LEGISLATIVE

State

Alternative Work-Week Schedule Amendments (ABX2 5)

In an attempt to provide greater flexibility in scheduling, the California legislature has passed and the Governor has signed a bill amending the Labor Code provisions concerning “alternative work-week arrangements.” Labor Code section 511 authorizes employers to propose and employees to approve alternative workweek schedules. Section 511 previously specified that employee approval required a secret ballot election of at least two-thirds of the affected employees in a work unit, but failed to define “work unit.” As amended, section 511 now specifies that a work unit includes “a division, a department, a job classification, a separate physical location or a recognizable subdivision.” It also specifies that it may include an individual employee if that employee otherwise satisfies the criteria of a “reasonably identifiable work unit.”

This bill also specifies that employers may include on the menu of work schedule options a regular schedule of eight-hour days. The amendments further provide that employees who adopt a menu of schedule options may, with employer consent, move from one schedule option to another on a weekly basis.

Federal

Economic Stimulus Bill Contains COBRA Premium Subsidy

On February 17, 2009, President Obama signed the American Recovery and Reinvestment Act of 2009 (ARRA), which contains new COBRA premium subsidies for certain employees, and imposes new notice and payroll administration responsibilities on employers generally subject to COBRA.

Not surprisingly, these new provisions are extremely detailed, and employers are encouraged to consult the regulations, or to contact their group health plan administrator and/or appropriate government agencies (e.g., the Department of Labor (DOL) and/or the Secretary of the Treasury) for answers to more specific questions. Both the DOL and the IRS have recently issued fairly detailed overviews and instructions concerning this COBRA premium subsidy, including regarding the notices required and how employers may obtain a tax credit for the premium subsidies they advance. These materials can be found on the DOL and IRS websites: www.dol.gov/COBRA or www.irs.gov, and specific materials can be accessed at the following links:

http://www.dol.gov/ebsa/newsroom/fsCOBRApremiumreduction.html;

http://www.irs.gov/newsroom/article/0,,id=204505,00.html

http://www.irs.gov/newsroom/article/0,,id=204708,00.html

http://www.irs.gov/pub/irs-pdf/i941.pdf

The DOL has also suggested calling it directly at (866) 444-3272 with additional questions.

These government-provided resources hopefully should address most employer questions. In the interim, some of the more generally applicable highlights of this new subsidy are as follows:

Basic Mechanics of the COBRA Premium Subsidy

Beginning March 1, 2009, and subject to certain income limitations (e.g., a phase-out begins at $125,000 for single filers and $250,000 for joint filers), employees who qualify as “assistance eligible individuals” will be eligible for a 65 percent premium subsidy on COBRA benefits for up to a nine-month period.

“Assistance eligible individuals” are defined as individuals otherwise eligible for COBRA coverage who were “involuntarily terminated” between September 1, 2008 and December 31, 2009, and who elect COBRA coverage either during the initial COBRA election period following ARRA’s enactment (i.e., employees “involuntarily terminated” after March 1, 2009), or during the special election opportunity discussed below. While this bill appears intended primarily to assist workers dislocated by the recent recession, it does not expressly limit “involuntary terminations” to the reduction-in-force/lay-off context and seems to apply to any involuntary termination except for gross misconduct.

As mentioned above, these COBRA provisions appear to apply to employers generally subject to COBRA, including under state-versions of COBRA (so-called “mini-COBRAs), but not to health flexible spending accounts.

Employees who elect COBRA coverage after March 1, 2009 will only be required to pay 35 percent of the premium, with employers advancing the remaining 65 percent. Employers may seek reimbursement of this 65 percent premium subsidy from the federal government, primarily as a credit against federal payroll tax filings using the Form 941. Employers whose premium subsidy reimbursements exceed their payroll tax filings will be entitled to a direct payment from the federal government. Employers seeking such credits or reimbursement from the federal government will be required to attest that the employees for whom the credits are sought were involuntarily terminated. Eligible employees who inadvertenedly pay more than their 35 percent portion of the premium while employers or group health plan administrators enact ARRA-compliant procedures may be entitled to a credit against future premiums or reimbursement of the overpayments.

This subsidy is intended to last up to a maximum of nine months after the subsidy applies, but may expire earlier under certain circumstances (i.e., the employee is offered employer health coverage under another plan or the employee becomes eligible for Medicare). However, this potential nine-month subsidy is not intended to extend the maximum period for COBRA continuation coverage (i.e., generally 18 months after a qualifying event, which in this instance is the employee’s involuntary termination.)

