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GETTIN’ PAID: A 2020 Debt Collection Primer for California Cannabis Farmers

 

Co-authored by:

Heather Burke (Origin Group Law LLP) & Katy Young (Ad Astra Law Group LLP)

 

In the first few years of regulated cannabis activity in California, many (if not most) cannabis farmers did not get paid for their product on time and, in some cases, they didn’t get paid at all. Debt collection quickly became a hot topic, as unpaid farmers waded through their legal options, from selling the debt to full tilt civil litigation. In those situations, a written contract almost always helps the farmer, which means oral agreements often hurt the producer (aka the farmer) more than the buyer (aka the distributor or manufacturer). To be sure, the best defense is a good offense (just sayin’).

While we are hoping to see more on-time payments this year, here’s a quick reminder of the debt-collection issues in play for the 2020 harvest season just in case:

  1. Private Debt Collectors

 There are a few private companies who will buy or assume a farmer’s outstanding debt, oftentimes at pennies on the dollar. Although there are lots of ads for these companies on the internet, we’ve not yet heard of a debt collection company actually getting a farmer their money in the California cannabis farming context, but our fingers are crossed that this method becomes more viable in the future.

If a farmer decides to go with a private debt collection company, it’s important to keep the statute of limitation in mind, so it’s wise to check with an attorney regarding how much time to give the debt collector to collect.

  1. A Demand Letter

A “demand letter” is a letter demanding that someone pay a debt as agreed, and this is often the first step in more aggressively going after an unpaid debt. A demand letter does not necessarily need to be written by an attorney, though a formal demand is often a legal requirement before suing someone, but they also might used as evidence down the road. That’s why demand letters should be prepared with the nuanced case-specific legal issues in mind.

Demand letters can do more harm than good if they are sloppy, admit a weakness in the case, or disclose a legal strategy too soon. Be wary of sending out demand letters without properly vetting the legal issues and the legal strategy, including avoiding making any damaging admissions. Consider sending the demand letter confidentially, pursuant to California’s strong public policy in favor of private settlements of disputes. See California Evidence Code Section 1152 and consider adding this statement to the beginning of your demand letter: “The following is a confidential settlement communication pursuant to California Evidence Code Section 1152. Offers of compromise in settlement negotiations are inadmissible to prove liability for loss or damage.”

  1. Alternative Dispute Resolution

Sometimes folks who are disputing a debt are willing to go to mediation or arbitration to keep the dispute out of court. Alternative dispute resolution (ADR) procedures such as mediation and arbitration are most helpful where there is some disagreement about the outstanding payment, such as who is responsible for a product that fails testing after a distributor fails to quarantine the product appropriately. Mediation is never binding; it is simply the use of an experienced neutral to help the parties reach a compromise. Arbitration can be binding or non-binding and takes the place of a court trial. In both mediation and arbitration, both parties have to agree to participate (though in certain cases with respect to arbitration, a party could be compelled to arbitrate based on a contract clause, for example).

However, ADR is less helpful if the buyer is simply ignoring the seller (aka “radio silence”) or is going out of business (which is unfortunately common in California cannabis), since ADR is most effective when both parties are engaged in the process.

  1. Breach of Contract Lawsuit

If a demand goes unanswered, the next step may be to institute a legal case, a.k.a. litigation. If the farmer takes the buyer to court, the primary “causes of action” or “claims” would likely be related to breach of the agreement to pay money to the farmer for their product and that buyer’s unjust enrichment off of the farmer’s product.Many farmers “eat” their losses and instead choose not to sue because litigation is costly, stressful, and time consuming, but keep in mind that attorneys’ fees are often in play in breach of contract actions, meaning the party that wins the lawsuit may be able to have their attorneys’ fees added to the other side’s bill. In oral agreements, there is almost never an enforceable agreement for attorneys’ fees- another point in favor of always using a professionally written contract.

  1. Foreclosing on a Security Interest or Producer’s Lien

A security interest is simply collateral from one party to another for an unpaid debt. Security interests can take many forms but the main point is that the farmer (who holds the security interest) may be able to get paid out on a priority basis if the buyer goes out of business and ends up selling off its assets.  We often recommend security interests wherever the sells their entire season in a single transaction under an agreement to pay the farmer at some later date.

