LEGISLATIVE

California

San Francisco Minimum Wage Increases to $9.92 Effective January 1, 2011

San Francisco's Minimum Wage Ordinance (Chapter 12R of the San Francisco Administrative Code) applies to adult and minor employees who work two or more hours per week in San Francisco, and requires the City to annually review this minimum wage for potential adjustments. Effective January 11, 2011, the hourly minimum wage for all eligible employees in San Francisco will increase from $9.79 to $9.92. San Francisco-area employers will also be required to post an updated poster reflecting this new minimum wage. A copy of this updated poster and other information concerning this wage increase can be found on the City and County of San Francisco Labor Standards Enforcement at www.sfgsa.org/index.aspx?page=411.

Federal

Educational Assistance Tax Credit and Commuter Benefits Extended as Part of Tax Compromise (H.R. 4853)

The recently passed and enacted tax package (the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 [H.R. 4583]) extended for two years (until December 31, 2012) certain employer-provided tuition tax breaks contained in Internal Revenue Service Code section 127. In short, section 127 allows employees to exclude from their income up to $5,250 per year in employer-provided tuition assistance for undergraduate and graduate-level courses, while employers may deduct these costs as a business expense. Originally enacted as a short-term benefit in the late 1970's, these benefits have proven to be popular and have been extended on multiple occasions but were set to expire on December 31, 2010. It is presently unknown if these benefits will be extended beyond the current December 2012 expiration date.

This bill also extends until December 31, 2011 an employer's ability to allow employees to deduct up to $230 per month for commuter or mass transit benefits or for qualified parking. Originally included as part of the American Reinvestment and Recovery Act, this benefit had increased these monthly amounts from $120 to $230 but had been set to expire on December 31, 2010.

New Employee Tax Rates for Social Security Take Effect January 31, 2011, and IRS Issues Revised Notice 1036 Containing Updated Tax Withholding Tables

The tax compromise bill also contains a reduction in the employee tax rate for social security from 6.2 % to 4.2% for 2011 (the employer portion remains unchanged at 6.2%). The Internal Revenue Service (IRS) has recently issued a revised Notice 1036 containing information about this reduction along with updated withholding tables, and recommends employers begin using these tables and the reduced employee social security tax rate as soon as possible but no later than January 31, 2011. The IRS Notice also directs that after implementing the new 4.2% rate, employers should make an offsetting adjustment in a subsequent pay period to correct any withholding of social security tax as soon as possible, but not later than March 31, 2011. The IRS Notice 1036 is available at www.irs.gov/pub/newsroom/notice_1036.pdf?portlet=7.

Soon-to-be-Enacted Food Safety Bill Contains Whistle-Blowing Protections (H.R. 2571)

Congress has passed and the President is expected to sign the FDA Food Safety Modernization Act (FDAFSMA) which contains not only new regulations concerning food safety but also new whistleblower protections for employees who report food safety concerns. The whistleblower protections are contained in section 402 of the FDAFSMA and apply to any entity engaged in the "manufacture, processing, packing, transporting, distribution, reception, holding or importation of food." Such entities are precluded from discharging or otherwise discriminating against employees who report (or who were about to or who cause to be reported) violations of this Act, or who testify in proceedings about such violations, or who object to any assigned task or policy the employee reasonably believes to violate this Act.

As with similar whistleblower protections, employees may file an administrative charge with the Department of Labor within 180 days of the challenged action, and ultimately a civil action to obtain reinstatement, lost wages and potentially compensatory damages. Interestingly, during DOL investigations, employees need only demonstrate their whistleblower actions were a "contributing factor" in the challenged unfavorable personnel action, at which point employers must show by clear and convincing evidence it would have made the same decision regardless.

