Reminder - Employers Must Use New I-9 Form Starting December 26, 2007

All U.S. employers must use the new Form I-9 beginning next week on December 26, 2007.  Failure to transition to the new form could result in penalties.  The new I-9 can be downloaded from the US Citizenship and Immigration Services' website here

All U.S. employers are responsible for completion and retention of Form I-9 for each individual they hire for employment in the United States. This includes citizens and noncitizens. On the form, the employer must verify the employment eligibility and identity documents presented by the employee and record the document information on the Form I-9. The list of acceptable documents has been amended in the 2007 version of the Form I-9 and can be found on page 4 of the forms.

The U.S. Citizenship and Immigration Services notes on its website the following changes to the Form I-9:
Five documents have been removed from List A of the List of Acceptable Documents:
  • Certificate of U.S. Citizenship (Form N-560 or N-561)
  • Certificate of Naturalization (Form N-550 or N-570)
  • Alien Registration Receipt Card (I-151)
  • Unexpired Reentry Permit (Form I-327)
  • Unexpired Refugee Travel Document (Form I-571)
One document was added to List A of the List of Acceptable Documents:
  • Unexpired Employment Authorization Document (I-766)
All Employment Authorization Documents with photographs have been consolidated as one item on List A:
  • I-688, I-688A, I-688B, I-766
Instructions regarding Section 1 of the Form I-9 now indicate that the employee is not obliged to provide his or her Social Security number in Section 1 of the Form I-9, unless he or she is employed by an employer who participates in E-Verify.

Employers may now sign and retain Forms I-9 electronically. See instructions on page 2 of the Form I-9.

California Labor Commissioner Files Multi-Million Dollar Suit Against Janitorial Companies

In a press release issued by the California Department of Industrial Relations, the agency announced that it has filed a joint lawsuit against Excell Cleaning & Building Services, Inc., and MO Restaurant Cleaning of California, Inc. The lawsuit is seeking damages for unpaid wages and penalties going back to 2003 for janitors who worked for the company. The DIR claims that its investigation also revealed that employees were being misclassified as independent contractors to avoid paying nearly $250,000 in payroll taxes. This misclassification also resulted in workers being paid less then minimum wage and not being paid overtime. This type of lawsuit is not a novel one, as many companies in California have been sued under a joint employer theory in cases alleging almost the same facts.

The DIR’s press release reminds employers that under state labor law, all wages earned by any person are due and payable twice a month on days established in advance by the employer as regular paydays. All California employers are also required to pay minimum wage, overtime for all hours worked in excess of regular hours, double time rates for work in excess of 12 hours in one day, or any work in excess of eight hours in the seventh day of a work week, and pay final wages due to employees at the time of termination. Finally, the DIR notes that employers are required to provide itemized statements, permit 10 minute rest breaks for every four hours of work, and provide a meal period of not less than 30 minutes for the first five hours of work unless the work period is not more than six hours.

Companies that outsource work to contractors, such as janitorial services, should be extremely careful to ensure that they have taken the proper measures to avoid being a joint-employer under the law.  If found to be a joint-employer, the company could be liable for the contractor's wage and hour violations. 

English-Only Amendment Blocked By US House

The House of Representatives recently passed a $516 billion omnibus spending measure that addresses a number of issues, including the funding of various Cabinet departments and the funding of U.S. troops in Afghanistan. In passing the omnibus bill – which President Bush is expected to eventually sign – Democratic lawmakers were successful in blocking an amendment that would have barred the government from suing employers who try to enforce English only workplace rules.

Republican lawmakers proposed the amendment, in response to the EEOC’s recent decision to sue the Salvation Army for firing two Hispanic after they did not learn English within one-year. The EEOC’s suit claims that the terminated employees suffered “emotional pain, humiliation, and embarrassment” as a result of the Salvation Army’s English only policy.

In addition, a provision that would have barred the Labor Department from enforcing new financial reporting requirements on various unions was also jettisoned from the bill. Union members are currently required to fill out a two page form certifying their personal financial dealings with any company represented by their union. Under the new rules being promulgated by the Bush Administration, employees would be required to submit expanded information on their finances. Unions claim the new rules are invasive, while the Labor Department says they will “enhance union integrity” by strengthening conflict-of-interest reporting. Click here for a summary of omnibus bill.

Stay tuned for new developments as the spending bill works its way through the Senate and eventually to President Bush’s desk.

Court Denies Employee's Attorney Fees For Tort Claims

Apart from being an informative warning about some tactics used by car dealerships to increase the price paid by consumers by using “legs” or “payment packing” techniques, the court’s opinion in Casella v. Southwest Dealer Services, Inc. also analyzed when parties may recover their attorney fees in litigation.

As a general rule, in the United States each party bears the costs their own attorney’s fees. However, this general rule can be modified if a statute allows for prevailing parties to recover attorney’s fees or by a contractual agreement by the parties.

