All California Agreements Must be in Writing by 2013

As we have reported, in a few short months (by January 1, 2013), California Labor Code section 2751 will require all businesses to ensure employee commission agreements are in writing. See, “Employee Sales Commissions: California Requires Written Agreements by End of 2012.”

While it is a good idea to have all compensation agreements in writing, the new law will not actually require other production-based pay plans to be written, for example bonuses or piece work.

In California, a commission is “compensation paid to any person for services rendered in the sale of such employer’s property or services and based proportionately upon the amount or value thereof.” Labor Code section 204.1 (emphasis added). As a commission is by definition linked to the sale of something, monies paid an employee in California for the making of so many units of product or for the provision of a one or another volume of a company’s services are not technically commissions (and thus, technically, will not have to be in writing by 2013).

The potential variations on commission compensation rules are of course vast. Whether writing a commission agreement for the first time or reviewing existing written arrangements for soundness, some essentials are:

• Define when and how a commission is earned (for example, when a sales agreement is reached, when the customer actually makes payment, etc.);
• Specify the formula used to calculate a commission for a particular sale or the volume of sales;
• Cover the procedure for resolving any commission to be split between two or more employees;
• Explain the timing of commission payments as required by state law;
• Reference the deductions from gross commission amounts as required by federal and state law;
• Describe the rules for any advance draw and reconciliation arrangements;
• Clearly spell out clearly that the company will pay upon termination only those commissions actually earned on or before that date; and
• Specify the rules for determination and payment of commissions an employee could yet earn after his or her termination date (for example, commissions earned only after the customer has paid on the sale). See, “Commissions for Terminated Employees, Clearly Written Agreements are the “Ounce” of Prevention”

An experienced employment law attorney can help a business prevent or limit disputes created by vague, ambiguous or non-existent sales commission agreements.

Related Article:
Is Your Commissioned Inside Sales Representative Exempt From Overtime?

The California Legislature has made an important change, effective January 1, 2013, eliminating some of the ability of businesses to negotiate wage arrangements with hourly workers.

In February, 2011, we summarized the Court of Appeal decision in Arechiga v. Dolores 192 California Appellate Reports, 4^th Series (Cal.App.4^th) 567 (2011). See, “Written Salary Agreements and Overtime.” The case had upheld the use of so-called “explicit mutual agreements” to establish a salary for hourly workers that included overtime compensation within that set weekly amount.

Thus, the court validated an agreement between Carlos Arechiga and his employer Dolores Press for a $880 salary to cover a 66 hour weekly schedule, with $445.60 allocated to cover the 40 hours of regular time (at $11.14/hour) and $434.46 to cover the 26 hours of overtime (at $16.71/hour, 1.5 x the regular rate).

The new law for 2013, Labor Code 515(d)(2), directly reverses the Arechiga decision. Now, any salary agreement for a California hourly employee “shall be deemed to provide compensation only for the employee’s regular, non-overtime hours, notwithstanding any private agreement to the contrary” (emphasis supplied).

On the Arechiga-Dolores Press example above, this means that the $880 salary would now only apply for the worker’s first 40 hours worked in any workweek (and, prorated, to that person’s first eight hours worked in any day). California law would thus now regard that $880 to equal a regular hourly rate of $22.00/hour ($880 ÷ 40 = $22). On the 66 hour schedule in the Arechiga case, the employer would be obligated to pay the worker a rate of at least $33.00/hour for every overtime hour or, at minimum, another $858/week, nearly doubling the total $880 amount approved in the above 2011 decision.

It is of course important that California businesses swiftly reevaluate such “explicit mutual agreements” for salaries to hourly employees who work any overtime hours. Alternatives could include: 1) eliminating the salary arrangement altogether and proceeding with an established straight rate for every hour worked and the premium rate(s) calculated for each overtime hour worked in a given workday or workweek; or 2) setting a new, lower salary amount to cover non-overtime hours only, with overtime hours compensated by the standard formulas. See also, “Working Overtime in California, Basic Rules and Rates for Weekly or Daily Hours,” and “Calculating Overtime with Employee Bonuses in California.”