Employees receiving this premium subsidy will be required to notify the former employer providing premium assistance of events causing the subsidy to cease, and failure to do so may subject the non-complying employee to penalties equal to 110 percent of premium subsidies paid after the employee ceased being eligible for the subsidy.

New Employer Notice Requirements

Employers and/or their group health plan administrators will need to update their COBRA notices, at least temporarily (i.e., until the current December 31, 2009 expiration date of this premium subsidy) to inform eligible employees about these subsidies and the employees’ enrollment options. These new notices must include: (a) the forms and information necessary for establishing eligibility for the premium subsidy, (b) contact information for the plan administrator, (c) information about the employee’s option to enroll in different coverage under the plan, if applicable, (d) information about the employee’s obligations to notify the plan if the employee becomes eligible for coverage that would cause the premium subsidy to end; and (e) a description of the beneficiary’s right to the reduced premium and any conditions on such right. As mentioned below, eligible employees who previously declined COBRA coverage must be notified of their new 60-day special election period to select COBRA continuation coverage.

In addition to notifying employees who might qualify as “assistance eligible individuals” in the future (i.e., employees “involuntarily terminated” after March 1, 2009), employers must also provide notice of this new subsidy to otherwise eligible employees who are already receiving COBRA coverage (i.e., employees “involuntarily terminated” after September 1, 2008 and who previously elected COBRA continuation coverage.)

Notably, employees who were involuntarily terminated after September 1, 2008, but prior to ARRA’s enactment, and who previously declined COBRA coverage must be given another opportunity (a special election period) to elect COBRA coverage with the premium subsidy. Employers and/or group health plan administrators are required to provide notice to these previously terminated employees of this new election opportunity within 60 days after ARRA’s enactment and these employees will have an additional 60 days to elect COBRA coverage.

Accordingly, employers will need to update their COBRA election notices at least through the end of this year, and develop new notices for former employees entitled to the special election period notice. ARRA has directed the Labor Department to issue model COBRA notices containing the required information within 30 days of ARRA’s February 17, 2009 enactment.

President Issues Executive Orders Concerning Unions and Federal Contractors

President Obama has recently issued several executive orders reversing the prior administration’s orders and significantly impacting federal contractors vis a vis labor unions.

Notification of Employee Rights Under Federal Law

This first order reverses Executive Order 13201 issued by President George W. Bush which had required employers to post notices informing employees of their so-called “Beck notice rights.” In Communications Workers of America v. Beck, the United States Supreme Court held unions could not use member dues for non-collective bargaining purposes without obtaining the member’s consent. The prior administration’s Executive Order 13201 incorporated Beck’s consent rule and required federal contractors to post workplace notices advising non-union members of their rights, including the right not to join a union and the ability to “opt out” of paying union dues used for non-collective bargaining agreement purposes.

The just-issued order, which is immediately effective, eliminates the requirement to post “Beck notice rights,” but it does not appear to prevent employers from continuing to post these rights if the employer chooses to do so. However, the new order does require qualifying federal contractors to post a to-be-developed poster (expected within the next 120 days) notifying employees of their rights under the National Labor Relations Act (e.g., the right to bargain collectively, etc.) In other words, employers will be required to tell employees they can join a union, but no longer required to tell them they can elect not to join a union.

Economy in Government Contracting

This executive order prohibits federal contractors from seeking reimbursement for any costs incurred “persuading” employees to join or not join a union. The net practical effect is that federal contractors may not use federal funds to oppose a union organizing drive. The Federal Acquisition Regulatory Council (FAR Council) is expected to issue rules and regulations concerning this order within 150 days, but non-allowable expenses covered by this order appear to include hiring of legal counsel or consultants, holding meetings, and preparing persuasive materials. While this order does not prohibit federal contractors from expending their own funds to oppose unionization efforts, the new administrative burdens to segregate and ensure no federal funds are used may make it difficult for contractors to do so.

Non-Displacement of Qualified Workers Under Service Contracts

This executive order revokes Executive Order 13204 and imposes new obligations upon successor contractors to hire the predecessor contractor’s employees. Under the new order, federal service contractors assuming a prior government service contract must offer their predecessor contractor’s non-management employees a 10-day right of first refusal to continue employment with the successor contractor.

This requirement is designed to prevent employee turnover which, in turn, may require the successor company to recognize and bargain with any already-existing union for the predecessor employees. To the extent a majority of the predecessor employees remain, the successor contractor employer may be required under the “successor liability” doctrine to recognize and bargain with the incumbent union regarding the initial employment terms.

