LEGISLATIVE

California

The 2011 Legislative session is increasingly coming into focus as we approach the September 9th deadline for bills to pass the Legislature and be sent to the Governor. A number of bills have now passed both Legislative chambers and been sent to the Governor for signature or veto, or have effectively passed both chambers but been returned to the originating chamber to reconcile minor amendments, which seems very likely. These developments include:

Governor Considering Bill Authorizing the Labor Commissioner to Award Liquidated Damages (AB 240)

California's Labor Code provides two avenues for an employee to recover unpaid minimum wages: either a civil complaint to recover unpaid wages or an administrative complaint with the Labor Commissioner. However, while an employee may presently recover liquidated damages (amongst other remedies) in a civil action, the Labor Code does not specifically authorize the Labor Commissioner to award liquidated damages for unpaid minimum wages. This bill would eliminate this discrepancy by amending Labor Code section 98 to specifically provide that in an administrative proceeding with the Labor Commissioner to recover unpaid minimum wages, the Labor Commissioner may award liquidated damages.

As recently amended, this bill further provides that it shall only become effective if both it and AB 197 are passed and take effect January 1, 2012. (AB 197 would double the liquidated damages recoverable for minimum wage violations and has passed both chambers, but the Assembly is reconciling minor Senate amendments and passage seems likely). AB 240 has now passed the Assembly and Senate and been sent to the Governor for signature or veto.

Governor Considering Bill Requiring EDD to Provide Link to Employers about Definition of "Good Cause" (AB 274)

As originally introduced, this bill would have provided employers 30 days, rather than the current 10 days, to submit information to the Employment Development Department concerning an employee's request for unemployment insurance benefits. As amended and passed by the Legislature, this bill omits this additional time period to respond and instead amends Unemployment Insurance Code section 1028.5 to require the Employment Development Department to provide a link for employers to access to obtain information regarding what constitutes "good cause" to extend this 10-day response period. This bill has been forwarded to the Governor and likely will be enacted into law.

Governor Considering Bill to Add Genetic Discrimination Prohibitions for FEHA and Unruh Act (SB 559)

The Assembly and Senate have also passed and sent to the Governor a bill to prohibit discrimination based on genetic information. If enacted, this bill would amend the Unruh Civil Rights Act (Civil Code § 51 et seq.) and the Fair Employment and Housing Act (FEHA), as well as other statutory anti-discrimination provisions (e.g., contained in the Education Code, etc.), to prohibit discrimination on the basis of "genetic information." "Genetic information" is defined to mean "with respect to any individual, information about any of the following: (a) the individual's genetic tests; (b) the genetic tests of family members of the individual; and (c) the manifestation of a disease or disorder in family members of the individual."

Legislature Passes Bill to Revise Attorney's Fees Awards in Small Employment Cases (AB 559)

California's FEHA authorizes a prevailing party to recover reasonable attorneys' fees, but Code of Civil Procedure section 1033 also provides the trial court discretion to limit attorneys' fees when the prevailing party receives a judgment less than what could have been awarded in a limited civil case ($25,000). In 2010, the California Supreme Court addressed the interplay between these provisions and held that a trial court has discretion in a FEHA case to deny a successful plaintiff attorney's fees if the plaintiff proceeds in unlimited civil court but recovers less than the $25,000 jurisdictional minimum for superior court claims. (Chavez v. City of Los Angeles(2010) 47 Cal.4th 970 [denying nearly $900,000 attorneys' fees requested in a FEHA discrimination case in part because the plaintiff only recovered $10,000 in damages.])

This bill would nullify Chavez and provide that Code of Civil Procedure section 1033.5 shall not apply to FEHA actions, meaning FEHA plaintiffs recovering small monetary awards might still recover attorneys' fees awards that dwarf the amount recovered by plaintiff. This bill has passed the Legislature and has been sent to Governor Brown for veto or signature. This bill is similar to AB 2773 which Governor Schwarzenegger vetoed in 2010.

