Gentry v. Superior Court (Circuit City) Opinion

The Supreme Court's opinion in Gentry v. Superior Court (which can be read here) was issued this morning.

Based on a very quick review of the opinion, it appears that the Court has pushed the issue back to the trial courts and provides instruction to the trial courts to make the determination regarding the enforceability of class action waivers based on a number of factors.  The Court states:
Nonetheless, when it is alleged that an employer has systematically denied proper overtime pay to a class of employees and a class action is requested notwithstanding an arbitration agreement that contains a class arbitration waiver, the trial court must consider the factors discussed above: 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’ right to overtime pay through individual arbitration. If it concludes, based on these factors, that a class arbitration is likely to be a significantly more effective practical means of vindicating the rights of the affected employees than individual litigation or arbitration, and finds that the disallowance of the class action will likely lead to a less comprehensive enforcement of overtime laws for the employees alleged to be affected by the employer’s violations, it must invalidate the class arbitration waiver to ensure that these employees can “vindicate [their] unwaivable rights in an arbitration forum.” (Little, supra, 29 Cal.4th at p. 1077.) The kind of inquiry a trial court must make is similar to the one it already makes to determine whether class actions are appropriate. “[T]rial courts are ideally situated to evaluate the efficiencies and practicalities of permitting group action . . . .” (Linder v. Thrifty Oil, Co., supra, 23 Cal.4th at p. 435.) Class arbitration must still also meet the “community of interest” requirement for all class actions, consisting of three factors:  “(1) predominant common questions of law or fact; (2) class representatives with claims or defenses typical of the class; and (3) class representatives who can adequately represent the class.” (Sav-On Drug Stores, supra, 34 Cal.4th at p. 326.)
We will definitely post more analysis on the ruling once we have some time to digest the opinion further.

Gentry v. Superior Court Decision To Be Issued Today

The California Supreme Court will be issuing its opinion in Gentry v. Superior Court this morning.  This case is a landmark labor and employment case deciding if an arbitration agreement entered into between an employer and an employee is enforceable when the employee agrees not to participate in class action lawsuits brought against the employer. 

We attended the oral arguments before the Supreme Court back in June, and our thoughts on the arguments can be read here.  While we have our normal workload today, we will try to have at least some analysis posted today, and if time permits possibly a podcast discussing the case posted by Monday. 

Green v. State of California: Employee Alleging Disability Discrimination Has Burden To Prove Qualified For Job

The California Supreme Court ruled in employers' favor this week by holding that an employee alleging disability discrimination has the burden of proof to show that he or she can perform the essential functions of the job with or without reasonable accommodation. The case, Green v. State of California, clarified that it is the employee who must make this showing in order to prove disability discrimination and that the employer does not have to affirmatively prove that the plaintiff was unqualified in order to avoid liability. 

The Court stated:

[W]e disagree with the statement of defendant’s burden of proof adopted by the Court of Appeal and advocated by plaintiff here. Instead, we conclude that the Legislature has placed the burden on a plaintiff to show that he or she is a qualified individual under the FEHA (i.e., that he or she can perform the essential functions of the job with or without reasonable accommodation). As explained further below, legislative intent, case law, and legislative history support defendant’s position—a view that also finds support in Evidence Code section 500, which requires a plaintiff to prove each fact essential to the claim for relief he or she is asserting.

However, employers should still approach this subject very carefully. For example, an employer is required to explore with the employee all possible means of reasonably accommodating a person prior to rejecting the person for a job or making any employment related decision.  The accommodation may arise from a mitigating measure, such as medication taken for the primary disability.  An accommodation is reasonable if it does not impose an undue hardship on the employer’s business.  Reasonable accommodation can include, but is not limited to, changing job duties or work hours, providing leave, relocating the work area, and/or providing mechanical or electrical aids.  

Human resource professionals, in-house counsel and/or business owners in California should take a few minutes to review the DFEH’s website for an employer's general obligations in regards to disabled employees, particularly the following helpful documents:

[This is a good resource to refresh the basic requirements of California law, including, what is required by the interactive process, what constitutes an undue hardship and what questions may be asked of an applicant or employee about his or her ability to perform the job.]

