FIRING OF SON-IN-LAW IS NOT MARITAL STATUS DISCRIMINATION AND DOES NOT TRIGGER AN EMPLOYER’S DUTY TO INVESTIGATE
FIRING OF SON-IN-LAW IS NOT MARITAL STATUS DISCRIMINATION AND DOES NOT TRIGGER AN EMPLOYER’S DUTY TO INVESTIGATE
In Nakai v. Friendship House Association of American Indians, Inc., the California Court of Appeal determined whether, under the Fair Employment and Housing Act (FEHA), marital issues that spill into the workplace implicate marital status protections and an employer’s duty to investigate.
For over 20 years, plaintiff Orlando Nakai (Nakai) worked as a counselor at the Friendship House Association of American Indians, Inc. (Friendship House). Friendship House is a drug and alcohol rehabilitation program for Native Americans. While employed at Friendship House, Nakai married the chief executive officer’s (CEO) daughter. During Nakai and his wife’s employment at Friendship House, Nakai and his wife experienced marital difficulties that created turmoil in the workplace. In May of 2016, Nakai’s wife revealed to her mother, the CEO of the Friendship House that Nakai “had a gun, was angry with the employees at the Friendship House, was dangerous, and had relapsed on drugs.” Nakai’s wife further told her mother that she had obtained a restraining order against her husband. The next morning, the CEO of the Friendship House, Nakai’s mother-in-law, placed him on administrative leave and then, without investigating her daughter’s allegations, terminated Nakai’s employment. Nakai filed an action for wrongful termination, claiming discrimination on the basis of his marital status and failure to conduct a reasonable investigation prior to discharge. Both claims asserted a violation of the FEHA. The trial court granted summary judgment in favor of the Friendship House, determining Nakai had failed to establish a prima facie case of marital status discrimination and had failed to demonstrate that his employer had an obligation to investigate.
The Court of Appeal’s Analysis
Nakai alleged that he was discharged from the Friendship House “solely because of his status as the spouse of the complaining employee.” Although the FEHA prohibits marital status discrimination, the California Court of Appeal affirmed the trial court’s decision that Nakai could not establish a prima facie case for marital status discrimination. According to the Court, marital status discrimination laws are supposed to “prevent discrimination against classes of people.” For example, employers cannot refuse to hire single people because they are single. On the other hand, the FEHA discrimination laws are not set out to protect people based on their “status of being married to a particular person.” Since Nakai claimed he was terminated because of his marriage to the CEO’s daughter, not on the basis of being married itself, the Court determined that there was “not a marital discrimination problem.” The Court found that the Friendship House had valid, nondiscriminatory reasons for terminating Nakai; his wife reported that he owned a gun, was allegedly angry at their employees, and was using drugs. The Court determined that because Friendship House had concerns of violence, it had legitimate reasons for firing Nakai.
Next, the Court reviewed Friendship House’s failure to investigate the claims made by Nakai’s wife before firing him. The Court of Appeal explained that Nakai was an at-will employee; therefore, the Friendship House owed him no duty to investigate the wife’s charges before firing him. The Court further explained that absent a contractual or statutory provision to the contrary, employers considering the issue of an employee accused of misconduct “may act peremptorily, arbitrarily, or inconsistently, without providing specific protections such as prior warning, fair procedures, objective evaluation, or preferential reassignment.” Nakai did not produce a contract or even argue the presence of an implied agreement that required “good cause” for termination. Consequently, the Court of Appeal rejected Nakai’s argument that he had a contractual right to have his employer investigate his wife’s complaints.
The Court of Appeal concluded by considering whether, under the FEHA, employers are under an obligation to investigate the legitimacy of complaints made against alleged perpetrators of crimes. Although the FEHA requires an investigation when a third party accuses an employee of sexual harassment, this was not the charge here. Further, the duty to investigate runs in favor of the victim, not the perpetrator of harassment. Thus, the court determined that the FEHA does not impose a duty to investigate in regards to alleged threats of workplace violence.
Practical Tips for Employers
●This case highlights the conflicts of interest and related issues that can arise when spouses work for the same company, which is not entirely uncommon.
●This case provides guidance to employers on the meaning of marital status discrimination under the FEHA. Additionally, its ruling provides some perspective regarding an employers’ express statutory and contractual duty to investigate misconduct complaints. Unless mandated by contract or statute, there is no express legal duty to investigate.
●However, prudent employers will still consider investigating complaints before disciplining or terminating employees, as this will, among other things, ensure a reasoned decision, prevent future lawsuits, and prevent additional hostility among employees.
●Employers should work closely with expert legal counsel when determining whether to conduct a workplace investigation before disciplining or terminating an employee. If you have questions about workplace investigations or your duty to investigate, please contact the attorneys at Palmer Kazanjian Wohl Hodson LLP.
On October 16, 2017, our Managing Partner, Larry Kazanjian argued before the United States Court for the Ninth Circuit. Mr. Kanazjian was representing Capay, Inc. and was seeking review of a decision of the National Labor Relations Board.
THE IMPACT OF MCLANE V. EEOC ON EMPLOYER SUBPOENA RESPONSES
In McLane Co. Inc. v. EEOC, the U.S. Supreme Court reviewed a district court’s decision on whether to enforce a subpoena issued by the U.S. Equal Employment Opportunity Commission (EEOC). In McLane, a female employee, Damiana Ochoa filed a charge with the EEOC alleging sex discrimination (based on pregnancy) in violation of Title VII of the U.S. Civil Rights Act of 1964 (Title VII). Ochoa claimed that when she tried to return to her job following maternity leave, her employer (McLane Co.) informed her that she could not return to the position she had held for eight years as a cigarette selector, unless she passed a physical strength test. Ochoa’s job as a cigarette selector required her to lift, pack, and move large bins of products into the McLane Co. Distribution Center. McLane Co. had a company policy that required physical evaluations of all new hires and all employees returning from any leave lasting more than 30 days. Ochoa took the test three times but failed to pass and, as a result, she was fired.
As part of its investigation, the EEOC asked McLane Co. to provide them with information about the physical evaluation and individuals who had been asked to take it. Although McLane Co. willingly provided general information about the test and the individuals who had been required to take it, including gender, job class, reason for taking the test, and the score received, McLane Co. refused to disclose “pedigree information” for each test taker, including name, social security number, last known address, telephone number, and the reasons why particular employees were terminated after taking the test.
After discovering that McLane Co. applied their physical evaluation policy nationwide, the EEOC broadened the scope of its investigation, both geographically and substantively. The EEOC requested McLane Co. provide information for all of the company’s locations nationwide. Additionally, the EEOC requested information beyond the original gender-related inquiries to encompass information relevant to potential age discrimination. However, McLane Co. failed to provide the “pedigree” information related to the EEOC’s expanded information request. As such, the EEOC issued subpoenas for the information. McLane Co. refused to comply with these subpoenas, so the EEOC sought enforcement in the federal district court. The district court declined to enforce the EEOC’s subpoena seeking pedigree information. The district court reasoned that, even if the EEOC had the names of employees who took the physical evaluation, or an opportunity to interview them, the information would not help determine whether McLane Co.’s use of the physical evaluation was discriminatory.
The U.S. Court of Appeals for the Ninth Circuit reviewed the district court’s decisions de novo and reversed. In rendering its opinion, the Ninth Circuit panel questioned, in a footnote, why de novo review applied, observing that other circuits reviewed subpoena enforcement decisions for abuse of discretion. The Supreme Court granted certiorari to resolve the divide between the Ninth Circuit and other circuits over the proper standard of review.
The Supreme Court held that the appropriate standard of review for a district court’s decision to enforce or quash an EEOC subpoena is abuse of discretion. Recognizing that the Title VII provision granting the EEOC subpoena power is identical to the authority granted to the National Labor Relations Board (NLRB) to issue subpoenas, the Court looked to the standard of review used in conjunction with NLRB subpoena enforcement judgments. The Court noted that virtually every circuit courts of appeals reviews EEOC subpoena enforcement cases under the abuse of discretion standard. Further, the abuse of discretion standard falls in line with longstanding practices in other contexts, including in reviewing district court decisions on evidentiary issues at trial and the scope of pretrial criminal subpoenas.
On April 3, 2017, the Supreme Court reversed the Ninth Circuit’s decision and remanded the matter back to the Ninth Circuit to reconsider the EEOC subpoena under the proper standard of review. The judgment was issued May 5, 2017. The Court specifically noted that using the abuse of discretion standard, the Ninth Circuit may, if it believes proper, consider the employer’s arguments regarding whether the EEOC’s subpoenas are unduly burdensome.
Practical Tips for Employers
- Fighting the EEOC or other governmental entities over a subpoena can be time-consuming and expensive. Since the standard of review is specifically defined as abuse of discretion, it is unlikely there will be frequent overturning of a federal district court’s decision on appeal. Therefore, the real fight over subpoena enforcement will take place in the trial court.
- As an employer, it is important to know that when governmental entities, like the EEOC, issue information requests that are irrelevant to the charge or appear to overstep their bounds, it is appropriate to challenge the subpoenas on grounds that they are irrelevant, overly burdensome to the employer, or are sought for an improper purpose.
- However, if faced with an overly broad request for information from a governmental entity, it may be worthwhile to attempt to negotiate a resolution. If an agreement can be reached before a subpoena is even issued, employers may avoid the expense and publicity that could arise from a subpoena enforcement dispute in court.
- Employers should work closely with expert legal counsel when attempting to negotiate a resolution. If you have questions about compliance with any governmental subpoenas, please contact the attorneys at Palmer Kazanjian Wohl Hodson LLP.
California Court of Appeal Upholds Car Dealership’s “Disturbing” Arbitration Agreement Over the California DLSE Process for Unpaid Wages
California Court of Appeal Upholds Car Dealership’s “Disturbing” Arbitration Agreement Over the California DLSE Process for Unpaid Wages
On August 21, 2017, the First Appellate District in California issued a decision in OTO, LLC. v. Ken Kho, granting a car dealership’s petition to compel arbitration of a complaint filed by a former employee.
In OTO, LLC v. Kho, the California Labor Commissioner challenged a car dealership’s mandatory arbitration agreement. The agreement required employment disputes to be arbitrated under normal civil litigation rules, before a retired superior court judge, and waived the right to submit wage claims to the Labor Commissioner. The Court of Appeal expressed that it was “disturbed” by the way the employer had drafted and presented the agreement to employees. Despite this proclamation and the fact the agreement bypassed the Labor Commissioner hearing process, the Court upheld the arbitration agreement.
Ken Kho was employed as an auto mechanic for a car dealership. Three years into his employment, he was given a one and one-quarter page agreement entitled, “Employment At-Will and Arbitration.” The agreement was drafted in seven-point font and the entire agreement was contained in a single, dense paragraph. The agreement required the parties to arbitrate their disputes before a retired superior court judge under ordinary pleading, discovery, and evidence rules. Kho received the agreement at his desk from a Human Resource employee, who did not explain the meaning of the agreement or the consequences of signing the agreement to him. Kho claimed to have signed the agreement within approximately three to four minutes.
One year after receiving the arbitration agreement, Kho filed a wage claim with the Division of Labor Standards Enforcement (DLSE), which is regulated by the Labor Commissioner. The dealership filed a petition to compel Kho to arbitrate his wage claim in the Superior Court. The Labor Commissioner intervened to oppose the petition and to uphold Kho’s right to pursue his wage claim before the DLSE.
The trial court denied the dealership’s petition because the arbitration agreement was “highly” unfair and deprived Kho of the advantages an employee has in an informal hearing before the DLSE. That informal hearing, called a “Berman Hearing,” permits employees to avoid court proceedings by trying to resolve wage claims in a speedy, informal, and affordable method for employees. The dealership appealed.
The Court of Appeal’s Decision
Written agreements to arbitrate employment disputes are typically enforceable unless there is something specifically unfair about the agreement’s terms and presentation. These two types of unfairness are called procedural unconscionability and substantive unconscionability. If both forms of unfairness exist to some degree, then a court may find an arbitration agreement invalid.
The Court of Appeal agreed with the trial court that the arbitration agreement was procedurally unconscionable. Kho received the agreement on a take-it-or-leave-it basis; he could not negotiate the terms; and he was presented with it years after he had started working for the dealership. He reasonably assumed he had no choice but to sign it or quit. In addition, the agreement appeared in seven-point font within a block format and had legalistic terms that were difficult to understand without legal training. Further, Kho was not provided with a copy of the arbitration agreement after signing it and did not receive a copy of the arbitration agreement in his first language, which is Chinese. All this together made the degree of procedural unconscionability “extraordinarily high.”
The appellate court closely reviewed the agreement and ultimately ruled in favor of the employer. The Court determined the agreement was not substantively unconscionable because the arbitration clause was not one-sided and did not overly favor the dealership. All claims between the parties were subject to arbitration and the proceeding would resemble ordinary litigation. Further, although the agreement did not explicitly state that the dealership would have to pay for arbitration, prevailing law requires such a result.
Therefore, although the Court of Appeal was “disturbed” by the way the dealership wrote the arbitration agreement and felt the way it was presented to Kho for signing was “coercive,” the agreement did allow him to pursue his wage claim in an accessible and affordable forum that resembled normal civil litigation. Those features made the agreement substantively conscionable and therefore, enforceable.
Practical Tips for Employers
-Arbitration agreements continue to be a vital tool for companies to speed up the litigation process and reduce fees and costs. However, as discussed above, enforceability of arbitration agreements remains an evolving and complex area of law and a poorly worded arbitration agreement can lead to extensive litigation over the legitimacy of the agreement itself. In order to avoid finding yourself in a prolonged legal battle over an arbitration agreement, it is crucial for employers to maintain up-to-date arbitration agreements that are consistent with recent case law.
-Employers should work closely with expert legal counsel when implementing an arbitration agreement to ensure procedural fairness. If you have questions about your current arbitration agreement or introducing an arbitration agreement at your company, contact the attorneys at Palmer Kazanjian Wohl Hodson LLP.
Date: Thursday, September 21, 2017
8:00 AM – Registration/Meet & Greet
8:30 AM – Catered Breakfast followed by Seminars
10:30 AM – Program concludes
Location: Whitney Oaks Golf Club clubhouse, 2305 Clubhouse Drive, Rocklin, CA 95765
Palmer Kazanjian will be providing a seminar on Human Resources Policies and Updates on Health CareReform in partnership with Eureka Insurance Solutions. The session will be presented by Treaver Hodson, partner at Palmer Kazanjian Wohl Hodson LLP and Ned Schaut, president of Eureka Insurance Solutions.
Human Resources Policies
- Wage and Hour Updates
- Leaves of Absence
- Marijuana In the Workplace
- Disciplinary Action and Termination of Employment
- Employment Classification: Independent Contractors / Exempt Employees
- Trade Secrets and Confidential Information
Updates on Health Care Reform
- Understanding Single-Payer Health Care
- Bi-partisan Reform On the Horizon After Failed Repeal of the ACA
Admission is complimentary. Seats are limited to 40 and will be issued on a first come, first served basis. Reserve your spot today by emailing firstname.lastname@example.org.
Amended Regulations under California’s Fair Employment and Housing Act Provide Greater Protection for Employees and Applicants with Criminal History
Friday, July 21, 2017
The California Fair Employment and Housing Council (referred to as FEHC hereafter) recently adopted regulations that add restrictions to an employers’ consideration of criminal history for employees or applicants. The updates went into effect on July 1, 2017, and are largely consistent with the recent enforcement guidance set forth by the Equal Employment Opportunity Commission (referred to as EEOC hereafter). The new regulations are aimed at mitigating the adverse impact associated with the overly broad use of criminal background history in making employment decisions. In particular, the new regulations identify circumstances in which employers may face liability for considering criminal history in the decision to hire, promote, discipline, or terminate an employee. Employers are advised to adjust company policy and practices in accordance with this regulatory update.
Existing Limitations on Consideration of Criminal History
Existing California law prohibits employers from considering the following types of criminal history:
(1) An arrest or detention that did not result in conviction;
(2) Referral to or participation in a pretrial or post-trial diversion program;
(3) A conviction that has been judicially dismissed or ordered sealed, expunged or statutorily eradicated pursuant to law; and
(4) An arrest, detention, processing, diversion, supervision, adjudication, or court disposition that occurred while a person was subject to the process and jurisdiction of juvenile court law.
The new regulations extend the prohibitions to cover non-felony convictions for possession of marijuana that are two or more years old. 
Consideration of Criminal History May Adversely Impact Members of a Protected Class
Employers must be mindful that consideration of criminal history may adversely affect individuals who are members of a protected class. A protected class includes, but is not limited to, race, religion, disability, sex, age, and sexual orientation.
An applicant or employee bears the burden of proving that an employers’ policy of considering criminal history has an adverse impact on a protected class. An adverse impact, is “a substantially different rate of selection in hiring, promotion, or other employment decisions which works to the disadvantage of members of a race, sex or ethnic group.” An adverse impact may be established through the use of conviction statistics demonstrating a marked disparity in conviction rates of persons within a protected class. 
Once the applicant or employee demonstrates an adverse impact on a protected class, the burden shifts to the employer to demonstrate the consideration of criminal history is job-related and consistent with business necessity. The consideration of a criminal history cannot be used as a basis to evaluate the person in the abstract.  The employers’ policy for considering criminal history must be appropriately tailored. The following factors are relevant in determining whether a policy is legitimately business related:
- The nature and gravity of the offense or conduct;
- The time that has passed since the offense or conduct and/or completion of the sentence; and
- The nature of the job held or sought. 
Any bright-line conviction disqualification policy must have a specific and articulable relationship to the person’s ability to perform the functions of his or her position. Of note, bright-line conviction disqualification policies, including conviction-related information that is seven or more years old, are subject to a rebuttable presumption that the employers’ policy is not appropriately tailored or consistent with business necessity.  Alternatively, an employer may conduct an individualized assessment of the circumstances surrounding the applicant’s or employee’s disqualification by the conviction screening process.
New Notice Requirements and Opportunity to Present Information
The employers’ assessment of the individual applicants’ or employees’ conviction must involve notice of the disqualification and a chance for the applicant or employee to demonstrate the disqualification should not be applied to their particular circumstances. If an applicant or employee demonstrates the criminal history is factually inaccurate, said criminal history cannot be considered in the employers’ employment decisions.  Additionally, the employer should consider whether the additional information provided by the applicant or employee warrants an exception because the criminal history consideration is not job-related or consistent with business necessity. 
Although an employer may demonstrate that their policy of considering an individuals’ criminal history is job-related and consistent with business necessity, the applicants or employees may also challenge the employers’ policy by demonstrating that a less discriminatory policy or practice would serve the employer’s needs.  Accordingly, the FEHC recommends using “a more narrowly targeted list of convictions or another form of inquiry” that accurately evaluates job qualifications or risk without an undue burden on the employer.
Effect on California Employers
As a result of the new limitations on consideration of criminal history in employment decisions, employers may want to review their policies on the use of criminal history in employment decisions to ensure compliance with the new FEHC regulations. Employers should avoid bright-line conviction disqualification policies because such polices may adversely impact members of a protected class. As an alternative, an employer may want to conduct an individualized assessment of employees or applicants disqualified by the conviction screening process.
 These restrictions are codified in the California Code of Regulations, title 2, sections 11017 and 11017.1.
 California Code of Regulations, title 2, section 11017.1(d).
 California Code of Regulations, title 2, section 11017.1 (e)(3)
Date: June 15, 2017
Time: Presentation: 8:30AM to 10:30AM
Location: 2277 Fair Oaks Blvd., Suite 455
Sacramento, CA 95825
Palmer Kazanjian will be providing a seminar on Employment and Immigration Law Basics for Business Owners seminar in partnership with Wilner & O’Reilly, APLC. The session will be presented by Treaver Hodson, partner at Palmer Kazanjian Wohl Hodson LLP and Michael Wang, Managing Attorney at Wilner & O’Reilly, APLC.
The following topics will be covered:
- How federal immigration laws apply to employment
- Immigrant vs. non immigrant employees
- Government entities involved- USCIS, DHS, ICE, CBP, EEOC, DOL, DOS, OSC, SSA, DFEH, FDNS
- Visas in the workplace
- PERM and prevailing wage
- Wage and Hour Updates
- Government Wage and Labor Audits
- Employment Classification: Independent Contractors/ Exempt Employees
- Leaves of Absence
- Disciplinary Action and Termination of Employment
- Trade Secrets and Confidential Information
Admission is complimentary. Breakfast pastries and beverages will be provided. Seats are limited and will be issued on a first come, first served basis. Please register by June 12th to attend. Limit three attendees per company. REGISTER HERE. Please direct any inquiries to email@example.com.
Court Affirms Jury Verdict in Favor of Police Recruits Who Brought Claim Against the City of Los Angeles for Failure to Provide a Reasonable Accommodation
In Atkins v. City of Los Angeles (CA2/7 B257890 2/14/17), the California Court of Appeal for the Second Appellate District recently upheld a jury’s finding that the City of Los Angeles failed to provide reasonable accommodations to recruits from the City Police Academy in violation of the Fair Employment and Housing Act (“FEHA”).