AGENCY

Federal

DOL Publishes Request for Information Concerning Lactation Accommodation Requirements

As discussed in prior newsletters, the Patient Protection and Affordable Care Act amended section 7 of the Fair Labor Standards Act (FLSA) to require employers to provide reasonable break time for an employee to express breast milk for one year after the child's birth. This amendment also requires employers to provide "a place, other than a bathroom, that is shielded from view and free from intrusion from co-workers and the public to express breast milk." These amendments generally apply to all employers subject to the FLSA, but specifies that employers under 50 employees may not be subject to these requirements if such requirements would impose an "undue hardship" by causing the employer significant difficulty or expense when considered in relation to the size, financial resources, nature, or structure of the employer's business." These new requirements became effective on March 23, 2010.

The Department of Labor (DOL) has subsequently published a number of resources intended to answer employee and employer inquiries about these amendments. For instance, the DOL has issued Wage and Hour Fact Sheet #73: "Break Time for Nursing Mothers under the FLSA" at www.dol.gov/whd/regs/compliance/whdfs73.pdf. The DOL has also recently posted "Frequently Asked Questions – Break Time for Nursing Mothers" at www.dol.gov/whd/nursingmothers/faqBTNM.htm and has established a website compiling resources to assist employees and employers with questions about these requirements. See www.dol.gov/whd/nursingmothers.

The DOL recently announced that it presently does not intend to issue regulations implementing these amendments. However, on December 21, 2010, the DOL published a Request for Information ("RFI") containing the DOL's preliminary interpretations of these new requirements, and inviting public comment on several issues including "unpaid break time," "reasonable break time" and "space for expressing breast milk." See http://webapps.dol.gov/FederalRegister/HtmlDisplay.aspx?DocId=24540&Month=12&Year=2010. Comments must be received by February 22, 2011.

While the RFI contains a more detailed overview of the DOL's preliminary interpretations, a couple of interpretations will be briefly noted. For instance, the DOL reiterated that "reasonable break time" will depend on a number of unique factors, but noted that it "expects" most nursing mothers will require two to three breaks during an eight hour shift. It also noted in assessing the reasonableness of break time provided to nursing employees, the DOL will consider not only the time provided to express milk, but also the "steps reasonably necessary to express breast milk" (i.e., where the space is located, whether there is a sink and running water nearby, etc.).

Regarding the space for expressing breast milk, the DOL reiterated that where practical, the employer should provide a room (either private or with partitions for use by multiple nursing employees) and if not practical to create a specifically-designated room only for nursing mothers, by creating a space with partitions or curtains. The DOL noted that while a bathroom will not suffice, an anteroom or lounge or even a locker room may suffice under certain circumstances, and it specifically invited additional comments on when such locations might suffice. The DOL also noted that the location must be functional, requiring at least a place to sit and a flat place (other than the floor) for a pump. The DOL has also interpreted an employee's right to express milk to include the right to safely store milk, and while this does not require an employer to provide refrigeration options, employers must at least allow employees to bring a pump and insulated food container to work and ensure adequate space for storage of these items.

The DOL also indicated it is seeking comments on how employers can provide adequate break time and space for nursing mothers who work in non-fixed locations (e.g., drivers) or who work at a client's worksite or location. In the interim, the DOL has noted that the employer bears the obligation to provide the accommodations regardless of where the employee is located and suggested the employer work with its client or landlord (in the joint retail center context) to arrange a reasonable, and potentially shared, location.

The DOL also reiterated that the "undue hardship" exemption only potentially applies to employers with fewer than 50 employees, and that "employers with 50 or more employees must comply with the law without exception." The DOL noted that when counting employees for possible "undue hardship" purposes, these amendments do not contain the FMLA's geographic limitations (e.g., 50 employees within 75 miles), meaning employers must count all employees who work for the employer and there are no small worksite exceptions for larger employers. The DOL also noted that "undue hardship" cannot be determined prospectively and that employers will bear the burden of proof in satisfying this "stringent standard" which will apply "only in limited circumstances." The DOL stated that it does not believe that breaks used to express breast milk can be considered FMLA leave or counted against an employee's FMLA leave entitlement.

