New Labor Code § 925 Limits Contractual Choice of Law in Employment Contracts

Starting on January 1, 2017, Labor Code section 925 is in effect.  The statute limits the enforcement of contracts that would require California employees to litigate their disputes with an employer in a venue outside California, or under a different set of laws.    

The new law applies to employment contracts "entered into, modified, or extended on or after January 1, 2017."  And the law only applies to "an employee who primarily resides and works in California."  As to such covered disputes, however, any contract provision designating a non-California forum or choice-of-law, will "voidable" at the election of the employee.  

Employers and employees should also be aware, however, that such provisions may also be unenforceable on the separate ground that enforcement would require an employee to waive a California legal right that is explicitly made "non-waivable," such as minimum wage,overtime, or non-discrimination laws. 

In any event, the full text of Labor Section 925 is as follows:

§ 925. Prohibition against requirement that employee residing and working in California adjudicate claim outside of California or be deprived of substantive protection of California law as condition of employment; violations and remedies; exception
(a) An employer shall not require an employee who primarily resides and works in California, as a condition of employment, to agree to a provision that would do either of the following:
(1) Require the employee to adjudicate outside of California a claim arising in California.
(2) Deprive the employee of the substantive protection of California law with respect to a controversy arising in California.
(b) Any provision of a contract that violates subdivision (a) is voidable by the employee, and if a provision is rendered void at the request of the employee, the matter shall be adjudicated in California and California law shall govern the dispute.
(c) In addition to injunctive relief and any other remedies available, a court may award an employee who is enforcing his or her rights under this section reasonable attorney's fees.
(d) For purposes of this section, adjudication includes litigation and arbitration.
(e) This section shall not apply to a contract with an employee who is in fact individually represented by legal counsel in negotiating the terms of an agreement to designate either the venue or forum in which a controversy arising from the employment contract may be adjudicated or the choice of law to be applied.
(f) This section shall apply to a contract entered into, modified, or extended on or after January 1, 2017.

Seventh Circuit Holds that Class Action Waivers are Unenforceable under the NLRA -- Lewis v. Epic Systems Corporation

In Lewis v. Epic Systems Corp., the Seventh Circuit held that arbitration agreements that prohibit class or collective actions by employees are illegal and unenforceable under the National Labor Relations Act ("NLRA").  In particular, the May 26, 2016 decision explained that class lawsuits are a form of "protected concerted" activity under NLRA Sections 7 and 8.  Thus, the court reasoned that any purported contractual waiver of these statutorily protected rights is unenforceable:

The [class waiver] provision prohibits any collective, representative, or class legal proceeding. Section 7 provides that “[e]mployees shall have the right to ... engage in ... concerted activities for the purpose of collective bargaining or other mutual aid or protection.”  A collective, representative, or class legal proceeding is just such a “concerted activit[y.”  Under Section 8, any employer action that “interfere[s] with, restrain[s], or coerce[s] employees in the exercise of the rights guaranteed in [Section 7]” constitutes an “unfair labor practice.”  Contracts that stipulate away employees’ Section 7 rights or otherwise require actions unlawful under the NLRA are unenforceable.

(Internal Citations omitted).

The Lewis Court further held that this result is not at odds with the Federal Arbitration Act ("FAA"), as the FAA's "savings clause" only requires enforcement of arbitration agreements which are lawful and otherwise enforceable according to general contract law.

As a general matter, there is no doubt that illegal promises will not be enforced in cases controlled by the federal law.  The FAA incorporates that principle through its saving clause: it confirms that agreements to arbitrate “shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” 9 U.S.C. § 2. Illegality is one of those grounds. The NLRA prohibits the enforcement of contract provisions like Epic’s, which strip away employees’ rights to engage in “concerted activities.” Because the provision at issue is unlawful under Section 7 of the NLRA, it is illegal, and meets the criteria of the FAA’s saving clause for nonenforcement. Here, the NLRA and FAA work hand in glove.

(Internal punctuation and citations omitted).

In striking down class action waiver agreements Lewis joins with the reasoning adopted by the NLRB itself.  However, it splits with the Fifth and Tenth Circuits, which have held that the pro-arbitration policy of the FAA takes precedence over the right to engage in "protected concerted" activity.  

Unless Lewis is overruled following a grant of en banc review, the circuit split regarding the legality of class action waivers will inevitably end up before the Supreme Court.  However, the Supreme Court's prior pro-waiver decisions have been sharply divided 5-4 decisions authored by the recently departed Justice Scalia.   As a result, time may be running out on employers' most effective technique for avoiding class action liability.  



Consumer Financial Protection Bureau Issues Proposed Rule to Prohibit Class Action Waivers in Arbitration Agreements

 The federal Consumer Financial Protection Bureau (CFPB) has issued a proposed regulation, 12 C.F.R. part 1040, that would ban the enforcement of class action waivers in most consumer financial contracts.

The new regulation does not apply to employment contracts.  Moreover, the new regulation will only apply prospectively to arbitration agreements formed more than 180 days after the regulation becomes effective.  However, it will inevitably stir up some interesting legal and political issues surrounding the enforcement of class action waivers.  

The new rule amounts to a regulatory reversal of the landmark 2011 U.S. Supreme Court decision in AT&T v. Concepcion, which held that the Federal Arbitration Act ("FAA"), requires states to enforce class action waivers even if they would be illegal under state law.  Indeed, the new regulation would prohibit states from enforcing class action waivers even if they would be legal under state law.

The elephant in the room, however, is whether the CFPB actually has the authority to do any of this.  Section 128(b) of the Dodd-Frank Act purportedly gives the CFPB authority to prohibit arbitration agreements containing class action waivers.  However, the FAA already contains a statutory mandate that private arbitration agreements are to be deemed “valid, irrevocable, and enforceable," and are to be enforced "according to their terms."  

Denying enforcement of class action waiver provisions is arguably a partial repeal of the FAA, at least as it was interpreted in AT&T v. Concepcion.   It is therefore dubious that Congress can constitutionally delegate this legislative function to an administrative agency.   





Workers Comp. Injuries May Support Civil Lawsuits -- Prue v. Brady Company, Inc.

Most employers and workers recognize that the "workers comp." system is entirely separate from the civil law courts, with its own special remedies and procedures.   Employers also generally understand that such workers comp. benefits are supposed to be the "exclusive remedy" for any workplace injury.  

But the recent case of Prue v. Brady Company, Inc., offers a timely reminder that an exception to this "exclusivity" doctrine may apply whenever a workplace injury also results in a "disability" covered by the California Fair Employment and Housing Act ("FEHA").  Indeed, most medical conditions that substantially limit an employee's ability to work -- such as the need to recuperate or take leave due to an injury -- will also qualify as a covered "disability."  This, in turn, triggers a number of statutory obligations including: the duty to engage in an "interactive process;" the duty to "reasonably accommodate" the employee's condition; and the duty to prevent any retaliation or discrimination.  

For example, in Prue v. Brady, the employee alleged that his supervisor terminated him rather than allow him to return to work with restrictions after he suffered a hernia at work.  The lower court had granted summary judgment based on the employer's argument that this was really a glorified workers comp claim for which no additional remedy should be allowed.  

The Appellate Court reversed, explaining that the legal duties imposed by the FEHA would support not only a statutory claim under that law itself, but also a common law claim for "termination in violation of public policy."  

This is a cautionary tale for employers who may have a tendency to be complacent about workers comp. claims.  Likewise, workers should be aware that the FEHA's reinstatement and non-retaliation rights are also likely to protect their right to return to employment following a workplace accident or injury.   


Requiring Employees to Pay Back Training Costs May be Illegal Under California Law -- In Re Acknowledgement Cases

Employers obviously benefit from a well-trained workforce.  On the other hand, why invest in training when an employee can just quit (or be fired) and take his improved skills elsewhere.  To avoid this scenario, many companies have instituted policies that require employees to pay back the cost of their training if their employment terminates.

The problem, however, is that such training pay-back programs may be illegal under California Labor Code Section 2802, which generally prohibits employers from passing on the costs of their business operations to employees.      

For example, in In re Acknowledgement Cases, the plaintiffs challenged a Los Angeles Police Department (LAPD) policy that required new recruits to agree that if they left employment within 60 months of graduating from the Police Academy they would pay back a corresponding portion of their training costs. 

As a matter of first impression, the Second District Court of Appeal held that Section 2802 requires that employers must remain financially responsible for all training costs, except for those costs incurred by the employee to obtain a legally required license. 

 [T]he broad purpose of Labor Code section 2802 is to require an employer to bear all of the costs inherent in conducting its business and to indemnify employees from costs incurred in the discharge of their duties for the employer’s benefit.  It is consistent with this purpose to require that where an individual must, as a matter of law, have a license to carry out the duties of his or her employment, the employee must bear the cost of obtaining the license. It is also consistent with this purpose to require an employer to bear the cost of training which is not required to obtain the license but is intended solely to enable the employee to discharge his or her duties.

The record below established that the LAPD required 644 hours of training directly related to meeting statutory licensing requirements, as well as an additional 420 hours of non-statutory "department required" training.  

The Court declined to decide whether, in such a hybrid program, it would be permissible to apportion the training costs between the employer and employee.   

Rather, the case below had been tried by the parties under an "all-or-nothing" theory in which the pay-back policy would either be fully enforceable or entirely void.  Any equitable apportionment defense had therefore been waived.  And because the program purported to require employees to repay some training costs in violation of Labor Code Section 2802, the entire repayment program was therefore properly found to be unenforceable as "null and void."


When Is Doing Your Job also a Form of Protected "Complaint"? -- Rosenfield v. GlobalTranz Enterprises, Inc.

 A variety of statutes prohibit retaliation against employees for reporting conduct that they reasonably believe to be illegal -- e.g., potential safety violations, discrimination, underpayment of wages, etc.  But what if the employee is a  manager whose job it is to ensure compliance with these same statutes?  Are such compliance officers legally protected even if the employer believes they are merely being overzealous, inflexible, or otherwise unsatisfactory in how they handle their reporting duties?

In Rosenfield v. GlobalTranz Enterprises, Inc., the Ninth Circuit held that managers may state a claim for retaliation even if making such reports was part of his or her job duties.  In particular, Rosenfield was the defendant's HR Director, who was terminated after she "advocated consistently and vigorously on behalf of ... GlobalTranz’s employees whose FLSA rights Plaintiff thought were being violated.”  But the lower court nevertheless dismissed her retaliation action on the ground that, due to the nature of her position, her conduct did not constitute a protected "complaint."

The Ninth Circuit reversed.  It found that she could state a retaliation claim regardless of her job duties so long as the employer had "fair notice" that she was "making a complaint that could subject [it] to a later claim of retaliation."  This standard requires that the employer must be able to "understand it, in light of both content and context, as an assertion of rights protected by the statute and a call for their protection."

In this regard, the court explained how the relationship created by the employee's particular job duties could affect how such an internal "complaint" is interpreted.

If an entry-level employee reported that someone is underpaid in violation of the FLSA and requested that the employee be compensated in compliance with the Act, a reasonable employer almost certainly would understand that report as a “complaint” (depending, of course, on all the circumstances). But if the identical report were made by a manager tasked with ensuring the company’s compliance with the FLSA, a reasonable employer almost certainly would not understand that report as a “complaint” (again, depending on all the circumstances). Rather, the employer naturally would understand the manager’s report as carrying out his or her duties. In short, when determining whether an employee has “filed any complaint,” the employee’s role as a manager often is an important contextual element.

Applying this standard, the Ninth Circuit found that the HR Director's reports of wage violations had to be construed as protected as it was her boss who "considered himself solely responsible for FLSA compliance” and he “did not understand, appreciate, or welcome [Plaintiff’s] bringing to his attention the FLSA violations.”

Beyond the scope of the manager's responsibility, however, the Court declined to specify the dividing line between normal job duties and protected conduct, saying merely that the question would have to be decided  "case-by-case."  

Under GlobalTranz, a manager who really wishes to make a stand in an area under her responsibility should probably eschew any attempt at diplomacy and just  come right out with a documented complaint to the effect that "I am hereby giving 'Fair Notice' that I am asserting rights protected by statute."  Her boss may not be thrilled, but at least the protections of the anti-retaliations laws will be clearly triggered.      



New York Times Article: Arbitration Everywhere, Stacking the Deck of Justice -- Is Mainstream Media Finally Recognizing Class Action Waivers as a Political Issue?

As every lawyer practicing in the field has known since at least 2011, the U.S. Supreme Court's approval of mandatory class action waivers in AT&T v. Concepcion has reshaped the entire field of consumer and employment law.  

The odd thing is that this momentous legal development has flown entirely under the radar of the media.  I am sure it's hard for journalist to make the technicalities of Federal Arbitration Act preemption seem "sexy."  But that's still a pretty lame excuse for totally ignoring one of the most important legal story of the decade.  

It was therefore surprising and interesting to see that the nation's "paper of record" is finally on the class-waiver beat.  In an October 31, 2015 New York Times feature article:  Beware the Fine Print: Arbitration Everywhere, Stacking the Deck of Justice, the authors correctly identify the importance of the issue:

By banning class actions, companies have essentially disabled consumer challenges to practices like predatory lending, wage theft and discrimination, court records show.

“This is among the most profound shifts in our legal history,” William G. Young, a federal judge in Boston who was appointed by President Ronald Reagan, said in an interview. “Ominously, business has a good chance of opting out of the legal system altogether and misbehaving without reproach.”

However, the authors also go a little overboard in blaming the Supreme Court's rulings on a shady cabal of corporate conspirators. 

More than a decade in the making, the move to block class actions was engineered by a Wall Street-led coalition of credit card companies and retailers, according to interviews with coalition members and court records. Strategizing from law offices on Park Avenue and in Washington, members of the group came up with a plan to insulate themselves from the costly lawsuits.

(But like I said, it must be hard to make arbitration "sexy" without a secret conspiracy of evil-doers).

To the extent the class action ban is bad law or bad policy the only people really responsible are the five Supreme Court Justices who created the rule.  Indeed, one interesting revelation is that when Chief Justice Roberts was a private attorney working for Discover Bank, he argued for overturning the California Supreme Court decision that held such class action bans to be unenforceable.  As Chief Justice he was able to implement his own arguments by providing the fifth vote in AT&T v. Conception, which struck down the same California "Discover Bank" rule that he had advocated against as a lawyer.  

When the court ruled 5-4 in favor of AT&T, it largely skipped over Mr. Pincus’s central argument [of states' rights].

“Requiring the availability of classwide arbitration,” Justice Scalia wrote for the majority, “interferes with fundamental attributes of arbitration.” The main purpose of the Federal Arbitration Act, he wrote, “is to ensure the enforcement of arbitration agreements according to their terms.”

It was essentially the same argument Mr. Roberts had made as a lawyer in the Discover case.

 Perhaps the Times' article will start a long-overdue trend of more media attention and political discourse on the subject of class action waivers.  Or, more likely, the issue will hing on the next appointment to the Court which may result in a new 5-vote coalition to re-examine the rule.   

Side Note:  I couldn't help looking up the NYT subscriber agreement to see if it has a class action waiver clause. It doesn't.   But the WSJ has one.  








Has California Just Enacted the "Comparable Worth" Doctrine?

California and federal law both currently require equal pay for "equal work." 

On October 6, Gov. Jerry Brown signed into law the "California Fair Pay Act," which changes the requirement to include equal pay for "substantially similar work."   This key phrase is not defined except to note that it should be "viewed as a composite of skill, effort and responsibility" and should generally involve work performed under "substantially similar working conditions."  

As there is no definitive weight assigned to any of these "composite" factors, judges and juries will be entering uncharted territory in considering whether any two positions are "substantially similar."  For example, does a VP of Human Resources utilize "a composite of skill, effort and responsibility" that is "substantially similar" to a VP of Finance?  Who knows.  

If two positions are found to be "substantially similar," however, under the Fair Pay Act it is the employer's burden to prove that 100% of any pay difference is based upon seniority, merit, production, or a "bona fide factor other than sex, such as education, training, or experience."

Courts may interpret the Fair Pay Act as merely extending the Equal Pay Act.  Or it may be interpreted as a wide-ranging implementation of the "comparable worth" movement of the 1980's.  

In the meantime, however, employers and workers will need to look at the compensation levels attached to various position in a whole new light -- i.e., not as not merely what the "market will bear," but what can be justified to a court or jury.     



Advertising that "Tip is Included" May Require Payment to Employees -- O'Conner v. Uber Technologies

Increases in minimum wages and other compensation laws have led many service-based businesses to dispense with tipping as a way to reduce the bottom line cost to their customers.  For example, as the New York Times recently reported "an expanding number of restaurateurs are experimenting with no-tipping policies as a way to manage rising labor costs."

If not implemented properly, however, attempting to eliminate tips may trigger liability to employees under California law. 

It is well-settled for example that employers may simply implement a “no tipping” policy.   An employer may also implement a “mandatory service charge” which it need not directly share with employees.  

However, under Labor Code § 351, to the extent any “tip” is included as part of a transaction, it is the sole property of the employee. Thus, if an employer advertises to customers that a “tip is included” in the price of a service it implies that the employer is adding a tip to the price and passing it along to the employee. If the employer doesn’t actually pay such an additional amount to the employee it may be liable for converting this advertised “tip.”

Indeed, this theory was recently endorsed in O’Conner v. Uber Technologies, 2015 WL 5138097 (N.D. Cal. 2015), in which the district court granted class certification to such a claim for tip conversion.

Plaintiffs have cited extensive evidence that Uber has consistently and uniformly advertised to customers that a tip is included in the cost of its fares (i.e., evidence that Uber “takes or receives” a gratuity). See, e.g., Docket No. 277, Ex. 12 (November 2011: “When the ride is over, Uber will automatically charge your credit card on file. No cash is necessary. Please thank your driver, but tip is already included.”) (emphasis added); Ex. 16 (November 2011: “All Uber fares include the tip ....”) (emphasis added); Ex. 13 (May 2012: “There’s no need to hand your driver any payment, and the tip is included.”) (emphasis added); Ex. 14 (January 2013: “With UberBlack, SUV, and UBERx there is no need to tip. With Uber TAXI we’ll automatically add 20% gratuity for the driver.”) (emphasis added); Ex. 15 (April 2015: “payment is automatically charged to a credit card on file, with tip included ”) (emphasis added). Uber does not even contest this fact in its papers.

Moreover, Uber has stipulated for the purposes of this litigation that, despite its representations that a “tip is included,” a “tip has never been part of the calculation of fares for either UberBlack or UberX in California.” See Docket No. 313–16 (emphasis added). That is, Uber essentially admits that despite making allegedly consistent and uniform representations to customers that a tip was included in all of its fares, Uber never actually calculated such a tip, and clearly never segregated and remitted any tip amount to drivers. Or, put differently, Uber has stipulated that it kept the entire amount of any tip that might be “included” in its fares. These facts, if proven at trial, will likely establish Uber’s uniform and classwide liability for violating California’s Tips Law. 

The bottom line is that a "tip" is, by definition, an amount paid by the customer and received by the server.  Thus, while employers are free to adopt no tipping policies they cannot falsely claim to customers that a "tip" has been "included" in the cost of the service when no additional amount is actually paid to the employee. 



Department of Labor Issues Aggressive Memo Going After "Misclassified" Independent Contractors -- Administrator's Interpretation No. 2015-1

On July 15, 2015, the Wage and Hour Division of the federal Department of Labor issued an "Administrator's Interpretation" that takes a very aggressive stance against the use of independent contractor status in the workplace.  The interpretation is significant as courts are directed to give deference to the DOL's interpretation of the law to the extent it is generally consistent with the FLSA and its implementing regulations.

In particular the memo notes that: "The FLSA’s definition of employ as 'to suffer or permit to work' and the later-developed 'economic realities' test provide a broader scope of employment than the common law control test." Thus,

In order to make the determination whether a worker is an employee or an independent contractor under the FLSA, courts use the multi-factorial “economic realities” test, which focuses on whether the worker is economically dependent on the employer or in business for him or herself.  A worker who is economically dependent on an employer is suffered or permitted to work by the employer. Thus, applying the economic realities test in view of the expansive definition of “employ” under the Act, most workers are employees under the FLSA.

In applying the economic realities factors, courts have described independent contractors as those workers with economic independence who are operating a business of their own. On the other hand, workers who are economically dependent on the employer, regardless of skill level, are employees covered by the FLSA.

The memo goes on to opines that:

The “control” factor, for example, should not be given undue weight. The factors should be considered in totality to determine whether a worker is economically dependent on the employer, and thus an employee. The factors should not be applied as a checklist, but rather the outcome must be determined by a qualitative rather than a quantitative analysis.The application of the economic realities factors is guided by the overarching principle that the FLSA should be liberally construed to provide broad coverage for workers, as evidenced by the Act’s defining “employ” as “to suffer or permit to work.”

The DOL thus seems to advocate an alternative test under which an entity is liable for the wages of any worker whose compensation ultimately derives from doing work for that entity.  

One potential flaw in the Administrator's legal analysis however is that it selectively relies on tests applicable to different issues.  For example, an employee of one company may simultaneously be a "joint employee" of another company based on the "economic realities" of the relationship between the two companies.  Likewise, a company is said to have "suffered or permitted" unrecorded work by one of its current employees if it "knew or should have known" that the work was performed.   In both cases, however, there is no dispute that the worker was an "employee" to begin with.

It thus remains to be seen if courts will accept the DOL's invitation to apply the "economic realities" and "suffer or permit" formulas as the new litmus test for independent contractor status as well.    

Class Certification Is Proper Where Employer Never Paid Meal Period Premiums -- Safeway, Inc. v. Superior Court (Esparza)

The Labor Code and Wage Orders impose two separate obligations on employers: (a) to provide uninterrupted, 30-minute off-duty meal periods at specified time intervals; and (b) to pay one hour of compensation as a "premium wage" for each time that the employee was effectively prevented from actually taking such a compliant break. 

In the aftermath of Brinker v. Superior Court, courts have found that evaluating whether an employer has implemented an affirmative policy that fully complies with the first duty is well suited to a class-wide determination of liability.  But what if the employer has a perfect policy on paper but never actually pays any premium compensation under the policy? 

In Safeway Inc. v. Superior Court (Esparza), the court explained that such a uniform record of non-payment warrants class certification, at least where it is statistically implausible that such premium payments were never earned by class members.   