[This is a brief two page pamphlet published by the DFEH summarizing the law.]

Harris v. Superior Court: The "Administrative/Production Worker Dichotomy" as litmus test for the administrative exemption

The recent Harris v. Superior Court opinion dealt with that most-litigated species of employee – the California claims adjuster. And the only legal issue on appeal was the proper construction and application of the single phrase limiting exempt administrative duties to those that are “directly related to management policies or general business operations.” Nevertheless, the case deals a serious blow to the viability of the administrative exemption for all employers in California. 

The Court began its analysis by surveying the exemption language of the California Wage Orders, federal regulations under the Fair Labor Standards Act and the substantial body of state and federal case law. I won’t retrace the tortuous semantic analysis that follows. Suffice it to say, however, that the majority concluded that the so-called “administrative/production” dichotomy is the correct test to apply. 

Many of the federal courts that originally developed and applied the “dichotomy” terminology considered it to be as a mere guidepost or analytical tool. But Harris elevates the distinction to the status of a legal litmus test for determining who may be exempt. At the same time it elevated the status of the “dichotomy” test, it also made the test far more restrictive. Indeed, according to the majority’s vision of the workplace, the vast majority of white collar employees will always qualify only as mere “production” workers because they inevitably spend their time on “day-to-day” business rather than determining how the business should operate “at the level of management policy or general operations.” 

As applied to the adjusters at issue in the case, the Court held that they could not be exempt because the work they did, although clearly sophisticated and important, was deemed to be a frequent part of the employer’s core business.

The undisputed facts show that plaintiffs are primarily engaged in work that falls on the production side of the dichotomy, namely, the day-to-day tasks involved in adjusting individual claims. They investigate and estimate claims, make coverage determinations, set reserves, negotiate settlements, make settlement recommendations for claims beyond their settlement authority, identify potential fraud, and so forth. None of that work is carried on at the level of management policy or general operations. Rather, it is all part of the day-to-day operation of defendants' business.

Moreover, the Court also took pains to emphasize that the test should not depend on the nature of the employer’s business but rather on the level at which the employee operates.

[T]he phrase “ administrative/production worker dichotomy” is misleading. Properly understood, the dichotomy is not between workers engaged in “ production” (e.g., factory workers) and workers engaged in “ administration”  (e.g., office workers). Rather, it is between office or nonmanual work that is at the level of policy or general operations and office or nonmanual work that is not. Thus, any office or nonmanual work that is not at the level of policy or general operations constitutes production work for purposes of the dichotomy, regardless of how loosely or intimately the work is connected with producing the employer's product.

The Harris decision thus represents a severe restriction on the use of the administrative exemption in California. Moreover, employers must remember that the “administrative/production worker dichotomy” discussed in Harris is merely one of the elements that must be satisfied. For example, it is also the employer’s burden to establish that the employee “customarily and regularly exercises discretion and independent judgment” and performs under only “general supervision.” 

Prachasaisoradej v. Ralphs Grocery: California Supreme Court Upholds Legality of Employer Profit-Incentive Plans

The California Supreme Court decision today in Prachasaisoradej v. Ralphs Grocery, finally clarified once-and-for-all that employer profit-based incentive plans are permissible in California. For the uninitiated, this might seem like a “no brainer.” After all, what could possibly be wrong with sharing profits with one’s employees, isn’t that the type of responsible corporate citizenship that should be encouraged in a 21st Century “ownership society.”  

In fact, prior to today’s decision, Plaintiff’s lawyers had successfully prosecuted a number of class actions that that claimed these plans were illegal. The operative legal theory of these lawsuits (some of which resulted in multi-million dollar settlements) was that the employer’s plans illegally required workers to foot part of the bill for the company’s business expenses because any increase in expense items could result in lower wages. 

The Ralph’s Groceries decisions seems to have put a stake in the heart of this specious line of reasoning. In the process of upholding the legality of an incentive plan for grocery store managers, the Court explained:

The Plan was not illegal, we conclude, simply because, pursuant to normal concepts of profitability, ordinary business expenses, such as storewide workers’ compensation costs, and storewide cash and merchandise losses, were figured in, along with such other store expenses as the electric bill and the cost of goods sold, to determine the store’s profit, upon which the supplementary incentive compensation payments were calculated. By doing so, Ralphs did not illegally shift those costs to employees. After fully absorbing the expenses at issue, Ralphs simply determined what remained as profits to share with its eligible employees in addition to their normal wages.