In addition to security interests granted in a written purchase agreement, California law thankfully offers farmers an “producer’s lien,” which is a special type of security interest that farmers keep in their product after a buyer takes possession of the product before paying. A producer’s lien is an implied security interest, meaning the parties do not need to have a written contract in place for the lien to exist: it is automatic, provided they do not waive the producer’s lien in any written agreement.

While CDFA does offer an administrative avenue for foreclosing on a producer’s lien, cannabis farmers are not yet eligible to use that option. This means that cannabis farmers can only foreclose their producer’s lien in a civil court at this time. There is no precedent (as far as we’re aware) applying the producer’s lien in the cannabis context, though the law is fairly clear, so we assume this lien will be applied in the cannabis context at some point in the future.

Additionally, the producer’s lien may be extinguished if the buyer sells the product to a third-party, as is often the case with cannabis distributors who are acting as an intermediary (aka middle-man/broker). In such a case, the farmer may want to consider filing an injunction to stop the distributor from selling the cannabis to another party.

Moving forward, we hope written security interests become more common in California’s cannabis purchase agreements, since they offer the farmer the most protection. If a distro or manufacturer is taking the farmer’s entire season in a single transaction without paying at the time of delivery, security interests are a fair request.

CLOSING

In closing, these are worst case scenarios that generally only come into play when the farmer is already under financial stress due to the lack of payment. So the processes for going after an unpaid debt are often shrouded in a cloud of negativity and are not utilized. However, these formal processes are designed to protect sellers from unscrupulous buyers, meaning these systems may suck, but they can be powerful tools to protect farmers from getting ripped off.

Use of a written contract with an attorneys’ fees clause will provide the most protection in the event of non-payment, as the attorneys’ fees clause makes it harder for the buyer to justify the cost of the fight if the case were to proceed through trial and result in a prevailing party attorneys’ fee award. If all of this information is making your head spin, reach out to an attorney knowledgeable about the California cannabis industry and breach of contract actions.

Massive gratitude to Katy M. Young of Ad Astra Law Group LLP in San Francisco, one of Sarah and my favorite civil litigators of all time, for co-authoring this blog with me. Please stay safe everyone!

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New Federal Sick Time and Paid Leave Law for Coronavirus

By Sean Gentry

In response to the health concerns and shelter in place orders affecting individuals and business through the United States, the federal government has passed new paid sick time laws that all employers need to be aware of, called the Families First Coronavirus Response Act (FFCRA or Act).

This law goes into effect for April 2020 and continues through December 31, 2020.  It affects all employers with 500 or fewer employees.  In general, this law requires affected employers to provide their employees who cannot work (or remote work) with paid sick leave or expanded family and medical leave for specified reasons related to COVID-19.  Covered employers must provide to all employees:

  • Two weeks (up to 80 hours, or a part-time employee’s two-week equivalent) of paid sick leave at the employee’s regular rate of pay where the employee is unable to work because the employee is quarantined (pursuant to Federal, State, or local government order or advice of a health care provider), and/or experiencing COVID-19 symptoms and seeking a medical diagnosis.

    OR
  • Two weeks (up to 80 hours, or a part-time employee’s two-week equivalent) of paid sick leave at two-thirds the employee’s regular rate of pay because the employee is unable to work because of a bona fide need to care for an individual subject to quarantine, or care for a child (under 18 years of age) whose school or child care provider is closed or unavailable for reasons related to COVID-19, and/or the employee is experiencing a substantially similar condition.

For the first category, the amount of sick time to be paid is 100% of the employee’s income up to a maximum of $511 daily and $5,110 total.

For the second category, the amount of sick time to be paid is 2/3rd of the employee’s income up to a maximum of $200 daily and $2,000 total.

However, in the case of employees caring for their child whose school or place of care is closed (or child care provider is unavailable) due to COVID-19 related reasons, then up to 12 weeks (i.e., 10 more weeks) of paid sick leave and expanded family and medical leave is available and paid at 2/3rd of the employee’s income up to a maximum of $200 daily and $12,000 total.