In granting class certification, the trial court stated: “[Real parties] prove[] that[] before June 17, 2007, Safeway did not pay meal break premiums. . . . Safeway does not contest this fact. Safeway had thousands or tens of thousands of workers, but for years it never paid statutory meal break premiums. Why? One explanation is human perfection: Safeway never, ever erred.” This explanation is possible. But human perfection is rare. Another explanation is deep, system-wide error: that Safeway was unaware of, or for some other reason[,] violated[] its duty to pay statutory premiums when required. [¶] This situation presents the central and predominating common issue: did Safeway’s system-wide failure to pay appropriate meal break premiums make it liable to the class during this period. This dominant common issue makes certification proper . . . .

The Safeway Court went on to explain that under this theory of liability -- i.e., a uniform practice of never paying appropriate meal premium pay -- it would not be necessary for the class to prove each instance of a meal break violation, to prove that "all or virtually all" of the class were owed compensation, or to prove the precise amount of premium pay owed.  

Rather, the class could use statistical analysis of time records and other data to establish that "on a system-wide basis, petitioners denied the class members the benefits of the the compensation guarantee [of] . . . section 226.7."  In particular, the "time punch data and records identified by [Plaintiff's expert] are capable of raising a rebuttable presumption that a significant portion of the missed, shortened and delayed meal breaks reflected meal break violations under section 226.7."

The lesson of Safeway is clear: It is not sufficient for an employer to merely implement a policy that effectively provides compliant meal breaks.  The employer must also record the timing and duration of the breaks, and then implement a separate good faith mechanism for determining whether a premium wage is actually due as a result of any missed breaks.  If the employer simply assumes 100% of the time that no wage is due this practice may expose it to class-wide liability.




U.S. Supreme Court Addresses Pregnancy Discrimination Standards -- Young v. United Parcel Service, Inc.

Under the  federal Pregnancy Discrimination Act ("PDA"), 42 U.S.C. Sec. 2000e(k), employers are prohibited from discriminating against female employees  "because of " pregnancy.   Thus, as with other protected categories like gender or race, a pregnant employee may establish her claim by showing that she was treated less favorably than "similarly situated" non-pregnant employees.  

But the standard for establishing illegal discrimination is much less clear under the second part of the PDA, which provides that employers must treat "women affected by pregnancy ... the same for all employment-related purposes ... as other persons not so affected but similar in their ability or inability to work."   

For example, in Young v. United Parcel Service, Inc., the U.S. Supreme Court wrestled with the interpretation of this duty.  The plaintiff had requested "light duty" as an accommodation for her pregnancy-related lifting restriction of 20 lbs.   The employer denied the request however as its policy only allowed light duty for short-term disabilities which were covered by the ADA or which temporarily prevented the employee from driving.     

This naturally raised the question of which group of employees should be considered "similarly situated" to the plaintiff for comparison purposes.  In other words, should she win her case because some non-pregnant employees with the same restrictions received an accommodation that she did not?  Or, should she lose because non-pregnant employees who, like her, did not meet the criteria of the policy, were also denied leave?

The Supreme Court, in the end, rejected both of these theories.  Instead, the Court held that the real question was whether a jury could find that UPS's light duty policy was motivated by an intent to discriminate against pregnancy-related conditions.  Thus, once a plaintiff demonstrates that she was denied an accommodation that others received, it becomes the employer's burden to justify its exclusion of pregnancy as a qualifying criterion under its policy. 


The employer may then seek to justify its refusal to accommodate the plaintiff by relying on “legitimate, nondiscriminatory” reasons for denying accommodation. That reason normally cannot consist simply of a claim that it is more expensive or less convenient to add pregnant women to the category of those whom the employer accommodates. If the employer offers a “legitimate, nondiscriminatory” reason, the plaintiff may show that it is in fact pretextual. The plaintiff may reach a jury on this issue by providing sufficient evidence that the employer's policies impose a significant burden on pregnant workers, and that the employer's “legitimate, nondiscriminatory” reasons are not sufficiently strong to justify the burden, but rather—when considered along with the burden imposed—give rise to an inference of intentional discrimination. The plaintiff can create a genuine issue of material fact as to whether a significant burden exists by providing evidence that the employer accommodates a large percentage of nonpregnant workers while failing to accommodate a large percentage of pregnant workers.


 The Court has thus seemingly created hybrid test that melds the separate liability theories pertaining to unintentional disparate impact claims and intentional disparate treatment claims.  Thus, the Court has authorized a finding of liability based on a showing that a facially neutral policy of the employer has causes a disparate burden on pregnant women without a sufficiently compelling business justification. 

Under this new standard, employers would be well-advised to explicitly include pregnancy related conditions under their short term disability plans even if doing so is "more expensive or less convenient."  It they fail to do so, they could easily be found liable for intentional discrimination.  


During Rest Breaks Employees Can Be Required to Do "Noun" Work, But Not "Verb" Work -- Augustus v. ABM Security Services, Inc.

In Augustus v. ABM Security Services, Inc., the Second District Court of Appeal was called upon to decide whether time spent "on-call" by security guards (i.e., time spent on premises with a duty to respond to all radio calls) constituted a legitimate "rest period."  

California law requires minimum compensation for all "hours worked."  However, it also requires paid rest periods during which an employee "shall not be required to work."   And just weeks earlier the California Supreme Court held in Mendiola v. CPS Security, Inc., that this exact type of "on-call" time by security guards was compensable "work."  

So one would be excused for thinking the decision in Augustus should be an easy call.  After all, if the same time has already been held to be "work," it can't also be a period of rest which is free from "work."  Right?

Actually, wrong.  

It turns out one can never underestimate the law's ability to find a linguistic distinction -- even if it's a distinction within the same word.  Thus, the Augustus court explained that the crucial distinction for purposes of providing a rest break is whether an employee's required activities are work "as a noun" or work "as a verb." 

The word “work” is used as both a noun and verb in Wage Order No. 4, which defines “Hours worked” as “the time during which an employee is subject to the control of an employer, and includes all the time the employee is suffered or permitted to work, whether or not required to do so.” (Cal. Code Regs., tit. 8, § 11040, subd. 2(K).) In this definition, “work” as a noun means “employment”—time during which an employee is subject to an employer's control. “Work” as a verb means “exertion”—activities an employer may suffer or permit an employee to perform. (See Tennessee Coal, Iron & Railroad Co. v. Muscoda Local No. 123 (1944) 321 U.S. 590, 598, 64 S.Ct. 698, 88 L.Ed. 949 [work is “physical or mental exertion (whether burdensome or not) controlled or required by the employer and pursued necessarily and primarily for the benefit of the employer and his business”].) Section 226.7, which as noted provides that “[a]n employer shall not require an employee to work during a meal or rest or recovery period,” uses “work” as an infinitive verb contraposed with “rest.” It is evident, therefore, that “work” in that section means exertion on an employer's behalf.

As the court explained  "Not all employees at work actually perform work."  Employing this analysis, the court suggested there may be no need to provide distinct rest breaks to security guards as their jobs are "indistinguishable" from one long rest break anyway.  

The Augustus Court's distinction between "noun work" and "verb work" is novel and is based on little more than the court's assertion that "it is evident" that this is what the Legislature must have intended.  Moreover, it may be a problematic distinction to apply in practice as most employees inevitably have short periods during the day when they are not engaged in actual "exertion."  

For example, under Augustus a cashier who waits more than ten minutes before a new customer comes into a store has apparently had a legal rest break whether she knew it or not.  And an employer can apparently provide a legally compliant rest break by merely requiring its employees to stand motionless for 10-minutes.  I am not sure this is really what the Legislature had in mind for a bona fide rest period.  


When Must "On-Call" or other Employee Time Be Paid -- Mendiola v. CPS Security Solutions, Inc.

California law is very clear in requiring that "all hours worked" must be compensated at statutory minimum wage or overtime rates.  Less clear, however, is what time must be counted as "work."  In Mendiola v. CPS Security, Inc., the California Supreme Court clarified that a liberal two-pronged standard applies to this determination.

CPS Security provided on-site guards at construction sites.  As part of their duties the guards were  required to be on-call to respond to any emergencies and to sleep in trailers placed at the sites.  The Supreme Court found that the guards' on-call and sleep time both met the definition of "hours worked" under California law and therefore had to be paid.

The Mendiola Court first clarified that California has two separate and independent tests under which time may be defined as "hours worked." 

In Morillion [v. Royal Packing Co.], we explained that “the two phrases—‘time during which an employee is subject to the control of an employer’ and ‘time the employee is suffered or permitted to work, whether or not required to do so’ “ can be viewed “as independent factors, each of which defines whether certain time spent is compensable as ‘hours worked.’ Thus, an employee who is subject to an employer's control does not have to be working during that time to be compensated....

As to the "control" test, the Court found that an employee will normally satisfy the test whenever he is required to remain on the employer's premises.

When an employer directs, commands or restrains an employee from leaving the work place ... and thus prevents the employee from using the time effectively for his or her own purposes, that employee remains subject to the employer's control. According to [the definition of hours worked], that employee must be paid.

Applying this standard, the Court found that the guards were entitled to pay because they were required to stay at the job site during their on-call hours. 

As to the "permitted to work" test, the Court found that the threshold question is whether the time is primarily for the benefit of the employer and its business."  The guards were therefore entitled to compensation under this test as well because their on-call time was directly connected to their employer's "business model" and the service being offered to its clients.

CPS's business model is based on the idea that construction sites should have an active security presence during the morning and evening hours when construction workers arrive and depart the site, but that theft and vandalism during the night and weekend hours can be deterred effectively by the mere presence of a security guard in a residential trailer.  Thus, even when not actively responding to disturbances, guards' “mere presence” was integral to CPS's business.

These clarified standards for paid "hours worked" will have far reaching effects.  Indeed, under Mendiola any activities which require attendance at a job site, effectively preclude personal activities, or directly relate to the employer's "business model," will likely require compensation.  





Sharing of Corporate Payroll and HR Functions May Result in "Joint Employment" -- Castaneda v. The Ensign Group, Inc.

Publicly traded corporations have increasingly adopted a structure in which a main corporate entity acts as a central "holding company" which conducts its operations through a series of wholly owned entities. The Corporation internally designates its workers as being "employed" by these entities.  As often as not, however, the employees have never heard of the specific entity that allegedly employs them.  Moreover, the employment policies and payroll functions for these operating entities typically emanate from a central corporate HR department and a "shared services" entity.  

In Castaneda v. The Ensign Group, Inc., the California Appellate Court held that this structure of common ownership and shared services is likely to create a "joint employment" relationship for purposes of wage and hour liability.  

An entity that controls the business enterprise may be an employer even if it did not directly hire, fire or supervise the employees.  Multiple entities may be employers where they control different aspects of the employment relationship. This occurs, for example, when one entity (such as a temporary employment agency) hires and pays a worker, and another entity supervises the work.

* * * 

Here Ensign has more than a contractual relationship with Cabrillo. Ensign owns Cabrillo. It purchased it in 2009 and it owns all of its stock. A trier of fact could infer this evidence refutes Ensign's claims of lack of control and responsibility.

(Internal citations and punctuation omitted).  Moreover, the court noted that the corporate parent could be found to be a joint employment based on evidence that its various subsidiaries shared "centralized information technology, human resources, accounting, payroll, legal, risk management, educational and other key services."  (Emphasis in original).

Thus, while it may make eminent business sense for related entities to share common HR, accounting and payroll functions, these shared functions are also likely to result in shared responsibility for wage and hour obligations.   


Termination of Mozilla CEO Likely Violated California Law

As has been widely reported, Mozilla (the maker of the Firefox search engine) recently forced its CEO, Brendan Eich, to resign because he donated $1,000 in 2008 to support California's Proposition 8, which would have banned same sex marriage.  (The Proposition was approved by a majority of voters but invalidated by a federal district court).

The termination has generated a hot debate.  Most commentators have framed the issue, however, as how to properly strike a balance between an employee's political free speech and his employer's desire to communicate a particular corporate "culture."  (see e.g., here and here).

What these commentators seem to have overlooked, however, is that the California Labor Code has already resolved this debate.  Under California law it is blatantly illegal to fire an employee because he has donated money to a political campaign.  This rule is clearly set forth in Labor Code sections 1101-1102:

§ 1101. Political activities of employees; prohibition of prevention or control by employer

No employer shall make, adopt, or enforce any rule, regulation, or policy:

(a) Forbidding or preventing employees from engaging or participating in politics or from becoming candidates for public office.

(b) Controlling or directing, or tending to control or direct the political activities or affiliations of employees.

§ 1102. Coercion or influence of political activities of employees

No employer shall coerce or influence or attempt to coerce or influence his employees through or by means of threat of discharge or loss of employment to adopt or follow or refrain from adopting or following any particular course or line of political action or political activity.

Donating money to a political cause is obviously the most core form of political participation.  But employers and employees should also be aware that the California Supreme Court has broadly extended the scope of protected speech and conduct to include all types of advocacy.  Indeed, in Gay Law Students Association v. Pac. Tel. & Tel. Co., the Court specifically held that one's espoused attitudes about homosexuality were a form of protected conduct.

[Plaintiff's] allegations can reasonably be construed as charging that PT&T discriminates in particular against persons who identify themselves as homosexual, who defend homosexuality, or who are identified with activist homosexual organizations. So construed, the allegations charge that PT&T has adopted a “policy . . . tending to control or direct the political activities or affiliations of employees” in violation of section 1101, and has “attempt(ed) to coerce or influence . . . employees . . . to . . . refrain from adopting (a) particular course or line of political . . . activity” in violation of section 1102.

As terminating an employee for "defend[ing] homosexuality" is illegal political discrimination, one would be hard pressed to come up with a principled argument that opposition to same-sex marriage is somehow not also protected.  

Thus, to the extent employers want to follow in Mozilla's footsteps by policing their employees' politics in the interests of "culture," "inclusiveness," or corporate branding, they should be aware that their efforts will violate California law.  




Scholarship Athletes May be "Employees" Under National Labor Relations Act -- Northwestern University and College Athletic Players Association

The National Labor Relations Act ("NLRA") protects the right of "employees" to organize and collectively bargain. In a petition to the National Labor Relations Board the College Athletes Players Association sought a determination that certain student athletes qualified as "employees" who were entitled to organize under the Act. The Board agreed.

The Board found that a "full ride" scholarship amounted to around $61,000 per year in consideration in the form of room, board, tuition, and various expense allowances. In return for this consideration, the scholarship recipient is subjected to a long list of duties, restrictions, and commitments of time and effort. The NLRA applies generally to individuals who meet the common law definition of "employment." This is essentially the same standard of coverage used in most state and federal protective employment legislation -- i.e. "a person who performs services for another under a contract of hire, subject to the other's control or right of control, and in return for payment."  The Board found that the scholarship relationship met this test.  

As the record demonstrates, players receiving scholarships to perform football-related services for the Employer under a contract for hire in return for compensation are subject to the Employer's control and are therefore employees within the meaning of the Act."

The effect of the Northwestern decision is that -- assuming players actually vote to unionize -- colleges will be required to collectively bargain with their players over the terms and conditions of their employment. This would be an odd bargaining relationship. For example, each team is "employed" by a separate college so there would presumably have to be separate bargaining units and elections for each college program. Moreover, given the NCAA's control over most aspects of scholarship and amateur eligibility status it is unclear what would be left to negotiate with the collegiate "employer."

Perhaps more significant in the long run is whether courts may import the same finding that scholarship-athletes are "employees" in the context of other worker protections such as the duty to pay minimum wage, overtime compensation, or to provide workers compensation coverage. However this particular decision plays out it is probably part of a long-run trend that will eventually overthrow the fiction that Division I college football and basketball are "amateur" student activities rather than the multi-billion dollar for-profit business that everyone knows they are.

California Minimum Wage Increase has Ripple Effect on Other Laws

Under recently signed legislation (AB 10) the minimum wage in California will increase on July 1, 2014 from $8.00 to $9.00 per hour; and will increase again on January 1, 2016 to $10.00 per hour.

The unusual mid-year implementation of the 2014 increase may catch some businesses by surprise, so employers should mark their calendars and make plans to implement the change. Also, anytime the base minimum wage increases it necessarily has a ripple-effect on other compensation thresholds.  For example:

  • The minimum salary necessary to avoid overtime payments to exempt "white collar" managerial, administrative and professional employees is pegged at twice the minimum wage rate for a 40-hour workweek.  This weekly salary threshold will thus rise to $720 on July 1, 2014, and $800 on January 1, 2016.
  • The "regular rate of pay" for exempt commissioned salespeople is pegged at 1.5 times the minimum wage and will thus increase in 2014 and 2016 to $13.50 and $15.00, respectively. 
  • Unlike federal law, California's minimum wage rate must be separately paid for "each hour worked" rather than as the average of the compensation for all hours worked in a week.  As a result, "piece rate" or performance-based compensation systems must ensure that each category of employee work time is generating sufficient compensation to comply with the new standards.

Under the new rates, California's minimum wage rates will be the highest in the nation.   But stay posted, a high-profile movement is under way to push for a base minimum wage rate of $15.00. 



Unconscionable Arbitration Agreements are unenforceable under California Law -- Sonic-Calabasas v. Moreno

Sonic-Calabasas A, Inc. v. Moreno, addressed the specific legal issue of whether an employer can require an employee to waive his right to have an administrative hearing before the Labor Commissioner (a so-called "Berman Hearing"), as part of an arbitration agreement.  In the end, the California Supreme Court merely remanded the case back to the trial court to decide whether this result would be "unconscionable" based on all of the surrounding circumstances. 

In Concepcion v. AT&T, the U.S. Supreme Court held that federal law requires arbitration agreements to be enforced "according to their terms" and that state law rules to the contrary are preempted.  But Sonic-Calabasas, pushes back against this federalizing of arbitration contracts by explaining that: (a) the state law doctrine of "unconscionability" may still be used to strike down excessively unfair agreements; (b) California's existing caselaw defining unconscionable and unenforceable arbitration terms is still in effect notwithstanding Concepcion; and (c) California courts should continue to evaluate arbitration agreements under the totality of the facts surrounding their formation and substantive terms to determine if "the overall bargain was unreasonably one-sided." 

Examples of arbitration terms cited by the Court as unconscionable include:

  • An arbitration agreement that "effectively gave the party imposing an adhesive contract the right to choose a biased arbitrator."
  • An equal division of costs that "has the potential in practice of being unreasonably one-sided or burdening an employee's exercise of statutory rights."
  • A  $50,000 threshold for an arbitration appeal that "decidedly favored defendants in employment contract disputes."
  • A clause limiting the recovery of damages.
  • An "obligation to pay [the employer's] attorney fees if [the employer] prevails in the proceeding, without granting [the employee] the right to recoup her own attorney fees if she prevails.”
  • A requirement "to pay $8,000 in administrative fees to initiate the arbitration."

Sonic-Calabasas therefore stands for the proposition that the permissible terms of an arbitration agreement in California have not necessarily changed much in the aftermath of Concepcion.  The legal basis for evaluating these agreements, however, should be grounded in a case-by-case analysis under  principles of "unconcionability" rather than on any "categorical" rules based on public policy.  

The unaddressed "elephant in the room" however is whether an arbitration agreement that requires a waiver of class remedies may be found to be unconscionable and unenforceable.  This issue is still pending before the California Supreme Court.  However, the groundwork laid in Sonic-Calabasas suggests that the court is leaning in that direction.      




Can an Employer Require On-Duty Meal Breaks Because it Understaffs its Own Locations? -- Abdullah v. U.S. Security Associates, Inc.

In Abdullah v. U.S. Security Associates, Inc., the Ninth Circuit upheld the lower court’s grant of class certification where the employer required “on-duty meal period agreements” based on its contention that off-duty breaks were incompatible with “the nature of the work.” 

In the course of reaching this result the Ninth Circuit fleshed out the scope of this often misunderstood defense. The Court explained, for example, that an employer might legitimately require on-duty meal breaks "where the employee is the only person employed in the establishment and closing the business would work an undue hardship on the employer."  But the Court also noted that this defense may be dicey where, as in most cases, it was the employer who made the decision to staff only one employee in the first place.  

In Abdullah, the employer claimed that its security guards could not take off-duty breaks because they were assigned to work by themselves and could not leave their posts unattended.  The Ninth Circuit did not purport to prejudge this defense.  But it was clear in holding that the lower could reject this defense on a class-wide basis.  

[T]he merits inquiry will turn on whether USSA is permitted to adopt a single-guard staffing model that does not allow for off-duty meal periods—namely, whether it can invoke a “nature of the work” defense on a class-wide basis, where the need for on-duty meal periods results from its own staffing decisions.

Presumably this inquiry would involve an analysis of the feasibility or "undue  burden" of alternative staffing models such as having guards work in shifts, hiring "relief" guards to cover during breaks, etc.  At the very least, however, the Abdullah decision signals that employers cannot merely rely on their own desire to avoid additional staffing expenses as a rationale for requiring on-duty meal breaks.    

"Stand-By" or "On-Call" Time Must Be Paid When Employee Activities Are Restricted -- Mediola v. CPS Security Solutions, Inc.

As the name suggests, "wage and hour" claims involve two equal determinations  -- i.e., the "wage" paid to the employee and the number of "hours" that he worked to receive it.  All too often, however, employers focus only on the wage rate being paid and simply assume that the number of "hours worked" can be defined as whatever time the employee is "clocked in" or whatever time the employer considers "productive work."

In fact, the calculation of "hours worked" for entitlement to overtime and minimum wage compensation is a specific legal definition, and cannot be defined by the agreement of the parties or the unilateral designation of the employer.  Rather, as illustrated in the recent decision in Mediola v. CPS Security Solutions, Inc., the test for compensation is whether the worker is sufficiently restricted from engaging in personal pursuits that he is deemed to be "subject to" the employer's control. 

In practice, this means that workers will be frequently entitled to compensation for literally "doing nothing."  Indeed, according to the venerable and oft-quoted 1944 U.S. Supreme Court decision in Armour & Co. v. Wantock:

“[A]n employer, if he chooses, may hire a man to do nothing, or to do nothing but wait for something to happen. Refraining from other activity often is a factor of instant readiness to serve, and idleness plays a part in all employments in a stand-by capacity. Readiness to serve may be hired, quite as much as service itself . . .

In Mediola, the court applied this rule to security guards who were required to be "on-call" to respond to emergencies at construction sites where they temporarily resided in trailer homes.  As the Court explained, under California law they were entitled to be paid for this time.            

[The guards] are required to live on the jobsite. They are expected to respond immediately, in uniform, when an alarm sounds or they hear suspicious noise or activity. During the relevant hours, they are geo-graphically limited to the trailer and/or the jobsite unless a reliever arrives; even then, they are required to take a pager or radio telephone so they may be called back; and they are required to remain within 30 minutes of the site unless other arrangements have been made. They may not easily trade their responsibilities, but can only call for a reliever and hope one will be found.

