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Category: Daily News

Federal Anti-Arbitration Law Applies to FEHA Sexual Orientation Case

Trevor Joseph Decloedt worked for Radnet Management, Inc. and related entities (collectively, Radnet) alongside supervisor Joe Zambrano and coworker Susana Ceballos. According to Decloedt’s complaint, beginning in early 2022 Ceballos subjected him to repeated derogatory comments about his sexual orientation, telling him he “shouldn’t be gay” and that it was “sinning.” Decloedt alleged Ceballos also grew aggressive toward him at work, at one point saying she was so angry she could kill him and, on more than one occasion, pulling his hair — including a November 2022 incident in which she grabbed his hair with enough force that he fled to the restroom. Decloedt alleged he repeatedly reported Ceballos’s conduct to Zambrano and another lead employee, but no action was taken; when Ceballos later complained about him to human resources, he told HR about the harassment and said it had led him to contemplate suicide, but HR again took no action. Decloedt was terminated in February 2023.

In October 2024, Decloedt sued Radnet, Zambrano, and Ceballos, alleging eleven causes of action, including hostile work environment and sexual harassment under California’s Fair Employment and Housing Act (FEHA; Gov. Code, §12900 et seq.). Radnet moved to compel arbitration under an agreement Decloedt had signed at the start of his employment. The trial court denied the motion, holding that Decloedt had adequately pleaded a FEHA sexual harassment claim, which triggered an exemption from arbitration under the federal Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021 (EFAA; 9 U.S.C. §401402), a 2022 amendment to the Federal Arbitration Act (FAA; 9 U.S.C. §1 et seq.) that lets a person alleging sexual harassment opt their entire case out of a predispute arbitration agreement. Radnet appealed.

The trial court found Decloedt had alleged a viable FEHA sexual harassment claim and, on that basis, held the EFAA exempted his case from arbitration under the FAA. It did not resolve any disputed facts in reaching that conclusion, and it did not reach Decloedt’s separate argument that the arbitration agreement was independently unconscionable.

In the published case of Decloedt v. Radnet Management, Inc., No. B343963 (Cal. Ct. App., 2d Dist., Div. 1, July 2026) — the Court of Appeal affirmed the trial court’s order denying Radnet’s motion to compel arbitration.

Reviewing the question de novo because no disputed facts were before it, the panel first addressed whether harassment based on sexual orientation qualifies as sexual harassment under FEHA at all. Radnet argued that FEHA treats sexual orientation harassment as a separate category from sexual harassment, pointing to statutory language that defines “harassment because of sex” to include sexual harassment, gender harassment, and harassment related to pregnancy or childbirth, without separately listing sexual orientation.

The court rejected that reading, explaining that the word “include” in the statute is a term of enlargement, not an exhaustive list, and it declined to infer that omitting sexual orientation from that illustrative list meant harassment based on sexual orientation falls outside FEHA’s prohibition on harassment “because of sex.” Drawing on the U.S. Supreme Court’s reasoning in Bostock v. Clayton County (2020) 590 U.S. 644, which held that firing someone for being gay or transgender necessarily involves discrimination based on sex under Title VII, the court held that the same logic applies to FEHA’s parallel “because of . . . sex” language, since California courts routinely look to federal Title VII case law when interpreting FEHA’s antidiscrimination provisions, citing Hall v. County of Los Angeles (2007) 148 Cal.App.4th 318. The court found this conclusion reinforced by a recent sister-panel decision, Quilala v. Securitas Security Services USA, Inc. (2025) 117 Cal.App.5th 75, which had treated a plaintiff’s allegations of harassment based on his perceived sexual orientation as stating a sexual harassment claim under FEHA.

The court then considered whether Decloedt’s specific allegations were severe or pervasive enough to state a hostile work environment claim, assuming without deciding that the federal pleading standard governing motions to dismiss applied. The panel rejected Radnet’s argument that Decloedt’s complaint drew a sharp line between Ceballos’s verbal comments about his sexual orientation and her separate outbursts of anger and hair-pulling, holding that the complaint could reasonably be read as alleging both forms of conduct were part of the same pattern of harassment motivated by her disapproval of his sexual orientation.

The court explained that a hostile work environment claim does not require every incident to include an explicit anti-gay remark, citing Miller v. Department of Corrections (2005) 36 Cal.4th 446, and that Decloedt’s allegation that Ceballos “continually” made such comments was a factual assertion the court had to accept as true at the pleading stage, not an impermissible legal conclusion. Because Decloedt alleged the harassment caused him to flee for his safety and to contemplate suicide, the court held these allegations plausibly showed conduct that disrupted his emotional tranquility and interfered with his ability to do his job.

Having concluded Decloedt adequately alleged a FEHA sexual harassment claim, the panel held the EFAA’s exemption applied and affirmed the order denying arbitration, following the reasoning of Liu v. Miniso Depot CA, Inc. (2024) 105 Cal.App.5th 791 that the statute’s plain language exempts a plaintiff’s entire case, not just the individual harassment claim. The court did not reach Decloedt’s alternative argument that the arbitration agreement was independently unconscionable.

Intense Opposition Kills Proposed Law Limiting Athletes’ Claims

California Senate Bill (SB) 795, introduced by Senator Laura Richardson, was a 2026 legislative proposal aimed at restricting professional athletes’ access to workers’ compensation benefits in the state.

Proposed SB 795 would have revised the Labor Code to state that the workers’ compensation system does not apply to the claim of a professional athlete involving occupational disease or cumulative trauma if that athlete was exempt, as specified, and, during the last 365 days of their career as a professional athlete, was not hired as a professional athlete in California, unless over the course of their entire career as a professional athlete, (1) the athlete worked for 2 or more seasons for a California-based team or teams, as defined, or worked 20% or more of their duty days in California or for a California-based team, and (2) worked for fewer than 7 seasons for any team other than a California-based team during their professional athletic career. The bill would state that the team’s principal place of business is not relevant to whether a team is based in California. As most recently amended, the proposed law would provide that these changes apply to claims for benefits filed on or after September 30, 2026.

