Mueller at cmueller@maloneyfirm.com.

ADA Website Litigation: Rise In Complaints Alleging Lack Of Accessibility For Consumers Suffering From Hearing Loss

By Carl I. S. Mueller, Esq., The Maloney Firm, APC

Over the last several weeks, the “Center for Disability Access,” a division of the well-known San Diego based law firm Potter Handy, has filed several law suits in the Los Angeles Superior Court and Federal District Courts on behalf of an individual named Chris Langer. Common to each lawsuit are the following facts: (1) Mr. Langer is allegedly suffering from Delayed Endolymphatic Hydrops, which causes permanent partial hearing loss; (2) Mr. Langer attempted to watch videos on the websites of the various defendants, all consumer-facing businesses with brick-and-mortar locations; and (3) the lack of subtitles or closed captioning for the videos on the websites utilized by Mr. Langer created a barrier to Mr. Langer’s use of the website. 

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Each of the lawsuits assert the following causes of action:

  • (1) violations of the Americans with Disabilities Act, specifically 42 USC § 12181 (the “ADA”), and
  • (2) violations of California’s Unruh Civil Rights Act, specifically Cal. Civil Code § 51-53 (the “Unruh Act”).

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These lawsuits represent several noteworthy developments in the world of ADA litigation. First, while ADA website liability cases are generally increasing, filing cases against consumer-facing companies for failing to place subtitles or closed captioning on internet videos remains uncommon.

Second, Potter Handy and the Center for Disability Access had previously been focusing almost exclusively on ADA and Unruh Act violations relating to physical and architectural barriers to use. Indeed, Mr. Langer himself was and is a plaintiff in dozens of lawsuits filed by Potter Handy and the Center for Disability Access relating to his use of a wheel chair. As a result of Potter Handy and the Center for Disability Access beginning to file website accessibility cases, and as a testament to the volumes of cases Potter Handy is capable of filing, it is likely that ADA and Unruh Act website violation case filings will begin to increase substantially.

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Third, Mr. Langer has filed these cases in both Federal and State courts at a time when the Los Angeles Superior Court is experiencing significant slowdowns as a result of the COVID-19 pandemic. After filing most of their previous ADA cases in Federal Court, this strategic shift by Potter Handy presents new challenges to defendants who wish to resolve these cases quickly. Right now, jury trial dates in civil cases—and the related discovery cutoffs—are a desert mirage, and there is no clear prognosis for when those trials will resume in the Los Angeles Superior Courts. As such, the attorneys’ fees provision in the Unruh Act can create a perverse incentive for plaintiffs to drive litigation and related fees beyond what is normally expected.

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What does this mean for business owners in California? With Potter Handy beginning to file ADA website accessibility cases, the volume of websites that will be scrutinized for potential lawsuits is sure to drastically increase. As such, it is more important than ever for business owners to review their websites to ensure compliance with the latest Web Content Accessibility Guidelines (“WCAG”), as previously discussed here. Additionally, if a business owner receives a demand letter, settling early and avoiding litigation entirely is the best way to limit costs, as litigation in the Los Angeles Superior Court may become more expensive and drawn out than cases in the Federal District Court. As always, an ounce of prevention is worth a pound of cure, and may just increase your website’s audience as well!

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About the Author:

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Carl Mueller is a business litigation attorney that represents clients in all phases of civil litigation. Mr. Mueller’s practice has a focus on attorney-client disputes of all kinds. If you have questions regarding this article contact Carl Mueller at cmueller@maloneyfirm.com.

California Doubles Statute of Limitations for DLSE Complaints

On September 30, Governor Newsom signed AB 1947, which extends the statute of limitations for DLSE complaints and authorizes courts to award reasonable attorney’s fees to a plaintiff who brings a successful action for a violation of Section 1102.5 of the Labor Code. The bill’s provisions take effect January 1, 2021. Learn more about how AB 1947 affects California businesses and workers below.

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Extended Statute of Limitations

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California Labor Code Section 98.7 currently allows individuals who believe that they have been discharged or otherwise discriminated against in violation of any law under the Labor Commissioner’s jurisdiction to file a complaint with the California Division of Labor Standards Enforcement (DLSE) within six months after the violation occurred. Assembly Bill (AB) 1947 extends this deadline to one year after the occurrence of the violation.

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Changes to Labor Code Section 1102.5

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Labor Code Section 1102.5 prohibits employers from retaliating against employees for reporting employer violations or noncompliance with local, state, or federal statutes and regulations. Under this section, employees must only have “reasonable cause to believe” their employer violated the aforementioned laws to file a complaint.

