LEGISLATIVE

California

Agricultural "Card Check" Bill Again Passes the Senate (SB 1304)

As expected, the California senate has again passed a bill which would allow agricultural employees, as an alternative to the secret ballot election, to certify an exclusive bargaining representative through a "majority signup election" (i.e., representation cards signed by a majority of the currently employed workers.) This bill is currently pending in the Assembly where it has already passed a key committee vote and is likely to be passed by the full Assembly shortly. Similar versions of this bill were passed in 2008 and 2009 but were vetoed by then-Governor Schwarzenegger.

Amendments to Bone Marrow/Organ Donation Leave Proposed (SB 272)

Last year, the Governor signed into law Labor Code section 1510 which entitles employees up to five days paid leave in a one-year period for bone marrow donations and up to 30 days paid leave in a one-year period for organ donations. This bill would amend Labor Code section 1510 to clarify that the days of leave are "business" days rather than calendar days (e.g., five "business" days for bone marrow donations), and that the one-year period is measured from the date the employee's leave begins and consists of 12 consecutive months. This bill would also specify that such a leave would not constitute a break in the employee's continuous service for purpose of his or her right to "paid time off" (in addition to the sick and vacation entitlement already enumerated in the statute).

Bill Proposing Penalties for Independent Contractor Misclassification Reintroduced (SB 459)

This bill would prohibit willful misclassification of employees as independent contractors and authorize civil penalties against employers and persons who violate these prohibitions (between $5,000 to $15,000 for the first violation and between $10,000 to $25,000 for repeated violations). This bill would provide that persons (other than attorneys) who knowingly advise an employer to misclassify an employee as an independent contractor shall be jointly and severally liable with the employer and subject to civil penalties.

This bill would also require employers who hire an independent contractor to provide the individual with a form developed by the Employment Development Department (EDD) (1) identifying their independent contractor status, (2) explaining this status' impact on their tax obligations and eligibility for labor and employment protections, and (3) notifying them of their ability to contact the EDD or the Labor Commissioner for a review of their independent contractor status. This bill would also require employers utilizing independent contractors to maintain for at least two years records of the independent contractors hired and to make these records available for inspection by the EDD or the Department of Industrial Relations, and authorize civil penalties of $500 for non-compliance.

This bill's civil penalties for willful misclassification have previously passed the Legislature on multiple occasions but were vetoed by then-Governor Schwarzenegger.

Federal

Paycheck Fairness and Employment Non-Discrimination Act Bills Reintroduced

Congress is once again considering the Employment Non-Discrimination Act of 2011 (H.R. 1397), which would amend Title VII to prohibit discrimination against employees based upon their sexual orientation or gender identity, and prohibit retaliation against individuals who report unlawful discrimination. This bill would require employers to provide reasonable access to adequate facilities consistent with an employee's gender identity, but would not require employers to construct new or additional facilities.

The Paycheck Fairness Act (H.R. 1519/S. 797) has also recently been reintroduced. This bill would amend the Equal Pay Act (EPA) and the Fair Labor Standards Act (FLSA) to eliminate the current "any factor other than sex" defense to explain wage differentials, and instead require employers to affirmatively demonstrate any differential resulting from a bona fide factor other than sex, and that the bona fide factor was a business necessity. It would also remove the caps on compensatory and punitive damages for EPA violations, and make it easier for plaintiffs to maintain class action suits.

Both bills have previously been introduced and stalled on multiple occasions, and passage seems even less likely given the partisan gridlock in Congress.

AGENCY

Federal

DOL Issues Final Rule Updating FLSA and Taking Effect May 5, 2011

In April, the Department of Labor (DOL) issued its Final Rule updating various provisions of the Fair Labor Standards Act (FLSA), with the new rules taking effect on May 5, 2011. The full text of the Final Rule is available at http://edocket.access.gpo.gov/2011/pdf/2011-6749.pdf. The DOL states that these revisions are intended primarily to conform its regulations to amendments to the FLSA and the Portal to Portal Act since those acts' initial enactment.

