AGENCY

DOL Issues Final FMLA Regulations

After two years work, the Department of Labor (DOL) has issued the final Family Medical Leave Act (FMLA) regulations to take effect on or about January 15, 2009. Due to space constraints, this update cannot cover all the changes, but some of the more noteworthy items include:

Military Leave Rights. As expected, the new regulations incorporate and clarify the National Defense Authorization Act of 2008 (NDAA) which had previously enacted two new leave benefits: (1) for family members of seriously injured service members (“military caregiver leave”), and (2) for National Guard/reserve members called into service (so-called “qualifying exigency leave”). For instance, the new regulations define “qualifying exigencies” as (1) short-notice deployment; (2) military events and related activities; (3) childcare and school activities; (4) financial and legal arrangements; (5) counseling; (6) rest and recuperation; (7) post-deployment activities; and (8) additional activities agreed to by employer and employee.

The military caregiver benefit allows family members to take up to 26 weeks of unpaid FMLA leave for seriously injured or ill service members. The regulations confirm this leave is not limited to spouses, parents and children (as with most FMLA leaves) but can include grandparents, aunts, uncles, cousins and relatives designated by the service member as “next of kin.” The regulations confirm that the 26 weeks must be taken within a 12-month period, and that the leave may be taken by each family member only once per injury, but more than one family member may qualify for the leave.

Waiver Issues. The regulations retain the prohibition on employees waiving FMLA rights prospectively, but confirm employees may voluntarily settle their FMLA claims without court or DOL approval.

Employee Notice. Prior FMLA regulations had been interpreted by some as permitting employees to notify their employers of the need for FMLA leave up to two business days after an absence from work. The new regulations generally require the employee, absent unusual circumstances, to follow the employer’s established call-in procedures to notify employers of an FMLA-related absence.

Employer Notice. Employers now have five business days, rather than the previous two business days, to notify employees that a leave of absence is being characterized as FMLA leave.

Fitness-for Duty Exams. The new regulations permit employers to require employees returning from leave to undergo fitness-for-duty tests if the job presents a significant risk of harm to the employee or others.

Medical Certifications. To strengthen employee privacy rights, the new regulations limit who may contact an employee’s health care provider, and expressly prohibit the employee’s direct supervisor from doing so.

Attendance-based Awards. The new regulations permit employers to deny attendance-based awards to employees who missed work due to FMLA leave provided the employer treats non-FMLA leave in the same fashion.

Light-Duty. Some courts had suggested “light duty” work counted against FMLA leave time. The new regulations confirm that time spent performing light duty does not count against FMLA leave entitlement.

Chronic Health Conditions. A common employer complaint was how to define the “chronic conditions” that constituted a “serious health condition” for FMLA purposes. The new regulations specify that chronic conditions only qualify as serious health conditions if they require periodic treatment from a health care provider at least twice per year.

E-Verify Extended Until March 2009

President Bush has signed a budget resolution bill (H.R. 2638) extending the federal government’s e-verify program until March 2009. Originally set to expire in November 2008, e-verify is the government’s web-based employment eligibility verification program that employers may currently use on a voluntary basis. Since a new administration will soon take office, and given the number of currently-pending federal bills addressing employment eligibility verification issues, it remains to be seen whether and in what form e-verify will continue beyond the new March 2009 deadline.

Federal Contractors Required to Use E-Verify

Beginning January 15, 2009, certain federal contractors and subcontractors will be required to use the federal E-Verify system to verify their employees’ employment eligibility, according to a final rule issued on November 14, 2008 amending the Federal Acquisition Regulation. This new rule requires federal contractors to confirm the employment eligibility of all employees hired during a contract term, and to verify the eligibility of all current employees who are working on the federal contract (as defined in the rule). These rules apply to all contracts valued at over $100,000 and lasting more than 120 days , and applies to subcontracts valued at over $3,000. It also applies to existing indefinite delivery/indefinite quantity contracts lasting beyond July 15, 2009. The rules do not apply, however, to contracts lasting less than 120 days, or involving commercially available off-the-shelf items, or to contracts involving work only outside the United States. The rules require the subject federal contractors to enroll in e-verify within thirty days of a contract being awarded.

It is anticipated these regulations will apply to nearly 200,000 federal contractors and potentially 4 million employees, meaning there may be a considerable backlog in January 2009 when these regulations take effect. Since e-verify has only been extended until March 2009 (see above) and since a new administration will soon take office, the long-term impact and format of these new rules remains to be seen.

DHS Issues Supplemental “No Match” Rules

On October 23, 2008, the Department of Homeland Security (DHS) issued its “supplemental final rule” essentially republishing without substantive change the final “No Match Rule” originally issued in August 2007. The initial version of the final rule outlined an employer’s responsibilities to resolve discrepancies in no-match letters received from the Social Security Administration. In October 2007, a federal district court enjoined the final rule from being implemented, which prompted the DHS to issue in March 2008 its proposed supplemental final rule addressing the judge’s concerns.