Most important, the trailer guards do not enjoy the normal freedoms of a typical off-duty worker, as they are forbidden to have children, pets or alcohol in the trailers and cannot entertain or visit with adult friends or family without special permission. On this record, we conclude the degree of control exercised by the employer compels the conclusion that the trailer guards' on-call time falls under the definition of “hours worked” under California law.

In its everyday usage most people would probably define "work" as some form of productive activity requiring mental or physical effort.  But as the Mediola case illustrates this common understanding bears little resemblance to the actual legal test for triggering compensation. 

Employers should thus take a hard look at any policy that restricts personal activities during "non-working" hours.  Employees subject to these restrictions may be entitled to substantial recoveries of unpaid wages.     





"Piecework" Compensation Systems Must Separately Compensate Each and Every Hour Worked -- Gonzalez v. Downtown LA Motors

As most practitioners in the field are well aware, California's Labor Code and Wage Order protections are generally intended to be more beneficial to employees than federal law.  California's minimum wage protections are a case in point. 

California Law Requires That Each and Every Hour Worked Must Be Separately Compensated

California's minimum wage rate ($8.00 per hour) is obviously higher than the federal minimum ($7.25).  In addition, however, California law calculates the accrual of minimum wage payments in a very different way.  Federal law simply divides weekly compensation by the number of hours worked in the week.  The employer satisfies the federal standard so long as the average compensation is greater than $7.25 per hour. 

California minimum wage law is very different because it requires that the minimum rate of $8.00 per hour must be separately accrued and paid for each hour worked. For example, suppose a truck driver earns $20 per hour for time spent driving but receives no additional compensation for time spent on other tasks.  Now suppose he spends 30 hours per week driving and ten hours on other tasks such as loading and inspecting his vehicle, filing out paperwork, etc.  The driver has worked 40 hours and earned $600 ($20/hr. x 30 hrs. driving).  This easily satisfies federal law because the driver's average hourly rate of compensation is $15 ($600/40hrs.). 

But this pay system just as clearly violates California's per hour minimum wage standard because the driver earned nothing for the ten hours when he was not driving.  Under California law, the driver is entitled to an additional $8.00 in compensation for each of these ten hours of work irrespective of what he may have been paid for any other time worked.

California's "Each and Every" Hour Standard Applies Equally to Piecework Compensation Plans

The recent case of Gonzalez Downtown LA Motors, LP, explained that the requirement to provide separate minimum compensation for each hour worked is not limited to hours-based compensation systems.  Rather, the same standard must also be applied to compensation systems based on commissions, piecework, or other productivity-based metrics.    

By its terms, Wage Order No. 4 does not allow any variance in its application based on the manner of compensation. Subdivision 1 of the wage order states that subject to exceptions that are not applicable here: “This order shall apply to all persons employed in professional, technical, clerical, mechanical, and similar occupations whether paid on a time, piece rate, commission, or other basis.” (Cal. Code Regs., tit. 8, § 11040, subd. 1, italics added.) Subdivision 4(B) similarly requires uniform application of the minimum wage requirements regardless of how an employee is paid: “Every employer shall pay to each employee, on the established payday for the period involved, not less than the applicable minimum wage for all hours worked in the payroll period, whether the remuneration is measured by time, piece, commission, or otherwise.” (Cal. Code Regs., tit. 8, § 11040, subd. (4)(B), italics added.) That DTLA compensated its technicians on a piece-rate basis is not a valid ground for varying either the application or interpretation of the wage order.

There is an obvious tension between pay systems that seek to compensate for performance or productivity alone and a legal standard that requires minimum payments for time alone.  Reconciling these two standards is problematic to say the least and I will try to explore the nuances of doing so in future posts. 

In the meantime, however, employers and their workers should be aware that any "creative" compensation scheme that does not expressly pay a flat minimum rate for each and every hour is legally suspect under California law.               

Class Certification is Appropriate Where Employer has No Break Policy -- Bradley v. Networkers International, LLC

The Fourth District Court of Appeal decision in Bradley v. Networkers International, LLC is significant because it directly addresses how the landmark Brinker decision should effect class certification of meal and rest break claims.  (Bradley is also significant concerning misclassification of independent contractors but that warrants a whole separate post). 

The employer in Bradley had never promulgated any policy specifically authorizing meal and rest breaks.  Originally the trial court had denied certification and the appellate court had upheld the denial on the ground that it would be necessary to individually determine which workers had the opportunity to take breaks and whether they had voluntary chosen to waive the breaks.  The Supreme Court issued a "grant and hold" and then remanded for reconsideration in light of its Brinker decision.   

The Bradley Court explained upon remand that Brinker had changed everything.  Under the Supreme Court's new rules the same record now required class certification of the meal and rest period claims.  First, because Brinker clarified that employers have a legal obligation to affirmatively provide breaks, not having a policy is itself a common class-wide policy that warrants certification.       

Networkers argues Brinker is not controlling because in Brinker the plaintiffs challenged an express meal and break policy whereas here plaintiffs are challenging the fact that the employer's lack of a policy violated the law. This is not a material distinction on the record before us. Under Brinker and under the facts here, the employer engaged in uniform companywide conduct that allegedly violated state law.

Secondly, the lack of an affirmative meal and rest break policy effectively takes the issue of "waiver" off the table, removing it as an obstacle to certification as well.

[A]s Brinker made clear, an employer is obligated to provide the rest and meal breaks, and if an employer does not do so, the fact that an employee did not take the break cannot reasonably be considered a waiver. “No issue of waiver ever arises for a rest break that was required by law but never authorized; if a break is not authorized, an employee has no opportunity to decline to take it.”

Prior to Brinker many employers got by with arguing that they did not prohibit breaks and that it was therefore up to their workers to take meal and rest breaks and that they could not prove that they had not voluntarily chosen to take breaks.  Bradley is crystal clear in holding that this is no longer an option.  

Under Brinker, the failure to implement and enforce an affirmative break policy (including records of whether the breaks were actually taken), is a substantive violation of the employer's legal duty under the Labor Code.  Under Bradley this substantive violation will also be certified as a class action.   In short, an employer without an affirmative break policy is now officially a sitting duck.     


Time "Rounding" and "Grace Period" Policies -- See's Candy Shops v. Superior Court

In See's Candy Shops v. Superior Court, the Court addressed two separate issues concerning the recording and calculation of hours worked by non-exempt employees: (a) to what extent may employers "round" worker time entries; and (b) to what extent may employers base hours of pay on "scheduled" work times that differ from the actual time punch records. 

Rounding of Time Entries.

It is a fairly common practice for employers -- especially those using commercial time tracking software such as Kronos -- to calculate work time based on "rounded" time entries. For example, if an employee clocks in for work at 8:53 a.m. the policy may "round" this entry to the nearest 15-minute interval and therefore pay the worker only for time worked after 9:00 a.m.

See's Candy reached the common sense conclusion that rounding is fine as long as the incidents of "rounding up" and "rounding down" roughly  cancel each other out, thereby resulting in a generally accurate  measure of hours worked.

Assuming a rounding-over-time policy is neutral, both facially and as applied, the practice is proper under California law because its net effect is to permit employers to efficiently calculate hours worked without imposing any burden on employees.

Employers cannot assume, however, that a policy is always permissible merely because it rounds up as well as down.  The key phrase here is that the policy must also be fair to the employee "as applied." 

For example, consider an employer that requires its workers to be on the job by no later than 9:00 a.m. but also prohibits unauthorized overtime or clocking in early.  This combination of policies would basically require (or at least strongly encourage) employees to always clock in between 8:53 a.m. and 9:00 a.m. but never later.   Over time, and over the course of an entire labor force, this systemic rounding bias could result in a substantial amount of unpaid work time. 

Unpaid "Grace Period" Time.

A related practice evaluated in See's Candy is a a so-called "grace period"  policy.  Under this policy "employees whose schedules have been programmed into the Kronos system may voluntarily punch in up to 10 minutes before their scheduled start time and 10 minutes after their scheduled end time."   However, "Because See's Candy assumes the employees are not working during the 10–minute grace period, if an employee punches into the system during the grace period, the employee is paid based on his or her scheduled start/stop time, rather than the punch time."

As the Court explained the "grace period" policy presented a different issue from rounding.  Under the rounding policy the employees were admitedly working and the issue was whether the policy resulted in an accurate record of their work hours.  Under the "grace period" policy the employer "assumed" that no work was being performed and the issue was whether that assumption was accurate.

If the evidence later shows that the employees were working or “under the control” of See's Candy during the grace period and they were not paid for this time, they may be entitled to recover those amounts in the litigation and any applicable penalties.


Internal policies like "rounding" or "grace periods" do not create special defenses to wage claims.   Rather, like any other employer policy, they are valid or invalid only to the extent they comply with the standard legal obligation to accurately record and pay for all hours actually worked.   The test is therefore how the polices operate in practice in combination with the Company's actual work requirements and other policies.  

Webinar - The Impact of Brinker: Understanding The Supreme Court's Decision On Meal & Rest Breaks

Be among the first in California to understand the complete impact the monumental decision in Brinker v. Superior Court will have on employers. The Court’s decision is expected on April 12, and Anthony Zaller and Daniel Turner will analyze and discuss the impact of the decision. The webinar will explain the decision and what it means for employers and wage and hour class actions, discussing among other items:

  • Can meal periods be offered to employees, or do they need to be ensured?
  • When during the shift can meal and rest periods be taken?
  • What does the Court’s ruling mean for the status of meal and rest break class actions and class certification issues?
  • What is the impact for cases currently being litigated?

The cost is $150 per connection. 

Date: Wednesday, April 18
Time: 10:00 a.m. PST

Click here to register.  Existing clients can email us here to have the fee waived.

Class Action Waivers Alive Again In California - AT&T Mobility v. Concepcion

California employers have long argued that arbitration agreements that require employees to only bring their cases as individual cases and not class actions should be enforceable. California courts routinely disagreed with this rational, arguing that class action waivers effectively obstructed employees’ rights because the employees were less likely to sue if only suing to recover their individual damages. The California Supreme Court explained in Discover Bank v. Superior Court that most arbitration agreements in the consumer context waiving the right to bring a class action were unconscionable contracts under California law. This rule has also carried over into the employment context and invalidating most employment arbitration agreements in which the employee waived any right to bring a class action for claims that arose during employment. But this week, the California Supreme Court’s decision was expressly overturned by the United Stated Supreme Court in AT&T Mobility LLC v. Concepcion.

The United States Supreme Court held in AT&T Mobility LLC v. Concepcion that the California Discovery Bank ruling “stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress” by enacting the Federal Arbitration Act (FAA). In the case, Plaintiffs brought suit against AT&T for false advertising and fraud by claiming that it provided consumers with a free phone, but the Plaintiffs were required to pay sales tax on the phones, and Plaintiffs alleged therefore the phones were not “free.” AT&T had an arbitration agreement that prevented Plaintiffs from bringing a class action, and required the Plaintiffs to arbitrate their claims. The lower courts held that California’s Discover Bank rule invalidated the class action waiver in the agreement as “unconscionable”. In overturning the lower courts, the US Supreme Court held that California’s Discover Bank rule “classifying most collective-arbitration waivers in consumer contracts as unconscionable” is a clear obstacle to the goals of the FAA. Therefore the FAA preempted California’s Discover Bank rule, allowing the class action waiver in the arbitration agreement to be enforceable.

Ramifications For California Employers

Until now, most class action waivers contained in arbitration agreements entered into with employees were unenforceable under California law. Now the AT&T Mobility decision gives employers an argument again that these types of agreements are permitted under Federal law, and therefore are enforceable. California employers still must be careful to follow other considerations to make such agreements enforceable, and it is important to keep in mind that the AT&T decision was in the consumer context – not an employment agreement.

Supreme Court Approves Employee Background Check Questions on Drug Use -- NASA v. Nelson

The plaintiffs in National Aeronautics and Space Administration v. Nelson, claimed that NASA violated their privacy rights by requiring them to answer questions concerning illegal drug use and drug counseling when applying for positions at the renown Jet Propulsion Laboratory (JPL) in Pasadena.

The majority opinion sidestepped the controversial issue of the scope of privacy rights under the federal constitutional by simply assuming arguendo that such a right existed.  Thus, the opinion did not turn on issues of constitutional interpretation but on whether the questions were deemed to be a reasonable part of NASA's role as an employer.      

Under this standard the Court had no hesitation in finding that the drug-related questions were perfectly reasonable "employment-related inquiries that further the Government's interests in managing its internal operations."   As the Court explained:

The Government has good reason to ask employees about their recent illegal-drug use. Like any employer, the Government is entitled to have its projects staffed by reliable, law-abiding persons who will efficiently and effectively discharge their duties. 

The Court also approved of the questions concerning treatment and counseling as being entirely appropriate in an employment context:

[T]he follow-up question on “treatment or counseling” for recent illegal-drug use is also a reasonable, employment-related inquiry. The Government, recognizing that illegal-drug use is both a criminal and a medical issue, seeks to separate out those illegal-drug users who are taking steps to address and overcome their problems. The Government thus uses responses to the “treatment or counseling” question as a mitigating factor in determining whether to grant contract employees long-term access to federal facilities. 

Indeed, the majority even went further in a footnote dictum suggesting that "Asking about treatment or counseling could also help the Government identify chronic drug abusers for whom, despite counseling and rehabilitation programs, there is little chance for effective rehabilitation.”  In other words, analyzing an applicant's drug treatment history is a valid means to weed out the hopeless drug abusers from those who are more likely to stay on the wagon:  

While NASA v. Nelson involved federal workers it is still significant for private sector employers in California.  This is because the California constitution contains its own right of informational privacy which, unlike the federal constitution, applies to all private sector employers.  The caselaw interpreting this California privacy right is a murky balancing test that weighs the extent of the alleged privacy invasion against the employer's need to know.  

The U.S. Supreme Court's hearty endorsement of pre-employment questioning on illegal drug use and counseling is thus a fairly persuasive (if not controlling) authority for approving the same questions under California law.   



More political activity discrimination -- Keith Olbermann suspended for making campaign contributions

Just a few weeks ago we blogged that NPR's termination of Juan Williams for political comments would likely have been illegal under California law.  Now it seems MSNBC has suspended Keith Olbermann for making campaign contributions.  Once again, California employers (journalistic or otherwise) should think twice about prohibiting campaign donations which would clearly violate California Labor Code section 1102.   


Is The NFL's Anti-Tampering Rule Legal Under California Law?

The San Francisco 49ers have recently filed a complaint with the NFL against the New York Jets for supposedly "tampering" with their unsigned draft pick, Michael Crabtree.  The Jets deny the accusation, of course, but what is "tampering" anyway?  Well, the best definition I have been able to find, is given by NFL spokesman Greg Aiello in the Minneapolis Star Tribune:

The term tampering as used within the National Football League, refers to any interference by a member club with the employer-employee relationship of another club or any attempt by a club to impermissibly induce a person to seek employment with that club or with the NFL.

That's not terribly enlightening.  But if this is a "free country" as the saying goes, where does the NFL get off telling a prospective employee and a prospective employer that they are not allowed to talk to one another?  To my mind, this seems positively anti-free market, anti-free speech, and downright un-American. 

Indeed, California Business and Professions Code section 16600 explicitly states that "every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void."  Thus, at least to the extent California law governs the matter, it would seem that any agreement between NFL clubs not to speak with one another's unsigned draft picks about prospective employment is entirely illegal and unenforceable. 



HR professionals note to employment lawyers: stop working off of fear

The HR blog Fistfull of Talent raises a concern I think a lot of HR professionals feel. See article “Hey Employment Law ‘Experts’, You’re Killing My Profession.” Kris Dunn expresses the all too common sentiment that employment lawyers are not advising their clients – but are rather scaring them into inaction. Kris uses the example of advice some lawyers are providing about whether or not companies should use social networking sites and Google to conduct background checks on job applicants. Taking the conservative approach, many lawyers, as Kris notes, advise against using these new technologies out of concern that it could create potential discrimination claims. (On a side note – I warned awhile ago that companies should be using the Internet to conduct background checks.)

Kris’ analysis is right on for a number of reasons. First, lawyers are trained to point out the risks of any situation to properly advise their clients. Second, lawyers are notoriously behind the technology curve. Most do not know what “new” technologies are being used or how to use them, and this creates concern as anyone is scared about what they do not know about.

Employment lawyers need to take heed of this critique. HR professionals have jobs to perform and companies to run. They need legal advice that helps them perform their jobs better – not scare them into failing to change and keeping up with the times.

Employment lawyers need to recognize that change entails risk. However, companies always have to change, and lawyers need to help companies navigate this risk, not prevent them from doing anything new.

Note to HR professionals

As you know, the HR profession is changing a lot given today’s new technologies. New issues are creating a lot of uncertainty. Issues such as how to use social networking sites to conduct background checks, monitoring employee’s internet use, and determining "hours worked" when employees always have a smart device on them.

When looking for legal advice about these issues, you need to be certain that your lawyer is familiar and up-to-date with the technology available. Does the lawyer who you are seeking legal advice from have a Twitter, Facebook, or LinkedIn account? Do they use an iPhone or Blackberry? If the answer to these questions are ‘no’ – don't be surprised if their advice is to avoid these “new” technologies.

When Are Employers Liable for Their Workers' Traffic Accidents -- Jeewarat v. Warner Bros.

It is well settled that employers may be liable for the actions of their employees in the "course and scope" of their employment.  It is also well settled that employers are not liable for an employee during his commuting time -- otherwise known as the "coming and going rule." 

These two principles become blurred, however, when an employee is traveling to or from an off-site conference, job assignment, or some other so-called "special errand."  For example, in Jeerwat v. Warner Bros., the employee was driving back from a three-day business conference to his home, and was even following his normal commute path, when he struck several pedestrians.  The pedestrians sued the employer and the Court held that the lawsuit could proceed. 

We hold that an employee's attendance at an out-of-town business conference may be considered a special errand under the special errand doctrine. In addition, when an employee intends to drive home from the errand, the errand is not concluded simply because the employee drives his regular commute route, but rather, the errand is concluded when the employee returns home or deviates from the errand for personal reasons.

In other words, when Companies schedule retreats, conferences, and office parties they need to be aware that they may be liable for any accidents caused by their employees in getting to and from the meeting.    

Is Cutting Employee Hours to Avoid Benefit Coverage Illegal Under ERISA?

Companies that offer health insurance or other employee benefits typically set some sort of minimum threshold for triggering coverage -- for example, being employed for more than 20 or 30 hours per week.  ERISA is very clear in allowing employers almost unlimited discretion to write their benefit plans in order to exclude part-time employees (or any other category of worker) in this fashion.

But ERISA is equally clear in precluding an employer from making employment decisions for the specific purpose of preventing an employee from obtaining or keeping coverage.  In particular,  ERISA Section 510 provides that

It shall be unlawful for any person to . . . discriminate against a participant or beneficiary . . . for the purpose of interfering with the attainment of any right to which such participant may become entitled under the plan . . .”

In these recessionary times, employers may keep their costs down by deliberately reducing employees from full-time to part-time status, or by refusing to give employees the additional hours necessary to trigger benefit coverage.  Employers should be aware, however, that to the extent work assignment decisions are motivated by benefit costs they may be illegal under ERISA section 510.   

HR professionals and companies turning to Twitter for hiring needs

The Wall St. Journal recently noted how mainstream Twitter is becoming in the workplace. The article notes that many employers are proactively using the service to recruit better qualified employees faster and cheaper. Companies such as Microsoft, Raytheon and MTV now list job openings on Twitter. As the article points out:

People who respond to job tweets typically have social-media skills, and some employers say they use the service to target them. In March, MediaSource Inc., a video-production and publicity firm in Columbus, Ohio, advertised a media-relations specialist job only on Twitter, LinkedIn and two niche job boards, says Lisa Arledge Powell, MediaSource's president.
"We needed someone that understood social media, so we thought, 'Why not go to where these people go?' " she says.

As a lawyer, it is sometimes hard to embrace new technologies given the uncertain “risks” that the technologies may create. However, just like running a business entails risk, use of new technology, like Twitter, is fine as long as the employer uses some common sense. Employers and employees alike, need to always remember not to be drawn into Twitter’s informal atmosphere – everything written on Twitter is public. As the article notes, employees should not begin a job request with the term “Dude” and employers should always approach Twitter in a professional tone.

As side note, you can follow me on twitter here @anthonyzaller.

Social Norms and Market Norms -- Using Behavioral Economics in the Workplace

Employers, managers, and employees can learn a lot about their workplaces from Dan's Ariely's fascinating new book Predictably Irrational: The Hidden Forces that Shape Our Decisions

One of the insights gleaned from the empirical psychological studies that he reviews is that we all maintain two separate and distinct moral systems -- i.e., the "social norms" which apply to inter-personal relationships and the "market norms" which apply to the self-interested quid pro quo of the marketplace.  As Ariely explains, much of the hard feelings between companies and their customers and employees can be traced to different expectations about which system is in play.

For example, the trend in the last few decades has been for Companies to characterize themselves as participants in a warm and fuzzy "relationship" using terms that invoke images of family, friendship, partnership, and team cohesion.  To the extent employees buy into this "social relationship" model the Company stands to reap major dividends in the form of loyalty, hard work and dedication which can be purchased without  monetary incentives. 

But the downside is that any failure by the Company to live up to its end of this perceived social contract will not be seen as a mere business decision but as a personal betrayal and disloyal "stab in the back."    

What's the upshot? If you're a company, my advice is to remember that you can't have it both ways.  You can't treat your customers [or employees] like family one moment and then treat them impersonally--or, even worse, as a nuisance or a competitor--a moment later when this becomes more convenient or profitable.  This is not how social relationships work.  If you want a social relationship, go for it, but remember that you have to maintain it under all circumstances.          

Ariely is definitely on to something.  And this disconnect between "social" and "business" norms may go a long way toward explaining why employment litigation often has more in common with divorce court than with a commercial breach of contract.  To  paraphrase the Bard: hell hath no fury like an employee scorned.


Technology blurs work/life definition

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The WSJ notes the increase of lawsuits pertaining to when employees need to be compensated for on-call time or for time checking electronic devises away from the workplace. As the article notes, there have been a fair share federal cases, but California employers have no doubt been at the tip of this arrow. 

California’s DLSE takes the position that on-call or standby time at the work site needs to be paid for even if the employee does nothing but wait for something to happen. “[A]n employer, if he chooses, may hire a man to do nothing or to do nothing but wait for something to happen. Refraining from other activities often is a factor of instant readiness to serve, and idleness plays a part in all employment in a stand-by capacity”.

The DLSE opines that employees may be paid for on-time work such as when the employee is not relieved of duties during meal periods and sleep periods when the employees are subject to the employer’s control.