The five recruits suffered injuries during their six-month training course which left them temporarily physically disabled. The City had a prior practice of allowing injured recruits to join a program known as the Recycle Program, which placed recovering recruits in desk jobs until full recovery or until permanent disability. In an effort to reduce costs and ensure compliance with a statute requiring training and probation to be completed within two years, the City terminated the Recycle Program. The recruits, who were still recovering from their injuries at the time of the program’s termination, were notified that unless they obtained immediate medical clearance, they would have to resign or be terminated.
The jury found that the City unlawfully discriminated against the plaintiffs based on their physical disabilities, failed to provide them with reasonable accommodations and failed to engage in the interactive process required by FEHA. The recruits were awarded economic loss damages of $12,000,000 in total for wages that would have been earned until each recruit’s hypothetical retirement.
On appeal, the Court concluded that the recruits were not “qualified individuals” under FEHA for purposes of their discrimination claim and reversed the jury’s verdict on that claim. The Court affirmed the jury’s verdict in favor of the recruits on their claim of failure to accommodate. The court also vacated the jury’s award of damages as “unreasonably speculative” and remanded on that issue.
To establish their claim of disability discrimination at trial, the recruits submitted evidence of their ability to “perform the essential functions for the positions to which they sought reassignment.” The recruits’ requested accommodations included either transfer to city positions not requiring physical exertion or continued participation in the Recycle Program. On appeal, the Court held that the relevant question in assessing whether the recruits had been subjected to disability discrimination should have been whether the recruits “could perform the essential functions of [a police recruit] without or without reasonable accommodation.” The Court found that the recruits did not have the ability to perform the essential functions of a police recruit and further concluded that the proposed accommodation was “unreasonable as a matter of law” because it “eliminate[d] one or more essential functions of the job of a police recruit or officer.” Because the recruits could not perform the essential functions of the police recruit position, they were not “qualified individuals” under FEHA and therefore could not establish their claim for disability discrimination.
The Duty to Provide Reasonable Accommodation
The Court next considered whether the City met its duty to reasonably accommodate the plaintiffs. While the question whether plaintiffs could perform the essential functions of a position to which they sought reassignment was not the relevant inquiry with respect to the plaintiffs’ claim for disability discrimination, the court held that it was “relevant to a claim for failure to accommodate under section 12940, subdivision (m), and to a claim for failure to engage in the interactive process.”
“The reasonableness of a particular accommodation,” the court explained, “must be determined in light of an employer’s policies and practices.” Importantly, the City had a longstanding practice of allowing injured recruits to remain in the Recycle Program indefinitely until they healed and could return to the Academy or until their disabilities became permanent. The new policy, which restricted participation in the Recycle program to six months, constituted “a significant and unprecedented change” in policy. Considering these facts, the Court concluded that the request for reassignment to the Recycle program until full recovery or until permanent disability was not unreasonable.
Employers should note that the duty to reassign an employee as a reasonable accommodation may extend to, as found in this case, probationary or pre-probationary employees. The City cited EEOC guidance in arguing that the recruits, who never completed their training, had never performed the essential functions of their “original position” and were therefore not qualified individuals under FEHA. However, as observed by the Court, there was no dispute as to their ability to perform the essential functions of a police recruit at the time of hire, nor to the fact that such duties had been performed, “even if for a relatively short time.”
Affirmative Defense of Undue Hardship
Undue hardship is an affirmative defense to a claim for failure to accommodate. The Court emphasized that “an employer must do more than simply assert that it had economic reasons to reject a plaintiff’s proposed reassignment.” Rather, an “employer must show why and how asserted economic circumstances would affect its ability to provide a particular accommodation.” Citing FEHA, the Court defined “undue hardship” as “an action requiring significant difficulty or expense, when considered in light of the following factors:
(1) The nature and cost of the accommodation needed;
(2) the overall financial resources of the facilities involved in the provision of the reasonable accommodations, the number of persons employed at the facility, and the effect on expenses and resources or the impact otherwise of these accommodations upon the operation of the facility;
(3) the overall financial resources of the covered entity, the overall size of the business of a covered entity with respect to the number of employees, and the number, type, and location of its facilities;
(4) the type of operations, including the composition, structure, and functions of the workforce of the entity; and
(5) the geographic separateness or administrative or fiscal relationship of the facility or facilities.”
The jury considered evidence presented by the City of a City-wide hiring freeze and the City’s efforts to comply with the statutory 2-year rule for completion of the training process for police recruits, but ultimately concluded that the City failed to establish significant difficulty or expense beyond the result of “potentially lower [police officer] staffing levels.” The Court suggested that a different conclusion might have been reached if the City had offered evidence “to show either that the expense of hiring additional recruits would have been too great in relation to the City’s financial health or that the City could not have met its public safety needs if the plaintiffs remained in the recycle program or if the City could not have hired additional recruits.”
Practical Tips for Employers
- When instituting a policy change that no longer provides for an accommodation, employers should ensure that the policy does not result in disparate treatment of employees who were employed by the company prior to the policy change. (In other words, the policy should apply prospectively only, and present employees may continue to receive the benefits of the prior policy).
- Employers should implement a reasonable accommodation policy focused on appropriately assessing requests for accommodation and training management and HR personnel to engage in in timely and good faith interactive process. Reasonable accommodation can include changing job duties or work hours, relocating the work area, providing mechanical or electrical aids and providing leave. Although an employer is not required to create a new position, an employer must consider transferring an employee to an available position for which they are qualified. In a previous article, we discussed the, EEOC’s Guidance on Leave as a Reasonable Accommodation.
Whether undue hardship exists involves a complex fact-based inquiry. Courts will look to company policies and past practices in assessing whether a requested accommodation poses a significant expense. Financial hardship is a function not only of cost itself but of how such cost affects the employer’s overall financial condition.
The California Court of Appeal for the Second District ruled in Vaquero v. Stoneledge Furniture LLC that workers paid on a commission basis must be separately compensated for legally required rest periods.1 Coupled with the California Supreme Court’s ruling late last year in Augustus v. ABM prohibiting on-call rest periods, it is more important than ever for employers to be vigilant about complying with rest period requirements.2
i. The Requirement to Separately Compensate Rest Periods in Piece-Rate Compensation.
The IWC Wage Orders require employers to count “rest period time” as “hours worked for which there shall be no deduction from wages.”3 In 2013, California appellate courts issued two decisions concerning the application of California’s minimum wage laws to piece-rate compensation.
In Gonzalez v. Downtown LA Motors, the Court of Appeal held that Wage Order No. 4 applied to piece-rate compensation in the same manner it [did] for hourly compensation.4 With regard to the requirement that employees be paid the minimum wage “for all hours worked,” the Court concluded piece-rate employees were entitled to “be compensated at the minimum wage for each hour worked,” rather than by averaging compensation over a period of time. Thus, the Court held that under California law, piece-rate employees were entitled to separate hourly compensation for non-productive time, including time spent waiting for tasks, attending meetings and trainings, or performing other work for an employer.5
Months later, in Bluford v. Safeway Stores, Inc., the Court of Appeal held that allowing employers to account for rest periods indirectly by negotiating a higher piece-rate violated California law because the compensation structure averaged pay to comply with the minimum wage requirement rather than separately compensating employees for their rest periods at the minimum or contractual hourly rate.6 Following the Gonzalez and Bluford decisions, California enacted Assembly Bill 1513. A.B. 1513 added section § 226.2 to the Labor Code to address the claims of piece-rate employees for recovery of wages and related damages and penalties. Section 226.2 clarified and settled the pay requirements for mandated rest and recovery breaks and other nonproductive time for piece-rate compensation agreements.
Until now, the law was unsettled as to whether employers’ obligation to pay for rest periods and other nonproductive time separately extended to other incentive pay plans. The Vaquero decision addressed that.
ii. The Requirement to Separately Compensate for Rest Periods Applies to Employees Paid on Commission
The Court in Vaquero held that Wage Order No. 7 applied equally to commissioned employees as to employees paid by piece-rate, or any other compensation system that did not directly provide compensation for rest breaks and other nonproductive time. The Court noted the commission agreement used by Stoneledge during the class period is “analytically indistinguishable” from a piece-rate system in that neither allowed employees to earn wages during rest periods.
The Court found it illogical to assume that a commission-based employee working 100 minutes more per 40 hour work week would not earn more in commissions than an employee who spent those same 100 minutes on break. This is because the employee who did not take breaks could spend those 100 minutes greeting new customers, following up with potential leads, or answering emails and phone calls relating to pending orders, which is far more likely to lead to sales resulting in pay over and above the minimum rate.
iii. Stoneledge’s Commission Agreement Did Not Separately Compensate Sales Associates for Rest Periods.
Stoneledge compensated their sales associates pursuant to a Commission Agreement. Upon termination of their employment, employees Vaquero and Schaefer filed a class action complaint alleging that Stoneledge’s Commission Agreement failed to adequately compensate them for rest periods in violation of California law.
Under the Commission Agreement, if a sales associate failed to earn a “minimum pay” of at least $12.01 per hour in commissions in any pay period, Stoneledge paid the associate a draw against future advanced commissions. The Commission Agreement explained, “[t]he amount of the draw will be deducted from future advanced commissions, but an employee will always receive at least $12.01 per hour for every hour worked.”
Stoneledge contended the Commission Agreement properly compensated employees for rest periods because an employee was guaranteed the minimum pay of $12.01 per hour. The Court reasoned, however, that such a plan was similar to Bluford in that it did not directly compensate sales associates for rest periods. Further, the Court found the advances or draws against future commissions were not compensation for rest periods because they were not compensation at all; at best, they were “interest-free loans.” The Court reasoned that taking back money paid to the employees effectively reduced either rest period compensation or the contractual commission rate, both of which violated California law.7
iv. What This Means for Employers
Taken with the decision in Augustus, employers have yet another obstacle to navigate in the already complex system of California wage and hour law. The Court held that Stoneledge’s compensation agreement was unlawful, but it did not provide guidance regarding how to appropriately structure commission compensation moving forward.
Notwithstanding, Stoneledge subsequently implemented a new commission agreement that paid sales associates a base hourly wage of $10 (the minimum wage at the time) “for all hours worked.” In addition, sales associates could earn various types of incentive payments based on a percentage of sales. Under the new agreement, no portion of a sales associate’s base pay could be deducted from or credited against incentive payments. This revised plan was not challenged by plaintiffs and, as such, may provide guidance regarding appropriate compliance moving forward.
As California law continues to become more complex, it is more important than ever for employers to ensure careful compliance. Wage and hour violations can quite easily turn into costly class action lawsuits and may carry hefty civil penalties. Before implementing any incentive based payment plans, an employer should be sure to separately and directly compensate for rest periods at the minimum wage, or as further defined by law. Anyone with an existing commission compensation plan should conduct a full audit of the plan to make sure it follows the requirements set forth in Vaquero.
1 Vaquero v. Stoneledge Furniture LLC (2017) 9 Cal.App.5th 98.
2 Augustus v. ABM (2016) 2 Cal.5th 257 (holding employers’ requirement that employees remain “on-call” during rest periods violated employer’s obligation to relieve employees of all duties during rest periods.) For further analysis of the Augustus and related decisions, click here.
3 8 CCR §11070(12)(A).
4 Gonzalez v. Downtown L.A. Motors (2013) 215 Cal. App. 4th 36, 49.
5 Gonzalez, 215 Cal. App. 4th at 40–41.
6 Bluford v. Safeway Stores, Inc. (2013) 216 Cal. App. 4th 864, 871.
7 An employer may not collect or receive from an employee “any part of wages theretofore paid by said employer. Cal. Lab. Code § 221. An employer may not withhold any part of a wage agreed upon. Cal. Lab. Code § 222. An employer is prohibited from “secretly paying a lower wage while purporting to pay the wage designated by statute or by contract.” Cal. Lab. Code § 223. An employer may not average wages across pay periods to satisfy minimum wage requirements “effectively reduces employees’ contractual hourly rate. Armenta 135 Cal.4th at 323.
Date: Tuesday, May 16th, 2017
Time: Presentation: 6:30PM to 7:30PM
Location: El Dorado Hills, CA 95762
Palmer Kazanjian will be providing a seminar on Employment Law Issues for Healthcare Practice Owners in partnership with Robert Sanders, Attorney at Law, Inc. The session will be presented by Treaver Hodson, partner at Palmer Kazanjian Wohl Hodson LLP.
The following topics will be covered:
- Employment law basics
- Practical solutions for avoiding the hazards commonly associated with the employment relationship in health care practices
- Maintaining workable personnel policies and practices
- Valuing the independent contractor relationship
- Planning employee compensation, benefits and incentives
If you are interested in attending this seminar or our next complimentary Employment and Labor Law Update seminar, please contact us here or by phone at 916-442-3552.
With the end of 2016 also came the end of yet another legislative term, providing a multitude of new laws, which took effect January 1, 2017 (unless otherwise specified). This article provides a survey of the new laws by category, including health and safety, public works, discrimination, leaves, contingent workforce, wage and hour, and employment contracts, and how these new laws may affect employers in the New Year and beyond. We recommend all employers review the new laws and make any necessary changes to bring their businesses into compliance.
Health and Safety:
A.B. 7: Smoking in the Workplace
Effective January 1, 2017, A.B.-7 expanded the workplace smoking prohibition to include owner-operated businesses where the owner-operator is the only worker and has no employees, independent contractors, or volunteers. This bill also expanded the definition of “enclosed space” where smoking is prohibited and eliminated exemptions for hotel or motel lobbies; meeting and banquet rooms in a hotel or motel; warehouse facilities; gaming clubs; bars and taverns; employee break rooms; and businesses with five or fewer employees. Employers who allow smoking in the workplace should assure that they were not relying on any of the eliminated exemptions in allowing smoking in the workplace. If any of the now eliminated exemptions were relied upon, employers must change their policies accordingly.
S.B. 1167: Heat Regulations for Indoor Workers
This bill requires the division of Occupational Safety and Health to propose a heat illness and injury prevention standard applicable to indoor workers to the Occupational Safety and Health Standards Board. This standard is to be reviewed and adopted by January 1, 2019. This bill has very little impact on employers until the new standard is adopted. However, employers should watch for any proposed rules so policies may be brought into compliance, prior to the regulations taking effect.
A.B. 2687: Driving Under the Influence with a Passenger for Hire in Vehicle.
Effective January 1, 2018, this bill makes it unlawful for a person to drive a motor vehicle with a blood alcohol content of 0.04 or higher when a passenger for hire is in the vehicle or to cause injury to a passenger for hire while driving a motor vehicle with the specified blood alcohol content. A “passenger for hire” is defined as someone for whom consideration is contributed or expected as a condition of carriage in the vehicle, meaning someone who pays or is expected to pay money for a ride. This bill would most significantly affect drivers of ride services such as Uber and Lyft. Additionally any employer who employs these drivers should be aware of the potential vicarious liability for an offense. Employers in this industry may wish to audit their drug and alcohol policy and assure that their employees are aware of this change.
S.B. 954: Per Diem Wages for Employers Subject to Collective Bargaining Agreements
This bill qualifies which employer payments and benefits may be included as per diem wages for the purposes of an employer’s obligation to pay prevailing wages on public works projects where an employer is obligated to make certain payments pursuant to a collective bargaining agreement (CBA). If an employer is obligated under a CBA, he or she may include industry advancement and any administrative fees relating to a CBA in per diem wages. The purpose of this bill is to prevent employers from passing these costs to employees without the input or consent of the employees or their labor representatives. This means employers who are not subject to a CBA may not credit industry advancement payments towards the prevailing wage rate.
A.B. 1926: Prevailing Wages for Apprentices’ Pre-Employment Activities
This bill expanded the requirement that apprentices who perform work on a public works project be paid the prevailing wage rate. Under the new law, apprentices must also be paid prevailing wages for any pre-employment activities required by the contractor. Pre-employment activity includes filling out an application; testing, training, or examination; or other pre-employment process that is a condition of employment. Additionally the apprentice shall be paid for the travel time to and from the required activity. Starting January 1, 2017, employers who wish to use apprentices for public works projects should make sure to pay them the appropriate wage for these pre-employment activities.
A.B. 326: Timing of the Return of Wage and Penalty Assessments Held by Labor Commissioner
This bill shortens the amount of time the Department of Industrial Relations has to release any civil wage and penalty assessments held by the Labor Commissioner for violation of the laws regulating public works contracts, during a review or appeal of the penalty. The Department must release the money to the person or entity entitled to it within 30 days of either: (1) the conclusion of all administrative and judicial review; or (2) the department’s receipt of written notice from the Labor Commissioner of a settlement or other final disposition of an assessment. Employers should be aware that starting January 1, 2017, upon a successful judgment by the Labor Commissioner, they no longer have to wait 60 days for their bond to be returned.
A.B. 1676: Wage Discrimination Based on Gender
Effective January 1, 2017, this bill amended the equal pay act so that prior salary, by itself, is not enough to justify a disparity in compensation under the bona fide factor exception, which allows for a disparity based on any bona fide factor other than sex, such as education, training, or experience. This means that pay differentials based on prior salary, even if applied neutrally, will not be tolerated where it leads to a wage gap among similarly situated men and women. Employers using prior salary as a basis for current salary may want to consider removing that factor from consideration or, at the very least, implement an auditing system to ensure that it does not result in a discrepancy in current salary among genders.
S.B. 1063: Wage Differential Based on Race or Ethnicity
Effective January 1, 2017, this bill extends the protection against unequal pay on the basis of gender to also prohibit discrimination on the basis of race or ethnicity. Employers should note this extension would also include protection against a wage differential on the basis of prior salary, as discussed in the previous bill.
A.B. 1843: Background Checks for Employment Applications
Effective January 1, 2017, an employer is prohibited from asking an applicant for employment to disclose information concerning or related to an arrest, detention, procession, diversion, supervision, adjudication, or court disposition that occurred while the person was subject to juvenile court. An employer may not utilize any such information as a factor in determining any condition of employment. This means employers may need to edit their employment applications to exclude any of the prohibited subject matter.
A.B. 488: Harassment/Discrimination of Employees Employed Under Special License
Effective January 1, 2017, this bill expands the definition of employee pursuant to FEHA, to include individuals employed under a special license in a nonprofit sheltered workshop, day program, or rehabilitation facility. This allows employees to bring an action under the Fair Employment and Housing Act (FEHA) for prohibited harassment or discrimination.
This bill provides a defense to employers where the challenged action was permitted by statute or regulation and was necessary to serve employees with disabilities under a special license. The bill also protects employers who hire or employ a qualified individual at a wage less than the minimum wage, in conformity with a special license. This means that, aside from the narrow exceptions outlined above, it is unlawful for employers to discriminate against employees working under a special license.
A.B. 2844: Discrimination Prevention in Public Contracts
This bill applies to any person who submits a bid or proposal, proposes to enter into a contract, or renew a contract with a state agency in the amount of $100,000. Any person who falls within this definition is required to certify either at the time the bid or proposal is submitted or at the time that the contract is renewed, that they are in compliance with both the Unruh Civil Rights Act and the California Fair Employment and Housing Act. Employers who contract with state agencies should review their policies to ensure compliance with these two laws so that they can continue to submit bids in 2017.
S.B. 269: Construction Violations That Deny Full and Equal Access to Disabled Persons
A violation of the Construction-Related Accessibility Standards Compliance Act may cause a denial of full and equal access to a disabled plaintiff where he or she experienced difficulty, discomfort, or embarrassment because of the violation. Effective May 10, 2016, this bill created a rebuttable presumption that certain technical violations do not cause a plaintiff to experience difficulty, discomfort, or embarrassment, if specified conditions are met. On January 1, 2017, this bill also exempts a defendant from liability for minimum statutory damages if they resolve any violations identified within 120 days from receipt of a certified access specialist (CASp) report. This means that in the event of a violation businesses may significantly reduce their damages by expediently fixing violations.
S.B. 1001: Unfair Practices Regarding Employment Authorization Documents
Effective January 1, 2017, this bill prohibits an employer from requesting more or different employment authorization documents than are required under federal law, refusing to honor documents tendered, refusing to honor documents or work authorization based upon the specific status or the term of status accompanying the authorization, or reinvestigating or re-verifying an incumbent employee’s authorization to work. Employers should audit their employment verification procedures to ensure none of their practices fall within the expanded prohibited categories because a violation of provisions could result in civil penalties of up to $10,000 dollars per violation.
A.B. 908: Paid Family Leave
Effective January 1, 2018, this bill revises the formula for determining benefits available for unemployment compensation disability law and for the family temporary disability insurance program to provide an increase in the wage replacement rate to specified percentages. This bill also eliminates the seven (7) day waiting period before an employee begins to receive benefits. This benefit is paid for through the Unemployment Compensation Disability Fund, and therefore has little impact on employers. However, we encourage employers to be knowledgeable regarding leave laws to comply with notice requirements and provide employees with accurate information regarding protected leaves.
A.B. 2337: Leave for Victims of Domestic Violence, Sexual Assault, or Stalking
This bill requires employers (with 25 or more employees) to notify employees of their right to leave if they are a victim of domestic violence, sexual assault, or stalking. Employers must also notify employees that they will not be subject to any adverse employment action against them for taking leave for this purpose, as well as complaint procedures should employee be subject to any unlawful discrimination or retaliation for taking protected leave. Employers are to notify new employees of these rights in writing, upon hire, and any current employee upon request. The bill requires the Labor Commissioner to develop a form employers may elect to use to comply with the notice requirement and to post it on the Labor Commissioner’s Website by July 1, 2017. Employers are not required to comply with the notice of rights requirement until the commissioner posts the form, however employers should not wait for the form to begin updating their notice policy. We recommend employers update their employment handbooks to comply with this requirement, as well as other laws that took effect in 2016.