While the Final Rule discusses a number of very industry-specific FLSA regulations (e.g., Youth Opportunity Wage, Fire Protection Activities, etc.), it also provides insights concerning employer tip credits available under the FLSA (but not California law.) For instance, the Final Rule clarifies that the maximum federal tip credit an employer may claim under the FLSA is $5.12 per hour, calculated as the $7.25 federal minimum wage minus $2.13 minimum cash wage obligation. The Final Rule also specifies that employers must provide advance notice before implementing a tip credit, which must include (1) the direct cash wage the employer is paying a tipped employee (at least $2.13 hourly); (2) the additional amount the employer is using as a tip credit against tips received which cannot exceed the difference between the federal minimum wage and the actual cash wage paid by the employer; (3) that the additional amount claimed by the employer as the tip credit may not exceed the amount actually received by the employee; (4) that the tip credit may not apply unless the employee has been informed of the tip credit provisions; and (5) that all tips received the tipped employee must be retained by the employee except for the pooling of tips among employees customarily and regularly receiving tips.

The Final Rule also clarifies that tips are the property of the employee, and the only permissible uses of an employee's tips are through a tip credit (mentioned above) or a valid tip pool. Regarding tip pools, the Final Rule declined to cap the percentage employees may be forced to contribute, but it does require employers to notify employees of any tip pool contribution amount, and specifies employers may only take a tip credit for the tips each employee ultimately receives and precludes employer usage of the employee's tips for any other purpose.

Somewhat notably perhaps, the Final Rule specifically declined to incorporate several Bush Administration proposed changes regarding "fluctuating workweeks" and "compensatory time off."

JUDICIAL

California

FEHA Does Not Prohibit Employer from Disciplining Employees Who Threaten Co-workers, Even if Misconduct Flows from Mental Disability

An employee discharged for threatening co-workers in violation of the employer's workplace violence policy sued for FEHA mental disability discrimination claiming the threats resulted from her bi-polar disorder. The employer argued that it terminated the employee for legitimate business reasons (i.e., her threat to "blow this 'B****' up' and to add her supervisor to her "Kill Bill" list violated its workplace violence policy) and that it did not violate FEHA for disciplining the employee for misconduct, even if resulting from her disability. The trial court granted summary judgment in the employer's favor and the California court of appeal affirmed.

The appellate court noted FEHA generally prohibits discrimination because of a disability, but also noted the employer's general obligation to provide a safe work environment free from threats and violence. The court balanced these competing protections by holding that an employer may distinguish between the disability and disability-caused misconduct when the misconduct involves threats of violence against co-workers, as presented in this case. The court specifically noted it was not addressing whether an employer could similarly distinguish between the disability and disability-related misconduct not involving threats or violence against co-workers (e.g., chronic tardiness or absenteeism). The court also upheld the employer's termination decision despite the employee's claim she was "joking," noting the employer objectively believed she was serious and had violated its workplace violence policy.

The court also concluded the employee had failed to properly exhaust her administrative remedies for her disability harassment and FEHA retaliation claims because her DFEH charge had cited only a "denial of family/medical leave." The court reiterated that a plaintiff is not simply bound by the boxes checked in the administrative charge but can potentially rely upon any theory within the scope of the agency's investigation, but these retaliation and harassment theories were too distinct from her medical leave claim and there was no evidence the agency considered these distinct theories. (Wills v. The Superior Court of Orange County (2011) ___ Cal.App.4th ___, 2011 Cal.App.LEXIS 434.)

(NOTE: the Wills court specifically distinguished three recent ninth circuit cases which had suggested employers may violate the FEHA or ADA by disciplining based on misconduct resulting from the disability.)

Appellate Court Affirms Prior Ruling that Employers May Not Artificially Designate "Workweek" to Avoid Paying Overtime

As discussed in last month's newsletter, in this case employees who worked 14-day "hitches" on boats sued for unpaid overtime claiming they were entitled to two "seventh day premiums" and to be compensated for the entire 24-hour period they were on the boat or under the employer's control. The employer countered that although the employees worked 14 consecutive days, they were entitled to only one "seventh day" premium since the employee's schedule was from Tuesday to the second following Tuesday, while the employer's "workweek" was from 12:00 a.m. Monday to 11:59 Sunday. The employer also argued the employees were generally not entitled to daily compensation beyond the agreed-to 12-hour work day because eight of the remaining hours were designated as off-duty sleep time and the remaining four hours the employees were also off-duty and not under the employer's control. The California court of appeal ruled for the employees, and then granted rehearing before again ruling in the employee's favor on most of the overtime issues.