What constitutes “work-time” and therefore must be paid depends on the restrictions placed on the employee. A variety of factors are considered in determining whether the employer-imposed restrictions turn the on-call time into compensable “hours worked.” These factors, set out in a federal case, Berry v. County of Sonoma, include whether there are very restrictive geographic limits on the employee’s movements; whether the frequency of calls is unduly restrictive; whether a fixed time limit for response is unduly restrictive; whether the on-call employee can easily trade his or her on-call responsibilities with another employee; and whether and to what extent the employee engages in personal activities during on-call periods.

Travel time

The DLSE also considers travel time compensable work hours where the employer requires its employees to meet at a designated place and use the employer’s designated transportation to and from the worksite. The leading case on this topic in California is Morillion v. Royal Packing Co. (2000) 22 Cal.4th 575.

SEIU Picketed by Its Own Workers

Times are apparently so hard these days that, according to a story by the Associated Press today, even the unions are experiencing labor unrest. 

Dozens of employees of the Service Employees International Union picketed their own union Friday over its decision to lay off about 75 workers.

The staffers marched outside SEIU headquarters in Washington as they yelled into bullhorns, passed out flyers and chanted, "Justice for all, not just some."

"This union is supposed to be at the forefront of the progressive movement, but it can't seem to follow its own ideology," said Malcolm Harris, president of the Union of Union Representatives, which represents 210 SEIU organizers and field staff around the country.

The UUR has filed unfair labor practice charges and age and race discrimination claims against SEIU. Harris called SEIU leaders "hypocrites" for calling out corporations that shed workers, yet moving to lay off their own employees.

I frankly had no idea that their was a union of union employees, but I guess it makes sense.   (And I can't help wondering who represents the UUR workers).   But more than a few business owners will certainly enjoy seeing the SEIU get a small dose of its own tactics.   

Bartenders May Participate in Mandatory Tip Pools Even If They Do Not Provide "Direct Table Service" -- Budrow v. Dave & Busters

California confers a special legal status on employee tips.  Under California Labor Code section 351, tips are not considered part of the wage paid by the employer, but are rather treated as a direct payment from the patron to the employee.  As a result, they are the property of the server from the very beginning and the employer is not permitted to take a "cut."   

Courts have recognized, however, that more than one employee often contributes to the service. And customers presumably expect that their tips will be fairly apportioned among these employees.  Thus, opinions such as the 1990 decision in Leighton v. Old Heidelberg, held that employers may require servers to "split tips" with busboys, hosts, and others.  As that court explained:

[T]he restaurant business has long accommodated this practice which, through custom and usage, has become an industry policy or standard, a ‘house rule and is with nearly all Restaurants,’ by which the restaurant employer, as part of the operation of his business and to ensure peace and harmony in employee relations, pools and distributes among those employees, who directly provide table service to a patron, the gratuity left by him, and enforces that policy as a condition of employment.

But Old Heidelberg's reference to employees "who directly provide table service to a patron," created uncertainty as to which employees may qualify.  What about cooks, bartenders and others whose work does not bring them into direct contact with the customer's table?

The Second District Court of Appeal decision in Budrow v. Dave & Busters has seemingly laid this particular issue to rest by declaring that the Labor Code cannot be read as creating a distinction between "direct" and "indirect" table service when it comes to eligibility for tip pooling.  Instead, the court held that the touchstone must be the intent of the customer under the totality of the specific circumstances.

It is in the nature of a tip pool that it is based on the general experience of each particular establishment, that it is only broadly predictive of the reasons for and the patterns of tipping in that particular restaurant and that, in the final analysis, this is the best that anyone can do. It is simply not possible to devise a system that works with mathematical precision and solomonic justice in each one of the millions of transactions that take place every day.

Section 351 provides that the tip must have been "paid, given to, or left for" the employee.  Given that restaurants differ, there must be flexibility in determining the employees that the tip was “paid, given to or left for.” A statute should be interpreted in a reasonable manner.  Ultimately, the decision about which employees are to participate in the tip pool must be based on a reasonable assessment of the patrons' intentions. It is, in the final analysis, the patron who decides to whom the tip is to be “paid, given to or left for.”  It is those intentions that must be anticipated in deciding which employees are to participate in the tip pool.

This "customer intent" standard is consistent with the purpose of the statute.  However, it also raises more thorny issues than it answers.  For example, if some customers intend to benefit only the waitress and not the cook, can their tips be thrown into the general pool?  Should surveys or opinion polls be used to determine how customers wish to apportion their tips between different categories of workers?   

Perhaps most importantly, who bears the burden of proving that a restaurant's tip splitting scheme reflects a "reasonable assessment of the patrons' intentions?"  The Budrow Court seems to have implicitly placed the burden on the non-bartender employees because it upheld the grant of summary judgment against them despite the apparent absence of any admissible evidence of customer intent. 




Can An Employer Be Liable For Not Googling A Job Applicant?

I’ve written and spoke a lot during the last year on the topic of using the Internet (primarily Google) to conduct background research on job applicants and employees. I have always maintained that employers are permitted to use the Internet to conduct these “background checks.”

There were a number of attorneys out there who recommended that employers not do this, and there probably attorneys who still are maintaining this position. But a job applicant, or employee, would have a very hard time claiming that they have a privacy interest in anything posted on the Internet for everyone else to see. For example, individuals who do not take careful steps to protect their Facebook information, would have a hard time arguing that because they did not limit access to their information that it would still be private information.

I think the bigger concern these days is if employers do not search out potential applicants on the Internet. As Seth Godin recently noted, a friend of his found some very interesting information through Google about three people he thought would be a good housekeeper.

I could easily see a case made against an employer for negligent hiring when a simple and free Google search would have put the employer on notice that the individual has a criminal record or might pose a threat to other employees or customers. Now, employers still need to be careful about the information they are relying upon: it goes without saying that everything you read on the Internet is not true and some information found in the Internet cannot be used for employment purposes. For example, California’s Megan’s Law website that provides information about registered sex offenders clearly sets forth the information cannot be used for employment purposes.

Calculating "Bonus Overtime" -- Marin v. Costco

It is shocking how many employers don't realize that paying a bonus to hourly employees will trigger an additional overtime obligation.  The decision in Marin v. Costco is a reminder of this obligation and an illustration of just how convoluted the calculation can become, especially where the bonus is variable based on work effort or performance.

The Marin decision involves a lengthy, eye-glazing mathematical analysis of a particularl bonus scheme that was arguably a hybrid between a "flat rate" and "performance-based" payment.  The main take-away points, however, are that:

  • Additional overtime payments are triggered when a bonus is paid; and
  • The method for calculating the amount of this "bonus overtime" depends on whether the bonus is characterized as a "flat rate" bonus or a "production" bonus. 

These concepts are outlined below in a somewhat simplified form.    

The Concept of "Bonus Overtime" -- Bonuses Retroactively Increase Employees' "Regular Rate"

"Bonus overtime" stems from the fact that overtime premium pay is computed based on a multiple (usually 1.5x) of the employee's "regular rate" of hourly compensation.  The regular rate is calculated by dividing the hours worked in a week by all compensation earned for that week.  But if the employee is later given a bonus that is partly due to the work performed in that week this additional pay must be added into the total compensation for the week (i.e., the denominator of the regular rate calculation).  This retroactively increases the employee's regular rate of pay.  

For example, suppose an employee's straight time hourly pay is $10/hr and he works 40 regular hours and ten overtime hours in a given week.  His regular weekly paycheck would include $400 of straight time pay ($10 x 40 hours) plus an additional $150 of overtime pay (1.5x his base rate, or $15/hr,  times 10 hours). 

The Retroactive Effect of A "Flat Rate" Bonus on Overtime.

Now suppose the employer has a generous annual profit-sharing program that pays this employee $5,200 at the end of the year based on the company's overall performance.  Because the bonus is equally attributable to all weeks in the year, this payment retroactively increases his weekly compensation by $100 (i.e., $5,200 divided by 52 weeks). 

Under California law, this additional $100 per week payment also retroactively raises the employee's regular hourly rate for the week by a full $2.50 (i.e., $100 divided by 40 straight time hours).   

Since his recalculated regular rate for the week is now $12.50 per hour, his recalculated overtime rate increases proportionately from $15/hr. to $18.75/hr.  Our hypothetical employee is therefore entitled to an additional $3.75 for each overtime hour worked, totaling $37.50 for the week. 

The Retroactive Effect of a "Production Bonus" on Overtime.

Now this time suppose the employer paid the same $100 per week amount as a performance bonus based on the employee's individual volume of production during the year -- making sales, manufacturing widgets, etc.   In this case, California law  calculates bonus overtime differently.  Instead of dividing the $100 by 40 straight time hours to determine the "regular rate" for bonus overtime, the employer is allowed to divide the amount by all 50 hours worked (i.e., both straight time and overtime hours worked).  

As a result, the employee's regular rate for the week rises by just $2.00 (i.e., $100 divided by 50 total hours worked), and the hypothetical employee is entitled to only an additional $20 in bonus overtime for the week ($2.00 x 10 hours). 

The idea behind this different calculation is that  the extra production generated by working overtime hours helped contribute to achieving the "production" bonus in the first place.  Thus, not counting the overtime hours in the "regular rate" would amount to a partial double recovery.     

The Bottom Line: Calculating bonus overtime is a complex headache for employers.  However, they ignore it at their peril because the use of a mistaken formula is an ideal subject for a class action with the potential for huge liability.          

Mass Layoffs Trigger Federal And California Law Notice Requirements

As this story about a recent restaurant closure illustrates, California employers who are downsizing in this dismal economy must comply with the federal WARN Act, and California’s “baby” WARN Act equivalent.

Most employers are aware that the federal WARN Act requires that employees must be given at least 60-days’ advance notice of certain large-scale layoffs. Many employers do not recognize that California’s separate state statute that also requires 60-day advance notice to employees, but also includes a substantially different definition of the types of layoffs that will trigger the notice requirement. For example, under California law, notice is normally required whenever 50 employees are terminated in 30 days from any facility that has employed 75 or more workers within the last 12 months. However, federal law applies when (1) a reduction in force of at least one-third of the full-time employees, provided the number of full-time affected employees is at least 50, at a single facility during any 30-day period; or (2) employment loss of at least 500 full-time employees at a single facility during any 30-day period, regardless of the percentage affected.

The penalties for non-compliance under California’s so-called “baby” WARN Act are much harsher than those under federal law.


Bad Records Are No Defense to Class Certification -- Harper v. 24 Hour Fitness

In opposing class certification employers frequently argue that identifying the class members will be prohibitively expensive or time consuming due to lack of records.  For example, it may be difficult to determine who was affected by certain commission terms, who worked overtime, or who did or did not take a full 30 minute meal break  on particular days.

In the recent case of Harper v. 24 Hour Fitness, the Second District Court of Appeal emphasized that difficulty in ascertaining class members is no defense where the problems stem from deficiencies in the employer's own recordkeeping.  

Harper involved a claim that 24 Hour's standard membership agrement violated certain consumer laws and was unconscionable.  The Defendant argued that many members had handwritten modifications to their form contracts and that it would be extremely difficult to determine who had such modifications and whther the changes should exclude them from the class.  The trial court found this persuasive and relied on this argument, in part, in deciding to decertify the class.  The Appellate Court reversed, however, found that this analysis was error.  The reviewing court noted in the process that a defendant "may not avoid class certification by comingl[ing] or fail[ing] to document" particular transactions.

Few businesses deliberately keep bad records to avoid a "paper trail" of potential misconduct.  But for those who might consider this a valid strategy, Harper v. 24 Hour Fitness serves as caveat that this may not be an effective strategy, at least not in the class action arena.             

California Employment Applications Must Exclude Certain Marijuana Convictions -- Starbucks v. Superior Court (Lords)

An obscure provision of California law, Labor Code section 432.8, prohibits employers from asking job applicants about marijuana-related convictions which are more than two years old.  Most standard employment applications include a general question asking for disclosure of all criminal convictions.  As a practical matter California applications must therefore include a special disclaimer to inform applicants that  these marijuana convictions are excluded from the generic disclosure request.  

In Starbucks v. Orange County Superior Court, the Fourth District Court of Appeal recently clarified two questions: (1) how employers should physically design their applications to comply with the statute; and (2) which applicants will have standing to sue if the application is defective.

 As to the first issue, Starbucks used a standard nationwide application form which actually did contain the special California disclaimer language under a heading "For California Applicants Only."  The problem, however, was that this disclaimer appeared only on the back of the form alongside unrelated boilerplate disclaimers for Massachusetts and Maryland applicants.  

The Court explained that "Had Starbucks included the California disclaimer immediately following the conviction questions, Starbucks would have been entitled to summary judgment in its favor on the reasonableness of the employment application."  But placing the language on the back of the page in a nationwide "one-size-fits-all style" was not sufficiently clear to meet the standard of "clarity for which California law strives." 

Luckily for Starbucks it was entitled to summary judgment on other grounds.  For one thing, the class representatives had never themselves been convicted of anything.  As a result, they had no right to sue under a statute which was designed to protect reformed stoners rather than law abiding citizens with nothing to hide.  If the Court had gone the other way on this standing-to-sue issue Starbucks could have faced $26 million in fines for all persons who ever filled out an application.     

This is an instructive holding which will undoubtedly be cited as authority in cases testing the sufficiency of all manner of disclaimers contained in form documents.  The lesson for employers and other business is that they must consider the physical layout of their standardized forms as well as the actual language used in the form.      



IRS Lowers Mileage Rate For 2009

The IRS announced that it will be lowering the IRS mileage rate in 2009.  Beginning on Jan. 1, 2009, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be 55 cents per mile for business miles driven. This is a change from 50.5 cents in the first half of 2008 and 58.5 cents in the second half.

California employers need to reimburse employees for miles driven for business purposes under Labor Code section 2802.  The California Supreme Court clearified some of the rules pertaining to expense reimbursement last year in Gattuso v. Harte-Hanks (click here for more analysis of the case).  The Court also held that the mileage reimbursement rate can be negotiated by parties as long as it fully reimburses the employee, and the amount does not necessarily have to be the IRS mileage rate, which is contrary to the DLSE’s opinion on the issue. 

Professor Boycotts Sexual Harassment Training

Under California law, employers with more than 50 workers are legally required to provide sexual harassment prevention training to their supervisory employees.  

An interesting Op-ed piece appeared in the Los Angeles Times last week by Alexander McPherson, a tenured UCI professor, who is refusing to attend his employer's mandatory sexual harassment training.  He is basically a "conscientious objector" who is boycotting the sessions on moral and political grounds.  As he explains: 

First of all, I believe the training is a disgraceful sham. As far as I can tell from my colleagues, it is worthless, a childish piece of theater, an insult to anyone with a respectable IQ, primarily designed to relieve the university of liability in the case of lawsuits. I have not been shown any evidence that this training will discourage a harasser or aid in alerting the faculty to the presence of harassment.

What's more, the state, acting through the university, is trying to coerce and bully me into doing something I find repugnant and offensive. I find it offensive not only because of the insinuations it carries and the potential stigma it implies, but also because I am being required to do it for political reasons. The fact is that there is a vocal political/cultural interest group promoting this silliness as part of a politically correct agenda that I don't particularly agree with.

I have to agree with Professor Alexander that there is something vaguely un-American about a state-compelled "re-education" program that aims to teach adults how they are supposed to speak and act.  But even if there were no law on the books it would be a very legitimate goal for any employer to prevent lawsuits and improve morale by preventing harassment.  Also, since everyone is required to take the training I don't quite follow the argument that it communicates some sort of "stigma."

According to the piece, the University has responded to Professor Alexander's boycott by taking away some of his staff and lab resources.  This raises a clear conflict between the professor's political speech rights (which are themselves protected under California law) and the harassment training law. 

This conflict piqued my interest enough to review the actual language of the "mandatory" training statute, California Gov't Code section 12950.1(a).  Interestingly, it doesn't actually require the professor to attend the training.  The statute merely requires that the employer "provide at least two hours of classroom or other interactive training and education regarding sexual harassment."   As illustrated by the recent debate over what it means to "provide" meal and rest breaks to employees, the word arguably requires only that the employer make the training available. 

Thus, the University has discharged its duty to "provide" the training by making it available.  And the professor's refusal to attend doesn't put him or the University in violation of the law.  So maybe everyone can just let it go and get back to their microbiology research.




Bad Job Design Is The Cause of Many Bad Sales Compensation Plans

We have previously blogged about some of the ways in which a bad sales compensation plan can result in legal liability.  However, as Ann Bares points out in her Compensation Force blog, many bad sales plans are caused by vague or ill-defined job responsibilities

Sales jobs that require constant shifting from prospecting to account management to order administration/tracking to installation/set-up and then back to prospecting may not be the best use of your available sales talent. Particularly if you've staffed the jobs with hunters. And, for a profession where variable pay can be a significant piece of the overall compensation package, jobs like this can present real challenges for sales incentive design.

Ann's analysis strikes me as generally correct.  Thus, at the risk of overstepping our area of legal expertise and venturing into management advice -- if an employer finds itself with a compensation structure that is convoluted, difficult to administer, and perceived as unfair, it should honestly consider whether the source of the problem lays with its management rather than its sales force.

Can Employers Monitor Employee's Text Messages Sent Through Company Owned Devices?


In Quon v. Arch Wireless Operating Company, Inc., (June 2008), City of Ontario police department employees, and one employee's wife, brought a Fourth Amendment action against their employer, in connection with the department's review of employees' text messages, and asserted claim against wireless communications provider under Stored Communications Act (SCA). 

The facts of the case would seem to dictate that the City/employer was acting within its rights to review the employees’ text messages sent and received through the employer-issued PDA. While the City did not have a policy on point with regards to the pagers issued to the officers, the City did have a general “Computer Usage, Internet and E-mail Policy” applicable to all employees.  The policy stated that “[t]he use of City-owned computers and all associated equipment, software, programs, networks, Internet, e-mail and other systems operating on these computers is limited to City of Ontario related business. The use of these tools for personal benefit is a significant violation of City of Ontario Policy.” The Policy also provided:

C. Access to all sites on the Internet is recorded and will be periodically reviewed by the City. The City of Ontario reserves the right to monitor and log all network activity including e-mail and Internet use, with or without notice. Users should have no expectation of privacy or confidentiality when using these resources.

D. Access to the Internet and the e-mail system is not confidential; and information produced either in hard copy or in electronic form is considered City property. As such, these systems should not be used for personal or confidential communications. Deletion of e-mail or other electronic information may not fully delete the information from the system.

E. The use of inappropriate, derogatory, obscene, suggestive, defamatory, or harassing language in the e-mail system will not be tolerated.

Furthermore, the plaintiff signed an Employee Acknowledgement that he “read and fully understand the City of Ontario's Computer Usage, Internet and E-mail policy.” The Employee Acknowledgment also stated that “[t]he City of Ontario reserves the right to monitor and log all network activity including e-mail and Internet use, with or without notice,” and that “[u]sers should have no expectation of privacy or confidentiality when using these resources.” Furthermore, two years later, the plaintiff attended a meeting during which a supervisor informed all present that the pager messages “were considered e-mail, and that those messages would fall under the City's policy as public information and eligible for auditing.” 

These steps sound like they should protect the City and allow the employer to review the contents of the messages – right? Wrong.

The Ninth Circuit appellate court held that while the written policies lowered the employee’s expectation of privacy in regards to the content of the text messages, the “operational reality” (i.e., the supervisor’s laziness) change this expectation. The court reasoned that the employer established an “informal” standard of not reviewing the contents of the text messages as long as the employees paid for any overages that were incurred under the wireless plan. In fact, Plaintiff exceeded the texting plan on four occasions, he paid for the overages out of his own pocket, and the employer did not audit the content of the messages. Therefore, the court reasoned, this provided an expectation of privacy for the employees in the contents of the text messages. 

What are employers to do?

While the employer in the Quon case was the government, implicating a heightened privacy interest of the employees under the Fourth Amendment, the case still provides some good lessons for private employers:

  • Employers should have well drafted written policies that are up-to-date and deal with any new technologies that are being used in the workplace. 
  • Once appropriate written policies are in place, audit the content of employee’s communications over company-owned devises and document these audits to avoid the trap the employer fell into in this case. The employer should take steps to ensure that there is not an “informal” policy established due to the hardship of conducting audits that would give the employees an expectation of privacy in communications conducted over company-owned devises. 


Power Point for RSA Talk

Thanks to all those who attended the Fall seminar sponsored by Research Security Administrators (RSA) in Fountain Valley yesterday.  As always, it was a class act and very well put together with lots of current, useful information for security professionals.  Congratulations to Bob Iannone and everyone else involved.

Anyway, I know I promised to attach a copy  of my Power Point Presentation for "Legal Considerations: Privacy & Security in the 21st Century."   So here it is . . .   

New California Law Further Restricts Employee Release Agreements

Governor Schwarzenegger recently signed a bill amending Labor Code Section 206.5, which restricts the enforceability of agreements purporting to release wage claims. 

Labor Code section 206.5 currently provides that an employee cannot be required to sign an agreement releasing the employer from liability for wages "unless payment of such wages has been made."  The new bill, AB 2075, amends the statute to clarify that the prohibitions on the "execution of a release” also extend to any requirement that the employee "execute a statement of hours he or she worked during a pay period which the employer knows to be false.”

In response to wage and hour class actions a growing number of employers have implemented policies requiring employees to sign periodic statements certifying that their wage statements are accurate.  The new statute, which takes effect January 1, 2009, appears to be aimed at preventing employers from arguing that such certifications are binding on the employee.    


Some Reminders For Employers In Difficult Financial Times

Frank Roche, over at KnowHR, reminds employers the 10 Things HR Needs to Do in an Economic Downturn.  Here is a summary of Frank's points:

  • Get up, walk out of HR, and talk to the people running operations.
  • Fix your friggin sales comp once and for all.
  • Take a deep look at your performance management system.
  • Ask not what your company can do for HR, but what HR can do for your company.
  • Fell the deadwood.
  • Comfort the afflicted, and afflict the comfortable.
  • Listen to comp consultants who link metrics to company performance.
  • Let employees know what you know.
  • Pay lots of attention to your top talent.
  • Do something.

Click here to read the entire post.  Frank's final point, that employers need to "do something" is a good reminder that employers should not approach difficult periods without a plan.  When difficult decisions are made on the fly, that is when a company can expose itself to liability. 

Mandated Executive Compensation Limits Appear Innevitable

In case you hadn't heard, the bipartisan economic bailout bill failed to pass the House today.  However, an article in is already opining that one politically popular aspect of the bill is destined to survive in any future bailout proposal -- namely, limits on executive compensation.