A.B. 1066: Overtime Exemptions for Agricultural Workers
This bill removed an exemption in current law, which prevents the payment of overtime compensation to agricultural employees after eight hours of work in a day or 40 in a week. Prior to this bill, agricultural employees were entitled to overtime pay after ten hours of work in a day or more than six days in a workweek. This bill provides that beginning January 1, 2019 (January 1, 2022 for employers with fewer than 25 employees), agricultural employees are entitled to overtime pay for more than 9 ½ hours in any one workday or more than 55 hours in any one workweek. The changes to the overtime requirements will be completely phased in by January 1, 2022, or January 1, 2025 for employers with 25 employees or less. Please note, however, that all other provisions of existing law, such as meal and rest period protections, shall apply to agricultural workers beginning January 1, 2017. Because of the complicated phasing in of this law, agricultural employers may want to seek legal counsel to ensure that they are in compliance to avoid costly penalties and potential back pay for unpaid overtime.
A.B. 1311: Weekly Pay Requirement for Temporary Service Employees
This bill extended the weekly pay requirement for temporary service employees to security guards that are employed by a temporary services provider. Please note that this was an urgency bill, which means that it took effect immediately upon being enacted on July 22, 2016. Employers who have not already updated their payment policies for these security guard employees should do so immediately because a violation of this law carries criminal penalties punishable up to a misdemeanor.
A.B. 2763: Use of Private Vehicles in Transportation Network Companies
Existing law authorizes the California Public Utilities Commission (CPUC) to regulate Transportation Network Companies (TNCs). A TNC is an organization that provides prearranged transportation services for compensation using an online-enabled application or platform to connect passengers with drivers using a personal vehicle (e.g., Lyft and Uber). Effective January 1, 2017, this bill defined the term personal vehicle and clarified that personal vehicles may be driven by TNC drivers and must comply with the CPUC regulations.
S.B. 1015: Domestic Worker Bill of Rights
The Domestic Worker Bill of Rights (DWBR) regulates the working hours of domestic work employees who are personal attendants and provides an overtime compensation rate for those employees. Under prior law the DWBR was set to be repealed as of January 1, 2017. This bill nullified the repeal date and extended the DWBR indefinitely. This means there is no longer an end date for overtime compensation due to domestic work employees under California law. However, due to a recent amendment to the FLSA, this change has little impact on employers because overtime is now required under federal law. For more information regarding the amendment to the FLSA and the DWBR please see our article, Final Rule Impacts Domestic and Household Workers.
Wage and Hour
A.B. 2535: Itemized Wages Statements for Salaried Employees
Currently, an employee exempt from overtime under IWC wage order is exempt from the “total hours worked” requirement on an itemized wage statement. This bill expands the total hours worked exemption to employees exempt from the minimum wage requirement. The purpose of this bill was to close any gaps in the law exposing employers to liability for omitting the total hours worked from a wage statement of an employee paid on a salary basis. This means that employers may omit this section of an itemized wage statement for employees paid on a salary basis.
A.B. 2899: Bond Requirement to Appeal of Labor Commissioner Ruling
Effective January 1, 2017, this bill requires that, prior to filing an appeal of a decision by the Labor Commissioner, relating to a violation of wage laws, employers must post a bond which covers the unpaid wages and damages owed to employees.
S.B. 3: Sick Leave for In-Home Care Workers
Effective July 1, 2018, this bill amends the definition of “employee” under the Healthy Families Act of 2014 and extends sick leave to in-home care workers. This means that all in-home care workers need to be receiving at least three (3) days or 24 hours of sick leave per year. For more information regarding the sick leave law, please see our article, Assembly Bill 304 – Urgency Amendment to the Paid Sick Leave Law.
S.B. 1234: California Secure Choice Retirement Savings Program
This bill would require eligible employers who do not offer specified retirement plans or accounts to have a payroll deposit retirement savings arrangement allowing employees to participate in the California Secure Choice Retirement Savings Program. The effective date for compliance is on a rolling basis, based on the number of eligible employees that the employer has. This bill only affects employers, with at least five employees, who do not have their own retirement savings arrangement. If you are an eligible employer and you do not have a retirement savings plan, we recommend consulting counsel to aid with compliance because of the complexity of the program’s requirements.
S.B. 1241: Forum Selection and Choice of Law Clause
This bill applies to contracts entered into, modified, or extended on or after January 1, 2017. This bill prohibits an employer from requiring an employee who primarily resides and works in California, as a condition of employment, to either: (1) agree to adjudicate a claim outside of California when that claim arose in California; or (2) deprive the employee of the substantive protection of California law with respect to a controversy arising in California. Employers should carefully review their agreements before requiring an employee to sign. Any provision in violation is voidable by the employee, and any adjudication will automatically occur in California, pursuant to California law. This means violation renders choice of law and forum selection moot as the bill defaults forum and choice of law to California. Lastly, while there are no penalties assessed for a violation, an employer may be liable for attorney’s fees, which could add up quickly if the employer recycles a deficient agreement.
Recent California court decisions provide additional guidance regarding the propriety of offered meal and rest periods in California. In general, employers are required to authorize and provide meal and rest periods to non-exempt employees. Under the applicable California Industrial Welfare Commission (IWC) Wage Orders, employers must provide a paid rest period of at least ten minutes for every four hours of work and a 30-minute, off-duty meal period prior to the end of the fifth hour of a work shift. A rest period is not required if an employee’s total daily working time is less than three and one-half hours. An employee whose work period does not exceed six hours in a day may waive the required meal period by mutual consent of the employee and employer.
Where the employee works longer than ten hours in a day, the employer must provide a second off-duty, 30-minute meal period. However, this second meal period may be waived by mutual consent of the parties when the employee works less than twelve hours in a day and has not waived the first meal period. When the employer fails to provide an employee with a meal period or rest break, a “premium” of one additional hour of pay at the employee’s regular rate must be paid for each day missed.
On-Duty Meal Periods
A limited exception to the above meal period rules allows an employee to remain “on-duty” during the required period. An employee may sign an on-duty meal period agreement if the nature of the work prevents an employee from being relieved of all duty. The on-duty meal period agreement must be a written agreement allowing for an on-the-job paid meal period as between the employer and employee. Such on-duty meal periods must be paid at the employee’s regular rate of pay.
The Division of Labor Standards Enforcement (DLSE) has set forth the following three prongs in assessing whether an on-duty meal period is permissible: 
- The nature of the work must prevent the employee from being relieved of all duty during the meal period;
- The employee and employer must have previously entered into a signed agreement authorizing an on-duty meal period; and
- The signed agreement must expressly state that the employee may, in writing, revoke the agreement at any time.
Often misconstrued as a meal period waiver, an on-duty meal period agreement is more aptly described as an agreement to take a paid on-duty meal break in place of an unpaid, off-duty meal break. To illustrate, it is permissible for an employee working an eleven-hour shift to take an on-duty meal break and waive the second meal break, assuming all requirements of the exception and waiver are met. Importantly, an employer not subject to the on-duty meal break exception, either because the nature of business work falls outside of the exception or because an employee has declined to enter into such an agreement, must compensate an employee for any missed meal periods and associated premium pay.
In consideration of the wide array of industry practices, the DLSE applies a “multi-factor objective test” to determine whether the nature of the work justifies an on-duty meal period:
- The availability of other employees to provide relief to an employee during a meal period;
- The potential consequences to the employee if an employee is relieved of all duty;
- The ability of the employer to anticipate and mitigate these consequences; and
- Whether the work product or process will be destroyed or damaged by relieving the employee of all duty.
Recently, in Driscoll v. Granite Rock Company, the California Court of Appeal clarified an employer’s duty with respect to meal periods. Factually, Granite Rock Company was engaged in the manufacture and transportation of concrete, and plaintiffs were “mixer-drivers” whose duties were to assist in the loading of concrete into mixer trucks and delivery of freshly-mixed concrete to customers. The plaintiffs alleged the employer had (1) failed to provide them with proper off-duty meal periods; (2) failed to pay the meal period “premium” for an additional hour of pay for each day missed; (3) “forced, expected, or trained [the employees] involuntarily to sign [on-duty meal period agreements] or miss off-duty meal periods against their will;” and (4) fostered on-duty meal period agreements that were invalid as written.
At trial, evidence was introduced showing that a certain number of employees entered into an on-duty meal period agreement which provided that the employee understood his or her right to revoke the agreement at any time “by providing at least one (1) working day’s advance” notice to the employer. The trial court found the one-day revocation notice provision failed to satisfy the requirements of the applicable Wage Order by allowing the employee to revoke the on-duty meal period agreement at any time. As such, the on-duty meal period agreement was invalid as a matter of law.
With respect to the claim of defendant’s failure to provide proper off-duty meal periods, the Court reiterated that an employer’s only duty is to provide for timely, off-duty meal periods; the employer is not obligated to police meal breaks to ensure they are taken. Moreover, the Court highlighted that “what will suffice [for an employer’s obligations to provide timely meal breaks] may vary from industry to industry.” The Court found defendant had provided a legally compliant Employee Handbook, which advised employees of their right timely meal periods. Defendant had properly posted the applicable Wage Orders advising employees of such rights. Further evidence was presented at trial in which employees acknowledged that they received, reviewed, and were aware of their rights under the policy. Some employees testified that they refused to take off-duty periods in favor of continuing work. No evidence was presented showing that defendant ever denied any employee’s request for a timely meal period.
As for the claims of defendant’s failure to pay appropriate meal period premiums, the Employee Handbook advised that special pay, equivalent to that of a meal period premium, would be paid to employees who refused or revoked the on-duty meal period agreement and who missed a timely off-duty meal period. In fact, three employees had revoked their on-duty meal period agreement and received the premium pay. Moreover, all employees who had entered the on-duty meal period agreement were paid consistent with policy. Therefore, the Court found no violations.
The Court acknowledged that defendant’s meal period policies were “particularly appropriate” in the context of the ready-mix concrete industry because employees were charged with managing rolling drums of freshly batched concrete at any time throughout their work day. As such, the employee’s lunch period depended upon the state of concrete in his or her truck. Because of this, the nature of concrete mixing and delivering made scheduling off-duty meal periods in advance nearly impossible. The Court reiterated that an employer was not required to affirmatively schedule meal periods, but rather, to only make them available as appropriate.
Lastly, the Court found plaintiffs had failed to prove they were forced to sign the on-duty meal period agreements involuntarily; rather, plaintiffs were given the opportunity either sign the on-duty meal period agreement or refuse to sign and be paid the meal premium equivalent.
Legality of On-Call Rest Periods
The California Supreme Court recently assessed whether employers are required to provide off-duty rest periods and whether employers may require employees to remain “on-call” during rest periods in Augustus v. ABM Securities Services, Inc. In that case, the plaintiffs were employed as security guards and alleged their employer failed to provide proper rest periods. The plaintiffs were required and instructed to “remain vigilant and responsible to calls when needs arose,” including during rest periods.
Labor Code section 226.7 prohibits an employer from requiring an employee to work during a meal or rest period. As noted previously, the applicable Wage Order provisions governing meal periods require that employees be relieved of all duties during a meal period. However, no such requirement is expressly found in the provision relating to rest breaks. Based on this, the Court of Appeal inferred that the off-duty requirement was not intended for rest periods.
The California Supreme Court reversed the decision, holding instead that employers are required to “… relieve their employees of all duties and relinquish any control over how employees spend their break time.” The Court pointed to the absence of any language in the applicable Wage Order expressly authorizing on-duty rest periods in support of its determination.
The Court went on to address whether the obligation to relieve an employee of all duties is met when an employee is required to remain on-call. In a clear departure from the fact-specific approach taken in prior cases to assess whether on-call time constitutes working time, the majority concluded that on-call rest periods were strictly impermissible. The Court reasoned that allowing courts to address whether an on-call obligation unreasonably interferes with an employee’s opportunity to take an uninterrupted rest break would result in “less clarity and considerably greater administrative complexities.”
Impact Upon Employers
An on-duty meal period agreement is generally valid where: (1) it is justified by the nature of work; (2) it is compensated; (3) it is a written agreement between the employer and employee; (4) it is revocable at any time by the employee; (5) the employee is apprised his or her statutory right to off-duty meal breaks; and (6) the employee has voluntarily entered into the agreement. Employers are advised to carefully assess whether the nature of an employee’s job duties warrants application of the on-duty meal period agreement.
With respect to rest periods, the California Supreme Court has ruled that employers must relieve an employee of all duties for the duration of rest breaks, including the duty to remain on-call. Notably, for situations in which it is “especially burdensome” for an employer to relieve an employee of all duties during rest periods, the Court has set forth the option to either: (1) provide an employee with another rest period to replace the interrupted rest period or (2) provide premium pay for each workday that a rest period is not provided.
The rules concerning meal and break periods will continue to evolve as case law develops. Employers should stay abreast of the latest developments, as failure to provide meal and rest breaks in accordance with California law can result in costly premiums, penalties and other potential damages under the California Labor Code and California Business and Professions Code. The first step in avoiding such liability is to ensure that all employment policies and handbooks are compliant with applicable wage and hour laws and to develop and effectively implement regular self-audit procedures.
 Cal. Lab. Code § 512(a).
 Cal. Lab. Code § 226.7(c).
 IWC Wage Order No. 1-2001, subd. 11(C).
 Bono Enterprises, Inc. v. Bradshaw (1995) 32 Cal.App.4th 968.
 Dept. Industrial Relations, DLSE Opn. Letter No. 2002.09.04 (2002).
 Lab. Code § 226.7(c); Murphy v. Kenneth Cole Productions, Inc. (2007) 40 Cal. 4th 1094.
 Driscoll v. Granite Rock Co., No. H037662, 2016 WL 6994923 (Cal. Ct. App. Nov. 30, 2016), as modified (Dec. 22, 2016).
 Driscoll v. Granite Rock Co., No. H037662, 2016 WL 6994923 at *2.
 Augustus v. ABM Security Services, Inc., (Cal., Dec. 22, 2016, No. S224853) 2016 WL 7407328, at *8.
The Fair Labor Standards Act (FLSA) requires employees to be paid the federal minimum wage for all hours worked and overtime pay for all hours worked exceeding forty in a week. The FLSA also contains a number of exemptions to the overtime requirement. The most common exemption involves “any employee employed in a bona fide executive, administrative, or professional capacity.”
Under the 2004 regulations to the FLSA (which are currently in effect), an employee must meet three criteria to qualify for this exemption. First, the employee must be paid on a salary basis (the “salary-basis test”). Second, the employee must be paid at least the minimum salary level established by the regulations (the “salary-level test”). Third, an employee must perform executive, administrative, or professional duties (the “duties test”).
In 2014, President Obama directed the Secretary of Labor to update the overtime regulations to modernize and streamline the existing overtime regulations for executive, administrative, and professional employees because the 2004 regulations “have not kept up with our modern economy.” As a result of this directive, The Department of Labor published the Final Rule on May 23, 2016. The Final Rule increases the minimum salary level for exempt employees from $455 per week ($23,660 annually) to $921 per week ($47,892 annually). The Final Rule was originally scheduled to go into effect on December 1, 2016.
However, prior to the implementation of the Final Rule, Nevada and twenty other states filed suit against the Department of Labor. The lawsuit contends the Obama Administration exceeded its statutory authority by raising the overtime salary limit in such a significant fashion. The Plano Chamber of Commerce and over fifty other business organizations also filed a lawsuit challenging the Final Rule. The two cases were consolidated into State of Nevada, et al. v. United States Department of Labor, et al. On October 12, 2016, Plaintiffs moved for an Emergency Preliminary Injunction.
On November 22, 2016, U.S. District Court Judge Amos Mazzant granted Plaintiffs’ Motion for Emergency Preliminary Injunction. This injunction prevented the Final Rule from going into effect pending further order from the Court. This results in the 2004 regulations remaining as the effective standards governing the subject exemption.
What This Means for Employers?
For the time being, the implementation of the Final Rule is in stasis. To the extent that employers have not already increased exempt employees’ salaries or converted them to non-exempt positions, the injunction allows employers to postpone these changes.
The situation is more complex for those employers who have already implemented changes in anticipation of the new rules or informed employees of anticipated changes. These employers should proceed with caution. Such employers are encouraged to seek legal guidance regarding whether any implemented salary increases can or should be reversed. In addition, if an employer plans to postpone these changes, legal guidance is encouraged regarding the best means to communicate to employees regarding the deferment of the previously announced changes. In addition to the legal considerations, employers must be mindful of potential morale issues that could accompany the postponement of previously announced changes.
Employers must also be aware the injunction may not be permanent. The Department of Labor has expressed its intention to appeal the injunction. If the injunction is appealed and the appeal is successful, the Final Rule will be implemented. However, in such an event, it is foreseeable that the Department of Labor would give employers a grace period to prepare for and implement the change. However, there is no guarantee as to how long any grace period would last.
Ultimately, employers must pay close attention to the status of the Final Rule to avoid potentially costly penalties for misclassification and unpaid overtime.
 29 U.S.C. 213(a)(1).
 Klem v. County of Santa Clara, Calif. (9th Cir. 2000) 208 F3d 1085, 1090.
 Presidential Memorandum, Updating and Modernizing Overtime Regulations, 79 Fed. Reg. 18737 (Mar. 13, 2014).
 81 FR 32391, 32391-32552
 Plano Chamber of Commerce et al. v. Perez et al. (E.D. Tex. Sept. 20, 2016) 4:16-CV-00732.
 State of Nevada, et at v. United States Department of Labor, et al (E.D. Tex. Nov. 22, 2016) 4:16-CV-00731
 Ibid. A preliminary injunction is a provisional remedy issued prior to the final disposition of litigation. Its function is to preserve the status quo and to prevent irreparable loss of rights prior to judgment. Sierra On-Line, Inc. v. Phoenix Software, Inc. (9th Cir. 1984) 739 F2d 1415, 1422.
When the federal Fair Labor Standards Act (FLSA) was enacted, it did not apply to workers who were employed directly by households and performed domestic service work, such as cooking, housekeeping, cleaning, and gardening. In 1974, Congress explicitly extended many of the protections of the FLSA to “domestic service” employees. However, Congress left exempt from the Act’s minimum wage and overtime protections, those domestic service employees who provide “companionship services” for the elderly or persons requiring assistance caring for themselves as a result of an illness, injury, or disability, and any employee who resides in the household for which he or she provides service.
Since the federal Department of Labor published its initial regulations interpreting the FLSA in 1975, the home care industry has undergone a dramatic transformation. In the 1970s, individuals in need of significant care generally received those services from institutional facilities such as nursing homes. Over time, there has been a significant shift from expensive institutional facilities to private home care subsidized by Medicare and Medicaid. This shift allows individuals in need of care to remain in their homes and communities.
As more individuals choose to receive services at home, rather than in nursing homes or other institutions, workers who provide home care services perform increasingly skilled duties. In 2013, the Department of Labor revised the regulations to better reflect the substantial increase of skilled medical attendants in the home care industry and workforce. Those regulations (the “Final Rule”) went into effect earlier this year.
Under the Final Rule, “direct care workers” are employed as certified nursing assistants, home health aides, personal care aides, and caregivers. Today, direct care workers are not the unskilled workers that Congress envisioned when it enacted the companionship services exemption in 1974, but are instead professional caregivers. As such, the Department of Labor amended the regulations to reflect Congress’ initial intent in extending the FLSA to home care workers.
The Final Rule makes several significant changes of which employers should be aware. First, the tasks that comprise “companionship services” are more clearly defined. Second, the exemptions for companionship services and live-in domestic service employees are limited to the individual, family, or household using the services. Lastly, the recordkeeping requirements for employers of live-in domestic service employees are revised. These requirements must be read in conjunction with the California requirements for domestic care workers.
Employees who perform companion services are exempt from the minimum wage and overtime protections provided under FLSA. The original regulations exempted workers who performed companion services for elderly people or persons who require assistance caring for themselves because of an illness, injury or disability. This definition was very broadly construed by courts and resulted in many skilled, professional caregivers falling into the exemption.
To remedy this, the new regulations more narrowly define “companionship services” as the provision of fellowship and protection. Companionship services may also include the provision of care if the care is provided in conjunction with the provision of fellowship and protection, and does not exceed 20 percent of the total hours worked per person and per workweek.
Fellowship means to engage the person receiving services in social, physical, and mental activities. Protection means to be present with the person receiving services in his or her home or to accompany the person when outside of the home to monitor the person’s safety and well-being. Fellowship and protection may include activities such as conversation; reading; games; crafts; and accompanying the person on walks, on errands, to appointments, or to social events.
Care is limited to assistance with activities of daily living (ADLs) and instrumental activities of daily living (IADLs). ADLs may include activities such as dressing, grooming, feeding, bathing, toileting, and transferring. IADLs are tasks that enable a person to live independently at home. These activities may include meal preparation, driving, light housework, managing finances, assistance with the physical taking of medications, and arranging medical care. If the direct caregiver spends more than twenty percent (20%) of his or her total weekly hours performing ADLs or IADLs they do not qualify for the companion services exemption and must be paid minimum wage and overtime.
