LEGISLATIVE

California

Electronic Discovery Act Amendments Immediately Effective (AB 5)

The Governor recently signed on an urgency basis a bill amending California’s Civil Discovery Act to establish procedures for the discovery of “electronically stored information.” (The Federal Rules of Civil Procedure already contain such procedures.) California’s Civil Discovery Act previously provided procedures for the discovery of documents and tangible things, and this bill expands these discovery rights to permit a party to obtain discovery of electronically stored information. It also permits discovery by means of copying, testing, or sampling, in addition to inspection.

This bill also requires a party opposing discovery of electronically stored information to bear the burden of proving it is not reasonably accessible or that production would be prohibitively expensive, and permits the court to still order its production for good cause. It also authorizes trial courts to award monetary sanctions against parties and attorneys who fail to comply with these new provisions, but does not permit monetary sanctions where electronically stored information was lost, damaged, or overwritten as a result of the routine, good faith operation of an electronic information system.

This is not an employment bill, but it potentially imposes significant additional costs on employers in employment litigation. This bill is immediately effective.

Federal

Military Family Leave Act of 2009 (S. 1441)

This recently introduced bill is intended to provide annual leave for family of deployed members of the uniformed services. It would provide up to two workweeks of leave during each twelve month period for each family member of an eligible employee who (1) is in the uniformed services; and (2) receives notification of an impending call to active duty or contingency operation; or is deployed in connection with a contingency operation. The employee would be required to provide such advance notice as “is reasonable and practicable” and would be permitted to take leave on an intermittent or reduced schedule basis. This bill would also prohibit retaliation or discrimination against employees for utilizing such leave.

Given the bill’s content, and in light of other recent military-related leaves enacted at the federal level, this bill likely has a good chance of passage and enactment. In October 2007, California enacted a similar bill requiring employers with more than 25 employees to provide l0 days leave for spouses of military personnel.

FOREWARN Act Reintroduced (H.R. 3024/S. 1374)

Known as the Federal Oversight, Reform and Enforcement of the WARN Act (FOREWARN), this bill would make substantial amendments to the federal Worker Adjustment and Retraining Notification Act (WARN) by decreasing size threshold for notice purposes and increasing penalties for non-compliance. Once amended, federal WARN would apply to employers with 75 employees (down from 100 employees) and require 90 days advance notice (up from 60 days) of any plant closing/mass layoff involving 25 employees (down from 50 employees). This bill would further specify the contents of WARN notices and require these notices to be distributed to additional recipients, including the Secretary of Labor and the state Governor. It would also increase the penalties for non-compliance by authorizing double back pay as well as interest.

Prior versions of the FOREWARN Act (H.R. 3692/S.1792) have stalled, but then-Senator Obama previously sponsored an earlier version.

Potential Limitations on Using Consumer Credit Reports (H.R. 3149)

Known as the “Equal Employment for All” Act, this would amend the Fair Credit Reporting Act to generally prohibit employers from using consumer credit checks or investigative consumer reports in hiring or other employment decisions. Except in very narrow exceptions (discussed below), this prohibition would apply even if the consumer consented to the use or procurement of these reports. This prohibition would not apply (a) to employment requiring national security or FDIC clearance; (b) to employment which state or local government agencies require use of such reports; (c) to consumers who apply for or currently work in supervisory, managerial or professional positions at financial institutions; or (d) when otherwise required by law.

The California legislature is currently considering a similar bill (AB 943) which would materially limit an employer’s ability to obtain credit reports. The California version has passed the Assembly, and is currently pending in the Senate where it recently passed a committee vote.

America’s Affordable Health Choices Act of 2009 (H.R. 3200)

The Obama administration and Democratic congressional majorities have signaled that health care reform is a major legislative issue, and a number of bills have recently been introduced or will soon be introduced. This particular just-introduced bill would essentially require larger employers to provide health insurance to their employees, or pay certain funds into a government established fund to subsidize government provided insurance. Employers who elect to provide coverage would be required to meet certain statutorily enumerated benefit and coverage thresholds, while employers who elect to pay would pay an amount based on eight percent of payroll.

As mentioned, this is anticipated to be a major focus and subject to considerable debate and likely amendment to this and other soon-to-be-introduced bills. We will continue to monitor these developments.

