LEGISLATIVE

State

San Francisco’s Minimum Wage Increases

California’s minimum wage remained steady at $8.00 per hour, but San Francisco’s minimum wage increased to $9.79 for private employers effective January 1, 2009.

Federal

Lilly Ledbetter Fair Pay Act Signed Into Law (H.R. 11)

As expected, President Obama has signed into law the Lilly Ledbetter Fair Pay Act (H.R. 11), effectively nullifying the United States Supreme Court’s fairly controversial 5-4 decision in Ledbetter v. Goodyear Tire & Rubber Co. (2007) 550 U.S. 618. In Ledbetter, the Court held the statute of limitations involving a discriminatory pay decision started with the original discriminatory decision and did not reset with each subsequent paycheck flowing from that decision. As a result, the employee who discovered her unequal pay nineteen years after the original decision was time-barred from filing suit because she did not sue within the original 180 days following the initial decision.

This bill is specifically intended to reverse Ledbetter and to adopt a continuing violation rule allowing each paycheck resulting from a discriminatory pay decision to be a separate violation and, therefore, the basis for an EEOC charge and potential civil claim. In other words, an employee may file a claim within the applicable statutory period after receiving any paycheck flowing from an initial discriminatory action regardless of how long ago the original decision was made. The new law amends four federal statutes – Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act, the Americans with Disabilities Act and the Rehabilitation Act. An employee may now bring a discrimination claim where he or she alleges to have been the victim of a “discriminatory compensation decision or other practice” at any of the following times: (a) the time the decision or practice is adopted; (b) the time the individual becomes “subject to” the decision or practice; or (c) the time an individual is “affected by” application of the decision or practice, “including each time wages, benefits, or other compensation is paid, resulting in whole or in part from such a decision or other practice.”

This bill specifically provides that it applies retroactively to all cases pending as of May 28, 2007, the day before the Supreme Court’s decision in Ledbetter.

Paycheck Fairness Act Advances (H.R. 12)

Not unexpectedly, the new Congress has also moved quickly on the Paycheck Fairness Act (H.R. 12), a bill that previously passed the House but stalled in the Senate. This bill is intended to provide further redress to victims of gender discrimination in compensation and would amend the Federal Labor Standards Act (FLSA) to provide greater civil remedies than currently authorized, including unlimited compensatory and punitive damages. It would also eliminate the “factor other than sex” affirmative defense for explaining wage discrepancies, and require employers to prove that any such factor serves a legitimate business purpose. It would also prohibit retaliation against employees who share wage-related information (California Labor Code section 232 already prohibits such retaliation).

This bill recently again overwhelmingly passed in the House and heads to the Senate and appears to have sufficient votes to pass. However, it appears a final Senate vote will be slightly delayed to analyze some objections raised by opponents. President Obama has previously expressed support for this bill.

AGENCY

Federal

New I-9 Form Delayed Until April 3, 2009

On January 30, 2009, the United States Citizenship and Immigration Services Department (USCIS) announced that the revised I-9 form, which was to become effective on February 2, 2009, is being delayed until April 3, 2009. The same day, the USCIS also announced that it is extending until March 4, 2009, the deadline to submit comments on a proposed final rule regarding I-9 Form procedures. Both delays are intended to provide the USCIS and the new administration additional time to review the previously submitted comments regarding the new I-9 Form and proposed final rule. Until the new I-9 Form takes effect, employers may continue to use the prior I-9 Form containing the June 2009 expiration date.

E-Verify Rules for Contractors Delayed Until May 2009

The federal government has agreed to delay implementing a new rule requiring federal contractors and subcontractors to use the federal e-verify system to verify work eligibility for employees. This new rule was originally scheduled to become effective January 15, 2009, but has faced lawsuits challenging the executive’s power to issue a rule changing the voluntary e-verify program into a mandatory program. In the last couple weeks, the new administration has announced several delays for these new rules, with the new projected effective date being not until May 21, 2009, to allow it to review the issues raised in the lawsuits.

DOL Issues New Opinion Letters Regarding Executive Exemption, On-Call Time, and Discretionary Bonuses

The Wage and Hour Division of the Department of Labor (DOL) has recently issued a number of new opinion letters responding to inquiries about wage and hour issues under the Federal Labor Standards Act (FLSA). The full text of these opinion letters, as well as other FLSA-related information, can be found on the DOL’s website: www.dol.gov/esa/whd/opinion/opinion.htm. Below are some of the more interesting inquires answered by these opinion letters:

• May Employers Exclude Discretionary Bonuses From Regular Rate of Pay for Overtime Purposes?

