LEGISLATIVE

California

Employment Training Fund “Lock Box” Being Considered (AB 1804)

California law specifies that moneys in the Employment Training Fund are generally to be used only for particular purposes relating to employment training, but it also authorizes these funds to be used for loans to the General Fund and other identified purposes. This bill would amend the Unemployment Insurance Code to prohibit Employment Training Funds to be used for any other purpose, including to shore up the General Fund.

Workplace Flexibility Act of 2009 Introduced (SB 1335)

California law requires, with very narrow exceptions, that employers pay overtime for more than 8 hours worked in a day and more than 40 hours in a workweek. The California Labor Code (section 511) permits employees to adopt alternative workweek schedules whereby they would be exempt from overtime if they worked more than 8 but less than 10 hours in a day, but the election process for such schedules is often very hard to satisfy (ex. requiring a 2/3 vote of employees in a work unit). This bill would relax these requirements by permitting an individual non-exempt employee to request an employee-selected flexible work schedule providing for workdays up to 10 hours per day within a 40-hour workweek, and would allow an employer to implement this schedule without an obligation to pay overtime compensation.

Federal

Health Care Reform Bill Signed into Law (H.R. 3590)

President Obama has signed the Patient Protection and Affordable Care Act, which contains several provisions potentially impacting employers and employees. For instance, beginning in 2014, employers with 50 or more employees who fail to offer health care coverage to their employees will be subject to a penalty of $2,000 for every full-time employee. Notably, employers who offer coverage would still be subject to penalties if any employees must apply for federal subsidies to purchase coverage through the to-be-established health care exchanges. If an “eligible” (as defined) employee elects to purchase a different health plan through these exchanges, employers may be required to provide a “free choice voucher” to the qualified employee in an amount equal to the employer’s payment to provide coverage under its plan. Beginning in 2018, employers offering so-called “Cadillac Plans” (i.e., plans with total premiums exceeding particular levels) may be subject to excise taxes on the amount above that value.

This bill reaffirms an employer’s ability to utilize “wellness programs” (i.e, incentives or rewards tied to participation in exercise programs or meeting health status targets). Beginning in 2011, the law limits contributions to Flexible Spending Accounts and Health Savings Accounts to $2,500 per year, and imposes new limits on use of both FSA and HSA funds for over-the-counter medicines.

As outlined above, many of these provisions will not take affect for several years, and additional changes are likely during the upcoming “reconciliation” process and future legislative sessions. Stay tuned!!

Health Care Bill Requires Breaks for Breastfeeding Workers

The recently-enacted health care reform bill also amends the Fair Labor Standards Act (FLSA) to require employers to provide nursing mothers with reasonable unpaid break time in a reasonably private place to express milk each time the employee must do so for up to one year after the child’s birth. The amendment specifies that the employer must provide a fairly private “place, other than a bathroom, that is shielded from view and free from intrusion from coworkers and the public.” Employers with less than 50 employees shall be exempt if such breaks would cause an undue hardship by causing significant difficulty or expense when considered in relation to the size, financial resources, nature or structure of the employer’s business. This amendment specifies that it does not preempt state law providing greater protections to the employee than provided under this amendment.

The DOL is expected to soon provide regulations defining “reasonable” break time and specifying how violations will be enforced.

California has imposed similar lactation requirements since 2001, so this new federal law likely will not materially impact most California employers. (See Labor Code section 1030 et seq.) However, there do appear to be some differences between the two bills, and California employers should be aware of these. For instance, while the federal bill contains an “undue hardship” exemption for smaller employers (under 50 employees), California’s provision contains no such undue hardship exemption, instead requiring that all employers provide such breaks and make “reasonable” efforts to provide a private location. Both bills require the employer to provide a reasonably private location, but whereas the California bill states this shall be “other than a toilet stall,” the federal bill appears broader requiring it be “other than a bathroom” and that it be free from intrusion from coworkers and the public.

HIRE Act Now Effective (H.R. 2847)

President Obama has also signed into law the Hiring Incentives to Restore Employment Act (“HIRE”), which provides several financial incentives for employers to hire new workers. For instance, this bill exempts employers from paying their portion of social security taxes (6.2% on the first $106,800 in wages paid) for new employees hired between February 3, 2010 and before January 1, 2011, provided the employee certifies they have not worked more than 40 hours during the preceding 60 days. This bill also allows an increase in the general business tax credit for employers who retain these newly-hired employees for at least one-year at specified wage levels.

