We wish you happy holidays and a Happy New Year!! By all measures, 2008 was a historic and eventful year, and California and federal employment laws were no exception.

Despite the election-year calls for “change,” in some respects 2008 was more of the same as California wage and hour issues, especially class action issues, continued to dominate the legal landscape and headlines. The California Supreme Court, however, did present several favorable rulings to California employers, including in Jones v. The Lodge at Torrey Pines Partnership (2008) 42 Cal.4^th 920, holding supervisors may not be sued for FEHA retaliation, and in Ross v. Ragingwire Telecommunications, Inc. (2008) 42 Cal.4^th 920, holding employers may discipline employees for medical marijuana usage without violating FEHA. (These and all other significant judicial developments of 2008 will be summarized in our special year-end recap to be distributed in early January 2009.)

Next year also portends to be another year of change for California employers with a new administration entering Washington D.C., the California legislature dealing with a historic budget crisis, and the California Supreme Court scheduled to issue several potential landmark employment-related opinions.

Accordingly, as 2009 approaches, this edition will highlight the new laws taking effect in the new year, as well as the major agency and judicial developments since our last newsletter in November. We will also forecast some of the potentially significant legislative, agency and judicial developments you may wish to monitor in the new year.

LEGISLATIVE

State

New Laws for 2009

A new year brings some new laws for California employers, although not as many as in past years. Nonetheless, listed below are some of the more important new laws which, unless otherwise noted, take effect January 1, 2009:

New Salary Basis Test for Computer Professionals (Assembly Bill (AB) 10)

California Labor Code section 515.5 previously provided that computer professionals may be exempt from overtime requirements provided they satisfy certain specifically enumerated duties and receive an hourly rate of $36 on an annualized basis (down from $41 per hour in 2007). In response to employer concerns about tracking hours for computer professionals, this bill adopted an alternative salary basis test and exempts computer professionals from overtime requirements if the computer professional satisfies the duties requirements and receives an annual salary of $75,000 for full-time employment and is paid at least once a month and in a monthly amount of not less than $6,250. Note, this bill was enacted on an urgency basis and became immediately effective on October 1, 2008.

Note also, this bill also provided that the hourly and salary rate are subject to change each October 1^st by the Division of Labor and Statistics (DLS). Subsequent to this bill’s enactment, the DLS has increased, effective January 1, 2009, the hourly rate to $37.94, the annual salary requirement to $79,050, and the monthly payment to $6,587.50.

New Final Pay Requirements for Temporary Service Employees (AB 940)

This law clarifies payroll practices for “temporary service employees” and responds to the California Supreme Court decision in Smith v. Superior Court (L’Oreal USA Inc.) (2006) 39 Cal.4th 77, which held temporary service employees must be paid immediately once an assignment ends (i.e., end of temporary assignment tantamount to a “discharge”). Under this new law, covered “temporary service employees” generally must be paid on a weekly basis, regardless of when the assignment ends, and wages for any given week must be paid no later than the regular payday of the following calendar week. Upon completion of the assignment, the final wages are also due on the regular pay day in the week after the assignment ends, rather than the final day as suggested by Smith. However, temporary service employees assigned on a “day-to-day basis” (as defined in new Labor Code section 201.3) shall be paid at the end of each day. Discharged temporary service workers who are discharged or who quit shall be paid final wages under the same rules applicable to regular employees.

False Time Card Affidavits Prohibited (AB 2075)

Under prior law, Labor Code section 206.5 prohibited employers from requiring an employee to execute a release based upon wages due unless the wages had already been paid, and made it a misdemeanor for an employer to violate this provision. This new law expands the definition of “execution of a release” to include knowingly requiring an employee to execute false statements of hours worked as a condition of being paid. This bill is intended to address concerns some employers were defending against wage and hour claims by forcing employees to sign false affidavits about hours worked.