Reports indicated the push came largely from the business/team side rather than a broad public concern: the NFL teams headquartered in California – the Rams, Chargers, and 49ers – reportedly supported the bill, with Richardson indicating in a bill summary that the NFL and these three California teams back it, though none of them confirmed this in public statements.

Issues related to workers’ compensation costs reportedly have historically influenced league and team decisions about where to locate – for example, the UFL has no California teams, and workers’ comp costs contributed to the end of one iteration of the Arena Football League. This suggests part of the impetus was making California a more attractive/affordable state for professional athletic franchises relative to others with less generous athlete workers’ comp exposure.

The legislation immediately faced fierce pushback from major sports organizations, including the National Football League Players Association (NFLPA) and the San Francisco 49ers players who publicly argued the bill unfairly singled out high-risk jobs.

NFLPA, the lead opponent, called it “anti-player legislation,” stating it strips players of “the constitutional rights and legal protections afforded to every other worker in the state” and accused California’s pro sports teams of “seeking to evade that system for financial gain, denying injured athletes the care they are owed.” They closed with a call to “reject SB 795 and stand with the players who make the game possible.”

The National Hockey League Players’ Association – NHLPA – joining in solidarity: posted that “All workers deserve workers’ compensation protection,” joining the NFLPA “and other players’ associations in asking lawmakers to reject this bill.”

The Major League Soccer Players Association – MLSPA – stated it stands with the NFLPA in strongly opposing SB 795, calling workers’ compensation “a critically important and hard-earned protection for all workers who take part in high-risk jobs,” and urged lawmakers to reject the bill.

The 49ers players – the full 90-man roster – signed a joint statement with the NFLPA, saying “Football takes a real toll on our bodies, and workers’ compensation was built for high-risk jobs like ours.” They added that the bill “singles out professional athletes and tells us we deserve fewer protections than every other worker in the state.”

The bill passed the State Senate in January 2026 but underwent major amendments in the Assembly by May. Following intense union opposition, the bill died in late June 2026 when its first Assembly Insurance Committee hearing was canceled at the author’s request, entirely pulling the bill from consideration.

“California SB 795, a bill that would have significantly restricted professional athletes’ access to workers’ compensation benefits, has been pulled from consideration and will not move forward for a vote,” the NFLPA said in an email to agents. “This is a meaningful win for your clients and helps keep critical protections in place for injuries sustained during their careers. Protecting the health, safety and legal rights of active and former players remains a top priority, and we will continue to fight against efforts that threaten those protections.”

Workplace Restraining Order Affirmed Against School Board Member

Michael Krause served as Chief Business Officer and then superintendent of the Adelanto Elementary School District (District) from 2022 until his June 2024 termination. Over roughly two years, three of his subordinates — executive assistants identified as S.A., X.L., and I.P. — experienced what the trial court later found to be a course of harassing conduct. Krause was prone to angry outbursts at meetings, including one in which he slammed his fists on a table and screamed at staff until several people cried. He also sent the three women a steady stream of unsettling text messages and photos: pictures he had secretly taken of them at a Chipotle, outside their homes at night, and near a family member’s workplace; comments suggesting he was watching them on office cameras or following them around town; and after-hours messages with a romantic or proprietary tone, such as telling one assistant he did not “love her anymore” when she was slow to reply.

On separate occasions he physically poked two of the women hard enough to startle and hurt them. After the women reported his conduct in 2024, Krause was placed on leave, filed an unsubstantiated sexual harassment complaint against one of them, and was later seen parked outside a coffee shop watching two of the women through his car window. The District terminated him and the parties signed a separation agreement releasing the District’s claims against Krause arising from his employment. Krause was then elected to the District’s own Board of Trustees, and during the campaign each woman found one of his yard signs planted near her home.

In October 2024, the District petitioned for a workplace violence restraining order (WVRO) against Krause on behalf of the three women under Code of Civil Procedure section 527.8, and the San Bernardino County Superior Court issued a temporary restraining order. Following a four-day evidentiary hearing spread across January and March 2025, at which the three women and Krause testified at length, the trial court granted a permanent WVRO. The court found Krause’s course of conduct met the statutory definition of harassment, rejected his shifting and sometimes “strained” explanations for the texts and photos, and found his lack of remorse supported a reasonable probability that the harassment would continue, particularly given that his election to the Board placed him back in regular contact with the women. The order barred Krause from contacting the women, required him to stay 100 yards from them and their workplace (five yards during Board meetings, where a District-funded security guard was required), barred him from commenting on the WVRO or the underlying proceedings at any regular Board meeting, and ran for four years.

In the published opinion in Adelanto Elementary School District v. Krause, No. D086337 (Cal. Ct. App., 4th Dist., Div. 1, July 2026) — the Court of Appeal affirmed the WVRO as modified, striking the provision barring Krause from commenting on the order at Board meetings and shortening the order’s duration from four years to the statutory maximum of three.

Writing for a unanimous panel, Justice Buchanan first rejected Krause’s argument that the District had waived its right to seek a WVRO by signing a separation agreement releasing claims against him. The court held that an employer’s statutory right to prosecute a WVRO on an employee’s behalf is unwaivable under Civil Code section 3513, which bars private contracts from contravening a law enacted for a public reason. Drawing on Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83 and Bickel v. City of Piedmont (1997) 16 Cal.4th 1040, the court reasoned that section 527.8 was enacted to combat workplace violence and harassment as a matter of public concern, not solely for individual employers’ benefit, citing legislative history describing rising threats against school employees, health workers, and election workers. Because the public benefit of the WVRO statute is a primary purpose rather than a merely incidental one — a policy the court traced through Scripps Health v. Marin (1999) 72 Cal.App.4th 324 and a case it referred to as Franklin v. The Monadnock Co. (2007) 151 Cal.App.4th 252 — the release could not extinguish the District’s right to seek the order.

