LEGISLATIVE

California

New Wage Withholding Tables Take Effect November 1, 2009 (ABX4 17)

During the recent special legislative session to address California’s budget crisis, the Legislature passed and the Governor signed a new law requiring employers to use increased wage withholding tables and accelerating the rates for individuals and corporations to pay estimated income tax installments. This bill was enacted on an urgency basis, with the new withholding tables taking effect November 1, 2009.

Existing law required the Franchise Tax Board to prepare wage withholding tables for employers to use for withholding taxes on wages paid. Existing law further allowed, in lieu of the withholding tables, withholding at a rate of 6% for supplemental wages and a rate of 9.3% for stock options and bonus payments. Under this bill, for wages paid after November 1, 2009, the wage withholding tables must produce a sum equal to 10% more than the sum specified for purposes of the prior wage withholding tables (i.e., the law increases the applicable withholding rate on employee wages by 10%). This bill also increases the withholding rates to 6.6% for supplemental wages (up from 6%) and to 10.23% for stock options and bonus payments (up from 9.3%) for stock options and bonus payments paid on or after November 1, 2009.

Last year, California enacted a bill (SB 28X1) requiring individuals with non-wage income and corporations to accelerate their quarterly estimated tax payments, using a schedule of payments of 30%, 30%, 20% and 20% rather than four quarterly payments of 25%. This new bill further accelerates these estimated tax payments, with 30% due in April, 40% due in June, zero due in September and 30% in December. This new payment schedule begins for installments due in tax years beginning on or after January 1, 2010.

New California Law Prohibits Hanging Nooses in Workplace (AB 412)

California’s Hate Crimes Law prohibits the display of certain symbols (i.e., swastikas, burned crosses) with the intent to terrorize persons. This recently-enacted bill expands these protections and providers that anyone who hangs a noose, knowing it to be a symbol representing a threat to life, in certain statutorily-enumerated places including a "place of employment," for the purpose of terrorizing an occupant, shall be subject to imprisonment and civil fines up to $5,000 for the first offense. This bill takes effect January 1, 2010. This bill is not targeted specifically at employers, but provides additional incentive for employers and employees to ensure nooses are not displayed in the workplace for purposes of harassing co-workers.

Several Other Employment Bills Pass Committee Votes

As mentioned in prior newsletters, most significant employment-related bills (e.g., paid sick leave, meal period reform, etc.) have stalled and will not be enacted this year. There are, however, several employment bills that have already passed one chamber and have recently passed key committee votes in the second chamber. These include the following: AB 335 [prohibiting employment contract provisions requiring non-California law or forums for future disputes]; AB 527 [allowing Labor Commissioner to disregard all relevant payroll records if any falsified records submitted]; AB 793 [California’s version of the recently enacted federal Lilly Ledbetter Fair Pay Act]; AB 943 [limiting employer usage of consumer credit reports]; AB 1288 [limiting employer usage of federal E-Verify system]; and AB 1562 [prohibiting termination for wage garnishments].)

Full floor votes are expected shortly, and the legislative deadline for the second chamber to pass each bill is September 11, 2009.

Federal

House of Representatives Approves Bill Limiting Executive Compensation (H.R. 3269)

Known as the Corporate and Financial Institution Compensation Fairness Act of 2009, this bill would amend the Securities Exchange Act of 1934 to provide shareholders with an advisory vote on executive compensation, and also limit “perverse incentives” in financial institution compensation practices. Amongst other things, this bill would require shareholders be notified and permitted to cast non-binding votes regarding executive compensation, and would set procedures for disclosure and shareholder approval of golden parachute compensation. The bill would also direct the Securities Exchange Commission to prescribe standards related to executive compensation and develop new requirements ensuring compensation committee members be sufficiently independent.

This bill was quickly passed by the House on a near party-line vote shortly after its introduction, and is now pending before the Senate Banking Committee.

