Tag: 2022 News

Jinshu “John” Zhang was an equity partner in Dentons U.S. LLP, a major law firm with offices throughout the United States. A dispute arose between them over a multimillion dollar contingency fee from a client whom Zhang brought to the firm. Bloomberg Law places the amount of this fee at about $35 million.

Zhang has been a partner at major law firms for two decades and led the China practice at Greenberg Traurig before joining Reed Smith in 2008, according to legal media coverage. He joined Dentons in 2014, his LinkedIn profile says. Zhang and the firm represented a China-based client who sought to enforce a foreign arbitral award in China, resulting in a multi-million dollar settlement for their client.

Dentons alleges it terminated Zhang for cause, asserting a breach of fiduciary duty, and initiated an arbitration in New York. The partnership agreement has a broad arbitration clause. It covers “all disputes relating to the validity, breach, interpretation or enforcement of this Agreement, as well as all disputes of any kind between or among any of the Partners and/or the Partnership relating to the Partnership and/or the Business, including statutory claims of any kind . . . .” The partnership agreement also contains a clause delegating all questions of arbitrability to the arbitrator, and a clause providing for arbitration of all disputes in Chicago or New York.

Zhang then sued Dentons for wrongful termination and other causes of action in Los Angeles Superior Court. He obtained a temporary restraining order and then a preliminary injunction, enjoining the New York arbitration until the court could decide whether there was a clear and unmistakable delegation clause.

After the TRO was issued, Dentons filed a motion under Code of Civil Procedure section 1281.4, seeking a mandatory stay of the case based on its motion to compel arbitration that was then pending in a New York court, which the New York court later granted.

In opposition, Zhang argued he was Dentons’s employee, and Labor Code section 925 “render[ed] the courts of New York incompetent to rule on Dentons’ motion to compel arbitration.” Section 925 prohibits an employer from requiring an employee who resides and works in California to agree to a provision requiring the employee to adjudicate outside California a claim arising in California.

The California court granted Dentons’s motion to stay Zhang’s action in superior court pending completion of arbitration in New York. The court ruled the arbitration agreement clearly and unmistakably delegated arbitrability issues to the arbitrator, including the applicability of Labor Code section 925 to the dispute.

Zhang sought a writ of mandate, which the California Court of Appeal denied. The California Supreme Court granted review and transferred the case back to the Court of Appeal, directing it to issue an order to show cause, and after doing so, it again denied the petition in the published case of Zhang v. Super. Ct. -B314386 (November 2022).

Labor Code section 925 provides in part: “(a) An employer shall not require an employee who primarily resides and works in California, as a condition of employment, to agree to a provision that would do either of the following: [¶] (1) Require the employee to adjudicate outside of California a claim arising in California. [¶] (2) Deprive the employee of the substantive protection of California law with respect to a controversy arising in California. [¶] (b) Any provision of a contract that violates subdivision (a) is voidable by the employee, and if a provision is rendered void at the request of the employee, the matter shall be adjudicated in California and California law shall govern the dispute.

“The New York court is a court of competent jurisdiction to rule on Dentons’s motion to compel arbitration. The proposition that Labor Code section 925, when invoked by a plaintiff, automatically strips another state’s courts of jurisdiction is unsupported by legal authority, is antithetical to notions of comity, under which judges decline to exercise jurisdiction when matters are more appropriately adjudicated elsewhere, and is at odds with the animating purpose of the Federal Arbitration Act (FAA; 9 U.S.C. § 1 et seq.).”

The US Supreme Court’s most recent discussion of FAA preemption appears in Viking River Cruises, Inc. v. Moriana (2022) ___U.S.___ [142 S.Ct. 1906] (Viking), and explains: “Section 2’s mandate protects a right to enforce arbitration agreements.That mandate would be seriously compromised if we were to conclude that the invocation of section 925 permits a party to disregard his agreement that the arbitrator is to decide all issues of arbitrability.”

“Here, our enforcement of the parties’ agreement to delegate arbitrability decisions to the arbitrator does not “alter or abridge” petitioner’s substantive rights under Labor Code section 925; “it merely changes how those rights will be processed.” (Viking, supra, 142 S.Ct. at p. 1919.) Section 925 presents no conflict with the FAA when we give effect to the parties’ agreement to delegate arbitrability issues to the arbitrator. The arbitrator will decide, as agreed, all issues of arbitrability, including whether petitioner is an employee who is entitled to invoke the protections of section 925.”