Second, the court found sufficient evidence of a future threat to support the WVRO. It held that the older “reasonable probability of future unlawful violence” standard from Scripps Health no longer controls, because the Legislature amended section 527.8 in 2023 to reach harassment as well as violence, effective January 2025, precisely so employers would not have to wait until a threat escalated into violence. Under the amended statute, a reasonable probability of continued harassment suffices, and the panel found that standard met given the two-year pattern of conduct, Krause’s continued contact after being placed on leave, and his consistent refusal to acknowledge that any of it was inappropriate.

Third, the court held Krause forfeited his argument that the WVRO improperly burdened his parental rights, since he raised no evidence or objection on that point below despite adequate notice of the order’s terms.

Fourth, the court agreed with Krause that the provision barring him from commenting on the WVRO or its proceedings at Board meetings was an overbroad restriction on his First Amendment rights as an elected official. Applying Balboa Island Village Inn, Inc. v. Lemen (2007) 40 Cal.4th 1141 and Madsen v. Women’s Health Center, Inc. (1994) 512 U.S. 753, the court explained that an injunction touching speech must be no broader than necessary to serve its purpose, and this provision swept in legitimate Board business — such as evaluating the performance of the law firm that handled the case — that had nothing to do with harassing the protected women. The panel struck that provision alone, while leaving intact the WVRO’s other bars on harassment or contact during Board meetings.

Finally, the court held the trial court exceeded its authority by setting the WVRO’s duration at four years, since section 527.8, subdivision (l)(1), caps such orders at three years subject to early termination. The panel modified the order accordingly and affirmed it as modified.

OSHA Citation Extends to Hospital’s Management Company

Cedar Springs Hospital, Inc. operates a psychiatric hospital in Colorado. UHS of Delaware, Inc. is a management company that, under a services agreement with Cedar Springs, agreed to assign several of its own employees to serve as the hospital’s top executives and to provide oversight on workplace safety matters. Both Cedar Springs and UHS of Delaware are wholly owned, through an intermediary holding company, by the same ultimate parent, Universal Health Services, Inc.

Following an OSHA investigation into patient-on-staff violence at the hospital, the Secretary of Labor cited both Cedar Springs and UHS of Delaware for violating the Occupational Safety and Health Act’s general duty clause (29 U.S.C. section 654(a)(1)) by failing to provide adequate safety measures against workplace violence. UHS of Delaware contested the citation, arguing it was merely a management company for Cedar Springs and should not itself be treated as an employer subject to OSHA liability at the hospital.

An administrative law judge upheld the citations, and UHS of Delaware sought discretionary review before the full Occupational Safety and Health Review Commission (Review Commission). Applying a three-part test the parties agreed governed the analysis, the Review Commission asked whether Cedar Springs and UHS of Delaware (1) shared a common worksite, (2) had integrated operations on matters of safety and health, and (3) shared a common president, management, supervision, or ownership. The Review Commission answered yes to all three questions and found that UHS of Delaware had acted as an employer for some of the employees working at the hospital, making it independently liable alongside Cedar Springs.

UHS of Delaware then petitioned the Tenth Circuit for review of that order under 29 U.S.C. section 660(a), which required the court to treat the Review Commission’s factual findings as conclusive if supported by substantial evidence. Cedar Springs joined UHS of Delaware’s arguments in a companion petition. In the published case of UHS of Delaware, Inc. v. Occupational Health and Safety Review Commission, No. 24-9521 (10th Cir., Feb. 2026) — the Tenth Circuit denied UHS of Delaware’s petition for review, upholding the Review Commission’s order.

The panel,addressed each of the three questions in turn, in each instance asking only whether the record could reasonably support the Review Commission’s finding, not whether the court would have weighed the evidence the same way in the first instance.

On the worksite question, the court rejected UHS of Delaware’s argument that the psychiatric hospital was solely a worksite of Cedar Springs because UHS of Delaware’s headquarters were in Pennsylvania. The proper focus, the court explained, is where employees face workplace hazards, not where the employer’s headquarters sit — a principle it drew from the Eleventh Circuit’s recent decision in a closely related dispute involving the same management company and a different psychiatric hospital, UHS of Delaware, Inc. v. Secretary of Labor (2025) 140 F.4th 1329, as well as the First Circuit’s decision in A.C. Castle Construction Co. v. Acosta (2018) 882 F.3d 34. The parties had stipulated that UHS of Delaware’s employees were exposed to the hazard of workplace violence at the hospital, and the court held it could not disregard a stipulated fact, citing the ordinary meaning of “worksite” as the place where an employee works under Harbert v. Healthcare Services Group, Inc. (2004) 391 F.3d 1140. Testimony that UHS of Delaware’s chief financial officer regularly interacted with patients, along with evidence that other UHS of Delaware employees made repeated visits to the hospital, further supported the finding.

On the integration question, the court held that sharing resources and providing oversight of safety matters — including requiring workplace-violence training, supplying incident-report forms, compiling injury data, and reviewing the hospital’s violence-prevention plan — was sufficient evidence of integrated safety operations, even though UHS of Delaware itself did not provide direct patient care. The court found this consistent with both the Eleventh Circuit’s 2025 decision and A.C. Castle, which had found integration based on similar funding of training and preparation of safety policies for another company.

On the common-ownership question, the court found it unnecessary to resolve whether the companies shared a president, management, or supervision, since the statutory test is disjunctive and common ownership alone suffices. Both companies acknowledged they were wholly owned subsidiaries of the same ultimate parent, Universal Health Services, Inc., with an intermediary holding company sitting between the parent and Cedar Springs. The court held that an intervening tier in the ownership chain does not defeat common ownership so long as the companies share the same ultimate parent, again following the Eleventh Circuit’s 2025 decision, which had reached the identical conclusion on a nearly identical corporate structure involving the same intermediary entities.

