Nonprofit News: Summer 2024 by lcwlegal

Nonprofit News

Heather DeBlanc

Partner | Los Angeles

Marissa Renae Jauregui Summer Associate

Alison Kalinski

Senior Counsel | Los Angeles

Joshua Sarsfield Summer Associate

Casey Williams Partner | San Francisco

volunteers

Four Common Questions About Volunteers At Nonprofits.

Whether you have volunteers helping at your nonprofit several days a week or only for a few days a year, volunteers are an important part of any nonprofit organization. Volunteers also raise unique questions for any nonprofit organization. Here are brief answers to four common questions about volunteers and nonprofits.

What’s the difference between a volunteer and an employee?

The exact definition of a “volunteer” depends on the specific law at issue; however, generally speaking, a volunteer is a person who intends to provide services to a nonprofit for public service, religious, or humanitarian objectives without any expectation of compensation, either monetary compensation or in-kind compensation. They offer their time and services freely and without coercion, direct or implied, from the nonprofit. Conversely, an employee is someone who expects to be paid for the work they provide to a nonprofit, and unlike volunteers, employees are also covered under numerous employment laws, such as the Fair Labor Standards Act, California’s wage and hour laws, California’s sick leave law, worker’s compensation laws, and Title VII of the 1964 Civil Rights Act, to name a few. Volunteers are generally not protected under these laws, though there are some exceptions, were protections are extended to volunteers. For example, the Fair Employment and Housing Act protects volunteers from harassment. (See Government Code section 12940(j) (1).)

Can we still compensate our volunteers with a stipend?

It is understandable that you want to give something to your volunteers to show how much you value and appreciate them and their time. Although a volunteer may receive, for example, reasonable meals, reimbursement for incidental expenses, or nominal nonmonetary benefits, it can be risky to provide stipends or other similar benefits because they could be construed as a substitute for more standard forms of compensation, like hourly wages. For example, providing your volunteers with a T-shirt to wear during a beach clean-up and keep afterward is likely

insufficient to create an expectation of compensation. However, promising volunteers a stipend at the end of their service could, depending on the other circumstances, be construed as a form of compensation, creating an argument that the person is misclassified as a volunteer and, therefore, entitled to all of the protections and benefits of employment laws. Accordingly, before paying volunteers a stipend, it is a good practice to speak with an employment attorney to help you evaluate the risks of your volunteer program design and assess alternative options or modifications to achieve your program objectives.

Can our employees volunteer their time?

It is fantastic to have employees who want to volunteer their free time back to the organization, but employees cannot volunteer to perform services like their normal job duties. However, the employee may donate services that are not the usual services that the employee performs as part of their job. or example, a non-exempt accountant at the organization can volunteer their time to make pancakes for the annual pancake breakfast. However, a non-exempt staff member on the development team employed to solicit donations for the organization should not be allowed to volunteer their time for a weekend phone-a-thon.

Are there special rules for volunteers at youth service organizations?

For youth services organizations, there are additional requirements and background checks for those volunteers. Section 18975 of the California Business and Professions Code, also known as Assembly Bill 506 or AB 506, requires that all regular volunteers of a youth service organization get a background check and complete training in child abuse and neglect identification and reporting. A “youth service organization” is a youth center, youth recreation program, or youth organization. “Regular volunteers” are volunteers who are 18 years or older and who have direct contact with, or supervision of, children for more than 16 hours per month or 32 hours per year through their volunteer work with the youth service organization. These regular volunteers must also complete a background check consistent with Penal Code section 11105.3 that will identify and exclude any persons with a history of child

abuse. Since regular volunteers are based on the number of hours that the volunteer interacts with children, it may be helpful to have all volunteers who are expected to have contact with and supervise children to complete the background check and required training.

These are just a few of the common questions we get about volunteers. There are many others, and nonprofit organizations are encouraged to review and update their volunteer programs regularly to evaluate risks related to misclassification claims and compliance with changing laws and best practices with respect to nonprofits.

Kudos To Our Northern California Super Lawyers & Rising Stars!

Shelline Bennett Rick Bolanos Super Lawyers

Rising Stars

Amy Brandt Yesenia Carrillo

Nathan Jackson

Tony Carvalho Jessica Tam

Gage Dungy

fundraising

Raffles: A Fundraising Guide For California Nonprofits.

Raffles can be an exciting and effective way for nonprofit organizations to raise funds for their causes. However, in California, there are specific legal requirements that must be followed to ensure your raffle is both compliant and successful. This guide will walk you through the process of holding a raffle that adheres to California law while maximizing your fundraising potential.

Step 1: Determining Eligibility

Before planning your raffle, ensure your organization is eligible. Under California Penal Code Section 320.5, your nonprofit must:

1. Be a private, nonprofit organization qualified to do business in California for at least one year prior to conducting the raffle.

