On May 21, 2018, the U.S. Supreme Court upheld the enforceability of individual arbitration agreements containing class or collective action waivers within the employment context. In other words, the Federal Arbitration Act (“FAA”) allows an employer to require its employees to resolve disputes individually in arbitration, and neither the FAA’s savings clause, nor the prohibition in the National Labor Relations Act (“NLRA”) against interfering with concerted activities, requires otherwise.

The Court’s 5-4 decision in Epic Systems Corporation v. Lewis(2018 WL 2292444) resolved a split among the lower courts arising from three separate pending cases: Epic Systems Corporation v. Lewis(7thCir., No. 16-2850), Ernst & Young LLP, et al. v. Morris(9thCir., NO. 16-300) and National Labor Relations Board v. Murphy Oil USA, Inc., et al.(5thCir., No. 16–307). All three cases involved a contract that provided for individualized arbitration to resolve employment disputes. However, the respective employees each attempted to pursue Fair Labor Standards Act (“FLSA”) and related state law claims through federal class action litigation. 

The Issue
The majority framed the issue as follows:
“Should employees and employers be allowed to agree that any disputes between them will be resolved through one-on-one arbitration? Or should employees always be permitted to bring their claims in class or collective actions, no matter what they agreed with their employers?”

The employees argued that, while the FAA generally requires courts to enforce arbitration agreements as written, the FAA’s “saving clause” would not require this if the arbitration agreement itself violated other federal law. In this case, the employees alleged that the requirement for individualized proceedings violated the NLRA’s prohibition against interfering with concerted activities. The Court disagreed on both counts.

FAA Savings Clause
In enacting the FAA, the Court noted that Congress directed courts to treat arbitration agreements as “valid, irrevocable, and enforceable.” The Court also acknowledged that the FAA establishes “a liberal federal policy favoring arbitration agreements.” Taking it a step further, the Court stated:

Indeed, we have often observed that the Arbitration Act requires courts “rigorously” to “enforce arbitration agreements according to their terms, including terms that specify with whomthe parties choose to arbitrate their disputes and the rules under which that arbitration will be conducted.” American Express Co. v. Italian Colors Restaurant,570 U.S. 228, 233, 133 S.Ct. 2304, 186 L.Ed.2d 417 (2013) (some emphasis added; citations, internal quotation marks, and brackets omitted).

The savings clause allows courts to refuse to enforce arbitration agreements “upon such grounds as exist at law or in equity for the revocation of any contract.” In this case, the allegation is that a requirement for individual arbitration in the employment context violates the NLRA’s protections.

However, the Court pointed out that the savings clause allows arbitration agreements to be invalidated by “generally applicable contract defenses, such as fraud, duress, or unconscionability” and not by defenses that arise solely because an arbitration agreement is at issue. The employees in the cases at issue did not allege fraud, duress or unconscionability, which would invalidate any contract, but challenged the legality of requiring individual arbitration in lieu of class actions under the NLRA. While illegality may be a generally applicable contract defense, “an argument that a contract is unenforceable just because it requires bilateral arbitration is a different creature.” It would impermissibly disfavor arbitration, in direct conflict with Congress’ liberal policy favoring arbitration agreements.

NLRA Concerted Activities
The employees further argued that, even if the FAA requires the Court to enforce such arbitration agreements, the NLRA still requires them to be found unlawful.
When considering two Acts of Congress that appear to touch on the same subject, the Court noted that it does not have the authority to pick and choose, and must instead strive to reconcile them. The NLRA guarantees employees the right to organize, form unions and bargain collectively. It also guarantees them the right, “to engage in other concerted activitiesfor the purpose of collective bargaining or other mutual aid or protection.” It does not specify how legal disputes or arbitration proceedings must be handled. Furthermore, both the FAA and the NLRA have been the law for decades but they have not historically been viewed as being in conflict with one another. The NLRA was never interpreted to invoke a right to class actions until the National Labor Relations Board did so in 2012.