Because substantial evidence supported the Review Commission’s findings on all three questions, the court denied UHS of Delaware’s petition for review without reaching whether the three-question test itself was the correct legal standard, noting the parties’ agreement on that point and the court’s practice of assuming without deciding a test’s correctness when it is not contested.

Cal Supreme Court Clarifies Federal Court Two-Dismissal Rule

John HR Doe and six other plaintiffs (Does) allege that William Babcock, a counselor at Kynoch Elementary School, sexually assaulted them between 1993 and 2001, including during counseling sessions, while the school operated within Marysville Joint Unified School District (the District). Before filing the lawsuit at issue here, Does twice filed and then voluntarily dismissed nearly identical claims against the District and Babcock. The first two rounds were filed in Yuba County Superior Court in 2020 and voluntarily dismissed without prejudice that November. The same day, Does filed a new action in the U.S. District Court for the Eastern District of California realleging their state-law claims and adding federal claims under Title IX, 42 U.S.C. section 1983, and the No Child Left Behind Act. After the District moved to dismiss on Eleventh Amendment sovereign-immunity and other grounds, Does voluntarily dismissed the federal action “without prejudice” under rule 41(a)(1)(A)(i) of the Federal Rules of Civil Procedure. Weeks later, Does filed the present action in state court (later transferred to Yuba County), alleging only state-law tort claims arising from the same abuse.

The District demurred, arguing that Does’ claims were barred by claim preclusion under the so-called “two-dismissal rule” of rule 41(a)(1)(B), which provides that a second voluntary dismissal of an action based on the same claim “operates as an adjudication on the merits.” Because Does had already dismissed the same claims twice before — once in state court and once in federal court — the District argued the federal dismissal triggered the rule and barred the state action outright. Does countered that the federal dismissal could not carry claim-preclusive weight because the District’s invocation of Eleventh Amendment immunity had stripped the district court of subject-matter jurisdiction over their state-law claims. The Yuba County Superior Court agreed with the District, ruling that the federal dismissal operated as an adjudication on the merits and sustained the demurrer without leave to amend, entering judgment for the District.

In a split decision, the Court of Appeal affirmed, holding that state courts must apply the Federal Rules of Civil Procedure to determine the preclusive effect of a federal voluntary dismissal, and that rule 41(a)(1)(B) rendered the second dismissal claim preclusive as a matter of federal law. (Doe v. Marysville Joint Unified School Dist. (2023) 98 Cal.App.5th 95, 110.) The dissent, following the reasoning of Gray v. La Salle Bank, N.A. (2023) 95 Cal.App.5th 932 — a Sixth District decision issued while the appeal was pending — would have held that state claim-preclusion law, under which a voluntary dismissal without prejudice has no preclusive effect, governed the state-law claims because the federal court’s jurisdiction over them had been supplemental rather than original.

In the case of Doe v. Marysville Joint Unified School District, No. S283639 (Cal. Sup. Ct., July 2026) — the California Supreme Court reversed the judgment of the Court of Appeal and remanded the case for further proceedings.

The Court of Appeal majority had misread Semtek Int’l Inc. v. Lockheed Martin Corp. (2001) 531 U.S. 497, the U.S. Supreme Court decision that both sides treated as controlling. In Semtek, the high court held that rule 41(b)’s phrase “adjudication upon the merits” does not mean a dismissal automatically carries claim-preclusive effect in other courts; it means only that the same claim cannot be refiled in the same court. The Supreme Court explained that treating the rule as a freestanding rule of claim preclusion would be an odd place to bury such a rule, would risk exceeding the Rules Enabling Act’s bar on altering substantive rights, and would produce forum-shopping problems under Erie Railroad Co. v. Tompkins (1938) 304 U.S. 64. Because rule 41(a)(1)(B) uses the identical “adjudication on the merits” language, the court reasoned, Semtek’s interpretation applies equally: a second voluntary dismissal under the two-dismissal rule bars refiling the same claims in the same federal court, but it does not, by itself, preclude a later suit in a different court — including a state court.

The court rejected the District’s argument that Semtek’s holding was limited to diversity cases and left federal-question dismissals subject to a different rule. It reasoned that Semtek’s interpretation of the rule itself did not turn on the basis for jurisdiction; only the separate question of which body of law’s preclusion rules apply (a uniform federal rule for federal-question cases, versus the forum state’s rule in diversity cases, per Taylor v. Sturgell (2008) 553 U.S. 880) depends on the jurisdictional source. Since rule 41(a)(1)(B) is not itself a rule of claim preclusion under either body of law, the court found it unnecessary to decide which preclusion rule would apply to Does’ state-law claims, because the outcome was the same either way: California law does not treat a voluntary dismissal without prejudice as a judgment on the merits, and no persuasive authority establishes that federal common law treats a two-dismissal-rule dismissal as barring a subsequent state-court suit on state-law claims. The court found support in Gray v. La Salle Bank, N.A., which had reached the same conclusion on similar facts, and distinguished the out-of-circuit authority the District cited as either predating Semtek or addressing a different question — whether two suits raised the “same claim” for purposes of applying the rule within the federal courts, not whether the rule itself extends preclusive force into state court.

The court added that even if the federal dismissal were treated as a final adjudication of Does’ federal claims, there would be no basis to extend that finality to the supplemental state-law claims, since federal courts routinely allow such claims to be refiled in state court after a discretionary dismissal without prejudice, and there is no comparable federal interest in barring purely state-law claims from state court. Having resolved the case on this ground, the court declined to reach Does’ alternative argument that the District’s invocation of sovereign immunity in the federal action deprived that court of subject-matter jurisdiction over the state-law claims in the first place.