Labor Code section 510 governs overtime pay on the seventh day of work in a workweek and requires the first eight hours to be compensated at time-and-a-half and all work thereafter at double the employee's regular rate of pay. The appellate court noted that Labor Code section 500 affords employers considerable discretion in defining its particular "workweek" provided it uses a "fixed and regularly recurring period of 168 hours, seven consecutive 24-hour periods." The court also noted employers may establish different "workweeks" for different employees or groups of employees, and may also change its workweek definition provided the change is intended to be permanent.

However, the appellate court noted the employer's discretion is not unlimited, and it may not designate its workweek in a manner that is designed primarily to evade overtime compensation. The court noted this employer had failed to present any evidence demonstrating its Monday to Sunday workweek was not intended primarily to avoid paying overtime to these workers who worked exclusively Tuesday to Tuesday.

The court also concluded that the employees were effectively under the employer's "control" during the other twelve hours of their daily shift, even though eight of these hours were considered "sleep time" and the other four hours were off-duty with the employee able to participate in a number of activities (go to the gym, run errands, surf the internet, etc.) The appellate court applied the traditional seven factor test to determine if the employer exercised sufficient "control" over the employees to warrant compensation, and it placed special emphasis on the employer's requirement the employees sleep on the employer's boat. The court observed this requirement coupled with a 45-minute window to return to the ship if paged placed substantial practical geographic limitations on the employee's off-duty activities. However, the court reiterated that even if an employee was deemed under "control" during required sleep time, the employer and employee may agree up to eight hours sleep time is non-compensable if adequate sleeping facilities are provided and the employee can obtain at least five hours of uninterrupted sleep. (Seymore v. Metson Marine, Inc. (2011) ___ Cal.App.4th ___, 2011 Cal.App.LEXIS 442.)

(NOTE: The California court of appeal specifically declined to follow numerous federal authorities and the fact that it granted rehearing for additional legal briefing before affirming its prior ruling suggests the California Supreme Court may want to review this decision.)

Employer Not Required to Violate Applicants' Privacy Rights to Identify Potential Plaintiffs Regarding Improper Marijuana-Related Inquiries

In Starbucks Corp. v. Superior Court (2008) 168 Cal.App.4th 1436, the court of appeal declined to certify a class of 135,000 job applicants alleging improper application inquiries about marijuana convictions on the ground the class representatives did not have marijuana convictions to reveal and, thus, lacked standing. Following this ruling, the trial court initially permitted this "headless class action" (i.e., a class action without a current class representative) to proceed while forcing the employer to search its personnel records to locate applicants who submitted applications more than two years after receiving a marijuana conviction.

The appellate court reversed this pre-certification discovery order citing the applicants' privacy interests and the California Legislature's direction that records of minor marijuana convictions more than two years old be destroyed. The court noted that forcing employers to search for and then disclose the names of individuals with prior marijuana convictions would undercut the purpose of California's marijuana reform legislation, and observed "we fail to understand how destroying applicants' statutory privacy rights can serve to protect them." (Starbucks Corp. v. Superior Court (ex rel Lords) (2011) ___ Cal.App.4th ___, 2011 Cal.App.LEXIS 486.)

Employer's Denial of Permanent Light-Duty Position Based upon 100% Workers Compensation Disability Rating Violated FEHA

A disabled police officer sued for FEHA disability discrimination after his employer refused to let him continue working in a pre-existing permanent light-duty position because of a 100% disability rating received through workers' compensation. Notably, this employer maintained approximately 250 permanent light-duty positions specifically to accommodate injured police officers, and this police officer had satisfactorily performed these light-duty assignments before being discharged solely because of the 100% workers compensation disability rating. The jury awarded $1.5 million dollars for FEHA disability discrimination, and the California court of appeal affirmed.

The appellate court first noted that FEHA requires an individualized assessment of an employee's ability to perform essential job functions of either a current position or a position sought, and cautioned that employers cannot mechanically rely on workers' compensation disability ratings given the different standards presented (e.g., especially since workers' compensation disability ratings focus on the previously-held position.) In this case, the employer could not demonstrate such an individualized assessment since it had relied primarily upon its third-party administrator's determination it could not employee someone with a 100% disability rating.

The court also concluded the employer had mistakenly focused solely on the employee's ability to perform his prior positions duties, rather than the light-duty position. The court noted that while FEHA's accommodation duties do not require an employer to create a new position, or to transfer another employee, or to promote a disabled employee, the employer must consider the employee's ability to perform the essential job functions of the existing position or the position to which reassignment is sought. Similarly, while FEHA does not require an employer simply to create a permanent light duty position for accommodation purposes, this employer already had existing permanent light-duty positions which this employee had satisfactorily performed prior to being summarily discharged following the workers' compensation disability ratings. (Cuiellette v. City of Los Angeles (2011) ___ Cal.App.4th ___, 2011 Cal.App.LEXIS 477.)