Lastly, regarding enforcement, the DOL noted that its Wage and Hour Division will be responsible for enforcement, and that it intends to provide "priority consideration" to these new amendments. Because employers are not required to compensate employees for break time, in most cases there will not be economic damages resulting from a failure to accommodate, but the DOL may seek injunctive relief, while "discharged" employees may file retaliation or discrimination claims.

NLRB Issues Proposed Rules Requiring Private Employers to Provide Notice of Employee Rights under the NLRA

On December 22, 2010 the National Labor Relations Board (NLRB or Board) issued a Notice of Proposed Rulemaking proposing a regulation that would require employers to post notices informing their employees of their rights under the National Labor Relations Act (NLRA). The Board stated its belief that many employees protected by the NLRA are unaware of their rights under the statute. The proposed regulation would require all employers, whether they have unionized workers or not, to post an 11 x 17 inch poster containing detailed descriptions of employee rights under the NLRA, including the right to form, join or assist a union, bargain collectively and take action with co-workers to improve working conditions. An employer who fails or refuses to post the required notice will be charged with an unfair labor practice in violation of Section 8(a)(1) of the NLRA. Member Brian E. Hayes dissented based on his belief that the Board lacks the statutory authority to promulgate or enforce such a rule.

Public comment is invited on all aspects of the proposed rule. Comments may be submitted electronically until February 22, 2011 at http://www.regulations.gov. The complete text of the proposed rule may be found at http://www.nlrb.gov/About_Us/news_room/Notice_for_Rulemaking/2010-32019_PI.pdf. A shorter Fact Sheet may be found here: http://www.nlrb.gov/About_Us/news_room/Notice_for_Rulemaking/rulefactsheet7.pdf.

DOT Issues Proposed Rulemaking Concerning Hours of Service Regulations

The Department of Transportation's (DOT) Hours-of-Service regulations (49 C.F.R. Part 395) limit when and for how long commercial motor vehicle drivers (CMV's) may drive. The DOT has recently published a Proposed Rulemaking concerning these hours-of-service requirements and will accept public comments until February 28, 2011.

The proposed rulemaking's summary identifies the seven following changes from current requirements for CMV's: First, it would limit drivers to either 10 or 11 hours of driving time following a period of at least 10 consecutive hours off duty on the basis of all relevant considerations. Second, it would limit the standard "driving window" to 14 hours, while allowing that number to be extended to 16 hours twice a week. Third, actual duty time within the driving window would be limited to 13 hours. Fourth, drivers would be permitted to drive only if 7 hours or less have passed since their last off-duty or sleep-berth period of at least 30 minutes. Fifth, the 34-hour restart would be retained subject to certain limits (i.e., the restart would have to include two periods between midnight and 6 a.m. and could be started no sooner than 168 hours (7 days) after the beginning of the previously designated restart).

Sixth, the definition of "on duty" would be revised to allow some time spent in or on the CMV to be logged as off duty. Seventh, the oilfield operations exception would be revised to clarify the language on waiting time and to state that waiting time would not be included in the calculation of the driving window.

The full-text of this proposed rulemaking is available at http://www.fmcsa.dot.gov/rules-regulations/TOPICS/hos-proposed/HOS%20NPRM.pdf. The DOT has also published a chart identifying the current rule, the proposed rule, and the DOT's observations concerning these proposed changes. See http://www.fmcsa.dot.gov/rules-regulations/topics/hos-proposed/hos-proposed.aspx

JUDICIAL

California

Payroll Company Is Not an "Employer" for Purposes of Unpaid Wage Claims

Plaintiffs filed a wage and hour class action against an employer and the employer's payroll company alleging they were "joint employers" and therefore both liable for unpaid wages (i.e., unpaid overtime, pay stub violations). Plaintiffs argued the payroll company created an implied employment relationship with the class because it provided the class with payroll documentation including timecards, I-9 forms, W-4 forms and because the payroll company was the "employer of record" for purposes of workers' compensation insurance, income tax and unemployment insurance.