E-Verify to Become Mandatory? (H.R. 3308/S.1505)

Known as the Secure America Through Verification and Enforcement Act (SAVE Act of 2009), this bill would make the federal E-Verify pilot program permanent and require all employers to use E-Verify to determine the eligibility of current and prospective employees. This bill would require all federal agencies, federal contractors and “large employers” (more than 250 employees) to begin using E-Verify within two years of the bill’s enactment, and would require all employers to being using E-Verify within certain specified periods depending on employer size, with all employers using E-Verify within five years of the bill’s enactment. Employers would also be required to use E-Verify to verify current employees within five years of the bill’s enactment.

As discussed separately below, it also appears the long-delayed regulations requiring federal contractors to use E-Verify will take effect September 8, 2009.

Wage Theft Prevention Act (H.R. 3303)

This recently introduced bill would amend the Portal-to-Portal Act of 1947 to suspend the statute of limitations for certain rights of action under the Fair Labor Standards Act during investigations by the Secretary of Labor. Specifically, this bill would toll the statute of limitations from the date the employer is informed of the investigation until the agency notifies the employer the investigation is concluded. This bill is in response to a Government Accountability Office report that suggested may wage claims were not pursued due to the length of investigations and the relative shortness of the limitations period. This bill has been referred to the House Committee on Education and Labor.

Senate Considering Prohibition on Sexual Orientation Discrimination (S. 1584)

Known as the Employment Non-Discrimination Act of 2009, this bill would amend Title VII to prohibit discrimination based on an employee’s actual or perceived sexual orientation or gender identity. This bill would not, however, apply to the armed forces or to organizations exempt from the religious discrimination provisions of Title VII. Although very similar to the House version (H.R. 2981), this particular version is potentially significant as it is one of the first versions introduced in the Senate and was introduced with bi-partisan support. This development, coupled with President Obama’s prior statements supporting similar bills, suggests some version of these bills could be enacted in the near future. While these amendments would affect Title VII, they would not affect most California employers since California’s FEHA already prohibits discrimination based on sexual orientation.

AGENCY

California

DLSE Permits Temporary Reduction in Workweek and Salary For Exempt Employees

In a reversal of its prior opinion on the subject, the DLSE recently issued an opinion letter (Opinion Letter 2009.08.19), stating that employers may reduce the salaries of their exempt employees along with a matching reduction in their work schedules during periods where the employer operates shortened workweeks due to economic conditions. In this case, the DLSE examined whether an employer could reduce the exempt employee’s work week from five to four days and also reduce these exempt employees’ salary’s by 20% or some other proportion.

In its 2002 Opinion Letter, the DLSE had determined that federal regulations precluded employers from reducing salaries of exempt employees during periods the employer used shorter workweeks due to economic conditions. In its just-issued Opinion Letter, however, the DLSE concluded that the 2002 Opinion Letter misapplied the applicable federal regulations, and that federal regulations and relevant federal court decisions have actually determined that these simultaneous reductions in work schedule and salary do not necessarily violate the salary basis test. The DLSE also noted that applicable California authorities (e.g., the Labor Code or Industrial Welfare Commission wage order provisions) do not prohibit employers from simultaneously reducing work schedules and salary of exempt employees.

As a result, California employers may, for example, temporarily reduce employee salaries by 20 percent and implement a temporary four-day workweek, without calling into question the exempt status of their employees. It is important for employers to note that these reductions must be applied prospectively, and not to the current workweek – an employer cannot, for example, tell employees on Wednesday not to come to work on Friday, and reduce their salaries accordingly. The reductions should only be applied to future workweeks. In addition, nothing in this letter creates a “part-time” exemption – all exempt employees must be paid a salary that is more than twice the minimum wage for full-time work, no matter how many hours they work in a given workweek (currently $33,280 annually, or $640 per week).

The DLSE emphasized that the work and pay reductions were 1) due to the employer's economic difficulties given the downturn in the overall economy and 2) the reductions were expected to be temporary. The employer at issue represented that it fully intended to restore both the full five-day work schedule and full salaries of its exempt employees as soon as business conditions would allow it to do so. The full text of this opinion letter can be found on the DLSE’s website at: www.dir.ca.gov/dlse/opinions/2009-08-19.pdf.