2. Have tax-exempt status, such as 501(c)(3), under specific sections of the California Revenue and Taxation Code.

If you are unsure about your eligibility, consult with a legal professional or contact the California Attorney General's office for clarification.

Step 2: Registering Your Raffle1

Once you have confirmed your eligibility, you need to register with the Attorney General's Registry of Charitable Trusts. Here is what you need to do:

1. Complete the Application for Registration (Form CT-NRP-1).

2. Submit the form at least 60 days before your planned raffle date.

3. Include a $30 registration fee with your application.

1 Educational institutions, including nonprofit private schools, are exempt from the raffle registration and reporting requirements under California Penal Code section 320.5(h)(8). This exemption means that such institutions are not required to register with the Attorney General's office or file annual reports for conducting raffles. However, all other raffle regulations outlined in Penal Code section 320.5 still apply.

4. Provide a Franchise Tax Board "entity status letter" confirming your tax-exempt status.

After your application is approved, you will receive a confirmation letter with a raffle permit number. This permit is valid for one year, from September 1 to August 31.

Step 3: Planning Your Raffle

Now that you are registered, it is time to plan your raffle. Remember these key points:

1. Appoint a supervisor who is at least 18 years old.

2. Choose prizes that will attract ticket buyers while keeping costs reasonable.

3. Set your ticket price: Consider your fundraising goal and the value of your prizes when determining ticket prices.

4. Print paper tickets: California law requires paper-based tickets with detachable coupons or stubs.

5. Plan your drawing, which must take place in California.

Step 4: Promoting and Conducting the Raffle

While online ticket sales are prohibited, you can advertise your raffle on the internet. Use your website, social media channels, and email lists to spread the word. Emphasize that the proceeds will benefit a charitable cause!

California law requires that you maintain a detailed record of all sales as you sell tickets. On drawing day:

1. Ensure your designated supervisor is present.

2. Use a transparent method for selecting winners.

3. Document each winner and his or her prize.

Keep records of the raffle’s date, location, total funds received, expenses, and proceeds distribution. Be sure to retain this information for at least one year post-raffle.

Step 5: Distributing and Reporting Funds

California law requires that at least 90% of the gross receipts from ticket sales go towards your charitable purposes. This means you can use up to 10% for raffle expenses and administration costs. Ensure you have a clear plan for how the funds will be used to support your mission. Be sure to file an annual aggregate financial disclosure report (Form CT-NRP-2) for all raffles held during the year by October 1.

Best Practices for Success

To maximize the success of your raffle, implement these best practices throughout the process:

1. Plan well in advance, allowing time for registration, organization, and promotion.

2. Select enticing prizes and think about collaborating with local businesses for donations.

3. Train your ticket sellers thoroughly on raffle rules and your organization’s mission.

4. Do not sell tickets online.

5. Be transparent about how funds will be used and ensure no more than 10% of gross receipts are used for raffle costs.

6. Consider a festive drawing ceremony to engage your community.

7. Express gratitude to all participants and volunteers.

8. File your annual report to maintain eligibility.

9. Conduct a post-raffle evaluation to improve future raffles.

Conclusion

Holding a raffle can be an excellent way to raise funds and engage your community. By following these guidelines, you can ensure your raffle is legal and successful. Remember, compliance with California law is crucial, but it does not have to be a barrier to a fun and effective fundraising event.

If you have any questions about the raffle process or need assistance ensuring compliance, do not hesitate to reach out to our legal team. We are here to help you navigate the complexities of nonprofit law and make your fundraising efforts a resounding success.

grants

Federal Court Determines That Race-Based Grant Program Likely Violates Federal Law.

On June 3, 2024, a Federal Court of Appeals ruled against the Fearless Fund, a venture capital firm with a nonprofit Foundation running a program called the “Strivers Grant Contest,” to provide $20,000 grants to businesses owned by Black women. Specifically, the Court of Appeals ruled that a preliminary injunction halting the program should be imposed pending a full legal challenge to the program’s race-based nature.

The lawsuit was filed last year by the American Alliance for Equal Rights (Alliance), which was also involved in the 2023 Students for Fair Admissions Supreme Court case challenging affirmative action in college admissions. Now, in this Fearless Fund case, the Alliance argues that the Foundation’s contest violates Section 1981 of the 1866 Civil Rights Action, a federal law prohibiting race discrimination in contracting. The grant application contest was open only to businesses that are at least “51% black woman owned,” which the Foundation explains is consistent with its mission to bridge a gap in venture capital funding for women of color founders. The Alliance represents several business owners who wish to participate in Fearless Fund’s contest but are not black women.