Applying the California Supreme Court's analysis in Martinez v. Combs (2010) 49 Cal.4th 35, the California court of appeal found that the payroll company did not meet the Wage Order's definition of "employer" even if it potentially might be considered an "employer" for other purposes. Specifically, the court held the Wage Order (in this case Wage Order 12 applicable to the Motion Picture Industry) provides three alternative definitions of "employment": (1) to exercise control over the wages, hours or working conditions; or (2) to suffer or permit to work; or (3) to engage, thereby creating a common law employment relationship. Regarding the first definition, the Court held that "control over wages" means that a person or entity has the power or authority to negotiate and set an employee's rate of pay, not that the person or entity is physically involved in the preparation of the employee's payroll. The court reasoned that the preparation of payroll is largely a ministerial task and liability for unpaid wages should only be affixed to employers who benefit from the employee's work.

The court also found that the payroll company did not suffer or permit the class members to work, nor did the relationship fit within the common law test of employment because the payroll company did not "control the details" of employment. Specifically, the payroll company did not direct or supervise the employees, it did not provide any tools or the place of work, it did not set the pay, and the tasks performed were for the employer's benefit, not the payroll company's. The court also held the payroll company could not be liable under the "economic realities" test applicable under the federal Fair Labor Standards Act because the economic reality was the payroll company simply prepared paychecks for the Plaintiffs' employer. (Futrell v. PayDay California, Inc. (2010) ___ Cal.App.4th ___, 2010 Cal. App. LEXIS 2120.)

Appellate Court Reaffirms Employer's Duty to Reasonably Prevent and Correct Harassment by Third-Parties Even Where it May be Difficult to Do So

A female monitor at a halfway house for male prisoners sued her employer for FEHA hostile work sexual harassment based upon the prisoners' sexual conduct towards her (i.e., frequent requests for sex and sexual gestures, and demeaning sexual epithets [e.g., "whore," etc.].) The female employee repeatedly informed her supervisor about the residents' conduct, but the supervisor did not attempt to dissuade the residents' behavior, instead suggesting "they don't really mean it" or that she should "try and be nicer to them." The jury concluded the female employee had been subjected to a hostile work environment but concluded the employer had taken appropriate corrective action and therefore could not be liable under the FEHA.

The California court of appeal reversed concluding there was no evidence the employer had taken any actions to prevent or correct the hostile work environment. The appellate court reiterated that employers may be liable under the FEHA for third-party harassment of their employees if they knew or should have known of the conduct and failed to take immediate and appropriate corrective action. The court noted that in the non-employee harassment context, an employer must still act reasonably to prevent harassment even if its reasonableness will depend upon the employer's control or other legal responsibility over the conduct of the non-employee harassers. The court noted that the mere fact that these resident/prisoners are likely to harass or mistreat the female employees does not absolve the respondent of its legal responsibility under the FEHA to take immediate and corrective action to address the situation. In other words, while the nature of position and environment may affect or limit the employer's response, an employer cannot simply refuse to take any actions citing the "inherent nature" of harassment in this type of work environment. (Turman v. Turning Point of Central California, Inc. (2010) ___ Cal.App. 4th ___, 2010 Cal.App.LEXIS 2138.)

California Supreme Court Conclusion that Supervisors Immune from FEHA Retaliation Claims Applies to Conduct Pre-Dating that Decision

In 2008, the California Supreme Court held in Jones v. Lodge at Torrey Pines Partnership (2008) 42 Cal.4th 1158 that FEHA retaliation claims may only be asserted against an employer and not against a supervisor. In this case, the plaintiff argued Jones did not preclude a FEHA retaliation claim against a supervisor based upon conduct occurring before the Supreme Court's 2008 decision in Jones. The California appellate court rejected this argument noting that Jones simply clarified then-existing law, rather than change the law, and therefore applied both prospectively to future claims and retroactively to then-pending FEHA retaliation claims against supervisors. (Groberson v. City of Los Angeles (2010) 190 Cal.App.4th 778.)