Live-in Domestic Service
A live-in domestic service employee is exempt from the minimum wage and overtime protections provided under FLSA. The new law does not change the definition of a live-in domestic service worker. However workers who work several consecutive twenty-four (24) hour shifts are often confused with live-in employees. Therefore an employer should pay close attention to the actual definition of a live-in worker to properly distinguish between these workers and those who work consecutive twenty-four (24) hour shifts.
A live-in domestic service employee is defined as a worker who resides in the private home where he or she works on a permanent basis or for an extended period of time. On a permanent basis means that the worker works and sleeps on the employer’s premises seven days per week and therefore has no home of his/her own other than the one provided by the employer. Extended periods of time means that the worker works and sleeps on the employer’s premises for five days a week (for a total or 120 hours or more) or works and sleeps on the employer’s premises for five consecutive days or nights. Therefore, any live-in domestic service employee who works and sleeps on the employer’s premises for at least five consecutive days or nights will be exempt from the minimum wage and overtime requirements of the FLSA.
Who Can Claim the Exemptions?
Under the previous rule, all home care workers providing companionship services or live-in domestic services were exempt. Under the new rules, third party employers may no longer claim these exemptions and are required to pay all home care workers minimum wage and overtime. Third party employers include home care agencies, public agencies, or not-for-profit organizations. However individuals, families, or households may still claim the exemptions, provided that the criteria (discussed above) are met.
Under the new rules, the employer must also keep accurate records of all time actually worked by live-in domestic workers. The employer may shift responsibility for creating and submitting records to the employee. However, the employer is ultimately responsible for maintaining the records. An employer and a live-in domestic service worker may enter into an agreement regarding the employee’s meal, sleep, and other breaks or in other words, time for which the employee is completely free of work. The employer should keep a copy of this agreement.
How Does This Compare to California Law?
In 2013, California passed the Domestic Worker Bill of Rights (DWBR), which took effect on January 1, 2014. The DWBR provides overtime for domestic workers, including live-in domestic workers, who are personal attendants. Employees who work in the home but are not a personal attendant are not covered by the DWBR, which means that overtime requirements are governed by California Wage Order Number 15. The Wage Orders provide different overtime protections depending on whether the work performed is live-in or non-live-in.
A personal attendant is any person employed by a private householder or by any third party employer recognized in the health care industry to work in a private household to supervise, feed, or dress a child or person who needs supervision because of advanced age, physical disability, or mental deficiency. General personal attendant duties include feeding, bathing, dressing, and direct supervision of any person under care. If a domestic worker spends more than 20 percent of his or her time performing work other than supervising, feeding, and dressing a child or person who needs supervision, he or she is not considered a personal attendant. Non-attendant duties generally include making beds, housecleaning, cooking, laundry, or other duties related to the maintenance of a private household or the premises. Employers must pay personal attendants overtime for all hours worked over nine in a workday or over forty-five hours in a week.
There are several exceptions, including, but not limited to, certain family members, workers employed by a licensed healthcare facility, persons performing services through the In-Home Supportive Services, and persons employed pursuant to a voucher. If employees fall into any of these exceptions they are not covered under the DWBR, and their overtime entitlements are governed by the IWC Wage Orders.
What This Means For Employers:
The DWBR took effect in 2014, which means that the effect of the FLSA updates should not be as shocking to California employers. The most significant impact of the Final Rule is on third party employers who are no longer entitled to claim the companion services and live-in domestic service exemptions. However, California domestic worker registry or referral agencies were already required to comply with overtime requirements. Therefore the FLSA amendments will have the biggest impact on out of state employers or employers that also have agencies out of state. These employers must be sure to comply with all applicable overtime and minimum wage laws.
Under the FLSA amendments individuals, families, or households are also subject to shifting regulations. Employers must conduct a factually intensive analysis to ensure that the direct service provider hired actually falls within the exemption. If worker provides: (1) medical services typically performed by trained medical personnel; (2) services primarily for the benefit of the household instead of the elderly or injured person; or (3) spends more than 20% or his or her time assisting with ADLs or IADLS, the worker will not qualify for the exemption and must be paid minimum wage and overtime. California employers attempting to use this exemption should also make sure that employees are not entitled to overtime under California law.
Further, if you employ a live-in domestic service worker, review and (if necessary) revise your record keeping system. If an employee records his or her own time, it is recommended that appropriate safeguards are implemented to ensure the employee complies with lawful policies and procedures. You, as the employer, will be liable for violations even if it was actually the employee who did not keep adequate records
Partner Christopher Wohl Presents Oral Argument to Ninth Circuit Court of Appeals and Obtains Reversal for Shingle Springs Band of Miwok Indians – WATCH IT HERE
On May 9, 2016, the Equal Employment Opportunity Commission (“EEOC”) issued a resource document in an effort to address continued EEOC “charges indicating that some employers may be unaware of Commission positions about leave under the Americans with Disabilities Act (“ADA”).” (EEOC, Employer-Provided Leave and the Americans with Disabilities Act, May 9, 2016, available at https://www.eeoc.gov/eeoc/publications/ada-leave.cfm.) The EEOC enforces Title I of the ADA, which became law in 1990, and prohibits discrimination against individuals with disabilities in employment, housing, public accommodations, health services education and access to public services. The resource document clarifies existing law regarding an employer’s obligation to offer reasonable accommodation and engage in the good faith interactive process with an employee who has a disability.
Leave of Absence as Reasonable Accommodation
The ADA requires, generally, that covered employers (employers with 15 or more employees) provide reasonable accommodations to applicants and employees with disabilities. A reasonable accommodation is, “any change in the work environment or in the way things are customarily done that enables an individual with a disability to enjoy equal employment opportunities.” (29 Code Fed. Regs. § 1630.2.) That can include an employer’s provision of leave when needed for a disability, regardless of whether employer policy would otherwise so permit.
Many employers offer paid and unpaid leave as a benefit of employment. Some employers have general paid time off policies, under which employees may take leave for any reason they desire. Other employers maintain discrete policies providing a certain number of leave days designated as annual leave, sick leave, or “personal days.” If an employer receives a request for leave because of an employee’s disability and the leave falls within the employer’s established paid time off policies, it must treat the employee requesting the leave in the same manner as an employee who requests leave for reasons unrelated to disability. For instance, if a company’s leave policy does not require documentation, it cannot discriminatorily request documentation of employees who wish to use the leave for disability-related reasons. Similarly, an employer who permits employees to use paid annual leave for any purpose and without explanation, cannot require an employee seeking to use paid annual leave for disability-related purposes to use sick leave instead.
Moreover, employers may be required to make modifications to existing leave policies to enable employees with disabilities to work. This is the case even if the employer does not offer leave; the employee is not eligible for leave; or the employee has exhausted all available leave. Indeed, even those employers who have nondiscriminatory leave policies that establish the maximum amount of leave an employer will provide to any employee may be required to grant leave beyond this amount as a reasonable accommodation to employees who require it because of a disability, unless the employer can show that it doing so will cause an undue hardship. The EEOC resource document makes unequivocally clear: “[t]he purpose of the ADA’s reasonable accommodation obligation is to require employers to change the way things are customarily done to enable employees with disabilities to work. Leave as a reasonable accommodation is consistent with this purpose when it enables an employee to return to work following the period of leave.”
Employers are also required to consider job reinstatement or reassignment as reasonable accommodation. Reinstatement refers to the placement of an employee back in his or her work position following an extended period of illness or disability. If an employer determines that holding open a disabled employee’s job while that employee is on leave will cause undue hardship, the employer may instead reinstate the employee in a different position for which he is qualified. In some cases, the requested reasonable accommodation will be reassignment to a new job that better suits the employee in light of the employee’s disability.
It is in violation of ADA for an employer to institute a “100% Healed Policy” in which the employer requires an employee with a disability to return to work without any medical restrictions. An employer may not claim that an employee with medical restrictions poses safety a risk unless he or she can show a “direct threat” of “substantial risk of substantial harm to self or others.” In assessing whether a medical restriction poses a direct threat, employers should look to whether the restriction affects the employee’s “essential and marginal functions.”
Despite the above, an employer must only grant a reasonable accommodation, including in the form of paid or unpaid leave, to an employee with a disability to the extent that it does not create an undue hardship for the employer. If an employer determines that providing the requested accommodation would impose an undue hardship on its operations and finances, it is not required to grant the leave. The following factors are generally considered in assessing whether providing leave would result in undue hardship to the employer:
(1) The amount and/or length of leave required
(2) The frequency of the leave during the work week
(3) Whether there is any flexibility with respect to the days on which leave is taken
(4) Whether the need for intermittent leave on specific dates is predictable or unpredictable
(5) The impact of the employee’s absence on coworkers and on whether specific job duties are being performed in an appropriate and timely manner
(6) The impact on the employer’s operations and its ability to serve customers and clients appropriately and in a timely manner
While indefinite leave generally constitutes an undue hardship, the EEOC notes that undue hardship is not necessarily imposed in a situation where an employee taking time off due to disability provides the employer with approximate return dates that are subject to modification in light of changing circumstances. Employers should evaluate such situations on a case-by-case basis. The employer may consider leave that has already been taken in assessing the impact of a requested accommodation leave. For instance, where an employee has used up the amount of leave permitted by the Family Medical Leave Act, Worker’s Compensation and the company’s leave policy, the impact of any additional time off will be assessed by looking at the total amount of time taken off. Bear in mind that employers are not, under any circumstances, required to provide paid leave beyond what it provides as part of its paid leave policy.
Employers should carefully document any analysis undertaken in consideration of whether providing leave would result in undue hardship. Moreover, employers who use “form letters” to inform employees of remaining leave balance or to instruct employees to return to work by a certain date or face termination should make clear that leave as an accommodation for disability may be permitted, provided that it does not produce an undue hardship.
Communication: The Interactive Process
The “interactive process” is a procedure designed to enable the employer to assess the feasibility of providing leave as a reasonable accommodation without causing undue hardship. Employers may use this process to request additional information to confirm that a condition experienced by an employee qualifies as a disability under ADA. Most of the focus will on (1) the specific reason the specific reason the employee needs leave; (2) whether the leave will be a block of time or intermittent; and (3) when the need for leave will end. During this preliminary phase, an employer may obtain information regarding the need for leave from the employee’s health care provider, provided there is employee consent. The interactive process may continue throughout the leave, up until employee’s return to work if the granted leave does not have a fixed return date or if the leave is extended. The employer may not request periodic updates where the return date is fixed. Importantly, employers who use third-party administrators or human resource department personnel to handle leave requests must ensure that a procedure is in place to ensure compliance with the interactive process.
Earlier this year, the Department of Labor’s Wage and Hour Division (“WHD”) issued Administrator’s Interpretation No. 2016-1, an interpretive memorandum (“memorandum”) providing clarification to employers on whether a joint employment relationship exists when two or more businesses share the same worker. The memorandum provides the WHD’s opinion of when employers may be considered joint employers under the Fair Labor Standards Act (“FLSA”) and the Migrant and Seasonal Agricultural Work Protection Act (“MSPA”), thereby creating joint and several liability between joint employers for compliance violations. The WHD’s memorandum is particularly important because in the event of joint employment, an employee’s hours worked for each of the joint employers during the workweek are aggregated and considered as a single employment relationship for purposes of calculating overtime premiums and related hours of work. Not surprisingly, this interpretive memorandum comes in response to employers’ increasingly widespread practice of sharing employees and the use of third party management companies, independent contractors, staffing agencies and labor providers.
The WHD addresses two potential forms of joint employment which it refers to as “horizontal” and “vertical” joint employment. If one or both of these forms of joint employment exist, the joint employers will be jointly and severally liable for violations under both the FLSA and the MSPA.
Horizontal Joint Employment
The WHD provides that horizontal joint employment may exist “where the employee has employment relationships with two or more employers and the employers are sufficiently associated or related with respect to the employee such that they jointly employ the employee.” The primary focus of horizontal joint employment is on the relationship between the employers. This type of joint employment may be present, for example, where two separate restaurants, which share economic ties, have the same managers controlling both restaurants, share staff, and have common management. The WHD provides several factors which may be relevant in assessing whether a horizontal joint employer relationship exists, such as:
- who owns the potential joint employers (i.e., does one employer own part or all of the other or do they have any common owners)
- do the potential joint employers have any overlapping officers, directors, executives, or managers;
- do the potential joint employers share control over operations (e.g., hiring, firing, payroll, advertising, overhead costs);
- are the potential joint employers’ operations inter-mingled (for example, is there one administrative operation for both employers, or does the same person schedule and pay the employees regardless of which employer they work for);
- does one potential joint employer supervise the work of the other;
- do the potential joint employers share supervisory authority for the employee;
- do the potential joint employers treat the employees as a pool of employees available to both of them;
- do the potential joint employers share clients or customers; and
- are there any agreements between the potential joint employers.
Vertical Joint Employment
Distinguished from horizontal joint Employment, the WHD provides that vertical joint employment may be found when an employee is economically dependent on an employer who, via an arrangement with an intermediary employer, is benefitting from the work. This form of vertical joint employment typically exists when a potential joint employer has contracted for workers that are directly employed by an intermediary employer (usually a staffing agency, subcontractor, labor provider, or other intermediary employer), and those workers are economically dependent on the potential employer. The WHD points out that the threshold question in a joint employment case is whether the intermediary employer (who may be an individual or company responsible for providing labor) is actually, as a matter of economic reality, an employee of the potential joint employer. See Rutherford Food Corp. v. McComb, 331 U.S. 722, 729-30 (1947). (Depending on the industry, the “intermediary employer” could be, for example, a staffing agency, farm labor contractor, or any individual or company that is dependent on the grower as a matter of economic reality). If an intermediary employer is actually determined to be an employee of the potential joint employer, all employees of the intermediary employer will also be considered employees of the potential joint employer and no vertical joint employment analysis need even occur. Therefore, the existence of a vertical joint employment relationship focuses on the employee’s relationship with the employers.
The MSPA provides some specific factors of “economic realities” to consider when determining whether an economic dependency exists between a worker and a potential joint employer who is benefiting from the employee’s work, thus creating a vertical joint employment relationship. While these factors are specific to the MSPA, they are helpful when performing a similar analysis under the FLSA as the FLSA uses the same “economic realities” standard. These factors include:
- does the potential joint employer direct, control, or supervise the work performed by the employee;
- does the potential joint employer control employment conditions;
- is there is permanent, full-time, or long-term relationship by the employee with the potential joint employer;
- is the nature of employee’s work for the potential joint employer repetitive and rote;
- is employee’s work an integral part of the potential joint employer’s business;
- is the work by the employee performed on premises owned or controlled by the potential joint employer; and
- does the potential joint employer perform administrative functions for the employee that are commonly performed by employers.
What This Means for Employers
While the WHD’s memorandum serves merely as guidance and does not carry the force of law, it is indicative of the WHD’s sweeping efforts to find joint employment relationships in FLSA and MSPA cases. Additionally, courts, administrative agencies, and government enforcement officer will often rely on such interpretations of the law when making decisions. Moreover, this broad view of the joint employment relationship is indicative of an expansive and growing effort on the part of many state and federal governmental agencies to define the employment relationship broadly and reduce the alternatives the modern workforce has developed and embraced. Similar expansive interpretations have been aimed at the independent contractor relationships and the franchisor/franchisee relationship. As such, employers should be proactive in determining if they are in a potential joint employment relationship and, if so, take steps to structure their current practices to avoid or reduce potential liability. At a minimum employers who have entered these types of relationships need to recognize the risks associated with the joint relationship and take appropriate precautions through contractual arrangements, including the proper use of indemnification, access, due diligence, insurance, and termination provisions.
If you have additional questions about joint employment or any other employment or labor related matters, we encourage you to reach out to one of our attorneys. For additional employment and labor updates, you can also visit our website at www.pkwhlaw.com.
To Our Clients and Business Associates:
Over the years, as we have represented employers and management in labor and employment related legal matters, we have discovered a few practices that help keep employers from costly disputes and litigation. With this in mind, we share a few practices that may assist you in maintaining compliance with current labor and employment laws.
Although at certain times modifications may be more frequent, we generally recommend employers update employment handbooks and written policies at least every two years, conduct regular labor audits, and consider obtaining appropriate Employment Practices Liability Insurance (“EPLI”) to guard against unanticipated liability. In addition to reviewing employment policies and labor audits, our firm offers, at no charge, regular training seminars and monthly articles on current labor and employment laws and trends. If you haven’t already, we recommend you sign up to receive these articles and notice of our seminars. More information is available at our website: www.pkwhlaw.com. Also, please find us on Facebook and LinkedIn where regular updates and access are available.
Last year, the National Labor Relations Board issued a Report Concerning Employer Rules. The report attempted to provide guidance on whether employee handbook policies were considered lawful or unlawful. The report prompted many employers to revise their employment policies and practices. Employers should consider reviewing applicable policies and rules to ensure compliance with these guidelines and other current legal amendments and trends, such as the recently adopted regulations from the California Department of Fair Employment and Housing, which have necessitated changes to prohibited harassment policies and the statutory sick leave requirements that took effect in 2015, which significantly changed how many employers structure their sick leave and other paid time-off policies.
In many instances, clearly defined employment policies and handbooks have been instrumental in protecting employers. For example, the California Supreme Court in Guz v. Bechtel National, Inc. advised that employers who want to ensure their at-will employment relationship with their employees should include correct at-will language in all written communications, including employee handbooks. The court stated, “[W]ritten employer communications to employees are the best evidence of the company’s intentions about at-will or for-cause terminations.” Guz v. Bechtel Nat. Inc. (2000) 24 Cal.4th 317.
In another case, a federal court found that the language in the employer’s handbook, coupled with the employee’s signed acknowledgement that she read and understood the provision in the handbook, was “strong evidence” that the parties did not intend to enter into any agreement to the contrary. Bianco v. H.F. Ahmanson & Co. (C.D. Cal. 1995) 897 F.Supp. 433, 440. See also Eisenberg v. Alameda Newspapers, Inc. (1999) 74 Cal.App.4th 1359, 1388, (holding that the employer’s written personnel policies and employee’s acknowledgement provided overwhelming evidence in support of the presumption that employment was at-will). In a recent landmark case, the Supreme Court of California denied class action certification for off-the-clock work, in part, based on the employer’s formal written handbook policy disavowing such work consistent with the law. Brinker Restaurant Corp. v. Superior Court (2012) 53 Cal.4th 1004, 1017.
So, handbooks should be updated regularly to reflect major changes in the law or in the workforce. Also, from time to time, employers determine that some policies are not effective and wish to consider options that may be more suitable for a productive workforce. We regularly review and revise employment policies and practices and are able to provide meaningful insights as you consider and develop strong employment procedures.
We recommend employers be proactive about ensuring compliance in their employment practices. It is a good practice to periodically audit employment practices. Because employment law continues to evolve, regular labor audits can keep you up to date and help you modify aspects of your employment practices to comply with applicable laws. Additionally, employers should be aware that many state and federal governmental agencies have the right to conduct audits at any time (with little notice), so it is prudent to regularly conduct self-audits with an eye toward compliance and maintenance of sound practice.
To be proactive, we recommend employers consider performing labor audits which may include review of the following:
- Recruitment and Hiring Policies and Practices
- Performance Evaluations; Promotions and Transfers Policies and Practices
- Discipline and Termination Policies and Practices
- Recordkeeping/Personnel Files/Job Descriptions
- Existence and Components of Safety and Training Programs
- Employee Handbook /Written Policy Review
- Communication of Policies and Practices
- Wage and Hour Compliance
- Leaves of Absence Policies and Practices
- Individual Contracts
- Independent Contractor
Employment Practice Liability Insurance (EPLI)
We have seen a growing trend in the use of EPLI. EPLI protects an insured against major litigation costs and the liabilities associated with claims of wrongful termination, harassment, discrimination, and retaliation. Additionally, some EPLI policies include limited coverage for other claims such as leaves of absence and wage and hour issues. Although EPLI continues to develop, some of our clients have secured favorable results when properly insured. So, as a firm, we encourage clients to consider obtaining appropriate EPLI coverage.
In making this recommendation, we also note that EPLI has some restrictions. For example, some clients were unaware, and quite surprised to find, that their EPLI coverage restricted their right to select their own legal counsel. For these particular clients, provisions in their EPLI policies gave the insurance company full authority to select the client’s legal representative, even when that legal counsel (hand-picked by the insurance company) may not have had the client’s best interests or preferences at heart. We believe selection of your legal representation should be your choice, not the insurance company’s.
So, if you decide to obtain EPLI coverage, or if you are renewing your existing EPLI policy, consider asking your broker about choosing your own lawyer. At your request, many EPLI insurance companies will include a “choice of counsel” provision that expressly permits you to choose your own legal counsel – so long as the lawyer is experienced and qualified in employment law. We have seen that retaining this right to choose your own legal counsel can be critical to resolving a matter consistent with your objectives and values.
These are just a few practical solutions we believe can help you avoid employment law disputes and legal actions. If you have any questions, you are welcome to contact us directly. Contact information is available at our website: www.pkwhlaw.com. We would be happy to discuss any or all of these topics with you in greater detail. We look forward to our continued relationship. We truly appreciate and value your confidence in our firm.