The employees argued that the language of the NLRA should be interpreted to demonstrate a clear congressional intent to displace the FAA and prohibit the agreements at issue but the Court declined to do so, finding that the NLRA focuses on the right to organize unions and bargain collectively. It permits unions to bargain against arbitration, but it does not itself take a position on arbitration or mention any right to class or collective actions. When read in context, the phrase “other concerted activities” is intended to protect employees’ activities in furtherance of organizing, forming, joining or assisting labor organizations.
​
What Credit Unions Need to Know
Key to the enforcement of any arbitration agreement is to ensure that it is clearly and fully communicated to all parties. Whether in the employment context as in the present case, in a vendor agreement, or in a consumer financial services contract, credit unions are encouraged to work with legal counsel to determine when and whether arbitration is the best approach and to craft appropriate language.

On April 20, 2018, the Bureau of Consumer Financial Protection (CFPB) assessed a $1 billion penalty against Wells Fargo Bank as a result of: (1) unfairly failing to follow the mortgage-interest-rate-lock process it explained to some prospective borrowers; and (2) operating its force-placed insurance program in an unfair manner. According to the consent order, issued in coordination with the Office of the Comptroller of the Currency (OCC), the $1 billion owed to the CFPB would be reduced by $500 million upon Wells Fargo’s payment of that same amount to the OCC to satisfy penalties assessed by that agency for related conduct. This record-breaking penalty comes in the wake of a $100 million penalty issued by the CFPB against Wells Fargo in September 2016 stemming from its widespread practice of opening deposit and credit card accounts for consumers without their authorization in order to meet sales targets and earn compensation incentives.

While a consent order is not binding on other institutions, it can provide valuable insight into what the CFPB perceives as unfair, deceptive or abusive acts or practices.

Mortgage Interest Rate-Lock Fees
The first part of the consent order addresses a mortgage interest rate lock policy in effect from September 16, 2013 through February 28, 2017. The policy provided that, whenever a mortgage loan didn’t close within its initial interest-rate-lock period, and the borrower chose to extend the interest-rate-lock period, an extension fee could be charged to the borrower if the primary cause of the delay was attributable to the borrower or related to the property itself. If, however, the primary cause of the delay were attributable to Wells Fargo, the extension fee would not be charged to the borrower and instead absorbed by the lender.

Wells Fargo loan officers were trained to inform prospective borrowers that they would be responsible for paying the extension fee when the delay was caused by the borrower (e.g., failure to timely return necessary documentation, disputing a low appraisal) or related to the property itself (e.g., uncovering previously undisclosed liens, seller or builder delays, failure of a condo project or co-op board to timely approve the sale, borrower’s credit score changes).

Almost immediately after the policy was implemented in 2013, Wells Fargo acknowledged that employees were provided insufficient guidance. While it informed loan officers that extension fees would be charged based on the factor primarily responsible for the delay, it provided no other guidance. An internal investigation and loan reviews revealed that the inconsistent application of this policy resulted in certain borrowers being charged extension fees that should have been absorbed by Wells Fargo. The policy was changed in 2017 to address these concerns.

Force-Placed Automobile Insurance
Wells Fargo auto loan agreements typically require the borrower to maintain adequate insurance to cover physical damage to the vehicle. Failure to do so would authorize the lender to protect itself by acquiring force-placed insurance and charge it to the borrower.

Wells Fargo contracted with a third party vendor to monitor its borrowers’ insurance coverage using information obtained from insurance companies and data aggregators. Under the vendor agreement, if unable to verify coverage, the vendor was required to attempt to communicate with the borrower both by written notice and by phone, as well as call the borrower’s previous insurance agent or insurance carrier to request evidence of insurance. If these efforts failed, Wells Fargo would proceed with acquiring force-placed insurance coverage.