Non-Union Members' Right to Privacy Requires Notice and Opportunity to Object Before Personal Information Is Disclosed to the Union

A public employee union attempted to obtain from the public employer the personal information (i.e., home addresses) of employees who had not joined the union. The trial court ordered the disclosure concluding the public policy interests favoring collective bargaining outweighed the non-union members' right to privacy in their contact information. The California court of appeal reversed, holding that the non-union members had a reasonable expectation of privacy in this information and were entitled to notice and an opportunity to object to this disclosure.

The court observed that public and private employees have a reasonable expectation that the personal information they provide to their employer will remain confidential and not be disseminated without advance notice. The court also reasoned public employees do not forfeit these privacy rights simply by accepting employment with a public agency whose employees have a collective right to unionize. The court recognized the public policies underlying the union's request for such information, but concluded the non-union employees are first entitled to notice and an opportunity to object to the disclosure of their personal information before it is disclosed. (County of Los Angeles v. Los Angeles County Employee Relations Comm'n (2010) ___ Cal.App.4th ___, 2010 Cal. App. LEXIS 2108.)

Employer Permitted to Continue with Defamation Suit against Employees Who Publicly Protested

An employer terminated several hundred employees after receiving Internal Revenue Service notices that their social security numbers were invalid and these employees failed to cure these discrepancies despite multiple employer-provided opportunities to do so. The employer subsequently sued for defamation after several former employees protested their termination by distributing leaflets and flyers and issuing a written press release accusing the employer of engaging in "racist firings" under the pretext of an "alleged social security number discrepancy" as an excuse to "target long-term employees, especially women, Hispanics and older workers." In response, the employees filed a so-called anti-SLAPP motion ("Strategic Lawsuit Against Public Participation") claiming the employer's lawsuit improperly attempted to restrict protected speech.

The California court of appeal dismissed the employees' anti-SLAPP motion and let the defamation claim proceed, concluding the employees' statements were potentially defamatory and, thus, not protected speech, and the employer had demonstrated a probability of prevailing on its defamation claim. The appellate court observed these employees' accusations were not simply general opinions (i.e., that the employer was "racist") which might be protected, but involved provably false assertions of fact (i.e., that these terminations were racially motivated and involved an "alleged social security number discrepancy.") (Overhill Farms, Inc. v. Lopez (2010) ___ Cal.App.4th ___, 2010 Cal. App.LEXIS 2109.)

Appellate Court Concludes Manager/Supervisor Properly Classified as Exempt Under Executive and Administrative Exemptions

An employee who worked as a Hub Supervisor, On-Road Supervisor and Center Manager for an international shipping company claimed he was improperly classified as exempt under the executive and administrative exemptions and therefore entitled to unpaid wages/overtime. The California court of appeal affirmed summary judgment in the employer's favor finding the employee was properly classified as exempt under both the executive and administrative exemptions and, in its written opinion, provided guidelines for analyzing both exemptions.

The appellate court first reaffirmed that while exemptions from overtime provisions are to be narrowly construed, the court is not to interpret them so narrowly as to render them non-existent except for the highest levels of management. The court also reiterated that California courts may properly consider as persuasive authority federal law interpreting similar components of the FLSA exemptions.

The executive exemption requires the employee be primarily engaged in the management of a "customarily recognized department or subdivision of the employer." Relying on federal authorities, the court of appeal concluded that a shift of specific workers, regularly performing the same defined function as a permanent unit within an organization, and that is recognized and supervised as such within the larger organizational structure, qualifies as a "department or subdivision" under the Wage Orders. The court concluded this element was satisfied since the employee supervised a specifically identifiable group of employees who performed a regular set of tasks for a designated geographic region within permanent units.