In Casella v. Southwest Dealer Services, the following attorney fee provision was at issue:
If any legal action arises under this Agreement or by reason of any asserted breach of it, the prevailing party shall be entitled to recover all costs and expenses, including reasonable attorney’s fees, incurred in enforcing or attempting to enforce any of the terms, covenants or conditions, including costs incurred prior to commencement of legal action, and all costs and expenses, including reasonable attorney’s fees, incurred in any appeal from an action brought to enforce any of the terms, covenants or conditions.
Casella’s lawsuit was based on tort claims for wrongful termination in violation of public policy, fraud, and violation of Labor Code section 970. He did not allege a breach of the employment contract. The court interpreted the attorney’s fee provision as being very narrow:
In this case, the attorney fees provision starts out broadly, using the phrase “[i]f any legal action arises under this Agreement”…. [And then] the provision then narrows in scope, limiting the recovery of reasonable attorney fees to those “incurred in enforcing or attempting to enforce any of the terms, covenants or conditions,” including reasonable attorney fees “incurred in any appeal from an action brought to enforce any of the terms, covenants or conditions.”
Therefore, the court held that “[s]uch tort claims do not seek to enforce the employment agreement. Section 1717, subdivision (a) of the Civil Code “makes clear that a tort claim does not ‘enforce’ a contract. That statute expressly refers to, and therefore governs, ‘attorney’s fees . . . which are incurred to enforce th[e] contract.’ Because section 1717 does not encompass tort claims [citations], it follows that tort claims do not ‘enforce’ a contract.” (citing Exxess Electronixx, 64 Cal.App.4th at p. 709.) Because the employment contact did not provide for recovery of attorney’s fees for tort claims, plaintiff’s claim for attorney’s fees failed.

However, the plaintiff was awarded $12,500, a small portion of his attorney’s fee claim. This was due to the fact that after plaintiff filed the lawsuit, the defendant brought a Cross-Complaint against the plaintiff for breach of contract under the employment agreement. The defendant eventually withdrew this claim prior to trial, which made plaintiff the prevailing party on the claim.  Therefore, the court awarded plaintiff the pro-rata costs he incurred in defending this the breach of contract claim.

After Kakani v. Oracle Are "Claims Made" Class Settlements Obsolete?

In Kakani v. Oracle, 2007 WL 1793774 (N.D.Cal. 2007), Judge Alsop of the Northern District of California denied approval of a proposed class settlement agreement. In doing so, he cast doubt on so-called “claims made” or “reversionary” settlement agreements that are commonly used to settle wage and hour class actions.

Class action settlement agreements must be reviewed and approved by the court to ensure that the settlement is “fair and reasonable” to the absent class members. In recent years class action settlements typically provide a release of all class claims and also set forth a maximum amount that may be recovered by the class. All class members are given notice by mail of the settlement terms. However, for any individual class member to claim his or her portion of the settlement he or she must complete and return a written claim form. Any portion of the settlement which is not claimed in this fashion will “revert” back to the employer. Significantly the fees awarded to class counsel under such agreements are generally calculated based on a percentage (usually about 25%) of the gross settlement amount, before any reversion to the employer.
In Oracle, Judge Alsop held that this settlement model was inherently unfair to the many class members that inevitably fail to file claim forms and thereby receive no consideration for the release of their legal claims. The Court further held that such agreements were likely to over-compensate class counsel by basing their fees on settlement amounts that may ultimately go unclaimed by the class.

While Oracle is merely a district court decision, and is not binding on other trial courts, Judge Alsop’s analysis has already had a tremendous influence on both federal and state courts throughout California. In the future, class settlements are much more likely to be “non-reversionary” – i.e., the entire settlement amount must be distributed to class members and may not revert to the employer.

By altering the economic incentives of the various participants, this change will have a profound and far reaching effect on class action litigation in California. This shift will likely create an unusual alignment of winners and losers:

The Losers: Class Counsel and Employers.
Employers are economic “losers” under the emerging Oracle settlement model because they will be unable to retain the unclaimed portion of the settlement amount, which often amounts to 30-50% of the total settlement. Moreover, in return for this higher price of settlement, employers are also likely to receive a less expansive release of liability.
Class counsel are also “losers” because they must base their court-approved contingency fee on the amount actually recovered, rather than the amount theoretically available to the class. To justify their fee class counsel will thus feel compelled to hold out for more money, work up the case more extensively, and settle later in the action.

The Winners: Defense Counsel and Absent Class Members.
Class action defense counsel will likely receive more work in the aftermath of Oracle, because class actions are likely to be litigated longer prior to settlement, thereby generating higher hourly fees.

Absent class members will likely receive more money on average in any particular class settlement, as post-Oracle settlements will allow them to receive compensation regardless whether they submit valid timely claim forms.

Reminder - California Minimum Wage Increases Jan. 1 and Impacts Exempt Employees

As a simple reminder, employers should begin to plan to adjust their payroll systems in order to ensure that all California employees are paid the new minimum wage of $8 per hour starting January 1, 2008.  With this increase, California will tie Massachusetts for the highest minimum wage rate in the country. 

Impact Upon Exempt Employees
Employers will also have to re-examine the pay rates for their exempt employees. One of the items California law requires for an employee to qualify as exempt (which means they are not entitled to overtime) the employee must earn at least two times minimum wage, base on a forty hour workweek. Therefore, the increase in the minimum wage means that the minimum salary for exempt employees will increase from to $31,200 in 2007 to $33,280 as of January 1, 2008.

In addition, employers should also review their pay rates for commissioned inside sales employees. For an employee to qualify as a commissioned inside sales employees who are exempt from overtime under Wage Order Nos. 4 and 7, the employee must earn at least 1.5 times the minimum wage for all hours of work to maintain the exemption. The employee must meet other requirements to qualify for this exemption, but the salary level is a bright-line rule that must be met in order for the exemption to apply.