Trial Court Properly Declined to Certify Wage and Hour Class Action Where Plaintiffs Failed to Present Systematic Practice of Misclassifying Store Managers

Retail store managers filed a wage and hour class action alleging they were misclassified as exempt and entitled to unpaid overtime, and they cited the retail store employer's common job description for store managers as evidence of a standard corporate practice to misclassify. The California court of appeal concluded common issues did not predominate despite this standard job description, and that plaintiffs had failed to present sufficient evidence of a uniform corporate policy to misclassify. In contrast, the employer had presented ample evidence (including hundreds of declarations) demonstrating its store manager's duties varied greatly from store to store depending on the "myriad of individualized factors" at each store (e.g., sales volume, store size, number of employees etc.). (Mora v. Big Lots Stores, Inc. (2011) ___ Cal.App.4th ___, 2011 Cal.App.LEXIS 449.)

Workers' Compensation Exclusivity Does Not Bar Insured Employer's Breach of Contract Action Against Insurer

An insured employer attempted to sue its workers' compensation insurer for breach of contract and bad faith denial after the insurer denied the insurance policy was in effect, thereby forcing the employer to incur substantial fees defending an injured employee's workers' compensation claim. The California court of appeal rejected the insurer's defense that the insured employer's remedy was limited to the workers' compensation system. The court noted that while an injured employee is limited solely to workers compensation remedies under the workers' compensation "bargain," an insured employer can still pursue a civil action for contractual remedies flowing from the insurance policy, including breach of contract and bad faith denial. (Edward Carey Construction Co. v. State Comp. Ins. Fund (2011) ___ Cal.App.4th ___, 2011 Cal.App.LEXIS ___.)

Federal

United States Supreme Court Enforces Class Action Waiver in Consumer Arbitration Agreement, Potentially Authorizing Such Waivers in Employment Disputes

In a potentially very significant decision, the United States Supreme Court recently issued a 5-4 decision reversing the ninth circuit and upholding a class action waiver in a consumer arbitration agreement. As discussed in a prior newsletter, in 2010 the United States Supreme Court held in Stolt-Nielsen v. AnimalFeeds Int'l Corp. (2010) 130 S.Ct. 1758 that arbitration is inherently contractual and thus, class action would not be permitted in arbitration unless the parties' arbitration agreement specifically authorized such class actions. In this just-issued decision, the Supreme Court extended the rationale in Stolt-Nielsen and concluded that arbitration provisions precluding class action are also enforceable according to the parties' contractual intent. The Court specifically overruled a ninth circuit decision which had applied California law to suggest such class action waivers were unconscionable when contained in contracts of adhesion and potentially involving small damages.

The Court cited the purpose of the Federal Arbitration Act (FAA) to encourage arbitration and its contractual nature generally, and the fact that the FAA generally preempts any state law that singles out arbitration agreements. Notably, the Court held this preemptive effect applies both to legislatively-enacted state laws as well as judicially-created defenses to arbitration agreements, otherwise state courts could impose limits the state legislature clearly could not. The Court also cited a number of public policy reasons for not requiring class actions through arbitration, including the lack of procedural formality, the difficulty providing notice to class member plaintiffs who would be bound, the increased cost and delay to all parties, and the lack of judicial review for potentially "bet the company"-type decisions for employers. (AT&T Mobility LLC v. Concepcion (2011) ___ S.Ct. ___, 2011 U.S. LEXIS 3367.)

(NOTE: the California Supreme Court has previously held class action waivers in employment arbitration agreements are potentially unconscionable where certain criteria were present (i.e., small damages, adhesion contracts, etc.). (Gentry v. Superior Court (2007) 42 Cal.4th 443.) The United States Supreme Court's decision in AT&T was not an employment decision and it did not specifically address Gentry or the California Supreme Court's prior decision in Armendariz v. Foundation Health Psychcare Servs., Inc. (2000) 24 Cal.4th 83, which enumerated certain "minimum requirements" for mandatory employment arbitration agreements. Nonetheless, AT&T's broad reasoning suggests it may apply outside the consumer context and apply to employment agreements, so employers may now have another opportunity to consider whether they wish to include class action waivers in their employment arbitration agreements.)