Employees are eligible for the extra 10 weeks of paid leave only if they have been employed for at least 30 days prior to their leave request.  Employees are eligible for the paid sick time regardless of length of employment.

The Department of Labor (DOL) has explained that “unable to work” means the employer has work for you and one of the COVID-19 qualifying reasons set forth above prevents you from being able to perform that work, either under normal circumstances at your normal worksite or by means of Remote work (“telework”).

Therefore, it appears that the sick leave requirements do not apply when no work is available.  In that case, please refer to the EDD website* with regard to various considerations for unemployment insurance benefits that may be applicable for employees whose businesses have been forced to reduce hours substantially, make furloughs, or make layoffs due to Coronavirus and the shelter in place orders.

The law prohibits employers from requiring an employee to find a replacement when using qualifying paid sick leave.  On the other hand, the paid sick time stops beginning with the employee’s next scheduled shift immediately following the conclusion of the need for paid sick time.  In other words, an employee must return to work as soon as the need for leave ends, even if the employee has not used all of the paid sick time available under the FFCRA.

Small businesses with fewer than 50 employees may qualify for exemption from the requirement to provide leave due to school closings or childcare unavailability if the leave requirements would jeopardize the viability of the business.  To elect this small business exemption, you should document why your business with fewer than 50 employees needs the exemption.  However, the DOL has not yet released the criteria for the exemption, which will apparently be addressed in more detail in forthcoming regulations.  The DOL does not need you to send any materials to them when seeking a small business exemption for paid sick leave and expanded family and medical leave.

A link to the poster that all employers should share with their employees—and post in the location where similar posters are displayed once it is safe to do so—can be found here:

https://www.dol.gov/sites/dolgov/files/WHD/posters/FFCRA_Poster_WH1422_Non-Federal.pdf

Employers covered by the FFCRA qualify for dollar-for-dollar reimbursement through tax credits for all qualifying wages paid under the FFCRA, for amounts paid to an employee who takes eligible leave, up to the maximums listed above.  Applicable tax credits also extend to amounts paid or incurred to maintain health insurance coverage.  For more information on this part, please see the Department of the Treasury’s website, for example here:

https://home.treasury.gov/news/press-releases/sm952

For more information about the FFCRA, you can visit the Department of Labor’s information pages here:

https://www.dol.gov/agencies/whd/pandemic/ffcra-employer-paid-leave

https://www.dol.gov/agencies/whd/pandemic/ffcra-questions

Please note also that permitted uses of job-protected leave under the Family and Medical Leave Act (FMLA) were separately addressed under the Emergency Family and Medical Leave Act in response to COVID-19, which may be the topic of a separate article.

* Information from the EDD about unemployment benefits, options available for both employers and employees, and Coronavirus in California in general, please see the EDD’s website here:

https://www.edd.ca.gov/about_edd/coronavirus-2019.htm

https://www.edd.ca.gov/about_edd/coronavirus-2019/faqs.htm

Sex, Drugs, and Rock ‘n’ Roll at the Trademark Office

By Michael S. Dorsi

This morning, the U.S. Supreme Court announced its decision in Icanu v. Brunetti, holding that the First Amendment compels invalidation of the provision of the Lanham Act that instructed the United States Patent and Trademark Office to deny registration of any “immoral” or “scandalous” marks. As a result, Brunetti can register his trademark: FUCT. This was not a surprise. When the U.S. Supreme Court grants certiorari on a free speech question, the speaker usually wins, and the government usually loses. Two terms ago, the Court struck down a similar provision of the Lanham Act concerning disparaging marks, compelling the PTO to register the mark for the applicant’s band’s name, THE SLANTS. During oral argument for that case, multiple justices were critical of the PTO’s inconsistent application of the rule against immoral or scandalous trademarks.