For help on how these issues might impact your business, please contact our firm’s attorneys Tim Bowles or Cindy Bamforth.

California Labor Code 980, effective January 1, 2013, prohibits employer access to its workers’ personal social media.

The new law defines “social media” as “an electronic service or account, or electronic content, including but not limited to, videos, still photographs, blogs, video blogs, podcasts, instant and text messages, email, online services or accounts, or Internet Web site profiles or locations.”

Thus, to name a few, the new rule covers such social networking, blogging, and other information sharing sites as Facebook, Faceparty, Faces.com, Twitter, Tylted, Tagged, Tumblr, YouTube, Yammer, Yelp, Flickr, Flexster, Friendster, Fotolog, Fotki, Foursquare, Fubar, LinkedIn, Lafango, LAGbook, LaiBhaari, Last.fm, LibraryThing, Lifeknot, LiveJournal, Livemocha, Instagram, Ibibo, italki.com, Itsmy, iWiW, Bebo, BeNaughty, Black Planet, Blogster, BIGADDA, Buzznet, Habbo, Hi5, Hotlist, HR.com, Pinterest, Partyflock, Pingsta, Plaxo, PureVolume, Playfire, Playlist.com, Plurk, Path, PerfSpot, PatientsLikeMe, Redddit, CafeMom, Care2, Classmates.com, Chemistry.com, Christian Mingle, CouchSurfing, deviantART, Elftown, English, baby!, eHarmony, Google+, Grono.net, Goodwizz, Goodreads, GetGlue, Gaia Online, GamerDNA, Gather.com, Orkut, Open Diary, Odnoklassniki, Makeoutclub, Meetup, Multiply, Match.com, Matchmaker, MouthShut.com, MOG, Mubi, Mixi, Myspace, MyHeritage, MyLife, My Opera, myYearbook, Netlog, Ning, Nexopia, NGO Post, Nasza-klasa.pl, Wakoopa, Wattpad, WAYN, WeeWorld, Wellwer, WeOurFamily, Wepolls.com, weRead, Wiser.org, Wooxie, Xanga, XING, Zooppa, Zoosk, Zorpia, Vkontake, and, of course, Vampirefreaks.com.

Intended to protect privacy, a California employer may not require employees or job applicants to:

• Disclose a username or password for the purpose of accessing personal social media;

• Access personal social media in the presence of the employer; or

• with the exceptions below, to divulge any personal social media

New Labor Code 980 does permit an employer to request personal social media information if that information is thought to be relevant to an investigation of an employee’s misconduct or suspected illegal activity and the employee’s social media account is used only for purposes of the investigation.

Employers may also require employees disclose usernames, passwords or other access information to employer-issued electronic devices such as computers, phones, or tablets.

California businesses should thus closely review their workplace personnel management practices and social media policies to ensure they are consistent with the above rules.

Please contact our firm’s attorneys Tim Bowles or Cindy Bamforth for more information or discussion on employee privacy, particularly personal social media in the workplace.

Related articles:

“Social Media Policies in the Workplace”

“Promoting Workplace Productivity with Sound Policy Handbook and Forms”

“Expecting Privacy at Work? Fugeddaboutit!”

Beginning January 1, 2013, amendments to California Labor Code 1198.5 significantly increased employer obligations and a worker’s rights to access and obtain copies of his or her personnel records.

While the statute continues to confirm that every employee “has the right to inspect the personnel records that the employer maintains relating to the employee’s performance or to any grievance concerning the employee,” it also extends that right to the employee’s representative. This could include the worker’s attorney. Section 1198.5 also clarifies that every current and former employee has these rights.

The law refers to records, not files. Thus, employee performance and grievance documentation a company maintains outside of any formal “personnel file” is also covered by the law. Section 1198.5 continues to exclude specific categories of documents from the rights of inspection and copying, including records of investigation into possible criminal offenses; letters of reference; ratings, reports or records obtained prior to the person’s employment, prepared by identifiable examination committee members, or obtained in connection with a promotional examination; and certain records of public employees.