Texting While Driving Prohibited (Senate Bill (SB) 28)

On July 1, 2008, California’s prohibitions against cell-phone use while driving without a hands-free device went into effect. This bill essentially expands these protections and prohibits drivers from certain uses of “electronic wireless communications devices” including texting, e-mailing or instant messaging while driving. This new law also imposes civil penalties of $20 for the first violation, and $50 for each subsequent violation.

Comprehensive Disability Access Reform Bill Passes (SB 1608)

This comprehensive bill attempts to achieve a balance between encouraging increased public access and minimizing disability-access litigation through several reforms. For instance, the bill would enable employers to obtain certification of inspection by a state Certified Access Specialist, and use this certification in subsequent litigation to stay proceedings pending an early evaluation conference, during which the inspection certification would potentially clarify issues. This bill also contains efforts to increase public awareness, including the creation of the Construction-Related Accessibility Standards Compliance Act and the California Commission on Disability Access, an independent advisory body. The bill also includes new potential limitations on damages, including evaluating attorneys’ fee awards requests in light of prior settlement discussions, and limiting statutory damages only to plaintiffs who actually personally encountered the violation or were actually deterred access.

Streamlined Workers’ Compensation Reporting (AB 2181)

All employers were previously required to file a complete report of occupational injury through the Department of Industrial Relations Division of Labor Statistics and Research (DLSR) or with the employer’s insurer. This bill eliminates the requirement to file the report with the DLSR and instead requires insured employers to file the report with their insurers, and self-insured employers to electronically file a report with the Workers’ Compensation Information System, which is administered by the Division of Workers’ Compensation. This bill, which essentially eliminates the need to send a duplicative report to the DLSR, will become effective once the administrative director adopts regulations reflecting these changes.

“Volunteer” Public Works Exemption Extended (AB 2537)

California law generally requires workers paid on public works to be paid at least the general prevailing rate, but contains exemptions for work performed by “volunteers,” as defined in Labor Code section 1720.4. This bill extends until January 1, 2012 (from January 1, 2009), the exclusion from the law governing “public works” for work performed by volunteers, volunteer coordinators, members of the California Conservation Corps or certified Community Conservation Corps, as defined.

Expanded Protections for National Guard Members (AB 2449)

Federal and state law prohibit discrimination or retaliation against National Guard members deployed by the Governor and the President, and these laws generally require reinstatement and provide civil action rights if employers violate these provisions. California law previously authorized a district attorney to represent the service member, at no charge to the service member. This new law expands these provisions allowing any city prosecutor to act as a service member’s attorney.

San Francisco Enacts New Commuter Benefits Ordinance (Municipal Ordinance 199-08)

Effective January 19, 2009, San Francisco employers with 20 or more employees will be required to provide commuter benefits to employees working more than 10 hours per workweek in San Francisco. To comply, employers must provide one of the following commuter benefit programs to employees: (1) a program allowing employees to make pre-tax elections of up to $110 per month for commuting costs; or (2) employer-provided transportation (e.g., vanpool, bus, etc.) at no cost to employee; or (3) an employer-provided transportation pass of at least $45 per month. Employers who fail to comply are subject to administrative or civil penalties.

A Reminder About Earned Income Tax Credit Notices

In 2007, California enacted a bill (AB 650) which took effect January 1, 2008, requiring all employers mandated to provide unemployment insurance to provide written notice to employees they may be eligible for the federal earned income tax credit (EITC). This written notice must be either hand-delivered or mailed to the employee’s last known address within one week before or after, or at the same time, as the employer provides an annual wage summary (e.g., a W-2 or Form 1099).

Federal

New FMLA Regulations Effective January 15, 2009

As discussed in greater detail in last month’s update, the Department of Labor’s (DOL) updated regulations to the Family and Medical Leave Act become effective January 16, 2009. New forms and posters reflecting these changes can be obtained from the DOL’s website: www.dd.gov/esa/whd/forms.