Among other things, the supplemental final rule clarifies that employers will not be deemed to have constructive knowledge of an employee’s illegal resident status if it takes certain statutorily enumerated steps with specifically enumerated time-frames after receiving a no-match letter. The entire final rule can be found online at www.dhs.gov/xlibrary/assets/ice_no_match_letter_finalrule.pdf. The final rule will not be effective until included in the federal register and it remains to be seen whether it will survive the almost certain legal challenges.

Rule 409A Compliance Deadline Approaching

Just a reminder, December 31, 2008 is the current deadline for certain “nonqualified deferred compensation arrangements” to comply with Section 409A of the Internal Revenue Code. Adopted in 2004, section 409A applies to certain deferred compensation arrangements governing compensation paid in a later tax year although the legally binding right arises in a prior tax year. Such “deferred compensation arrangements” may include, but are not limited to, severance agreements, stock options, change in control agreements, and deferred compensation plans. Failure to comply with Section 409A may result in deferred compensation being deemed income earlier, and may result in tax penalties.

JUDICIAL

California

California Supreme Court to Review Meal and Rest Period Issues

As expected, the California Supreme Court has decided to review Brinker Restaurant v. Superior Court (ex rel Hohnbaum), Supreme Court Case No. S166350, an appellate court decision which had provided some much needed clarity regarding meal and rest period issues. Among other things, the California court of appeal in Brinker held employers need only “provide” but need not “ensure” meal and rest periods are taken, and it had suggested class actions would rarely be appropriate given the individualized inquiries presented.

The California Supreme Court decision is not expected until late 2009 at the earliest, but it should provide final guidance on numerous meal and rest period issues including: (1) whether employers need only “provide” meal and rest periods or must actually “ensure” they are taken; (2) whether employers must provide meal periods for every five consecutive hours worked (the so-called “rolling five” rule) or only a single meal period during the first five hours; and (3) the amenability of these claims to class action proceedings. In the interim, the appellate court decision in Brinker is no longer citeable.

Interestingly, following the California Supreme Court’s decision to review Brinker, the Department of Labor Standards Enforcement (DLSE) issued an announcement that it was rescinding its July 22, 2008 memorandum which had expressly adopted the reasoning and standards enunciated in Brinker. While announcing that the July 22d memorandum could no longer be relied upon, the DLSE also announced that until the California Supreme Court issues a final decision in Brinker, the DLSE would still interpret California’s meal period laws as only requiring an employer “provide” meal periods, but not “ensure” they are taken. In other words, the DLSE seemed to say that it was no longer relying upon Brinker directly, but would continue to enforce the result in Brinker (the appellate court version) until the California Supreme Court issues the final Brinker decision.

Voluntary Pursuit of Internal Remedies Tolls FEHA Statute of Limitations

In a race discrimination/harassment claim brought pursuant to California’s Fair Employment and Housing Act (FEHA), the employer argued the civil suit was untimely because the employees failed to file an administrative charge within the statutory one-year period. The employees argued FEHA’s statute of limitations should be equitably tolled (i.e., stayed) during the period they and the employer investigated and attempted to resolve their internal complaint. The trial court and the California court of appeal agreed with the employer, but a unanimous California Supreme Court reversed finding that FEHA’s statute of limitations was equitably tolled during the period the employees voluntarily pursued internal administrative remedies.

California courts had previously held that equitable tolling necessarily applied in situations where employees were “required” to exhaust administrative remedies before filing a complaint. In this case, the California Supreme Court held tolling may also apply when employees voluntarily pursue internal remedies before filing a formal complaint. Notably, the Court did not say equitable tolling automatically applied for all voluntary administrative remedies, but concluded it should in this instance where the pursuit of administrative remedies furthered public policy goals (i.e,. notice to the employer, possible informal resolution, etc.). (McDonald v. Antelope Valley Community College Dist. (2008) 45 Cal.4^th 88).

Employer Denied Attorney’s Fees Despite Prior Statutory Offer to Compromise

An employee sued alleging his supervisor discriminated against and harassed him because of his mental disability (Asperger’s Syndrome) by calling him “Rainman” on six occasions. The California court of appeal affirmed summary judgment in the employer’s favor concluding the supervisor was unaware of the Asperger’s Syndrome at the time he made the comments, and that the “sporadic use of ambiguous but potentially demeaning nicknames” does not constitute a hostile work environment. The appellate court also observed that an employer does not necessarily perceive an employee as disabled simply because it perceives him as “quirky” or “socially awkward.