The employee must also be "primarily engaged" in exempt management duties (i.e., spending more than fifty percent of work-time performing exempt duties). The court concluded this employee's duties (supervising employees, ensuring proper staffing levels, etc.) were non-exempt and the fact that he did not perform other conceivable exempt duties did not undercut the exempt duties he did perform. The executive exemption also requires the employee have the authority to hire and fire employees or that their recommendation be provided "particular weight." The court observed this requirement may be satisfied even if the ultimate decision may be made by another management member based on the employee's recommendation, or that the terminated employee may be able to grieve the decision.

The court also concluded the supervisor may exercise sufficient discretion and independent judgment even if the employee must consider employer policies and procedures in reaching these decisions. The court observed the modern workplace is "highly regulated," and so the appropriate inquiry is whether these governmental regulations or internal employer policies simply "channel" the exercise of discretion and judgment as opposed to eliminating it entirely or otherwise constraining it to a degree where any discretion is largely inconsequential. The court concluded the supervisor's reference to the employer's "daily plans" or "decision trees" or to the applicable collective bargaining agreement simply impacted his work, but did not eliminate or materially constrain his discretion and judgment. The fact the employee also reported to or was reviewed by a higher-level manager did not preclude him from exercising the requisite discretion within his position. Finally, the court held the administrative exemption's requirement the employee perform work "directly related to management policies or general business operations" does not mean the employee must "formulate" these policies; rather, an employee need only "execute or carry out" management policies to potentially qualify, and need only do so within a "particular segment of the business." (Taylor v. United Parcel Service, Inc. (2010) ___ Cal.App.2d ___, 2010 Cal.App. LEXIS 2073.)

Another Court of Appeal Permits Employees to Allege Wage Order Violations Based on Employer's Failure to Provide "Suitable Seats"

Retail store clerks filed a class action under the Private Attorneys General Act (PAGA) seeking civil penalties (of $100 to $200 per employee per pay period) because of the employer's failure to provide "suitable seats" as required under Wage Order 7-2001. Adopting the reasoning from the recent appellate court decision in Bright v. 99 Cent Only Stores (2010) 189 Cal.App.4th 1472, a California court of appeal concluded these employees could seek statutory penalties under PAGA for Wage Order violations, including the failure to provide "suitable seats" when the nature of the work permits the use of such seats. As in Bright, the appellate court reasoned that an employer's failure to comply with Wage Order 7-2001 violated Labor Code section 1198 which is one of the enumerated statutory provisions authorizing employee suit under PAGA. The court also rejected the employer's argument that the Wage Order's penalty provision provided the exclusive remedy since it did not apply to the "suitable seats" provision in the Wage Order. (Home Depot U.S.A., Inc. v. Superior Court (ex rel Harris) (2010) ___ Cal.App. 4th ___, 2010 Cal.App.LEXIS 2151.)

(NOTE: the Bright case has been appealed to the California Supreme Court but has not yet been accepted for review.)

Federal

Employees Can Sue Their Employer Where Personal Information is Stolen, Even Where the Information is Not Misused

Current and former employees sued their employer for negligence and breach of implied contract after someone stole a laptop from the employer containing unencrypted names, addresses and social security numbers of approximately 97,000 employees. The employer argued the employees lacked standing since they had not suffered any actual injury since the employer had notified all affected employees about the security breach and provided the employees free access to credit monitoring services and no employee's personal information had actually been misused or their credit compromised. Even though the employees had not yet suffered actual injury, the ninth circuit held the employees had standing to sue since they had experienced a credible threat of real and immediate harm stemming from the theft of their unencrypted personal data. However, in a separate opinion, the court dismissed their claims because the employees had failed to allege a cognizable injury for breach of contract or negligence under Washington law. (Krottner v. Starbucks Corp. (9th Cir. 2010) ___ F.3d ___, 2010 U.S. App. LEXIS 25427.)

(NOTE: Although a favorable result for this employer, this decision is a reminder of employer's duty to safeguard personal employee information, including their potential obligations to notify employees of electronic security breaches.)