Wells Fargo’s records revealed that, of the roughly 2 million borrowers for whom force-placed insurance was obtained, hundreds of thousands of those borrowers were given duplicative or unnecessary insurance. In some cases, properly obtained forced-place insurance was maintained on the accounts long after the borrowers obtained and provided proof of their own insurance. Failure to pay the force-placed insurance charges could result in the assessment of additional fees, delinquency, default, and repossession.

While a process existed to cancel force-placed insurance if the borrower presented evidence of insurance, the CFPB noted that Wells Fargo did not sufficiently monitor its vendor and internal processes, and failed to provide information to its vendor that could have allowed it to be more effective. There was no process in place to evaluate whether a refund of fees was appropriate or to review and respond to borrower complaints. Refunds only covered interest charged for flat cancels (i.e., borrowers who never had a lapse in required coverage), while other fees and charges (e.g., repossession fees, late fees, deferral fees, NSF fees) were often not refunded. Despite the vendor providing regular information about the high rate of force-placed insurance cancellations and information (e.g., roughly 28% of force-placed policies since 2005 were canceled as a result of duplication), Wells Fargo failed to address the problem. The available information should have raised concerns that the lender and vendor processes were insufficient.

Wells Fargo acknowledged that, between 2011 and 2016, the additional cost of forced-place insurance could have contributed to a default resulting in repossession for at least 27,000 borrowers.

Unfair, Deceptive or Abusive Acts and Practices (UDAAP)
Under 12 U.S.C. § 5531 (commonly referred to as the UDAAP provision), the CFPB is authorized to take action to prevent a covered person from “committing or engaging in an unfair, deceptive, or abusive act or practice under Federal law in connection with any transaction with a consumer for a consumer financial product or service, or the offering of a consumer financial product or service.” An “unfair” act or practice is defined under §5531(c) as one that is “likely to cause substantial injury to consumers which is not reasonably avoidable by consumers” and “such substantial injury is not outweighed by countervailing benefits to consumers or to competition.”
The CFPB determined that Wells Fargo’s conduct in connection with the administration of its rate-lock policy caused and was likely to cause substantial injury to consumers. In addition, Wells Fargo’s conduct in requiring consumers to pay for force-placed insurance premiums and interest they should not have owed, incur fees, and in some cases face default and repossession of their vehicles, caused or was likely to cause substantial injuries to consumers. In both cases, the CFPB found that these injuries were not reasonably avoidable by consumers and were not outweighed by countervailing benefits to consumers or to competition. 

Considerations for Credit Unions
In addition to civil monetary penalties, the consent order requires Wells Fargo to create a remediation plan for harmed consumers and take specified steps to strengthen its risk management and compliance management processes. All plans must all be submitted to the lender’s board for review. A culture of compliance must be organization-wide.
​
It is important to note that, in the case of rate-lock extension fees, the finding of unfairness was not in the policy itself but rather in the failure of the organization to adequately train staff and ensure that the policy was properly and consistently implemented. A policy is only as effective as those who carry it out. With regard to forced-place insurance, the failure was in both the lack of adequate controls as well as the lack of oversight by those to whom information was provided. While vendors can provide valuable expertise, the organization remains responsible to ensure that policies and procedures are compliant and effectively carried out.

On April 9, 2018, an en banc panel of the Ninth Circuit Court of Appeals held in Rizo v. Yovivno[i]that “prior salary alone or in combination with other factors cannot justify a wage differential” under the Equal Pay Act. The Court found that allowing an employer to rely on prior salary would essentially allow an employer to justify a sex-based salary differential by using the very sex-based salary differential the Equal Pay Act was intended to address.
​
Equal Pay Act
The federal Equal Pay Act[ii]prohibits employers from discriminating on the basis of sex by paying wages to employees at a rate less than what is paid to employees of the opposite sex doing equal work on jobs requiring equal skill, effort, and responsibility, and performed under similar working conditions. The statute includes exceptions for payments based on: (i) a seniority system; (ii) a merit system; (iii) a system that measures earnings by quantity or quality of production; or (iv) a differential based on any other factor other than sex. It is this last catchall exception in subsection (iv) that the Court is tasked with interpreting in the present case.