If the PTO must register the mark for the name of a rock band despite a potentially disparaging name and a potentially vulgar mark suggestive of a sex act, must it also issue marks for federally illegal drugs? I wondered if that would be the next case. But Justice Kagan, perhaps thinking a step ahead, explained the following in the Opinion of the Court:

        • The PTO rejected marks conveying approval of drug use (YOU CAN’T SPELL HEALTHCARE WITHOUT THC for pain-relief medication, MARIJUANA COLA and KO KANE for beverages) because it is scandalous to “inappropriately glamoriz[e] drug abuse.” [citations]. But at the same time, the PTO registered marks with such sayings as D.A.R.E. TO RESIST DRUGS AND VIOLENCE and SAY NO TO DRUGS—REALITY IS THE BEST TRIP IN LIFE. [citations]. Similarly, the PTO disapproved registration for the mark BONG HITS 4 JESUS because it “suggests that people should engage in an illegal activity [in connection with]worship” and because “Christians would be morally out-raged by a statement that connects Jesus Christ with illegal drug use.” [citation].

Iancu v. Brunetti, No. 18-302 (U.S. Jun. 24, 2019), Slip. Op. at pp. 6–7.

That’s cute, but it avoids commenting on the more pressing question for drug-related trademarks: can the PTO deny registration because the applicant’s use in commerce was not lawful. This is not just a question for underground market sales. Many cannabis industry businesses are eager to know the answer. Marijuana and cannabinoids are legal, at least for medical use, in 33 states, 4 of the 5 populated U.S. territories, and the District of Columbia. Although the Controlled Substances Act still lists marijuana and cannabinoids as Schedule I drugs, the Rohrabacher–Farr amendment prohibits the Justice Department from spending appropriated funds prosecuting medical marijuana activity consistent with state law.

Presently, this industry cannot obtain trademarks because the PTO follows a rule refusing to register marks when the use in commerce is unlawful. See, e.g., In Re Pharmacann LLC, 123 U.S.P.Q.2d 1122 (T.T.A.B. 2017 (rejecting application for retail cannabis store), In Re JJ206, LLC, DBA Juju Joints, 120 U.S.P.Q.2d 1568 (T.T.A.B. 2016) (rejecting application for single-use cannabis vape devices), In Re Morgan Brown, 119 U.S.P.Q.2d 1350, *4 (T.T.A.B. 2016 (rejecting application when applicant contemplated selling marijuana and other herbs); see also General Mills, Inc. v. Health Valley Foods, 24 U.S.P.Q.2d 1270, 1274 (T.T.A.B. 1992 (“some unlawful uses are of such a nature (e.g., use of a mark in connection with an illegal drug) that it would be unthinkable to register a mark”).

With the PTO reversed twice in its last two trips to the Supreme Court, one might wonder if success for applicants seeking disparaging or scandalous marks is a good sign for applicants seeking trademark registrations related to the sale of cannabis. As a matter of doctrine, Tam and Brunetti do not lend much support. But two broader trends in Federal Circuit and U.S. Supreme Court cases may help cannabis business applicants.

First, as was evident in the oral argument and written opinion in Brunetti, the Justices are not happy with the PTO’s inconsistent application of restrictions on trademarks. Even if the case turns on a different question of law, skepticism toward the government is an advantage for the challenger.

Second, the trend in statutory interpretation over the past few decades has been to focus on text over purpose, and the PTO’s position is vulnerable to a challenge based on the text of the statute. The relevant section of the Lanham Act permits registration of marks based on “use in commerce,” which the PTO interprets to mean “lawful use in commerce.” But the term lawful does not appear in that section, and other sections do specifically include and refer to “lawful use in commerce.” If Congress meant to constrain registrations to lawful use in commerce, it could have done so. Instead it referred just to use in commerce. The relevant statute, 15 U.S.C. § 1127 says that “commerce” means what may lawfully be regulated by Congress. There is no doubt that Congress can regulate marijuana. Gonzales v. Raich, 545 U.S. 1 (2005) (concluding that marijuana is subject to federal regulation).

Wait — could Congress have really meant for the Lanham Act to allow registration for marks used unlawfully in commerce like illegal drugs? If that sounds like a tough sell, then it might be time for a challenger to look for a better vehicle. How about a more ordinary legal drug or dietary supplement?