Additional COBRA Premium Subsidy Extension Seems Likely (H.R. 4851)

After last month’s further extension, the eligibility period for the federal COBRA premium subsidy (65% for 15 months for “assistance eligible individuals”) expired on March 31, 2010. Notably, Congress has not yet officially extended this deadline, and it appears unlikely that it will do so until after it returns from recess on April 12, 2010.

It is widely anticipated that this deadline will be extended upon Congress’ return in April, including retroactively to March 31, 2010, and potentially extended through December 31, 2010, although another short-term stop-gap extension may occur before a final lengthier extension is enacted. For instance, the Senate has recently passed its “Jobs Bill,” which contemplates a premium subsidy extension until December 31^st, and the President has signaled support for a similar extension. The House has also recently passed another stop-gap measure (H.R. 4851) that would extend this deadline to April 30, 2010, which is now pending in the Senate.

In the interim, the Department of Labor has also published updated COBRA Model Notices reflecting the most recent extensions, and these are available for employers to download at www.dol.gov/ebsa/cobramodelnotice.html.

House Passes National Guard Employment Protection Act Extending Some USERRA Protections (H.R. 1879)

The House of Representatives recently overwhelmingly passed the National Guard Employment Protection Act, which is designed to close a loophole in the Uniformed Services Employment and Reemployment Rights Act of 1994 (USERRA). USERRA requires employers to provide certain employment benefits, including guaranteed reemployment, to employees who miss work because of their military service. Under USERRA, these protections are guaranteed for up to five years of cumulative absences from work due to military services, but certain military members are exempt from this five year limit, meaning those service members have their jobs protected for more than five years. This bill would amend section 4312 of USERRA to include in this exemption full-time National Guard members serving in domestic missions or as designated by the Secretary of Defense.

This bill enjoys bi-partisan support and is currently pending in the Senate, where it is expected to pass.

Permanent Extension of Income Deduction for Employer-Provided Educational Assistance Contemplated (S. 2851)

Internal Revenue Code (IRC) section 127 allows an employee to exclude from income up to $5,250 per year in assistance provided by an employer for educational courses. Employers are not required to provide this often-popular benefit, but if it chooses to do so, it must offer the benefit to all employees. This IRC deduction is currently set to expire on December 31, 2010 unless extended, and this bill would make this deduction permanent. This bill has been referred to the Senate Finance Committee.

Senator Boxer Proposes Extending COBRA Coverage to Domestic Partners (S. 3182)

Under current federal law, while employers must offer continuing health care coverage to departing employees and their beneficiaries, domestic partners and same-sex spouses are not entitled to COBRA continuation benefits even if the employer previously offered health care coverage for domestic partners. Known as the Equal Access to COBRA Act of 2010, this recently introduced bill would amend federal law to allow domestic partners currently covered under an employer’s health plan to have equal access to COBRA continuation benefits. This bill would apply to companies that currently offer health coverage to domestic partners and their dependents. This bill is currently pending before the Senate Committee on Health, Education, Labor and Pensions, where its chance of passage is not clear.

AGENCY

Federal

DOL Issues Administrative Interpretation Finding that Mortgage Loan Officers Performing “Typical Job Duties” do not Qualify for Administrative Exemption

The Department of Labor (DOL) recently issued Administrator’s Interpretation No. 2010-1 (previously known as Opinion Letters) analyzing whether mortgage loan officers performing “typical job duties” qualify for the administrative exemption under the Fair Labor Standards Act (FLSA). The DOL concluded that employees who perform the “typical job duties” of a mortgage loan officer, regardless of the particular title affixed (e.g., loan originator, loan consultant, etc.), and who spend the majority of their time working in the employer’s place of business or the employee’s own office, would not qualify as bona fide exempt employees.

The DOL reiterated that a bona fide administrative employee’s duties and compensation must meet all three of the following requirements: (1) the employee must be compensated on a salary or fee basis of not less than $455 per week; (2) the employee’s primary duty must be the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers; and (3) the employee’s primary duty must include the exercise of discretion and independent judgment with respect to matters of significance. In this case, the DOL focused primarily upon the second element and whether the mortgage loan officer’s primary duty involved office or non-manual work generally related to the management or general business operations. Citing the “production versus administrative dichotomy,” the DOL noted the administrative exemption is limited to employees whose primary duty is administrative rather than production (i.e., selling the employer’s primary product).