ADA Amendments Act Signed Into Law (S. 3406)

As expected, in late 2008 President Bush signed into law the landmark ADA Amendments Act (ADAAA), a bill designed to broaden (and proponents argue restore) the Americans with Disabilities Act’s (ADA) protections and to reject the United States Supreme Court’s stricter interpretation of several key ADA provisions. Indeed, the ADAAA specifically states that its provisions are to be interpreted broadly and it directs courts and administrative agencies to interpret it and the ADA in favor of coverage, rather than exclusion.

Notably, the ADAAA still retains the requirement that a physical or mental disability “substantially limits” a major life activity, whereas earlier proposals had suggested adopting a requirement that the disability need only “limit” a major life activity (as under California’s Fair Employment and Housing Act (FEHA)). However, the ADAAA also criticized how courts have interpreted “substantially limited” and directed the Equal Employment Opportunity Commission (EEOC) to revise its regulations concerning this provision, meaning the EEOC will likely adopt a definition less-expansive than FEHA but broader than the prior ADA definition. The ADAAA also provides a new, non-exhaustive list of “major life activities” that includes “major bodily functions.”

Like FEHA, the ADAAA will generally prohibit the consideration of mitigating measures when determining whether an individual has a disability, meaning the person’s condition should be evaluated as if it were untreated. The ADAAA however permits the consideration of ordinary eyeglasses and contact lenses.

The ADAAA also expands the “regarded as” prong of the ADA to protect individuals discriminated against because the employer regarded them as having a disability, even if the perceived disability otherwise would not have constituted a disability. In other words, an employer who discriminates because it thought the employee or applicant was disabled cannot escape liability simply because the person discriminated against actually did not have a qualifying disability. The ADAAA, however, provides that these “regarded as” protections do not apply to minor or “transitory” impairments (less than six months duration) and that employers do not have to reasonably accommodate individuals who are only “regarded as” having a disability.

The ADAAA takes effect January 1, 2009, and employers should watch for new EEOC regulations (expected in late 2009) and how district courts interpret these new provisions. Since FEHA already contains most of these provisions, and in some instances retains still stricter provisions, the ADAAA’s overall impact upon California employers may not be as severe as the impact on employers in other states. However, out-of-state employers and California employer’s with employees in other states should take note of the ADAAA.

Mental Health Parity Bill Finally Passes (H.R. 1424)

Along with giving investors much needed peace of mind, the recently enacted economic “bailout bill” (aka the Emergency Economic Stabilization Act of 2008) contained the long-anticipated “mental health parity” reform. (In 1996, Congress passed an initial “mental health parity” law enacting some reforms, but these reforms were set to expire at end of 2008). This bill requires health plans providing mental health coverage to provide this coverage in the same manner as coverage for physical health symptoms. For example, group health plans must provide the same terms for deductibles, co-payments, etc. for mental health coverage as for physical health coverage. These parity requirements, however, apply only to group health plans with more than 50 employees.

Congress has recently passed, and President Bush is expected to sign, a bill (S.3712) that would clarify that the effective date for collectively bargained plans would be January 1, 2010, rather than January 1, 2009.

New Fringe Benefit for Bicycle Commuters (H.R. 1424)

The bailout bill also contained new tax benefits for employees who primarily commute to work by bicycle. Internal Revenue Code section 132 allows employers to offer employees the opportunity to set aside a portion of their salary to pay for certain transportation benefits (i.e., so-called “transportation fringe benefits”). This bill extends this benefit to bicycle commuters and allows them to be eligible to receive up to $20-a-month tax free reimbursement from their employers who, in turn, may deduct the expense from federal taxes. This benefit may be used for the purchase of a bicycle and bicycle improvements, repair and storage if the bicycle is regularly used for travel between the employee’s residence and employment. While the bailout bill became immediately effective, this provision takes effect January 1, 2009.