Bill Addressing Gender Identity and Expression Protections for FEHA Advances (AB 887)

The FEHA presently prohibits discrimination or harassment against individuals because of "sex," which is defined to include gender, and through its incorporation of Penal Code section 422.56, gender identity and behavior. This bill would amend FEHA to specifically identify "gender, gender identify and gender expression" as characteristics protected under FEHA, meaning reference to other statutes to discern this protection would no longer be necessary. It would also require employers to allow an employee to appear or dress consistently with the employee's gender expression (along with gender identity presently required). "Gender expression" would be defined as "a person's gender-related appearance and behavior whether or not stereotypically associated with the person's assigned sex at birth."

This bill has passed both chambers and been sent to Governor Brown.

Legislature Passes Bill Requiring Written Commission Contracts (AB 1396)

Labor Code section 2751 presently requires that out-of-state employers with no permanent fixed place of business in California who use commission contracts for paying employees to put these contracts in writing, and imposes treble damages upon employers who violate this requirement. This bill would amend Labor Code section 2751 and require that by January 1, 2013, all employers (not just those outside California) entering into employment contracts for services to be performed in California and contemplating payment in commissions to put the contract in writing and identify the method by which commissions will be computed and paid. This amendment is intended to address a judicial decision which had effectively invalidated a prior version of Labor Code section 2751 because it imposed these requirements only on out-of-state employers. This new bill would delete the treble damages provision currently found in section 2751.

This bill has been sent to the Governor and is identical to a prior bill (SB 1510) vetoed by Governor Schwarzenegger.

Bill Targeting Non-California Choice of Law and Forum Provisions Passes Legislature (AB 267)

This bill would prohibit and render void and unenforceable employment contract provisions (including in applications or handbooks) requiring an employee, as a condition of obtaining or continuing employment, to waive the application of California law for future employment disputes. This bill would similarly prohibit provisions requiring employees to agree to use a forum other than California to resolve any employment-related issues that arise in California.

This bill has passed the Legislature and has been sent to Governor Brown. This bill is nearly identical to a prior version (AB 1043) vetoed by Governor Schwarzenegger.

Wage Theft Prevention Act of 2011 Passes Senate and Returns to Assembly (AB 469)

Known as the Wage Theft Prevention Act of 2011, this bill proposes a number of penalties for employer violations of wage laws, and would impose new notice and document retention requirements on employers. For instance, this bill would amend Labor Code section 1174 and increase from two to three years the amount of time for employers to maintain payroll records. It would also require employers to provide upon hire written notice to employees of the employee's wage rate, payday and name and address of the employer, and to provide additional notice within seven days when the wage rate changes unless already reflected in the wage statements required under Labor Code section 226.

This bill also contains several increased penalty provisions designed to prevent perceived widespread abuse by employers of wage and hour laws, or frivolous litigation tactics designed to prevent enforcement of wage-related awards. For instance, it would extend the period from one year to three years for the DLSE to commence a collection action of a statutory penalty or fee. It would also increase the period from six months to two years for a convicted employer to maintain a bond, and require the employer to immediately provide an accounting of assets (for collection purposes) or face severe civil penalties. It would also authorize employees to recover attorney's fees and costs incurred to enforce a cost judgment for unpaid wages, and require employers to pay restitution of wages in addition to civil penalties.

This bill recently passed the Senate and has returned to the Assembly where it likely will quickly pass again. Governor Schwarzenegger vetoed a similar bill (AB 2187) in 2010.

Bill Increasing Penalty for Minimum Wage Violations Passes Senate and Returns to Assembly (AB 197)

Labor Code section 1194.2 presently authorizes an employee to recover liquidated damages equal to the amount of wages unlawfully unpaid in minimum wage violations. This bill would increase the amount of liquidated damages that may be awarded to twice the amount of wages unlawfully unpaid, plus interest. As recently amended, this bill would also incorporate amendments proposed by AB 240 to be operative only if this bill and AB 240 pass. (As mentioned above, AB 240 has passed the Legislature and has been sent to the Governor).

This bill has recently passed the Senate and has returned to the Assembly to reconcile a very minor amendment, and very likely will soon be sent to the Governor. A similar bill (AB 1881) was vetoed in 2010.