Prior to this year, employers were only required to: 1) keep a copy of each employee’s personnel records at the place where the employee reports to work; 2) make the employee’s personnel records available within a reasonable period of time following an employee’s request; and 3) allow employees to inspect their personnel records with no loss of compensation. California Labor Code 432 also only required an employer to provide copies of records that the employee had signed.

The revised law requires employers must now:

– Make requested personnel records available at reasonable times but not later than 30 calendar days from the receipt of a written request. The parties can agree to extend this to 35 days, but no longer;

– Provide a copy of all such records on written request (not just those documents the employee signed) within 30 days at a charge not to exceed the actual cost of reproduction. Again, the parties can agree to extend that deadline to 35 days;

– Develop and provide a written request form to any employee who asks his or her supervisor or other designated and known company representative;

– For any current employee, make his or her personnel records available for inspection and, if requested, provide a copy of the records, at the place where that employee reports for work or at another location on which the parties agree;

– For any former employee, make his or her personnel records available for inspection and, if requested, provide a copy of the records, at the place where that the employer stores the records or at another location on which the parties agree in writing. A former employee may receive the records by mail if he or she pays the actual postal expenses;

– If a former employee was terminated for a violation or law or policy involving workplace harassment or violence, make his or her personnel records available at a location other than the workplace that is a reasonable driving distance from that person’s residence and provide any requested copy of the records by mail; and

– Pay a penalty of $750 to the California Labor Commissioner for any violation, in addition to injunctive relief and attorneys’ fees payable to the worker or former worker.

The amended law also provides specific limits and prerogatives on employers’ obligations. An employer:

– Need only comply with one request per year from a former employee;

– Need only comply with 50 such requests filed by representatives of employees (e.g., lawyers) in any calendar month;

– May redact any non-supervisory employee from the requested personnel records;

– May designate a representative of the business to receive such requests;

– May “take reasonable steps to verify the identity” of the requesting current or former employee or the authorized representative of that person (e.g. driver’s license or other valid photo ID);

– Need not comply if the requesting current or former employee files a suit against that employer relating to a personnel matter and if such records are relevant to that suit;

– Need not comply with any of these provisions for an employee covered by a valid collective bargaining agreement if that agreement meets specific criteria on wage rates and work conditions and provides a procedure for inspection and copying of personnel records.

Labor Code Section 226(b) already imposed similar rules on the inspection and provision of payroll records to current and former employees. That section requires such access and provision of copies within 21 days of a written or oral request.

The California Division of Labor Standards Enforcement provides more information on the access rules for personnel and payroll records on its website.

Our firm’s attorneys Tim Bowles or Cindy Bamforth can assist you in implementing or revising workplace policies and personnel procedures as appropriate to ensure compliance with these new laws.

Effective January 1, 2013, California’s Fair Employment and Housing Act (FEHA) expands the definition of potentially protected religious beliefs and practices to include “religious dress and grooming practices.” Employers also must now meet a much more stringent standard to deny accommodation of religious practices as an undue hardship to the business.

Religious Dress and Grooming: The new law, titled the California Workplace Religious Freedom Act of 2012 (“WRFA”) amends Government Code sections 12926 and 12940 to specify that “religious dress practice” is “wearing or carrying of religious clothing, head or face coverings, jewelry, artifacts, and any other item that is part of the observance by an individual of his or her religious creed.” “Religious grooming practice” includes “all forms of head, facial, and body hair that are part of the observance by an individual of his or her religious creed.”

This FEHA amendment thus establishes that an employee’s religiously motivated appearance (for example, a Sikh male’s turban or facial hair, or a Muslim woman’s head scarf) trigger an employer’s duty to seek reasonable accommodation of such a dress or grooming practice.