New Whistleblower Protections Under Consumer Protection Safety Act (H.R. 4040)

Enacted into law on August 14, 2008, the Consumer Product Safety Improvement Act of 2008 reworks a number of laws applicable to manufacturers, distributors and retailers of consumer products. Although the bill is primarily intended to address issues resulting in a large number of recent product recalls (ex. lead levels, etc.), it does have some employment implications. Specifically, this bill prohibits retaliation against employees who report any violation of this Act, or who testify in any proceedings concerning such violations, or who refuse to participate in any violation of this Act. This bill authorizes employees to file complaints with the Secretary of Labor, and ultimately a civil action for violations.

Genetic Non-Discrimination Act Passes (H.R. 493)

In May 2008, the federal government signed into law the Genetic Non-Discrimination Act (“GINA”), prohibiting employers and health insurance companies from discriminating against or refusing coverage to individuals based on “genetic information.” “Genetic information” is broadly defined to include genetic test results of an employee, and an employee’s family members, including dependents and many relatives. Employers will be prohibited from discriminating based on such information, as well as collecting genetic information from employees except in very narrow circumstances, and GINA imposes strict confidentiality requirements on any such information obtained.

GINA authorizes civil suit and remedies, including potentially punitive damages, to employees for employer violations. GINA’s employment provisions take effect in November 2009 and will be enforced by the Equal Employment Opportunity Commission, while its health insurance provisions take effect in May 2009.

AGENCY

State

DLSE Issues Opinion Letters (1) Upholding Employer’s Ability to Recover Wage Overpayments and (2) Addressing An Employer’s Obligation to Reimburse for Time Spent Obtaining Federally Mandated Security Cards

If an employer’s payroll department assumes employees will work a pre-determined amount of hours per pay period (ex. 75 hours per pay period), what rights does the employer have to recoup overpayment if the employee actually works less than the assumed level of hours? The Department of Labor Standards Enforcement (DLSE) recently issued an opinion letter (Opinion Letter 2008.11.25.-1) upholding an employer’s ability to make wage deductions to recoup overpayments in certain circumstances.

Specifically, the DLSE held that Labor Code section 221 does not prohibit periodic deductions for overpayment of wages provided the employee has expressly authorized in writing these deductions and the employee still receives no less than the minimum wage for all hours worked in the pay period. The DLSE reasoned that under these circumstances, the employer is not reducing the standard wage but is simply implementing an agreed-upon overpayment recovery system for a readily ascertainable amount (i.e., the hours not worked). The DLSE made clear, however, that the employee’s express written authorization for these deductions is paramount, and concluded that merely submitting a timesheet reflecting fewer hours worked does not constitute such consent.

The DLSE also held that Labor Code section 203 continues to preclude employers from deducting prior overpayments from a final paycheck, even if the employee authorizes deductions from other paychecks.

In the second opinion letter, the DLSE held an employer is not required to reimburse an employee for time spent applying for a Transportation Worker Identification Credential (TWIC), a security card required in certain circumstances under federal law. (Opinion Letter 2008.11.25-2.) The DLSE reasoned that enrolling for the TWIC is a federally mandated obligation, not a working condition which the employer controls and, thus, is not compensable as “hours worked” under the Industrial Wage Orders.

The full-text of both opinion letters is available on the DLSE’s website: www.dir.ca/gov/dlse/DLSE_OpinionLetters.htm.

Federal

IRS Decreases Mileage Reimbursement Rate

In 2008, the Internal Revenue Service (IRS) responded to skyrocketing gas prices by temporarily increasing until December 31, 2008 the standard mileage reimbursement rate to 58.5 cents per mile. In response to the recent decline in gas prices, the IRS has announced that effective January 1, 2009, the standard mileage reimbursement rate will drop to 55 cents per mile.

DOL Issues Opinion Letter Regarding Regular Rate Calculations

The Department of Labor (DOL) has recently issued an opinion letter (FLSA 2008-6) regarding whether compensation for on-call time in a specific week may be averaged over a two-week period for purposes of computing the regular rate under the Fair Labor Standards Act (FLSA). The DOL concluded it may not, stating that the regular rate of pay must be computed on a workweek basis and the payment for on-call time must be attributed to the particular workweek in which the employee completed the on-call hours. The full text of this opinion letter, as well as other recent opinion letters discussing cosmetology instructor and school teacher exemptions, may be found on the DOL’s website: www.wagehour.dol.gov.