When the Alliance initially filed the case, the trial court denied the Alliance’s request for an injunction to prevent the Foundation from operating the program during the pendency of the case. The Alliance appealed that denial, arguing before the Eleventh Circuit Court of Appeals that the Foundation was effectively entering into a contract with the grant recipients based on race, violating Section 1981’s ban on race discrimination in contracting. The Fearless Foundation argued that it was not engaged in contracting, but charitable giving, and that the First Amendment protected the Foundation’s program because the contest is a form of expressive conduct reflecting its commitment to the black women-owned business community.

The Court of Appeals rejected these arguments, holding that the program likely violates Section 1981 and, therefore, the Foundation must pause its program pending a final ruling at the trial court. In reaching that conclusion, the

Court of Appeals first reasoned that the contest was not purely charitable giving, but involved contracting, because it required a winner to give the Foundation the right to use a winner’s name and likeness as a condition for receiving a grant, among other reasons. The Court of Appeals also reasoned that the First Amendment guarantees a right to engage in association to advance beliefs and ideas, but does not protect the act of discriminating based on race. Therefore, the Foundation’s refusal to entertain applications from business owners who are not black females likely violates federal law.

This ruling only applies to whether the court should issue a preliminary injunction during the pendency of the underlying challenge to the case. There is not yet a final ruling. Additionally, the Eleventh Circuit’s rulings are not binding in California and therefore, do not change California law.

However, it is important to take note of this ruling. The court’s reasoning and the ongoing legal challenges to similar race-based programs have potentially farreaching implications. For example, nonprofit scholarship providers, as well as their related educational institutions such as community colleges and private universities, with existing programs with raced-based eligibility criteria, are vulnerable to similar legal challenges, creating a substantial risk of costly litigation to defend existing programs.

Should a binding ruling come down that such programs are unlawful, organizations and institutions operating racebased programs may need to discontinue the programs to comply with the law, creating complex legal implications for existing diversity initiatives. Discontinuing a current program may also affect an organization’s existing legal commitments made to donors to fund such programs. Accordingly, organizations and institutions may want to start looking at how these issues impact their approach to donor relationships, restricted donations, scholarship rules, gift agreements, endowments, and related development activities.

LCW attorneys are closely monitoring further developments in the Fearless Fund case. They are available to discuss these developments with clients seeking to understand the potential implications for their programs or partnerships.

fiduciary

Court Finds Evidence That Board And Head Of School Breached Fiduciary Duties, Subjecting Them To Potentially Millions In Damages.

Science, Language, and Arts International School (SLA) was founded in 2013 by Jennifer Wilkin. SLA was an independent elementary school offering French and Mandarin language immersion education.

On January 13, 2022, SLA filed for Chapter 7 bankruptcy. Soon thereafter, Richard McCord was appointed as the Chapter 7 Trustee. In that role, Mr. McCord investigated and pursued claims and causes of actions on behalf of SLA’s bankruptcy estate.

On August 31, 2022, the Chapter 7 Trustee filed a complaint against several board members of SLA, including Wilkin (as SLA’s executive director and board chair) for breach of fiduciary duty, gross negligence and/or reckless conduct, breach of duty of care, breach of duty of loyalty and obedience, and corporate waste.

In the complaint, the Chapter 7 Trustee alleged the following pattern of conduct by the Board Defendants and Wilkin, which he believed violates the fiduciary duties each member owed to SLA:

• Wilkin breached her fiduciary duty as an officer, executive director, and board chair of SLA by borrowing $200,000 from SLA in the form of an interest-free loan to purchase a summer camp in her name. Wilkin signed the joint written consent for the loan as both the executive director and board chair, in violation of New York non-profit law and Internal Revenue (IRS) regulations. Wilkin did not fully repay the loan and did not pay rent to SLA.

• Wilkin let the SLA lease expire by not paying rent, while committing SLA to new lease obligations beyond its ability to pay. The result was SLA was sued by its landlord for approximately $24.6 million plus interest. In that case, the Court granted the landlord summary judgment for $6.1 million plus 10 percent interest.

• Despite SLA’s landlord having already terminated the lease, Wilkin advised parents that SLA would reopen for the next year and that rumors to the contrary were false. In the process, Wilkin collected almost $900,000 in tuition fees. Deposits were not returned to parents when the School went out of business in August 2021.

• The Board Defendants failed to ensure that SLA was making payroll withholding taxes and unemployment taxes to the IRS on behalf of SLA, resulting in a claim from the IRS against SLA for more than $700,000 and by the New York State Department of Taxation and Finance against SLA for more than $100,000.