The DOL noted that mortgage loan officers performing “typical job duties,” which it described as including contacting potential customers based upon information generated by the employer or databases to discuss or sell loan products fall on the production rather than the administrative side of this dichotomy. In short, employees performing these duties have the primary duty of “making sales,” not running the business. The DOL also emphasized the fact these mortgage loan officers are compensated primarily by commissions based upon sales.

Notably, although this interpretation involved mortgage loan officers, its analysis is not necessarily confined to the mortgage loan context and may apply to other industries where employees perform similar “typical job duties” primarily involving sales. On the other hand, the DOL did not categorically state mortgage loan officers could never be exempt, and it distinguished “sales” officers from those engaged in more administrative-type duties such as promoting the employer’s financial products generally (as opposed to sales to an individual) or hiring staff, running the office, or deciding on the budget.

The DOL interpretation also withdrew two prior Opinion Letters (FLSA 2006-31 and 2001 WL 1558764) on this subject. The full text of this Administrator’s Interpretation is available at www.dol.gov/whd/opinion/adminintrptn/flsa/2010/flsa2010_1.pdf.

JUDICIAL

California

Employment Screening Business Has Constitutional Right to Publish Information on Megan’s Law Website (But Employers Should Continue to Be Careful Relying on this Information)

An applicant sued an employment-screening business who accessed the Megan’s Law website during a background check for a client, presumably because he did not get hired because of the website’s information. The former applicant argued the employment-screening business violated California Penal Code section 290.46 which prohibits the “use” of information on the Megan’s Law website for various enumerated purposes, including “employment.” The trial court and court of appeal granted the screening company’s SLAPP motion finding that it had a constitutional right to publish the information generally, and its “use” of this information also did not violate the Penal Code.

The appellate court noted that business-entity speakers have First Amendment rights to speak on political and social issues, and that speaking for commercial purposes did not preclude it from constitutional protections. The court concluded that by publishing information from the Megan’s Law website, the screening business had engaged in constitutionally protected speech on a subject of public interest, and it noted that by creating this website in the first instance, the legislature had codified the public’s strong interest in this information. The appellate court also noted that the applicant could not demonstrate a strong likelihood of prevailing against the screening company, since although Penal Code section 290.46 arguably prohibited the employer (who was not sued) from “using” the information, it did not prohibit the screening company from providing this information. (Mendoza v. ADP Screening and Selection Services, Inc. (2010) ___ Cal.App.4^th ___, 2010 Cal.App.LEXIS 383.)

NOTE: while it may be tempting for employers to want to use this information in light of recent high-profile events, they should still tread carefully in doing so absent further analysis. It bears repeating that this applicant only sued the screening company, not the employer, and the court’s reasoning suggested that the employer would be prohibited from “using” this information to disqualify an applicant. The court did note that persons may “use” information from this website “to protect a person at risk,” so theoretically employers may be able to “use” this information if able to demonstrate a compelling safety need (ex. schools, etc.) but the court did not clarify this point either.

Employer Potentially Vicariously and Directly Liable for $23 Million Verdict Following Auto Accident Caused by its Driver

After a major automobile accident, the jury entered a $23 million verdict against an employer on the grounds the employer had negligently hired the employee/driver who caused the accident. The California court of appeal rejected the employer’s contention it could not be sued directly for negligent hiring if it already admitted it was vicariously liable for the employee/driver’s accident. The appellate court noted vicarious liability, which presumes an innocent employer, is distinct from an employer’s direct liability for its own negligence, in this case, its negligent hiring and retention of the employee/driver. The court noted the existence of sufficient evidence of the employer’s own negligence since it knew the employee/driver had been involved in several prior accidents and had been dismissed by a prior employer for poor performance. The court also cited the employer’s failure to preserve potentially important evidence (a tachograph chart) regarding how the accident may have occurred. (Diaz v. Carcamo (2010) 182 Cal.App.4^th 339.)