“If the arbitrator decides petitioner is an employee for purposes of Labor Code section 925, then (as Dentons concedes), “none of his claims against Dentons, or Dentons’ claims against him, would ever be adjudicated outside of California.” If the arbitrator decides petitioner is not an employee, section 925 has no application, and the merits of the parties’ dispute will be decided by arbitration in New York, as agreed.”

In September 2021, the San Diego Unified School District adopted a “Vaccination Roadmap” requiring students ages 16 or older to be vaccinated for COVID-19 in order to attend in-person classes and participate in sports and other extracurricular activities. Unvaccinated students in this group were involuntarily placed on independent study.

In October 2021, Let Them Choose filed a complaint and petition for a writ of mandate challenging the Roadmap. Let Them Choose is “an initiative of Let Them Breathe, California nonprofit public benefit corporation that represents a community of more than 20,000 parents.”

About six weeks later, a similar complaint was filed by S.V., the parent of a 16-year-old student. The cases were consolidated for trial.

After conducting a hearing on motions for judgment, the trial court ruled that the District’s COVID-19 immunization requirement is preempted by state law. The trial court noted “I think that the state . . . has fully occupied this field, there’s a statewide standard, and a local school district simply doesn’t have the authority to do something inconsistent with the statewide standard.”

The court of appeal affirmed in the published case of Let Them Choose v. San Diego Unified School Dist -D079906 (November 2022).

The issue in this case is whether a school district may require students to be vaccinated for COVID-19 as a condition for both (1) attending in-person class, and (2) participating in extracurricular activities.

A century ago during a smallpox epidemic, the California Supreme Court held that the Legislature may require school children to be vaccinated against that disease. (Abeel v. Clark (1890) 84 Cal. 226, 230.)  Since then, the Legislature has required students to be vaccinated for 10 diseases-but COVID-19 is not yet among them.

Health and Safety Code section 120335 provides that a school “shall not unconditionally admit” a pupil who has not been vaccinated for: polio, diphtheria, tetanus, pertussis, hepatitis B, haemophilus influenzae type B (HIB), measles, mumps, rubella, and chicken pox. (§§ 120370, subd. (a)(3), 120335, subd. (b)(1)‒(10).) “Each of the 10 diseases was added . . . through legislative action, after careful consideration of the public health risks of these diseases, cost to the state and health system, communicability, and rates of transmission.”

As enacted in 1995, former sections 120365 and 120370 provided exemptions from the vaccination requirements based on personal beliefs or medical reasons. But in 2015, the Legislature eliminated the personal beliefs exemption for the existing 10 specified vaccinations.

At the same time, it also considered whether vaccination should be mandated on a school district by school district basis, or instead statewide. A bill analysis explained that a statewide standard was preferred. “To provide a statewide standard[ ] allows for a consistent policy that can be publicized in a uniform manner, so districts and educational efforts may be enacted with best practices for each district. . . . Further in consultation with various health officers, they believe a statewide policy provides them the tools to protect all children equally from an outbreak.”

The Legislature has fully addressed the process of adding diseases to the 10 enumerated ones in section 120335. In subdivision (b)(11) of that statute, the Legislature contemplated new vaccine mandates in the future without further legislative action -but assigned that responsibility not to school authorities, but rather to the Department of Public Health. “The Roadmap’s COVID-19 mandate unlawfully seeks to usurp that authority.”

Intrastate preemption occurs when local law duplicates, contradicts, or enters an area fully occupied by general law, either expressly or by legislative implication.

Given the scope of the state statutes, school districts have no remaining discretion in these matters.Thus the Roadmap is preempted because it purports to regulate an area of law that the Legislature has “fully occupied.”

Cover Right is a roofing company. It held a workers’ compensation insurance policy with State Fund in 2017, which covered January 1, 2017 to December 31, 2017 (the 2017 policy). State Fund assigned the 2017 policy a dual wage classification relating to roofing operations.

The 2017 policy automatically renewed after lapsing. The renewed policy with State Fund covered January 1, 2018 to December 31, 2018. State Fund calculated the estimated premium for the 2018 policy under the assumption Cover Right would again be assigned the Class 5553-1 classification. In 2018, the base rate for Class 5553-1 was $26.92 per $100 of payroll, while the base rate for Class 5552-1 was $58.41 per $100 of payroll. Cover Right made $25,445.64 in estimated premium

State Fund performed an audit of the 2018 policy in early 2019. It found Cover Right had paid most of its employees $23 to $24 an hour in 2018, which was less than the new dual wage threshold of $25 an hour. Cover Right owed a final premium of $56,766.72 for the 2018 policy.