Very truly yours,
Palmer Kazanjian Wohl Hodson
In the wake of several recent changes to California’s employment landscape, Governor Brown signed Senate Bill No. 3 (“SB3”) into law on April 4, 2016, making it California’s latest mandated increase in minimum wage. This new law incrementally increases the state-wide minimum wage to $15 per hour by the year 2022. SB3 amends California Labor Code Section 1182.12 which recently raised California’s minimum wage to $10.00 per hour for 2016.
Currently, California’s minimum wage is already one of the highest in the nation, with many of its cities implementing even higher minimum wages throughout the state. Now under SB3, California’s minimum wage is set to increase incrementally each year, beginning in 2017. SB3, however, does allow for a delayed schedule for businesses with 25 employees or less, giving these employers an additional year to comply with each annual increase.
For businesses with 26 or more employees, the minimum wage increase will be as follows:
- Beginning January 1, 2017 – $10.50
- Beginning January 1, 2018 – $11.00
- Beginning January 1, 2019 – $12.00
- Beginning January 1, 2020 – $13.00
- Beginning January 1, 2021 – $14.00
- Beginning January 1, 2022 – $15.00
*(For businesses with 25 employees or fewer, the complete schedule is delayed by one year.)
After the minimum wage has been increased to $15 for all employers by 2023, SB3 also allows for the minimum wage to be increased each year thereafter at a rate tied to inflation. If, however, the annual rate of inflation increases beyond a predetermined percent prior to the first scheduled incremental increase, SB3 allows for an acceleration of the incremental increases for all employers, including those with 25 or fewer employees.
SB3 also provides, in part, that “to ensure economic conditions can support a minimum wage increase” certain thresholds must be met. Each year, beginning in 2018 and until the minimum wage reaches $15, each wage increase must be justified by the Director of Finance, certifying to the Governor that the economic condition of the state will support the next scheduled increase.
To justify the wage increase each year, conditions relating to unemployment, tax revenue, and the fiscal condition of the state’s General Fund must be met. If these economic conditions do not support the next scheduled wage increase, the Governor may temporarily suspend the minimum wage increase for the following year, delaying the entire schedule by one year. While there is no limit on the amount of times the Governor may delay the scheduled increases for reasons related to unemployment and tax revenue, SB3 does limit the amount of times the scheduled increases can be delayed due to the fiscal condition the state’s General Fund to “no more than two times.”
So, while SB3 provides a seemingly straight forward minimum wage schedule, the future minimum wage requirements for all employers are not set in stone as SB3 also provides for potential accelerations, delays, and adjustments. To ensure you are up to date on your company’s minimum wage requirements and other important employment and labor related matters, visit our website at www.pkwhlaw.com or reach out to one of our attorneys.
In general, California law requires an employer to reimburse its employees for business-related expenses incurred on behalf of the employer. California Labor Code section 2802 provides that, “an employer shall indemnify his or her employee for all necessary expenditures or losses incurred by the employee in direct consequence of the discharge of his or her duties or of his or her obedience to the directions of the employer.” This section only applies to expenditures made or losses sustained by the employee and only then when they are necessarily incurred. Therefore when faced with a demand for reimbursement for employee expenditure, an employer should ask:
- Did the employee actually make expenditures or incur losses?
- Were the expenditures or losses incurred in direct consequence of the discharge or the employee’s duties or obedience to the employer’s directions?
- Were the expenditures or losses necessary?
If the answer to any of these questions is no, then reimbursement will not be required under section 2802 – although reimbursement may be required when an employer makes a contractual commitment to reimburse beyond the statutory requirement.
Conversely, some employers may incur conditional costs that aim to benefit both parties. For example, an employer may agree to pay an employee’s educational or training pursuits on the condition that the employee remains employed with the employer for a specified period of time after the education/training is complete. In this way the employer benefits from its expenditure through the employee’s continued work and performance. Of course, the penalty for failing to remain employed for the promised duration is typically a demand that the employee reimburse the employer for the educational expenditure.
As such, a question arises whether the employer may demand reimbursement for the educational expenditure when Labor Code section 2802 requires the employer to pay for expenditures incurred in the employment relationship. This issue is compounded by the protections found in Labor Code section 2804, which provides that an employee’s right to indemnification cannot be waived by contract.
This particular issue was addressed by a California court in USS-Posco Industries v. Case, which upheld summary judgment in favor of the employer who demanded repayment when an employee left the job only two months after he completed the employer-sponsored education program. USS-Posco Industries (UPI) faced a shortage of Maintenance Technical Electrical (MTE) workers. To remedy this, UPI implemented a voluntary Learner Program to train current employees to be MTEs. The Learner Program was a three-year training program at the end of which, after passing the exam, employees would fill one of the vacant MTE positions. Employees who participated in the program were required to enter into a repayment agreement stating that they would reimburse UPI in the event they voluntarily terminated employment within 30 months of completing the program.
The employee, Floyd Case, completed the Learner Program and then quit UPI two months later to work for Lawrence Livermore National Laboratory as a high voltage electrician. Case refused to reimburse UPI for the Learner Program as required by the reimbursement agreement. Case claimed he was entitled to indemnification and that he could not waive that right by entering into the reimbursement agreement.
In analyzing section 2802, the court held that Case did not make any expenditure or suffer any loss in direct consequence of the discharge of his duties by participating in the Learner Program, and thus was not entitled to indemnification. Rather, the court found he received a benefit because UPI fronted the costs of his voluntary undertaking of the advanced training. Further, even if Case were found to have made a qualifying expenditure or incurred loss, such expenditure or loss was not necessary. First, the program was entirely voluntary. And, second, there were at least three ways to secure an MTE position: (1) pass the MTE test without any training; (2) self-study; or (3) participate in the Learner Program. Case voluntarily chose the third option and thus was not entitled to indemnification. The court ordered Case to honor his obligation to repay UPI subject to the terms in the reimbursement agreement.
In summary, an employer must indemnify (reimburse) employees for the business-related expenditures incurred on behalf of the employer. However, when an employee enters an agreement for his own benefit on a voluntary basis, the employer may, in limited circumstances, obligate the employee to reimburse the employer if all the conditions of the benefit are not met. Employers should proceed cautiously in this area. Only in these limited circumstances would an employee be obligated to reimburse the employer. The obligation is almost always the reverse with the employer obligated to reimburse the employee. Still, employers have certain rights and, when properly documented in an enforceable agreement, can demand employees comply with lawful promises and conditions.
 Cal. Lab. Code § 2802(a).
 Gattuso v. Harte-Hanks Shoppers, Inc. (2007) 42 Cal.4th 554, 567.
 Cassady v. Morgan, Lewis & Bockius LLP (2006) 145 Cal.App.4th 220, 230.
 Cal. Lab. Code § 2804.
 Contra Costa County Super. Ct. No. MSC1102781
 Cal. Lab. Code § 2802(a).
 Cal. Lab. Code § 2804.
Arbitration has become a widely used mechanism for resolving legal disputes, due in part to the increased efficiency and cost-effectiveness it affords employers. The Federal Arbitration Act (“Act”) embodies the “liberal federal policy of favoring arbitration agreements,” and at its core, provides a medium by which disputes can be privately resolved through a neutral third party. The Act also establishes the legal framework for an enforceable and valid arbitration agreement as well as the grounds upon which an award is vacated or enforced. The steady increase in the use of mandatory arbitration agreements in employment contracts has been met with controversy, particularly surrounding the enforceability of class action claim waiver clauses.
Enforceability of Class Action Waivers in Arbitration Agreements Not Subject to the NLRB
For over a decade, the courts have grappled with the question of whether a state law that restricts the enforcement of an arbitration agreement is preempted by the Act. In Conception, the United States Supreme Court endorsed the enforceability of a customer’s agreement to waive the right to file a class action. Specifically at issue was whether the Act preempted a California state law that deemed class action waivers in adhesive consumer arbitration agreements unenforceable on the basis of unconscionability. Two AT&T customers brought suit against AT&T mobility alleging that the company had “engaged in false advertising and fraud by charging sales tax on phones it advertised as free.” The lower courts applied the unconscionability argument articulated in Discover Bank v. Superior Court and ruled that enforcement of the waiver would not allow for appropriate adjudication. On review, the United States Supreme Court disagreed, concluding that Discover Bank’s rule “interfere[ed]” with fundamental attributes of arbitration” and was therefore preempted by the Act.
California aligned itself with Conception in 2014 when it confirmed that under state law, express class action waivers in employment arbitration agreements are enforceable and specifically that refusal to enforce waivers on grounds of public policy or unconscionability is preempted by the Act. (Iskanian v. CLS Transp. Los Angeles, LLC, 59 Cal. 4th 348, 359, 327 P.3d 129, 133 (2014)). Turning to the issue of whether an employee’s right to bring a representative action under the Private Attorneys General Act of 2004 (PAGA) may be waived, the court determined that such waivers are “contrary to public policy and unenforceable as a matter of state law.” Recall that PAGA allows employees to bring an action on behalf of the state for Labor Code violations committed against the employee and other similarly situated employees. It is not a class action, but rather a representative action. The court was unpersuaded by the contention that PAGA disturbed “the principle of separation of powers under the California Constitution” and maintained that PAGA representative actions fall outside the scope of disputes that the Act seeks to protect.
Enforceability of Class Action Waivers in Arbitration Agreements Subject to the NLRB
Independently of case law to the contrary, the National Labor Relations Board (“NLRB”) has long held that arbitration agreements requiring employees to waive their right to file a class action as a condition of employment are in violation of Section 7 of the National Labor Relations Act and are invalid. (D.R Horton (2012). Murphy Oil USA, Inc.). However, for the most part, federal courts have taken a different stance, with the 5th, 2nd, and 8th Circuit Courts ruling contrary to D.R Horton. In addition, the California Supreme Court in Iskanian specifically rejected the argument that the act of participating in a “class proceeding to address wage violations” amounts to “concerted activity under section 7 of the NLRA.” In light of the disparity between federal and state courts and the NLRB, it is only a matter of time before the issue is taken to the United States Supreme Court.
Class Action Waivers Falling Outside the Scope of the Act
Gentry, the controlling authority in California prior to these rulings, may still have some limited application. It held class action waivers to be invalid where allowance of the class action leads to “a less comprehensive enforcement of overtime laws” for aggrieved employees. Gentry considered four factors in making that determination: “ the modest size of the potential individual recovery,  the potential for retaliation against members of the class,  the fact that absent members of the class may be ill informed about their rights, and  other real world obstacles to the vindication of class members’ rights to overtime pay through individual arbitration.” While the court in Iskanian referenced Gentry’s holding as having been “abrogated by recent United State Supreme Court precedent,” it is important to note that Gentry may still be good law in situations where the arbitration agreement is not governed by the Act.
For example, in Garrido v. Air Liquide Industrial, an employee truck driver brought an action against Air Liquide Industrial (ALI) alleging that the company committed a series of wage-related labor code violations and unfair business practices. The employee opposed ALI’s motion to compel arbitration under reasoning that the Act was not applicable to “transportation workers under 9 United States Code section 1.” The Court of Appeals concluded that while the ADR was not governed by the Act there was nothing to prohibit governance by the California Arbitration Act. This was of particular significance in that “Gentry could still apply.” Accordingly, the court applied the four factors set forth in Gentry and concluded that a class proceeding in this case would “be a significantly more effective way of allowing employees to vindicate their statutory rights.” Thus, the court affirmed the trial courts order denying Air Liquid’s motion to compel individual arbitration.
What This Means for Employers
This area of the law remains in a state of flux. Employers who are not subject to the NLRB can rest assured that arbitration agreements barring class actions will likely hold, since class waivers have been deemed enforceable by both, the United States Supreme Court in Conception and the California Supreme Court in Iskanian. It is also important to note that while state laws prohibiting class action claim waivers in an arbitration agreement are preempted by Act, PAGA representative action waivers are not. Already, the Ninth Circuit has issued a decision in which it upheld the rule established in Iskanian. As case law on the enforceability of PAGA waivers continues to evolve, employers may wish to err on the side of caution by excluding any representative PAGA action waivers from their arbitration agreements or limiting their application through appropriate language in the arbitration agreement.
Finally, employers subject to the NLRB who are unwilling to absorb the potential costs of litigating matters at the federal administrative and appellate levels may consider excluding the class waiver provision from their arbitration agreements or, again, limiting its application through appropriate language in the arbitration agreement. However, please recognize that as discussed in a previous article (“Growing Section 7 & 8(a) (1) Violations Pose A Threat To Arbitration Employment Agreements”), recent NLRB decisions demonstrate that a provision making the class waiver optional does not necessarily safeguard the provision.
Still, despite the instability currently demonstrated by the administrative agencies and courts on this issue, arbitration agreements remain a viable option for employers to seriously consider as a means of limiting employment-related claims and actions to a forum that permits more privacy and to a process that is more expeditious and cost-effective.
The new year brought a multitude of new laws that took effect on January 1, 2016 (unless otherwise noted). Here are some of the most notable changes employers need to be aware of.
AB 1513: This bill repealed sections 77.7, 127.6, and 138.65 and added Labor Code section 226.2. This new law sets forth requirements for the payment of a separate hourly wage at or above specified minimum hourly rates for rest and recovery periods and for “other nonproductive time” worked by piece-rate employees. It also defines “other nonproductive time” as time under the employer’s control, exclusive of rest and recovery periods, that is not directly related to the activity being compensated on a piece-rate basis. Additionally, employers must specify the following on a piece-rate employee’s itemized wage statement: (1) the total hours of compensable rest and recovery periods, (2) the rate of compensation paid for those periods, and (3) the gross wages paid for those periods during the pay period. Employers should note that the bill provides an affirmative defense and safe harbor for employers who, by December 15, 2016, fully compensate their specified employees for all under-compensated or uncompensated rest periods, recovery periods, or unproductive time between July 1, 2012 and December 31, 2015. Please be aware this bill took effect on January 1, 2016.
AB 304: This legislation was an amendment to AB 1522 that passed in 2014. AB 304 was urgency legislation that went into effect on July 13, 2015. The purpose of the urgency legislation was to provide clarification regarding which workers were covered, how paid time off accrued, and how it affected employers that already have a paid sick leave policy in place. Under AB 304 an employee can accrue sick leave after 30 days of employment in California for the same employer and is eligible to use the sick leave after 90 days. An employer may use an accrual method or front loading method, so long as it provides at least 3 days or 24 hours per year. Additionally, employers who already have a Paid Time Off (PTO) policy in place may rely on that for compliance, so long as it meets the minimum requirements of the new leave law.
SB 358: This bill significantly modified California Labor Code § 1197.5, California’s equal pay statute, by relaxing the burden of proof for a plaintiff’s claims while weakening an employer’s defense. Prior law prohibited an employer from paying an employee at a wage rate less than an employee of the opposite sex in the same establishment. However under prior law an employer had a defense if the pay differential was based on a seniority system, merit system, a system based on quantity or quality of work, or another bona fide factor other than sex. This legislation eliminated the requirement that the wage differential be within the same establishment and instead would prohibit a wage differential for substantially similar work. The new legislation weakens an employer’s defense by requiring that the employer affirmatively show the wage differential was based on one of the previously mentioned factors and that that factor relied upon was applied reasonably. This legislation further weakens an employer’s rights by preventing the employer from prohibiting an employee’s disclosure of the employee’s own wages, discussing the wages of others, inquiring about another employee’s wages, or aiding or encouraging any other employee to exercise his or her rights under these provisions. Additionally, employers should make themselves aware of heightened record keeping requirements. Please be aware this bill took effect on January 1, 2016.
AB 987: Under existing law, the California Fair Employment and Housing Act (FEHA) protects the rights of employees to be free from discrimination and harassment based on their membership in a protected class. Additionally FEHA requires an employer to provide reasonable accommodations for a person’s disability and religious beliefs and prohibits discrimination against any person because he or she has opposed any practices forbidden under the act or because the person has filed a complaint. This bill provides additional protection by preventing an employer from retaliating or discriminating against an employee for requesting an accommodation, regardless of whether the accommodation request was granted. This legislation is of special importance to employers who are not subject to Title VII, which already provides for this protection. Please be aware this bill took effect on January 1, 2016.
AB 1506: Under the Private Attorney General’s Act (PAGA), an aggrieved employee may bring a civil action to recover specified civil penalties that would otherwise be assessed and collected by the Labor and Workforce Development Agency. PAGA is limited to certain serious Labor Code violations, including but not limited to those in §226 of the Labor Code relating to pay stub violations. This legislation does provide employers the opportunity to cure certain pay stub defects before the employee is entitled to bring a PAGA claim, specifically the inclusive dates of the pay period as well as the name/address of the employer. Employers should note that this bill limits the employer’s right to cure any defect to only once in a 12-month period. Additionally, employers should be aware that this was urgency legislation, meaning that it took effect immediately upon being signed on October 2, 2015.
Earlier this year, the Assembly Appropriations Committee announced its decision not to take up Senate Bill 3, which sought to increase the minimum wage to $13 by 2018. The postponement, according to the Assembly Committee on Labor and Employment, was in part due to an effort to preserve local control by allowing for collaborative agreements on a local level to take place as opposed to mandating wages. The past couple years have been characterized by a wave of local minimum wage increases throughout California. In step with San Francisco and Oakland legislatures, the City of Sacramento has finalized its minimum wage proposal. In a 6-3 vote on October 27th, 2015, the Sacramento City Council approved Ordinance No. 2015-0036 raising the minimum wage from the statewide rate of $10 (effective Jan. 1, 2016) to $12.50 in the next four years, with inflationary adjustments to be determined by the city manager thereafter.
Beginning January 1, 2016, employers will be required to pay the increased minimum wage amount for each hour that an employee works within the geographic boundaries of the city in a particular workweek. However, an employee must perform at least two hours of work in a particular workweek within the geographic boundaries of the city for the minimum wage provision to be applicable.
For employers with more than 100 employees, the minimum wage increases are set to occur in four increments, starting with an increase to $10.50 in 2017, $11 in 2018, $11.75 in 2019 and $12.50 in 2020. In an effort to mitigate the financial strain on smaller companies with fewer than 100 employees, the ordinance allows for smaller companies to implement the minimum wage increases one year later than larger businesses. A company’s number of employees is to be determined based on the average number of people employed during each pay period of the previous calendar year, excluding people who have been employed for 90 consecutive days or less (5.158.030. Sec. D). Further, new companies who do not have record of having provided employment during the previous year are subject to the timeline that applies to companies of 100 employees or less.
The final plan identifies two (2) classes that are exempt from the minimum wage requirement. First, employers are not required to pay the minimum wage to participants of a nonprofit corporation-run or government agency-run youth training program who are 25 years of age or younger (5.158.050. Subsection A). Secondly, an employee working in “an occupation in which he or she has no previous, similar or related experience,” referenced as a “learner,” is also exempt from the state minimum wage. Pursuant to Order 14-2001 of the Industrial Welfare Commission of the State of California, learners may be paid “not less than 85 percent of the state minimum wage” during their first 160 hours of employment “rounded to the nearest nickel” (5.158.050. Subsection B).
A provision of the plan that is likely to spark controversy provides for a “health credit” incentive plan that allows for employers who pay at least $2 per hour per employee toward the premium cost of the employee medical benefits plan to pay the employees a reduced minimum wage. In order to qualify for the health credit, the employee medical benefits plan must provide “a level of coverage equivalent to a bronze level plan under the Federal Patient Protection and Affordable care Act (Public Law 111-148),” which amounts to 60 percent coverage by the employer. For qualifying employers, a specified reduction amount is allowed depending on the minimum wage rate: Minimum wage rates of $10.50, $11.00, $11.75, and $12.50 will see a reduction of $0.50, $1.00, $1.50, and $2.00, per hour, respectively (5.158.060. Subsections A-D). Starting in 2022, the healthcare credit system is to be adjusted “in direct proportion to the percentage change in the Consumer Price Index based on data from the preceding year (5.158.060. Subsections E).
• Notice and Posting: Employers are required to post an announcement of the minimum wage increase in a conspicuous location within each workplace and ensure accessibility to all employees. The city each year publishes a notice that may be used by employers that can be accessed on the City of Sacramento webpage (5.158.040).
• Waivers Are Prohibited: A waiver by an individual to be paid at least the minimum wage rate is considered “contrary to public policy” and thus unenforceable (5.158.070).
• Payroll Inspections: As part of ensuring compliance with this ordinance the city may, upon reasonable notice and at an agreed upon time, inspect employer records (5.158.080).
• Investigations: Section 5.158.090 of the ordinance holds that “any person may report to the city” a suspected violation or failure of the employer to pay the required minimum wage. The city is authorized to investigate purported violations which may include an inspection of the workplace, interview of employees, and inspection of payroll records. Where an employer fails to produce adequate documentation or refuses the city access to pertinent records, an employee’s account of underpayment “shall be presumed to be accurate, absent clear and convincing evidence otherwise (5.158.100).
• Retaliation Prohibited: An employer may not “discharge, penalize, take adverse action on, or discriminate in any manner against any person in retaliation” in response to an employee reporting a violation to the city in good faith. Further, if within 90 days of the employee reporting a violation or exercising any rights under this chapter an employer takes adverse action against the employee, a “rebuttable presumption that the action was taken in retaliation for the exercise of such rights” will be raised (5.158.110).