Under the failed bill, a firm would be prohibited from offering multimillion-dollar golden-parachute severance packages to newly hired executives in its top five positions if it sold more than $300 million in securities to the government in a public auction. The company would not be allowed tax deductions for executive compensation over $500,000 and would be penalized for giving golden parachutes to fired executives.

My understanding is that the intended enforcement mechanism would consist mainly of unfavorable tax treatment for executive compensation over the prescribed limits.  I have to wonder, however, if the ultimate legislation might also be read to create a private right of action -- such as a shareholder derivative suit -- to recover "excess" compensation.  If so, Congress could be getting ready to spawn a whole new field of employment litigation.

Attorneys Using Social Networking Sites For Jury Selection

We have blogged and spoken quite a bit recently about using on line resources such as MySpace and Facebook for employment and recruiting purposes.  An interesting article in today's LA Times reports on another use for this information -- jury selection.

For example, Marshall Hennington, a psychologist who does work as a jury consultant relates how one prospective juror denied knowing a fellow jury candidate, but his Facebook page revealed the two were actually cousins.  The revelation apparently got the juror dismissed for cause.   As the article explains:

Hennington has no qualms about plumbing the Internet for information damaging to the opposition."They're not giving me a call because they have a slam-dunk case. Clients call me because they know they have a difficult case and need to sell it to the jurors," Hennington said. As long as the information obtained about a juror is publicly available and of use to a client, "everything is fair game," he said. "This is war."


ADA Amendments Act (ADAA) Signed Into Law -- Federal Disability Protections Broadened

It didn't get much press this last week -- what with the economy collapsing in the midst of a presidential election -- but on Thursday President Bush signed the ADA Amendments Act (ADAA) into law.  The legislation will take effect on January 1, 2009 and will significantly broaden the federal definition of the "disabilities" that require accommodation under the ADA.

The new legislation preserves the traditional verbal formula that a covered disability is one which "substantially limits one or more major life activities."  However, Congress has now expressly changed the meaning of these words to expand the number of employees who will be covered by the ADA.  For example:

  • The term "disability" shall henceforth be interpreted broadly in favor of finding coverage under the Act.
  • A covered disability now includes any condition that "materially restricts" (rather than "substantially limits") a major life activity.  There is no telling what this new term is intended to means except that it is intended to be broader than the prior definition. 
  • An employees is now covered under the ADA whether or not he has a covered disability, so long as the employer "perceives" that he has an "impairment" that has an expected duration of more than six months.  
  • The employee's condition shall now be judged in its unmitigated state -- i.e., without regard to the effects of any corrective measures such as medications that would control the symptoms.

The main purpose of the legislation is to overturn a number of pro-employer Supreme Court decisions, including Sutton v. United Airlines, Inc., 527 U.S. 471 (1999), and Toyota Motor Manufacturing, Kentucky, Inc. v. Williams, 534 U.S. 184 (2002).  

Interestingly, the effect of these amendments will be to essentially conform the ADA to the already broadened disability protections of the California Fair Employment and Housing Act (FEHA). 

California Human Resources Networking Group - LinkedIn

I recently founded the California Human Resources Networking Group in LinkedIn. I’ve found that LinkedIn is becoming more and more popular with human resource professionals as well as legal professionals, so I created the group in order to promote HR related discussions specific to California.

To join, visit the California Human Resources Networking Group page in LinkedIn, or drop me an email and I will approve your request. There are no particular qualifications required to join - only a need for a better understanding of California's employment laws.

The group is devoted to discussing questions about human resource and other employment law issues that arise in California.

If you know of anyone else that would find the group beneficial, please send them to the group.

To get things started, I will be conducting a free webinar for the group in early October on how to use the Internet to conduct background checks on applicants and/or employees without creating liability for your company. More information to come.

Employers Face a High Burden to Accommodate Returning Employees: Nadaf- Rahrov v. Neiman Marcus Group, Inc.

On September 10, the First District Court of Appeal issued what I believe is the very important disability discrimination case of Nadaf- Rahrov v. Neiman Marcus Group, Inc.  The decision is important not because it alters pre-existing disability law, but because it applies the law to the most common scenarios and real-life issues faced by employers and employees.  

The case involved a clothes fitter at Neiman Marcus who had gone out on a medical leave because she was "unable to work" according to a doctor's note.  When her leave expired and she did not submit a release to return to work she was terminated.  The trial court initially granted summary judgment to Neiman Marcus on the grounds that the plaintiff was still unable to perform the "essential duties" of her job.

The appellate court reversed, however, on the ground that Neiman Marcus had not done enough to investigate the plaintiff's actual condition or to explore potential alternate positions.  The Court noted that the employer does not have to offer a substitute job that would constitute a "promotion."   But otherwise, the appellate decision merely illustrated how exhaustive the employer's efforts must be if it expects to avoid legal liability.  For example:

  • The employer cannot avoid looking at alternate positions merely because a doctor's note states that the employee is "unable to work."  This language can be interpreted to mean that the employee is only unable to perform her original job, and may not apply to all potential substitute jobs.  
  • The employer must consider all vacant positions that the worker could perform.  For example, clerical jobs must be considered for employees who formerly performed only physical duties.
  • The employer must consider positions that are not yet vacant.  In other words, extending the employee's leave until a new position opens up is part of the "reasonable accommodation."
  • The employer must consider vacant positions at other facilities and locations.  If the employee signals a willingness to relocate, this may conceivably require a nationwide search for vacant positions that the employee could perform.

Satisfying this type of internal job search may not be easy or convenient but it is imperative to avoid liability under the ADA or the FEHA.  The lesson for employers is to never assume anything about the employee's condition or the nature of substitute positions without a specific, diligent investigation.         


Online Resources Help with Work Visa Information

We frequently field questions from clients about work permits for their foreign national employees.  It is a complicated area.  Many employers may have a passing familiarity with the standard "green card" Visa, the H1-B Visa program  for highly skilled workers, or the L-1 Visa for employees who are on transfer from one of the employers foreign offices.  But they may be surprised to learn that there are nearly 60 different types of non-resident visas available.  For example, I recently learned that there is a special TN1 Visa for Canadians which was created as part of the NAFTA treaty.  For more information on all of these programs (as well as permits from foreign governments for Americans working abroad), I highly commend the site, which contains a wealth of useful information as well as links to attorneys specializing in this area.

"Lipstick on a Pig" -- Stray Remarks as Evidence of Discrimination

As political pundits talked about lipstick and pigs over the last several days, it occurs to me that this latest round of political posturing bears more than a passing resemblance to the disputes that animate much employment litigation.

For example, before replacing an over-40 worker with an outside consultant a manager might be heard to say that the company needs some "young blood," or that you "can't teach an old dog new tricks."    So what, if anything, do such comments demonstrate?  The Defendant will argue these are just commonplace cliches being used to demonstrate an innocuous point -- i.e., that the Company needs "change."   The Plaintiff will argue that using these expressions is either intentional "code," or at least evidence of unconscious bias against older workers.

No one can read the speaker's mind and both sides have every incentive to stretch the interpretation as far as they can in their direction.  Because such interpretations are very factual and context-specific, however, judges are often inclined to let the jury make the call.  Thus, the difference between a pig and a pig with "lipstick," might be the difference between having a case dismissed on summary judgment and having it argued to a jury.



California Supreme Creates Appellate Rights for Losing Parties in Arbitration

In Cable Connections, Inc. v. DirecTV, Inc., the California Supreme Court has fundamentally altered the nature of arbitration in California. 

Previously, it had been well established that an arbitrator's decision was final and binding and could be vacated only for the most limited of reasons, such as outright corruption, refusing to hold a hearing, or exceeding his jurisdiction.  By agreeing to arbitrate, parties were deemed to have accepted the risk that an arbitrator might commit errors of fact or law -- and to have thereby waived any right to second-guess the ruling in the event that they lost.  Under this scheme, the whole point of arbitration was to allow disputes to be resolved quickly and economically with little or no involvement by the judicial system. 

Under Cable Connections, however, the arbitrator's ruling is no longer necessarily final.  Instead, if the parties' contract is interpreted to allow appellate review, the arbitrator's ruling may now be reviewed by an Appellate Court to the same extent as any findings of fact or law made by a Superior Court Judge or jury. 

Significantly, the Court was coy about what contract language may trigger this new level of appellate review.  

[T]o take themselves out of the general rule that the merits of the award are not subject to judicial review, the parties must clearly agree that legal errors are an excess of arbitral authority that is reviewable by the courts. Here, the parties expressly so agreed, depriving the arbitrators of the power to commit legal error. They also specifically provided for judicial review of such error.  We do not decide here whether one or the other of these clauses alone, or some different formulation, would be sufficient to confer an expanded scope of review. However, we emphasize that parties seeking to allow judicial review of the merits, and to avoid an additional dispute over the scope of review, would be well advised to provide for that review explicitly and unambiguously.

Very few arbitration agreements currently contain an express provision allowing for appellate review.  On the other hand, many, if not most, arbitration agreements contain some formulation to the effect that the arbitrator is required to "apply the substantive law" of California.  If this latter type of clause is deemed sufficient to subject the parties to appellate proceedings, then arbitration in California may have just become significantly more costly and time-consuming.     

Reasonable Limits On Employee's Time To File A Lawsuit Upheld By Appellate Court in Pearson Dental Supplies, Inc. v. Superior Court (Turcios)

Plaintiff Luis Turcios sued his former employer, defendant Pearson Dental Supplies, Inc., for age discrimination under the California Fair Employment and Housing Act (FEHA) (Click here to read the opinion: Pearson Dental Supplies, Inc. v Superior Court (Turcios)). Plaintiff signed an agreement with the employer that contained a mandatory arbitration clause for employment-related claims. The agreement contained a clause that plaintiff would waive any claims unless he submitted the claim to arbitration within one year from the date the dispute arose or from the date plaintiff first became aware of facts giving rise to the dispute.

While the arbitration agreement required that plaintiff submit the claim within one year, FEHA, in Government Code section 12960 requires a similar deadline, and provides, in part:

(b) Any person claiming to be aggrieved by an alleged unlawful practice may file with the department a verified complaint, in writing. . . .
(d) No complaint may be filed after the expiration of one year from the date upon which the alleged unlawful practice.

Government Code section 12965 also provides in relevant part:

(b) If an accusation [in the name of DFEH] is not issued within 150 days after the filing of a complaint, or if the department earlier determines that no accusation will issue, the department shall promptly notify, in writing, the person claiming to be aggrieved that the department shall issue, on his or her request, the right-to-sue notice. This notice shall indicate that the person claiming to be aggrieved may bring a civil action under this part against the person, employer, labor organization, or employment agency named in the verified complaint within one year from the date of that notice.

(emphasis added).  Defendant compelled arbitration of plaintiff’s claims and argued that the arbitration provision requiring that plaintiff file the claim within one year controlled and, therefore, plaintiff did not file a timely claim. The arbitrator agreed with the defendant’s argument and granted summary judgment in defendant’s favor. The trial court, however, vacated the arbitration award on the ground that the one-year limitation period impermissibly infringed on plaintiff’s unwaivable statutory rights under the FEHA. Defendant appealed the trial court’s ruling, resulting in this decision.

The appellate court overruled the trial court’s ruling, stating that the arbitration agreement did not infringe upon plaintiff’s unwaivable rights under FEHA. The appellate court stated:

In arguing that the arbitrator’s award violated public policy, plaintiff relies (as did the trial court) on his cause of action alleging age discrimination in violation of the FEHA. Under the FEHA, the plaintiff must file an administrative complaint within one year from the date of the discriminatory act. Then, a civil action must be filed within one year from the date the administrative agency issues a “right to sue” letter. (Gov. Code, §§ 12960, subd. (d), 12965, subd. (b).) Plaintiff urged, and the trial court found, that the arbitrator’s application of the one-year limitations period in the DRA contravened public policy because it shortened the FEHA limitations period. We disagree.

(footnote omitted). The appellate court held that the arbitrator’s enforcement of the one-year arbitral limitation period did not unfairly burden plaintiff’s opportunity to vindicate his FEHA claim. The court noted that “despite adequate opportunity to investigate, prepare, and litigate, plaintiff chose to ignore the arbitration requirement and the arbitral limitation period, and never argued that the limitation period was unconscionable when opposing the petition to compel arbitration.” The court did caution, however, that this case did have unique facts that compelled it to rule in this way. Nevertheless, this opinion confirms that employers may enter into arbitration agreements that reasonably require their employees to submit their claims in a timely manner, or else their claims will be waived.

"Silent" Arbitration Agreements are Consistently Found to Authorize Class Wide Arbitration

Conventional wisdom among defense counsel has long been that arbitration is the preferable forum for resolving individual employment disputes such as wrongful termination, discrimination and sexual harassment.  As a result, the number of employers with mandatory ADR programs skyrocketed in the 1990's and early 2000's.

By contrast, many defense counsel have come to believe that arbitration is a decidedly less favorable forum for employers when it comes to class-wide claims.  The main reason is that the lack of a jury or meaningful appellate review, combined with the more flexible procedural rules of arbitration are likely to result in class certification.   

Some employers have sought to have the "best of both worlds" by constructing arbitration programs which require arbitration of individual claims but exclude class actions from arbitration.  But as we have previously blogged, under Gentry v. Superior Court, California trial courts will generally refuse to enforce any sort of arbitration provision that attempts to bar class wide arbitration remedies

The majority of arbitration agreements are simply silent on the whole question of class arbitration.  As to these agreements, arbitrators consistently determine that they should be interpreted as allowing a class wide arbitration to take place (assuming, of course, that the arbitrator also finds that the case to be appropriate for class certification).  For example, in a very informative post from The Metropolitan Corporate Counsel, authors P. Christine Deruelle and Robert Clayton Roesch surveyed the actual decisions on this issue by neutrals with the American Arbitration Association ("AAA").  They concluded that "At bottom, AAA arbitrators have - almost without exception - construed otherwise silent arbitration agreements to permit class proceedings."  As the basis for their conclusion, the authors explained:

As of June 15, 2007, AAA arbitrators have rendered 51 Clause Construction Awards concerning otherwise silent arbitration agreements, and in all but two of those decisions, the arbitrators have allowed classwide proceedings. Three recurring rationales for interpreting an otherwise silent agreement to permit class arbitration appear in these AAA Clause Construction Awards: (i) if the parties intended to prohibit class arbitration, they could have included an express prohibition in their arbitration agreement to this effect; (ii) a misapprehension of Bazzle as specifically authorizing class arbitration where the applicable agreement is silent; and (iii) that silence regarding the propriety of class proceedings renders the agreement ambiguous, which requires that it be construed against the drafter, consistently resulting in a construction favoring class arbitration. In contrast to the 49 AAA Clause Construction Awards construing silence to permit class arbitration, only two such awards have reached the opposite conclusion.

Thus, the proliferation of employment class actions in recent years presents employers with a bit of a conundrum -- do the perceived benefits of arbitrating single plaintiff claims outweigh the perceived detriments of arbitrating employee class actions?

CA Supreme Court Holds Non-Competes Are Generally Unenforceable and Release of "Any And All" Claims Not Unlawful

In Edwards v. Arthur Andersen LLP, the California Supreme Court ruled on the following issues: (1) To what extent does Business and Professions Code section 16600 prohibit employee noncompetition agreements; and (2) is a contract provision requiring an employee to release “any and all” claims unlawful because it encompasses nonwaivable statutory protections, such as the employee indemnity protection of Labor Code section 2802?

Noncompetition Agreements
Noncompetition agreements are governed by Business & Professions Code section 16600, which states: “Except as provided in this chapter, every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.” The statute permits noncompetition agreements in the context of sale or dissolution of corporations (§ 16601), partnerships (§ 16602), and limited liability corporations (§ 16602.5).

Under the common law, as still recognized by many states today, contractual restraints on the practice of a profession, business, or trade, were considered valid, as long as they were reasonably imposed.  Andersen argued that California courts have held that section 16600 embrace the rule of reasonableness in evaluating competitive restraints.

The Court disagreed with Andersen, and noted:

We conclude that Andersen’s noncompetition agreement was invalid. As the Court of Appeal observed, “The first challenged clause prohibited Edwards, for an 18-month period, from performing professional services of the type he had provided while at Andersen, for any client on whose account he had worked during 18 months prior to his termination. The second challenged clause prohibited Edwards, for a year after termination, from ‘soliciting,’ defined by the agreement as providing professional services to any client of Andersen’s Los Angeles office.” The agreement restricted Edwards from performing work for Andersen’s Los Angeles clients and therefore restricted his ability to practice his accounting profession.

The Court found that this agreement was invalid because it restrained Edwards’ ability to practice his profession.

However, Andersen argued that section 16600 has a “narrow-restraint” exception and that its agreement with Edwards survives under this exception.  Andersen pointed out that a federal court in International Business Machines Corp. v. Bajorek (9th Cir. 1999) upheld an agreement mandating that an employee forfeits stock options if employed by a competitor within six months of leaving employment. Andersen also noted that another Ninth Circuit federal court in General Commercial Packaging v. TPS Package (9th Cir. 1997) held that a contractual provision barring one party from courting a specific customer was not an illegal restraint of trade prohibited by section 16600, because it did not “entirely preclude[]” the party from pursuing its trade or business.

In refusing to accept the “narrow-restraint” exception for noncompetition agreements in California, the Court stated:

Contrary to Andersen’s belief, however, California courts have not embraced the Ninth Circuit’s narrow-restraint exception. Indeed, no reported California state court decision has endorsed the Ninth Circuit’s reasoning, and we are of the view that California courts “have been clear in their expression that section 16600 represents a strong public policy of the state which should not be diluted by judicial fiat.” [citation] Section 16600 is unambiguous, and if the Legislature intended the statute to apply only to restraints that were unreasonable or overbroad, it could have included language to that effect. We reject Andersen’s contention that we should adopt a narrow-restraint exception to section 16600 and leave it to the Legislature, if it chooses, either to relax the statutory restrictions or adopt additional exceptions to the prohibition-against-restraint rule under section 16600.

The Court’s ruling basically eliminates the validity of non-competition agreements under California that are not expressly provided for in Section 16600.

Contract Provision Releasing “Any and All” Claims
The second issues in the case was whether Andersen's condition of Edwards’s obtaining employment that Edwards execute an agreement releasing Andersen from, among other things, “any and all” claims, including “claims that in any way arise from or out of, are based upon or relate to [Edwards’s] employment by, association with or compensation from” Andersen.

Edwards argued that Labor Code section 2804 voids any agreement to waive the protections of Labor Code section 2802 (which provides that employers must reimburse employees for all business related expenses that the employee incurs) as against public policy.

The Court noted that Labor Code section 2804 has been interpreted to apply to Labor Code section 2802, making all contracts that waive an employee’s right to reimbursement null and void. Therefore an employee’s right to be reimbursed for business expenses provided under Labor Code section 2802 are nonwaivable, and any contract that does purport to waive an employee’s right would be contrary to the law.  Edwards maintained, therefore, the agreement was an independent wrongful act that would support another claim he was alleged for intentional interference with prospective advantage.

The Court disagreed with Edwards, and concluded that a contract provision releasing “any and all” claims does not encompass nonwaivable statutory protections, such as the employee indemnity protection of Labor Code section 2802.  Therefore, such agreements are still valid and enforceable under the law.

East Bay Taxi Drivers Association v. Friendly Cab Co., -- Taxi Drivers Found to be Employees, Not Independent Contractors

The Ninth Circuit’s decision earlier this year in East Bay Taxi Driver’s Association v. Friendly Cab, Inc., 512 F3d 1090 (2008), illustrates how easily courts will pierce through the outward appearances of a “business” contract to find that, at bottom, it is just a glorified employer-employee relationship.

The case involved taxi drivers who were seeking to form a union to bargain with the company that leased their cabs. As employees they would be covered by the National Labor Relations Act (“NLRA”) and could force the company to recognize their union and bargain collectively. This required the Court to detrmine their true status.  As the Court explained:

‘Employees' work for wages or salaries under direct supervision. ‘Independent contractors' undertake to do a job for a price, decide how the work will be done, usually hire others to do the work, and depend for their income not upon wages, but upon the difference between what they pay for goods, materials, and labor and what they receive for the end result, that is, upon profits.

The drivers leased their vehicles and kept the fares that they generated. Nevertheless, the Ninth Circuit upheld the NLRB’s determination that they were mere “employees.” The main reason for this outcome was the company’s tight control over the drivers’ operations. For example, the drivers were required to only respond to the company’s radio dispatches and could not pick up fares on their own or advertise their own services apart from the company. The company's high degree of control thus negated the drivers’ opportunity to generate any real “entrepreneurial profit” through their own initiative.  

We have blogged repeatedly about the difficulty of maintaining a proper independent contractor status.  Unfortunately, the various multifactor tests promulgated by courts and administrative agencies are remarkably unhelpful for predicting which side of the line a worker falls. As the outcome of the East Bay Taxi case illustrates, however, it is probably more useful to view the standard as a simple determination of whether the company’s control prevents the individual from making significant profit from his own business decisions.

Disputes over Unpaid Sales Commissions and Bonus Payments: When Does a Mere Expectation Become an "Earned" Wage? Part I - Performance-Based Employment Compensation as a Unilateral Contract

Most employees are paid for their time. Thus, if they work eight hours at a rate of $25 per hour, or eight weeks at a salary of $2,500 per week, there is little dispute over the amount of wages owed. But disputes begin to multiply where the payment is deferred and is calculated based on meeting certain performance targets. Typical disputes include the following:

• What must the employee do to be considered the originator of a particular sale?
• What happens if the employee closes a sale but the customer never pays for the product?
• What if the salesman closed the sale but the company ships a defective product or otherwise causes the sale to be cancelled?
• What if the commission formula is based on meeting an annual target, but the Company decides to restructure the commission formula halfway through the year?
• What if the employee quits or is terminated after making a sale but before the customer has paid for product?

The first (but by no means the last) step to resolving these questions is to examine the terms of the parties’ contract. To do so, it is important to realize that under California law an enforceable commission contract is typically formed based on the company’s written policies or other communications to the employee concerning what commissions or bonuses he can expect if specified criteria are achieved. This is true regardless of disclaimers stating that the employment itself is terminable at-will or that there is supposedly no contract “of employment.”

In other words, it is not necessary for the parties to have a signed piece of paper for a valid compensation contract to exist. Rather, California generally follows a “unilateral contract” theory of employment compensation. A unilateral contract is one in which a “unilateral” offer to pay for performance is communicated by the employer (e.g., an employer policy stating that “an employee selling $100K in product will be paid a 10% commission”). The employee simultaneously accepts the offer and performs his side of the contract by doing the specified task (i.e., selling $100K in product).