3rd DCA Adopts 2nd DCA Cook Decision on Overbroad Arbitration Agmts

Michelle Phan worked intermittently between 2022 and 2024 for two car dealerships owned by Knight Sacramento SU Inc. and affiliated entities (Knight) — Elk Grove Volkswagen and Elk Grove Subaru. During her employment she signed several arbitration agreements at each dealership, including a standalone agreement at each that superseded the others. The two standalone agreements were identical. They required Phan to arbitrate “any and all claims” arising from her employment “or any other interaction/relationship” with Knight, past, present, or future, and extended that duty to a long list of third-party beneficiaries — Knight’s owners, officers, employees, agents, sister companies, subsidiaries, and more. The agreements barred class arbitration, carved out a handful of specific claims (workers’ compensation, unemployment benefits, NLRA claims, and, at Phan’s option, sexual harassment or assault claims), and included a severability clause.

In August 2024, Phan sued Knight individually and on behalf of a class, alleging eight wage-and-hour violations: unfair competition (Bus. & Prof. Code, §17200) and failures to pay minimum wages (Lab. Code, §1194, §1197, §1197.1), overtime (§510), meal and rest periods (§226.7, §512), itemized wage statements (§226), timely wages (§201, §202, §203), and expense reimbursement (§2802). She demanded a jury trial and separately filed a PAGA notice with the state labor agency. When Knight asked her to arbitrate, she refused, calling the agreements unconscionable.

Knight moved to compel arbitration of Phan’s individual claims and to strike the class claims. Phan opposed, arguing the agreements were procedurally unconscionable adhesion contracts and substantively unconscionable because their scope reached far beyond the employment relationship and bound only her — not Knight’s many affiliated third parties — to arbitrate. Knight countered that any procedural unconscionability was low because the arbitration terms were presented in a standalone document, and it submitted a declaration from its HR manager explaining that the broad language was meant to “capture” the many types of claims employees might bring.

The Sacramento County Superior Court found the agreements procedurally unconscionable, but only mildly so, since the arbitration terms were clearly written and stood alone rather than being buried in a longer document. On the merits, however, the court found a high degree of substantive unconscionability. Relying on Cook v. University of Southern California (2024) 102 Cal.App.5th 312, the court held that Knight’s explanation did not amount to the kind of factually established or contractually explained “business realities” needed to justify an arbitration clause reaching claims unrelated to employment, and that the agreements lacked mutuality because Phan, but not Knight’s third-party beneficiaries, was bound to arbitrate. Because these defects went to the core of the agreements, the court declined to sever them and denied Knight’s motion outright.

In the published case of Phan v. Knight Sacramento SU Inc., No. C103401 (Certified for publication July 2026) – the Court of Appeal affirmed the trial court’s order denying Knight’s motion to compel arbitration.

The panel first took up Knight’s invitation to depart from Cook, a decision of a sister district that is not binding but that California courts ordinarily follow absent good reason to disagree. The court found Knight had misread Cook: that decision did not hold that all broadly worded arbitration clauses are automatically unconscionable, and a separate Court of Appeal decision, Ayala-Ventura v. Superior Court (2026) 119 Cal.App.5th 241, had already confirmed as much. Rather, Cook condemned agreements that reach claims unconnected to employment without any justification, and that impose arbitration on the employee alone while leaving the employer’s affiliates free to sue in court. Seeing no material difference between Knight’s agreements and the one in Cook, and no good reason to part ways with that precedent, the court applied it here.

Turning to the merits, the panel agreed the agreements were substantively unconscionable for two independent reasons. First, their language covering any claim connected to “any other interaction/relationship” Phan had or would have with Knight went well beyond the employment relationship, distinguishing them from the narrower, employment-tied language in Little v. Auto Stiegler, Inc. (2003) 29 Cal.4th 1064, which Knight had urged as the better analogy. Employers may draft a somewhat broader-than-literal “margin of safety” into an arbitration clause if a legitimate commercial need for the breadth is either spelled out in the contract or proven with evidence, citing Civil Code, §1670.5, and the framework of Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83. Knight’s stated desire to sweep in any conceivably related claim did not meet that bar, since the actual contract language covered claims with no tie to employment at all. Second, the agreements lacked mutuality: they bound Phan to arbitrate against a sweeping list of Knight-affiliated third parties without requiring those parties to do the same for any claims they might bring against her. The court rejected Knight’s argument that mutuality arose after the fact when some third parties later sought to compel arbitration, explaining that unconscionability is assessed as of the time the contract was signed, and that other listed third parties named in the suit had still not agreed to arbitrate anything.

Because these two defects – unjustified overbreadth and one-sided treatment of third-party claims – went to the central purpose of the agreements, the court held the trial court acted within its discretion under Civil Code §1670.5 and Ramirez v. Charter Communications, Inc. (2024) 16 Cal.5th 478, in declining to sever the offending terms and enforce what remained. Having resolved the case on unconscionability grounds, the panel did not reach Knight’s remaining arguments about PAGA waivers or jury-trial waivers in the agreements.

Court Backs Insurance Commissioner on FAIR Plan Surcharges

This court challenge concerns California’s FAIR Plan, the state-mandated “insurer of last resort” for property owners who cannot obtain coverage in the ordinary market (Ins. Code, § 10090 et seq.). The Plan is an involuntary association of all property insurers licensed in California; each member shares proportionally in the Plan’s writings, profits, and losses based on its market share two years earlier (Ins. Code, § 10095(c)). When the Plan runs short, it may levy an assessment on its member insurers, subject to the Commissioner’s approval.

At issue were two bulletins issued by Insurance Commissioner Ricardo Lara. Bulletin 2024-8 (Sept. 3, 2024) set out a procedure by which FAIR Plan member insurers could seek the Commissioner’s prior approval, under Proposition 103, to recoup any FAIR Plan assessment from their own policyholders. Bulletin 2025-4 (Feb. 11, 2025) updated that guidance after the “highly unlikely event” actually occurred: following the January 2025 Los Angeles wildfires, the FAIR Plan sought approval for roughly $1 billion in assessments — the first in over 30 years — and insurers were permitted to pass through some, but not all, of those costs to policyholders over no more than two years. Per the Department, the median homeowner fee was about $28 per year.