Yes, but only if it is a truly discretionary bonus. In this instance, the employer decided to pay a $1,000 bonus to already-employed full-time emergency communications operators to reward them for their high-stress performance. The employer subsequently memorialized this intention in its memorandum of understanding (MOU) for these employees, but became concerned this memorialization rendered the bonuses non-discretionary. The DOL concluded the initial bonus payment remained discretionary and could be excluded for overtime calculations.

The DOL noted that the regular rate of pay excludes discretionary bonuses, which under the FLSA requires the employer to retain discretion both as to the fact of payment and the amount until a time quite close to the end of the period for which bonus is paid. (29 U.S.C. 207(e)(3).) Employers may not, however, exclude from the regular rate of pay bonuses that are paid pursuant to a contract, agreement or promise. In this case, the MOU simply memorialized a decision previously made by the employer based upon events that had already occurred. Thus, the MOU did not authorize the bonus but simply formalized the employer’s already-made decision. The DOL did not, however, address whether future bonuses pursuant to the MOU would remain discretionary and excludable from the regular rate. (Opinion Letter FLSA2008-12).

• Is On-Call Time Considered Hours Worked and Compensable?

Not in this particular case, but employers must closely analyze each unique circumstance as these determinations are very fact-specific. Under the FLSA, employers may require employees to be on call without compensation provided it does not impose restrictive conditions effectively preventing the employee from using this time for the employee’s own personal purposes. (29 C.F.R. 785.17, 29 C.F.R. 553.221(d).) The DOL noted that each situation presents a question of fact dependent upon the unique circumstances presented, and that it and courts will apply a variety of factors, with particular focus on the number of calls during the on-call period, to determine whether the employee may effectively use their on-call time for personal purposes.

In this instance, the DOL noted the employer-imposed restrictions (e.g., the employee being reachable at all times, abstention from alcohol, and the duty to report to work within one hour of notification) were not unduly restrictive and thus were non-compensable. The DOL’s letter also stressed the fact that employee call-backs were rare. (Opinion Letter FLSA 2008-14NA).

• Will exempt store managers lose executive exemption status by participating in training program for another exempt position?

The DOL opined that exemption status would not be lost under the FLSA’s “holistic approach” which focuses on the primary duties of the position, rather than “day-by-day scrutiny” of the manager’s duties. The DOL noted that the FLSA’s exemptions normally apply on a workweek by workweek basis, and that the exemptions generally do not apply to non-exempt employees training for exempt positions unless actually performing exempt work. However, the DOL also noted it applies the “primary duty” test focusing on the character of the employee’s job as a whole, not on a day-by-day scrutiny each and every workweek.

In this case, the employees already qualified for and had been working under the executive exemption, and were training for another exempt position. The training was of limited duration and did not involve work that would otherwise be performed by non-exempt employees. Accordingly, the exempt store managers did not lose their exempt status during this brief training period even though they might not perform significant amounts of exempt work during particular weeks. (Opinion Letter FLSA 2008-19).

The DOL’s website also contains several additional industry-specific opinion letters regarding Assistant Athletic Instructors (FLSA 2008-11), Voluntary Emergency Crews (FLSA 2008-13), Paid Firefighters Performing Voluntary Work (FLSA 2008-14), Volunteer Firefighter Stipends (FLSA 2008-15), Victim Assistant Specialist Volunteers, (FLSA 2008-16), Certified Occupational Therapists (FLSA 2008-17), and Tip Pooling for Sushi Chefs (FLSA2008-18).

JUDICIAL

State

California Supreme Court Grants Review in Brinkley

As mentioned in the November 2008 Newsletter, the California Court of Appeal decision in Brinkley v. Public Storage, Inc. (2008) 67 Cal.App. 4th 1278 had followed another appellate decision in Brinker and held employers need only “provide meal periods, not “ensure” the employee actually takes them. Dubbed the “son of Brinker” it was widely anticipated the California Supreme Court would grant review on this issue, which it has now done on a “grant and hold” basis, meaning the decision in Brinker will likely be dispositive in Brinkley.

