By: Patrick J. Kirby and Jesse K. Cox

Recently, Senate Bill 1186 (“SB 1186”), a bi-partisan measure aimed at protecting California small-businesses from predatory lawsuits filed under the Americans with Disabilities Act (“ADA”), was signed into law by the Governor.  While only 12 percent of the country’s disabled population resides in California, upwards of 40 percent of ADA lawsuits nationwide have been filed within the state in recent years.  The goal of SB 1186 is to help business owners become compliant with the mandates of the ADA by mitigating the frequency and severity of these lawsuits that often times shut down small businesses, with little to no benefit to those whom the ADA is designed to protect.

Specifically, SB 1186 prohibits attorneys from sending demand letters threatening to sue for ADA violations and demanding that the business owner pay to settle the prospective claim.  Under the new law, parties are required to provide a written advisory to business owners 30 days before filing suit for construction-related violations.  The bill also prevents parties from “combining” claims for a single violation through repeated visits to the same business premises, and incentivizes business owner compliance with the ADA by capping damages for unintentional violations remedied within 30 or 60 days of a complaint.  However, this damages cap does not apply to “intentional” or “knowing” violations.  Further, under the new law, cities and counties are required to inform business licensees of their responsibility to satisfy accessibility laws under the ADA.  Portions of the bill are set to take effect immediately.

Practical Tips: With the enactment of SB 1186, California has taken the first steps to curb abusive ADA litigation that has plagued small business for years.  Under this measure, small business owners will face less of the “pay now or pay later” pressure previously asserted by those trying to take advantage of the financial incentives included in the ADA.  While hopefully reigning in many of the problems with ADA suits, the new law in no way excuses or exempts compliance, and the responsibility to align their operations with the ADA still rests on business owners.  Businesses should consider SB 1186 a shield and not a sword, potentially protecting them from costly litigation as they work to adhere to all requirements of the ADA.

To learn more about this new law, read the press release issued by SB 1186 co-sponsor, State Senator Dutton: http://cssrc.us/web/31/news.aspx?id=12637

By: Patrick J. Kirby and Jesse K. Cox

In Sparks v. Vista Del Mar Child and Family Services, the California Court of Appeal prohibited the enforcement of an arbitration clause contained within an employee handbook.  Specifically, in Sparks, the plaintiff was hired as a temporary employee before being hired permanently as the defendant’s controller in 2007. The plaintiff claimed he was fired for pre-textual reasons in 2010 after he complained of employee practices he believed violated federal and state law. He later sued for wrongful termination, and the defendant sought a petition compelling arbitration per an arbitration clause included in its employee handbook.

In support of its petition, the defendant asserted that the plaintiff signed a form entitled “Acknowledgement of Receipt of Employee Handbook,” demonstrating that he received and reviewed the handbook, and agreed to its terms—including the arbitration clause at issue. The clause itself was located on pages 35 and 36 of the handbook, and typed in the same font style and size as the rest of the handbook.

The court ruled there was no agreement to arbitrate. The court reasoned that acknowledgement of receipt of the handbook, by itself, was not enough to create an enforceable arbitration agreement. Specifically, the Court noted that according to both federal and state law, “the threshold question presented by a petition to compel arbitration is whether there is an agreement to arbitrate.” The party seeking to compel arbitration bears the burden of proving a valid agreement. If it carries its burden, the opposing party must then prove its defense by a preponderance of the evidence.

In this case, the defendant’s arbitration clause was tucked within its employee handbook, indistinguishable from the handbook’s other provisions. It was not highlighted or boxed off, nor was there any place for employees to specifically acknowledge the provision in writing.  Moreover, on the “Acknowledgment” form that the plaintiff did sign, there was no specific reference to the arbitration clause. The Court stressed that to support a conclusion that an employee has given up his right to litigate an employment-related claim, there should be, “[a]t a minimum . . . a specific reference to the duty to arbitrate . . . in the acknowledgement of receipt form signed by the employee. . . .”

Additionally, the Court concluded that the defendant’s arbitration clause was both procedurally and substantively unconscionable. In particular, the Court found no evidence the clause was subject to negotiation; thus, it amounted to an adhesion contract and was procedurally unconscionable. Secondly, the clause was held substantively unconscionable because it forced the plaintiff to give up administrative and judicial rights under federal and state statutes without making express provisions for discovery rights or other procedures. Specifically, the arbitration clause referenced the American Arbitration Association rules, but these rules were not given to the plaintiff.

Lastly, the Court took issue with the defendant’s handbook on several other fronts. In particular, the handbook was merely “distributed” to the defendant’s employees, suggesting it was more informational than contractual. It also contained a sentence reading, “The Handbook is not intended to create a contract of employment. . . .” Importantly, the Court reasoned that because the defendant reserved for itself the power to unilaterally change the content of the handbook, any agreement it purported to make was illusory.