FEHC Provides Chart Comparing CFRA with Amended FMLA

While the Department of Labor’s (DOL) new FMLA regulations took effect January 16, 2009, the regulations to the California Family Rights Act (CFRA) have not yet been updated and still refer to the 1995 version of the FMLA regulations. As previously reported, the California Fair Employment and Housing Commission (FEHC) has indicated it intends to update the CFRA regulations in light of the FMLA amendments, but no firm timetable has been set for these updates to be completed and the budget crisis likely will delay completion. In the interim, the FEHC has developed a chart providing a side-by-side comparison of the current CFRA regulations against the updated FMLA regulations, and also identifying which provision is more favorable to the employee. This potentially very-helpful chart is available on the FEHC website at www.fehc.ca.gov/pdf/FMLA-CFRARegsTable-2.pdf.

Federal

Reminder: Federal Contractor Requirements for E-Verify Likely to Take Effect September 8, 2009

Absent further delay, it appears the Department of Homeland Security’s long-delayed rule requiring federal contractors to use the federal E-Verify system will take effect September 8, 2009. As discussed in greater detail in earlier newsletters, this rule will require that most federal contracts awarded or solicitations issued after the effective date include clauses requiring the contractor (and in some instances, subcontractors) to use the federal E-Verify system for purposes of determining employee eligibility to work. These requirements to use E-Verify will generally apply to any contractor employee hired during the contract’s term, or to any current contractor employee assigned to perform work on the federal contract. In other words, the contractor will need to use E-Verify for all new hires, regardless of whether working on the federal contract, and to employees hired before the contract was awarded if they will work on the contract.

Anticipating likely employer questions about this soon-to-be-effective rule, the United States Citizenship and Immigration Services Department (USCIS) has issued information, in fairly easy to read question and answer format, providing an overview of this rule, including which federal contracts, employers and employees are subject to this rule, and how and when to register for E-Verify. This guidance document, entitled “Frequently Asked Questions: Federal Contractors and E-Verify” is available on the USCIS website as www.uscis.gov.

DOT’s Reinstated Direct Observation Rules for Drug Testing Effective August 31, 2009

The Department of Transportation’s (DOT) Office of Drug and Alcohol Policy and Compliance (ODAPC) has recently issued a final rule reinstating the DOT’s regulations requiring direct observation of certain transportation employees during return-to-duty and follow-up drug tests. This rule, which originally was issued in June 2008 but delayed pending litigation, will take effect on August 31, 2009.

The DOT has previously enacted drug and alcohol testing regulations for certain transportation industry employees, particularly those in safety-sensitive positions. Under the DOT’s regulations, covered employees who fail or refuse to take these tests are precluded from working in these positions until they complete a treatment program and pass a return-to-duty test. These employees are also required to pass at least six unannounced follow-up urine tests during the next year.

These soon-to-be-effective direct observation requirements are designed to ensure employees do not cheat on these return-to-duty and follow-up tests, including by using prosthetic devices. Accordingly, these regulations require a same-gender observer to watch the urine be collected in the collection container, and require the employee being tested to raise his or her clothing to enable the monitor to ensure the employee is not cheating. The DOT has also announced its final rule will supersede any collective bargaining agreement provisions relaxing these direct observation requirements.

The DOT’s rule can be found at 40 C.F.R. 40 or at www.edocket.access.gpo.gov/2009/pdf/E9-18156.pdf. The ODAPC has also posted information, including answers to frequently asked questions about DOT regulations, and has announced it will continue to post information about these regulations (e.g., new posters) on its website, www.dot/gov/ost/dapc.

EEOC Issues Guidance on Severance Agreement Releases

The Equal Employment Opportunity Commission (EEOC) has recently released a technical guidance document entitled “Understanding Waivers of Discrimination Claims in Employee Severance Agreements.” Although intended primarily to answer employee questions concerning severance agreement releases, this easy-to-read Guidance is a potentially helpful tool to employers as it shares the EEOC’s views concerning the enforceability of severance agreement waivers. This Guidance contains numerous helpful examples written in a question and answer format, and amongst other things, clarifies that severance agreements cannot preclude EEOC charges, it helps define “decision unit” for age-related releases in the group lay-off context, and discusses the consequences if employees challenge the age-related waivers in an agreement. This Guidance is available on the EEOC’s website at www.eeoc.gov/policy/docs/qanda_severance-agreements.html.

