LEGISLATIVE

California

Bills pending in the California Legislature include:

Minimum Wage Increase Proposed (AB 196)

This recently-introduced bill would increase California's minimum wage from $ 8.00 an hour to $ 8.50 an hour effective January 1, 2013, and provide for annual adjustments beginning in January 2014. These automatic adjustments would be calculated using the California Consumer Price Index (as specified in to-be-amended Labor Code section 1182.12) to maintain employee purchasing power diminished by the rate of inflation during the previous year. The bill would prohibit the Industrial Welfare Commission (IWC) from adjusting the minimum wage downward and from adjusting the minimum wage upward if the average percentage of inflation for the previous year was negative. The IWC would be required to publicize the automatically adjusted minimum wage.

This bill is currently pending in the Labor and Employment Committee. A similar bill (AB 10) failed to pass in 2011.

Bill Proposes Eliminating Discrimination Against Unemployed Applicants (AB 1450)

At the federal level, in 2011, President Obama referenced potential future prohibitions on employers discriminating against unemployed applicants, and the Equal Employment Opportunity Commission is also considering such protections. In California, a recently-introduced bill (AB 1450) would make it unlawful, unless based on a bona fide occupational qualification (BFOQ) or any other provision of law, to discriminate against applicants because of their "unemployment" status.

Specifically, this bill would make it unlawful, absent a BFOQ, for an employer to (1) knowingly or intentionally refuse to consider for employment or refuse to offer employment to an individual because of the individual's status as unemployed, (2) publish an advertisement or announcement for any job that includes provisions pertaining to an individual's status as unemployed (as specified) or (3) direct or request that an employment agency take an individual's status as unemployed into account in screening or referring applicants for employment. This bill would also extend to employment agencies and, absent a BFOQ, make it unlawful for such agencies to (1) knowingly or intentionally refuse to consider or refer an individual for employment because of the individual's status as unemployed, (2) limit, segregate or classify individuals in any manner that may limit their access to information about jobs or referral for consideration of jobs because of their status as unemployed, or (3) publish an advertisement or announcement with respect to employers that would discriminate against unemployed applicants.

This bill would not create a private right of action by aggrieved persons, but it would authorize statutory penalties against non-compliant employers and employment agencies of up to $1,000 for the first violation, up to $5,000 for the second violation, and up to $10,000 for each subsequent violation to be enforced by the DLSE (for employers) and the Attorney General (for employment agencies). This bill would not add "unemployment discrimination" to FEHA's protections (Gov. Code section 12940 et seq.), but would instead add new sections to the Civil Code and Labor Code. This bill is currently pending in the Assembly's Labor and Employment and Judiciary Committees.

AGENCY

California

DLSE Issues Wage Theft Prevention Act Templates in Multiple Languages, and Slightly Revises its Frequently Asked Questions Concerning "Pay Rates" and to Whom the Templates Must be Provided

As discussed in prior newsletters, the Wage Theft Prevention Act (AB 469 [WTPA]) took effect January 1, 2012 and requires (amongst other things) that employers provide certain statutorily-enumerated information to new hires, and to current employees should these items change. In late December 2011, the DLSE posted on its website a sample notice employers could use to comply with the WTPA. http://www.dir.ca.gov/dlse/LC_2810.5_Notice.pdf

The WTPA also requires employers provide this information in the language the employer normally uses to communicate employment-related information to the employee. In addition to the previously issued English template, the DLSE has recently issued sample notices in Vietnamese, Chinese, Korean, Spanish and Tagalog. http://www.dir.ca.gov/dlse/Governor_signs_Wage_Theft_Protection_Act_of_2011.html.

The DLSE has also published, and updated several times, on-line "Frequently Asked Questions" concerning the WTPA. For example, the initial version of the FAQ's suggested employers must provide these templates to both new hires and current employees, despite any statutory language requiring such notices to all current employees. The DLSE subsequently issued a slightly-revised version of the FAQ's omitting, but without comment, this required notice to current employees.