Rizo v. Yovivno
The plaintiff was hired by the Fresno County Office of Education as a math consultant. Her initial salary was determined in accordance with an established procedure that added 5% to her prior salary and then placed her on the corresponding step of a 10-step salary structure. Prior experience was not a factor, and plaintiff was hired at salary step 1. A few years later, she discovered that her male colleagues were hired as math consultants at higher initial salary steps, which the County defended by citing its use of the established procedure. 

In her complaint, plaintiff alleged violation of the Equal Pay Act, sex discrimination under both Title VII and the California Fair Employment and Housing Act (“FEHA”), and failure to prevent discrimination under FEHA. The County moved for summary judgment. While the County did not dispute that plaintiff was paid less than her male colleagues for the same work, it contended that the differential was based on her prior salary – a permissible “factor other than sex” under the Equal Pay Act statutory exceptions. The district court denied summary judgment, finding the County’s salary procedure in conflict with the Equal Pay Act because “a pay structure based exclusively on prior wages is so inherently fraught with the risk—indeed, here, the virtual certainty—that it will perpetuate a discriminatory wage disparity between men and women that it cannot stand.”[iii]Because denying summary judgment for the County essentially resolved the matter in favor of the plaintiff, the Court certified the legal question for interlocutory appeal.
A three-judge panel of the Ninth Circuit vacated the summary judgment denial and remanded, concluding that Kouba v. Allstate Insurance Co.[iv]was the controlling precedent and that prior salary alone could constitute a “factor other than sex” under the Equal Pay Act, as long as use of that factor “was reasonable and effectuated some business policy.” 
The Ninth Circuit en banc has now overruled Kouba.

In reversing the decision of the three-judge panel, the Ninth Circuit concluded that the catchall exception for “any other factor other than sex” was limited to “legitimate, job-related factors such as a prospective employee’s experience, educational background, ability, or prior job performance.” In interpreting the relevant provision, the Court looked to the purpose and legislative history of the Equal Pay Act – to eliminate endemic sex-based wage disparities. It noted that, at the time the Equal Pay Act was enacted, “an employee’s prior pay would have reflected a discriminatory marketplace that valued the equal work of one sex over the other.” It is not reasonable to conclude that Congress intended to create an exception that would allow the salaries of new hires to be based on those very same disparities the law attempted to eradicate.

The Court also considered the difference between factors that are “job-related” and those that are “business-related” and concluded that it is not enough that the factor simply effectuate some business policy. Adopting “business-related” as the standard runs the risk of including virtually any cost-saving reason, many of which would form an improper basis for gender pay disparity. The factors must be job-related, such as experience, training or ability. Prior salary, regardless of whether it is considered alone or with other factors, is not job-related and therefore cannot be used to justify a wage disparity when equal work is being performed.

California Law
While the Rizocase focuses on the federal Equal Pay Act, California has adopted it’s own version known as the Fair Pay Act.[v]The California Fair Pay Act contains many of the same basic provisions as the federal Equal Pay Act. California employers are responsible for compliance with both the state and federal laws.

It prohibits an employer from paying employees wage rates that are less than what it pays employees of the opposite sex for substantially similar work, when viewed as a composite of skill, effort, and responsibility, and performed under similar working conditions. Any such wage differential must be based on: (a) seniority system; (b) a merit system; (c) a system that measures earnings by quantity or quality of production; or (d) a bona fide factor other than sex, such as education, training, or experience. Under subsection (d), the employer must also demonstrate that the factor is not tied to a sex-based differential in compensation, is job related with respect to the position in question, and is consistent with a business necessity. “Business necessity” is further defined as an overriding legitimate business purpose, such that the factor relied upon effectively fulfills the business purpose it is supposed to serve. 