Legislature Passes Bill Requiring Farm Labor Contractors to List Contracting Entity on Itemized Wage Statement (AB 243)

Labor Code section 226 requires an employer to furnish each employee with an accurate itemized wage statement showing statutorily-enumerated items, including the name and address of the legal entity that is the employer. This bill would amend section 226 and require an employer who is a farm labor contractor (as defined) to disclose on the itemized statement the name and address of the legal entity that secured the employer's service. This bill provides that this listing would not create any legal liability on the part of the listed legal entity. In a second portion of this bill, it incorporates other amendments to section 226 contained in AB 469 to be effective only if AB 469 (discussed above) is enacted.

This bill has passed both Chambers but is pending in the Assembly to reconcile some recent Senate amendments. Governor Schwarzenegger vetoed prior versions of this bill in 2006 and 2008.

AGENCY

Federal

NLRB Finalizes Rule Requiring Employers to Post Notices Regarding NLRA Rights

As expected, the National Labor Relations Board (NLRB) has finalized a proposed rule requiring all employers subject to the National Labor Relations Act (NLRA) to post a notice advising employees of their rights under the NLRA. Employers subject to the NLRA must post this notice by November 14, 2011. A copy of this notice can be downloaded at www.nlrb.gov, and the full text of the Final Rule is available at www.federalregister.gov/articles/2011/08/30/2011-21734/notification-of-employee-rights-under-the-national-labor-relations-act. An NLRB-provided Fact Sheet answering some frequently-asked questions is available at www.nlrb.gov/news-media/fact-sheets/final-rule-notification-employee-rights.

Covered Employers

This notice requirement applies to all employers subject to the NLRA, not simply those who already have unionized or partially unionized workforces. The NLRA, in turn, applies broadly to most private sector employers, but does not include agricultural, railroad and airline employers subject to the Railway Labor Act and Federal Reserve Banks, amongst other specifically-enumerated exceptions. (Section 104.204 contains a complete list of these exceptions, and also identifies other "miscellaneous categories" of otherwise covered employers who fail to satisfy the jurisdictional standards [e.g., restaurants with less than $500,000 in gross annual income, etc.].)

These new notice requirements also apply to federal contractors, although such contractors may comply simply by posting the notice to employees already required under the Department of Labor's notice-posting rule, 29 CFR part 471.

Notice Contents

The Notice contains five sections: an introduction providing an overview of the NLRA and NLRB, a statement of affirmative rights, examples of unlawful conduct, a collective bargaining provision and coverage information. The statement of affirmative rights details various rights under the NLRA, including an employee's right to:

• Organize a union to negotiate with the employer concerning wages, hours, and other terms and conditions of employment;
• Form, join or assist a union;
• Bargain collectively through representatives of employees' own choosing for a contract with an employer setting wages, benefits, hours and other working conditions;
• Discuss wages and benefits and other terms and conditions of employment or union organizing with co-workers or a union;
• Take action with one or more co-workers to improve working conditions by, among other means, raising work-related complaints directly with the employer or with a government agency, and seeking help from a union;
• Strike and picket, depending on the purpose of means of the strike or the picketing;
• Choose not to do any of these activities, including joining or remaining a member of a union.

The Notice next outlines various employer-prohibited activities, informing employees that employers cannot:

• Prohibit employees from talking about, soliciting for or distributing literature for a union during non-work time, such as before or after work or during break times;
• Question employees about their union support or activities in a manner that discourages employees from engaging in that activity;
• Take or threaten to take any adverse action (e.g., terminate, demote, transfer, etc.) for joining or supporting a union, or engaging in concerted activity, or for not engaging in any such activities;
• Threaten to close the workplace if employees choose a union to represent them;
• Promise or grant promotions, pay raises or other benefits to discourage or encourage union support;
• Prohibit employees from wearing union-related clothing except under special circumstances; or
• Spy on or videotape peaceful union activities and gatherings or pretend to do so.

The Notice also identifies various prohibited union-related activities, informing employees that unions that represent them cannot:

• Threaten or coerce the employee in order to gain their support;
• Refuse to process a grievance because the employee has criticized union officials or because they are not a union member;
• Use or maintain discriminatory standards or procedures in making job referrals from a hiring hall;
• Cause or attempt to cause an employer to discriminate against an employee because of union-related activity;
• Take adverse action against employees because they have not joined or do not support the union.