Public Employer’s Discretionary Immunity Does Not Preclude FEHA Age Discrimination Suit

A long-term, sixty-nine year old employee sued his superior court employer for FEHA age discrimination after not receiving a promotion awarded to a forty-three year old applicant. The trial court granted the public employer’s summary judgment motion finding the California Tort Claims Act’s protections for discretionary actions precluded suit against the public employer. The court of appeal reversed, holding that the Tort Claims Act does not insulate public employers from direct liability under FEHA. The court stated while the Tort Claims Act may limit a public employer’s vicarious liability, it does not preclude suit under statutes specifically authorizing direct liability against public employers, such as FEHA. Applying generally applicable statutory construction rules, the court also reasoned that the Tort Claims Act’s general protections do not trump FEHA’s more specific provisions explicitly permitting suit against public agencies, especially since FEHA was enacted after the Tort Claims Act. (DeJung v. Superior Court of Sonoma County (2008) 169 Cal.App.4th 533.)

Employer Correctly Calculated Overtime Compensation on Semi-Annual Production Bonus

A frequently recurring issue is how to calculate overtime when a bonus is paid to a non-exempt employee. Labor Code section 510 requires that overtime consist of one and one-half times the “regular rate of pay” which generally includes bonus pay. This seemingly straightforward calculation gets decidedly more complex when the bonus is based upon work occurring during more than one workweek. In those instances, the portion of the bonus attributable to the prior periods must retroactively be factored into the “regular rate of pay” entitling the employee to additional overtime compensation.

Complicating things still further is the fact that in California, the formula for calculating overtime on a bonus may change based on whether the bonus is considered to be a “production bonus” (i.e., a bonus which increases with the amount of work performed) or a “flat sum bonus” (which does not increase based on amount of work performed). Production bonuses are considered to already include the regular rate for overtime hours worked, meaning that all the employer owes is the overtime premium (the “half” part of time-and-one-half) for all overtime hours worked. However, in regard to a flat sum bonus, the bonus is considered to be paid on straight-time hours only, meaning that the full time-and-one-half must be paid on all overtime hours worked.

Looking at the calculations can help clarify this difference. Assume a bonus of $2500 to an employee who had worked 900 straight time hours and 100 overtime hours during the bonus period. If the bonus were considered a production bonus the calculation would be as follows: $2,500/1000 total hours worked = $2.50 (regular bonus rate) x 100 overtime hours x .5 = $125 owed as overtime in addition to the bonus. However, if the same bonus were considered to be a flat sum bonus, the calculation would be as follows: $2500/900 straight time hours worked = $2.78 (regular bonus rate) x 100 overtime hours x 1.5 = $417 owed as overtime in addition to the bonus.

In the Costco case, hourly employees filed a class action challenging the employer’s calculation of the “regular rate of pay” used to determine the amount of overtime owed on its semi- annual bonus. The trial court adopted the employees’ proposed formula for calculating the regular rate of pay and entered judgment of nearly $6 million against the employer.

The court of appeal reversed, issuing a very detailed opinion filled with various mathematical formulas for calculating overtime (which will not be repeated here) depending on the nature of the underlying bonus. The appellate court first noted that the DLSE’s Manual provisions (relied upon by the trial court) concerning so-called “flat sum” bonuses constituted a void regulation. The court also noted that it could not locate any California or federal authority invalidating this employer’s formula which essentially acted as a hybrid between the flat sum and production bonuses.

While very fact specific, this case serves as a good reminder that bonus payments may require retroactive overtime payments based upon the employee’s now higher “regular rate of pay,” and that the amounts owed may differ depending upon the nature of the bonus involved (i.e., “production” versus “flat sum”). (Marin v. Costco Wholesale Corp. (2008) 169 Cal.App.4th 804.)

“Ritualized Discussions” Not Required For Employer to Satisfy Interactive Process Obligations

A police dispatcher who received every accommodation she requested for her blood disorder sued under FEHA alleging her employer failed to accommodate her disability or engage in the interactive process. Notably, Plaintiff did not allege her employer completely failed to engage in the interactive process, but alleged only that it delayed before starting formal interactive process discussions. The California court of appeal rejected Plaintiff’s argument that the interactive process did not actually begin until the employer representative working with Plaintiff sent an e-mail saying she was beginning the interactive process. The court noted that the employer, through providing temporary accommodations requested, working with Plaintiff to find another position, and generally discussing Plaintiff’s needs with her, had been engaging in the interactive process well before sending the e-mail announcement. The court observed that the interactive process is informal, and just as an employee need not use magic words to trigger the process, an employer need not engage in “ritualized discussions” to satisfy its obligations. (Wilson v. County of Orange (2009) ___Cal. App. ___, 2009 Cal. App. LEXIS 12.)