DOL Issues Proposed Rules Requiring Notification of NLRA Rights

The Department of Labor (DOL) has recently issued a Notice of Proposed Rulemaking (NPRM), outlining proposed regulations to implement Executive Order 13496. Signed by President Obama in January 2009, Executive Order 13496 is entitled “Notification of Employee Rights Under Federal Labor Laws” and requires federal contractor employees be “well informed of their rights under Federal Labor Laws, including the National Labor Relations Act.” The just-issued NPRM outlines the proposed contents of the notices federal contractors would be required to ensure are made available to their employees. The DOL will accept comments on this NPRM until September 2, 2009. The full text of this NPRM can be found in the federal register at 29 CFR Part 471, pages 38487-38501 or at www.edocket.access.gpo.gov/2009/E9-17577.htm.

DHS Proposes Rule to Officially Rescind “No Match” Rule

The Obama administration has previously signaled that it intended to rescind the Bush administration’s proposed “no match” regulations. Issued in 2007 and in 2008, these proposed “no match” regulations would have required notices to be sent to employers when an employee’s name did not match the social security number maintained by the Social Security Administration, and would have identified steps employers could take to acquire a safe harbor from receipt of no-match letters. These regulations were immediately challenged and enjoined, and never took effect.

Consistent with the new administration’s stated intent to rescind these regulations, the Department of Homeland Security (DHS) has recently published a proposed rule officially rescinding these earlier regulations. This rule can be found at 8 CFR Part 274a, and states that the DHS intends to focus its enforcement efforts on employee eligibility through increased compliance with improved verification, including participation in E-Verify, ICE Mutual Agreement Between Government and Employers, and other programs. The DHS will accept comments on this proposed rescission until September 18, 2009.

CDC Issues Guidance Regarding H1N1 Flu Preparedness

Just in time for the 2009-2010 flu season, the United States Centers for Disease Control (CDC) has published on a special flu-related website (www.flu.gov/index.html) additional information to help employers and employees address the H1N1 flu. These recently-published materials include a new guidance document entitled “Guidance for Businesses and Employers to Plan and Respond to the 2009-2010 Influenza Season” to assist non-healthcare employers to decrease the spread of seasonal flu and H1N1 flu in the workplace. This guidance discusses appropriate response strategy considerations, preparedness and response recommendations, along with recommended steps for employers to take now and if flu conditions become more severe. This thirteen page guidance document is available at www.flu.gov/plan/workplaceplanning/guidance.html.

The CDC has also issued “Preparing for the Flu (Including 2009 H1N1 Flu): a Communication Toolkit for Businesses and Employers.” This thirty-seven page toolkit includes information concerning the H1N1 virus, fact sheets for both employees and employers, a list of recommended employer actions, as well as a workplace poster and sample communications for employers to send to employees. This toolkit is available for download at www.flu.gov/plan/workplaceplanning/toolkit.pdf.

JUDICIAL

California

California Supreme Court Holds Narrowly Tailored Videotape Surveillance Did Not Violate Employees’ Privacy Rights

Two clerical employees sued their employer, a non-profit residential facility for abused children, for invasion of privacy after the employer installed a hidden video camera in their semi-private office to discover who was accessing pornographic websites on the facility’s computers. Although the plaintiffs were not the target of this surveillance and the employer took steps to ensure the plaintiffs were never actually videotaped (i.e., the camera was not activated until the plaintiffs left each day), the plaintiffs argued this non-consensual surveillance violated their constitutionally protected rights of privacy. The California Supreme Court unanimously determined that the employer had not violated these employee’s rights of privacy, but it premised its ruling on the particular facts presented in that case, particularly the very narrowly tailored nature of the surveillance.