Practical Tips: The opinion in this case was not necessarily a wholesale assault on arbitration clauses. In fact, the court highlighted both United States Supreme Court and California Supreme Court authority recognizing the policy favoring arbitration agreements. That being said, such a general policy does not trump the requirement that these types of agreements be entered into voluntarily. Employers who choose to include arbitration clauses in their governing policies can help satisfy this requirement by ensuring employees are specifically aware of the arbitration provision, understand its terms, and understand what rights they are forfeiting by agreeing to arbitrate any dispute. While the court did not require that employees sign an arbitration agreement separate from a form acknowledging receipt of any handbook containing the arbitration clause, such a practice could help insulate employees from civil litigation in cases such as Sparks. If an employer chooses to not use a separate form, it may consider setting the arbitration clause apart from other text in the handbook, using bold font to highlight the clause’s presence, or include a signature line within close proximity to the arbitration provision to ensure that employees memorialize their recognition of the agreement to arbitrate.

The full text of the decision can be found here: http://www.courts.ca.gov/opinions/documents/B234988.PDF

By: Patrick J. Kirby

In Christopher v. SmithKline Beecham Corp., the United States Supreme Court recently ruled that pharmaceutical representatives fall within the scope of the “outside salesman” exemption of the Fair Labor Standards Act (FLSA). In this case, two pharmaceutical representatives, or “detailers,” brought a civil action against their employer, SmithKline Beecham Corp., alleging that SmithKline violated the FLSA by not paying them overtime wages for all hours worked over 40 hours per week. The facts of the case demonstrated that as part of their duties, the detailers visit physicians’ offices and attempt to secure nonbinding commitments that the doctors will prescribe a certain product to their patients. In addition to the 40 hours per week the detailers spend engaging with physicians, they also spend a significant amount of time attending events and handling administrative tasks.

In response to the allegation that the detailers were entitled to overtime compensation, SmithKline countered that the employees fall under the “outside salesman” exemption of the FLSA and thus were not entitled to overtime pay. The detailers argued that they could not fall under this exemption because they did not actually engage in “sales.” Although the FLSA does not define the term “outside salesman,” the Department of Labor (DOL) has issued several regulations that attempt to clarify who does and does not qualify for this exemption. The District Court agreed with SmithKline and granted summary judgment in their favor. The Ninth Circuit affirmed, rejecting the employees’ argument that the District Court should have deferred to the DOL’s interpretation of its own regulations related to the exemption that arguably supported the employees’ claims.

The Supreme Court carefully considered whether it must defer to the DOL’s conclusion that detailers are not outside salesmen because they do not engage in “sales.” According to the amicus brief filed by the DOL in a similar case before the Second Circuit (In re Novartis Wage and Hour Litigation, 611 F.3d 141 (2d Cir. 2010)), “[a]n employee does not make a ‘sale’ for purposes of the ‘outside salesman’ exemption unless he actually transfers title to the property at issue.” The Court decided that it did not have to defer to the DOL’s interpretation, not only because the Court was not obligated to, but because the agency’s conclusion was not based on “thorough consideration.”

Instead, the Court undertook its own examination of the FLSA and the relevant DOL regulations and reports. The FLSA exempts anyone “employed … in the capacity of [an] outside salesman.” According to the Court, the term “capacity” implies that an employee’s duties must be considered in light of the industry in which he is employed. Furthermore, according to DOL regulations, an outside salesman is any employee who makes sales. The FLSA in turn states: “[s]ale or sell includes any sale, exchange, contract to sell, consignment for sale, shipment for sale, or other disposition” (citations omitted). The Court focused on the breadth of the phrase “other disposition” and reasoned that Congress intended to include “those arrangements that are tantamount, in a particular industry, to a paradigmatic sale of a commodity.” The Court concluded that Congress cast a wide net with this language and the primary duty of the detailers (obtaining a nonbinding commitment from doctors to prescribe their company’s products) fell within this broad scope.

Finally, the Court considered the overall purpose of the FLSA. According to the Court, well-compensated employees, like pharmaceutical representatives, are not the type of employees that Congress sought to protect when it enacted the FLSA. On average, the employees’ annual salaries exceeded $70,000; according to the Court, minimum wage and maximum hour regulations are hardly necessary when an employee earns a salary that is significantly higher than the minimum wage.

Practical Tip: The Court’s determination to overrule the Department of Labor’s interpretation of its own rules and regulations offers hope to employers who feel their hands are tied by overly-restrictive employment regulations. As illustrated above, courts may not agree with a government agency’s interpretation of its own rules and regulations, especially when the agency has been charged with defining key terms within a statute, as the Department of Labor was charged to do with the terms “sale” and “outside salesman.” Accordingly, employers should not rely solely on agency regulations, but should instead also be cognizant of relevant court decisions when evaluating their obligations under the FLSA.

If you have any questions about this decision or any other employment-related issues, please contact Ric C. Ottaiano.

To read the full text of the United States Supreme Court’s decision in Christopher v. SmithKline Beecham Corp., click here: http://www.supremecourt.gov/opinions/11pdf/11-204.pdf.