• The Board Defendants made financial decisions or allowed Wilkin to make financial decisions, knowing that neither Wilkin nor the Board had accurate data, was relying on faulty financial projections, and which omitted obligations such as repayment of a loan, tax obligations, and never had audits performed on an annual basis. Board Defendants and Wilkin did not comply with SLA’s bylaws, by failing to hold annual elections, failing to file required annual reports, and failing to fill certain required officer positions.

• The Board Defendants and Wilkin did not manage SLA in a prudent manner, breaching their duty of obedience to the School’s mission of maintaining an independent elementary school, and instead permitted the School to be run into the ground by exercising no oversight or due diligence with respect to the reckless and grossly negligent conduct of Wilkin.

The Chapter 7 Trustee asserted claims for relief against the Board Defendants and Wilkin, seeking $27 million in damages arising from their alleged breach of fiduciary duties and gross negligent and/or reckless conduct. The Board Defendants and Wilkin moved to dismiss the complaints against them.

Among their arguments, the Board Defendants and Wilkin contended that they were protected by the business judgment rule. The business judgment rule protects good faith conduct in the honest exercise of business judgment by members of a board of directors, absent claims of fraud, self-dealing, unconscionability, or other misconduct.

duties

Here, the Board Defendants and Wilkin argued that they exerted poor judgment in trusting professionals hired to manage the School’s finances, but that this was nothing worse than ordinary negligence. In response, the Chapter 7 Trustee argued that the business judgment rule requires that a plaintiff show that an officer or director acted fraudulently or in bad faith, lacked disinterested independence, or at least closed their eyes to the corporation’s affairs and completely failed to act. Here, the Chapter 7 Trustee argued, the Board and Wilkin, at the very least, closed their eyes to SLA’s problems and failed to act.

The Court agreed with the Chapter 7 Trustee and found that there was enough evidence alleged by the Chapter 7 Trustee to conclude that the Board Defendants and Wilkin did not act in good faith when discharging their duties. The Court considered four factors in coming to this conclusion: (1) disinterestedness, (2) due care, (3) good faith, and (4) no abuse of discretion or waste of corporate assets.

The Court found that there was enough evidence to support that the Board and Wilkin were not disinterested. As one example, a board member’s law firm represented Wilkin in purchasing the summer camp. The Board and

Wilkin also did not exert due care—for example, there was no treasurer or vice president on the Board and SLA did not timely file taxes or keep accurate financial data entries. The Board and Wilkin also did not act in good faith—for example, improperly borrowing $200,000 from SLA for purchasing the summer camp; agreeing to a non-interest loan in violation of New York law and IRS regulations; the lack of policies to ensure that financial obligations were paid; and wildly inaccurate budget projections. Finally, the Court found that there was enough evidence to suggest Wilkin’s and the Board’s actions amounted to an abuse of discretion. For example, Wilkin and the Board failed to ensure that SLA was paying payroll withholding taxes and failed to ensure that IRS Form 990s were filed, causing SLA to lose its tax-exempt status.

In light of these findings, the Court denied the Board’s and Wilkin’s motions to dismiss.

Note:

This case is an important reminder of the importance of following corporate formalities and for directors and executives of nonprofit organizations that their failure to uphold their fiduciary duties can result in personal liability.

McCord v. Margaret (In re Sci., Language, & Arts Int'l Sch.) (Bankr. E.D.N.Y. May 7, 2024) 2024 Bankr. LEXIS 1074.

hostile Work Environment

Disability-Based Hostile Work Environment Claims Are Viable Under The Americans With Disabilities Act And Rehabilitation Act.

Dr. Andrew Mattioda began working at NASA in 2000. He has a degenerative defect in his hips and a disease of the spine, which causes uneven vertebrae growth and scoliosis. These physical disabilities required Mattioda to purchase premium-class airline tickets for longer flights so he could frequently change positions and stretch.

By 2011, Mattioda had informed NASA about his disabilities and limitations. From 2011-2018, Mattioda alleged he was discriminated against through: his supervisors’ derogatory comments; denial of work opportunities; unwarranted negative job reviews; and resistance to his requests for disability-based accommodations.

In 2011, one supervisor allegedly responded to Mattioda’s request for a premium-class upgrade and asked why Mattioda could not “just tough it out or suck it up and travel coach.” That supervisor allegedly told Mattioda that he felt another scientist was doing all of Mattioda’s work and that he did not respect Mattioda. The supervisor told Mattioda at a NASA holiday party that Mattioda need not get his hopes up for a promotion.

Mattioda alleged that the supervisor expressed those same negative sentiments to other employees, including telling one of Mattioda’s coworkers that he felt Mattioda was lazy and was “using his medical disability issues to avoid work.” The disparaging comments were so pervasive that some

colleagues told Mattioda they viewed the comments as “background noise.”