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AB 1947 amends Section 1102.5 to authorize courts to award plaintiffs with reasonable attorney’s fees if they are successful in retaliating against violations of Section 1102.5 in court. Therefore, employers may be liable to pay employees’ attorney fees when they face suits arising from Section 1102.5 violations.

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Implications for California Employers

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Critics of AB 1947 suggest that the new bill adds financial incentivizes for employees to litigate Section 1102.5 claims instead of utilizing the DLSE’s more efficient investigation procedures. The bill will likely also heighten the DLSE’s enforcement activities by doubling the statute of limitations for such claims.

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Resources for California Employers

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View the full text of AB 1947 here.

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View the full text of Labor Code Section 1102.5 here.

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View the full text of Labor Code Section 98.7 here.

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If you have questions regarding the application of AB 1947 to your business, please contact one of the following attorneys in The Maloney Firm’s Employment Law Department: Patrick MaloneyLisa Von EschenSamantha Botros, or Nicholas Grether.

Successor Employers Liable for Unpaid Wages in California

On September 30, Governor Newsom signed AB 3075, which imposes liability on successor employers for unpaid wages, specifies criteria to establish successorship, and adds information that employers must include in statements of information filed with the California Secretary of State. The bill also gives local jurisdictions the authorization to enforce state labor standards requirements with respect to imposing minimum penalties for noncompliance with wage-related statutes and regulations. Learn more about how AB 3075 affects California businesses and workers below.

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Brief Background of AB 3075

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According to the Economic Policy Institute, California workers lose almost $2 billion per year as a result of employers’ wage theft violations.[1] Assembly Bill (AB) 3075 was created to provide workers with an avenue to recover lost wages from their employer’s successor. Under the new bill, when an employer is obligated by a judgement in court to pay wages, damages, and/or penalties to their workforce and these debts are left unpaid, the successor employer is liable to pay those debts. These provisions take effect January 1, 2021.

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What is a Successor Employer?

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Broadly, a successor employer is a business that acquires (through merger, reorganization, consolidation, transfer of stock or assets, or otherwise) all or substantially all of another business or its assets. Under AB 3075, successorship is established if a business meets any of the following criteria:

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  • 1. Uses substantially the same facilities or substantially the same workforce to offer substantially the same services as the judgment debtor. This factor does not apply to employers who maintain the same workforce pursuant to Chapter 4.5 (commencing with Section 1060) of Part 3 of the California Labor Code.
  • 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. The term managing agent has the same meaning as in subdivision (b) of Section 3294 of the Civil Code.
  • 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.

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New Requirements for Successor Employers

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Significantly, AB 3075 stipulates that, pursuant to a final judgement, a successor to any judgement debtor is liable for any unpaid wages, damages, and penalties owed to the judgement debtor’s former workforce.

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The bill also requires corporations to document whether any officer, director, or in the case of a limited liability company, a member or manager, has an outstanding final judgment issued by the DLSE or a court of law for a violation of any wage order or provision of the Labor Code. This information should be included within corporations’ statements of information filed with the Secretary of State starting on the earlier of either the date of certification by the Secretary of State that California Business Connect is implemented or January 1, 2022.

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The bill also amends Section 1205 of the Labor Code to authorize local jurisdictions to enforce state labor standards requirements with respect to imposing minimum penalties for noncompliance with wage-related statutes.

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Resources for California Employers

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View the full text of AB 3075 here.

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View the full text of Chapter 4.5 (commencing with Section 1060) of Part 3 of the California Labor Code here.

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View the full text of Section 3294 of the Civil Code here.

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View the full text of Section 1205 of the Labor Code here.

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If you have questions regarding the application of AB 3075 to your business, please contact one of the following attorneys in The Maloney Firm’s Employment Law Department: Patrick MaloneyLisa Von EschenSamantha Botros, or Nicholas Grether.


[1] https://www.epi.org/publication/employers-steal-billions-from-workers-paychecks-each-year/

California Enacts Mandated Diversity Quotas for Corporate Boards

On September 30, Governor Newsom signed Assembly Bill (AB) 979, which establishes groundbreaking diversity quotas for the corporate boards of publicly traded companies headquartered in California. Find out more about how AB 979 affects California businesses below.