In April 2025, Consumer Watchdog — a nonprofit public-interest organization — sued Commissioner Lara and the Department of Insurance to invalidate the bulletins. Its verified petition raised three claims: that the bulletins were “regulations” adopted without complying with the Administrative Procedure Act; that they exceeded the Commissioner’s authority under the FAIR Plan statutes; and that, by letting insurers pass assessments through to policyholders, they violated the equal profit-and-loss-sharing command of section 10095(c).

This was a trial-court ruling on a petition for a traditional writ of mandate (Code Civ. Proc., § 1085), not an appeal. Earlier, in a July 22, 2025 order, the court had sustained the Department’s demurrer without leave to amend as to the first two causes of action — holding that the bulletins fell within an APA exception and that the Commissioner had authority for the pass-throughs under Proposition 103. Only the third cause of action — the claim that the bulletins violate section 10095(c) — survived to be decided on the merits. Consumer Watchdog argued that section 10095(c) reflects a legislative design of “symmetry,” under which member insurers who reap the Plan’s profits must also absorb its losses, and that shifting assessment costs to non-FAIR-Plan policyholders effectively turns ordinary consumers into reinsurers of their own insurers.

The trial court denied the petition in its entirety, along with the requests for declaratory and injunctive relief. The court declined to reach the Department’s argument that Consumer Watchdog lacked standing, resolving the case instead on the merits.

The court first set aside the bulk of Consumer Watchdog’s briefing, which re-argued that the bulletins were not authorized under Proposition 103. That question, the court held, had already been decided at the demurrer stage — where it ruled the Commissioner had Proposition 103 authority for the pass-throughs — and the time to seek reconsideration had passed. Attempts to reframe the argument as newly raised questions were unavailing.

On the sole surviving claim, the court held the statute’s meaning is plain: it governs how writings, profits, losses, and expenses are allocated among FAIR Plan member insurers — the Plan’s internal affairs — and says nothing about what an insurer may later do with its own policyholders. The court found Ohio Casualty Ins. Co. v. Garamendi (2006) 137 Cal.App.4th 64, on which Consumer Watchdog relied, addressed only insurers’ ongoing loss-sharing obligations to one another, not their relationships with policyholders. As the court put it, nothing in the statutory text conditions an insurer’s proportional share of Plan expenses on ultimately absorbing those costs rather than merely paying them initially; the statute regulates the apportionment obligation itself, not the insurer’s later financial decisions.

Because the statute was unambiguous, the court refused to resort to canons of construction or to compare the FAIR Plan against other insurance “safety-net” programs (CIGA, CLHIGA, and the CEA) that expressly authorize pass-throughs. It distinguished each of Consumer Watchdog’s authorities — In re Jennings (2004) 34 Cal.4th 254, BullsEye Telecom, Inc. v. Public Utilities Com. (2021) 66 Cal.App.5th 301, Goldstein v. California Unemployment Ins. Appeals Bd. (2019) 34 Cal.App.5th 1006, and Medical Bd. of California v. Superior Court (2001) 88 Cal.App.4th 1001 — noting that each involved a genuinely ambiguous statute and that none endorsed reading an affirmative limitation into a statute from a comparison to different schemes. Invoking the plain-meaning rule (Kavanaugh v. West Sonoma County Union High School Dist. (2003) 29 Cal.4th 911; Burden v. Snowden (1992) 2 Cal.4th 556), and finding Gomes v. Mendocino City Community Services Dist. (2019) 35 Cal.App.5th 249 more persuasive, the court concluded that the absence of express pass-through language in the FAIR Plan statutes could not be construed as an affirmative limit on authority the Commissioner otherwise holds under Proposition 103.

The two sides framed the outcome very differently. In a July 1, 2026 press release titled “Commissioner Lara defeats attempt to undermine California insurance market,” the Department cast the ruling as vindication of the Commissioner’s authority to stabilize the market.  (The Department’s framing was echoed in trade coverage.)

Consumer Watchdog, in a same-day statement (“Court Upholds FAIR Plan Surcharges, Consumer Watchdog Weighs Appeal”), respectfully acknowledged the ruling but sharply criticized the Commissioner and said it is reviewing its options, including an appeal.

The litigation sits within a broader, contentious backdrop around the commissioners “Sustainable Insurance Strategy.” Consumer Watchdog has repeatedly tied the case to criticism of the Commissioner, and has noted that former Insurance Commissioner (and later Congressman) John Garamendi publicly urged Lara to resign in 2025, saying he had not been willing to stand up to the insurance industry. Whether Consumer Watchdog appeals — which would move the section 10095(c) question, and potentially the reserved standing and Proposition 103 issues, before the Court of Appeal — remains to be seen.

NCCI Report Examines Relationship Between Payroll and Losses

How does payroll relate to workers compensation losses? This has long been a foundational question for the industry, and one that continues to evolve as wage levels, job roles, and workplace dynamics change. NCCI’s last exposure base review (2006) concluded that “total payroll as an exposure base is an appropriate reflection of loss potential for all classes and for each industry group.”

This newest 2026 NCCI paper on this topic examines how claim frequency and severity vary across wage tiers and what those patterns mean for how payroll aligns with expected losses. The headline is consistent with NCCI’s previous research:​ payroll continues to function effectively as an exposure base because of its practicality, transparency, and consistent application across a wide range of employers.

At the same time, this paper shows that payroll’s relationship to aggregate loss experience is not consistently uniform across all wage levels and presents objective patterns in how loss dynamics change across wage tiers.

Key Insights of the New 2026 Report:

– – Although alternatives exist, unlimited payroll remains a practical, reliable, and broadly applicable workers compensation exposure base
– – Indemnity severity generally rises with wages but plateaus at higher wage levels, while medical severity increases more consistently across all levels
– – Claim frequency typically declines as individual wages increase, contributing to variability in the proportionality between benefits and wages

Payroll has consistently been considered a reliable foundation for ratemaking. This research highlights how that foundation performs under different conditions, particularly at higher wage levels, where factors such as statutory benefit limits and changing claim dynamics come into play. These findings build on that long-standing understanding, offering additional clarity rather than redefining it.