The Court focused its analysis on whether the surveillance intruded upon any reasonable expectations of privacy, and if so, the offensiveness or seriousness of the intrusion, including any justification for the intrusion. Notably, the Court first observed that although the employees’ privacy expectations may be significantly diminished in the workplace, they are not completely lacking altogether, and that the employer had violated these employees’ reasonable expectation of privacy. The Court noted the semi-private nature of the employees’ office and that even assuming the employees might expect people could overhear or see them generally, they would not expect the employer to covertly install a video surveillance system. The Court reaffirmed an employer’s policies may further minimize privacy expectations, but noted this employer’s policy authorizing computer monitoring did not inform employees they might also be videotaped.

The Court next examined the offensiveness or seriousness of the privacy intrusion by evaluating the degree and setting of the intrusion (i.e., the place, time and scope of the employer’s surveillance efforts). The Court noted the employer had taken a “measured approach” in its surveillance efforts by confining its surveillance to particular areas and limiting the actual surveillance as much as possible, including to only periods when the non-target employees were not present. The Court also considered the employer’s motives for undertaking the surveillance and measured them against relevant societal norms. The Court noted the employer had not acted for “socially repugnant or unprotected reasons” (e.g., harassment, blackmail or prurient curiosity) but rather had acted to identify an employee whose inappropriate computer usage potentially subjected the employer to liability and presented a threat-risk to the children housed at the facility. Accordingly, although the employees could potentially establish a reasonable expectation of privacy, they could not demonstrate the particular surveillance was highly offensive or constituted an egregious violation of prevailing social norms. (Hernandez v. Hillsides, Inc. (2009) 47 Cal.4^th 272.)

Employer’s Paternalistic Views Results in Pregnancy Discrimination Verdict

A female employee discharged just days after announcing her pregnancy filed a pregnancy discrimination charge with the Department of Fair Employment and Housing, and an administrative judge ruled in her favor ordering backpay, $85,000 in emotional distress damages and imposed a $25,000 administrative fine. The California court of appeal affirmed the award finding that the employer’s admissions that it laid her off because its President felt it was unsafe for her to continue working on a boat or traveling to foreign countries while pregnant provided sufficient evidence of discriminatory animus. The court also affirmed the backpay award during the periods the employee was disabled by pregnancy noting that had she continued working, the employer would have been required to reasonably accommodate her disability. Lastly, the court affirmed the administrative fine (akin to punitive damages) on grounds the employer’s officers the contrived lay-off defense to hide discriminatory intent. (Sasco Electric v. Cal. Fair Employment and Housing Commission (ex rel Scherl) ___ Cal.App.4^th ___, 2009 Cal.App.LEXIS 1299.)

Employer’s Post-Termination Statements Concerning Reason for Resignation Violated Severance Agreement’s Confidentiality Provision

A former employee sued her public employer for breach of contract alleging the employer violated the severance agreement’s confidentiality provision preventing either party from disclosing the facts and events giving rise to the agreement. In this case, several public employer agents had stated to newspaper reporters the former employee had resigned due to a conflict of interest or because of an “improper relationship” with an adverse party. The California court of appeal dismissed the employee’s promissory fraud claim due to governmental immunities, but allowed the employee to proceed with her breach of contract claim.

The appellate court rejected the employer’s claim the confidentiality provision violated public policy, since the provision expressly permitted disclosures required by law (i.e., s Public Records Act request). In this case, the employer had not been compelled to make the disclosures since there was no pending Public Records Act request, and in any event, the employer needed only to disclose the agreement, not the circumstances resulting in the agreement. The court also concluded that even if the employer’s statements were generally protected under the First Amendment, it had contractually limited these rights through the confidentiality provision. (Sanchez v. County of San Bernardino (2009) ___ Cal.App.4^th ___, 2009 Cal.App.LEXIS 1302.)

Court Raises Questions about Enforceability of Non-Solicitation Provisions

An employer sued numerous former employees alleging they had misappropriated trade secrets and were improperly using them to solicit the employer’s existing customers to switch their patronage. The trial court granted the employer a preliminary injunction prohibiting the employees from numerous activities, including using any trade secret information (i.e., information found exclusively in the former employee’s confidential databases) as well as soliciting the employer’s customers to transfer their accounts. The employees did not challenge the trade secret prohibition, but contended the prohibition on soliciting customers was invalid.