Use of Project Labor Agreements for Federal Construction Projects

This executive order encourages agencies to use Project Labor Agreements (PLAs) in federal construction projects costing the federal government more than $25 million. A PLA is defined as “pre-hire collective bargaining agreements with one or more labor organizations that establishes the terms and conditions of employment for specific construction projects.” This order is immediately effective but requires the FAR Council to issue new regulations implementing this order within 120 days. This order states it will increase efficiency on larger projects, and many expect it will increase union work on such projects.

AGENCY

State

EDD Work Sharing Program Provides Possible Alternative to Layoffs

Just a reminder, the California Employment Development Department (EDD) has implemented a Work Sharing Unemployment Insurance Program designed to allow employers to temporarily reduce hours rather than eliminate positions completely. This program, which requires advance EDD approval and certain participation levels (e.g., at least two employees must participate in the plan), essentially enables employees to work a reduced schedule and receive a proportionate percentage of weekly unemployment insurance benefit (i.e., employees working four days instead of five [a 20 percent reduction in workweek hours] would receive 20 percent of their weekly unemployment insurance benefits). Additional information, including the EDD Work Sharing Plan form, can be obtained from the EDD’s Special Claims Office or at www.edd.ca.gov.

JUDICIAL

State

Public Employer May Discipline Employee for Refusing to Cooperate in Internal Investigation Provided Employee Not Forced to Waive Fifth Amendment Rights

A public employer terminated a deputy public defender for refusing to answer questions during the public employer’s investigation concerning the employee’s alleged false statements to the court. Although the public defender had been advised his answers would not be used in potential criminal investigations, the public defender refused to answer absent a formal and complete grant of immunity, and invoked his Fifth Amendment privilege against self-incrimination. Following his termination, the former employee filed suit seeking reinstatement claiming he could not be compelled to answer potentially incriminating questions unless he received, in advance, a formal grant of criminal use immunity.

The court of appeal held the public employer violated the employee’s constitutional rights by not giving him a formal grant of immunity. However, a unanimous California Supreme Court held a public employee may be compelled by threat of job discipline to answer questions about the employee’s job performance, so long as the employee is not required to waive the constitutional protection against criminal use of those answers. The Court noted the Constitution does not give public employees the right to refuse to account for their performance or to avoid discipline for this refusal; rather, it simply forbids public employers from using compelled statements in subsequent criminal prosecutions. In this case, the employee was truthfully informed no criminal use could be made of any answers he gave during the investigation. (Spielbauer v. County of Santa Clara (Feb. 10, 2009) ___ Cal.4th ___, 2009 Cal. Lexis 1010.)

Jury Properly Determined that Parcel Delivery Drivers Were Independent Contractors, Not Employees

Parcel delivery drivers filed a class action against their employer alleging numerous Labor Code violations (e.g., failure to pay overtime, etc.), all flowing from their contention the employer misclassified them as independent contractors. Although the trial court allowed the matter to proceed as a class action, the jury determined the class members were independent contractors, not employees, and the California court of appeal upheld this determination. Notably, the appellate court conceded that several other appellate courts had recently determined that other employer’s delivery drivers were employees rather than independent contractors, but concluded each case must be resolved on the unique facts presented in that case. (Cristler v. Express Messenger Sys. (2009) 2009 Cal. App. LEXIS 172.)

Federal

Ninth Circuit Withdraws Controversial Opinion Applying California Labor Code Provisions to Non-California Residents

As mentioned in a prior newsletter, the Ninth Circuit recently issued a fairly controversial opinion in which it concluded that California’s Labor Code provisions, including those regulating overtime, applied to non-residents who temporarily performed work in California. (See e.g., Sullivan v. Oracle, Inc. (9th Cir. 2008) 2009 U.S. App. LEXIS 2892.) In Sullivan, the ninth circuit concluded Colorado residents who worked several days in California were entitled to the California Labor Code’s protections for the time worked in California, even though they were Colorado residents who worked the overwhelming majority of their time in Colorado. This decision drew considerable protests from many groups, including California’s hospitality industry, who expressed concern this decision might dissuade employers from sending employees to California on business.