That case came before the Ninth Circuit Court of Appeals in the case of CreAgri, Inc. v. USANA Health Sciences, Inc., 474 F.3d 626 (9th Cir. 2007). The District Court had cancelled CreAgri’s mark OLIVENOL on the grounds that because of improper labeling of the dietary supplement, CreAgri had not used the mark lawfully in commerce. The Ninth Circuit affirmed, and CredAgri did not seek review by the Supreme Court. Perhaps it should have. The result seems harsh: cancellation of a trademark based on a labeling violation requiring no wrongful intent.

Taking a commercial cannabis trademark case to the Supreme Court may seem unreasonably risky. But finding a case like CreAgri and making it into a test case — that might give the Supreme Court the opportunity to reverse the PTO for a third time after THE SLANTS and FUCT, checking the boxes for all three of sex, drugs, and rock ‘n’ roll.

How to Choose the Right Attorney For Your Cannabis Industry Legal Issue

By Hannah Stitt

California’s cannabis industry leapt further into the realm of legitimacy via the recent enactment of Section 1550.5(b) of the Civil Code and Section 956(b) of the Evidence Code: “commercial activity relating to medicinal . . . or adult-use cannabis conducted in compliance with California law . . . shall be deemed . . . [the] lawful object of a contract” (Cal. Civ. Code § 1550.5(b)), and the “exception to [attorney-client privilege] . . . shall not apply to legal services rendered in compliance with state and local laws on medicinal cannabis or adult-use cannabis . . . provided the lawyer also advises the client on conflicts with respect to federal law” (Cal. Evid. Code § 956(b)).

Received quietly by both the industry and the media, the passage of these laws means big changes for California’s cannabis industry: suddenly all contracts, including those for insurance policies, money lending, commercial leases and attorney services, are enforceable in California state courts! While leaders must continue to push the envelope for greater legal protections for the burgeoning cannabis industry in other states, California’s industries may now utilize legal services in the same manner as has traditionally benefited business people in other American industries.

“But, how does an entrepreneur with new access to the legal services industry know who to rely on?”

It can be very difficult to find high quality and cost-effective legal services — and people rarely have heaps of time to spend calling all their loose connections for a stellar legal referral, or assessing the validity of each and every review posted by a stranger with an internet connection. No matter whether your legal predicament demands immediate attention and you need to select a lawyer quickly, or if you have the luxury of thoroughly searching for the perfect representative, follow these practical steps to find a capable attorney to work for you.

DESCRIBE YOUR LEGAL ISSUE

First, write down the key aspects of your legal dilemma. Have you been charged with a crime, or do you anticipate that you will be? Do you require analysis of a demand letter that your business received from a landlord, or competitor? Are you looking to incorporate your business, or obtain corporate governance documents like an intellectual property assignment from an employee, or internal data privacy policy for handling client’s personal, financial or medical information? Making a list of the important facts of your situation, and any next-steps that you think may be required or recommended, will help you identify which general category of legal services you require. Armed with this information, it will be easier to select the right attorney for you.

Legal services fall into three broad categories: criminal defense, civil litigation, and transactions. Attorneys practicing criminal defense will be able to help you fight charges or cleanup a criminal record. Civil litigators assist individuals and businesses in dispute resolution, and may represent either the plaintiff or defendant in court. Unlike criminal defense attorneys and civil litigators, transactional attorneys do not spend much, if any, time in the courtroom. Transactional attorneys, sometimes called corporate attorneys, are often called upon to incorporate entities, facilitate investment or mergers & acquisitions, and create corporate governance documents such as bylaws, operating agreements, intellectual property licensing agreements and data privacy policies. Many attorneys have experience or expertise in multiple categories, but generally, will only offer services in one.

CONSULT YOUR NETWORK OR CONDUCT ONLINE RESEARCH

Contacting an attorney referred through your personal or professional network is the best way to ensure that you select a trustworthy, knowledgeable and zealous legal advocate. This is because someone that you already know (and hopefully trust and respect) has already done the leg-work of vetting the legal advocate for their skill, customer service, and overall value. However, our networks may be limited to certain industry spheres or experiences making reliance on our existing contacts a fruitless endeavor. When that is the case, online research frequently generates good candidates.