A supervisor allegedly inhibited Mattioda’s work opportunities by: declining to support Mattioda’s nomination for a promotion while supporting other candidates; failing to authorize a spot for postdoctoral program candidate to support Mattioda’s work; lying to Mattioda that he could not virtually present at a conference; declining to involve Mattioda in projects; and requiring only Mattioda, and none of his other colleagues, to submit an itemized travel request.

Another supervisor allegedly told Mattioda that he would have to use his own grant money to pay for premium-flight ticket upgrades and warned him that he could lose his job if he kept requesting such accommodations. The supervisor also: expressed concerns on Mattioda’s performance reviews that his disability-related travel limitations would impact his career; lowered one of his ratings on that basis; and criticized him for not traveling to the point of questioning whether he was “still committed to being a high-profile scientist at NASA.

Mattioda sued in the federal district court, alleging a hostile work environment claim under the Americans With Disabilities Act (ADA). The district court dismissed the hostile work environment claim, finding that Mattioda had not established a causal link between the alleged harassment and his disabilities.

The Ninth Circuit Court of Appeals held that Mattioda had alleged a sufficient link to warrant a trial. The Court explained that the threat of losing his job if he kept requesting premium-flight tickets as an accommodation was relevant to the hostile work environment claim.

The Court also noted that the district court failed to acknowledge that the alleged series of harassing conduct had occurred after Mattioda’s supervisors were informed of his disabilities. As a result, Mattioda sufficiently established a causal link between the harassing conduct and his disabilities.

Finally, the Court rejected NASA’s argument that the harassment was not sufficiently severe or pervasive to establish a hostile work environment, explaining that Mattioda alleged his supervisors inhibited his work opportunities, repeatedly made harassing and derogatory comments over a period of years, vaguely threated his job, and made insulting comments about his reasonable-accommodation requests and job performance. Taken together, Mattioda’s claims were enough to maintain a plausible hostile work environment claim.

Note:

The Court held that employees may bring disability-based hostile work environment claims under the ADA and the Rehabilitation Act (RA). With this decision, the Ninth Circuit joined other circuit courts that have considered the issue.

v. Nelson (9th Cir. 2024) 2024 US App. Lexis 9641.

Ten Ways to Improve Your Labor Negotiations

September 17, 2024 10:00 a.m. - 11:00 a.m.

Labor negotiations can be a contentious and challenging process which may lead both sides to seek improvements. This training provides guidelines for successful communications and development of constructive and lasting employerunion-employee relationships. We will discuss strategies for streamlining the path toward reaching agreement at the bargaining table, and methods for improving interactions with key players. Two of LCW’s labor negotiations experts will share tips and tricks of the trade to help you master the labor negotiations process. Register here.

Mattioda

wage&Hour

Governor Newsom Signs PAGA Reform Legislation.

On July 1, 2024, Governor Gavin Newsom signed Assembly Bill (AB) 2288 and Senate Bill (SB) 92 to reform the Private Attorneys General Act (PAGA), the California law that allows employees to bring Labor Code violations and penalties against their employers.

The bills encourage employer compliance with the Labor Code and provide employers with tools to reduce damages related to wage and hour violations.

The new changes are not retroactive and apply only to lawsuits arising on or after June 19, 2024.

Below is a high-level summary of the changes:

Reformed Penalty Structure

• Previously, if there was a PAGA violation for a provision in the Labor Code that did not outline a specific penalty amount, the penalty was set at $100 per aggrieved employee per day. Under AB 2288, that penalty is decreased to $50 if the violation results from an isolated, nonrecurring event that was less than 30 consecutive days or four consecutive pay periods.

• For wage statement violations (except incorrect employer name and address), the civil penalty is now reduced to $25 per employee per pay period, provided that the employee could promptly and easily determine from the wage statement alone the accurate, required information. If a wage statement violation is related to an employer name or address, the penalty is $25 per employee per pay period if the employee would not be “confused or misled about the correct identity of their employer.”

• Civil penalties are now capped at 15% of what the employer would otherwise be assessed if the employer takes “all reasonable steps” to comply with the provisions alleged to have been violated prior to receiving notice of a Labor Code violation. “All reasonable steps” may include periodic payroll audits, updated policies, training supervisors on Labor Code compliance, and taking appropriate corrective action with regard to supervisors. Civil penalties are now capped at 30% if the employer takes “all reasonable steps” to come into compliance within 60 days after receiving notice.

• If an employer has taken “all reasonable steps” to come into compliance and cures the Labor Code violation, the employer will not be required to pay any PAGA penalties. If the employer has not taken “all reasonable steps” but has otherwise cured any violations, the penalties are now capped at $15 per pay period.

• The new bills do not allow employees to stack penalties on their employer for certain wage violations that are not willful or intentional if a penalty has already been collected for the same underlying unpaid wage violation.