The Notice also contains provisions outlining the collective bargaining process, identifying how to contact the NLRB for perceived violations, and briefly explaining to whom the NLRA applies.

Posting and Translation Requirements

Employers must post this notice wherever notices to employees regarding personnel rules and policies are customarily posed and are readily seen by employees, not simply were other legally mandated notices are posted. Employers must also take reasonable steps to ensure that these notices are not altered, defaced or covered with other materials.

The physical notice must be at least 11x17 inches and contain all the information required by the NLRB Final Rule, although it appears employers may have some discretion in terms of font and appearance provided other requirements are met. The NLRB will make downloadable copies of this poster available free of charge on its website (www.nlrb.gov) in advance of the November 14th deadline. It appears employers may also use commercially-available posters containing other federal laws provided these posters comply with the physical posting requirements (e.g., this notice remains 11x17 inches, etc.)

In addition to physically posting the notices, employers who customarily post notices to employees through the internet or intranet must also prominently provide notice on such sites. (Note: this electronic posting requirement provision is in addition to the physical posting requirement which applies to all employers). Employers may provide such electronic notice by posting the notice itself, or a link with the title "Employee Rights under the National Labor Relations Act." Employers are not, however, presently required to distribute the notice via e-mail or other electronic communication means (text messaging, etc.) even if the employer customarily communicates policy changes through such electronic communication means.

If as many as 20 percent of an employer's employees are not proficient in English but speak the same foreign language, the employer must post the notice in that language, both physically and electronically (if the employer is otherwise required to post the notice electronically). If an employer's workforce includes two or more groups constituting at least 20 percent of the workforce who speak different language, the employer must either physically post the notice in each of those languages or, at the employer's option, post the notice in the language spoken by the largest group of employees and provide each employee in each of the other language groups a copy of the notice in the appropriate language. If some of the employer's employees speak a language not spoken by at least 20 percent of the workforce, the employer is encouraged but not required to provide a copy of the notice in the employee's respective language or to direct them to the NLRB's website for translated versions.

Penalties for Non-Compliance

Failure to comply may be considered an unfair labor practice and toll the statute of limitations for filing a charge against the employer. Such failure may also be considered evidence of an unlawful motive if an unfair labor practice charge is filed.

JUDICIAL

California

Independent Contractor's Employees Cannot Sue Hiring Party for Injuries Resulting from Statutory Safety Violations

California law generally prohibits employees of independent contractors that are injured in the workplace from suing the party that hired the independent contractor to do the work. This general rule of immunity flows from the assumption the hirer has delegated to the independent contractor any tort law duty of safety owed to the contractor's employees, and the fact the injured employee may recover from the workers' compensation insurance maintained by the independent contractor. In this case, a contractor employee injured because the hiring party failed to comply with applicable Cal-OSHA regulations regarding safety belts attempted to sue the hirer arguing its obligation to comply with statutory safety regulations (as opposed to a common law duty of care) was a non-delegable duty.

The California Supreme Court concluded the hiring party's duty to comply with Cal-OSHA (and presumably other safety-related statutes) was a delegable duty, and that this delegation of duty to the independent contractor precluded the injured contractor employee from suing the hirer. The Court premised this result on Cal-OSHA's narrow definition of "employer" and the same public policy considerations justifying delegation of tort or common law duties of safety to the independent contractor (i.e., the contractor maintains workers compensation coverage and factors this into the contract with the hiring party, etc.). The Court reiterated, however, that the hiring party cannot delegate its statutory or tort duties owed to its own employees, and that an injured contractor's employees may be able to sue if the hiring party retained control in such a manner as to affirmatively contribute to the workplace injury. (Seabright Ins. Co. v. U.S. Airways, Inc. (2011) ___ Cal.4th ___, 2011 Cal.LEXIS 8581.)