Employee Free Choice Act Update

Earlier this week, Democratic senators decided to drop a central provision of the Employee Free Choice Act (H.R. 800, S. 1041) — the so-called “card-check” provision — to help secure a filibuster-proof 60 votes in the Senate. This controversial provision would have required employers to recognize a union as soon as a majority of workers signed cards in support of it. Currently, employers can demand a secret-ballot election supervised by the National Labor Relations Board. Although Democrats have a 60-40 vote advantage in the Senate and President Obama has signaled that he supports the legislation, some conservative Democrats opposed the card-check provision. In its place, the revised Senate bill requires shorter unionization campaigns and faster elections, according to Democratic Senators working on the legislation, the union elections would have to be held within 10 to 30 days after 30 percent of workers signed cards favoring having a union. Senators familiar with the recent revisions have expressed the view that elections are a fairer way for workers to unionize because card check would remove confidentiality from unionization drives and allow union organizers to bully workers into signing union cards. With 262 co-sponsors in the House of Representatives, the legislation is expected to pass and reach the President’s desk before the end of the year.

AGENCY

California

DFEH Unveils New, More User-Friendly, Website

The Department of Fair Employment and Housing recently announced a new, more streamlined website, available at www.DFEH.ca.gov. This website will continue to provide an overview of DFEH operations and sample forms, but will also now include a “daily case law alert” section and the DFEH’s 2008 Annual Report.

Federal

Department of Labor Launches New Website

The U.S. Department of Labor has launched a new web site for people with disabilities, their family members, veterans, caregivers, employers and others at Disability.gov. The new site, previously called DisabilityInfo.gov, features comprehensive information about disability-related programs and services. Visitors can sign up for personalized news and updates, participate in online discussions and suggest resources for the site.

Of particular interest to employers, the site includes information on such things as job accommodation, customized employment, assistive devices and other such information to assist employers in researching potential ways to accommodate disabled workers. This area of the web site may be accessed at:
http://www.disability.gov/employment/workplace_accommodations_%26_supports

USCIS Allows Continued Use of Current I-9 Form

The United States Citizenship and Immigration Services (USCIS) recently announced on its website (www.uscis.gov) that employers may continue to use the current I-9 Form (Rev. 02/02/09) beyond the previously announced June 30, 2009 expiration date. The USCIS announced that is has officially requested that the Office of Management and Budget approve continued use of the current I-9 Form, and that the current form will not expire while that request is pending. It is anticipated that the USCIS will update the Form I-9 to reflect the new expiration date once this extension is formally approved.

DHS Announces Support for E-Verify for Federal Contractors and Intent to Rescind Social Security “No Match” Regulations

The Department of Homeland Security (DHS) recently announced support for a regulation requiring federal contractors to use the federal E-Verify eligibility verification system in order to receive federal contracts. Concurrently with this announcement, the United States Senate approved an amendment to an appropriations bill that would require federal contractors to begin using E-Verify as of September 8, 2009. Since this is the date currently identified as the effective date for the repeatedly delayed federal contractor E-verify regulations (discussed in prior newsletters), this amendment appears designed to ensure those regulations take effect on September 8, 2009, with no further delays. DHS’ announcement further suggests these regulations will finally take effect on that date.

DHS also announced that it intends to rescind the Social Security “No Match” Regulations announced in 2007, but blocked by litigation. Those regulations identified the steps employers and employees were required to follow upon receiving a “no match” letter indicating an employee’s social security number did not match numbers maintained in the federal database.

ICE Announces Nationwide Audits of Employer Verification Records

As mentioned in last newsletter, the Obama administration has signaled it intends to focus on employer compliance with immigration laws, in contrast with the Bush administration which focused on locating unauthorized workers. Consistent with this new focus, the Immigration and Customs Enforcement Services (ICE) recently announced a new audit initiative to inspect employer records (particularly I-9s) to ensure compliance. In early July 2009, ICE announced it had already issued 652 Notices of Inspection to employers.