JUDICIAL

State

California Supreme Court to Review Arbitration Agreement Shortening Statute of Limitations

In September, a California court of appeal upheld an employer’s ability to utilize an arbitration agreement containing a shortened statute of limitations period for FEHA discrimination claims. Not entirely unexpectedly, the California Supreme Court has granted review on this issue so the appellate court decision is no longer citeable, and employers should remain careful about including any arbitration provisions curtailing an employee’s substantive rights concerning statutory claims. A final decision on this issue is not expected until late 2009. (Pearson Dental Supplies v. Sup. Ct. (ex rel Turcios) (2008) 166 Cal.App.4^th 71, S167169.)

Punitive Damages Not Recoverable for Certain Labor Code Violations

A former employee sued alleging her employer had failed to provide meal and rest periods and to pay required overtime, and a jury awarded approximately $20,000 in owed wages and penalties, and $195,000 in punitive damages. A California court of appeal, however, struck the punitive damages award finding they are generally unrecoverable for violations of Labor Code provisions governing meal and rest periods (section 226.7), pay stub requirements (section 226), or minimum wages owed (section 1197.1).

The appellate court reasoned that under the “new right-exclusive remedy” doctrine, the statutory remedies, including specific penalties, enumerated in the Labor Code constitute the exclusive remedy absent evidence these remedies are inadequate. The court also reaffirmed that punitive damages are generally unavailable for contractual breaches, and concluded the Labor Code provisions concerning meal and rest periods and minimum wages owed arise from the underlying employment contract. The court also reaffirmed that employers will not be held liable for waiting time penalties for failure to pay final wages due if a good faith dispute existed concerning whether particular wages were owed. (Brewer v. Premier Golf Properties (2008) 168 Cal.App.4^th 1243.)

Applicants Without Marijuana Convictions Lack Standing to Sue for Improper Marijuana-Related Inquiry on Application

Labor Code sections 432.7 and 432.8 prohibit employer inquiries about certain types of arrests and convictions, including marijuana convictions more than two years old, and authorize injured applicants to recover the greater of actual damages or statutory penalties of $200. A class of 135,000 former applicants sued each seeking $200 (potentially $26 million), alleging the national employer’s (Starbucks) application inquired about convictions, including potentially marijuana convictions. Starbucks argued the application’s disclaimer telling California applicants not to disclose marijuana convictions precluded liability, or alternatively that the three class representatives lacked standing because they had no marijuana convictions to disclose.

The trial court rejected the employer’s arguments, but a California court of appeal granted a writ ordering summary judgment be entered in the employer’s favor. Notably, the appellate court observed that a sufficiently conspicuous disclaimer excusing California applicants from disclosing marijuana convictions might have insulated the application from challenge, but it raised questions about the disclaimer actually used in this instance. Nonetheless, the court concluded the three class representative plaintiffs lacked standing because they understood the California-specific disclaimer excused them from responding to this particular inquiry, and because they had no marijuana convictions to disclose. The court concluded that only individuals with marijuana-related convictions may sue to recover statutory penalties. (Starbucks Corp. v. Superior Court (ex rel Lords) (Dec. 10, 2008) 2008 Cal.App. LEXIS 2391.)