The new law also specifies that an employer accommodation “religious dress or grooming” is not reasonable if it requires the employee to be segregated from the public or other employees. This provision stems from a 2002 case where an employer segregated a Sikh man from public view due to his turban. FEHA now clearly states such an employer action would be unlawful.

The new law also directs that an employer is not required to accommodate such a dress or grooming request if it would result in the violation of any other law prohibiting discrimination or protecting civil rights.

Employer’s More Stringent Requirements to Establish Undue Hardship on Any Religious Accommodations: Before 2013, California employers could show “undue hardship” by establishing a worker’s request for religious accommodation would have but a bare minimum (de minimus) negative impact on the business’s operations or finances. See, e.g., “Avoiding Religious Discrimination in the Workplace,” Bowles Law Report, Vol. 9, Issue 4.

Similar to lawful “undue hardship” justifications for declining accommodations of employee disabilities, a company must now show a “significant difficulty or expense” to establish undue hardship in the religion context. “Significant” depends on several factors: (1) the nature and cost of the accommodation needed; (2) the overall financial resources of the facilities involved, the number of persons employed at the facility, and the effect on expenses and resources or on the operation of the facility; (3) the overall financial resources of the company as a whole; (4) the type of operations of the company; and (5) the geographic separateness of the facility.

FEHA continues to require that a business claiming undue hardship demonstrate that it has explored any available reasonable means of accommodating the religious belief or observance.

Issues in this area tend to be sensitive and complex. For help, please contact our firm’s attorneys Tim Bowles or Cindy Bamforth.

Related Article:

“Accommodating Religion in the Workplace: Avoid the Employment Discrimination Gallows”

Starting December 30, 2012, California employers are responsible for implementing new regulations on the state’s Pregnancy Disability Leave (PDL) law.

Among the significant changes are:

– Definition of “Four Months” Entitlement – PDL is part of California’s Fair Employment and Housing Act (FEHA) , requiring employers with five or more employees to provide up to four months of disability leave to pregnant employees with no minimum length of employment required before the leave is taken. The newly revised regulations direct that “four months” means the number of days or hours the employee would work within four calendar months (17 1/3 weeks), if the leave is taken continuously, following the date the pregnancy disability leave begins.

This is important for the calculation of the “four months” for an employee who qualifies and chooses to take “intermittent leave” (that leave in intervals), returning to the job for a time and then going out again (and/or working partial days, and/or going out on an occasional basis for medical appointments). That person’s leave rights don’t expire four calendar months after the leave starts, but after she has taken the applicable number of leave days or hours calculated from a four month continuous leave period. For example, for an employee who works 20 hours a week, “four months” means 346.5 hours of leave entitlement. For an employee who normally works 48 hours a week, “four months” means 832 hours of leave entitlement.

The regulations also confirm that employees are eligible for up to four months of leave per pregnancy, not per year.

– Reasonable Accommodations – PDL is unpaid leave. While the PDL has always required employers to make reasonable accommodations for workers temporarily disabled by pregnancy that nevertheless sought to continue to work and earn a wage, the regulations did not previously offer examples of the actions considered reasonable. While determination of whether an accommodation is reasonable must always be on a case-by-case basis, the new regulations provide such examples, including: “(1) modifying work practices or policies; (2) modifying work duties; 3) modifying work schedules to permit earlier or later hours, or to permit more frequent breaks (e.g., to use the restroom); (4) providing furniture (e.g., stools or chairs) or acquiring or modifying equipment or devices; or (5) providing a reasonable amount of break time and use of a room or other location in close proximity to the employee’s work area to express breast milk in private as required by Labor Code section 1030.

– Health Benefits – The new regulations direct employers to maintain and pay coverage for an eligible female employee for the duration of the leave, “not to exceed four months over the course of a 12-month period, beginning on the date the pregnancy disability leave begins,” and “at the same level and under the same conditions that coverage would have been provided if the employee had continued in employment continuously for the duration of the leave.” An employer may recover from the employee the premium paid while the worker was out on PDL if a) the employee fails to return at the end of the PDL, and b) that failure to return was for a reason other than several specified circumstances, most related to that employee’s continuing health problems. See also, “Expanded Pregnancy Health Benefits Law for Most California Employees.”