California law also specifies that each factor must be applied reasonably, and that the one or more factors relied upon account for the entire wage differential. Prior salary may not, by itself, justify any disparity in compensation.


[1]Rizo v. Yovivno(9thCir., April 9, 2018) U.S. App LEXIS 8882. The Ninth Circuit covers California, Nevada, Alaska, Arizona, Hawaii, Idaho,Montana,Oregonand Washington.
[1]29 U.S.C.S. §206(d)(1).
[1]Rizo v. Yovivno(2015 U.S. Dist. LEXIS 163849).
[1]Kouba v. Allstate Insurance Co.(9th Cir. 1982) 691 F.2d 873.
[1]Calif. Labor Code §1197.5.

​On March 16, 2018, the U.S. Court of Appeals for the D.C. Circuit handed down a decision in the closely watched case of ACA International, et al. v. Federal Communications Commission, et al.1Among other things, the Telephone Consumer Protection Act of 1991 (“TCPA”)2prohibits calls to a wireless telephone number using an automatic telephone dialing system (“ATDS”) or an artificial or prerecorded voice without the prior express consent of the called party. It also charges the Federal Communications Commission (“FCC”) with rulemaking authority. In the present case, the Court of Appeals unanimously set aside the FCC’s position as to the type of equipment that qualifies as an ATDS, as well as it’s approach to when a call made to the wireless telephone number of a consenting party that has been reassigned to a non-consenting party violates the TCPA. 
 
Background
 
In this case, the petitioners challenged four aspects of the FCC’s 2015 Declaratory Ruling and Order,3which interpreted certain provisions of the TCPA:
 
(i) The type of ATDS subject to the restrictions; 
(ii) Whether a call made to wireless number for which consent was given by the subscriber violates the act if the number was subsequently assigned to a different subscriber who has not given consent;
(iii) How consent may be revoked;
(iv) Whether the consent exemption for certain healthcare-related calls was too narrow.
 
The Court of Appeals set aside the FCC’s interpretations as to the first two items, but affirmed the remaining two. Because the above provision regarding healthcare-related calls does not pertain to credit unions, we will only look closer at the first three.
 
Definition of ATDS
 
The TCPA defines an ATDS as “equipment which has the capacity—(A) to store or produce telephone numbers to be called, using a random or sequential number generator; and (B) to dial such numbers.” (47 U.S.C. §227(a)) The FCC has attempted to clarify the types of equipment that would qualify as an ATDS, such as predictive dialers. In doing so, it has refused to limit the definition to equipment with the “present capacity” to perform these functions, and instead looks at whether the equipment that could potentially have such capacity with software or other modifications. Under the FCC’s analysis, any smartphone could be deemed an ATDS by virtue of the ability to download an app or other software that would carry out the requisite functions. Finding this interpretation to be unreasonably expansive, the Court stated, “The TCPA cannot reasonably be read to render every smartphone an ATDS subject to the Act’s restrictions, such that every smartphone user violates federal law whenever she makes a call or sends a text message without advance consent.” The Court also found that, even if the FCC order were not construed to apply to all smartphones, it failed to articulate a comprehensible standard for determining what constitutes an ATDS and would fail on that basis.
 
The Court also looked at the functionality required of an ATDS. While the FCC order notes the difference between the ability to call from a list of numbers and the ability to create and dial a random or arbitrary list of numbers, it appears to take inconsistent positions as to what functionality would be required of an ATDS. 
 
Reassigned Wireless Telephone Numbers
 
The Court also set aside the FCC’s position with regard to the treatment of calls made to the wireless telephone number previously assigned to a person who had given prior express consent but subsequently reassigned to another person who had not. According to the FCC order, such calls would violate the TCPA regardless of whether the caller had any knowledge of the reassignment. It did allow, however, for a single call safe harbor where the first call to a reassigned a number would not be considered a violation. 
 