SELECT AN ATTORNEY WITH THE APPROPRIATE EXPERTISE

Many firms have websites showcasing accomplishments and describing their services. Some even publish blogs regarding important news about the industries they serve, and describing how to troubleshoot issues that frequently arise for their clients. Once you have narrowed down options based on practice area, assess whether the attorney or firm is local, shares your values, and has experience working on your issue and with clients in your industry.

“It is best to select an attorney working in the same geographic region where your business is located because laws and regulations, including the rules of civil litigation, may be geographically specific.”

Working with a local attorney also provides you with increased physical access to your attorney, facilitating effective communication and a better experience for you. Next, read through the website to get a feel for whether the firm shares your values. Many law firms share their mission, business philosophy and story on their website. This information should help you determine whether you will work well with the firm. For example: If your cannabis business has been sued by a former employee for being passed over on promotion, then its probably not a good idea to hire a firm that exclusively represents plaintiffs (i.e., disgruntled employees) or whose largest clients have interests adverse to yours.

Also pay attention to the types of services prominently featured, and the firm’s clients. Oftentimes, work history and specializations are contained in an attorney’s biography.

“Be critical: if a firm advertises that it litigates product liability matters but all of its advertised “successes” from the last five years relate to forming wills & trusts or prosecuting trademark infringement, then it may not be the appropriate firm for your needs.”

Last, if your industry is heavily regulated or subject to constraints like a lack of access to banking, then select an attorney who has provided services to others like you.

For example, an attorney who has been providing transactional services for decades to technology startups and businesses in San Francisco, California may automatically advise all clients to incorporate their businesses in Delaware. They may even include a choice of forum clause, requiring disputes to be resolved in Delaware. This attorney would likely provide you with excellent corporate governance documents, but if the attorney relied on the norm for incorporating a technology business (i.e., in Delaware), that would subject your California recreational cannabis business to jurisdiction in Delaware (a state without a legal recreational cannabis market). Even worse, incorporating in Delaware would likely prevent you and your California recreational cannabis business from asserting a compliance defense to any federal investigators should the come knocking.

Ultimately, this last step may be the most important factor to consider when selecting an attorney and may even motivate you to choose a firm that is not local to you.

USE SOCIAL MEDIA TO CROSS-REFERENCE THE FIRM’S REPUTATION

Search for the firm’s profile on your preferred crowd-sourcing website to learn about prior customers’ experiences (ex: Google Reviews, Angie’s List or Yelp). Their profile may also contain information about the costs of securing the firm’s services, and how efficient they are with client funds. If the company has high ratings after hundreds of testimonials, then it’s likely that you will also be satisfied.

After narrowing down the list of potential firms based on practice area, location, values, customer reviews and experience with your industry, call to request a consultation. It’s common practice for a paralegal to screen any potential clients. Use your written description of the issue to provide the firm with an idea of your needs. From there, the next step is usually a 30-minute free consultation with an attorney who will then decide whether the firm is capable of helping you.

FINAL THOUGHTS

Not all attorneys will take on a cannabis industry client due to a variety of practical, professional, and personal reasons. Cannabis industry business people are well advised to seek out an attorney or law firm with a demonstrated history of representing cannabis industry clients, and with subject area expertise related to the specific legal dispute or question you identified.

 

Continuing Education of the Board

In February, Katy attended the Executive Education course “Boards that Lead” at Wharton School of Business at the University of Pennsylvania. The course was a two day intensive, attended by over 50 industry leaders from at least 12 different countries.

With so much of Katy’s practice focusing on what corporate boards cannot do (mostly from a breach of fiduciary duty standpoint), it was a refreshing exercise to think about what corporate boards should do. This perspective will gift Katy new foresight and strategies on governing the board as President of the National Cannabis Bar Association.

She looks forward to distilling her knowledge towards a new presentation  at cannabis industry conferences nationwide and for the benefit of all her corporate clients.

The Masterpiece Cakeshop Case Is Not an Invitation to Discriminate

Author: Sean B. Gentry

Yes, as the media widely reported, the U.S. Supreme Court sided with the baker in the case about a Colorado cake maker turning away business from a same-sex couple after he told them that he did not design custom cakes for gay couples.  However, rather than making a significant nation-wide ruling, the Court simply held that the Colorado Civil Rights Commission’s consideration of the baker’s case was “compromised” and it had treated him unfairly.  Thus, the ruling in no way opened the door to discrimination for businesses against any persons with protected, immutable characteristics.