– Updated Employee Notices: The new regulations require employers to post a new “Notice A” or its equivalent (for employers with five or more on payroll subject to Pregnancy Disability Leave) and “Notice B” or its equivalent (for employers with 50 or more on payroll subject to the Family and Medical Leave Act and the California Family Rights Act) to reflect the changes.

– Definition of Covered Pregnancy Conditions – The PDL provides protections for employees with temporary disabilities including pregnancy, childbirth or related medical conditions. The new regulations specify that “related medical conditions” include, but are not limited to, “lactation-related medical conditions such as mastitis; gestational diabetes; pregnancy-induced hypertension; preeclampsia; post-partum depression; loss or end of pregnancy; or recovery from loss or end of pregnancy.”

– Medical Certification – Employers must now notify employees if they require workers to provide medical certification of the pregnancy, the deadline for providing such certification, what constitutes sufficient medical certification, and the consequences for failing to provide medical certification. The regulations permit an employer to use the form contained in these rules or to use its own form.

With the new regulations spanning some 28 pages, the above summaries refer to only some of the significant points. For a broader review and help on how these new rules might impact your business, please contact our firm’s attorneys Tim Bowles or Cindy Bamforth.

Related Articles:

“Pregnancy Disability Leave, California Employers’ Obligations”

“Disability and Leave of Absence Policies, Keeping Up with Changing Employment Laws”

“Promoting Workplace Productivity with a Sound Policy Handbook and Forms”

“Requiring Use of Paid Vacation for Unpaid Leaves, Time Off Work for Illness is No Vacation, or Is It?”

“California Sick Leave and Sick Pay, Neither is Required for Smaller Employers”

Starting December 30, 2012, California employers are responsible for implementing new regulations on the state’s Pregnancy Disability Leave (PDL) law.

Among the significant changes are:

– Definition of “Four Months” Entitlement – PDL is part of California’s Fair Employment and Housing Act (FEHA) , requiring employers with five or more employees to provide up to four months of disability leave to pregnant employees with no minimum length of employment required before the leave is taken. The newly revised regulations direct that “four months” means the number of days or hours the employee would work within four calendar months (17 1/3 weeks), if the leave is taken continuously, following the date the pregnancy disability leave begins.

This is important for the calculation of the “four months” for an employee who qualifies and chooses to take “intermittent leave” (that leave in intervals), returning to the job for a time and then going out again (and/or working partial days, and/or going out on an occasional basis for medical appointments). That person’s leave rights don’t expire four calendar months after the leave starts, but after she has taken the applicable number of leave days or hours calculated from a four month continuous leave period. For example, for an employee who works 20 hours a week, “four months” means 346.5 hours of leave entitlement. For an employee who normally works 48 hours a week, “four months” means 832 hours of leave entitlement.

The regulations also confirm that employees are eligible for up to four months of leave per pregnancy, not per year.

– Reasonable Accommodations – PDL is unpaid leave. While the PDL has always required employers to make reasonable accommodations for workers temporarily disabled by pregnancy that nevertheless sought to continue to work and earn a wage, the regulations did not previously offer examples of the actions considered reasonable. While determination of whether an accommodation is reasonable must always be on a case-by-case basis, the new regulations provide such examples, including: “(1) modifying work practices or policies; (2) modifying work duties; 3) modifying work schedules to permit earlier or later hours, or to permit more frequent breaks (e.g., to use the restroom); (4) providing furniture (e.g., stools or chairs) or acquiring or modifying equipment or devices; or (5) providing a reasonable amount of break time and use of a room or other location in close proximity to the employee’s work area to express breast milk in private as required by Labor Code section 1030.