JUDICIAL

California

California Supreme Court Applies “Severe or Pervasive” Standard to Sexual Harassment Outside of the Workplace

While FEHA prohibits sexual harassment occurring within the workplace, California law (Civil Code section 51.9) also prohibits sexual harassment in certain business relationships outside of the workplace. This law provides that a person may be held liable for sexual harassment occurring within a “business, service or professional relationship,” including but not limited to harassment by physicians, attorneys, real estate, executors, landlords, or teachers. In this case, the California Supreme Court held that the same “severe or pervasive” standard used for hostile work environment cases under FEHA applies for hostile work environment claims filed under this provision. Applying this standard, the Court held that several crude sexual remarks by a trustee on a single day did not constitute sufficiently severe or pervasive conduct to support a viable sexual harassment claim. (Hughes v. Pair (2009) ___ Cal.4th ___, 2009 Cal.LEXIS 6019.)

General Contractor Held Liable for Wages Owed to Subcontractor’s Employees

Six laborers who worked for an unlicensed subcontractor filed wage claims against the general contractor. The Labor Commissioner and the trial court awarded the laborers wages and interest, and the court of appeal affirmed holding a general contractor may be held liable for the unpaid wages of workers hired by an unlicensed subcontractor. Relying on case law analyzing Labor Code section 2750.5 (deeming persons performing work for a contractor employees and not independent contractors), the court reasoned a general contractor is the employer of not only its unlicensed subcontractors, but also those employed by the unlicensed subcontractor. The appellate court upheld the award of wages and interest to the laborers, but denied waiting time penalties because a good-faith dispute existed regarding whether the general contractor was the employer. (Sanders Construction Co., Inc. v. Cerda (2009) __ Cal.App.4th __, 2009 Cal.App.LEXIS 1048.)

Mere Wrongful Termination Not Always Sufficient for Punitive Damages

A preschool employee filed a wrongful termination suit claiming the school terminated her because she complained admitting a student would violate California regulation regarding preschool staffing ratios. A jury entered judgment in the employee’s favor and awarded her $1,108,247.00 in compensatory damages and $750,000.00 in punitive damages.

The court of appeal upheld the jury’s verdict, finding that the staffing regulation constituted a sufficiently substantial and fundamental policy (i.e., protecting children’s safety) to support a tortious discharge claim. However, the court reversed the punitive damages award, holding that while the employer terminated the employee for an improper reason, there was no evidence of vile, base or contemptible conduct such as lying about the termination reason or requiring the employee to commit a crime as a condition of employment. (Scott v. Phoenix Schools, Inc. (2009) ___ Cal.App.4th ___.)

Approval of Class Action Settlement Overturned for Lack of Evidence that Settlement was Fair

Two named plaintiffs filed a class action alleging unpaid overtime against the employer. After mediation, the case settled for $2 million out of which named plaintiffs were to receive $25,000 each while the remaining class members would receive an average of just over $550 each. The court approved the settlement despite a number of employees objecting that the settlement was unfair because they would receive only one percent of the value of their claims. The trial court reasoned that because this was a mediated settlement, it was negotiated at arm's length, and thus was presumptively fair. The objectors appealed.

The appellate court reversed, finding that the trial court lacked sufficient information to make an informed evaluation about the fairness of the settlement. The court explained that the trial court was tasked with going beyond simply assuming the settlement was fair because it was the product of mediation. Rather, the trial court had a duty to evaluate independently the fairness of the proposed settlement. The court further found that the $25,000 enhancements to the named plaintiffs were excessive because there was no evidence the named plaintiffs had taken any actions to protect the other class members' interests nor any evidence of risks to the named plaintiffs in commencing suit which would warrant such an enhancement. Thus, the court found no basis for the named plaintiffs to receive 44 times the average payout to class members. (Clark v. American Residential Services LLC (2009) __ Cal.App.4th __.)

Federal

Class Action Defendant Permitted to File a Motion to Deny Class Certification Before Plaintiffs File a Motion for Class Certification

Plaintiffs (Home Loan Consultants) alleged they were misclassified as “exempt” from California’s overtime requirements under the outside salesperson exemption and sought overtime payments and penalties. Defendants filed a motion to deny class certification before Plaintiffs filed an affirmative motion seeking certification. Plaintiffs challenged the motion as procedurally improper per se. The ninth circuit affirmed the district court’s holding that Rule 23 does not preclude a defendant from bringing a “preemptive” motion to deny class certification.