Employers should keep in mind, however, that the Ralph’s Groceries decision was not dealing with earned wages. In terms of legal consequences, there is a world of difference between making a determination of what an employee must do in order to earn a bonus in the future (such as meeting the store profitability target at issue in Ralph’s Groceries) and making an after-the-fact reduction in a bonus that has already been earned. The latter scenario will almost always be illegal.

Once we are able to dissect the decision more, we will post more of our thoughts about the case.  The case can be read in its entirety here

Growing Opinion To Outlaw "Workplace Bullies"

Is it illegal to be a bully in the workplace?  Many employees are astounded to find out that it is not.  But, recently states have begun to consider legislation that would make it illegal to be a bullying boss.  California attempted to pass "anti-bullying" legislation in 2003 (the bill died in committee), and currently states such as New Jersey, New York state, Vermont and Washington state are debating bills that would make such behavior illegal. 

As this LA Times article indicates, there is a growing opinion that workplace bullying needs to be addressed by legislation.  The LA Times reports:
Jumping on the bandwagon, the AFL-CIO launched the My Bad Boss contest, now in it second year, to "expose what is a growing problem," Nussbaum said, and to give workers an opportunity to get their bad-boss experiences "off their chests."
Last year's winning entry was "Dr. X," a dentist who took $100 out of each employee's paycheck for every canceled appointment.
(On a side note - Dr. X's practice of deducting the employee's paycheck for each canceled appointment probably violates the California Labor Code.)  The legislation I've seen so far is not very clear on the specifics about what constitutes illegal bullying.  Employers already have an economic incentive to prevent bullying in the workplace (as written about on this blog previously here), and it is likely that the courts would become even more overwhelmed with these types of cases. 

ICE Offers FAQ's About Newly Implemented Immigration Regulations

With the implementation of the new immigration regulations, the US Immigrations and and Customs Enforcement (ICE) has added new information to its website explaining what employers need to do to comply.  The US Immigrations and and Customs Enforcement's website can be found here.

The website also allows readers to login in order to receive email updates if the frequently asked questions changes.  The login page can be found here.  I recommend that every employer take the time to review the FAQ's to understand the changes ICE is implementing.  For example, ICE posted the following FAQ:

What should an employer do when it receives a Social Security Administration (SSA) No-Match letter?

The employer should take reasonable steps to resolve the No-Match, and apply these steps uniformly to all employees listed in the SSA letter. It is possible that a No-Match was the result of a clerical error on the part of the employee, the employer, or the government. DHS/ICE considers the following to be reasonable steps if the employer:
1) Promptly (no later than 30 days) checks its records to ensure that the mismatch was not the result of an error on the part of the employer,

2) If this does not resolve the problem, asks the employee to confirm the accuracy of the employer's records,

3) If necessary, the employer should ask the employee to resolve the issue with SSA. The employer should inform in order to give the employee as much time as possible to resolve the matter and inform the employee that the employee has 90 days from the date the employer received the No-Match letter to resolve the matter with SSA (explaining that resolution of the mismatch could take time).

4) If the employer was able to successfully resolve the mismatch, the employer should ensure that of the instructions in the SSA letter have been followed. The employer should also verify that the error has been corrected by using the Social Security Number Verification Service (SSNVS) administered by SSA, and retain a record of the date and time of verification. SSNVS can be accessed through or by telephone at 1-800-772-6270; and

5) If none of the foregoing measures resolves the matter within 90 days of receipt of the No-Match letter, the employer should complete, within three days, a new I-9 Form as if the employee in question were newly hired, except that no document may be used to verify the employee's authorization for work that uses the questionable Social Security number. Additionally, the employee must present a document that contains a photograph in order to establish identity or both identity and employment authorization.
If the employer cannot confirm that the employee is authorized to work (by following the above procedures), the employer risks liability for violating the law by knowingly continuing to hire unauthorized workers.