This is not a new question, but it is one to be revisited as the system evolves. As part of NCCI’s ongoing commitment to supporting a healthy workers compensation system, we regularly re-evaluate the methodologies that underpin pricing and risk assessment. This analysis reflects NCCI’s continued effort, reinforcing confidence in our current approach, while providing insights that may help inform future decisions.

Unlimited payroll has served as the industry’s standard exposure base for decades, though it’s not without limitations. It reasonably captures the relationship between wages and claim severity but does not consistently reflect differences in claim frequency across wage levels. As a result, aggregate loss ratios generally decline as wages increase, driven by lower frequency and compounded by capped indemnity severity.

NCCI will continue to monitor industry trends and update this analysis as appropriate. To explore the full findings and analysis, read the complete report.

Manageability No Basis to Breakup Joinder of 440 Tesla Workers Cases

A new dispute grew out of Vaughn v. Tesla, Inc. (Alameda County Super. Ct. No. RG17882082), a 2017 class action alleging that Black employees suffered racial discrimination and harassment — including regular use of racial slurs by coworkers and supervisors — at Tesla’s production factory, in violation of the Fair Employment and Housing Act (Gov. Code, § 12940, subd. (a)). The complaint alleged Tesla maintained a policy of tolerating a hostile work environment and a pattern or practice of ignoring and inadequately investigating harassment complaints.

In Vaughn, the trial court granted class certification only in part — certifying three common “pattern or practice” liability issues but declining to certify a class for individual liability or damages, and ordering that each worker seeking damages file a separate lawsuit. The court later denied leave to add 531 class members as individual plaintiffs, and ultimately decertified the class after the plaintiffs conceded they could not produce the 200 class-member witnesses their stipulated trial plan required.

Acting on the court’s own instruction to sue separately, 440 former Vaughn class members filed five complaints in mid-2025, each joining between 54 and 98 individual plaintiffs. All alleged FEHA claims for racial discrimination, harassment, and failure to prevent — asserting they worked at the same Tesla factory, were subjected to similar race-based mistreatment, and were harmed by Tesla’s common practice of failing to systematically address racist conduct.

Weeks after the complaints were filed — and before Tesla filed any demurrer — the trial court issued its own order to show cause why it should not find “inappropriate joinder.” After argument, the court found misjoinder and ordered that in each of the five cases “all Plaintiffs except for the first name on the complaint must be dismissed” and must refile as single-plaintiff complaints. The court reasoned that different workers experienced different harassment in different locations at different times, that there was “virtually no scenario” for a common trial with over 50 plaintiffs, and that its experience in complex litigation let it anticipate the problems these complaints would cause. It also cited concerns about discovery burdens and the loss of filing fees. The plaintiffs sought writ relief; the Court of Appeal stayed proceedings, consolidated the five petitions, and issued an order to show cause.

The Court of Appeal granted the petitions and directed issuance of a peremptory writ of mandate ordering the trial court to vacate its misjoinder order and allow the five original complaints to proceed in the published case of Smith et al. v. Superior Court (Tesla, Inc., Real Party in Interest) – Case No. A174789 (June, 2026). The court took up the matter by writ because the issues were likely to recur and presented legal questions of significant importance.

Because the court dismissed at the pleading stage before discovery (and conceded its OSC was “in essence a demurrer based on misjoinder”), the Court of Appeal reviewed the ruling de novo, assuming the truth of the complaints’ allegations and drawing all reasonable inferences in favor of joinder. Whether misjoinder was proper was a question of law, not a matter of discretion.

The permissive-joinder statute (Code Civ. Proc., § 378) lets plaintiffs join if their relief arises from the same transaction or series of transactions and shares a common question of law or fact. Joinder statutes are liberally construed, and a right to relief arises from the same transaction so long as there is “any factual relationship between the claims” (Petersen v. Bank of America Corp. (2014) 232 Cal.App.4th 238). Applying that breadth, the court relied on Anaya v. Superior Court (1984) 160 Cal.App.3d 228 (200-plus employees exposed to chemicals at one facility over decades were properly joined) and Petersen (965 borrowers harmed by one lender’s common deceptive scheme were properly joined based on commonality of liability, despite widely varying damages). Here, the plaintiffs alleged a single company-wide policy or practice of ignoring racist conduct at one factory — enough to satisfy section 378. That the harassment occurred at different times and places did not defeat joinder; “the salient point is that liability is amenable to mass action treatment.”

The court found Moe supportive: just as an employer’s negligent hiring and supervision was a “series of transactions” exposing multiple assault victims to harm, Tesla was the common entity alleged to have let known harassment persist. It distinguished the cases Tesla cited — David v. Medtronic, Inc. (2015) 237 Cal.App.4th 734 (a medical device with no single scheme; different surgeries, surgeons, and representations), Aghaji v. Bank of America, N.A. (2016) 247 Cal.App.4th 1110 (mortgage plaintiffs with no overarching plan), and Coleman v. Twin Coast Newspaper, Inc. (1959) 175 Cal.App.2d 650 (separate trespasses on separate premises) — as all lacking the common-policy allegation present here. It held the Vaughn decertification did not bind these individually represented plaintiffs (that ruling turned on a witness-production failure, and the court there expressly disclaimed any suggestion that a pattern-or-practice trial is inherently unmanageable), and that federal Rule 20 cases were inapposite given both their lack of a common-policy allegation and the more demanding federal pleading standard.