Combat Methamphetamine Epidemic Act Preempts California Labor Code Section 432.7

Plaintiffs filed a class action alleging a national retailer’s (Longs Drugs) application inquiry about prior drug convictions violated California Labor Code sections 432.7 and 432.8, which preclude inquiry about certain types of drug-related convictions. The retailer argued the federal Combat Methamphetamine Epidemic Act (CMEA) permits retail pharmacies to inquire about convictions involving controlled substances “notwithstanding state law,” thus preempting California Labor Code sections 432.7 and 432.8. The California court of appeals agreed holding the CMEA not only preempts Labor Code section 432.7 and 432.8 after the CMEA’s 2005 passage, but also abates any claims predicated upon inquiries prior to its 2005 passage because the CMEA substituted a “right for a crime.” Note, this particular preemption and abatement likely apply only to employers (e.g., retail pharmacies, etc.) subject to the CMEA. (Rankin v. Longs Drug Stores California, Inc. (2009) ___ Cal.App.4th ___, 2009 Cal.App.LEXIS 5.)

Class Action Plaintiffs Entitled To Potential Third-Party Employee Contact Information Despite Objections to Disclosure

In this wage and hour class action, the employer refused to provide requested contact information concerning other employees (i.e., potential class members). The employer argued the employees had constitutionally-protected privacy rights and had also signed forms prepared by the employer objecting to disclosure of their contact information. Both the trial court and the court of appeal rejected the employer’s privacy arguments and ordered disclosure despite the employee’s objections.

Citing several other recent cases authorizing disclosure, the appellate court observed that contact information is generally discoverable and that the other employees’ privacy interest in “relatively non-sensitive contact information” were outweighed by the class action plaintiffs’ need to conduct discovery. With regard to the releases/objections prepared by the employer for the employees, the court noted that the statutory rights involved in wage and hour class actions were so important that courts may invalidate contractual provisions infringing upon these rights. The court also expressed skepticism about the knowing nature of these releases/objections, noting the employer prepared these releases after litigation had commenced but failed to mention the litigation in the objections. (Crab Addison, Inc. v. Superior Court (ex rel Martinez) (2008) 169 Cal.App.4th 958.)

Waiting Time Penalties Not Recoverable as Restitution Under California’s Unfair Competition Law

An employee who received his full final paycheck four days after resigning (rather than the three-day period required under Labor Code section 203), sued to recover waiting time penalties only. In 2007, a court of appeal had held that Labor Code section 203 imposed a one-year statute of limitations for “waiting time penalty only” claims (as opposed to a three-year statute of limitations for claims seeking unpaid wages and waiting time penalties). (McCoy v. Superior Court (2007) 157 Cal.App.4th 225). In this case, the employee attempted to avoid this one-year statute of limitations under Labor Code section 203 for “waiting time only” claims by including an unfair competition claim under California Business and Professions Code Section 17200, which has a four year statute of limitations. The court of appeal affirmed the dismissal of the unfair competition claim holding that pure waiting time penalties are not recoverable as restitution under Section 17200. (Pineda v. Bank of America (Jan 21, 2009) ___ Cal.App.4th ___, 2009 Cal.App.LEXIS 59.)

Court Orders Class Certification for Limousine Driver’s Wage and Hour Claims

A court of appeals ordered class certification in an action by limousine drivers alleging the employer improperly failed to pay them for so-called “gap time” (i.e., the time spent between driving jobs) and failed to provide rest periods. The appellate court rejected the employer’s argument the class could not be ascertained without reaching the merits of the underlying claims. The court also rejected the employer’s contention that the different ways in which drivers used their gap time precluded a commonality of interest. The court noted that the operative inquiries for class certification purposes is whether the recovery theory, as pled, is amenable to class certification, and whether the proposed class has sufficiently common characteristics for potential class members to identify themselves as such, not whether any particular member might ultimately recover. (Ghazaryan v. Diva Limousine, LTD(Jan. 12, 2009) ___ Cal.App.4th ___, 2008 Cal.App.LEXIS 2523.)

Tip Pooling Permissible In Casinos

Casino dealers filed a class action alleging the casino’s tip-pooling policy violated California’s prohibitions on employers sharing in an employee’s gratuities or forcing employees to patronize the employer (Labor Code sections 351 and 450 respectively). The court of appeal first concluded Labor Code sections 351 and 450 do not provide a private right of action, meaning employees cannot sue the employer directly under these provisions. The appellate court also rejected the employees’ efforts to sue under California’s Unfair Competition Laws noting tip-pooling arrangements are generally lawful provided they satisfy specifically enumerated criteria (e.g., “agents” do not share in the pool, employees still receive minimum hourly wage, etc.). The court also rejected the employees’ efforts to limit tip-pooling arrangements solely to the restaurant industry, noting they are potentially lawful in other industries without regard to whether the tip is left on the table for a server or handed to the dealer.