A vested right to a commission payment thus usually arises immediately when the employee performs the requested services, closes the sale, stays employed throughout the year, or achieves any another specified goal. As a result, the employer may be legally barred from thereafter attempting to change the commission structure in a way that would prevent the employee from eventually collecting this entire “earned” commission.

Many employers mistakenly believe that if an employee can be terminated “at-will” his or her commissions may also be reduced at-will. Another common belief is that commissions are only “earned” when they are actually paid out by the employer. At least as to commissions on past sales, these assumptions are usually incorrect as a matter of law.

Understanding exactly when and how a commission or bonus becomes “earned” and vested according to common contract provisions will be addressed in greater detail in future posts. In the meantime, however, it is important to at least recognize the basic legal concept of the "unilateral contract."

Perspectives on Brinker (Part II) -- When Must Employers Schedule Employee Meal Breaks

In a prior post on Brinker v. Superior Court (Hohnbaum), we examined what the decision means in terms of defining the duty of California employers to make meal and rest breaks "available" to employees.  In this post we look at what Brinker says about when during the day those breaks need to be provided.

Brinker analyzes this question based on the language of California Labor Code section 512(a), which provides that “An employer may not employ an employee for a work period of more than five hours per day without providing the employee with a meal period of not less than 30 minutes.”

The Meal Period Timing Issue
At first glance, the phrase “work period” in the above-quoted provision might seem self-explanatory.  In fact, hundreds of millions of dollars and the daily activities of millions of people hinge on the semantic ambiguity arising from these two words. The two competing interpretations are as follows:

Interpretation # 1: The Continuous “Work Period.” The five-hour “work period” must refer to any five-hour period of continuous work. Thus, employers must provide at least one meal period for each continuous five-hour period of work.  

Interpretation #2: The Cumulative “Work Period.” The five-hour “work period” must refer to the total number of hours worked by the employee during any day. In other words, the statute is merely saying that whenever an employee is required to work more than a total of five hours in a day he must receive a 30 minute meal break at some point in the day – but the statute is not intended to dictate when during the day that break must be taken.

In Brinker v. Superior Court-- the first published opinion to address the issue – the lower court agreed with interpretation # 1. The Appellate Court, however, reversed in favor of interpretation #2. So does this mean that employers now have carte blanche to schedule meal breaks at whatever time of day they wish so long as they give the correct number of meal breaks per day?

We wouldn’t recommend it.

To begin with, there is a good chance that the California Supreme Court will grant review of Brinker– thereby rendering it non-citable. Moreover, the Brinker opinion has some pretty sizable holes in its reasoning. Thus, we would not bet the farm on Brinker’s interpretation holding up in the long run. Any employer who relies on Brinker to aggressively schedule meal breaks very close to the start or end of the workday could therefore find itself exposed to massive penalties if, and when, Brinker is eventually overturned by the Supreme Court.

The Vulnerabilities of Brinker
Brinker is vulnerable to be being overruled on several grounds. For example, Brinker rejects Interpretation #1, above, on the ground that if the Legislature meant to trigger a meal period for each consecutive five hour work period it could have done so without using the words “per day” in the phrase “a work period of more than five hours per day.” Adopting an interpretation that gives significance to every word is one goal of statutory interpretation. But this “per day” reference is a fairly thin reed to grasp for purposes of making this argument.

For one thing, the monetary penalties imposed by the Labor Code do not even arise from Section 512. Rather, it is Labor Code Section 226.7 which imposes a penalty of “one additional hour of pay at the employee's regular rate” for any failure “to provide an employee a meal period . . . in accordance with an applicable order of the Industrial Welfare Commission.”  Each of the IWC’s Wage Orders, however, conspicuously omits the very “per day” language that Brinker used as the basis for its ruling.  

Brinker dismisses the significance of the Wage Orders themselves by holding that they must be interpreted as if they merely track the text of Section 512(a) verbatim.  But why would the Legislature have used a violation of the IWC Wage Orders as the triggering event for imposing a penalty if it believed that the Wage Orders could only duplicate the text of Section 512? Brinker’s dismissive treatment of the actual text of the Wage Orders thus arguably repeals the portion of Section 226.7 that incorporates the Wage Orders by reference.  In doing so, Brinker potentially violates its own standard that the words of a statute cannot be rendered meaningless.

Brinker also fails to address the significance of Labor Code Section 512(b), which authorizes the IWC to adopt Wage Orders allowing meal periods to begin "after six hours of work" if it determines that this is "consistent with the health and welfare of the affected employees."  This provision presupposes that, in the absence of any new Wage Order provision, an employee cannot agree to wait more than six hours for a meal break. 

Brinker also leads to some problematic practical results.  For example, the over-arching Legislative purpose was to afford relief from fatigue and hunger that could result from long stretches of constant work. But under Brinker, an employer could schedule an employee to begin work at 9:00 a.m., take a meal break from 9:05 to 9:35 a.m., and then work thirteen hours straight before taking another 30-minute meal break immediately before leaving at around 11:05 p.m. It is hard to envision the Supreme Court endorsing this result as the true intent of the Legislature.

Notwithstanding the undeniably pro-employer Brinker decision, prudent employers should still strive to establish a record of good faith, affirmative efforts to enforce internal meal and rest break policies.  Part of this record includes scheduling employee meal periods to begin before the start of any sixth consecutive hour of work.   These steps may not be easy at an operational level, but they are necessary to avoid exposure to large-scale class action liability in the long run. 

Outdated IRS Rules on Employee Cell Phone Usage Likely To Change

A recent LA Times Article reports that the current IRS rule for expensing employer-provided cell phones is likely to be changing soon. The current rule permits employers to treat employee cell phone reimbursement as a deductible business expense only if the employee has kept a detailed log of every call and the reason for the call.

A bi-partisan bill to dispense with this log-keeping requirement (which is almost universally ignored in practice anyway), is co-sponsored by Reps. Sam Johnson (R-Texas) and Earl Pomeroy (D-N.D.), and has already passed the House.

The cellphone tax law was set "in 1989 when cellphones were huge and when it cost a lot of money to make a phone call," Johnson said. "Nowadays they're a dime a dozen and the cost is way down. If you don't log all your telephone calls, you're going to have some IRS weenie after you. That's why we're trying to get the law changed -- because it just doesn't make any sense anymore."

A change appears likely. When pressed by Johnson at a hearing this year, Treasury Secretary Henry M. Paulson said that updating the rules sounded "like the right idea to me." And the IRS' Advisory Committee on Tax Exempt and Government Entities, calling the rules "burdensome for any employer," recommended last month that the agency loosen reporting requirements for employers and that Congress change the law.

According to the Times article, "Nationwide, about 5.5 million people have cellphone service paid for directly by their employers -- and they are a group that makes up 2.4% of all wireless subscribers." Given the wireless industry's interest in preserving and growing this market, we are willing to bet that the the new legislation is a lock in the coming year.

Department Of Labor's Tool For Posters and Recordkeeping Compliance

The U.S. Department of Labor (DOL) recently launched a new resource for employers - The FirstStep Employment Law Advisor.  The resource is designed to help employers determine which federal employment laws administered by the DOL apply to their business or organization, what recordkeeping and reporting requirements they must comply with, and which posters they need to post.

I've looked around the site a bit, and think it is a great place for employers to double-check their current posters and document retention policies.  The Advisor asks the user a series of questions to focus the results for various types of employers, including non-profit organizations, private sector businesses and government agencies.  The FirstStep Employment Law Advisor can be viewed here

U.S. Supreme Court Turns Down Employer's Appeal Regarding FMLA Rights

The United States Supreme Court rejected an appeal by Progress Energy, Inc. regarding the waiver of an employee’s rights under the Family and Medical Leave Act (“FMLA”). In Progress Energy v. Taylor, the Court rejected – without comment – Progress Energy’s appeal from a 4th Circuit Court of Appeal ruling that held an employer cannot induce to waive their rights under the FMLA. The 4th Circuit based their ruling on a 1995 Labor Department rule that said employees cannot waive their rights under the act, nor can employers encourage them to do so. On appeal, Progress Energy argued that the Labor Department ruling only applied to the waiver of future rights, not to the settlement of past claims. Click here for more information on the case.

Although the Bush Administration agreed with Progress Energy’s position, it encouraged the Supreme Court to turn down the case because the Labor Department is issuing a new rule that makes clear that the waiver prohibition only applies to prospective rights, rather than past claims.

Thompson v. North American Stainless, LP: Anti-Retaliation Protection is Expanded to Include Friends, Relatives and Anyone "Closely Associated" with a Complaining Employees

In Thompson v. North American Stainless, LP, the plaintiff alleged he had been fired because his wife -- who had previously worked for the same employer –filed a charge of discrimination against it with the EEOC. The trial court granted summary judgment against the husband on the ground that he himself had never engaged in any of conduct protected by Title VII – such as opposing the alleged discrimination or participating in the government investigation. 

In a very significant March 31, 2008 opinion, the Sixth Circuit court of appeals reversed and allowed his suit to go forward. As the majority acknowledged, “a literal reading of [Title VII] section 704(a) suggests a prohibition on employer retaliation only when it is directed to the individual who conducted the protected activity.”  It concluded, however, that the language of the statute itself should not be controlling because “tolerance of third-party reprisals would, no less than the tolerance of direct reprisals, deter persons from exercising their protected rights under Title VII.” 

Thus, the Court followed the position urged by the EEOC by extending statutory protection to any third party that is deemed to be “so closely related to or associated with the person exercising his or her statutory rights that it would discourage that person from pursuing those rights.” (citing the EEOC Compliance Manual.)

In construing the rights provided by the California Fair Employment and Housing Act (FEHA), California courts typically follow the interpretations that federal courts have given to analogous provisions of Title VII. As a result, it is a safe bet that California courts will begin applying Thompson in state court FEHA actions at the first opportunity.

Employers must therefore recognize that action affecting “associated” individuals will now be subjected to increased scrutiny. For example, imagine a small employer who is being sued for wrongful termination while the plaintiff’s spouse continues to work in the same office – perhaps in a sensitive position with access to confidential information. The employer may rightly feel that the spouse is a “security risk” who may funnel confidential information to the other side, or that her loyalty must inevitably be tainted by her disgruntled spouse. Under these circumstances, it would be tempting to terminate or transfer the remaining spouse. Under Thompson this would be a very dangerous course of action.

Today's BLR Teleconference On Hidden Risks In Using Social Networking Internet Sites To Conduct Background Checks

I would like to thank everyone on today's BLR teleconference on the pitfalls on using social networking sites to conduct background checks on employees.  I hope everyone enjoyed the seminar.

As I promised, here are the five general caveats employers should follow when using social networking sites to conduct background checks on employees:
1. The employer and/or its agents conduct the background check themselves;
2. The site is readily accessible to the public;
3. The employer does not need to create a false alias to access the site;
4. The employer does not have to provide any false information to gain access to the site; and
5. The employer does not use the information learned from the site in a discriminatory manner or otherwise prohibited by law.
If any of the listeners to today's teleconference have any follow-up questions or comments, please feel free to email me

Upon An Employee's Request, Which Documents Does An Employer Have To Show And/or Copy?

Employers are obligated only to provide copies of any documents signed by the employee or applicant relating to their job. Labor Code section 432.

Employees are allowed to inspect other categories of documents. For example, Labor Code Section 1198.5 requires employers allow employees and former employees access to their personnel files and records that relate to the employee’s performance or to any grievance concerning the employee. Inspections must be allowed at reasonable times and intervals. To facilitate the inspection, employers must do one of the following: (1) keep a copy of each employee’s personnel records at the place where the employee reports to work, (2) make the personnel records available at the place where the employee reports to work within a reasonable amount of time following the employee’s request, or (3) permit the employee to inspect the records at the location where they are stored with no loss of compensation to the employee.

Employers are required to permit current and former employees to inspect or copy payroll records pertaining to that current or former employee. Labor Code Section 226(b). Starting on January 1, 2003, an employer who receives a written or oral request from a current or former employee to inspect or copy his or her payroll records shall comply with the request as soon as practicable, but no later than 21 calendar days from the date of the request. Failure to comply with the request entitles the employee to a $750 civil fine. Labor Code Section 226, subdivisions (c) and (f)

There are limits to the documents that an applicant or employee can inspect from his or her file. The employee does not have the right to inspect records relating to the investigation of a possible criminal offense, letters of reference, or ratings, reports, or records that (a) were obtained prior to the employee’s employment, (b) were prepared by identifiable examination committee members, or (c) were obtained in connection with a promotional exam.

Approach With Caution: Conducting Background Checks Using Facebook, MySpace or the Internet

Employers are becoming more and more aware of the information obtainable via the internet about their current employees as well as applicants.  Many are looking up prospective and current employees' Facebook and MySpace pages to glean more information about the individual.  As the the Fox News video below shows, current employees need to be careful what they tell their bosses to get the day off of work, versus the information posted on their Facebook page.

While the information posted on the Internet on social networking sites is usually public for everyone to see, employers need to be aware of potential claims against them.  The law is behind in the times and there are many uncertainties in this area.  Listed below are some potential pitfalls that employers need to be aware of when using the Internet to conduct background checks.

Federal and State Discrimination Claims

Because people are becoming so comfortable in sharing private information on social networking sites, employers may learn too much information about an applicant that would not and could not have been discovered through an interview. Discovery of this personal information is not unlawful – it is likely that the employer would find out many of these traits at the first in-person interview with the applicant anyway. However, employers cannot base its employment decisions upon a protected category, such as race or gender.   By learning about this type of information of an applicant via their on-line profile, the employer may have to explain that the information did not enter into the hiring decision. 

Invasion of Privacy Claims

Though one might argue that members of social networking sites have no expectation of privacy (since they’re posting information to the world) some applicants or employees might argue that the employer overstepped its legal bounds by using profile data in employment decisions. Arguably, the terms of service agreement may create expectation of privacy for users of site.
State Law Privacy Claims
Employees could potentially argue that using Facebook, MySpace or similar site to conduct background checks violate state statutory law. For example, California and New York have statutes that prohibit employers from interfering with employee’s off-duty private lives. Employees may attempt to argue a public policy violation has occurred in violating a state statute that protects off-duty conduct from employer’s control.

State common law could also create liability. Generally, there are four common law torts for invasion of privacy:
  1. intrusion upon seclusion,
  2. public disclosure of private facts causing injury to one's reputation,
  3. publicly placing an individual in a false light, and
  4. appropriation of another's name or likeness for one's own use or benefit.
As explained by one court, the tort of unreasonable intrusion upon the seclusion of another, "depends upon some type of highly offensive prying into the physical boundaries or affairs of another person. The basis of the tort is not publication or publicity. Rather, the core of this tort is the offensive prying into the private domain of another." (citing Restatement (Second) of Torts § 652B, comments a, b, at 378-79 (1977)). Generally, the invasion of privacy must consist of (1) highly offensive intrusion (deceitful means to obtain information); and (2) prying into private information (information placed on the web is most likely not private).

Fair Credit Reporting Act

An employer’s use of social networking sites may implicate the FCRA, which places additional disclosures and authorization requirements on employers. In enacting the FCRA, Congress stated its underlying purpose was to ensure that decisions affecting extension of credit, insurance, and employment, among other things, were based on fair, accurate, and relevant information about consumers. The FCRA is intended to provide employee with notice of the background check, authorization to conduct the check in certain circumstances, and disclosure to the employee if the information is used in the employment context.

FCRA Definitions:
  • A “consumer report” is defined at as information (oral, written, or other communication) provided by a “consumer reporting agency” about credit matters as well as about a person’s “character, general reputation, personal characteristics, or mode of living which is used or expected to be used or collected in whole or in part for the purpose of serving as a factor in establishing the consumer’s eligibility for…employment purposes.”
  • Another kind of “consumer report,” called an “investigative consumer report” contains information on a consumer’s character, general reputation, personal characteristics, or mode of living that is obtained through personal interviews with friends, neighbors, and associates of the consumer.
  • A “consumer reporting agency,” is defined as “any person who regularly engages in whole or in part in the practice of assembling or evaluating consumer credit information or other information on consumers for the purpose of furnishing consumer reports to third parties.”
Employers who conduct the background checks internally do not qualify as a “consumer reporting agency” and therefore the FCRA does not apply. Employers still need to be careful, however, because state law may apply. For example, California Investigative Consumer Reporting Agencies Act is more restrictive than the FCRA.

Terms of Service Violations

Facebook, MySpace, and similar sites have terms of service posted on their pages that generally prohibit use of their content for “commercial purposes.” Violation of the terms of service would not automatically create a cause of action in and of itself. However, as discussed above, it may be a way for a plaintiff to argue that there is an expectation of privacy in using the site and everyone who signs up to use the site is agreeing to abide by those terms.

The Electronic Communications Privacy Act of 1986

The ECPA was intended to expand wiretapping protections to electronic communications.

Title I of the ECPA provides that “any person who intentionally intercepts, endeavors to intercept, or procures any other person to intercept or endeavor to intercept, any wire, oral, or electronic communication ... shall be punished ... or shall be subject to suit ...."

Title II, known as the Stored Communications Act (SCA), focuses on communications in storage (e-mails, blogs, electronic bulletin or similar message boards) and most likely social networking sites. The Store Communications Act provides that "whoever (1) intentionally accesses without authorization a facility through which an electronic communication service is provided; or (2) intentionally exceeds an authorization to access that facility; and thereby obtains, alters, or prevents authorized access to a wire or electronic communication while it is in electronic storage in such system shall be punished ...."

However, the SCA exempts from liability, ``conduct authorized ... by a user of that service with respect to a communication of or intended for that user.´´ A virtual community that has some type of privacy protection can create liability for an employer who provides false information or assumes an identity to gain access to the site.

Therefore, employers need to stay away from pretexting in order to gain access to an applicant's or employee's on-line profile. Also, websites and social networking sites open to the public are not covered by the SCA. Courts have indicated that a terms of service agreement, and nothing more, would not be enough to create a private webpage. There needs to be more protections taken by the publisher of the on-line content in order for the individual to prevail in asserting the site was “private” under the ECPA.  

Generally, under Federal law, employers may utilize social networking sites to conduct background checks on employees if:
  1. The employer and/or its agents conduct the background check themselves;
  2. The site is readily accessible to the public;
  3. The employer does not need to create a false alias to access the site;
  4. The employer does not have to provide any false information to gain access to the site; and
  5. The employer does not use the information learned from the site in a discriminatory manner or otherwise prohibited by law.

The right ... to wear pants.

I am preparing for a press interview about how employers should approach dress code policies and it seems that it always is a surprise to people to learn that that the California Government Code specifically addresses employees' right to wear pants to work.  Section 12947.5 states:
(a) It shall be an unlawful employment practice for an employer to refuse to permit an employee to wear pants on account of the sex of the employee.
(b) Nothing in this section shall prohibit an employer from requiring employees in a particular occupation to wear a uniform.
Also, employers should note, dress standards or requirements for personal appearance need to be flexible enough to take into account religious practices.  While it is lawful for an employer to implement rules about employee physical appearance, grooming, or dress standards, the standards cannot discriminate based on a protected category, such as race or sex.  Also, click here to read a previous post about policies on tattoos, tongue rings, and body piercings in the workplace.

Teleconference On Using Facebook, MySpace, and Other Websites to Scope Out New Hires

I would like to thank everyone who participated in the BLR teleconference this morning.  It was a pleasure speaking to everyone. 

Due to the great interest in this topic, we will be conducting the seminar again on at least one one occasion, maybe two.  We will also provide a seminar specifically addressing liability under California state law when using social networking sites and the Internet in conducting background checks.  Please check back within the next week or two for the dates on these teleconferences, or send me an email and I can notify you when we finalize the dates.

To download today's PowerPoint slides, click here

Also, I've had a lot of requests to repeat the five general guidelines employers should keep in mind to avoid liability when conducting background checks on applicants on the Internet.  Under Federal law, employers may utilize social networking sites to conduct background checks on employees if:
  1. The employer and/or its agents conduct the background check themselves (i.e., does not use a third party to conduct the search);
  2. The site is readily accessible to the public;
  3. The employer does not need to create a false alias to access the site;
  4. The employer does not have to provide any false information to gain access to the site; and
  5. The employer does not use the information learned from the site in a discriminatory manner or as otherwise prohibited by law.

US Supreme Court Tackles Employment Law Cases This Week

Today, the Court will hear argument in Gomez-Perez v. Potter, on whether the Age Discrimination in Employment Act bars retaliation by public employers for the filing of age discrimination complaints.  For more information about the facts of the case, click here.

On Wednesday, the Court is scheduled to hear oral argument in CBOCS West v. Humphries, on whether a race retaliation claim can be brought under 42 U.S.C. § 1981 (Section 1981).  Section 1981 provides that any “person within the jurisdiction of the United States” has the same right to “make and enforce” contracts, regardless of their skin color.  Section 1981 protects parties to a contract (both at the time of formation and post-formation).  The argument arises that Section 1981 applies to aspects of the employment relationship because that relationship is considered contractual, but courts have not defined to what extent this protection exists in the employment context.  Employees who have not filed a lawsuits within the time limits proscribed by Title VII (which allows for retaliation claims), often revert to Section 1981 in order to keep their claim alive. 

Can Internet User Protect His Or Her Identity Under The First Amendment?

As employment litigators, we are finding ourselves dealing more and more with Internet related issues, such as an employer’s right to monitor employees’ computer usage, and an employee’s privacy rights to information posted on the Internet. A recent case, Krinsky v. Doe 6, __ Cal.App.4th ___ (Feb. 6, 2008), (click here for the opinion) dealt with the issue whether someone who posts anonymously on the Internet can protect his or her identity under the First Amendment. While not directly related to employment law, the ruling's effects could be felt by companies and should be read by anyone dealing with human resource issues in California.

Lisa Krinsky, a corporate officer of a Florida company, SFBC International, Inc., filed a lawsuit against 10 unknown individuals for defamation and intentional interference of contractual relations. She claimed the 10 unknown individuals (sued as Does 1-10) posted scathing attacks about her and her company on Yahoo!’s message board. Krinsky attempted to discover the identity of 10 of the pseudonymous posters by serving a subpoena on the custodian of records of the message-board host, Yahoo!, Inc. (Yahoo!) in Sunnyvale, California.

Yahoo! notified Defendant “Doe 6” that it would comply with the subpoena in 15 days unless a motion to quash or other legal objection was filed. Doe 6 then moved in California superior court to quash the subpoena on the grounds that (1) plaintiff had failed to state a claim sufficient to overcome his First Amendment rights for either defamation or interference with a contractual or business relationship, and (2) plaintiff's request for injunctive relief was an invalid prior restraint. Doe 6 moved to quash the subpoena in California in an attempt to hide his identity, but the trial court denied the motion. Doe 6 appealed this decision, contending that he had a First Amendment right to speak anonymously on the Internet.