The ninth circuit further held that the trial court properly denied class certification. The court rejected Plaintiffs’ argument that Defendant’s policy of uniformly designating a group of employees as exempt necessarily warrants class certification. The court reasoned that determining whether class members were exempt would require an individualized inquiry into how each employee spent his or her time given that there was no centralized policy governing how employees spent their time and the employees in this case were given almost unfettered autonomy to do their jobs. (Vinole v. Countrywide Home Loans, Inc. (9th Cir. 2009) 2009 U.S.App.LEXIS 14771.)

Federal Employee Satisfies Title VII’s Pre-Filing Requirements by Contacting Any Official Connected with EEO Process

Pursuant to EEOC Regulations, before a federal employee can file suit under Title VII, she must first seek relief in the agency that allegedly discriminated against her by consulting an EEO “Counselor” to try and informally resolve the matter. Plaintiff, a federal employee, filed a Title VII lawsuit alleging discrimination. Before filing suit, Plaintiff filed a complaint with Defendant’s “EEO Officer.” The district court found the EEO Officer was not a “Counselor” and thus, it dismissed Plaintiff’s Title VII claims for failure to exhaust administrative remedies. The ninth circuit reversed, holding that a litigant satisfies Counselor contact requirement by initiating contact with any official logically connected with the EEO process, even if that person does not have the title of “Counselor.” (Kraus v. Presidio Trust Facilities (9th Cir. 2009) __ F.3d __.)

Internal Grievance About Supervisor is Not Protected Speech

Plaintiffs (police officers) sued several defendants including the city and the police department, claiming they were retaliated against for engaging in constitutionally protected speech in violation of the First Amendment. The speech plaintiffs relied on was internal grievances they filed regarding their supervisor. The trial court granted defendants’ summary judgment motion finding that the speech at issue did not address matters of public concern and thus was not protected by the First Amendment. The ninth circuit affirmed, explaining that speech dealing with internal personnel disputes is not of public concern, even if it involves government officials. (Desrochers v. City of San Bernadino (9th Cir. 2009) __ F.3d __.)

Former Employee who Withdrew Assets from ERISA Retirement Plan Has Standing to Sue ERISA Plan Fiduciaries for Breach of Fiduciary Duty

Plaintiffs filed a putative class action alleging defendants breached their fiduciary duties under ERISA in their operation of two ERISA plans, by allowing the plans to purchase and hold stock while knowing the stock price was artificially inflated due to improper off-label drug marketing and sales. The trial court held that one of the named plaintiffs had no standing because he had withdrawn all his assets from the plan and thus was not a “plan participant.”

The ninth circuit reversed, holding that under the recent case of Vaughn v. Bay Envtl. Mgmt. Inc., even though plaintiff no longer worked at the company and had withdrawn his assets from the plan, he was still considered a “plan participant” because “former employees who have received a full distribution of their account balances … have standing as plan participants under ERISA to recover losses occasioned by a breach of fiduciary duty that allegedly reduced the amount of their benefits.” (Harris v. Amgen, Inc. (9th Cir. 2009) __ F.3d __.)

Police Officers’ Speech Made Pursuant to Job Duties was not Protected Free Speech

Plaintiffs (police officers) claimed they were retaliated against for reports they made to their superiors and testimony they gave to the grand jury in connection with an investigation into police corruption. They alleged this constituted retaliation for engaging in constitutionally protected speech. The ninth circuit held that while speech regarding corruption within the police force was a matter of public concern, because the speech was made pursuant to plaintiffs’ job duties and not as private citizens, the speech was not constitutionally protected. (Huppurt v. City of Pittsburg (9th Cir. 2009) __ F.3d __.)

Individual Defendants May be Held Liable for Unpaid Wages Under the FLSA

Plaintiffs sued their employer’s individual owners and managers for unpaid wages under the FLSA. The district court dismissed plaintiffs’ claims, and the ninth circuit reversed. The court explained that the term “employer” is defined broadly under the FLSA, and includes “any person acting directly or indirectly in the interest of an employer in relation to an employee.” Thus, an individual exercising control over the “nature and structure of the employment relationship” or “economic control” over the relationship is an employer under the FLSA. Based on this interpretation of the term “employer,” plaintiffs’ allegations that the individual defendants had control and custody of plaintiffs and controlled plaintiffs’ employment and their place of employment were sufficient to withstand a motion to dismiss. (Boucher v. Shaw (9th Cir. 2009) __ F.3d __.)