Employee's Failure to Return at End of 12-Week CFRA Leave Precluded Subsequent CFRA Interference Claim

After a nineteen week leave of absence due to stress, an employee returned to work but immediately resigned after being notified she was being transferred to another department as part of a reorganization. The employee sued for violation of the California Family Rights Act (CFRA) claiming her employer (1) "interfered" with her CFRA rights by transferring her to a non-comparable position and (2) "retaliated" against for exercising her right to take CFRA leave. The jury initially awarded the employee $356,000 in damages, but a California court of appeal set aside the verdict finding her CFRA interference claim was barred as a matter of law, and there was insufficient evidence for her CFRA retaliation claim.

The appellate court first concluded the employee could not maintain her CFRA interference claim predicated upon an alleged failure to reinstate because her reinstatement rights expired at the end of the 12-week CFRA leave period. The court observed that CFRA only provides up to a 12-week period of job protected leave and if the employee does not return at that point, they cannot sue for CFRA reinstatement if their position is not available upon their subsequent return. The court also rejected the CFRA retaliation claim finding that the employer had articulated a legitimate business reason unrelated to her prior CFRA claim for not reinstating her after her 19 week leave ended (i.e., an ongoing strategic reorganization of her department.) (Rogers v. County of Los Angeles (2011) 198 Cal.App.4th 480.)

(NOTE: although the employee's failure to return after 12-weeks arguably ended her CFRA reinstatement rights, employers need to be mindful of their potential accommodation duties under the ADA/FEHA to the extent a further leave of absence with reinstatement would be considered a reasonable accommodation [this employee had not asserted such a claim].)

After-Acquired Evidence and Unclean Hands Doctrine Precluded Employee Who Falsified Social Security Information from Maintaining Failure to Hire FEHA Claims

The "after-acquired-evidence" doctrine operates as a complete or partial defense where, after an allegedly discriminatory termination or refusal to hire, the employer discovers employee or applicant wrongdoing that would have resulted in termination or a refusal to hire. Similarly, the "unclean hands" doctrine precludes plaintiffs from seeking justice or equitable remedies when they have acted improperly in the first instance. In this case, a former seasonal employee sued for FEHA disability discrimination and failure to accommodate after the employer refused to re-hire him because of ongoing severe work restrictions. During the FEHA litigation, the employer discovered the employee had used a fraudulent social security card to obtain employment initially and argued this discovery precluded the employee from proceeding with his FEHA claims. The California appellate court agreed the employee's fraudulent conduct related to hiring precluded his failure to hire claims (including all of his FEHA claims) and provided some insights into how future courts might apply the "after acquired evidence" doctrine in other settings.

The court first observed that unlike in situations where the employer is arguing a violation of an internal or self-imposed employer policy (in which case the employer must prove a violation would result in termination), this employee had violated a federally-imposed job qualification (i.e., eligibility to work) that rendered him completely ineligible to be hired in the first instance. The court also noted that while such ineligibility to work might not completely bar suit for discriminatory conduct occurring during the subsequent employment (ex FEHA sexual harassment), all of this employee's suit were predicated upon an allegedly discriminatory failure to rehire. (Salas v. Sierra Chemical Co. (2011) 189 Cal.App.4th 29.)

Appellate Court Permits Introduction of "Me Too" Evidence to Prove Intent in Gender Discrimination and Sex Harassment Case

A recurring evidentiary issue in Title VII and FEHA claims involves the admissibility of so-called "me too" evidence – evidence that the defendant harassed or discriminated against other individuals. In this FEHA gender and race discrimination case, the trial court excluded evidence the accused manager/decision-maker had made derogatory comments about "Mexicans" and referred to female employees as "bitches" or made sexual comments concerning their attire and bodies. The trial court ruled in the defendant's favor, but the California court of appeal reversed concluding the trial court had erroneously excluded evidence potentially relevant to the female, Hispanic plaintiff's claims.

The appellate court observed the manager's derogatory comments about "Mexicans" might suggest animus for purposes of the employee's race discrimination claim, and that the references to other female employees as "bitches" similarly might evince bias against female employees, even if they occurred outside of the plaintiff's presence or prior to her employment. The court also suggested the conduct towards other female employees might be relevant to the employee's sexual harassment claim to demonstrate an intent to harass (although technically, intent is not an element of a sexual harassment claim). The court also concluded this evidence was potentially relevant to rebut the accused's claims that he either never made such comments or that any profanity was general in nature and not targeted at any particular group. (Pantoja v. Anton (2 198 Cal.App.4th 87.)