Federal

Judge, Not Jury, Decides Front Pay Award under FMLA

A terminated employee who prevailed on her Family Medical Leave Act (FMLA) claim appealed after a district court judge vacated a $1.5 million jury award for front pay and instead substituted a $267,000 front pay award. In a case of first impression for this federal circuit, the Ninth Circuit Court of Appeals rejected the plaintiff’s appeal and concluded that under the FMLA, “front pay is an equitable remedy that must be determined by the court, both as to the availability of the remedy and the amount of any award.” The circuit court observed that the FMLA remedy statute has two subsections; one identifying certain legal remedies a jury can award (e.g., lost wages, lost employment benefits etc.) (29 U.S.C. § 2617(a)(1)(A)(i)(I)), and a second addressing prospective or equitable relief (e.g., reinstatement, promotion, etc.) (29 U.S.C. § 2617(a)(1)(B).) Applying the same reasoning from other federal circuit courts addressing this issue, the ninth circuit observed the FMLA does not specifically mention front pay, but concluded front pay awards are a proxy for reinstatement and therefore an equitable remedy for the court to decide, not the jury.

The court also noted that the FMLA authorizes the court to award “liquidated damages,” subjecting an employer to double damages unless the employer proves its employment action was taken in “good faith” and that it had “reasonable grounds for believing that [its action] was not a violation.” In this case, however, the court could not determine whether liquidated damages were appropriate on the record presented, and it remanded this issue back to the district court. (Traxler v. Multnomah County (9^th Cir. Ore. 2010) ___ F.3d ___, 2010 U.S.App.LEXIS 4052.)

NOTE: although an interesting FMLA decision, this federal opinion may have little impact on California employers since California’s corresponding law, CFRA, treats front pay as a legal rather than equitable remedy, and CFRA does not contain a provision authorizing liquidated damages.

Time Spent Commuting in Employer-Required Vehicle Potentially Compensable Under California Law, Even if Non-Compensable Under Federal Law

A recent newsletter discussed the ninth circuit’s decision in Rutti v. Lojack Corporation in which the court concluded the employee was not entitled to compensation for time-spent commuting in an employer-required vehicle or in performing certain “preliminary” duties, but might be for certain “postliminary” duties. The ninth circuit recently revisited this decision and reaffirmed its ruling concerning the “preliminary” and “postliminary” duties, but held the employee may be entitled under California law for time spent commuting even if not so entitled under federal law.

In this case, a technician brought a class action on behalf of car alarm installation technicians seeking compensation for time spent commuting to the first worksite using the employer-provided vehicle. The ninth circuit held the plaintiff’s commute was not compensable under federal law, even though the employer required the employee to drive the employer’s vehicle. Under the Employee Commuting Flexibility Act (29 U.S.C. § 254(a)(2) (ECFA), 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, even if that agreement is a condition of employment. The court further held that Lojack’s limits on the use of Plaintiff’s company-provided vehicle did not transform his commute time into working time under the ECFA.

However, under California law, the employee may be entitled to compensation for time spent commuting to or from work in the employer-provided car he or she is required to use when “effectively subject to the employer’s control.” In this case, the employer-imposed conditions (requiring use of the company vehicle, prohibiting stops for personal errands or transporting passengers, limiting cell phone usage, and mandating the route to and from work) were such that the employee could be considered subject to the employer’s control. Accordingly, the technician was potentially entitled to be compensated under California law for commuting in the employer-required vehicle. (Rutti v. Lojack Corp. (9^th Cir. 2010) ___ F.3d ___, 2010 U.S.App.LEXIS 4278.)

Police Officers Not Entitled to be Compensated for Time Spent Donning and Doffing Uniforms and Accompanying Gear

Police officers sought compensation under the FLSA for the time spent “donning and doffing” (changing into and out of) required uniforms and gear at the police station. Notably, Plaintiffs had the option of donning and doffing either at home or at the police station, but they expressed a preference for donning and doffing at the station even though there was no work-related reason compelling them to do so. The plaintiffs suggested, however, that they were effectively required to change at work since most officers did so and because it was uncomfortable commuting to work already dressed. On these facts, the federal district court found the time spent donning and doffing uniforms and gear at the workplace was not compensable, and the ninth circuit affirmed.

The ninth circuit noted that while employers must pay employees for all “hours worked,” the Portal-to-Portal Act relieves an employer from paying for activities that are preliminary or postliminary to job activities. Prior cases and Department of Labor opinions found employers must compensate employees for donning and doffing where the employer or the nature of the work mandate that this take place on the employer’s premises. Following this line of authority, the court held that the donning and doffing of police uniforms and related gear were not compensable activities under the facts of this case because there was no requirement of law, rule, the employer or the nature of the work that mandated this activity be done at work.. The court noted the employees’ decision to change at work was voluntarily and not done for the employer’s benefit. (Bamonte v. City of Mesa (9^th Cir. 2010) ___ F.3d ____, 2009 U.S.App.LEXIS 6188.)