The Court found this one-call safe harbor to be arbitrary and capricious, as a single call or text to a reassigned number would not necessarily reveal to the caller that the number has been reassigned, such as when the initial communication receives no response. Exercising the same reasonable reliance on the consent of a prior subscriber, a caller could just as easily call or text multiple times, risking significant exposure. 
 
Revocation of Consent Remains Unchanged
 
An exception to the TCPA prohibitions is when the caller has obtained the prior express consent of the subscriber. There is no dispute as to the fact that, once consent is given, the subscriber must have the right to revoke that consent. The FCC specifically refused to allow callers to designate the exclusive means to revoke consent, stating instead that that revocation may occur “at any time and through any reasonable means,” either orally or in writing, in a way that “clearly expresses a desire not to receive further messages.”
 
In this case, the Court affirmed the FCC’s interpretation, finding that callers would have an incentive to “avoid TCPA liability by making available clearly-defined and easy-to-use opt-out procedures.” If a consumer ignores the reasonable opt-out procedures established by the caller, he or she runs a greater risk of a determination that his or her own method is unreasonable. Moreover, the FCC order prohibits the unilateral imposition of opt-out methods. However, the Court noted that the FCC order does not restrict the ability of contracting parties to agree to a particular method of opting out.
 
What This Means for Credit Unions
 
While this decision is likely to reduce litigation by limiting what might be construed as an ATDS, it is also likely that the FCC will soon seek to address the areas of concern noted by the Court. For now, the TCPA remains a complex law subject to extensive regulatory and legislative interpretation and credit unions are encouraged to work with the legal counsel in determining when and how to obtain any prior express consent that may be required.
 
___________________
1ACA International, et al., v. Federal Communications Commission, et al., No. 15-1211 (D.C. Cir., Mar. 16, 2018).
2Telephone Consumer Protection Act of 1991, Public Law 102-243, Dec. 20, 1991 (S. 1462; 102nd Congress 1990-1991); see also 47 U.S.C. §227; 47 C.F.R. §64.1200.
3FCC Declaratory Ruling and Order, No. 15-72 (Adopted June 18, 2015).

​Credit unions regularly contract with vendors for the provision of various software services offered to members. Recently, a number of credit unions have been contacted by a law firm representing a non-credit union financial institution.  At its core, the law firm’s letter asserts that its client is the holder of software patents used to provide certain member services and that the credit union’s continued use and provision of such member services violates that patent.  What the credit union knows, but the law firm most likely does not, is that the credit union contracted with a third party vendor to provide the software services in question. 
 
So, how should the credit union respond given the third-party provider of the service?
 
Representation and Warranty
 
Once the letter is received, the credit union should promptly review its contract with its software vendor.  It is important to look at the original or master agreement as well as any exhibits, schedules, or work orders, and any amendments. The credit union should look for a clause similar to the following:
 
Software Representation and Warranty.  Vendor represents and warrants that the software does not infringe any copyright, patent or other intellectual property right of any third party; Credit Union’s remedy for breach of this warranty is indemnification pursuant to [the indemnification provision] below.
 
As the heading indicates, this clause is a representation by the vendor to the credit union that the services provided in the software agreement do not violate the patent or other intellectual property rights of any third party.  A representation is a statement of fact made by the vendor that it either owns the software free and clear of anyone else’s claims or that it has a valid license to use that software.  It also a warranty or promise to protect the credit union in the event that the representation is contested by any party outside of the contract.   
 
With this type of representation and warranty protection in a provider agreement, a credit union receiving a demand letter can take some comfort in the knowledge that its vendor not only believes it has the right to provide its software, but also stands ready to defend that claim.
 