The appellate court discussed the fact that there is never really true anonymity on the Internet. Moreover, Yahoo! warns users that their identities can be traced, and that it will reveal their identities if legally required to do so. The parties in the case agreed that the enforceability of the subpoena should be determined by weighing Doe 6's First Amendment right to speak anonymously against plaintiff's interest in discovering Doe 6’s identity in order to pursue her claim.

The appellate court’s decision ultimately turned on the issue whether the statements posted by the defendant were in fact defamatory. The analysis begins with examining whether plaintiff can establish with supporting evidence that a libelous statement has been made. If plaintiff can establish this, then the writer’s message has no First Amendment protections.

The California appeals court, in applying Florida defamation legal standards due to the fact that this is where the Plaintiff filed the underlying case, stated:
A publication is libelous per se in Florida "if, when considered alone without innuendo: (1) it charges that a person has committed an infamous crime; (2) it charges a person with having an infectious disease; (3) it tends to subject one to hatred, distrust, ridicule, contempt, or disgrace; or (4) it tends to injure one in his trade or profession. Plaintiff maintains that Doe 6 implied that she was dishonest by calling her a "crook" and asserted that she had a "fake medical degree," thereby accusing plaintiff of being dishonest or at least of engaging in conduct incompatible with her employment. He also subjected her to ridicule and disgrace and damaged her reputation by stating that she had "poor feminine hygiene."
(citations and footnote omitted)
After examining the statements posted on the Yahoo! message board, the court found that the statements were not defamatory:
We likewise conclude that the language of Doe 6's posts, together with the surrounding circumstances -- including the recent public attention to SFBC's practices and the entire "SFCC" message-board discussion over a two-month period -- compels the conclusion that the statements of which plaintiff complains are not actionable. Rather, they fall into the category of crude, satirical hyperbole which, while reflecting the immaturity of the speaker, constitute protected opinion under the First Amendment.
As to plaintiff’s interference with contractual/business relationships claim, the appellate court held that this also failed:
As to Doe 6, it is clear from the pleading that the business tort alleged in the interference cause of action is based entirely on the "defamatory remarks" that were protected speech under the First Amendment. Casting the defamation claim in terms of interference with a business relationship does not save plaintiff's cause of action.
The appellate court concluded:
We thus conclude that Doe 6's online messages, while unquestionably offensive and demeaning to plaintiff, did not constitute assertions of actual fact and therefore were not actionable under Florida's defamation law. Because plaintiff stated no viable cause of action that overcame Doe 6's First Amendment right to speak anonymously, the subpoena to discover his identity should have been quashed. (fn. Omitted)

Vick's Case Is A Good Reminder About Treatment of Bonuses Under CA Law

Jailed quarterback Michael Vick can keep nearly $20 million in bonus money he received from the Atlanta Falcons following a ruling today by a federal judge. While Vick’s case involved interpretation of the NFL collective bargaining agreement, how bonuses are treated is often a sticky area of the law for California employers. Vick's win today is a good reminder to California employers to review how they should be treating bonuses. Below is a general overview of California’s DLSE’s opinion regarding how California employers must treat bonuses (with some commentary added).

DLSE’s Definition of Bonus:

The DLSE opines that a bonus is money promised to an employee in addition to the salary, commission or hourly rate usually due as compensation. The word has been variously defined as “An addition to salary or wages normally paid for extraordinary work. An inducement to employees to procure efficient and faithful service.” Duffy Bros. v. Bing & Bing, 217 App.Div. 10, 215 N.Y.S. 755, 758 (1926). Bonuses may be in the form of a gratuity where there is no promise for their payment; or they may be required payment where a promise is made that a bonus will be paid in return for a specific result.

An employee forfeits bonus if the employee voluntarily terminates employment before bonus vests, and employer states that bonus is contingent on continued employment.

An employee who voluntarily leaves his employment before the bonus calculation date is not entitled to receive it if the employer has expressly qualified its promise of a bonus on a requirement of continued employment. Lucien v. All States Trucking (1981) 116 Cal.App.3d 972, 975. This has been the rule ever since Peterson v. California Shipbuilding Corp. (1947) 80 Cal.App.2d 827, 831, 183 P.2d 56. The California rule is in accord with the prevailing view that where a definite bonus or profit-sharing plan has been established and forms part of the employment contract, the employee is not entitled to share in the proceeds where he leaves the employment voluntarily prior to vesting. (See DLSE Opinion Letter 1993.01.19)

If employer has not conditioned bonus on employment at time of payment then the employee may be entitled to receive bonus.

Where the promise of a bonus is not expressly conditioned on continued employment an employee who voluntarily leaves employment may be entitled to the bonus if other applicable conditions have been satisfied. Thus, in Hill v. Kaiser Aetna (1982) 130 Cal.App.3d 188, an employee who resigned on January 3, 1978, was held to be vested in his right to a bonus for calendar year 1977 where: (1) the bonus plan did not expressly require continued employment, and (2) the bonus was an inducement for continued employment. Id., at 196.

Caution: implied contract for bonus could be created by employer’s actions.

The regular payment of the bonus in past years may ripen into an implied contract for compensation in the absence of a specific contract. (D.L.S.E. v. Transpacific Transportation Co.(1979) 88 Cal.App.3d 823; cf. Simon v. Riblet Tramway Co., 8 Wash.App. 289, 505 P.2d 1291, 66 A.L.R.3d 1069, cert. den. 414 U.S. 975, 94 S.Ct. 28 9, 38 L.E d.2d 218 ). However, in order to be actionable, there must be some objective criteria upon which the bonus is based.

There is an exception to this general rule if bonuses which are completely discretionary, based on no objective criteria and are not routine, would not give rise to an implied bonus contract.

Termination of the employment by the employer could create obligation to pay bonus to the employee.

Common law contract theories will not allow one party to the contract to prevent the other party from completing the contract. If the employee is discharged before completion of all of the terms of the bonus agreement, and there is not valid cause, based on conduct of the employee, for the discharge, the employee may be entitled to recover at least a pro-rata share of the promised bonus. (DLSE Opinion Letter 1987.06.03) Again, if a bonus is discretionary, this general rule would not apply.

California Supreme Court Holds that Employers May Terminate Employees For Use of Medical Marijuana

Last week, the California Supreme Court held that it is not a violation of California law for an employer to terminate an employee who tests positive for marijuana, even though the employee was prescribed the marijuana for medical purposes under California’ Compassionate Use Act of 1996.

The conflict in Ross v. Ragingwire Telecommunications, Inc. was between California's Compassionate Use Act, (which gives a person who uses marijuana for medical purposes on a physician’s recommendation a defense to certain state criminal charges and permission to possess the drug) and Federal law (which prohibits the drug’s possession, even by medical users). The employer in this case terminated plaintiff’s employment based on a positive test for marijuana even through the plaintiff provided a doctor’s note explaining that he was prescribed marijuana to alleviate back pains. 

The Supreme Court explained that the employer's decision to terminate plaintiff was not illegal:
Nothing in the text or history of the Compassionate Use Act suggests the voters intended the measure to address the respective rights and duties of employers and employees. Under California law, an employer may require preemployment drug tests and take illegal drug use into consideration in making employment decisions. (Loder v. City of Glendale (1997) 14 Cal.4th 846, 882-883.)
Plaintiff’s position might have merit if the Compassionate Use Act gave marijuana the same status as any legal prescription drug. But the act’s effect is not so broad. No state law could completely legalize marijuana for medical purposes because the drug remains illegal under federal law (21 U.S.C. §§ 812, 844(a)), even for medical users (see Gonzales v. Raich, supra, 545 U.S. 1, 26-29; United States v. Oakland Cannabis Buyers’ Cooperative, supra, 532 U.S. 483, 491-495). Instead of attempting the impossible, as we shall explain, California’s voters merely exempted medical users and their primary caregivers from criminal liability under two specifically designated state statutes. Nothing in the text or history of the Compassionate Use Act suggests the voters intended the measure to address the respective rights and obligations of employers and employees.
The Court also provided that a reasonable accommodation, as required under California’s FEHA, does not include an employer’s permission to use illegal drugs:
The FEHA does not require employers to accommodate the use of illegal drugs. The point is perhaps too obvious to have generated appellate litigation, but we recognized it implicitly in Loder v. City of Glendale, supra, 14 Cal.4th 846 (Loder). Among the questions before us in Loder was whether an employer could require prospective employees to undergo testing for illegal drugs and alcohol, and whether the employer could have access to the test results, without violating California’s Confidentiality of Medical Information Act (Civ. Code, § 56 et seq.). We determined that an employer could lawfully do both. In reaching this conclusion, we relied on a regulation adopted under the authority of the FEHA (Cal. Code Regs., tit. 2, § 7294.0, subd. (d); see Gov. Code, § 12935, subd. (a)) that permits an employer to condition an offer of employment on the results of a medical examination. (Loder, at p. 865; see also id. at pp. 861-862.) We held that such an examination may include drug testing and, in so holding, necessarily recognized that employers may deny employment to persons who test positive for illegal drugs. The employer, we explained, was “seeking information that [was] relevant to its hiring decision and that it legitimately may ascertain.” (Id. at p. 883, fn. 15.) We determined the employer’s interest was legitimate “[i]n light of the well-documented problems that are associated with the abuse of drugs and alcohol by employees — increased absenteeism, diminished productivity, greater health costs, increased safety problems and potential liability to third parties, and more frequent turnover . . . .” (Id. at p. 882, fn. omitted.) We also noted that the plaintiff in that case had “cite[d] no authority indicating that an employer may not reject a job applicant if it lawfully discovers that the applicant currently is using illegal drugs or engaging in excessive consumption of alcohol.” (Id. at p. 883, fn. 15.) The employer’s legitimate concern about the use of illegal drugs also led us in Loder to reject the claim that preemployment drug testing violated job applicants’ state constitutional right to privacy. (Id. at pp. 887-898; see Cal. Const., art. I, § 1.)
(footnote omitted).

The Plaintiff also alleged a cause of action for wrongful termination in violation of public policy. Generally, at-will employees can terminate or be terminated from their job at any time, but an employer cannot terminate an employee for reasons that violate a fundamental public policy of the state. The Court rejected plaintiff’s position that there was a fundamental public policy that permitted him to use medical marijuana and be under its influence while at work. “Nothing in the [Compassionate Use Act’s] text or history indicates the voters intended to articulate any policy concerning marijuana in the employment context, let alone a fundamental public policy requiring employers to accommodate marijuana use by employees."

The opinion can be viewed at the Court’s website (WRD) (PDF).

Hidden Risks of Using Facebook, MySpace, and Other Websites to Scope Out New and Prospective Hires

On February 26, 2008, I will be presenting a nation-wide teleconference entitled “Hidden Risks of Using Facebook, MySpace, and Other Websites to Scope Out New and Prospective Hires" through BLR. More information can be found at BLR’s website here.

During this 90-minute audio conference, I will cover the legal pros and cons of relying on online data when you screen potential and current employees – with a special emphasis on information found via Google, Facebook, MySpace, and other social networking sites. I will also cover the following topics:
  • The most common mistakes employers make when they check applicants and current employees on the Web
  • Which online sites pose the greatest legal threats for employers when used for HR purposes
  • When it’s legal to use information found online to evaluate applicants and workers – and what types of online details you must never use or keep (no matter how damaging or relevant it may seem)
  • How you can decide whether the information you’ve found online is accurate
  • The steps you should take if an applicant or employee claims that your online searches constitute an illegal invasion of privacy
  • When your Facebook, MySpace, or Google searches may cross the line into discrimination
  • The red flags that you may have violated the Fair Credit Reporting Act when surfing the Web to learn more about applicants or employees – and how to protect yourself
In preparing for the conference, I am interested in specific questions anyone would like addressed, problems companies have encountered in this area, or any other comments you have about this topic. Please email me at azaller[at]

A bit off topic, but related to social networking sites, please feel free to connect with me or view my profile on Linkedin. Click here for my Linkedin profile

California Enacts Military Spouse Leave Law (Effective Immediately)

Governor Schwarzenegger recently signed California Assembly Bill (AB) 392 into law. That bill creates a new leave of absence right for spouses of military personnel while those personnel are on a leave of absence from deployment.

Specifically, the military spouse law provides that:
  • Employers with 25 or more employees in the United States to allow eligible employees to take up to 10-days off from work, on an unpaid basis, when his/her spouse is on leave from deployment during a period of military conflict;
  • Eligible employees are defined as employees who work at least an average of 20 hours per week and whose spouse is a member of the United States Armed Forces, National Guard, or Army Reserve on active duty in an area of military conflict;
  • Employees must provide notice to the employer within 2 business days of receiving official notice that his/her spouse will be on a leave from deployment.
It is important to note that it does not appear there are any circumstances under which an employer would be permitted to deny an employee's leave request. Accordingly, employers should be extremely careful in dealing with requests for leave under this new law.

Background Checks and References

An employer’s obligations in conducting background checks and providing references for former employees is an extremely nuanced area of employment law and could expose an employer to significant liability. As explained below, conducting background checks/reference checks is critical for employers to defend themselves from negligent hiring/supervision claims. However, when conducting background checks employers must also be careful not to invade the employee’s privacy rights, and be aware that many background checks could fall under the Fair Credit Reporting Act (FCRA) (and the California equivalent of this Federal law), which require the employer to comply with additional requirements. We will be providing a series of posts related to these issues over the next few weeks. This first post focuses on employers’ potential liability under a negligent hiring or supervision cause of action.

Negligent Supervision - Standard

An employee who has been harassed or discriminated against, or otherwise injured by the acts of another employee, may attempt to sue the employer for negligence in supervision of the other employee.  For example, an employee may state a cause of action against an employer in retaining an employee who allegedly sexually harassed the plaintiff.  (Hart v. Nat'l Mortgage & Land Co., 189 Cal.App.3d 1420, 1426 (1987)).  Similarly, third-parties who do not work for the employer, but who have been injured by an employer’s agent may also allege a negligence claim against an employer.

In order to establish a cause of action for negligent supervision, a plaintiff must prove: (1) the existence of a legal duty of employer to employee to use due care; (2) that the defendant-employer breached that duty; (3) any breach proximately caused plaintiff's damages; and (4) damages. 

An employer's duty, is breached only when the employer knows, or should know, facts which would warn a reasonable person that the employee presents an undue risk of harm to third persons in light of the particular work to be performed. As one court stated, the “cornerstone of a negligent hiring theory is the risk that the employee will act in a certain way and the employee does act in that way.” 


A court held that a student sexually molested by a teacher could pursue claim against the teacher's employer (which was the school district) for negligent hiring and supervision, if the persons responsible for hiring and/or supervising teachers knew or should have known of teacher's prior sexual misconduct towards students, and that the teacher posed reasonable foreseeable risk of harm to students under his supervision. 

In another case, a teacher admitted on his employment application that he had been arrested for public indecency and had a bench warrant out for his arrest. The teacher kidnapped and assaulted several children at the school, and the children’s representatives prevailed against the school under a negligent hiring claim because the school failed to investigate the teacher’s disclosures about his background and hired him anyway. 

General Rule For Employers

It is critical that employers take reasonable steps to conduct appropriate background checks on its employees to ensure that the employee does not present a knowable risk to other employees or third-parties. Furthermore, if an employer knows or reasonably should know that an employee poses a risk to other employees or third parties, an employer needs to take appropriate precautions, which could include terminating the employee, in order to protect other employees or third parties. Next time we will discuss the balance of obtaining appropriate information during the background check without violating an employee’s privacy rights. 

How To Stop An Ex-Employee From Spreading Rumors Via the Internet

How can a company prevent a former employee from spreading false rumors about the company on the Internet?

One answer, as according to Kevin O’Keefe, is counter intuitive. Kevin’s answer to the question in a bit, but first: What are the legal options a company can take to prevent an ex-employee from gossiping about the company on the Internet and possibly hurting the company’s reputation? In California, generally speaking there is not much a company can do. First, the former employee has the freedom of speech, and even if the company has a non-compete agreement (which are typically difficult to enforce under California law) the agreement probably does not address this situation. Only if the former employee discloses trade secrets, or other confidential information protected under the law, can the company bring legal action against the former employee to prevent publication. Generally stated, the company has an up-hill battle, and legal action should be the last resort.

Kevin suggests an alternative to legal action: start blogging. While Kevin is biased to blogs (he is the owner of Lexblog – the developer of this blog), his solution is excellent: “A blog, as a means of handling disgruntled employees on the net, may be a bit frightening for corporate heads and PR/communications professionals. But times are changing. Practicality requires doing things differently than they've been done in the past.” While I suggest approaching Kevin’s recommendation with caution (for example, a company would not want to start airing its dirty laundry – especially if potential legal actions are on the horizon). But if the employee has the freedom to sway public opinion via the Internet – the company should also counter this in the marketplace of ideas.

Weekly Tip: Workplace Posters

In California, all employers must meet workplace posting obligations. Workplace postings are usually available at no cost from the requiring agency. The Department of Industrial Relations requires employers to post information related to wages, hours and working conditions in an area frequented by employees where it may be easily read during the workday. Additional posting requirements apply to some workplaces depending on numerous items, such as the employer's industry.

How do you find out what posters are needed in your company?  While not comprehensive, a great starting place is at the DLSE's website here that provides a list of the recommended posters.  In addition to listing the posters required, employers can download many of the posters directly from the website.  For example, the poster setting forth the minimum wage (which is required to be posted by all California employers) can be downloaded in English and Spanish from the site. 

Weekly Tip: "On-Call", "Stand By" and Travel Time

The California Labor & Defense Blog, is beginning a new series - the Weekly Tip -  to remind employers, HR professionals and in-house counsel about the intricacies of California labor and employment law.  This week we are posting about the DLSE's recommendation on how employers should treat "on-call" and "stand by" time. 

The DLSE takes the view that, on-call or standby time at the work site is considered hours worked for which the employee must be compensated even if the employee does nothing but wait for something to happen. “[A]n employer, if he chooses, may hire a man to do nothing or to do nothing but wait for something to happen. Refraining from other activities often is a factor of instant readiness to serve, and idleness plays a part in all employment in a stand-by capacity”. (Armour & Co. v. Wantock (1944) 323 U.S. 126) Examples of compensable work time include, but are not limited to, meal periods and sleep periods during which times the employees are subject to the employer’s control. (See Bono Enterprises v. Labor Commissioner (1995) 32 Cal.App.4th 968 and Aguilar v. Association For Retarded Citizens (1991) 234 Cal.App.3d 21)

Whether on-call or standby time off the work site is considered compensable must be determined by looking at the restrictions placed on the employee. A variety of factors are considered in determining whether the employer-imposed restrictions turn the on-call time into compensable “hours worked.” These factors, set out in a federal case, Berry v. County of Sonoma (1994) 30 F.3d 1174, include whether there are excessive geographic restrictions on the employee’s movements; whether the frequency of calls is unduly restrictive; whether a fixed time limit for response is unduly restrictive; whether the on-call employee can easily trade his or her on-call responsibilities with another employee; and whether and to what extent the employee engages in personal activities during on-call periods.

The DLSE also considers travel time compensable work hours where the employer requires its employees to meet at a designated place and use the employer’s designated transportation to and from the work site. (Morillion v. Royal Packing Co. (2000) 22 Cal.4th 575)

Maintaining A Motivated And Happy Workforce

I recently discovered the blog "Building a Better Restaurant" by Jeffrey Summers.  If you are in the restaurant business, it is definitely a blog you should subscribe to

Jeffrey's recent post about 16 ways to grow your staff's loyalty is a good reminder to all employers about how to keep your employees motivated and working for you.  He writes:
Employees matter. No, really, think about it: Your competitors have access to the exact same resources as you—which means infinite choices exist for your customers, and for your employees as well.
Jeffrey lists the following as the ways to keep your employees happy:
1. Don’t misrepresent your culture.
2. Learn the rules of engagement.
3. Cross-pollinate your culture.
4. Be a good corporate citizen.
5. Give praise where praise is due.
6. Get creative with benefits.
7. Be aware of the changing needs of your employees.
8. Great employees thrive under great leaders.
9. Conduct “stay” interviews regularly.
10. Create a “best” work environment.
11. Help employees achieve work/life balance.
12. Insist that your employees take vacations.
13. Create an environment of trust.
14. Get rid of weeds.
15. Use internship and mentoring programs to grow and nurture new talent.
16. Take a seasonal approach.
To read Jeffrey's entire post, click here

With all of the recent press about legislation to prohibit "bullies" in the workplace, Jeffrey's post is a good reminder about what employers need to do keep employees happy and that market forces will penalize a "bad" employer in terms of high employee turnover and low customer service.  Also, as a practical matter, employees will eventually leave your company, but if they feel that they have been treated fairly, they are less likely to pursue legal action against a former employer out of spite.

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. 

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.

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 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

New Federal Minimum Wage Poster Scam In California

The Federal minimum wage increased to $5.85 an hour on Tuesday, July 24, 2007, and employers are required to post an updated notice in the workplace. However, it has been reported that employers are receiving letters that appear to be from an official source threatening the employer with fines unless they purchase a new labor law poster, which these letters attempt to sell for $100, listing the new Federal minimum wage

The scam is that the new poster can be downloaded from the Department of Labor's website for free - click here to download the new wage poster.  Employers can simply post this new poster next to the existing 2007 workplace posters. 

California employers need to continue to pay employees at least the California minimum wage of $7.50 per hour for the remainder of 2007 and $8.00 per hour beginning January 1, 2008.  It is a bit baffling that California employers are required to pay more than the Federal minimum wage, but they are still required to post the information.

Tattoos, Tongue Rings, and Other Body Piercings

Yes – you are still reading the California Labor & Employment Defense blog and we do have something to say about the items listed in the title of this post.

I came across this LA Times article recently about people removing their tattoos and body piercings because they feel that their appearances could impact their job prospects. Some employees entering into the corporate world are realizing that the tattoo they got in their early twenties does not portray the image of that of an executive or a children's camp counselor. 

The article correctly notes that generally employers are allowed to make job determinations upon and employee’s tattoos and body piercings.  Employers can also develop policies prohibiting employees to expose the tattoos and body piercings.  A great example of an employer implementing such prohibitions is Disney’s very conservative prohibitions mentioned in the LA Times article. 

One area of caution, if an employee protests against an employer’s grooming standard based upon his or her religion, the employer should carefully review whether it needs to reasonably accommodate the employee under the law.