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Brief History of AB 979

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In spite of widespread corporate interest in promoting diversity and inclusion in the workplace, the boards of most Fortune 500 companies remain unrepresentative of the diversity of the California workforce. A recent study conducted by Forbes and Ropes & Gray found that out of 5,670 board positions in Fortune 500 companies, only 24 are occupied by individuals who openly identify as LGBTQ+.[1] Deloitte’s 2018 “Missing Pieces Report” found that just 16% of Fortune 500 board members are people of color.[2]

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In 2018, California lawmakers created a quota for female board members by passing Senate Bill (SB) 826. This bill is credited with accelerating the inclusion of women in white collar industries, as well as setting a far-reaching example for responsible business practices. It is also heavily criticized as potentially unconstitutional, and, along with AB 979, faces opposition in court.

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Citing concerns about “racial injustice and inequity in our society,” Assemblyman Chris Holden (D-Pasadena) modeled AB 979’s requirements after SB 826 in order to expedite the diversification of California’s white collar workforce. “While some corporations were already leading the way to combat implicit bias, now, all of California’s corporate boards will better reflect the diversity of our state. This is a win-win as ethnically diverse boards have shown to outperform those that lack diversity.”

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Employer Requirements under AB 979

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AB 979 requires any publicly held foreign or domestic corporation whose principle executive office is headquartered in California to comply with the following requirements:

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  • 1. No later than the close of the 2021 calendar year, the corporation must have a minimum of one director from an underrepresented community; and
  • 2. No later than the close of the 2022 calendar year, corporations with nine or more directors must have a minimum of three directors from underrepresented communities, corporations with more than four but fewer than nine directors must have a minimum of two directors from underrepresented communities, and corporations with four or fewer directors must have a minimum of one director from an underrepresented community.

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In the context of AB 979, a director from an “underrepresented community” refers to individuals who self-identify as Black, African American, Hispanic, Latino, Asian, Pacific Islander, Native American, Native Hawaiian, or Alaska Native, or as gay, lesbian, bisexual, or transgender.

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No later than March 1, 2022, California’s Secretary of State will begin to publish annual reports documenting compliance with the bill’s diversification requirements. Under AB 979, the Secretary of State is authorized to fine corporations between $100,000 and $300,000 for failing to comply with the bill’s requirements or for failing to file board member information in a timely manner.

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Resources for California Employers

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Find the full text of Assembly Bill (AB) 979 here.

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Find the full text of Senate Bill (SB) 826 here.

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If you have questions regarding the application of AB 979 to your business, please contact one of the following attorneys in The Maloney Firms Employment Law Department: Patrick MaloneyLisa Von EschenSamantha Botros, or Nicholas Grether.


[1] https://www.forbes.com/sites/toddgsears/2020/09/30/all-eyes-on-california-this-wednesday-ab-979-could-alter-corporate-boards-for-the-better/#1ece4f9695a4

[2] https://www2.deloitte.com/us/en/pages/center-for-board-effectiveness/articles/missing-pieces-fortune-500-board-diversity-study-2018.html

Arbitration? Not So Fast (& Furious)

By Nicholas Grether, Esq., The Maloney Firm, APC

Employers weighing their dispute resolution options are often enticed by the ability to delegate as much power as possible to an arbitrator.  Arbitrators are typically given the authority to allow as much discovery as needed and to limit the types of motions that may be brought.  Additionally, arbitrators can be granted the authority to determine which claims must be arbitrated.  For example, if a dispute arises between an employee and employer, the arbitrator will determine if the dispute must be arbitrated or may be pursued in court.  While this appears to be a straightforward procedure, a recent California appellate court decision demonstrates that it is not always clear who decides the subject of arbitrability.  In Neal Mortiz v. Universal City Studios, et al., Appellate No. B299083 (September 2, 2020), the appellate court denied Universal’s attempt to force a dispute with producer Neal Moritz over the 2019 film Fast & Furious Presents: Hobbs & Shaw (“Hobbs & Shaw”) into arbitration.  The ruling speaks to two key issues within the arbitration process: one, does the court or the arbitrator decide whether the dispute is required to be arbitrated, and two, can an agreement to arbitrate cover any disputes between the parties?

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The Contracts Provided that the Parties Agreed to Arbitrate Disputes

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Producer Neal Moritz spent 16 years producing Fast and Furious films for Universal City Studios LLC. Moritz and Universal entered into separate contracts for six of the first seven movies in the franchise (contracts FF1-FF4, FF6, FF7), and entered into a seventh contract that covered the eighth, ninth, and tenth movies (contract FF8-10). The terms of the FF7 contract, which required arbitration to resolve any future disputes, were incorporated into the FF8-10 contract and applied to any “sequels” or “remakes” in the Fast and Furious franchise.  