Growing Section 7 & 8(a) (1) Violations Pose A Threat To Arbitration Employment Agreements
A rise in the number of employers opting to handle employment disputes through arbitration has been paired with increased scrutiny by the National Labor Relations Board (Board), specifically with regard to provisions threatening rights protected under Section 7 of the National Labor Relations Act (Act). Section 7 of the Act provides that employees have the right to organize, form, join, assist a labor organization, bargain collectively, or engage in other “concerted activities for mutual aid or protection.” Section 8(a)(1) prohibits “interference with, restraint, or coercion” of employees in the exercise of such rights.
In D.R. Horton v. NLRB (2012), the Board ruled that it was a violation of the Act to require “employees covered by the Act,” as a condition of their employment, to sign an agreement barring them from “filling joint, class, or collective claims addressing their wages, hours, or other working conditions against their employer.” Not long thereafter, in a highly anticipated 2-1 decision, the Fifth Circuit of Appeals reversed the Board’s holding. On review, the Fifth Circuit concluded that the Board’s decision “did not give proper weight to the Federal Arbitration Act.” Proponents of employment arbitration hoped this case would turn the tide in their favor, but subsequent decisions have demonstrated unwillingness by the Board to change their stance. Two recent cases, On Assignment Staffing Services Inc. and Arnella M. Freeman (2015) and Leslie’s Poolmart Inc. v. Keith Cunningham (2014), have arguably expanded the Board’s holding in D.R. Horton to include arbitration agreements that contain an “opt-out” procedure for employees and which are silent on the issue of collective class claims, respectively.
The Board’s Refusal to Revise Its Position on Class Action Waivers
In Leslie’s Poolmart, Inc., the respondent required employees, as a condition of employment, to enter into individual arbitration agreements that were allegedly intended to waive their right to pursue class, collective, or representative actions. While such provision was not expressly stated in the contract, the Board concluded that the agreement, paired with the respondent’s motion to compel arbitration of Cuningham’s individual claims, had the effect of barring class or collective claims. Thus, taken together, it was found that the agreement constituted an interference with Section 7 rights protected under the NLRA. Leslie’s Poolmart moved for dismissal of the case on the grounds that: (1) D.R. Horton was inapplicable due to being contrary to controlling Supreme Court precedent and the Federal Arbitration Act; (2) the Board lacked jurisdiction at the time when it decided D.R. Horton, Inc.; and (3) the Fifth Circuit’s reversal of D.R. Horton had rendered its holding invalid. The Board, unmoved by these arguments, concluded that the company had indeed “engaged in certain unfair labor practices.” The court ordered affirmative action to effectuate the policies of the Act, a cease and desist, and reimbursement of the respondent’s litigation fees.
Thus, the present case did more than simply uphold the D.R. Horton decision; it expanded the decision to employment agreements that, in combination with a motion to compel, prohibited class or collective action, even in the absence of express language targeting class and collective actions.
Employers looking to shield themselves of Section 8(a)(1) liability through the use of certain contractual maneuvers are cautioned to do so under competent advice. As the following case demonstrates, opt-out provisions do not legitimize an arbitration agreement containing a class action waiver. The dispute in On Assignment Staffing Services, Inc. arose when an employee of On Assignment Staffing Services Inc. alleged that the company’s dispute resolution agreement, in binding employees to a waiver of their rights to participate in collective and class litigation, “interfered with employees’ Section 7 rights to engage in collective legal activity.” The issue was whether the employer could legally require its employees to be bound to an agreement limiting resolution of all employment-related claims to individual arbitration where employees retained the option to opt out of the agreement within the proscribed time frame. The company argued that the opt-out option rendered the agreement voluntary and that the claim, for that reason, fell outside the scope of D.R. Horton’s ruling which had to do with mandatory agreements required as a condition of employment. The Board made no distinction between the two, maintaining that the procedure “reasonably tended to interfere with its employees’ exercise of Section 7 rights. Specifically, the opt-out procedure, they held, violated their Section 7 rights in that it: (1) placed a burden on employees to comply with a specific procedure in order in preserve their rights; and (2) required employees to make known to the employer their support for or rejection of concerted activity.
What this Means for Employers
Arbitration affords employers a more cost-effective and efficient method of resolving employment disputes, but as the referenced cases show, the risks of litigating before the Board or appealing a Board decision should be taken into consideration. In light of the Board’s decisions, employers are advised to assess their risk and consider a new review of their arbitration agreements to ensure that provisions do not improperly restrain protected collective and class actions. Of course, the D.R. Horton decision has been met with considerable opposition; already, the Fifth, Second, and Eighth Circuit courts have rejected the Board’s position. Notwithstanding, the Board has made clear that it does not give deference to any court other than the U.S. Supreme Court. As the issue of enforceability of class action waivers in arbitration agreements remains unresolved, it is only a matter of time before the appeals process is exhausted and the issue is taken to the U.S. Supreme Court.
National Labor Relations Board Expands the Joint Employer Standard in Browning-Ferris Decision
A majority decision by three National Labor Relations Board (“Board”) appointees overturned a Regional Director’s finding that Leadpoint Business Services, a Phoenix-based staffing firm, was the sole-employer of workers it supplied to one of Browning Ferris’s (BFI) recycling plants. The decision overturns 30 years of case law that served to define the employment relationship as one requiring “immediate and direct” control over employees. In a sweeping decision, the Board found that BFI’s direct and indirect control over the essential employment terms and conditions of Leadpoint workers was sufficient to establish BFI as a joint-employer with Leadpoint, rendering BFI answerable to Leadpoint employees for unfair employment practices or violations under the National Labor Relations Act. The Board points to the “changing economic circumstances,” and in particular, “the recent dramatic growth in contingent employment relationships” as necessitating a departure from the current “unjustifiably narrow” standard.
The dispute arose from an effort by Leadpoint employees and Teamsters Local 350, a signatory to Leadpoint, to bring BFI to the bargaining table. The Regional Director held that BFI was not a joint employer, stating that BFI lacked direct control over, among other essential terms of the employment relationship, their wages, termination, recruitment, daily work, and instruction. In response to the union’s request for review, the Board called on the parties and interested amici to consider whether the present joint-employer standard is consistent with the Act’s policy of “encouraging the practice and procedure of collective bargaining.”
The Board maintains that it is not introducing a new standard, but rather that it is returning to its traditional pre-1984 joint-employer standard. Whether two statutory employers are “joint employers of the same statutory employees,” the Board explains, depends on a two-prong test. The first looks at the extent to which employers “share or co-determine those matters governing the essential terms and conditions of employment” as to “hiring, firing, discipline, supervision, and direction.” The second weighs the degree to which “a putative joint employer possesses sufficient control over the employee’s essential terms and conditions of employment to permit meaningful collective bargaining.”
Key to distinguishing the old standard from the new is the Board’s interpretation of “control.” While the Board emphasizes that control is central to both inquiries, it distinguishes the new standard from the old, specifying that the new standard “will no longer require” that a joint employer, in addition to possessing control, exercise it. Further, the Board says that it is “sufficient” for the control to be exercised indirectly through an intermediary. Notably, the ruling “expressly overrules, TLI, Laerco, Airborne Express and AM Property.”
The two dissenting appointees argue that the new standard “threatens to cause substantial instability in bargaining relationships” that could end up imposing undue burden, risk, and litigation expenses on employers, employees, and unions alike. For one, they contend that the decision threatens to upend protections that have afforded “neutral employers” secondary boycott protection. They also reject the majority’s notion that the decision represents a “return to the traditional test,” asserting, rather, that “under common law,” an indication of “indirect control is probative only to the extent that it supplements and reinforces evidence of direct control.” The dissent lists business relationships that are expected to be most affected by this decision, including the “user-supplier, lessor-lessee, parent-subsidiary, contractor-subcontractor, franchisor-franchisee, predecessor-successor, creditor-debtor, and contractor-consumer” relationships.
Indeed, this decision comes on the heels of another ruling by the Board’s General Counsel to issue unfair labor practice complaints against one of the country’s largest fast food chains. The Board found that McDonald’s Corp. engaged in sufficient control over its franchisee’s operations” through its use of “tools, resources, and technology,” to qualify as “joint-employer.” Moving forward, it is not yet certain how Browning-Ferris will impact the present case against McDonald’s Corp. and franchisees or how the courts will decide cases under the new and broader joint employer theory moving forward. This decision is but one in a string of more activist undertakings by the Board. Employers should anticipate continued Board rulings that may change the business landscape in the coming years
On October 6, 2015, Governor Brown signed into law SB 358, the California Fair Pay Act. This act is an amendment to California Labor Code Section 1197.5. The new law is considered to be one of the strictest in the nation. The previous law under the Labor Code prohibited employers from paying employees at a wage less than the rates paid to employees of the opposite sex in the “same establishment” for equal work on jobs which required the same degree of skill, effort, and responsibility and which were performed under the same conditions.
SB 358 Amends The California Equal Pay Act (EPA) In The Following Ways:
- Clarifying the employee’s and employer’s burdens of proof under the EPA; (Cal. Lab. Code 1197.5).
- Ensuring that employees performing substantially equivalent work are paid fairly by requiring equal pay for work “of comparable character” and eliminating the “same establishment” requirement; (Cal. Lab. Code 1197.5(a)).
- Modifying the poorly defined catch-all affirmative defense of “factors other than sex” to include “bona fide factors other than sex”; (Cal. Lab. Code 1197.5(a)(1) emphasis added).
- Ensuring that any legitimate, non-sex related factor(s) relied upon are applied reasonably and account for the entire pay differential; (Cal. Lab. Code 1197.5(a)(2)-(3)).
- Prohibiting retaliation or discrimination against employees who disclose, discuss, or inquire about their own or co-workers’ wages for the purpose of enforcing their rights under the EPA. (Cal. Lab. Code 1197.5(j)(1)-(2)).
What This Means For Employers:
This amendment makes it easier for employees to prevail in litigation because it lowers the standard from equal pay for equal work to equal pay for comparable work. Therefore the new law could lead to employers being burdened with an increase in litigation. Employers sued by workers would have to show that the wage difference are due to factors other than sex, such as merit or seniority, that they are job related, reasonable, and that they are not due to discrimination.
However, due to already existing prohibitions against gender discrimination, found in both federal and state anti-discrimination laws, this law may have minimal practical effect or be duplicative of already existing prohibitions and mandates. Therefore, employers who are already in compliance with existing laws are likely compliant with this new legislation. Regardless, it may be prudent for employers to take this opportunity to conduct an audit of employee pay scales to ensure compliance with the new standards.
Additionally the amendment contains a record keeping requirement for employee wages and wage rates, job classifications, and other terms and conditions of employment to a period of three years. (Cal. Lab. Code § 1197.5(d)). Employer record keeping practices should be reviewed to ensure compliance with this minimum standard.
On December 15, 2014 the National Labor Relations Board (“NLRB”) adopted new rules regarding the procedures applicable to processing representation cases. These new rules went into effect on April 15, 2015. The new rules are an effort by the NLRB to streamline and modernize the representation case procedures, while increasing transparency and standardizing the NLRB process. The NLRB explained that the purpose of the amendment was to remove unnecessary barriers to the fair and expeditious resolution of representation cases by simplifying the process and providing more transparent and uniform elections.
Notable Changes Under the New Rules:
- Permits electronic filing and transmission of election petitions/other documents;
- Employer is required to post a Notice of Petition for Election containing more detailed information on the filing of the petition and employee rights within two days of service of the petition.
- Employers are required to provide additional contact information (personal telephone numbers and email addresses) in voter lists, to the extent that information is available to the employer, in order to enhance a fair and free exchange of ideas by permitting non-employer parties to communicate with voters about the election using modern technology;
- The non-petitioning party is required to respond to the petition, to generally state their positions before the pre-election hearing opens. The petitioner is required to respond to the issues raised at the opening of the hearing.
- Only issues necessary to determine whether an election should be conducted will be litigated in a pre-election hearing. The regional director may defer all other issues to the post-election stage.
Practical Effect of the New Rules:
One of the stated purposes of the new rules was to keep employers from delaying the election process and thereby discourage union activity. To accomplish this goal, the amendments have severely restricted an employer’s ability to make pre-election challenges.
According to a recent analysis of election cases, in the first 90 days after the rules took effect, 755 petitions had been filed, which was up from 687 during the same period last year. Interestingly, the number of elections actually conducted during the same period decreased from 255 to 234. The average length of time between filing a petition and conducting an election dropped from 37 to 27 days. The rate at which unions won elections held steady at around 64 percent.
One of the potential explanations for the increase in petitions, but decrease in elections, is that unions are filing petitions in order to obtain the personal information of the employees to use later. However, employers must still deal with the petitions that are filed, which is increasingly difficult under the new rules because employers have less time to articulate their positions; this means employers need to be prepared in advance. The new rules also disadvantage employees, who have less time to examine and weigh all of the facts as to whether supporting the union is in their best interests.
Because the rules are still new and most of the decisions remain unpublished, it is unclear if the trends found in the preliminary statistics will continue or greatly impact union success in the long term. However, what is clear is that the new rules have placed significant hurdles in front of employers attempting to challenge unlawful conduct committed by unions prior to an election
THE DOL’S PLAN TO STAMP OUT MISCLASSIFICATION OF EMPLOYEES AS INDEPENDENT CONTRACTORS
On July 15th, 2015, the U.S Department of Labor Wage and Hour Division (DOL) issued a sweeping informational memorandum (“Administrator’s Interpretation No. 2015-1” (link 1)), announcing its long-anticipated plan to make changes to the Fair and Labor Standards Act. The DOL’s efforts to curtail misclassification come in response to the growing problem of “misclassification of employees as independent contractors,” which they attribute in part to the “larger restructuring of business organizations.” The memo provides additional guidance to the public regarding the “Economic Realities Factors” and how they play into FLSA’s broad definition of employment (link 2). The distinction is of interest because independent contractors are not subject to state minimum wage and overtime protection laws, including coverage by worker’s compensation, right to family leave, unemployment insurance, right to unionize, and protection against employer retaliation.
The Economic Realities Test
The “Economic Realities Test” is a set of factors used by federal courts to determine whether a worker should be classified as an employee or independent contractor. The question is whether the worker is economically dependent on the employer. A worker that is found to be economically independent is more likely classified as an “independent contractor.”
The DOL breaks down its interpretation of each factor as follows:
- The extent to which the work performed is an integral part of the employer’s business. An employer who performs work that is “integral to the employer’s business” is more likely to be “economically dependent” on the employer and thus likely to fall under the category of “employee.” As courts have held, this determination is dependent on the nature of the work performed by the worker and whether such work is primary to business operations with respect to the industry.
- The worker’s opportunity for profit or loss depending on his or her managerial skill. A worker is more likely to be classified as an employee if his or her managerial skill “can affect his or her profit and loss.” This determination is based on, among other factors, the worker’s freedom to solicit new clients, advertise services, reduce costs, and choose when and where assignments will be perform.
- The extent of the relative investments of the employer and the worker. Does the worker bear a risk of loss? Investments are part of an independent business’s operating expense. A worker who has the ability to invest in expansion, make decisions about its cost structure, or extend his market reach demonstrates that he is on “similar footing” as the employer in terms of economic independence. Courts look not only to whether the worker has made an investment, but to the “relative investment of the worker in comparison to employer’s investment;” thus, if the worker’s investment does little to further a business beyond that particular job, then it is unlikely to provide support for an independent contractor classification
- Whether the work performed requires special skills and initiative. A showing of “special skills” by a worker, taken on its own, is insufficient to render independent contractor classification. A worker’s specialized skills are not necessarily indicative of independent contractor status unless “such skills are exercised in an independent manner.” Accordingly, a worker’s highly specialized technical skills must be paired with the ability to exercise “managerial and business skills.”
- The permanency of the relationship. “Permanency or indefiniteness in the worker’s relationship with the employer suggests that the worker is an employee.” An independent contractor will typically work on a non-continuous basis for the duration of an assignment, whereas an employee will work “until they quit or are terminated.” However, the key is being able to establish that the lack of permanence is due to the independent business initiative of the worker or the “operational characteristics that are intrinsic to the industry.”
- The degree of control exercised or retained by the employer. In our ever-changing technological environment, employers are now able to remotely “maintain stringent control over aspects of the workers’ jobs,” an advancement that the DOL suggests may encourage employers to misclassify workers as independent contractors. Where a worker controls “meaningful aspects of the work performed such that it is possible to view the workers as a person conducting his or her own business,” it is indicative of an employment relationship. Thus, the level of control that a worker exerts must be analyzed as part of determining whether a worker is “economically dependent on the employer.” Control may be manifested in several ways, including the ability to control the number of clients or to negotiate wage rate, schedule, and other elements of the relationship.
What Does this Mean for Employers?
The application of the “Economics Realities Test” in the context of the Act’s expansive view of “employ” has led to the finding that “most workers are employees under the FLSA.” While it remains to be seen whether courts will adhere to the DOL’s interpretation, employers are best-advised to understand it, in case courts use the DOL guidance in determining a worker’s classification.
The DOL’s interpretation points to the increasingly aggressive pursuit of enforcement actions against companies that use independent contractors. California, perhaps more so than any other state, has led in the efforts to eliminate misclassification of workers. In May of 2011, Governor Jerry Brown signed A.B 459 (link 3), a bill which called for the prohibition of willful misclassification and attached to each violation a heavy civil penalty ranging from $5,000-$25,000. This was followed by the passage of A.B 1897 (link 4), earlier last year, which extended liability to client employers who obtained workers from third party labor contractors.
On the legal front, the Ninth Circuit ruled earlier last year that FedEx had misclassified its drivers (link5) as independent contractors; not long thereafter, Fedex agreed to settle the matter for $228 million—one of the largest settlement cases in history. In June of this year, the California’s labor commissioner ruled that an Uber driver was an employee, and not a contractor. While the decision is not binding on all Uber drivers, it is anticipated to spark additional lawsuits. Already, three Uber drivers claiming to have been misclassified secured class-action status against Uber (link 6) on September 2nd. The decision by U.S District Judge Edward Chen to grant class-action status allows for the inclusion of all drivers who have contracted with Uber directly in California since 2009.
With federal agencies and courts increasing their scrutiny, the issue of worker misclassification continues to extend and intensify. Employer and business owners are prudent to carefully consider any contractor relationships to determine whether the classification meets the current standards established by the DOL and other reviewing agencies and courts.
Rise in Wage Statement Claims Following Amendment to California Labor Code Section 226
Prior to a 2013 amendment to the Labor Code, it was common for employees to add secondary claims, alleging inaccurate wage statements, to other more substantial claims against an employer. However, prior to the amendment these secondary claims, typically based on technical violations, were generally under-valued or even ignored in the defense of the more substantive claims. The pre-amendment version of the statute held employers to be in violation of Labor Code section 226 only when there was a “knowing and intentional failure” to comply with the key information that was required on wage statements. It also required the employee to show harm from the deficiency.
With the amendment, the current version of Section 226 has significantly lowered the standard by which an employer may be found in violation. Now an employer violates the statute when it fails to provide any wage statement at all or the wage statement fails to provide “accurate and complete” information. See Lab. Code § 226(e)(2)(A)-(B). A wage statement is not “accurate and complete” if an employee is unable to “promptly and easily” ascertain the required key information solely from the wage statement. See Lab. Code § 226(e)(2)(C). Also, the employee no longer has to prove that he or she was actually harmed by the defect in wage statement because the injury is presumed by the statute, making it much easier for an employee to succeed on his or her claim.
What This Means for Employers:
Of late, we have begun to see these “secondary” claims for wage statement violations become increasingly prominent and prolific. Because the amendment made it easier for an employee to succeed on a wage statement claim, employer compliance is more important than ever. Employers must take reasonable steps to ensure compliance and be cautious of relying solely on third party payroll services to ensure that wage statements contain all proper information required by the statute.
The statute caps damages at $4,000.00 per employee for wage statement violations; however in a class action with hundreds or even thousands of employees, wage statement violations may quickly become quite costly. In addition, employers may be subject to PAGA penalties. “PAGA” is the Private Attorneys General Act, which allows aggrieved employees to bring civil actions to recover penalties for violations under the Labor Code when the State declines to act. These PAGA claims broaden the enforceability of the statutory violations and provide additional penalties where no other penalty is specified. In our experience, employees will seek all available penalties under the Labor Code to enhance their primary claims and causes of action.
Moreover, we anticipate that employers will see increased wage statement claims due to the new sick leave law that took effect in July 2015. Sick leave accrual is not required on wage statements (even though Labor Code section 246 encourages its inclusion and requires appropriate notice with the paycheck). Still, employees may claim harm, not only from an employer’s failure to provide the required sick leave, but also from its failure to provide proper notice in the wage statement or with the wage payment. PAGA claims seem likely to follow.