– Health Benefits – The new regulations direct employers to maintain and pay coverage for an eligible female employee for the duration of the leave, “not to exceed four months over the course of a 12-month period, beginning on the date the pregnancy disability leave begins,” and “at the same level and under the same conditions that coverage would have been provided if the employee had continued in employment continuously for the duration of the leave.” An employer may recover from the employee the premium paid while the worker was out on PDL if a) the employee fails to return at the end of the PDL, and b) that failure to return was for a reason other than several specified circumstances, most related to that employee’s continuing health problems. See also, “Expanded Pregnancy Health Benefits Law for Most California Employees.”

– Updated Employee Notices: The new regulations require employers to post a new “Notice A” or its equivalent (for employers with five or more on payroll subject to Pregnancy Disability Leave) and “Notice B” or its equivalent (for employers with 50 or more on payroll subject to the Family and Medical Leave Act and the California Family Rights Act) to reflect the changes.

– Definition of Covered Pregnancy Conditions – The PDL provides protections for employees with temporary disabilities including pregnancy, childbirth or related medical conditions. The new regulations specify that “related medical conditions” include, but are not limited to, “lactation-related medical conditions such as mastitis; gestational diabetes; pregnancy-induced hypertension; preeclampsia; post-partum depression; loss or end of pregnancy; or recovery from loss or end of pregnancy.”

– Medical Certification – Employers must now notify employees if they require workers to provide medical certification of the pregnancy, the deadline for providing such certification, what constitutes sufficient medical certification, and the consequences for failing to provide medical certification. The regulations permit an employer to use the form contained in these rules or to use its own form.

With the new regulations spanning some 28 pages, the above summaries refer to only some of the significant points. For a broader review and help on how these new rules might impact your business, please contact our firm’s attorneys Tim Bowles or Cindy Bamforth.

Related Articles:

“Pregnancy Disability Leave, California Employers’ Obligations”

“Disability and Leave of Absence Policies, Keeping Up with Changing Employment Laws”

“Promoting Workplace Productivity with a Sound Policy Handbook and Forms”

“Requiring Use of Paid Vacation for Unpaid Leaves, Time Off Work for Illness is No Vacation, or Is It?”

“California Sick Leave and Sick Pay, Neither is Required for Smaller Employers”

Definition is Particularly Important for California Employers, All Commission Wage Agreements Must Be in Writing by 2013

Effective January 1, 2013, California Labor Code 2751 directs that any employment contract that includes commission compensation must be in writing, setting forth “the method by which the commissions shall be computed and paid.” See, Employee Commissions, California Requires Written Agreements by End of 2012.

Yet, paying an employee a percentage of the income he or she generates by his/her production does not necessarily mean the arrangement will fit California’s particular definition for a commission (and thus the upcoming “must be in writing” requirement):

“Commission wages are compensation paid to any person for services rendered in the sale of [an] employer’s property or services and based proportionately upon the amount or value thereof.” Labor Code 204.1 (emphasis supplied).

A compensation method must meet two requirements before it is considered to constitute such “commission wages” in California:

1. The employees must be involved principally in selling a product or service, not making the product or rendering the service; and

2. The amount of employee compensation must be a percent of the price of the product or service.

California appeals court application of the “sales only” portion of this definition has thus found that paying auto mechanics a percentage of the hourly rate charged to customers for repairs did not constitute a commission wage. Mechanics don’t sell cars, they only fix them. Keyes Motors, Inc. v. Division of Labor Standards Enforcement (1987) 197 California Appellate Reports, third series (Cal.App.3d) 557, 564

On the second, “percent of the price” portion of the definition, another California appeals court found a payment plan based on a point system related to the number of subscriptions employees sold did not constitute “commission wages.” The court found there was no showing that the points were tied to any particular price of the subscriptions sold and were instead determined by winning sales contests, selling certain types of subscriptions and other factors. Harris v. Investor’s Business Daily, Inc. (2006) 138 Cal.App.4^th 28, 41

Another more recent decision further clarifies (and expands) the boundaries of the “commission wages” definition. In Muldrow et al. v. Surrex Solutions Corporation (August 29, 2012) 202 Cal.App.4th 1232, the subject employees recruited “candidates” for employer “clients.” Surrex’s clients would place “job orders” with Surrex and appellants would search for potential candidates to fill the job orders. The employees would use various resources to find candidates, including an internal database that Surrex maintained and various “on-line job boards.” Appellants would then attempt to convince both the candidate and the client that the placement of the candidate with the client was a proper fit.