Employer Satisfied its Accommodation and Interactive Process Obligations to Disabled Employee

A telecommunications installer sued for FEHA disability discrimination after his employer terminated him following a one-year leave of absence when the employee's work restrictions still precluded him from performing the position's essential physical requirements. The employee had initially taken a three-week leave of absence ultimately extended numerous times to over a year, during which his treating physician consistently provided notes imposing 30-pound lifting restrictions despite the job description's requirement of frequent 50-pound lifting. The Ninth Circuit Court of Appeal affirmed summary judgment in the employer's favor finding the employer had satisfied its duty to reasonably accommodate and engage in the interactive process.

The court concluded the employer had satisfied its interactive process obligations by participating in good faith exploration of possible accommodations, including numerous communications with the employee about his restrictions but they were simply unable to identify any possible further accommodations. In fact, the court concluded any failure to properly interact was caused by the employee who failed to identify any accommodations the employer had not already considered in light of his restrictions.

The court also concluded the employer had demonstrated there simply was no vacant position within the employer's organization for which the disabled employee was qualified and which the disabled employee could perform with or without accommodation. The court cautioned that simply providing a leave of absence would not satisfy an employer's accommodation duties, but this employer had considered before rejecting other possibilities such as job restructuring or placement in another position. The court also observed employers are not required to transfer away essential functions or provide an indefinite leave of absence forever, and after a year this employee's work restrictions still precluded him from performing the essential job duties identified in the written job description.

On a procedural note, the court concluded diversity jurisdiction was appropriate despite the fact the DFEH was prosecuting the action since the state agency was not considered a citizen for jurisdictional purposes. (DFEH v. Lucent Tech., Inc. (9th Cir. 2011) 2011 U.S.App.LEXIS 8484.)

Court Has Jurisdiction to Consider Title VII Discrimination Suit Against Private Employer Who Terminates Employee Following Security Clearance Denial

An engineer of Iranian descent sued his private federal contractor employer for Title VII national origin discrimination after the employer terminated him citing the Department of Defense's denial of security clearance. The federal district court granted summary judgment for the employer on the grounds it lacked subject matter jurisdiction to hear claims premised on denials of security clearance, but the ninth circuit court of appeals reversed.

Citing Department of the Navy v. Egan (1988) 484 U.S. 518, the ninth circuit reiterated the general rule that plaintiffs are barred from asserting Title VII claims against the agency that issued an allegedly discriminatory security clearance decision since such security clearance decisions are entrusted to the Executive Branch's discretion. In effect, this means federal courts generally lack jurisdiction to review the merits of the executive agency's decision to grant or deny security clearance. The court concluded, however, that this rule did not apply to private employers because the employee's claims would not require the court to evaluate the merits of the agency's decision. Instead, the court would only need to determine whether the security clearance requirement was actually a bona fide requirement for the private employer and whether the agency's security clearance decision actually motivated the employer's termination decision. Having determined the plaintiff could challenge the employer's termination decision based on the security clearance denial, the court concluded summary judgment was inappropriate since the plaintiff had produced evidence two non-Iranian engineers were retained after their security clearances were revoked. (Zeinali v. Raytheon Co. (9th Cir. 2011) ___ F.3d ___, 2011 U.S.App.LEXIS 7023.)

District Court Properly Decertified Wage and Hour Class Action Since Individual Issues Predominated

In this wage and hour class action by hub and pre-load supervisors claiming they were misclassified as exempt, the Ninth Circuit court of appeal affirmed the district court's order decertifying the proposed class. The circuit court noted that while the employer ultimately bears the burden of proving an employee is exempt from the Labor Code's overtime requirements, the class action representatives bear the burden of demonstrating the class action requirements are satisfied (e.g., that common legal and factual issues predominate over individual issues, etc.), which these employees failed to demonstrate.

The circuit observed that plaintiff employees cannot simply rely upon a blanket exemption policy to demonstrate the entire class was misclassified since some employees could have been properly classified even if others were not. The fact the employer expects the supervisors to follow certain procedures or perform certain tasks similarly does not preclude a determination they were primarily engaged in exempt duties or whether they customarily and regularly exercised discretion and independent judgment. Lastly, the court noted the district court did not err in requiring a week-by-week determination of exempt status since the Wage Orders specifically contemplate such a week-by-week determination. (Marlo v. United Parcel Service (9th Cir. 2011) 2011 U.S.App.LEXIS 8664.)