After prevailing, the employer sought to recover its expert fees and attorneys’ fees citing the employee’s failure to accept its prior statutory offer to compromise (i.e, a CCP 998 offer). Notably, the appellate court awarded nearly $20,000 in expert fees finding that the employer’s prior $2,500 settlement offer was reasonable under the circumstances. However, the appellate court declined to award attorneys’ fees concluding that despite the prior statutory settlement offer, the employer was still required to demonstrate the employee’s claim was unreasonable or frivolous. (Mangano v. Verity, Inc. (2008) 167 Cal.App.4^th 944)

Employer’s Failure to Follow Contractual Procedures Leaves Door Open for Possible Implied Contract Claim

A former long-term employee sued his employer alleging breach of an implied contract to terminate him only for cause. The employer argued he was an at-will employee citing the initial employment agreement containing an at-will provision and its general handbook policies. The employee argued the employment agreement did not foreclose a possible “for cause” implied contract since the employer’s failure to obtain the signature of the officer specifically identified in the agreement rendered it ineffective.

The California court of appeal noted the employer had presented considerable evidence of an at-will arrangement generally, but concluded the employer’s failure to follow the procedure specifically identified in the agreement created questions for the jury to decide at trial. The appellate court reaffirmed that a properly executed at-will employment agreement will preclude implied contracts for continued employment, but noted the employer’s failure to follow the required procedures created a jury question. The court also noted that in the absence of an executed contract, employee handbooks and other documents containing at-will provisions remain important, but do not necessarily “foreclose the possibility” of an implied agreement to terminate only for cause. (Stillwell v. Salvation Army (2008) 167 Cal.App.4^th 360).

Employers Not Liable for Accidental Misstatements in Wage Statements

Current and former property managers filed a class action alleging the employer failed to provide meal and rest periods, and failed to provide accurate wage statements. The employer acknowledged the wage statements contained the wrong mileage reimbursement rate, but contended the error was inadvertent and had been corrected, and had caused no injury to the employees since the wage statements contained the correct amounts notwithstanding the improper rate listed. The California court of appeals granted summary judgment in the employer’s favor, finding that an employer cannot be liable for wage misstatements under Labor Code section 226 unless it knowingly and intentionally makes such misstatements and an employee suffers injury as a result. In this case, the “technical” misstatement did not result in the employees being underpaid or receiving insufficient information to challenge the payments received.

Applying several recent federal district court opinions, the appellate court also held that employers need only provide meal and rest breaks to employees, but need not ensure they are actually taken. The court also rejected the employee’s arguments they were required to receive their meal periods within the first five hours of their shift. Although the meal/rest period rulings are favorable for employers, it is anticipated this aspect of the ruling will be short-lived and that this case will soon be put on hold pending the California Supreme Court’s anticipated ruling in Brinker. (Brinkley v. Public Storage, Inc. (2008) 67 Cal.App.4^th 1278).

Federal

California Labor Code Applies to Work Performed by Non-Residents in California

Several Arizona and Colorado-based employees of a California corporation sued under the California Labor Code for overtime incurred during hours worked in California. The employer argued the California Labor Code did not apply to non-residents and the District Court for the Central District of California agreed. The ninth circuit, however, reversed concluding the California Labor Code applies to work performed in California by non-residents of California. Applying traditional “choice of law” principles, the federal court concluded California has a strong interest in applying its Labor Code to work performed by non-residents while in California, and it rejected the employer’s various due process arguments. The court, however, also confirmed the Labor Code and California law did not apply to work performed by non-residents outside of California. (Sullivan v. Oracle Corp. (9^th Cir. 2008) ___ F.3d ___, 2008 U.S.App.LEXIS 23394).

LEGISLATIVE

California

Governor Calls for Wage and Hour Reforms to Bolster State’s Economy

On November 6, 2008, Governor Arnold Schwartzenegger proposed changes to California’s wage and hour laws designed to stimulate employment in the state and preserve high paying jobs here. His proposals include:

• An effort to keep high paying jobs in California by providing overtime exemptions for all executive, sales, administrative and professional employees who earn more than $100,000 a year.
• A move to make it easier for employers to implement flexible work schedules. The proposal would allow employees to work more flexible hours upon request, such as four ten-hour workdays in a forty hour week, without being paid overtime.
• Clarification of meal and rest period rules to save businesses the litigation costs associated with defending meal and rest period class actions, and reduce confusion in administration of meal break rules which should reduce employee terminations due to meal break violations.

The Governor has called for a special session of the Legislature to address these issues.

This Employment Law Alert is a publication of Wilson Petty Kosmo & Turner LLP and should not be construed as legal advice or a legal opinion on any specific facts or circumstances. The contents are intended for general information purposes only and you are urged to consult an attorney concerning your own situation and any specific legal questions you may have. Internal Revenue Service regulations require that certain types of written advice include a disclaimer. To the extent the preceding message contains advice relating to a tax issue, the advice is not intended or written to be used, and it cannot be used by the recipient or any other taxpayer, for the purpose of avoiding Federal tax penalties. Copyright © 2008 WPKT LLP. All rights reserved.