In fact, Justice Kennedy wrote that it is “unexceptional” that Colorado law “can protect gay persons in acquiring products and services on the same terms and conditions that are offered to other members of the public.”  The problem was that the Commission did not apply the law “in a manner that is neutral toward religion.”Read More >

Employer Arbitration Clauses Can Waive Class Action Claim

Author: Sean B. Gentry

The U.S. Supreme Court recently ruled that employers can use arbitration clauses in employment contracts to limit their employees’ right to file or participate in class actions lawsuits on wage and hour claims. Employers can require their employees to pursue most types of employment claims in arbitration instead of court and can prevent employees from banding together to more efficiently litigate their claims as a group. For employers that have been waiting to see how the law settled on this matter, or that have been wondering about the validity of arbitration agreements already in place with their employees, it is now clear that these agreements will be enforced as long as they meet certain standards of fairness.

This case, entitled Epic Systems Corp. v. Lewis, resolved a number of conflicting Circuit Court opinions on this issue that stemmed from the National Labor Relations Board decision 2012 in D.R. Horton, Inc., which found that individual employment arbitration agreements were incompatible with the collection rights of employee under the National Labor Relations Act and that the NLRA was not preempted by the Federal Arbitration Act. However, a 5-4 majority of the Supreme Court disagreed with that finding and instead held that the FAA preempted the NLRA.

Read More >

Changes to the Prop 65 Warnings are Due in August- Does it Apply to You?

Author: Wendy Hillger

Proposition 65 requires the State of California to maintain a list of chemicals that can cause cancer, birth defects or other reproductive harm.   These warnings apply to landlords, business owners, bars/restaurants, and other retailers.  Businesses with 10 or more employees that expose individuals to listed chemicals through their products or operations generally must provide warnings.  At present, approximately 900 chemicals are required to be disclosed, such as additives or ingredients in pesticides, common household products, food, drugs, dyes, or solvents. Additionally, listed chemicals may also be used in manufacturing and construction, or they may be byproducts of chemical processes, such as motor vehicle exhaust.  These chemicals can be in the products that Californians purchase, in their homes or workplaces, or that are released into the environment.Read More >

Attention (Again) California Restaurant Employers: Congress Changes the Tip Pool Rules

Author: Sean Gentry

Earlier in the year, we reported that the Department of Labor was proposing to rescind prior Federal restrictions on tip-pool arrangements, and that we expect a related decision from the U.S. Supreme Court on those rules.

In a somewhat unexpected turn, Congress decided to directly intervene on the tip-sharing agreements under the Fair Labor Standards Act as a part of a recently-passed spending bill.

Under the new federal law, employers with regularly tipped employees may include a broader group of employees in employer-mandated tip-pool arrangements, including any employees who provide “direct table service” or who are in the “chain of service.”

Read More >

Familial Status Discrimination – Part III: Potential Liability for Landlords

Author: Trina M. Clayton

There has been a marked increase in familial status suits over the past several years, with many more that settle under confidential agreements for monetary damages, making the potential for these claims quite serious.  A landlord found to be in violation of familial status housing laws could incur any number of penalties including:

  • Civil penalties of up to $16,000 for a first violation and $65,000 for future violations;
  • Actual damages to reimburse a tenant or prospective tenant for costs incurred because of the alleged discrimination such as paying for the tenant’s out-of-pocket expenses for finding alternative housing or rent fees associated with alternative housing;
  • Damages to compensate a tenant or prospective tenant who has suffered humiliation, mental anguish or other psychological injuries as a result of the alleged discrimination;
  • Punitive Damages; and
  • Attorney fees

A landlord may also be ordered by the court to take specific action to reverse the alleged discrimination (such as renting to a family which the landlord had initially rejected), and participate in fair housing training.

It is imperative a landlord abide by federal, state and local laws regarding Fair Housing.  For specific legal advice on familial status or other types of housing discrimination, please contact Ad Astra for guidance.