As such, it is important for employers to know and comply with the statutory wage statement obligations. Pursuant to amended Labor Code section 226 a wage statement is in compliance if it includes an accurate itemized statement in writing showing:
- Gross wages earned;
- Total hours worked by the employee (expect for salaried employees who are exempt from overtime pay);
- The number of piece-rate units earned (if the employee is paid on a piece-rate basis);
- All deductions;
- Net wages earned;
- The dates of the period for which the employee is paid;
- The name of the employee and only the last four digits of the employee’s social security number;
- The name and address of the employer (or legal entity that is the employer); and
- All applicable hourly rates in effect during the pay period and numbers of hours worked at each hourly rate by the employee.
Noe v. Superior Court – It is a Violation of the Labor Code to Willfully Misclassify Employees as Independent Contractors.
In June 2015, the California Court of Appeal – 2nd District, issued its decision in Noe v. Superior court, which provided that California Labor Code § 226.8 makes it unlawful for an employer to engage in the willful misclassification of an employee as an independent contractor. Willful misclassification is defined as “avoiding employee status for an individual by voluntarily and knowingly misclassifying that individual as an independent contractor.” The Court further held that § 226.8 does not provide for a private right of action; however a company that is aware of a violation may still be penalized by the State.
The Court of Appeal ultimately held that the trial court incorrectly interpreted the phrase “engaged in” within the meaning of § 226.8, it means to participate or be involved in, therefore the section can extend beyond the employer who actually made the misclassification to anyone who was involved in it. Because the purpose of the statute is to prevent an employer from engaging in the act of willful misclassification, liability only extends to the employers who actually participate in the misclassification. Therefore an employer cannot be penalized under § 226.8 on their status as co-employer.
The court also concluded that § 226.8 does not provide for a private right of action. There is no language in the statute indicating that the penalty is directly recoverable by the employees, which means that the provision is only enforceable by the Labor Commissioner and employees cannot bring a private suit.
What this Means for Employers:
This means that any employer involved in the voluntary and knowing misclassification of employees can be liable under California Labor Code § 226.8. An employer is not shielded from liability just because he did not make the actual misclassification. This prevents an employer from utilizing a lower-tier, joint employer to make employee classifications in order to evade civil penalties.
This also means that an employer cannot be liable based on his status as a co-employer alone. Because the purpose of the statute is to penalize an employer for engaging in misclassification, the employer must have actually taken part in the misclassification in some way. An employer cannot be liable under the statute if he has no knowledge of the misclassification. Therefore an employer is not liable for merely employing an individual who has been misclassified or based on co-employer status alone.
The fact that the statute does not provide for a private cause of action means an employee cannot bring a lawsuit against the employer; the penalty for a violation is enforceable only through the Labor Commission.
Uber is a smart phone application that pairs private vehicle drivers with passengers. Drivers log on to the application to notify passengers that they are available to drive. Passengers sign on the application to request a ride. Once the driver accepts the request, a picture of the car and the driver appears on the passenger’s phone so the passenger is able to identify the ride. Uber is one of many applications, including Lyft and Sidecar, which pair drivers with passengers. All of these applications have one thing in common; they retain drivers as independent contractors rather than employees.
The classification as either an employee or independent contractor is critical to both parties. By being denied employee classification, drivers are denied protections provided under the California Labor Code, such as minimum wage benefits and overtime pay (Cal. Lab. Code § 1194), meal and rest breaks (Cal. Lab. Code § 226.7), reimbursement for work-related expenses (Cal. Lab. Code § 2802), and workers’ compensation (Cal. Lab. Code § 3700). However the business models of companies such as Uber and Lyft are dependent on driver classification as independent contractors. If drivers were classified as employees it would negatively impact both the cost of service and the profit of the company.
On June 3, 2015, in Berwick v. Uber Technologies, the Labor Commissioner of the State of California determined that Berwick was an employee of Uber rather than an independent contractor; a surprising result considering courts have been reluctant to definitively classify similar drivers as employees in previous cases. In March 2015, in Cotter v. Lyft, the court refused to rule as a matter of law that drivers of Lyft were employees, determining that it was a question of fact for the jury. (Cotter v. Lyft (2015) 60 F.Supp.3d. 1067, 1082).
The California Supreme Court has set out a widely recognized set of rules to be used when a question arises regarding the classification of independent contractor. The principal question is whether the company for whom service is rendered has the right to control the manner and means of accomplishing the desired result. In S.G. Borello & Sons v. Dept. of Industrial Relations (1989) 48 Cal.3d. 341, 350-351, the Court also established the following factors to consider when making the classification determination:
- Whether the person performing services is engaged in a distinct occupation or business;
- The kind of occupation, and whether it is customary in the area for the work to be done under the direction of the principal or by a specialist without supervision;
- The skill required by the particular occupation;
- Whether the alleged employer or workman supplies the instrumentalities, tools, and the place of work;
- The length of time for which the services are to be performed;
- The method of payment, whether by time or by the job;
- Whether the work is part of the regular business of the alleged employer; and
- Whether the parties believe they are creating an employer-employee relationship may have some bearing on the question, but is not determinative.
In making its determination in Berwick, the Labor Commissioner focused, primarily, on whether the work was part of the regular business of the putative employer and the extent of control the putative employer maintained over the operation as a whole.
Uber maintained that they were a neutral technology platform and they exerted very little control over the drivers’ activities. However it is not necessary to maintain complete control in order for an employment relationship to exist, especially where the activity is an integral part of the business and does not require a high degree of skill. The drivers were found to be integral because Uber is in the business of providing transportation services to passengers, which would not be possible without drivers. Further, Uber maintains more control than it let on. The hearing officer held that even if Uber did not control every detail, they were involved in “every aspect’ of the operation in that they vetted drivers by performing background and DMV checks, monitored driver approval ratings by denying access to the application for anyone who fell below 4.6 stars, and even put restrictions on the vehicles that may be used by requiring registration of the vehicle with Uber and restricting access to cars over ten years old.
This is the first decision in California to find employee status for an Uber driver. The ruling by the Labor Commissioner is non-binding, meaning that it is limited to just Berwick. So while it did not create a bright-line rule that California Uber drivers are employees, this decision could open the door to other actions against Uber, and its competitors, to classify their drivers as employees. The ruling highlights the difficulty in making the independent contractor classification determination. Common practice in an industry is not a meaningful defense to the legal analysis and classification of employees. A strong presumption the workers are classified as employees permeates the legal analysis of many California administrative agencies. In these settings, companies are frequently surprised by the outcome of administrative proceedings. Here, Uber has now appealed the decision in an effort to re-establish its analysis and classification. However, if the decision is reaffirmed de novo by the superior court, there will be significant support in favor of Uber and other drivers being classified as employees in California.
In addition to the appeal of the Labor Commissioner’s decision, there is also a class action pending against Uber. The class action originally filed on August 16, 2013, is currently seeking class certification. Class certification is following Plaintiffs’ victory over Uber in March when the U.S. District court denied Uber’s Motion for Summary Judgment. The class action seeks to certify a class of about 160,000 California drivers. On July 8, 2015, Uber’s newly hired counsel Theodore J. Boutros, filed a motion opposing the class certification on the basis that “many, if not most, proposed class members” do not want to be categorized as employees. Boutros further claimed that the benefit of being an Uber driver is the “independence and flexibility” that comes with being an independent contractor. In their press call on July 8th, Uber made clear that they do not wish to reclassify drivers as employees and they are focused on the pending litigation. The hearing to determine class certification is currently set for August, 6. 2015, and will determine how the case proceeds.
A Look at the Progression of the National Labor Policy
President Franklin Delano Roosevelt signed the National Labor Relations Act (NLRA) into law on July 5, 1935. In the midst of the Great Depression, President Roosevelt’s goal for the NLRA was to bring about “common justice and economic advantage” for all. The purpose of the Act is to serve the public interest by reducing interruptions in commerce caused by industrial strife; the Act accomplishes this by helping to define the rights of employees, and employers, which in turn helps decrease the number of violations.
Although it was enacted with the primary purpose of protecting employees from employers, our national labor policy has recognized that protecting employers may be just as important. Today the NLRA serves the public interest by providing a process to protect the rights of employers and employees alike. The NLRA accomplishes this goal by providing a process to challenge unfair labor practices and ensuring fair union elections.
The History of the Act: The Progression of the National Labor Policy
- (1918) War Labor Board: The struggle of the workforce reached its pinnacle during World War I, when the labor movement had grown to three million members. The War Labor Board was the first step to managing workforce disputes by providing mediation between labor and management, which led to a decrease in strikes and lockouts. However the Board was ultimately unsuccessful because it lacked enforcement power.
- (1926) Railway Labor Act: The RLA stressed the importance of collective bargaining to minimize strikes and lockouts on railways. The RLA gave railroad workers the right to select their own bargaining representatives “without interference, influence, or coercion.” This language, protecting the rights of workers, is similar to that found in the NLRA today.
- (1932) Norris-LaGuardia Act: Curbed the power of the courts to issue injunctions or restraining orders against strikes, absent violence or fraud. Additionally the Norris-LaGuardia Act declared that workers were free to join unions and bargain collectively.
- (1933) National Industrial Recovery Act (NIRA): Allowed employers within a single industry to set production quotas or fixed prices under “Codes of Fair Competition” in exchange for the establishment of minimum wages, maximum hours and other conditions of employment. The Act also gave employees, in section 7(a), “the right to organize and bargain collectively through representatives of their own choosing.”
- (1933) National Labor Board: Established to facilitate compliance with section 7(a) of NIRA. The Board’s primary functions were to conduct union representation elections and handle section 7(a) violations. The problem, however, was that the NLB lacked any real enforcement power, which rendered it ineffective in practice.
- (1935) National Labor Relations Act: Created an independent agency, the National Labor Relations Board (NLRB), to enforce rights rather than mediate disputes. It obligated employers to bargain collectively with the unions selected by a majority of employees in an appropriate bargaining unit.
Employers’ Rights Provided By the NLRA Today:
The NLRA serves two main purposes, to protect against unfair labor practices and conduct union elections without outside interference. The enforcement of the NLRA serves to provide a number of protections to employers.
- Employers have the right to freely express their views about unions and unionization, so long as any speech does not interfere with, restrain, or coerce employees in the exercise of their rights granted under the Act.
- An employer is not required to bargain with a union unless or until the union makes a showing that it represents a majority of the employees through a secret ballot election conducted by the NLRB.
- Employers have the right to keep union organizers off company property and may forbid union activity during paid, working time.
All of these protections serve to create a workplace free from distraction. The Act allows employees the choice of union involvement without the pressure of recruitment during the workday.
NLRA Protection from Unfair Labor Practices by Unions:
The NLRA protects employers by preventing unions from interfering with, restraining, or coercing employees in anyway. There is a common misconception that unions always act in the best interest of employees, but unfortunately that is not always the case. Misconduct and unfair labor practices are disadvantageous for all parties involved, which is why the NLRA prohibition of unfair labor practices has some benefits for employers as well as employees.
Examples of Unfair Labor Practices by Unions:
- Use of violence or threats of violence to coerce employees. This includes violence directed at nonemployees, if employees are present or will hear about it
- Threats to employees that they will lose their jobs unless they support the union’s activities.
- Statements to employees who oppose the union that they will lose their jobs if the union wins a majority
- Accepting recognition from an employer if they do not enjoy the un-coerced support of a majority of the employees they seek to represent.
- Entering into a collective-bargaining agreement if they do not enjoy the un-coerced support of a majority of the employees they seek to represent.
- Engaging in picket line misconduct, such as threatening, assaulting, or barring non-strikers from the employer’s premises.
- Fining or expelling members for crossing a picket line that is unlawful under the Act or that violates a no-strike agreement.
- Fining employees for crossing a picket line after they resigned from the union.
- Fining or expelling members for filing unfair labor practice charges with the Board or for participating in an investigation conducted by the Board.
- Refusing to process a grievance in retaliation against an employee’s criticism of union officers.
The NLRA Guarantees Fair Union Elections:
The NLRA protects employers, as well as employees, from misconduct committed during a union election. The NLRA’s election provisions provide the authority for conducting and certifying results of representation elections. An employer is not required to bargain with a union unless or until the union makes a showing that it represents a majority of the employees in a secret ballot election conducted by the NLRB. This process ensures that the union bargaining on behalf of employees truly represents their interests. It also provides efficiency for employers by ensuring they do not waste time bargaining with a union that may be pushing its own agenda, rather than protecting the interests of employees.
The Election Process:
A union can request an election if they can make a showing that they represent a majority. A union may prove its majority status in a number of ways; however the most common way is through the use of authorization cards. If the union can authenticate the cards, making a showing of interest for an election, they then petition the NLRB to conduct the election. The NLRB conducts the election by secret-ballot and has a number of policies in place to protect the integrity of the results.
Employer Protections Throughout the Election Process:
The NLRA provides protections against any conduct that may risk voiding the results of an election. Any conduct that warrants voiding the results of an election, whether or not it constitutes an unfair labor practice, is grounds for challenging an election.
Some union activity that may warrant a challenge is misrepresenting majority status by using authorization cards that were not intended to support the union or signed by employees that no longer work for the company, captive audience speeches, electioneering, or any conduct that threatens the free choice of employees.
If a union engages in any of these prohibited activities, an employer may challenge the results of the election by submitting an objection to the office of the regional director.
The Future of the NLRA:
Although there are many concerns for employers with recent developments in national labor relations policy, the NLRA was enacted during a time of national instability and it allowed workers to come together in a common purpose to raise their voices for a fairer future. Moving forward the goal of maintaining a strong, stable workforce will continue. We hope a fair balance between labor and management rights and privileges can be realized.
Assembly Bill 304, signed on July 13, 2015, is an amendment to the Healthy Workplaces, Healthy Families Act of 2014 (HWHFA). It was an “urgency” bill, which means that it went into effect immediately upon being signed by Governor Brown. The HWHFA of 2014 was landmark legislation that extended the right of paid sick leave to an estimated 6.5 million California workers. The extension of benefits to so many workers spurred a serious discussion of the implementation of the new law and how it would affect employers.
The purpose of the urgency legislation was to provide clarification regarding which workers were covered, how paid time off accrued, and how it affected employers that already have a paid sick leave policy in place. The following is a summary of several of the most impactful provisions of HWHFA and its urgency amendments.
An employee is eligible to accrue paid sick leave if he or she has worked in California for 30 days or more, for the same employer, from the commencement of employment. An employee is eligible to use accrued sick days after 90 days of employment.
The paid sick leave accrues at a rate of one hour for every 30 hours worked. An employer may use a different accrual method, so long as leave accrues on a regular basis and an employee does not accrue less than 24 hours by the 120th calendar day of employment.
Carry Over of Unused Leave:
Unused sick days shall carry over to the next year, however an employer may limit the use of an employee’s paid sick days to 24 hours or three days per year. No accrual or carry over is required if the full amount of leave (24 hours or three days) is received at the beginning of the year. An employer may limit an employee’s total accrued sick days, including carry over days, to 48 hours or six days.
Unused Leave Upon Employee’s Separation From Employment:
An employer is not required to compensate employees for unused paid sick days upon termination, resignation, retirement, or other separation from employment. However if an employee is rehired within one year of the date of separation an employer must reinstate any unused sick leave, unless the employer elected to compensate the employee for it upon separation.
Existing Paid Leave Policy or Paid Time Off Policy:
An employer is not required to give additional days under HWHFA if they already have a paid leave policy or paid time off policy in place. The employer’s policy must be available for the same purposes and under the same conditions as the leave granted under HWHFA. A policy meets this obligation if: (1) it satisfies the accrual, carry over, and use requirements of HWHFA; or (2) the policy was in place prior to January 1, 2015 and allowed an employee to accrue eight hours or one day of paid sick leave within three months of employment, or 24 hours or three days within nine months. If the employer modified the policy after the January 1, 2015 date, their policy is subject to the substantive requirements of the HWHFA.
An employer must provide written notice informing the employee of their available paid sick leave. If the employer has an unlimited paid sick leave or paid time off policy, they can satisfy the notice requirement by indicating “unlimited” under the sick leave portion of an employee’s itemized wage statement.
Calculating Rate of Pay for Leave:
An employer may calculate the rate of paid sick leave for non-exempt employees in two ways: (1) using the regular rate of pay for the workweek in which the employee uses the paid sick time; or (2) by dividing the employee’s total wages, not including overtime pay, by the employee’s total hours worked in the previous 90 days. To calculate the rate for an exempt employee, an employer shall use the same manner used for other forms of paid leave time.
How the Amendment Affects Employers:
- It clarified that the employee must work for the same employer for 30 days in order to be eligible to accrue paid sick leave. Prior to A.B. 304 there was some confusion as to how to measure the 30-day eligibility requirement for employees who had worked for other employers in the last year.
- An employer may set his or her own accrual method so long as it conforms to the minimum requirements set forth in the HWHFA (accrual of no less than 24 hours by the 120th day).
- It defined the “full amount of leave” as 24 hours or three days. This definition is relevant to an employer looking to bypass the accrual method by frontloading leave at the beginning of the year.
- It clarified how employers can ensure compliance if they already had a paid leave policy or a paid time off policy in place prior to the HWHFA.
- It clarified that an employer does not have to reinstate unused leave for an employee rehired within one year, if the employer already compensated the employee for that unused leave upon separation.
- It clarified how to comply with the notice requirements, for employers that have an unlimited paid sick leave or paid time off policy.
- It clarified how calculate the rate of pay for the sick leave provided to nonexempt and overtime exempt employees.
On March 18, 2015, the National Labor Relations Board (NLRB) General Counsel Richard Griffin issued a Report Concerning Employer Rules. This report provides guidance on what employee handbook policies are considered lawful and unlawful.
The report concludes that the majority of handbook policies were deemed unlawful because they could be reasonably construed by the employee to prohibit Section 7 activity. Section 7 activity, or protected concerted activity, gives employee the “right to self-organization, to form, join, or assist labor organizations, to bargain collectively through representatives of their own choosing, and to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection.”
The following are categories of handbook policies and rules for which the NLRB report provides some guidance. Employers should consider reviewing applicable policies and rules to ensure compliance with this guidance. Candidly, some of the guidance is vague and creates new ambiguity in this area. Undoubtedly, these topics will be the subject of continuing discussion and interpretation.
Handbook policies that prevent employees from discussing the terms and conditions of employment are considered unlawful because it can be reasonably construed as preventing Section 7 activity. Additionally, broad confidentiality rules that encompass “employee” or “personnel” information without further clarification are unlawful.
Policies that seek to preserve confidentiality should avoid references to employee information or terms / conditions of employment. However, broad confidentiality policies encompassing “all information” may be lawful if it is within a specific section of the handbook policy, where the employee would not reasonably construe it to be prohibiting Section 7 activity.
EMPLOYEE CONDUCT TOWARD COMPANY AND SUPERVISORS
Handbook policies which appear to prohibit criticism of the employer / Company / management will be found unlawfully overbroad. Furthermore, whereas maliciously false statements can be prohibited, false or defamatory criticism is protected
Policies that require employees to be respectful and professional to co-workers, clients, or competitors are lawful.
EMPLOYEE CONDUCT TOWARDS FELLOW EMPLOYEES
Banning “negative” or “inappropriate” discussions among employees without further clarification is unlawful as these terms are too broad.
Rules that simply require employees to be respectful and not engage in unprofessional conduct, without mentioning company or management, are lawful.
EMPLOYEE INTERACTION WITH THIRD PARTIES
Rules that restrict communications with the news media, government agencies, and other third parties about terms and conditions of employment are illegal.
Detailed and clear policies that provide steps for managing media relations not related to Section 7 activity will be lawful.
RESTRICTING USE OF COMPANY LOGOS, COPYRIGHTS, AND TRADEMARKS
Prohibiting non-commercial use of logos, trademarks, etc. is unlawful.
Rules that allow non-commercial use of this information while emphasizing the need to respect copyright and intellectual property laws are lawful.
RESTRICTION OF PHOTOGRAPHY AND RECORDING
A total ban on photography or recordings, or banning the use or possession of personal cameras or recording devices, is unlawful. Prohibition of personal computers or data storage devices on Company property is also unlawful.
Rules regulating photography or recording are lawful if the scope is appropriately limited (e.g. to protect patient privacy).
RESTRICTING EMPLOYEES FROM LEAVING WORK
Rules that a reasonable employee would construe as forbidding protected strike actions and walkouts are unlawful.
Lawful rules should generally avoid terms like “work stoppage” or “walking off the job.” However, depending on the nature of the job, prohibiting “walking off shift” may be lawful if it is clearly meant to protect another interest (e.g. health care responsibilities, ensuring patients have adequate care)
Rules that would reasonably be read to prohibit protests in front of the company, boycotts, and soliciting of support for a union on non-work time are unlawful.
Conflict-of-interest rules should be detailed so to prevent a reasonable employee from construing the language as prohibiting Section 7 activity (e.g. listing specific actions that would be inappropriate; specifying prohibition of exploitation of one’s position for personal gain).