Section 379.5 does not authorize dismissal. The court rejected the argument that section 379.5’s case-management authority let the court order single-plaintiff filings. Section 378 commits the joinder decision to the plaintiffs, not the judge; section 379.5 lets a court sever trials or make just orders after parties are joined, but not undo a proper joinder. Drawing on Estrada v. Royalty Carpet Mills, Inc. (2024) 15 Cal.5th 582, the court reasoned that trial courts lack inherent authority to strike claims on manageability grounds, and that broad “interests of justice” language (there, § 128; here, § 379.5) does not supply it. That the Legislature authorized dismissal for misjoinder by demurrer (§ 430.10, subd. (d)) but included no such power in section 379.5 — and enacted a counterpart to federal Rule 20 but not to Rule 21 (which allows dropping parties) — confirmed the omission was deliberate. Filing fees, too, are set by the Legislature (Gov. Code, §§ 70611, 70616), not the court, and section 379.5 protects parties from undue expense, not the court itself.

The court acknowledged the trial court’s “formidable” challenge managing 440 plaintiffs and pointed to legitimate tools — separate trials by party or claim (§§ 379.5, 1048), tracking spreadsheets, and the case-management measures endorsed in Estrada and Petersen. But any broader limits on permissive joinder, it held, must come from the Legislature. It also found the recent decision in J.O. v. Superior Court (2026) 19 Cal.5th 753 inapposite, concluding the situation came nowhere near an unconstitutional interference with a core judicial function.

Unlicensed Contractor Rules for Homeowner Negligence Case Clarified

Jessie Washington owns a two-story home in San Diego. In 2022 she hired Roman Sedano, an unlicensed contractor, to paint the home’s exterior. Sedano in turn hired Luis Gonzalez — also unlicensed — to perform some of the work.

On the second day of the three-day job, Gonzalez was on the roof painting with a spray gun. Walking backwards, he tripped on a rain gutter and fell off the roof, sustaining injuries. Gonzalez had inspected the area beforehand and found it clear; he had also checked the rain gutter and judged it sound, but surmised a coworker later dislodged it with a ladder. He knew the gutter had come loose but did not think it would trip him.

Gonzalez sued both Washington and Sedano. Against Washington he asserted negligence and premises liability, alleging Sedano was Washington’s employee under Labor Code section 2750.5 (which presumes a worker performing services requiring a license is an employee, and makes a valid license a condition of independent-contractor status). Gonzalez alleged Washington caused his injuries by failing to provide safety equipment, hire a licensed contractor, supervise the work, and warn of dangerous conditions.

Washington moved for summary judgment, arguing no act or omission of hers caused the fall. She relied on Gonzalez’s deposition, in which he described inspecting and clearing the area. Gonzalez opposed, invoking Labor Code section 3708 (which presumes employer negligence when an uninsured employer is sued by an employee), arguing Washington violated the standard of care for residential roof work by failing to provide fall protection, and asserting vicarious liability for Sedano. He submitted an expert declaration from Robert Clayton, a construction professional with 35-plus years of experience, opining that the industry standard of care requires a fall-restraint system for roof painting and that Washington breached it. Notably, Washington filed no reply and never objected to or disputed Clayton’s declaration.

The trial court granted summary judgment. It presumed Gonzalez was Washington’s employee under section 2750.5, assumed the section 3708 negligence presumption applied but found it rebutted because Gonzalez knew of the allegedly dangerous condition and had satisfied himself it was safe, and found the safety-equipment and vicarious-liability theories unsupported because Clayton’s declaration did not specify what equipment was required or how it would have prevented the accident. Judgment was entered for Washington, and Gonzalez appealed.

The Court of Appeal reversed in the unpublished case of Gonzalez v. Washington, Case No. D085345 (June, 2026) , holding triable issues of fact precluded summary judgment. On remand, the trial court was directed to vacate its order and deny the motion, with costs to Gonzalez. Because the opinion is unpublished, it carries no precedential weight and may not be cited.

The court first sorted out Gonzalez’s status, because it dictates the burdens and available defenses. Washington conceded that, because both Sedano and Gonzalez were unlicensed, Gonzalez was her presumptive employee under section 2750.5 (see Mendoza v. Brodeur (2006) 142 Cal.App.4th 72). But the court held Gonzalez fell outside the workers’ compensation system. Under section 3352, subdivision (a)(8), a residential worker is excluded from the definition of “employee” if, in the 90 days before injury, the employment was contracted for either less than 52 hours or wages of $100 or less. Because the provision is written in the disjunctive, failing to meet the hours minimum is enough (see Zaragoza v. Ibarra (2009) 174 Cal.App.4th 1012). Although Gonzalez earned over $100, the three-day job totaled only about 24 hours, well below 52. He was therefore excluded from workers’ compensation.

That exclusion had two consequences. First, Gonzalez could not invoke the section 3708 presumption of employer negligence, which applies only to workers covered by the compensation act. Instead, his remedy lay in Labor Code sections 2800 and 2801 — under which an employer must indemnify an employee for losses caused by the employer’s want of ordinary care, but the employee bears the burden of proving negligence (see Devens v. Goldberg (1948) 33 Cal.2d 173). Second, and importantly, section 2801 bars Washington from asserting either assumption of the risk or the negligence of a fellow servant (the coworker who allegedly loosened the gutter) as defenses. The trial court’s reliance on Gonzalez’s own awareness of the loose gutter to defeat the claim was therefore misplaced in this framework.

Applying de novo review and liberally construing the opposition evidence, the court found Gonzalez raised triable issues. A landowner must keep property reasonably safe, and while the danger of falling from a roof is obvious, an obvious danger does not negate the duty of care where it is foreseeable a person will encounter it out of necessity — here, painting the exterior (see Jones v. Awad (2019) 39 Cal.App.5th 1200; Montes v. Young Men’s Christian Assn. of Glendale (2022) 81 Cal.App.5th 1134). On causation, the plaintiff need only show the defendant’s negligence was a substantial factor, which may rest on reasonable inferences from circumstantial evidence; direct proof of each link is not required (Raven H. v. Gamette (2007) 157 Cal.App.4th 1017; City of Modesto v. Dow Chemical Co. (2018) 19 Cal.App.5th 130).