However, while the court noted the employees could not sue directly under Labor Code sections 351 and 450, suit could theoretically be possible under the Private Attorney General Act. While the court also upheld tip-pooling arrangements generally beyond the restaurant context, it remanded this particular case to determine whether “agents” were impermissibly sharing in this particular tip-pool. (Lu v. Hawaiian Gardens Casino, Inc. (Jan. 22, 2009) _____ Cal. App. 4th ____, 2009 Cal. App. LEXIS69.)

Plaintiff Cannot Pursue PAGA Class Action Based on Already Released Claims, But Can Pursue Subsequently Accruing Claims

Plaintiff attempted to pursue a Private Attorney General Act (PAGA) class action against Defendant alleging various labor code violations related to the charging back of commissions for sales people. Defendant argued, and the court of appeals agreed, that a prior class action settlement agreement release precluded the plaintiffs from pursuing PAGA claims predicated upon the same underlying labor code violations previously released. However, the appellate court also noted the prior settlement agreement would not preclude suit, including on a class action basis, for claims accruing after the prior settlement. (DeLeon v. Verizon Wireless (Jan. 22, 2009) ____ Cal. App. 4th____, 2008 Cal. App. LEXIS 2530.)

Federal

Title VII’s Retaliation Provision Protects Employees Who Disclose Harassment During Internal Investigation

During an employer’s internal harassment investigation, several employees who were questioned as witnesses corroborated on-going harassing conduct by the accused, but they did not file separate complaints regarding such harassing conduct. These employees were terminated shortly thereafter and filed suit under Title VII alleging retaliation. The employer argued the employees were not protected by Title VII’s retaliation provision because they had not filed a complaint (i.e., “opposed” harassment) or testified in an EEOC-related proceeding, but had simply answered questions posed by the employer. The district court and Sixth Circuit Court of Appeals adopted the employer’s narrow interpretation of Title VII’s retaliation provision, but the United States Supreme Court reversed.

The Court reaffirmed that Title VII’s retaliation provision protects against two different sets of activities: (1) the “opposition clause” for employee who oppose an unlawful practice, and (2) a “participation clause” for employees who participate in investigations, proceedings or hearings related to Title VII issues. The Court rejected the employer’s argument the “opposition” clause was limited only to employees who actively file their own discrimination or harassment charges, and held the anti-retaliation provisions also apply to employees who answer questions during an employer’s internal investigation. (Crawford v. Metro-Politan Gov. of Nashville and Davidson County, TN, (Jan. 26, 2009) 555 U.S.____, 2009 US LEXIS ____.)

Plan Administrator Acts Properly in Distributing Benefits to Ex-Wife Identified as Beneficiary in Plan Documents

A deceased employee’s estate sued the employer’s plan administrator after it released the funds in the employee’s saving and investment plan (SIP) to the ex-wife identified as the beneficiary on the beneficiary designation form. The employee’s estate argued the divorce decree waived the ex-wife’s rights to receive the SIP benefits. The United States Supreme Court held the plan administrator acted properly in disbursing the funds to the person listed on the beneficiary form, noting the deceased employee had not utilized the process available for changing the contemplated beneficiary. (Kennedy v. Plan Admin. for DuPont Sav. and Inv. Plan (Jan 26, 2009) ____ U.S. ____, 2009 U.S. LEXIS 869.)

Union May Charge Non-Members for National Litigation Fund

The state of Maine required government employees to pay a service fee to the local union operating on their behalf, even if the employees did not belong to the union. Non-union Plaintiff’s challenged that portion of the fee used by the local union to pay an affiliation fee to the national union, part of which was used to fund litigation expenses incurred on behalf of other local units. The United States Supreme Court concluded that the money used to pay the affiliation fees is chargeable to non-members as long as the subject matter of the funded litigation is of a kind that would be chargeable if the litigation were local (e.g. litigation related to collective bargaining rather than political activity) and the litigation charge is reciprocal - meaning members of the local union would benefit from the national pool of money if litigation were necessary on behalf of their local union. (Locke v. Karass (Jan 21, 2009) ___ U.S. ____, 2009 US LEXIS 590.)

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 © 2009 WPKT LLP. All rights reserved.