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The Dispute Over Hobbs & Shaw

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Moritz claims to have worked on Hobbs & Shaw, which was released in 2019 and was referred to by both Moritz and Universal as a “spin-off.”  While both parties agree that they exchanged written drafts of another producer contract for Hobbs & Shaw with Universal, the contract was never finalized or signed.  Shortly before filming on Hobbs & Shaw began, Universal notified Moritz that since there was no agreement, Universal was under no obligation to compensate him. Moreover, Universal directed Moritz not to work on the film unless an agreement was reached.  Subsequently, Moritz filed a lawsuit in the Los Angeles Superior Court claiming that he and Universal had an oral contract that Universal breached, and that he is owed compensation for his work on Hobbs & Shaw.

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Universal Moved to Compel Arbitration

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Universal sought to compel arbitration based on Moritz’s producer contracts for FF6 and FF7, which stated that the parties were required to arbitrate any “controversy, claim, or dispute.”  Even though Hobbs & Shaw was considered a “spin-off,” Universal took the position that an arbitrator should determine the threshold question of whether the dispute over Hobbs & Shaw was arbitrable under any of the agreements. 

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The question of whether a particular dispute is to be arbitrated is usually a matter for the court, unless the parties “clearly and unmistakably provide otherwise.”  Henry Schein, Inc. v. Archer & White Sales, Inc. (2019) ___U.S.___ [139 S.Ct. 524, 530, 202 L.Ed.2d 480, 487].  In the FF1-4 contracts, the question of arbitrability was delegated to the arbitrator, but such language was not in the FF6 and FF7 contracts.  Nonetheless, Universal argued that since all disputes with Moritz were to be arbitrated, this meant an arbitrator should decide if the Hobbs & Shaw dispute should be heard in arbitration.

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The trial court found that the FF6 and FF7 contracts did not demonstrate the parties’ “clear and unmistakable” intent to arbitrate and therefore did not allow an arbitrator to decide if the Hobbs & Shaw dispute should be arbitrated.  Moving to the next phase of the inquiry, the trial court found that since the parties considered Fast & Furious Presents: Hobbs & Shaw a “spin-off,” and not a “sequel,” or a “remake,” the dispute should be decided in court.

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The Arbitration Provisions Do Not Require This Dispute to be Arbitrated

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Universal appealed, claiming that since the arbitration provisions in the FF6 and FF7 agreements required arbitration of any dispute, any question of whether the claim has to be arbitrated must be decided by an arbitrator.  The appellate court disagreed.  First, the court determined it was not clear that the parties agreed to delegate arbitrability questions concerning a dispute over Hobbs & Shaw to an arbitrator. Second, Universal’s interpretation would mean that any dispute would have to first go to an arbitrator no matter how unrelated the dispute was to the underlying contractual relationship.  It noted that there must be “some minimal connection between the contract and the dispute.”  Otherwise, the contract would create absurd results.   As an example, if an employee at Universal assaulted Moritz, it would not stand to reason that Moritz would be compelled to arbitrate that dispute.  For these reasons, the appellate court affirmed the decision to deny the motion to compel arbitration.

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What are the Key Takeaways? 

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  • 1. Make sure the contract is clear.  The trial court observed that the FF8-10 contract was “hardly a model of clarity.”  Having a contract with clear language on arbitration increases the chances that it will be enforced as intended.
  • 2. Determine if an arbitrator or the court should decide whether a particular dispute must be arbitrated.  Consult with legal counsel to determine which is more advantageous.  While the FF1-4 contracts all expressly delegated questions of arbitrability to an arbitrator, Universal removed this term from the FF6-7 contracts.  Had this term been in the contract, it would have provided Universal with a better argument that an arbitrator needed to decide if the dispute over Hobbs & Shaw should be arbitrated.  
  • 3. Never cut corners, even when the parties have a good relationship.  The Fast & Furious franchise is one of the most successful movie franchises in the world.  Moritz is undoubtedly a part of that success, but neither Moritz nor Universal likely anticipated what would happen if their relationship broke down.  Certainly, the FF8-10 contract could have referred to any film in the series rather than only sequels or remakes.  Universal could have taken steps when the idea for the Hobbs & Shaw film was conceived to make sure Moritz did no work until there was a written contract.

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About the Author:

Nicholas Grether is an employment attorney in the Employment Law Department at The Maloney Firm, APC. If you have questions regarding this article, contact Nicholas Grether at ngrether@maloneyfirm.com.