Interviewing: Asking The Previously Unasked

Guest post by Joe Jotkowitz of the Executive Advisory:

When new hires fail, it costs the organization.  Some sources say at minimum it is salary and a half.  It costs time, recruitment efforts, salary, training, client relationships, morale, sales, productivity, and the list goes on and on.

In a recent Leadership IQ study, it found that the number one reason for new hires not working out wasn't a lack of competence... it wasn't a lack of knowledge... it wasn't even a lack of technical skill.  Rather, it was coachability.  Twenty six percent of new hires failed because they couldn't accept feedback.  Other top reasons included an inability to manage emotions, lacking the necessary motivation or initiative, and not possessing the right temperament for the position.

So, if we know that a wrong hire is costly and we know why new hires tend to fail, why don't we do something about it?  Because the areas where new hires are failing the test isn't an area that most hiring managers are used to testing.  How do you interview for coachability?  How do you assess someone's ability to take initiative?  How can you tell if someone possesses the right temperament for the position?

The answer: Behavior Interviewing.  Behavioral interviewing has been around for quite some time, and it's getting more and more use in the workplace.  The basic premise is that the best predictor of future performance (how effectively a candidate MIGHT meet the requirements for the position) is past performance (how effectively a candidate HAS met the requirements for the position).  This is not to say that a viable candidate can only have performed the exact job at another organization.  Rather, the goal is to focus on what's known as KSAs (Knowledge, Skills, and Abilities).  These are transferable and assessable in an interview when asked effectively.

The strategy is to get away from asking hypothetical questions such as, "If you were in a conflict situation with another co-worker, how would you handle it?"  Rather, ask questions that are more direct, more depth-seeking, more "real" such as, "Can you give me a specific example of a time when you didn't get along with a co-worker of yours?  What was the conflict about?  How did it start?  What did you do?  How did he respond?  How did you manage through it?  What was the result?"  Get your interviewee to become a storyteller, and you'll learn so much more.  And, if she says that she's never had any conflict with another co-worker, then that should raise some red flags as well.

Joe - thanks for the great information.  Joe is a communications specialist that has provided executive and managerial training for companies of all sizes.

View Our Recent Podcast With PowerPoint Slides

I took a few minutes to put together a rough PowerPoint presentation to go along with my podcast published earlier today.  Simply click on the green play button below to start the podcast with accompanying PowerPoint slides.  Please check back with us often (or better yet, subscribe to our blog via the RSS feed on the left hand column so that you don't have to check back) - we are just starting to learn these new presentation technologies and will have excellent and relevant updates about California employment law. 

California Labor & Employment Law Podcast: Employee Handbooks Part 2

To start off the week of August 13, 2007, VTZ presents Episode Two of Episode of the California Labor & Employment Law Podcast.  This is the second installment of a two-part discussion on employee handbooks and general obligations in regards to employee handbooks and policies under California law. Topics include sexual harassment policies, meal and rest break policies, leave policies, and policies employers should avoid including in their handbooks.

Listen to it here or you may subscribe to the California Labor & Employment Law Podcast through iTunes here.

Our next podcast will cover what most California employers need to know about meal and rest breaks. 

If you have any suggestions for future podcasts, please email them to us.

Oral Argument Set for Gattuso v. Harte Hanks

The California Supreme Court announced today that it will hear oral arguments in GATTUSO v. HARTE HANKS SHOPPERS, (Case No. S139555) on Thursday, September 6, 2007, at 9:00 a.m., in San Francisco. 

As according to the California Supreme Court, the issue in the case is whether "an employer complies with its duty under Labor Code section 2802 to indemnify its employees for expenses they necessarily incur in the discharge of their duties by paying the employees increased wages or commissions instead of reimbursing them for their actual expenses."

In simpler terms, the case will address whether employers can agree to pay employees a higher rate of pay in order to compensate employees for business expenses they incur during their job, as opposed to reimbursing the employee for each expense as it occurs.  We have seen a large increase in wage and hour cases alleging violation of Labor Code Section 2802, and hopefully the Supreme Court will provide some guidance for California employers on this issue. 