While the Surrex employees’ written contracts specified “sales” was only one of several responsibilities (also including account development and management), the court found the job amounted to sales and sales-related activity. Moreover, Surrex obtained revenue from a client only in the event of a successful placement from which the employee instrumental in the transaction received a percentage commission equal to: a) the percentage of the placement fee (for candidates hired directly by employer clients); or b) the percentage of the profits Surrex received (for candidates Surrex placed as independent consultants and billed to the client at an hourly rate).

The employees, who had a stake in excluding the Surrex “percentage of profits” plan from the above definition (it would have meant they could collect overtime pay) argued that only a payments calculated from a straight percentage of the price of the service of product sold should constitute “commission wages.” The appeals court disagreed, finding that Surrex’s profit-tied commissions were sufficiently related to the price of the services sold to fall within that definition.

Any percentage compensation agreement that falls outside of the definition (such as those for mechanics and publications sales above) will be excluded from Labor Code 2751’s upcoming “must be in writing” requirement. With this new law approaching, there is no better time for California employers paying employees on a percentage basis to review their compensation structures to confirm whether such arrangements must be in writing and, regardless, whether the computation methods are clearly articulated and consistently applied. Contact an experienced employment law attorney for assistance.

Case Study Illustrates Drafting “Do’s” and “Don’ts”

California law very strongly supports two potentially conflicting policies on the handling of employment disputes. On the one hand, employees and employers alike have rights to have their civil claims heard by a jury in a formal court proceeding. On the other, this state recognizes the rights of employers and workers to contract for the private arbitration of any employment-related dispute despite either side’s rights to a jury trial. The common wisdom is that employers generally prefer arbitrations over jury trials as arbitrations are faster, private and don’t involve the sometimes volatile, less objective opinions of multiple jury members.

For more than ten years, California court decisions have sought to draw the line between these two competing interests by analysis of the unfairness of the contract terms for arbitration. Circumstances which indicate: i) an employer’s imposed oppression or surprise in the bargaining and negotiation of the contract; and ii) overly harsh and one-sided results favoring employer are considered “unconscionable,” thus rendering the arbitration agreement unenforceable. See, “Arbitration Nation”

A recent California Court of Appeal case illustrates how an employer should not go about establishing mandatory arbitration for all workplace disputes. Sparks v. Vista Del Mar Child & Family Services (July 30, 2012). The court declined to enforce the defendant business’s claimed arbitration agreement for several reasons, including:

• The employer had buried the arbitration provision in a lengthy employee handbook (thus indicating the provision was probably not subject to negotiation between the parties);

• The provision was not prominently distinguished from the other passages in the handbook nor was there any place for employees to acknowledge that provision in writing at that point in the pages;

• There was no reference to the arbitration clause in the overall acknowledgement statement for receipt of the handbook;

• The handbook clearly stated it was not intended to be a contract but was instead a general summary of workplace policies, provided for “information” purposes;

• The arbitration provision was illusory since the employer could unilaterally modify the handbook, including the arbitration provision, at any time; and

• The arbitration policy referred to the American Arbitration Association’s (AAA) procedural rules but the employer never provided them to the employee.

Among its many lessons, the Sparks case confirms that arbitration agreements should ideally be set out separately from a company’s handbook. If that is not possible, arbitration provisions in a workplace policy manual as well as the employee’s accompanying acknowledgment statement for that provision should be prominently displayed in that policy volume. A “management side” employment attorney should be able to assist in developing sound workplace arbitration agreements.