Interference with Work Contributes to Hostile Work Environment

A former employee sued for FEHA sexual orientation harassment and retaliation, alleging a co-worker initially made abusive sexually-related comments and, following her complaint, deliberately interfered with her daily work (i.e., blocking access to her work station, refusing to process her mail, etc.). The employer argued the claims were time-barred because the harassing comments occurred outside the statute of limitations period, and the subsequent work-related interference did not constitute harassment or actionable retaliation. The California court of appeal rejected the employer’s argument concluding the work-related interference was sufficiently related to the prior verbal harassment (essentially harassment in a different form) to constitute a “continuing violation” for purposes of tolling the statute of limitations. (Dominguez v. Washington Mut. Bank (2008) 168 Cal.App.4^th 714)

Individual Supervisor Not Entitled To Recover Attorneys' Fees in Frivolous FEHA Claim Where Employer Paid for Supervisor's Defense

A former employee sued her employer and a manager for mental disability discrimination and harassment under California's Fair Employment and Housing Act ("FEHA"), but admitted at deposition that the manager had not harassed her. After the manager prevailed through summary judgment, the trial court concluded plaintiff's claim was unreasonable and frivolous, but awarded the manager only a nominal $1 fee award of the $18,750 requested because the employer had actually paid the fees. The California court of appeal affirmed holding that a trial court may decline to award fees to a prevailing defendant, even when the allegations are frivolous, if the actual beneficiary of the fee award is someone who would not be entitled to a fee award directly. The appellate court noted that the employer had paid the fees for the manager, and likely would have incurred most of them anyways, and the claims against the employer were not completely frivolous. Thus, a fee award would indirectly reimburse the employer while financially devastating the student plaintiff. (Young v. Exxon Mobil Corp. (2008) ____ Cal.App.4th ____)

Federal

Union Not Required to Obtain Retirees’ Consent to Arbitrate Benefits Dispute

After an employer provided notice it intended to change its medical plan thus affecting current employees and retirees, the employee’s union moved to compel arbitration under the collective bargaining agreement. The Ninth Circuit court of appeals ordered arbitration, rejecting the employer’s argument the union first needed to obtain the retiree’s express consent to arbitration. The circuit court declined to follow the results from several other circuits, and concluded the union had sufficient standing since the proposed change affected both current employees (whom the union continued to be the exclusive representative) and retirees. Interestingly, the court observed the employer might be subject to duplicative proceedings, first from the current employees and later by the retirees, but felt this potential harm did not justify the employer’s proposed consent rule.” (IBEW v. Citizens Telecommunications Co. (9^th Cir. 2008) 2008 U.S.App.LEXIS 24640)

LOOKING AHEAD TO 2009

In many respects, the new year may prove to be more dynamic than 2008 given the unique confluence of events and trends.

For instance, while Californians often focus primarily upon California law given its protections are usually broader than federal law, all eyes are on Washington D.C. with a new administration and a Congress controlled by a single party with sizable majorities. Potentially significant legislative items likely to reemerge in 2009 include the Employee Free Choice Act (H.R. 800) regarding union election procedures, the Healthy Families Act (H.R. 1542), regarding paid sick leave, the Employment Non-Discrimination Act (H.R. 3685), which would prohibit sexual orientation discrimination, and the Lilly Ledbetter Fair Pay Act (H.R. 2831), which would amend Title VII’s statute of limitations. The incoming administration has signaled support for all of these items, some of which have previously passed at least one house of Congress.

As mentioned in the last issue, Governor Schwarzenegger has signaled his desire for fairly significant employment-related reforms, including to California’s meal and rest period laws and exemption guidelines. Potentially significant bills likely to reemerge in the California legislature include bills requiring paid sick leave and amending California’s version of the federal WARN Act.

In 2008, the California Supreme Court issued an unusually high number of significant employment related decisions, and the same is expected in 2009. In 2009, the Court is expected to issue decisions concerning an employer’s obligations concerning meal and rest periods (Brinker Restarant v. Superior Court (ex rel Hohnbaum), an employer’s ability to regulate “kin care” leave (McCarther v. Pactific Telesis Group), an employee’s ability to pursue Private Attorney General Act claims on a class action basis (Arias v. Superior Court), and whether harassment claims may be predicated on work-related interactions (e.g., performance evaluations, etc.) (Roby v. McKesson), to name just a few.

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.