Cover Right maintains it did not know the dual wage threshold had changed until it received State Fund’s bill. It did not pay the bill, so State Fund assigned the debt to Creditors Adjustment Bureau who filed suit to collect it. Cover Right then filed a cross-complaint against State Fund, asserting negligence and equitable indemnity claims based on an alleged violation of section 11664, subdivision (e)(6)(A). Specifically, Cover Right contended State Fund failed to provide notice that its base rate would increase from $31.18 per $100 of payroll in 2017 to $58.41 per $100 of payroll in 2018, an increase of over 87 percent.

State Fund then moved for summary judgment on Cover Right’s claims. It argued there was no violation of section 11664, subdivision (e)(6)(A), because it did not increase the respective base rates for either Class 5552-1 or Class 5553-1 by more than 25 percent. Instead the WCIB changed the applicable dual wage threshold from $23 per hour in 2017 to $25 per hour in 2018. State Fund asserted the statute does not require notice for such changes.

The trial court agreed with State Fund and granted summary judgment. The court of appeal affirmed in the published case of Cover Right Roofing, Inc. v. State Compensation Ins. Fund -G060210 (November 2022).

This appeal asks the Court of Appeal to interpret Insurance Code section 11664, subdivision (e)(6)(A), which requires workers’ compensation insurers to provide their insureds with notice of certain premium rate increases: “[i]f the premium rate in the governing classification for the insured is to be increased 25 percent or greater and the insurer intends to renew the policy, the insurer shall provide a written notice of a renewal offer not less than 30 days prior to the policy renewal date.”

State Fund assigns base rates to its insureds using industry classifications from the Uniform Statistical Rating Plan – 1995 (the USRP). The USRP industry classifications are established by the Workers’ Compensation Insurance Rating Bureau and are codified in the California Code of Regulations, title 10, section 2318.6. The WCIRB also determines the dual wage threshold amount.

It argued there was no violation of section 11664, subdivision (e)(6)(A), because it did not increase the respective base rates for either Class 5552-1 or Class 5553-1 by more than 25 percent. Rather, Cover Right’s classification changed in 2018, which resulted in a higher corresponding base rate. State Fund asserted the statute does not require notice for such changes.

The court of appeal concluded that “in 2017, State Fund did not know the average wage Cover Right would pay its workers in 2018. It could only estimate what that average rate would be. Accordingly, prior to the effective date of the 2018 policy, State Fund could only speculate as to whether Cover Right would be assigned the Class 5552-1 or Class 5553-1 classification for 2018. Given the information it had, at best, State Fund could have provided Cover Right with notice of a potential change to its base rate for the 2018 policy. But the statute does not require notice of potential increases. It only requires notice if premium rate “is to be increased 25 percent or greater.”

“We sympathize with Cover Right’s situation. Given all the responsibilities facing small businesses, we do not fault Cover Right for missing the Bureau’s increase of the dual wage threshold. Cover Right likely would have avoided the higher base rate had it known of this change. Nonetheless, as set forth above, section 11664, subdivision (e)(6)(A), does not require an insurer to provide notice in the circumstances at issue here. Further, as a matter of public policy, it would be unreasonable to compel insurers to monitor the Bureau’s changes to the various industry classifications.”

James Whitlach is a former real estate agent who was affiliated with defendant Premier Valley, Inc., doing business as Century 21 MM,, a real estate brokerage firm located in Oakdale California.

He filed a Labor Code Private Attorney General Act of 2004 (PAGA) action against his employer alleging multiple violations of the Labor Code, among other claims. The complaint alleged the class members were misclassified as independent contractors and as a result were not properly paid all wages due and owing, were subjected to unlawful deductions, and were not reimbursed for reasonable and necessary business expenses.

Premier Valley and Century 21 demurred to the Second Amended Complaint. They argued that Whitlach was an independent contractor as a matter of law. The trial court sustained the employer’s demurrer and dismissed the Second Amended Complaint without leave to amend.

The Court of Appeal affirmed the trial court in the unpublished case of Whitlach v. Premier Valley F082322 (November 2022).

On appeal Whitlach contends the trial court applied the wrong test for determining whether he was an independent contractor or employee of Premier Valley for purposes of his PAGA cause of action and derivative Labor Code claims. In the alternative, he argues Labor Code section 2778(c)(1) is unconstitutional, and his independent contractor agreement with Premier Valley is unconscionable and unenforceable.