The California court of appeals agreed the non-solicitation provision was invalid generally, and in this instance unnecessary since the prohibition on trade secret usage adequately protected the former employer. The court of appeal began its analysis by noting the broad protections of Business and Professions Code section 16600, which with very narrow statutory exceptions, invalidates any provisions that prohibit or generally limit an individual’s ability to work, including in competition with a former employer. The appellate court noted an equally important public policy goal of preventing employees from misappropriating trade secrets to unfairly compete with the former employer. The court noted that employers may prohibit former employees from soliciting former customers if the employee is utilizing trade secret information to solicit those customers. However, in that instance, it is not the solicitation itself that is improper and may be enjoined, but it is the misuse of trade secret information that may be enjoined.

Applying these principles, the appellate court observed Business and Professions Code section 16600 precludes a court from enforcing a contractual provision barring customer solicitation by former employees. However, courts may preclude tortuous conduct by banning the former employee from using trade secret information to identify existing customers, or to facilitate the solicitation of existing customers, or to otherwise unfairly compete with the former employer. The court also noted that while customer lists can qualify for trade secret protection where actual confidential information involved (such as in this case), customer lists embodying information “readily ascertainable” through public sources (e.g., business directories) will not qualify. (The Retirement Group v. Galante (2009) __ Cal.App.4^th ___, 2009 Cal.App.LEXIS 1393.)

Municipal “Retention” Ordinance Preempted by California and Federal Regulations

The city of Los Angeles passed a law requiring purchasers of large grocery stores to employ the store’s prior workforce for 90 days after purchase, to enable those workers to find new jobs before being displaced. The trial court, upheld by the Appeals Court, held that the ordinance was preempted by the California Retail Food Code (CRFC) based on Legislative intent to fully occupy the field of health and sanitation standards for retail food facilities, and by the National Labor Relations Act. In addition to being an important decision for grocery store operators, a finding of preemption is important for employers who wish to argue that local rules and ordinances are “preempted” by larger state and federal schemes. (California Grocers Association v. City of Los Angeles (2009) 176 Cal.App.4^th 51.)

Class Certification Denial Upheld In Independent Contractor Case Involving Cab Drivers

Putative class action brought by former independent contractors, claiming that USA Cab’s leases wrongfully classified lessees as independent contractors rather than employees. The trial court denied class certification after several rounds of briefing, noting that defendant submitted driver declarations showing that drivers’ duties and days varied widely, and the decision was upheld by the Appeals Court, which found that common questions did not predominate. (Ali v. U.S.A. Cab Ltd. (2009) ___ Cal.App.4^th ___, 2009 Cal.App.LEXIS ____.)

Federal

Former Employees Permitted to Proceed with Sarbanes-Oxley Claim Against Managers and Supervisors can be Sued for Unpaid Wages Under the FLSA

In 2005, the California Supreme Court held that individual officers of a company generally cannot be sued for unpaid wages since they do not meet the California Labor Code’s definition of “employer.” (Reynolds v. Bement (2005) 36 Cal.4^th 1075).

In this case, Plaintiffs sued their bankrupt employer’s individual owners and managers in federal court for unpaid wages under the Fair Labor Standards Act (FLSA). The managers argued they could not be sued because they were not “employers” as defined under the FLSA, or they were otherwise insulated from suit because of the employer’s bankruptcy. The district court held that managers were not “employers” and were immune from suit under the FLSA, but the ninth circuit reversed.

The circuit 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. The circuit court also the employer’s bankruptcy proceedings did not preclude claims against the individual managers. (Boucher v. Shaw (9th Cir. 2009) __ F.3d __, 2009 U.S. App.LEXIS 16555.)

Commute Time Using Company Car and De Minimis Preliminary Activities Not Compensable

Plaintiff brought a class action on behalf of all car alarm installation technicians seeking compensation for time spent commuting to worksites using the employer’s vehicles. Plaintiffs also sought compensation for “preliminary” and “postliminary” activities performed at their home before and after their shifts. The district court granted summary judgment on behalf of the employer regarding all three categories of work, holding that the commute time was not compensable as a matter of law, and the “preliminary” and “postliminary” activities were de minimis and not compensable. The Ninth Circuit upheld summary judgment regarding the preliminary activities and the commute time issues, but reversed for further findings regarding the “postliminary” activities, holding that not enough evidence had been presented to support the argument that the postliminary activities (sending a transmission to headquarters) were de minimis.