The ninth circuit recently ordered this opinion withdrawn, meaning it is no longer citable. The ninth circuit also certified the following questions to the California Supreme Court: (1) Does the California Labor Code apply to overtime work performed in California for a California-based employer by out-of-state plaintiffs, such that overtime pay is required for work in excess of eight hours per day or in excess of forty hours per week? (2) Does Business and Professions Code Section 17200 apply to the overtime work described in question one? (3) Does Section 17200 apply to overtime work performed outside California for a California-based employer by out-of-state plaintiffs if the employer failed to comply with the overtime provisions of the Fair Labor Standards Act? The California Supreme Court has 90 days to decide whether to review these questions, but there is a significant likelihood it will do so.

Ninth Circuit Grants En Banc Review of Order Certifying Class in Title VII Disparate Treatment Case

In December 2007, the Ninth Circuit upheld a district court’s order granting class certification in a Title VII gender discrimination class action filed against Wal-Mart. (Dukes v. Wal-Mart (9th Cir. 2007) 509 F.3d 1168). The certified class consisted of approximately 1.6 million female employees seeking over $11 billion in damages resulting from Wal-Mart’s alleged discriminatory promotion practices. On February 13, 2009, the ninth circuit granted Wal-Mart’s request for an en banc rehearing of the class certification order, meaning the December 2007 ruling is no longer citable.

Employer’s Independent Investigation Breaks Causal Connection and Precludes Liability Following Biased Supervisor’s Complaint

An employee discharged for improper computer usage sued her former employer and supervisor alleging she was terminated for previously complaining about the supervisor who reported the misconduct that resulted in her termination. The former employee argued that although the ultimate termination decision was made by a neutral decision-maker after an independent investigation, the termination process was irrevocably tainted because the person who initially reported the misconduct had intended to retaliate. The trial court awarded the former employee $650,000, but the Ninth Circuit Court of Appeals reversed noting that the independent investigation precluded any causal connection between the supervisor’s improper motives and the ultimate termination decision.

In this case, the ninth circuit addressed the oft-recurring situation in which an employee attempts to impute an alleged misbehaving supervisor’s improper motives to the ultimate decision-maker under the so-called “cats paw” doctrine. The ninth circuit reiterated that an employer is not automatically immune from retaliation liability simply because the ultimate decision-maker did not intend to retaliate if the misbehaving supervisor’s retaliatory motivations have unfairly tainted the investigative process. However, the court also concluded that a final decision-maker’s wholly independent legitimate decision to terminate following a sufficiently independent investigation may break the causal connection with the misbehaving supervisor’s improper motives. In this case, which the court noted was dependent upon its facts, the alleged misbehaving supervisor played no meaningful role in the investigation or the final termination decision. (Lakeside-Scott v. Multnomah (9th Cir. 2009) 2009 U.S. App. LEXIS 2726.)

Insulin-Dependent Diabetic May Be “Disabled” Under the ADA

An employee with type 2 insulin-dependent diabetes sued his former employer under the Americans with Disabilities Act (ADA). The employer argued that the employee’s diabetes-related restrictions did not make him “disabled” under the ADA, and that he was not a qualified individual because his diabetes precluded him from obtaining an OSHA-required certification. The district court granted summary judgment in the employer’s favor, but the Ninth Circuit court of appeals reversed.

The ninth circuit held that whether the employee’s eating and dietary restrictions substantially limited him in the major life activity of eating involved a triable issue of fact. The court also noted the employer bears the burden of proving a screening device (i.e., certification requirement) that disqualifies individuals with disabilities is job-related and consistent with job necessity, and concluded triable issues of fact existed whether this particular employee actually performed the duties requiring certification. The court also declined to rule whether the recently-enacted ADA Amendments Act of 2008 applied retroactively, noting it would not affect its ruling in this case. (Rohr v. Salt River Project Agric. Improvement & Power Dist. (9th Cir. 2009) 2009 U.S. App. LEXIS 2856.)

ADEA is Exclusive Remedy for Age Discrimination

An employee sued her state agency employer in federal district court alleging violations of the Age Discrimination in Employment Act (ADEA). After the district court determined plaintiff’s ADEA claims were barred under the Eleventh Amendment on sovereign immunity grounds, the plaintiff attempted to recast her age discrimination claim under another civil rights statute (42 U.S.C. section 1983). The district court and the Ninth Circuit court of appeals dismissed this claim on the grounds the ADEA provides the exclusive federal enforcement mechanism for claims of age discrimination in employment. (Ahlmeyer v. Nev. Sys. of Higher Educ. (9th Cir. 2009) 2009 U.S. App. LEXIS 3024.)

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.