In order for Whitlach to proceed on his PAGA claim, he was required to be an employee of Premier Valley, because PAGA, as well as the Labor Code statutes Whitlach seeks to enforce through PAGA, apply only to employees, and not to independent contractors.

The starting point for this analysis is Labor Code section 2778(c)(1), formerly Labor Code section 2750.3, subdivision (d)(1), which was enacted in 2019 by Assembly Bill No. 5 (AB 5), and became effective on January 1, 2020.

Prior to the enactment of Labor Code section 2778(c)(1), the California Supreme Court decided, in 2018, the watershed Dynamex case which set forth the ABC test to determine if there is an employment relationship. AB 5, provided that multiple occupational classifications were exempted from the sweep of Labor Code section 2775, subdivision (b)(1) which codified Dynamex.

“Real estate licensee” was one of the occupational classifications that was specifically exempted from the purview of Labor Code section 2775, subdivision (b)(1), and in turn from the application of Dynamex and the ABC test for purposes of the Labor Code, Unemployment Insurance Code, and wage orders.

Instead of AB-5, the Court of Appeal concluded the applicable test for the purpose of this case is the test set forth in Unemployment Insurance Code sections 650 and 13004.1, as incorporated in Business and Professions Code section 10032, subdivision (b), which is itself incorporated in Labor Code section 2778, subdivision (c)(1).

The trial court reached the same conclusion and applied the correct test in ruling on defendants’ demurrer. Whitlach’s equal protection claim to the effect that Labor Code section 2778(c)(1) violates equal protection by treating real estate salespersons differently than other workers was rejected.Thus the Court of Appeal affirmed the trial court judgment.

However, the Court of Appeal noted that “Business and Professions Code section 10032(b), creates an express exception for a subpart of the Labor Code, that is, workers compensation, in that it provides that determination of the employee or independent contractor status of real estate agents for purposes of workers compensation is to be made pursuant to the Borello test.”

John Duncan is a former director of the California Department of Industrial Relations and served under two California governors.

He just published a commentary on CalMatters that claims “last minute changes to Cal/OSHA’s COVID regulations are a mistake.” And clarifies that there “is a right way and wrong way to draft a new regulation.”

He says that when adopting difficult workplace policies, rule makers should notify the public and involve stakeholders. Unfortunately, the California Occupational Safety and Health Agency is poised to make a mistake next month on their two-year extension of California’s COVID rules by squeezing in a significant change at the last minute.

Last month, four members of the Cal/OSHA Standards Board ordered the agency’s staff to rewrite the draft regulations and add exclusion pay, which is essentially paid sick leave for an employee who tests positive or is exposed to COVID. If they change the regulation, stakeholders across California will see a significant change made just before the final vote on this two-year extension of COVID precautions.  

The merits of whether Cal/OSHA should continue requiring exclusion pay is not the issue, he says. There is a legitimate discussion about exclusion pay, and another legitimate discussion about whether emergency regulations should be extended past the end of the COVID emergency declaration in a few months. My point here is that resolving complicated and important questions requires time to gather data, talk to affected communities and generate workable solutions.

“In my tenure as director of California’s Department of Industrial Relations, occupational safety and health standards were subject to a thorough vetting process, centered around the goal of establishing consensus by using scientific evidence and other underlying data. Maintaining a fair, even-handed and transparent process is critical for ensuring democratic rulemaking and effective compliance with standards that protect California’s workers and employers alike.”

“The question today is how should a regulation be drafted in such a challenging climate?”

He then goes on to say that the answer is with data, careful preparation and stakeholder involvement. In 2009, Cal/OSHA adopted similar regulations for aerosol transmissible diseases in health care settings – and this was not some weak regulation with illusory protections. It was a first-in-the-nation standard and included specific provisions related to training, protective equipment, recordkeeping and more.

Most surprisingly, the rules passed without any opposition when the Cal/OSHA Standards Board voted on it. It was something that may seem unthinkable in today’s divisive times: a consensus regulation based on scientific data, expert stakeholder input and careful discussion.

“Cal/OSHA should look to its past successes and not make such a big change at the last second. Rulemaking is occasionally awkward, loud, disagreeable and painfully slow, but it is the best system out there for such important decisions.”

He concludes his commentary by saying there is “a slogan many sports teams and athletes follow: respect the process. That is an appropriate theme as California once again strives to lead in addressing an important workplace health and safety issue.”