Appellate Court Provides Guidance on Distinguishing Sabbatical Program from Vacation

An employee sued for unpaid wages arguing that his employer's "sabbatical" program was really vacation that accrued proportionately to his service and could not be forfeited by his resignation. The California court of appeal undertook a detailed analysis of vacation and sabbatical programs generally, and although it declined to decide this issue as a matter of law given the factual issues presented in this case, it identified pertinent criteria that may benefit employers and future courts.

The appellate court began its analysis by reiterating that vacation pay is essentially a form of deferred compensation that cannot be forfeited and must be paid upon termination or resignation. On the other hand, the court recognized the value in employers providing "sabbaticals" that would not be subject to these requirements, provided the employer did not simply use them as a subterfuge to avoid paying vested vacation time. The court framed the issue as whether the leave is a vacation (loosely defined as compensation earned over the course of employment, the enjoyment of which is deferred) or a sabbatical (loosely defined as a conditional leave intended to retain the most experienced or valued employee and to enhance their future service to the employer).

Drawing heavily upon prior DLSE opinion letters, the court identified four pertinent factors for sabbatical programs, but noted there could be more, all of which would turn on the unique facts. First, leave that is granted infrequently (using every seven years as a rough benchmark) suggests an intent to retain experienced employees who have previously provided significant service, and is indicative of a sabbatical. Second, sabbatical leave must be adequate to achieve the employer's purpose, and should be longer than that "normally" offered as vacation. Third, sabbatical leave must always be granted in addition to regular vacation, with the employer's regular vacation policy comparable to the average vacation benefit offered in the relevant market. Fourth, while the sabbatical program need not necessarily be limited to upper management or professional employees, the program should incorporate some feature suggesting the employee taking the leave is expected to return to the employer after it ends. (Paton v. Advanced Micro Devices, Inc. (2011) 197 Cal.App.4th 1505.)

Prevailing Employer Entitled to Recover Costs in Successfully Defending Overtime Claims

An employee who unsuccessfully alleged he was misclassified as exempt and entitled to overtime argued the prevailing employer was not entitled to over $38,000 in costs because Labor Code section 1194 only authorizes attorneys' fees and costs to a prevailing employee. The California court of appeal rejected this argument, observing that the generally applicable costs provision (Code of Civil Procedure section 1032(b)) entitles a prevailing party to costs as a matter of right absent an express statutory exception. In this case, while Labor Code section 1194 expressly limited attorneys' fees only to a prevailing employee, it did not expressly preclude a prevailing employer from recovering its costs under section 1032(b). (Plancich v. United Parcel Service, Inc. (2011) ___ Cal.App.4th ___, 2011 Cal.App.LEXIS 1061.)

Law School Graduate Who Has Not Yet Passed Bar Qualifies for Learned Professional Exemption

A law school graduate who worked as a law clerk in a firm pending passage of the Bar sued for overtime claiming that because he had not yet passed the Bar and been licensed, he did not satisfy the requirements for California's professional exemption. The California court of appeal rejected this argument, noting that Wage Order 4-2001 defines the professional exemption as someone who either is licensed or certified and falls within eight enumerated professions (including law) or is primarily engaged in a recognized learned or artistic profession. Thus, while the failure to pass the Bar disqualified him from the "enumerated professions" prong, he still qualified for the "learned professions" portion because of his advanced legal education and because he satisfied the other general requirements for the professional exemption (i.e., salary basis test, sufficient independent discretion, etc.). (Zelasko-Barrett v. Brayton-Purcell, LLP(2011) 198 Cal.App.4th 582.)

(NOTE: the Ninth Circuit recently utilized similar analysis to conclude that unlicensed accountant associates qualified under the "learned" professional prong even if not satisfying the "enumerated professions" prong. (Campbell v. Pricewaterhouse Coopers, LLP(9th Cir. 2010) 642 F.3d 820).)