Independent Contractors - Approach With Caution

FedEx is still litigating its classification of its drivers as independent contractors. FedEx lost a case recently in California in Los Angeles and the court ruled the company owes 200 drivers $5.3 million in expenses.  In addition, the California Employment Development Department (EDD), which is responsible for collecting payroll taxes, assessed FedEx Ground owed more than $7.88 million in back payroll taxes because it also held the drivers were misclassified as independent contractors. The audit covered the period July 2001 to June 2004 and concluded that some of the drivers were properly classified as independent contractors, but found the “single-route” drivers were employees. 

As these cases illustrate, California employers need to approach the independent contractor classification very carefully.  If a worker is properly classified as an independent contractor it can save the company money and give the workers great flexibility.  However, misclassifying employees as independent contractors exposes the company large damages for unreimbursed expenses, unpaid overtime, back payroll taxes, and many other items.

For guidance on whether employers have properly classified its workers as independent contractors, the California Division of Labor Standards Enforcement (“DLSE”) provides an explanation of the “economic realities” test. The DLSE maintains that the most indicative fact determinative of whether a worker is an employee or an independent contractor depends on whether the person to whom service is rendered (the employer or principal) has control or the right to control the worker both as to the work done and the manner and means in which it is performed. The DLSE also sets forth the other factors that are considered when determining an employee’s status:

  1. Whether the person performing services is engaged in an occupation or business distinct from that of the principal;
  2. Whether or not the work is a part of the regular business of the principal or alleged employer;
  3. Whether the principal or the worker supplies the instrumentalities, tools, and the place for the person doing the work;
  4. The alleged employee’s investment in the equipment or materials required by his or her task or his or her employment of helpers;
  5. Whether the service rendered requires a special skill;
  6. The kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of the principal or by a specialist without supervision;
  7. The alleged employee’s opportunity for profit or loss depending on his or her managerial skill;
  8. The length of time for which the services are to be performed;
  9. The degree of permanence of the working relationship;
  10. The method of payment, whether by time or by the job; and
  11. Whether or not the parties believe they are creating an employer-employee relationship may have some bearing on the question, but is not determinative since this is a question of law based on objective tests.

Further details about the DLSE’s position on who classifies as an independent contractor can be found here. The DLSE’s information provides a great starting point for employers to audit their classifications of employees, but each case may present different facts, and the economic realities test may change depending on the jurisdiction (i.e., civil court or an EDD assessment) and whether state or federal law is at issue.

The Cost Of Bullies In The Workplace

Fast Company provides an excerpt from Robert I. Sutton’s book, The No Asshole Rule, which assists people in dealing with difficult co-workers and supervisors at work (as well has helps you avoid becoming the employee no one wants to work with). The excerpt:

The company decided that in addition to warnings and training, it was time to quantify the incremental costs of Ethan's bad behavior and deduct it from his bonus....The estimated costs were:

Time spent by Ethan's direct manager: 250 hours valued at $25,000

Time spent by HR professionals: 50 hours valued at $5,000

Time spent by senior executives: 15 hours valued at $10,000

Time spent by the company's outside employment counsel: 10 hours valued at $5,000

Cost of recruiting and training a new secretary to support Ethan: $85,000

Overtime costs associated with Ethan's last-minute demands: $25,000

Anger-management training and counseling: $5,000

Estimated total cost of asshole for one year: $160,000

Through my practice, I’ve come to realize the 5/90 rule: 5% of a company’s employees take up 90% of a company’s human resource department’s resources.  It is usually the same handful of employees that are causing discourse within the company, and these employees are probably not the company’s most productive employees. The most productive employees are too busy working to have time to create problems. 

I think if one could track these hours and costs, Sutton’s estimate would be very accurate. I would also like to add a few figures. If the 10 hours spent by outside employment counsel mentioned above was not enough to prevent a lawsuit from being filed, the costs associated with the time managers spent assisting outside counsel and the direct litigation costs could easily put the total costs well above $300,000. And the lawsuit might not even come from the jerk – it may come from his or her subordinate who thought that he was not treated with respect at the company, and that the company simply ignored his requests to help him deal with the jerk. 

Proposed Immigration Rules Likely To Be Implemented

Over the weekend the Los Angeles Times had another article about what it says are going to be the new immigration regulations put in place within the next few days.  Here is an excerpt of the article:
"If things don't get worked out in a couple months, we're just supposed to fire someone?" Hauge asked. "What happens if the data is wrong and you fire them? Does that open you up to a wrongful-termination suit?"