Indemnification
 
Next, the credit union should examine the contract further to see if it contains an indemnification clause. Indemnification is defined in Black’s Law Dictionary as the obligation to reimburse another for a loss suffered because of a third party's, or one's own, act or default. The following is an example of such a clause:
 
Indemnification.  If any third party asserts any claim or brings any lawsuit or proceeding against Credit Union based upon a third-party claim involving the software Vendor agrees to indemnify, defend and hold Credit Union harmless against any loss, damage, expense or cost, including reasonable attorney fees, due to such claim, lawsuits or proceedings. The foregoing indemnification obligation will be effective only if Credit Union: (i) has given Vendor prompt, but in no case more than thirty (30) days, notice of any claim or demand in writing; (ii) gives Vendor full opportunity to control the response and the defense, including any settlement; and (iii) provides Vendor with reasonable cooperation, information, and assistance therewith. Vendor will not settle any such claim or action without the prior written consent of Credit Union, which consent shall not be unreasonably withheld or delayed. Credit Union may participate, at its own expense, in its defense in any such suits or proceedings through counsel of its own choosing. To reduce or mitigate damages, Vendor may, at its own expense and at its sole discretion: (i) replace the software with non-infringing, functionally equivalent software; (ii) terminate the rights granted hereunder and refund the fees paid for the infringing software, less a prorated charge for Credit Union’s prior use based on a three (3) year depreciation schedule; or (iii) at no additional cost to Credit Union, secure a license to use the software. 
 
Indemnification is an old common law concept.  While the laws of indemnification are complex, the essence of the clause can be summed up by the phrase: “indemnify, defend, and hold harmless.” This contractual provision means that the vendor has the following obligations:
 

• “Indemnify” means that the vendor will reimburse the credit union for a loss suffered as a result of a third party’s action or, in some cases, even the credit union’s own action.  
• “Defend” means that the vendor will protect the credit union in any sort of litigation or similar legal action.  
• “Hold harmless” means to absolve the credit union from any responsibility for damage arising from the vendor’s agreement.  

 
This trio of concepts covers the range of exposures the credit union could face in a software patent violation claim.
 
Given the nature of the law firm’s claim in the present case, there are a number of other important factors to look for in the indemnification clause. Note whether there is the obligation to notify or “tender the claim” to the Vendor in writing and/or within a specified period of time.  Failure to fulfill these requirements could render the protections moot.  When giving written notice, it is important to always send the written notice with a means to prove that it was in fact delivered, such as by using the U.S. Mail’s “certified mail, return receipt requested” option, or a commercial delivery service, such as FedEx or UPS.  
 
Another factor to note is the credit union’s obligation to be available to participate, typically at the credit union’s own cost, in the vendor’s defense of the claim. In the sample clause above, there is a reasonableness limitation, but that sort of limit also creates an “eye of the beholder” situation where one must determine what exactly is “reasonable” under the circumstances.  Whether the vendor even needs the credit union’s help will be dependent upon the specifics of the actual case.  
 
It is also important to note that the credit union has the right, but not the obligation, to track its vendor’s efforts to defend the credit union. While this cost is not recoverable, it is generally not wise to simply tender a claim and assume all is well.  Your legal counsel should be able to track the matter at relatively low cost, assuming that the vendor is handling the matter properly.  If the vendor is less than diligent in its efforts to resolve the issues, then having your counsel track the matter also helps to ensure that the matter stays on track and the credit union does not get stuck handling the case itself.  
 
The sort of protections presented in this article are not by any means a given; nor is all contractual language going to look exactly like the examples.  Some vendors combine these protections into a single paragraph or give them different labels. There may also be some significant and substantial limitations on a vendor’s indemnification duty, such as when the credit Union alters the software.    In any case, you and your counsel should be working together to make sure that the language your credit union needs to be protected is included in all your software agreements.  

Every January 1, a number of new employment laws take effect in California and this year is no exception. However, two new laws that took effect on January 1, 2018 will directly impact the application and hiring practices of California employers.
 