• Employers that pay on a weekly basis will now receive a 50% reduction in the per-pay-period penalties. This change resolves an issue under the previous law, whereby employers that paid employees more frequently had higher potential penalties since the penalties were based upon the number pay periods.

• There are now higher penalties ($200 per violation) on employers who act maliciously, fraudulently or oppressively in violating labor laws. The $200 penalty also applies if an agency or court, within the last five

years, has found that the employer’s policy or practice that gave rise to the violation is unlawful.

• The new law provides that more of the penalty money goes to employees, by increasing the amount allocated to employees from 25% to 35%.

Efforts to Reduce and Streamline Litigation

• SB 92 provides the process to cure a non-wage statement violation, which includes: paying any unpaid wages going back three years; pay 7 percent interest; provide any liquidated damages required under statute; and cover reasonable attorneys’ fees and costs. For wage statement violations, employers may cure a name and address violation by providing employees the correct information. For any other wage statement violations, the employer must provide three years of corrected wage statements, which can be done digitally in certain cases.

• SB 92 expands which Labor Code sections can be cured. Previously, the following twelve sections were non-curable: Sections 226 (wage statements); 226.7 (meal and rest breaks); 227 (wage withholdings); 227.3 (paying out unused vacation upon termination); 500 (workday and workweek periods); 512 (meal periods); 513 (makeup time); 1194, 1197, and 1197.1 (minimum wage remedies); and 2800 and 2802 (indemnification).

LCW In The News

• SB 92 allows for early evaluation and settlement procedures for curable provisions of the Labor Code. Starting October 1, 2024, a new version of Labor Code section 2699.3 will take effect, which, among other changes, will allow the Labor & Workforce Development Agency to dismiss a wage statement claim if the agency determines that it has been cured.

Injunctive Relief and Standing

• AB 2288 allows courts to provide injunctive relief to compel employers to implement changes in the workplace to remedy labor law violations.

• AB 2288 requires the employee to personally experience the alleged violations within the statute of limitations in order to bring a claim.

More information about the PAGA reform bill can be found here

Note:

Nonprofit organizations should regularly review and audit their wage and hour practices and policies to check for any compliance issues. LCW attorneys are available to assist nonprofit organizations with any questions about the PAGA reform bills and are able to advise on steps nonprofits may want to consider taking in response to the changes in the law.

To view these articles and the most recent attorney-authored articles, please visit: www.lcwlegal.com/ news

• Recently published in NBOA Net Assets, LCW Partner Heather DeBlanc explores legal considerations in land acquisition for independent schools. She advises school leaders to engage legal counsel early to mitigate risks when acquiring real property through donations, purchases, or joint ventures. DeBlanc emphasizes the importance of comprehensive gift acceptance policies, proper due diligence, and clear documentation to ensure compliance and protect school interests.

arbitration

Court Of Appeals Finds USC’s Arbitration Agreement Was

One-Sided And Unfair To Employee.

On July 1, 2022, Pamela Cook filed a complaint against the University of Southern California (USC) alleging that she was subject to disparate treatment by USC based on her race. Cook also alleged that USC failed to accommodate a variety of health-related time-off requests and that she was subject to retaliatory harassment when she reported her concerns. Cook alleged that due to this conduct, she was constructively discharged from her employment.

On October 24, 2022, USC filed a motion to compel all of Cook’s claims to arbitration. USC said that Cook’s employment offer was contingent upon executing an employment and arbitration agreement. Cook electronically signed the agreement on May 7, 2021. USC argued that all of Cook’s claims fell within the scope of the arbitration agreement, which USC said was a mutual arbitration agreement and afforded Cook all of the same rights and remedies that would have been available to her in court.

Cook disagreed. She argued that the agreement was procedurally and substantively unconscionable. Unconscionable terms in an arbitration agreement are not enforceable. Procedural unconscionability occurs when there is oppression or surprise due to the unequal bargaining power between the parties. Substantive unconscionability occurs when there are overly harsh or one-sided results.

Cook argued that the agreement was procedurally unconscionable because she was forced to sign it as a condition of her employment. She argued the agreement was substantively unconscionable because it was for an indefinite scope and covered her claims regardless of whether they related to her employment with USC; the agreement also survived the termination of the employment relationship for an indefinite period.

The trial court denied USC’s motion to compel arbitration. The trial court found the agreement was, to a small degree, procedurally

unconscionable because of the non-negotiable nature of the agreement as a condition of Cook’s employment. The trial court also found the agreement was substantively unconscionable because it was indefinite in scope and duration. The agreement specifically provided that it would survive Cook’s termination and could only be revoked in a writing signed by Cook and the president of USC. It applied to all claims that Cook brought, regardless of whether they arose from her employment. For example, if Cook was the victim of a botched surgery in a USC hospital in 15 years, her claims could be subject to the arbitration agreement.