The Ninth Circuit held that the time spent commuting to worksites in a company vehicle was not compensable under federal or California law, even though the employer required the employee to drive the employer’s vehicle. The circuit court noted that under the federal Employee Commuting Flexibility Act (29 U.S.C. § 254(a)(2), an employee’s use of an employer’s car is not compensable if the use of the vehicle for travel is within the normal commuting area for the employer’s business and the use of the employer’s vehicle is subject to an agreement on the part of the employer and the employee. Distinguishing the recent California Supreme Court decision in Morillion v. Royal Packing Co. (2000) 22 Cal. 4^th 575 in which employees were required to meet at a departure point and then commute in employer-provided vehicles, the federal court concluded the technician’s use of the vehicle to go from home to a worksite did not place him sufficiently under the employer’s control to require compensation. The court noted that although required to use the company vehicle, the drivers were free to determine when they left, the route they took, and which assignment they went to first.

The court also concluded the employees’ “preliminary” duties (i.e., filling out job forms) were not compensable as there was no showing they were integral to his principal activities or that they needed to be completed before the shift began. The court also suggested these actions were de minimis since they lasted only a minute at most. In contrast, the postliminary activities (e.g., faxing a mandatory end-of-the-day report) might be compensable as part of the employee’s regular work, and the court declined to adopt a bright-line rule determining these actions de miminis and non-compensable. (Rutti v. Lojack Corp. (9^th Cir. 2009) ___ F.3d ___, 2009 U.S.App.LEXIS ____.)

Ninth Circuit Outlines Elements for Sarbanes-Oxley Claim against Publicly- Traded Employer

In a case of first impression in this federal circuit, the Ninth Circuit recently discussed the substantive elements needed to state a viable claim under the whistleblower-protection provisions of the Sarbanes-Oxley Act, 18 U.S.C. § 1514A (“SOX”). In this case, two former in-house counsel asserted a SOX claim after their employer terminated them shortly after they allegedly expressed concerns that a recent corporate merger had effectuated a fraud upon the publicly-traded company’s shareholders. The district court granted the employer’s summary judgment motion finding the attorneys had not engaged in a legally protected activity for SOX purposes, but the Ninth Circuit reversed and in doing so, outlined the basic elements needed for SOX claims in this federal circuit.

The circuit court noted that SOX prohibits employers of publicly-traded companies from discriminating or retaliating against employees for providing information the employee reasonably believes constitutes a violation of statutes addressing mail fraud, wire fraud, bank fraud, securities fraud, or any rule of regulation of the Securities and Exchange Commission or any provision of federal law relating to fraud against shareholders. Citing Department of Labor regulations, the circuit court identified four required elements for a prima facie SOX claim: (1) the employee engaged in a protected activity or conduct; (2) the named person knew or suspected, actually or constructively, that the employee engaged in a protected legal activity; (3) the employee suffered an unfavorable personnel action, and (4) the circumstances were sufficient to raise the inference the protected activity was a contributing factor in the unfavorable action. Once the employee establishes a prima facie claim, the employer bears the burden of proving by clear and convincing evidence it would have taken the same employment action in the absence of the protected activity.

The circuit court observed that to constitute a protected legal activity under SOX, the communications must “definitively and specifically” relate to one of the statutorily enumerated types of violations (e.g., wire fraud, securities, fraud, etc.) The court noted that a trier of fact could reasonably conclude the in-house attorney’s expressed concerns about deliberate asset over-valuation specifically related to shareholder fraud. The court also noted that the mere proximity in time between the report and the subsequent challenged action (in this case, three days) could in some circumstances support an inference the protected activity was a contributing factor to the termination. (Asdale v. International Game Tech. (9^th Cir. 2009) ___ F.3d ___, 2009 U.S.App.LEXIS ____.)