ADDITIONAL UNLAWFUL POLICIES
The following provisions are also unlawful:
• Provisions prohibiting disclosure of the contents of the Company’s handbook, including employment policies, to third parties, like union representatives or the NLRB
• Provisions requiring public self-identification in order to participate in protected activity (unwarranted burden on Section 7 rights)
• Provisions requiring pre-authorization of blogging, joining online groups, and other online activity
• Provisions that place a blanket prohibition against soliciting, collecting funds, or distributing literature without proper approvals (can solicit during non-work time and non-work areas)
• Provisions prohibiting distribution of literature by electronic means in work areas
There were a multitude of changes made to California labor and employment laws that are set to be in effect on January 1, 2015 (unless noted otherwise). The following is a list the updated laws that you should be aware of:
AB 2617: No Mandatory Arbitration of Hate Crimes
Under this law, an employer cannot require any person or business to sign a mandatory arbitration agreement that waives his/her/its right to sue under the Ralph Civil Rights Act (prohibiting violence or threats of violence based on various personal or political identities) or the Tom Bane Civil Rights Act (prohibiting interference by force or threat of violence with another’s federal or state constitutional or statutory rights). Furthermore, businesses cannot refuse to contract with others who refuse to waive these rights.
AB 802: Arbitration is Less Confidential
AB 802 amends Section 1281.96 of the Code of Civil Procedure. This law requires large-scale arbitration providers to collect and publish certain details about consumer arbitration proceedings. These were previously confidential. The details must be in a consumer-friendly format and easily accessible on the arbitration providers’ website. Details that must be in the report include: presence of an arbitration clause, pre-designation of an arbitration provider, if a non-consumer party was involved, the nature of the dispute, prevailing party, number of arbitrations and mediations, consumer’s attorney, arbitration timeline, disposition of the case, claim amount, attorney’s fees, equitable relief, and information about the arbitrator.
AB 1723: Waiting Time Penalties May Be Included in Minimum Wage Violation Citations
This law expands the Labor Commissioner’s authority on citations. Currently, the Commissioner can impose a citation on the employer who paid, or caused the employee to be paid, less than the state minimum wage. AB 1723 would authorize the Commissioner to issue waiting time penalties to employers that willfully fail to timely pay any wages to an employee who is discharged or who quits. These wages can be continued for up to 30 days. It should be noted that this law does not create a new penalty, but introduces a new way of imposing it. Employers have the right to a hearing for the citation with a timely contest.
AB 2288: Child Labor Protection Act Damages
Under the Child Labor Protection Act of 2014, violators of this Act will be susceptible to broader penalties. The Act would provide treble damages to an individual who was “discharged, threatened with discharge, demoted, suspended, retaliated against, subjected to an adverse action, or in any other manner discriminated against in the terms of conditions of his or her employment” because the individual filed a claim or civil action alleging employment law violations that arose while the individual was a minor. Whether the individual filed the action before or after he or she turned 18 is not significant.
Local Minimum Wage Ordinances
Employers should take note of new local minimum wage ordinances. Sacramento has already required a $9 per hour minimum since July 2, 2014. This rate will rise to $10 per hour starting January 1, 2016 under AB 10.
In Oakland, Measure FF increases minimum wage from $9 to $12.25 per hour starting March. San Francisco’s Proposition J raises the minimum wage to $12.25 per hour on May 1, 2015 and increases gradually until it hits $15 per hour on July 1, 2018.
AB 1522: Sick Leave
AB 1522, otherwise known as the Healthy Workplaces, Healthy Families Act of 2014, provides that an employee who works in California for 30 or more days in a year is entitled to an accrual of paid sick leave starting July 1, 2015. The employee may begin using the paid leave after 90 days of employment, but any accrued leave does not need to be paid at termination or separation of employment. There are ambiguities in the law regarding caps to this paid sick leave benefit that are still open to interpretation. For more information about AB 1522 and paid-time off (PTO) exceptions to this law, click here.
Labor Code section 2810.5: Paid Sick Leave Posting
The Division of Labor Standards Enforcement (DLSE) is requiring employers to include information about an employee’s right to paid sick leave in the “Notice to Employee,” which is a form required for all California nonexempt employees. While employers are not required to provide paid sick leave until July 1, 2015, this notice must be used starting January 1, 2015.
AB 2053: Employers Must Provide “Abusive Conduct” Training
This law, often referred to as the “anti-bullying” law, requires employers that are already required to provide sexual harassment training to supervisors to additionally provide training on “abusive conduct.” “Abusive conduct” is defined as verbal or physical conduct that a “reasonable person would find hostile, offensive, and unrelated to an employer’s legitimate business interests.” The law does not detail what is to be included in the training or how long the training should be.
AB 326: E-mail for Workplace Safety Reports
Under this law, employers are now able to e-mail reports of a serious work-related injury, illness, or death to the Division of Occupational Safety and Health. Other injuries must be reported within 5 days if they result in lost time beyond the date of injury or illness or require treatment that is more than first aid. There is a $5,000 penalty for failing to provide a timely report of the incident.
SB 855: Companionship Services Covered Under FLSA
The Fair Labor Standards Act is a federal law that establishes minimum wage, overtime pay, recordkeeping, and child labor standards for full and part time workers. This coverage was extended to “domestic service” workers, but exempted casual babysitters and workers who provide “companionship services” from these protections. The definition of “companionship services” has been altered to mean the “fellowship” and “protection” for elderly people or people with an illness, injury, or disability who require assistance in caring for themselves.
AB 2536: Emergency Rescue Personnel Allowed to Take Time Off for Emergency Duty
This law expands the list of eligible personnel who can take protected time off for emergency duty to emergency rescue personnel. Employers will be prohibited from discharging these employees for taking time off to perform their duties as a volunteer firefighter, reserve peace officer, emergency rescue personnel, or an officer, employee, or member of a disaster medical response entity sponsored or requested by the state. Health care providers (as defined previously) must alert their employers of their status and when they are deployed for emergency duty.
SB 1087: Farm Labor Contractors Mandated to Provide Sexual Harassment Prevention Trainings
This law requires farm labor contractors to provide sexual harassment training for its supervisory and nonsupervisory employees. Supervisor employees will undergo the training yearly, whereas nonsupervisory employees will receive the training upon hire and every two years after. The law also outlines the contents of the training, as well as restricts the granting of licenses to farm labor contractors who has engaged in sexual harassment.
AB 1897: Shared Liability for Companies That Subcontract Work
This bill prevents companies from escaping liability when outsourcing general labor to low-paying staffing firms. When these firms ignore workplace laws, the client employer will share all civil legal responsibility and liability for paying wages to workers. Additionally, the client employer will also be unable to shift legal responsibility to the labor contractor when there are workplace safety violations.
AB 1443: Anti-Discrimination Protects for Volunteers and Interns
AB 1443 amends the California Fair Employment and Housing Act (FEHA) and extends its anti-discrimination and harassment protections to volunteers and unpaid interns. Previously, these protections were only expressly available to those who were in programs that “led to employment.” Additionally, these protections will extend to the “training” or “other terms or treatment” of volunteers and unpaid interns, and not just the selection or termination process.
AB 1660: No Discrimination for Undocumented Driver’s Licenses
This law makes it illegal for employers to discriminate against persons who hold undocumented driver’s licenses and can provide sufficient proof of identity and California residency. Furthermore, employers may not request driver’s licenses unless it is required by law or required by the employer and the employer’s requirement is permitted by the law. Driver’s license information must be treated as private and confidential.
AB 2751: Immigration Related Protections
This law prevents employers from threatening to file or filing a false report or complaint with any state or federal agency on the basis of immigration status. Furthermore, an employer may not discriminate or retaliate against employees who update their personal information “based on a lawful change of name, social security number, or federal employment authorization document.”
AB 1792: No Discrimination Against Medi-Cal Recipients
Under this law, employers are prohibited from discrimination and retaliation against employees receiving public assistance (i.e., Medi-Cal). Employers are defined as individuals or organizations with more than 100 employees that receive Medi-Cal.
There were a host of clarifications regarding labor and employment laws this past year. Here is a compilation of case and administrative highlights from 2014:
Vranish v. Exxon Mobile Corp.: Overtime in Collective Bargaining Agreements
The California Court of Appeal held that employees covered by a collective bargaining agreement that definitively provided “premium wage rates for all overtime hours worked” under California Labor Code section 514 were not entitled to additional daily overtime. Therefore, Labor Code section 514 permits employers and unions to define overtime in a collective bargaining agreement in a manner that trumps California’s overtime rules.
Sandifer v. U.S. Steel Corp.: Unionized Employers Don’t Pay for “Donning and Doffing”
The U.S. Supreme Court held that under the Fair Labor Standards Act, an employer did not have to pay its unionized employees for the time spent before and after their shifts when they put on or took off safety clothing (“donning and doffing”) and related items. This was a significant win for unionized employers, and particularly for companies that have specifically negotiated or instituted a practice of not compensating “donning and doffing” time.
Integrity Staffing Solutions, Inc. v. Busk et al.: Employers Don’t Pay for Security Screening Time
The California Supreme Court held that the time spent by workers waiting to undergo and undergoing security screenings is not compensable under the Fair Labor Standards Act. Specifically, the Court noted that security screenings were not “principal activities,” but rather “noncompensable postliminary activities.”
Vance v. Ball State: Clarification of When Employees are Title VII Supervisors
Currently, employers are strictly liable for their supervisors if the supervisor sexually or racially harasses an employee. The Supreme Court held that a co-worker cannot be deemed a supervisor merely for having the ability to direct the employee’s daily work activities. Rather, the employee in question is deemed Title VII supervisor if the employer empowers his or her to take “tangible employment actions” against the alleged victim.
University of Texas Southwestern Medical Center v. Nassar: Plaintiffs Have a Higher Burden of Proof in Retaliation Cases
In this case, the Supreme Court held that plaintiffs have a higher burden of proof (but-for causation, as opposed to the lessened causation test) in retaliation cases. Now plaintiffs must prove that retaliation was the “determinative influence” on the case, rather than just a motivating factor.
Burwell v. Hobby Lobby Stores, Inc.: Employers Allowed to Object to Providing Contraception for Religious Reasons
The Supreme Court ruled that the Department of Health and Human Services could not require closely held corporations to provide employees with no-cost access to contraception, if in violation of the Religious Freedom Restoration Act. This holding does not apply to non-profit religious groups.
Lane v. Franks: Protection for Testimony in Criminal Cases
In this case, the employee was fired after testifying in an FBI case against an elected official, who was being paid by the employer despite the official doing no work for the program. The Supreme Court held unanimously that the First Amendment “protects a public employee who provided truthful sworn testimony, compelled by subpoena, outside the course of his ordinary job responsibilities.”
Escriba v. Foster Poultry Farms, Inc.: Employees Expressly Declining to Use FMLA Leave Can Be Denied Relief Under Statute
In this case, the Ninth Circuit ruled that an employee can expressly decline to use FMLA leave. When doing so, the employee loses FMLA protections even if the underlying reasons for such leave would have invoked the protection.
White v. County of Los Angeles: Employer’s Fitness of Duty Evaluation Following FMLA Leave
In this case, the employee was ordered by the employer to under a second reevaluation of her fitness to return to duty. The court held that because the return-to-work certification from the plaintiff’s doctor did not preclude a potential finding of unfitness for duty, the employer’s order that the employee appear for a medical reevaluation was not in violation of the FMLA.
Iskanian v. CLS Transportation of Los Angeles: Employer Foreclosure of Workers from Pursuing Class Action Waivers in Arbitration Agreements
In this case, the California Supreme Court nullified its holding in Gentry v. Superior Court, which denied the enforceability of class action waivers. The Court held that the Federal Arbitration Act (FAA) preempted a state law rule permitting courts to invalidate class action waivers in employment arbitration agreements under certain circumstances. However, the court also ruled that a pre-dispute private contract cannot forfeit a worker’s right to represent the state to pursue civil penalties under the Private Attorneys General Act of 2004 (PAGA). This case resolves questions of the enforceability of class action waivers and waivers of representative PAGA claims, but there are questions that remain regarding whether PAGA actions should be stayed pending arbitration of concurrently filed individual claims.
Ayala v. Antelope Valley Newspapers, Inc.: Independent Worker Classification Clarification
This case held that the principal consideration for class certification in an independent contractor misclassification case is whether there is a common way to show the extent of the hirer’s “right to control” the workers. The key component of this relationship is now how much control the employer exercises, but how much control the hirer retains the right to exercise power over the individual hired.
Paratransit, Inc. v. CUIAB: Employee Refusing to Sign Disciplinary Notice Does Not Cause Disqualification from Unemployment Benefits
The California Supreme Court held that Paratransit’s employee’s refusal to sign a disciplinary notice did not disqualify him from receiving unemployment benefits. The Court further noted that the employee’s refusal to sign did not amount to gross misconduct because he “acted out of a genuine belief that signing the notice would be an admission of allegations he disputed, and that belief was not so unreasonable under the circumstances as to constitute misconduct within the meaning of the [California Unemployment Insurance Code].”
Stenehjem v. Sareen: Threat to File False Criminal Complaint is Extortion
In this case, an employee sued his former employer for defamation. His employer filed a cross-complaint for civil extortion, alleging that the employee threatened to file a false criminal complaint unless the employer agreed to a monetary settlement. The California Court of Appeals held that the employee’s pre-litigation e-mail threatening to file the false complaint was extortion as a matter of law, and not free speech.
Patterson v. Domino’s Pizza, LLC: Franchisor Not Liable for Franchisee’s Sexual Harassment Allegations
A franchisee’s employee alleged she was sexually harassed by a store’s assistant manager. The franchisor argued that the franchise contract stated there was no “principal and agent” relationship between it and the franchisee, and that it disclaimed any relationship with its franchisee’s employees. Furthermore, the franchisor argued that it assumed “no rights, duties, or responsibilities” as to the employees. The Supreme Court of California granted summary judgment to the franchisor on the ground that “the imposition and enforcement of a uniform marketing and operational plan cannot automatically saddle the franchisor with responsibility for employees of the franchisee who injure each other on the job.”
Peabody v. Time Warner Cable, Inc.: Commissions Paid in One Pay Period Cannot Be Reassigned to Another Period to Satisfy Minimum Earning Requirements for Inside Sales Exemption
The employee, a commissioned salesperson, sued her employer for wage and hour violations (failure to pay minimum wage, overtime pay). The employer argued the employee was exempt from overtime pay under the “commissioned employee” exemption, which requires the employee’s earnings to exceed one and one-half times the minimum wage. It also argued that they paid minimum wage by allocating commissions in which they were paid to pay periods where the plaintiff earned them. The California Supreme Court held that an employer cannot attribute commission wages paid in one period to other pay periods.
Alexander v. FedEx Ground Package Sys., Inc.: California’s Right to Control Test Determines Employee Status
In this case, package delivery drivers were improperly classified as independent contractors. The Ninth Circuit held that drivers were employees as a matter of law under California’s right-to-control test. This test looked at the employer’s ability to control the appearance of the drivers and vehicles, shifts, procedure for delivery, and so on.
Rhea v. General Atomics: Exempt Employees Can Be Required to Use Vacation Leave Hours When Absent
The California Court of Appeals held that while employers could not deduct monetary pay when exempt employees were absent for a partial day, the employer could require exempt employees to use their vacation or leave time. While California law prohibits employers from forfeiting vacation time, the requirement to use vacation time for partial-day absences does not comprise forfeiture.
McLean v. State: Labor Code 202 and 203 Prompt Payment Requirements Apply to Employees Who Retire
Here, the California Court of Appeals held that the term “quits” in Labor Code section 202 and 203 encompasses all employees who quit, even if to retire. Therefore, employers must promptly pay employees who have retired.
EEOC Commentary: Use of Social Media
The Equal Employment Opportunity Commission (EEOC) reiterated that personal information from social media postings cannot be utilized to make employment decisions on prohibited bases, such as gender, race, or religion. In particular, the EEOC noted that “[federal] EEO laws do not expressly permit or prohibit use of specific technologies…the key question is how the selection tools are used.”
DLSE & Labor Code section 2810.5: Paid Sick Leave Posting
The Division of Labor Standards Enforcement (DLSE) is requiring employers to include information about an employee’s right to paid sick leave in the “Notice to Employee,” which is a form required for all California nonexempt employees. While employers are not required to provide paid sick leave until July 1, 2015, this notice must be used starting January 1, 2015.
National Labor Relations Board 29 CFR Parts 101, 102, and 103: Rule Changes for “Quickie Elections”
The National Labor Relations Board (NLRB) issued amendments that removed barriers “to the fair and expeditious resolution of representation cases.” The amendments listed simplify these case procedures, codify best practices, and make them more transparent and uniform.
Significantly, these amendments revised rules and regulations governing union elections. The new union election rules and regulations not only shorten the period between the filing of a representation petition and the election, but require employers to provide unions work employees’ contact information earlier in the process for more efficient communication. The effect of the rules would make it more difficult for employers to contact employees in response to a union organizing campaign.
Click here for the full text of the amendments.
National Labor Relations Board McDonald’s Ruling: Joint Liability for Franchises
The NLRB ruled that McDonald’s could be held jointly liable for their franchise operators’ labor and wage violations. As a result, McDonalds could be held at least partially responsible for actions taken at thousands of its restaurants. While this ruling applies specifically to McDonalds, it sets precedent to impose joint liability on other companies. California passed related law AB 1897, effective on January 1, 2015, that imposes joint liability on companies if their subcontractors violate workplace laws. See below for more information about AB 1897.
This section is applicable to “client employers,” which are business entities with 25 or more workers that obtain or are provided at least six (6) workers to perform labor within the usual course of business from one or more labor contractors. Additionally, § 2810.3 does not impose liability on a business using an independent contractor “other than a labor contractor.” “Labor contractor” is defined as an individual or entity that supplies workers to perform labor “within the client employer’s usual course of business.” “Usual course of business” is defined as “the regular and customary work of a business, performed within or upon the premises or worksite of the client employer.”
Employers currently subcontracting should be cautious when selecting a staffing agency and ensure that it complies with all relevant labor laws. Appropriate investigation and research should be conducted when developing a relationship with a staffing agency or labor contractor of any sort. Contractual safeguards (such as, indemnification, compliance, right to review, insurance and remedies) should be carefully considered. Competent legal counsel will be able to assist in properly structuring these relationships.
On September 10, 2014, Governor Jerry Brown signed Assembly Bill 1522, enacting the Healthy Workplaces, Healthy Families Act of 2014 (“Act”). The Act becomes effective July 1, 2015. Generally, it provides that an employee who works in California for 30 or more days in a year is entitled to an accrual of paid sick leave. Under the Act, the employee may begin using the paid leave after 90 days of employment, but any accrued leave need not be paid at termination or other separation of employment.
According to the Act, the paid sick leave benefit must accrue at a rate of at least one hour of sick leave for every 30 hours of work. For full-time employment, this would equate to 66.66 hours (8.33 days) of accrued sick leave annually. However, the Act puzzlingly allows employers to limit employee use of paid sick leave to 24 hours (3 days) each year. Still later, the Act creates another glaring ambiguity by allowing employers to cap accrued sick leave at 48 hours (6 days). At this point, it is unclear how these conflicting provisions will be interpreted and implemented moving forward.
The Act offers an exception for paid-time off (PTO) policies. Under California law PTO policies are treated essentially the same as vacation policies and any accrued and unused PTO amount must be paid at the end of the employment relationship. The Act’s PTO exception requires that PTO be available for the same purposes and under the same conditions as the Act’s paid sick leave benefit and must either: “satisfies the accrual, carry over, and use requirements of this section” or “provide no less than 24 hours or three days of paid sick leave, or equivalent paid leave or paid time off, for employee use for each year of employment or calendar year or 12-month basis.”
Although the language seems unnecessarily confusing, it appears that a PTO policy that: (i) allows use for any purpose; (ii) accrues at a rate of at least 24 hours (3 days) per year; (iii) has a cap of at least 48 hours (6 days) per year; and (iv) allows accrued amounts to carry over from year to year would meet the Act’s exception. Unfortunately, some of the accrual mechanics authorized by the Act seem inconsistent with certain accrual standards established by California case law, including Suastez v. Plastic Dress-up Co. and its progeny. Whether a statutory exception to the California case law was intended will undoubtedly be determined in the future.
Regardless, this Act and its implementation provide prudent employers an opportunity to review their paid leave policies including, any vacation, sick leave, PTO, holiday, sabbaticals, and other related benefit offerings. We strongly encourage California employers to carefully review their policies for full compliance with these new standards, which standards we anticipate will contribute to the already abundant employment litigation found in our state.
AB 2053 was recently introduced and signed into law by Governor Brown (effective January 1, 2015) which requires expansion of the harassment training now required by the Fair Employment and Housing Act and makes proscribed “abusive conduct” illegal. Existing law requires that every employer create a workplace free of sexual harassment by implementing certain minimum requirements, such as posting sexual harassment information posters at the workplace and requiring that qualified employers (those with 50 or more employees) provide at least 2 hours of training and education every two years regarding sexual harassment to all supervisory employees.
AB 2053 would require that the above-described training and education include prevention of abusive conduct defined asconduct of an employer or employee in the workplace, with malice, that a reasonable person would find hostile, offensive, and unrelated to an employer’s legitimate business interests. Abusive conduct may also include repeated infliction of verbal abuse, such as the use of derogatory remarks, insults, and epithets, verbal or physical conduct that a reasonable person would find threatening, intimidating, or humiliating, or the gratuitous sabotage or undermining of a person’s work performance. A single act shall not constitute abusive conduct, unless especially severe and egregious.
Please contact our office to re-visit the training you may have received to ensure that you are fully compliant or to schedule your first time harassment training. If you have any questions, please do not hesitate to call.