The trial court also found that the agreement was not mutual—it required Cook to arbitrate her claims against USC and all of USC’s related entities, including officers, trustees, administrators, employees, and agents. Conversely, the agreement only required USC to arbitrate its claims against Cook; it did not require USC’s related entities to arbitrate their claims against Cook. USC appealed.

Usually, both types of unconscionability need to be present for a court to refuse to enforce a contract. However, the two types do not need to be present to the same degree. For example, the more substantively oppressive the contract is, the less evidence of procedural unconscionability is required to conclude the contract is unenforceable.

The trial court found a low degree of procedural unconscionability, which the parties did not dispute on appeal. In terms of the substantive unconscionability, the trial court found the agreement was unconscionable for the following reasons: (1) the broad scope of the agreement; (2) the infinite duration; and (3) the lack of mutuality. The Court of Appeals considered the trial court’s reasoning on appeal and agreed with the trial court’s findings on all three accounts. The Court of Appeals found the agreement was overly broad—it applied to claims totally unrelated to Cook’s employment with USC. The Court of Appeals reasoned that USC could have limited the terms to only claims that arose out of or related to her employment or termination, but chose not to.

The Court of Appeals likewise found the duration was unconscionable because it survived indefinitely following Cook’s termination. The plain language of the agreement stated that the contract would survive unless and until Cook and USC terminated the agreement in a writing, signed by both parties.

Finally, the Court of Appeals agreed that the agreement lacked mutuality. The plain language of the agreement provided a significant benefit to USC’s related entities, without any reciprocal benefit to Cook. The Court of Appeals found that USC gave no justification for this one-sided treatment. Therefore, the Court of Appeals upheld the trial court’s ruling that the arbitration agreement was unconscionable.

Note:

This case is relevant for nonprofit organizations that use arbitration agreements in their employment contracts. An overly broad arbitration agreement may not be enforceable and nonprofits should consult with LCW to ensure their arbitration agreements are properly drafted.

Cook v. University of Southern California (May 24, 2024) 102 Cal.App.5th 312.

Train the Trainer Program

Become a Certified Harassment Prevention Trainer for

your Organization!

LCW Train the Trainer sessions will provide you with the necessary training tools to conduct the mandatory AB 1825, SB 1343, AB 2053, and AB 1661 training at your organization.

California Law requires employers to provide harassment prevention training to all employees. Every two years, supervisors must participate in a 2-hour course, and non-supervisors must participate in a 1-hour course.

QUICK FACTS:

Trainers will become certified to train both supervisors and non-supervisors at/for their organization.

Attendees receive updated training materials for 2 years.

Pricing: $2,000 per person. ($1,800 for ERC members).

To learn more about our program, please visit our website below or contact Anna Sanzone-Ortiz 310.981.2051 or asanzone-ortiz@lcwlegal.com.

https://www.lcwlegal.com/harassment-prevention-training-services/

workplace safety

Cal/OSHA Likely To Adopt New Fed OSHA Rule Regarding Employee Representative Participation At Workplace Inspections.

On April 1, 2024, the federal Occupational Safety and Health Administration (OSHA) issued a rule that made two changes to the procedures a Compliance Safety and Health Officers must follow when conducting a workplace inspection. First, the rule clarifies that the employee representatives who are present and participating during an OSHA inspection may either be an employee or a third party (e.g., union representative). Second, the rule clarifies that a third-party representative need not have skills in industrial hygiene or safety engineering, but may have a variety of other skills, knowledge, or experience which give the compliance officer good cause to believe the representative could aid in the federal OSHA inspection. Those other skills could include experience with particular workplace hazards or language / communication skills.

The federal OSHA directive also states that “State Plans” are required to adopt regulations that are identical to or at least as effective as this rule, unless the state can demonstrate that such changes are not necessary because their existing requirements are already at least as effective in protecting workers as the federal rule. If a state does not participate in the federal OSHA program, that state can implement a separate state program that addresses workplace safety (State Plan). California is one of several states that has enacted its own State Plan.

California’s State Plan does not discuss the procedures for an OSHA workplace inspection. However, the Division of Occupational Safety and Health of California (DOSH) publishes a Policies and Procedures Manual (Manual) which contains guidelines for conducting a workplace inspection. The Manual indicates that if there is an authorized employee bargaining unit representative for the worksite, the compliance personnel “must make every effort to invite the representative to participate” in the workplace inspection. The Manual further states that if there is no authorized employee bargaining unit representative, the compliance personnel “must consult with a reasonable number of the employer’s employees concerning matters of workplace safety and health.”