Salary History Inquiries [AB 168; Ch. 688; Eggman]
 
New Labor Code §432.3 now restricts a prospective employer’s ability to inquire about or rely on the salary history of an applicant for employment. Specifically:
 

• An employer may not rely on an applicant’s salary history as a factor in determining whether to offer employment to the applicant or what salary to offer.
• An employer may not seek salary history information, including compensation and benefits, about an applicant. This prohibition applies to both oral and written inquiries, including job applications, and regardless of whether made personally by the prospective employer or through an agent, such as a placement agency.
• An employer must provide the pay scale for a position to an applicant upon reasonable request. In other words, an employer must have an established written pay scale.
• This new law does not prohibit an applicant from voluntarily disclosing salary history information to a prospective employer, provided it is done without prompting.
• If an applicant chooses to voluntarily disclose salary history information to a prospective employer, the employer may consider or rely on it. However, consistent with the California Equal Pay Act (Labor Code §1197.5), which prohibits gender-based salary disparity, prior salary alone will not justify a disparity in compensation.

 
Ban-the-Box Law [AB 1008; Ch. 789; McCarty]
 
With limited exceptions, new Government Code §12952 amends the Fair Employment and Housing Act (FEHA) to make it unlawful for any public or private employer with five or more employees to do any of the following:
 
1.   Include any question on a job application seeking an applicant’s conviction history before the employer makes a conditional offer of employment;
2.   Inquire into or consider an applicant’s conviction history until after the prospective employer makes a conditional offer of employment;
3.   Consider, distribute, or disseminate information about any of the following while conducting the background check in connection with an application for employment:

• Arrest not followed by conviction, except as permitted by Labor Code §432.7(a)(1) [arrests where an applicant is free on bail or on his or her own recognizance pending trial] and (f) [limited exceptions for health care facilities];
• Referral to or participation in a pre-trial or post-trial diversion program; or
• Convictions that have been sealed, dismissed, expunged, or statutorily eradicated pursuant to law.

4.   Interfere with, restrain, or deny the exercise of, or the attempt to exercise, any right under this section.
 
If an employer intends to deny employment to an applicant solely or partially because of his or her conviction history, the employer must make an individualized assessment of whether the conviction history has a direct and adverse relationship with the specific duties of the job that justify refusing to hire the applicant. The assessment must consider:
 

• The nature and gravity of the offense or conduct.
• The time that has passed since the offense or conduct and completion of the sentence.
• The nature of the job held or sought.

 
If an employer makes a preliminary decision not to hire the applicant based on conviction history, it must notify the applicant in writing, which notice shall contain all of the following:
 

• The disqualifying conviction forming the basis for the preliminary decision to rescind the offer.
• A copy of the conviction history report, if any.
• An explanation of the applicant’s right to respond before that decision becomes final, and the deadline to respond. The explanation shall inform the applicant that the response may include evidence challenging the accuracy of the conviction history report, evidence of rehabilitation or mitigating circumstances, or both.

 
The applicant must have at least five business days to respond before the employer makes a final decision. If the applicant notifies the employer in writing during that time that he or she disputes the accuracy of the conviction history report and is taking specific steps to obtain evidence supporting same, then the applicant shall have five additional business days to respond. The employer must consider any information submitted by the applicant before making a final decision.
 
If an employer makes a final decision to deny employment solely or partially because of his or her conviction history, it must notify the applicant in writing of all the following:
 

• The final denial or disqualification;
• Any existing procedure for the applicant to challenge the decision or request reconsideration; and
• The right to file a complaint with the DFEH.

 
Among other exceptions, the prohibition does not apply to a position where an employer is required by any state, federal, or local law to conduct criminal background checks for employment purposes or to restrict employment based on criminal history. Credit unions are encouraged to consult with counsel to determine the extent to which this exemption might apply and how to ensure hiring procedures are compliant.