Knocke, the Homeland Security spokesman, disagreed. "If employers act in good faith and make an effort to comply with the law, there will be a safe harbor provision for them," he said.

Businesses should not be surprised by the new enforcement initiative, Bush administration officials said. The government has been sending out the "no-match" letters to employers since 1979.

"There's nothing different with the letter," said Mark Hinkle of the Social Security Administration. "What is different is an upcoming Homeland Security regulation that will be clarifying what businesses need to do if they receive a no-match letter."

No-match letters may be sent when there are inconsistencies between a worker's tax forms and records -- such as an individual's birth date or name spelling -- that the Social Security Administration has on file.

In 2005, the administration sent 8.1 million letters to workers at their home addresses, asking them to resolve differences. About 1.5 million letters were mailed to the workers' place of employment when no home address was available.

For businesses that had more than 10 employees with discrepancies in their record, a third type of letter is mailed. Last year, the administration mailed 138,000 of those letters to employers, Hinkle said. This year, they anticipate a slight uptick to 140,000.

With the Homeland Security crackdown, Hinkle said the agency was expecting "some increase" in phone calls and foot traffic at its 1,300 offices across the country. "We really don't have a projection," Hinkle said. "We handle millions of phone calls and millions of visitors and millions of claims a year. So we'll deal with it as it occurs."

Although many employers have still to learn the details of the regulations, the major trade groups protesting the action expect Homeland Security to act soon despite industry objections. (emphasis added) 

The entire article can be read here

Department of Homeland Security May Enact Proposed Rules Within the Next Few Days That Would Change Employers' Obligations When In Receipt of "No-Match" Letters

The Los Angeles Times reports today that the Department of Homeland Security may implement its proposed rules clarifying employers’ obligations when in receipt of a “no-match letter” within the next few days.

The proposed rules, if actually enacted, clarify what steps employers need to take when in receipt of a no-match letter in order to avoid being deemed to have constructive knowledge of an employee’s unauthorized work status. The Department of Homeland Security proposed rules can be read here.

Employers annually send the Social Security Administration (SSA) millions of earnings reports (W-2 Forms) in which the combination of employee name and social security number (SSN) does not match SSA records. In some of these cases, SSA sends a letter that informs the employer of this fact. The letter is commonly referred to as a ``no-match letter.'' There are many causes for such a no-match, including clerical error and name changes. But one of the causes is the submission of information for an alien who is not authorized to work in the United States and is using a false SSN or a SSN assigned to someone else. Such a letter may be one of the only indicators to an employer that one of its employees may be an unauthorized alien.

Specifically, the proposed rule would add two additional examples of when an employer will be found to have constructive knowledge of an employee’s unauthorized work status. Those two examples are: (1) failure to take reasonable steps after receiving a no-match letter from DHS; and (2) failure to take reasonable steps after receiving a no-match letter from SSA.

If the rules are enacted, employers are urged to read the regulations in order to learn of their new obligations.

The Interview - What Questions Can Employers Ask?

Recruiting applicants and interviewing new applicants is critical to running a successful business and staying ahead of the competition.  I think this is one area that many companies do not spend enough time thinking about, training their managers about, and tracking how effective managers are in hiring good people.  As noted on Guy Kawasaki's blog, one of his readers provides a very detailed explanation of the interview process at Hewlett Packard.  This is a must read for any human resources manager establishing a protocol for interviewing new applicants.  It is obvious that HP knows how critical interviews are for determining fit within the company, and have given the process a lot of thought. 

Managers conducting the interviews should also be well trained in what is and what is not acceptable to ask during an interview.  Below is a short list of a few subjects and the acceptable and unacceptable questions for those subjects under the law.  A more complete chart "General List of Acceptable Interview Subject and Questions" can be downloaded here.

Subject Acceptable Unacceptable
Name Name Maiden Name
Residence Place of residence Questions regarding renting or owning.
Age Statements that hire is subject to verification that applicants meet legal age requirements. • Age
• Birth date
• Date of attendance/completion of
• Questions which tend to identify applicants over 40