The rules in the DOSH Manual do not address: 1) whether the employee’s representative in a workplace inspection can be a third party; or 2) what type of skills the third-party representative of the employee can have. Thus, California’s State Plan arguably does not have regulations that are similar to or “at least as effective” as the new OSHA rule.

Within six months of the April 1, 2024, OSHA’s final rule (October 1, 2024), California is required to adopt a revised regulation that is identical to or at least as effective as the OSHA final rule. For California employers, this would likely mean that during DOSH-conducted workplace inspections, employees could be represented by an individual who does not work for the employer, such as a union representative.

business & Facilities

Mechanics Liens Might Not Require Strict Statutory Compliance To Be Enforced.

If a person is not paid for work they provide on a property, they have the right to make a claim for unpaid amounts by filing a mechanics lien against that property. For a mechanics lien to be enforceable, the claimant must follow statutorily required notice and other requirements. In an unpublished case, however, a California court of appeal upheld a subcontractor’s mechanics lien claim even though the subcontractor failed to strictly follow those procedural requirements.

In Ram Concrete Construction, Inc. v. Montecito Realty Group L.P., Ram Concrete Construction (Ram) had a contract with a general contractor, Everspring, to perform concrete foundational work for a project on property owned by Montecito Realty Group (Montecito). Ram alleged that Everspring failed to pay it over half a million dollars for its work on the project, and filed a mechanics lien on the property. Ram proceeded to file a complaint to foreclose on that mechanics lien on Montecito’s property.

At trial, the court found that Everspring had breached the contract and Ram could foreclose on its mechanics lien, even though Ram had failed to serve the construction lender for the project with a preliminary notice of mechanics lien as required in the Civil Code.

On appeal, Montecito argued that Ram was required to strictly comply with the mechanics lien statutory requirements and that Ram could not foreclose on the mechanics because it did not serve the preliminary notice on the construction lender.

The court found that, although Ram did not strictly comply with the mechanics lien requirements, the project owner Montecito was not prejudiced by Ram’s failure to send the construction letter a preliminary notice. Strictly construing the mechanics lien notice requirements would require the court to invalidate an otherwise valid lien against an owner who did receive notice simply because a third party did not receive this notice.

This case is significant because the court upheld the mechanics lien even though the claimant failed to strictly comply with statutory requirements. Project owners may therefore lose legal support for arguments that a mechanics lien is invalid because the claimant failed to comply with the statutory filing and notice requirements.

Nonprofit organizations should take caution when engaging in construction projects to ensure their contractors act in a manner to avoid filing and foreclosures of mechanics liens on the organization’s property. Ways to avoid mechanics liens include selecting trusted contractors, utilizing construction contracts with clear payment terms and schedules, and paying close attention to the project. If a claimant does file a mechanics lien, in addition to asking the contractor to have the lien released, nonprofit organizations should still confirm if the claimant complied with the statutory filing and notice requirements for mechanics’ liens, as other courts might still find that strict compliance is required.

Ram Concrete Construction, Inc. v. Montecito Realty Group L.P., No. H050865, 2024 Cal. App. Unpub. LEXIS 2690, at *8 (Apr. 30, 2024).

Liebert Cassidy Whitmore

Nonprofit Training Consortium

There are many benefits to obtaining quality training for your administrators and employees. Our workshops will help you reduce your exposure to liability and are designed to provide your organization with the tools it needs to avoid costly litigation. Plus our training cultivates an atmosphere of respect and harmony among employees and the public.

Our California Nonprofit Training Consortium is a group is comprised of nonprofit organizations throughout California.

Members receive:

• Three webinar workshops throughout the course of the year.

• Recordings of the workshops that you may access and share internally for three months.

• Access to our Liebert Library, which provides resources specifically geared towards California’s nonprofit organizations.

• A copy of our quarterly newsletter, NonprofitNews.

• Twelve (12) hours of complimentary telephone consultation per year.

• The ability to attend other consortium workshops at no additional charge (space permitting).

• Discounts on other LCW sponsored webinars and events.

Our attorneys at Liebert Cassidy Whitmore (LCW) present the training and telephone consultation. As you may know, LCW is a full service law firm dedicated to the representation of mission driven organizations throughout California. We have offices in San Francisco, Los Angeles, Fresno, Sacramento and San Diego and have more than 100 attorneys on staff. Pioneers in preventive education, annually we conduct over 800 training presentations throughout the state on a variety of law issues. In addition to our Consortiums, Liebert Cassidy Whitmore also offers customized programs on various topics. Customized training includes the incorporation of your policies and procedures, as well as an original set of materials for your reproduction.

If you are interested in pursuing training with us, please do not hesitate to contact Francesca Savellano at (310) 981-2054 or at fsavellano@lcwlegal.com.