Employer Created Liability - When None Exists

Diane Pfadenhauer at Strategic HR Lawyer has an excellent post about the recent Sixth Circuit case Thomas v. Miller. The court in Thomas held that even though an employer may have less than 20 employees, it may be subject to COBRA requirements if the employer has used “conduct or language amounting to a representation” that an employee is entitled to COBRA benefits. Diane reminds employers to carefully draft their policies to ensure that the policy does not apply to employee who may otherwise be exempt from the law at issue.

I see this occur often in regards to California specific laws. For example, California Labor Code section 230 provides certain protections to victims of domestic violence or sexual assault. Employers cannot discriminate against employees who must take time off to seek a temporary restraining order or other injunctive relief to ensure the health or safety of the employee and/or his or her child. If an employer has 25 or more employees, however, the employer is prohibited from discharging, discriminating, or retaliating against an employee who is a victim of domestic violence or sexual assault and who takes time off to seek medical attention and a list of other services. Often times small employers assume this second requirement pertains to them and incorporate it into their policies without noticing that they are not covered by this law.

Avoiding Employment Lawsuits

Rush Nigut is a general business and corporate attorney in Iowa and writes a great blog, Rush on Business.  Recently he wrote about his top seven items to prevent employment lawsuits.  Here is a summary of his top seven tips (his entire post "Seven Ways To Avoid Employee Lawsuits" can be read here):
Employment lawsuits are continually on the rise. Here are seven things that may help you avoid employee lawsuits:
  1. Treat Employees with Respect
  2. Communicate with Your Employees
  3. Implement an Effective Unlawful Discrimination and Harassment Policy
  4. Document, Document, Document
  5. Conduct Honest Employee Evaluations on a Regular Basis
  6. Do Not Retaliate
  7. Take Action and Investigate Promptly
These simple steps will go a long ways to reducing employee lawsuits. To ensure that your company has done everything it can to avoid employee lawsuits, you should have your employment policies, training and practices reviewed by your employment lawyer.
Rush's top seven tips are great reminders about what employers need to continually remind themselves to do.  I also thought that it is interesting that Rush's top tip - treat your employees with respect - cannot be found in any of the 50 U.S. state laws, federal law, or any case law.  Even though there is no "legal" requirement to treat employees with respect, I wholeheartedly agree that this is the single best step employers can take to prevent litigation (in addition to having a satisfied and productive workforce). 

I also wanted to add three more tips to round out a "top ten" list for California employers:
8.  Develop and strictly enforce a meal and rest break policy
9.  Ensure your exempt employees (i.e., salaried employees) are properly classified as exempt under California law; and
10.  Review and update your employee handbook and/or policies once a year to incorporate any changes in the law.

"English-only" Policies In The Workplace

Q: Can an employer implement an “English-only” policy in the workplace?

A: Generally speaking, no. California Government Code section 12951 provides that an employer can only implement or enforce a policy that limits or prohibits the use of any language in the workplace unless:
1.The language restriction is justified as a business necessity; and
2.The employer notifies the employees of the circumstances and the time when the language restriction is required to be observed, and the consequences of violating the restriction.
Business necessity is defined by Government Code section 12951 as “an overriding legitimate business purpose such that the language restriction is necessary to the safe and efficient operation of the business, that the language restriction effectively fulfills the business purpose it is supposed to serve, and there is no alternative practice to the language restriction that would accomplish the business purpose equally well with a lesser discriminatory impact.” Companies should not consider implementing “English-only” policies unless they can point to a legitimate safety reason for the restriction.

Tips On Litigation

Mike Dillon, a General Counsel and Corporate Secretary for Sun Microsystems, Inc. has some great thoughts about litigation posted on his blog, The Legal Thing.  He notes:

No. 1 - You only litigate when you have an important interest to protect. Litigation is costly. Incredibly costly. But it is not the expense that is the real issue, it's the diversion of resources. Time employees spend reviewing e-mails and documents, educating lawyers and preparing for depositions is time away from the business. That's the real cost of litigation.

No. 2 - A non-judicial resolution is almost always preferable. When you file a complaint, you are turning over resolution of an issue to a third party - be it a judge, arbitrator or jury. To a great degree you lose control of the outcome.

No. 3 - You litigate when you have a high degree of confidence that you will prevail. Bluffing is for weekend games of Texas Hold'em . When you file suit, you need to have fully evaluated all aspects of the case to ensure that the outcome will be favorable.

No. 4 - You litigate to win. This means that your employees, board and management team fully understand and support the commitment (both financial and time) required to prevail. It also means having seasoned litigation counsel who understand your business and objectives.
While his perspective is towards enforcing a company's intellectual property rights, his analysis can easily be applied to defending employment litigation.  Most notably different is that employers do not chose when to be sued for wrongful termination or wage and hour claims.  However, the company should be completely prepared to defend itself in litigation - in California it is only a matter of when.  In order to develop a strong defense, the company should work with experienced employment attorneys to establish policies that (1) comply with the law and (2) assist the company when a lawsuit is filed.  I mention the second point because while companies have policies that comply with the law, when litigation starts the fact that you have complied with the law is good, but the company needs PROOF that it complied with the law.  An experienced employment litigator can help companies set up policies to document the areas that will most likely be areas of contention during litigation.  For example, California companies should have a clear "at-will" policy signed by the employee, should have a system (preferably computer based) for recording when employees take their meal breaks, and have a clear policy on rest breaks that is in some way acknowledged by employees.

Also, this process of working with an attorney in establishing solid policies is a great period to see if the company likes working with the attorney and (hopefully) develops a good relationship that is critical in any attorney-client relationship.  This also allows the attorney to become familiar with the company and its business and objectives as Mike mentions in No. 4 above.

Finally, companies need to understand Mike's point No. 4 - You litigate to win.  Once a case is filed against a company, the message communicated throughout the company should be that it is extremely important to spend the time necessary to assist the outside counsel in defending the case.  Owners, executives and employees must give their undivided attention to the litigation.  To do otherwise is a costly mistake.

Human Resources Seminar: Employee Handbooks & Policies

As another reminder, Van Vleck Turner & Zaller LLP will be conducting a free seminar for employers and human resource professionals regarding employee handbooks and employment policies. 

The seminar will take place on July 10, 2007 at 3:00 p.m. to 4:30 p.m. at Tony P's Dockside Grill in Marina del Rey.  After the seminar, please join us for networking and cocktails overlooking Marnia del Rey. 

Attorneys from our firm will lead a discussion on employee handbooks and policies including:
  • Policies every California employer must have
  • Policies every California employer should have
  • What not to include in an employee handbook or policies distributed to employees
  • Other issues related to handbooks and policies
At the end of the presentation, we will also have a question and answer period for the attendees to ask any general employment related questions.  Download a flier with more information here.

To register, please email us or call us at (213) 996-8445 and ask for Vanessa to register. 

Employee's Internet Postings Brought Into Lawsuit

Kevin O'Keefe over at Lexblog (the designer and host of our blog) has an interesting post today about how MySpace and FaceBook are changing the legal community. He writes:
A defense lawyer in a emotional distress claim brought against a school district wanted access to all of the plaintiff's postings at MySpace and FaceBook. However, a judge ruled that the plaintiff's right to privacy trumped the defenses right to information which or may not be relevant to defense of the suit.
Kevin rightly notes that lawyers today need to have a working knowledge of the internet and sites like MySpace and FaceBook.  Our experience is that the Internet is full of information about individuals that is extremely useful during litigation.  This information is usually posted by the individual himself or herself and is shared with the rest of the world. We have had cases were a plaintiff has posted information about his or her prior job on the internet that inevitably contradicts what he or she said during sworn testimony in a deposition.

We also recommend that before an employer hires an employee, the employer should do a quick internet search to see if the employee has information posted in MySpace, FaceBook,, and simply run the employee's name through Google. Often times this will enable you to see the “real” person you are about to hire.

Employees' Wages: A Private Matter?

An article in Fast Company discusses whether companies should allow employees to see what other employees earn. The author cites an op-ed piece from the New York Times calling for federal regulations making employers disclose this information (no doubt because of the Supreme Court’s recent ruling in Ledbetter v. Goodyear Tire & Rubber). The article mentions that Whole Foods allows all current employees to look this information up on a computer in every store.

This raises a great point for California employers: what are California employers’ obligations to disclose payroll information?

California Labor Code section 232 provides that employers cannot require employees to refrain from “disclosing the amount of his or her wages.”  Employers are not required to disclose this information, but the labor code does prohibit an employer from discharging, disciplining, or discriminating against an employee who discloses his or her wages.  This is one of the few occasions I believe the current law in California reaches a good balance in giving the employees some control over this "private" information (they do not have to share their wage information with co-workers if they don't want to), but still allows employees who believe they are not being paid fairly, whatever the reason, to do some research of their own.

California Employment Law Seminar: Employment Handbooks and Policies

Van Vleck Turner & Zaller LLP will be conducting a free seminar for employers and human resource professionals regarding employee handbooks and employment policies.  We will lead a discussion on the following topics:
  • Policies every employer is required to implement
  • Policies every employer should implement
  • What not to include in an employee handbook or policies distributed to employees
  • Possible alternatives to employee handbooks
At the end of the presentation, we will also have a question and answer period for the attendees to ask any general employment related questions. 

The seminar will be on July 10, 2007 at 3:00 p.m. to 4:30 p.m. at Tony P's Dockside Grill in Marina del Rey.  After the seminar, please join us for networking and cocktails overlooking Marnia del Rey.  Download a flier with more information here.

To register, please email us or call us at (213) 996-8445. 

Vacation Time, Sick Pay, Severance Pay, and Other Benefits

Some of the most frequently asked questions by clients are about benefits for employees under California law: Do employer's have to provide vacation to employees?  Can employers have a use-it-or-lose-it vacation policy?  Do employers have to give employees severance pay?  Below is the Division of Labor Standards Enforcement's (DLSE) explanation of employer's obligations regarding these issues.

        VACATION: Paid vacations are not required under California law. If an employer has an oral or written vacation policy, such vacation benefits are considered wages and are earned by the employee on a pro rata basis for each day of work. Because vacation is a form of deferred wages and vests as it is earned, vacation wages cannot be forfeited (or in other words, an employer cannot have a use-it-or-lose-it vacation policy) (Suastez v. Plastic Dress Up (1982) 31 Cal.3d 774) An employer can place a reasonable cap on vacation benefits that prevents an employee from earning vacation over a certain amount of hours. (Boothby v. Atlas Mechanical (1992) 6 Cal.App.4th 1595). When an employment relationship ends all vacation earned but not yet taken by the employee must be paid at the time of termination. (Labor Code §227.3). If employees are subject to a collective bargaining agreement, the provisions pertaining to vacation benefits in the collective bargaining agreement will apply. (Labor Code §227.3)

        SICK PAY:There is no state legal requirement under California law for employers to provide paid sick leave. Employers with a presence in San Francisco should note that the city does require employers to provide sick pay accrued at a rate of one hour of sick time for every thirty hours worked.  For these workers in San Francisco, the sick pay is capped at 72 hours for large businesses that have10 or more employees and at 40 hours for small businesses that have less than 10 employees.

Employees should refer to their employer’s policy with respect to paid sick leave. However, most employers participate in the State Disability Insurance Plan (SDI), which they pay for through payroll deductions. (Unemployment Insurance Code §2601, et seq.) Employers are required to give newly hired employees and employees leaving work due to pregnancy or non-occupational sickness or injury a copy of a notice of their disability insurance rights and benefits due to sickness, injury or pregnancy. (Unemployment Insurance Code §2613) Additional information concerning disability insurance can be obtained from your local office of the Employment Development Department (EDD).

If an employer has a sick leave policy, the employer must permit an employee to use in any calendar year, the employee’s accrued and available sick leave, in an amount not less than the sick leave that would be accrued during 6 months at the employee’s current rate of sick leave, to attend to an illness of a child, parent, domestic partner, or spouse of the employee. (Labor Code §233)

        SEVERANCE PAY:There is no legal requirement under California law that employers provide severance pay to an employee upon termination of employment. Employees should refer to their employer’s policy with respect to severance pay. Severance pay plans provided by an employer pursuant to the Employee Retirement Income Security Act of 1974, 29 U.S.C. §1001 et seq. (ERISA), are subject to federal law. More information about ERISA can be found at the U.S. Department of Labor's website. In certain limited situations, California laws may apply. However, a thorough review of the facts is necessary before a determination can be made.

Increased Immigration Enforcement In California

Employers in California and across the country are realizing the increased enforcement of the immigration laws. As this Los Angeles Times article notes that the number of employees arrested for workforce violations has increased to 3,667 in 2006 from 485 in 2002, according to U.S. Immigration and Customs Enforcement.

“This year, federal immigration officials raided restaurants in California and 16 other states and arrested nearly 200 illegal immigrants working for a janitorial company. That followed similar high-profile raids in Maryland, Indiana and Kentucky that amounted to some of the largest and harshest penalties against employers in history.” The article also mentions that two executives of Golden State Fence Co. based in Riverside were found guilty of violating the Immigration Reform and Control Act of 1986 (IRCA) and were sentenced to six months of home confinement and fined a combined $300,000 for employing scores of illegal workers. In addition, the company was also required to pay a $4.7 million penalty.

With nearly 90% of illegal immigrants using fraudulent documents, employers are placed in a very difficult situation. Employers must accept the documents presented by the employee to verify employment eligibility if they reasonably appear to be genuine and relate to the employee who presents them. However, refusing to accept reasonable documents is discrimination and also violates the anti-discrimination provisions of IRCA.

IRCA requires that employers verify an employee’s eligibility to work, which includes having every employee fill out the Form I-9. The Form I-9 must be kept for 3 years after hire date or 1 year after termination, whichever is longer. The I-9 must be completed on the employee’s first day of work and the employer must complete section two of the form no later than the employee’s third day. 

Confidentiality in Sexual Harassment Investigations

This Business Week article about the human resources so-called confidentiality guideline known as the "Need to Know" standard raises a great point many companies could benefit from. The main topic of the article is how HR professionals may inadvertently (or no so inadvertently) disclose information that they said they would only disclose to people who “need to know.”

However, from a legal perspective, and my mantra during sexual harassment prevention training, is that when an employee complains that they or a co-worker is “uncomfortable” with another employee’s behavior or may be a victim of harassment, the HR professional (or supervisor) cannot and should not promise absolute confidentiality. A company has a duty to investigate any potential harassment, and this duty usually falls upon the HR manager. A proper investigation requires speaking to the victim, witnesses, and usually the alleged harasser as well. This probably also requires the disclosure of information reported to the company by the alleged victim. This is not to say that the company can and should not closely guard the facts of the allegation, but promising confidentiality up front can put the company and HR professional in an awkward position because absolute confidentiality cannot always be maintained.

California Department of Industrial Relations Posting Requirements

California employers are required by the Department of Industrial Relations (DIR) to post information related to wages, hours and working conditions in an area frequented by employees where it may be easily read during the workday. 

Below is a list of postings required by the DIR published on its website.  For more information, follow the links provided below, or click here for the DIR frequently asked questions.  It is important to note that this list is not inclusive, and other state and federal regulations may apply.


Additional information and quantity needed

Who must post

Industrial Welfare Commission (IWC) wage orders

IWC wage orders regulate wages, hours and working conditions and are numbered by industry or occupation group. Not sure which order you need? Use the alphabetical index of businesses and occupations to make that determination.

Which wage order(s) do you need? A maximum five copies of two different orders is allowed per business.

Labor Code section 1183(d)

All employers

Minimum wage (state)

Sets forth California’s minimum wage and can be downloaded in English and Spanish.

All employers

Payday notice

Must specify the regular paydays and the time and place of payment. An employer-developed notice is permitted.

Labor Code section 207

All employers

Safety and health protection on the job

Contains pertinent information regarding safety rules and regulations. Available in English and Spanish.

Labor Code section 6328

All employers

Emergency phone numbers

Lists emergency responders' phone numbers.

Title 8, California Code of Regulations, Construction Safety Orders section 1512 (e)

All employers

Access to medical and exposure records

Provides information about rights of employees working with hazardous/toxic substances. Available in English and Spanish.

Title 8, California Code of Regulations, General Industry Safety Order section 3204

All employers using hazardous or toxic substances

Operating Rules for Industrial Trucks

Employers using industrial trucks shall post and enforce a set of operating rules. Available in English and Spanish.

Employers operating forklifts and other types of industrial trucks or tow tractors

Notice to employees--injuries caused by work

Advises employees of workers' compensation benefits. Claims administrators and employers need to revise the notice they are currently using and send it to the DWC administrative director for review and approval or they may download and use this version. NOTE: Employers may obtain professionally printed copies of the poster and workers’ comp claim form from their claims administrator.

Title 8, California Code of Regulations, Division of Workers’ Compensation section 9810

All employers

Notice of workers' compensation carrier and coverage

States the name of the employer's current compensation insurance carrier, or the fact that the employer is self-insured. Obtained from the employer's workers' compensation insurance carrier.

Labor Code section 3550

All employers

Whistleblower protections

Must be prominently displayed in lettering larger than size 14 type and include a list of employee rights and responsibilities under the whistleblower laws, including the telephone number of the whistleblower hotline maintained by the office of the California Attorney General.

Labor Code section 1102.8

All employers

No smoking signage

Signage must be posted designating where smoking is prohibited/permitted in a place of employment. This law is enforced by local law enforcement agencies.

Labor Code section 6404.5(c)(1)

All employers

Log and summary of occupational injuries and illnesses

(Cal/OSHA form 300)

Form 300 is for logging recordable injuries, form 301 is for collecting details and form 300A is the annual summary form. All three forms are available in various downloadable formats with instructions on the Cal/OSHA publications page.

Title 8, California Code of Regulations, Division of Labor Statistics and Research sections 14300 et seq.

Employers with 11 or more employees in the previous year

Farm labor contractor statement of pay rates

Reference DLSE poster 445. Must be displayed prominently where work is to be performed and on all vehicles used by the licensee for transportation of employees. Must be at least 12 inches high and 10 inches wide.

The downloaded version of this posting may not comply with the law as it may not be at least 12 inches high and 10 inches wide.

Labor Code section 1695(7)

Farm labor contractors licensed by the Division of Labor Standards Enforcement (DLSE)

Prevailing wage rate determinations

The body awarding any contract for public work or otherwise undertaking any public work shall cause a copy of the prevailing wage determination for each craft, classification or type of worker needed to execute the contract to be posted at each job site.

Labor Code section 1773.2

Public works awarding bodies and contractors

Start-up: To Do's Before Hiring First Employee

Q:  We are a start-up company - what steps should be taken prior to hiring the first employee?

A:  The California Division of Labor Standards and Enforcement advises start-up companies to comply with the following:

An employer who becomes subject to the employment tax laws, is required to register with the Employment Development Department (EDD) to obtain an identification number, which is the state equivalent of the federal identification number. (Unemployment Insurance Code § 1086) This number can be obtained by filing a DE-1 Registration Form with the EDD. Once an employer receives the identification number it will also receive information concerning all state required employment taxes and reporting requirements. (Unemployment Insurance Code § 1089)

Additional information can be obtained by writing to the Employment Development Department, Box 826880, Sacramento, California 94280-0001 or by contacting the local Employment Tax District Office listed in the State Government section of the white pages of the telephone directory under Employment Development Department or through their website at For information concerning the federal identification number contact the Internal Revenue Service at or check the white pages of the telephone directory under Federal Government.

All employers are required to have workers’ compensation insurance or receive state approval to self-insure the required benefits. There are significant criminal and civil penalties for employers that do not have workers’ compensation insurance or that are not authorized to be self-insured. (Labor Code § 3700, et seq.) A large number of insurance companies offer plans for these benefits. In addition, the State Compensation Insurance Fund makes available such benefits to all employers.

Certain businesses must be registered, certified or licensed prior to operating the business. While there are several state agencies that license or register businesses, the Division of Labor Standards Enforcement provides licensing or registration for the following types of businesses:

  • Farm Labor Contractors
  • Garment Manufacturers
  • Talent Agents
  • Employers of Industrial Homeworkers
  • Sheltered Workshops
  • Studio Teachers
  • Car washes

DOL On-Line Self Assessment For Restaurateurs Employing Minors

The U. S. Department of Labor’s Wage and Hour Division website provides a self assessment tool for restaurants that employ minors. The assessment covers common violations of the Fair Labor Standards Act (FLSA ). Restaurant owners should note that this assessment does not cover California state law items. The assessment covers items that the DOL found in the past to be some of the most common problems encountered in restaurants, and therefore, are likely issues a DOL investigator will look for in a restaurant.

Here is a list of a few of the items covered in the assessment:

Do any workers under 18 years of age do the following:
1. Operate or clean power-driven meat slicers or other meat processing machines?

2. Operate or clean any power-driven dough mixer or other bakery machines?

3. Operate, load, or unload scrap papers baler or paper box compactors?

4. Drive a motor-vehicle on the job?

Do any workers under 16 years of age do the following:
5. Cook?

6. Bake?

7. Clean cooking equipment or handle hot oil or grease?

8. Load or unload goods from a truck or conveyor?

9. Work inside a freezer or meat cooler?

10. Operate power-driven bread slicers or bagel slicers?

11. Operate any power-driven equipment?

12. Work from ladders?

13. Work during school hours?

14. Work before 7:00 a.m. on any day?

15. Work past 7:00 p.m. between Labor Day and June 1?

16. Work past 9:00 p.m. between June 1 and Labor Day?

17. Work more than 3 hours on a school day, including Fridays?

18. Work more than 8 hours on any day?

19. Work more than 18 hours in any week when school was in session?

20. Work more than 40 hours in any week when school was not in session?

21. Do you employ any workers who are less than 14 years of age?

22. Do you fail to maintain in your records a date of birth for every employee under 19 years of age?

Click here to take the entire assessment. At the end of the assessment, there is a rules summary that explains an employer’s responsibility under the FLSA for the issues on the assessment.

Employer's Obligations to Allow Employees Access Personnel Records

All employees have the right to inspect, at a reasonable time, their personnel files that are used or have been used to determine the employee’s qualifications for employment, promotion, additional compensation, termination or other disciplinary action. (Labor Code § 1198.5) Employers are required to permit current or former employees to inspect or copy records maintained which provide payroll information.

Employees are entitled to copies of any document signed by the employee or job applicant, if requested. (Labor Code § 432)

All employers must provide employees or the employee's representative(s) access to accurate records of employee exposure to potentially toxic materials or harmful physical agents. (Labor Code § 6408(d))

Employment records may be subpoenaed from a current or former employer by a third party. If employment records are subpoenaed, the employee must be notified and has the right to object to production of the records. (Code of Civil Procedure § 1985.6)