On January 23, 2012, the DLSE again issued a slightly-revised version of these FAQ, with the changes concerning to whom the template must be provided and what "pay rate" information must be included. In short, the current version of the FAQ's only requires that the template be provided to new hires (and to current employees if information changes), but suggests it would be a "best practice" to immediately provide the template to all employees. The full-text of the FAQ's is available at http://www.dir.ca.gov/dlse/FAQs-NoticeToEmployee.html, but below are the revisions to these two issues, contained in FAQ's 2 and 12, with the emphasis contained in the DLSE's FAQ's:

FAQ 2. Who is covered by the law?

A: All private sector employers are covered unless there is a specified exception. The notice is not required for an employee: directly employed by the state or any political subdivision, including any city, county, city and county, or special district; an employee who is exempt from the payment of overtime wages by statute or the wage orders of the Industrial Welfare Commission; or for an employee who is covered by a valid collective bargaining agreement if it meets specified conditions. It is important to note that charter schools, private schools, and not-for-profit corporations are covered, as they are not public entities. Subject to the foregoing exceptions, as of January 1, 2012, employers are required to provide the written notice to each employee "[a]t the time of hiring." The notice requirement was intended to apprise employees of basic information material to their employment relationship, and to ensure employees are given up-to-date employment information through notice of any changes to that information; as such, it would be a best practice for employers not only to provide the notice to new hires, but also to current employees. (Underlined portion added 1/23/12)

FAQ 12. What procedures should be followed if an employee has multiple pay rates?

A: An employer must put all pay rates on the notice (and on the wage statement). The notice must include "[t]he rate or rates of pay and basis thereof whether paid by the hour, shift, day, week, salary, piece commission, or otherwise, including any rates for overtime, as applicable." (Labor Code 2810.5(a)(1)(A)). The Legislature's inclusion of language referring to "the rate or rates of pay" contemplates that several rates may apply to an employment relationship and thus all applicable rates must be provided in the notice (or may be attached as a separate sheet to the notice with a clear reference in the notice to the attachment, indicated in the space for "Rate(s) of Pay"). (Underlined portion added 1/23/12)

Cal-OSHA Issues Reminder to Employers to Post Form 300A Beginning February 1st

California employers are required to fill out and post each year Form 300A, which provides an annual summary of all work-related injuries and illnesses. Cal-OSHA has recently issued a reminder (www.dir.ca.gov/DIRNews/2012/IR2012-04.html) that employers must post this form (which is downloadable from the DIR's website) from February 1 through April 30th. Employers must fill out and post the form every year, even if no workplace injuries occurred. Information that must be disclosed on the form includes, but is not limited to, the total number of cases with days away from work, total number of days injured or sick employees spent away from work, and the different types of injury or illness suffered. Additional information about these posting requirements is available at www.dir.ca.gov/DOSH/employerinformation.htm.

DIR Announces Formation of Labor Employment Task Force

The Department of Industrial Relations has recently announced the formation of a new multi-agency task force, the Labor Employment Task Force (LETF), to "combat the underground economy in California to create an environment legitimate business can thrive in." The LETF's stated goals are to (1) ensure workers receive proper payment of wages and are provided a safe work environment; (2) ensure California receives all employment taxes, fees, and penalties due from employers; (3) eliminate unfair business competition by leveling the playing field; and (4) make efficient use of the state and federal resources in carrying out the LETF's mission. Additional information about LETF is available at www.dir.ca.gov/LETF/LETF.html.

Federal

NLRB Concludes Class Action Waivers in Employment Arbitration Agreements Violate the National Labor Relations Act

In 2011, the United States Supreme Court concluded that a California law barring class action waivers in consumer arbitration agreements violated the Federal Arbitration Act (AT&T Mobility v. Concepcion (2011) 131 S.Ct. 1740), and many suspected this result would soon be extended to uphold class action waivers in employment arbitration agreements. Indeed, many anticipated AT&T would essentially overrule the California Supreme Court's conclusion in Gentry v. Superior Court (2007) 42 Cal.4th 443 that such class action waivers would often be unconscionable and, thus, unenforceable in the employment context. However, the National Labor Relations Board (NLRB) recently concluded in D.R. Horton Inc. and Michael Cuda (2012) 357 NLRB No. 184 that such class action waivers in mandatory arbitration agreements in the employment context violates the National Labor Relations Act (NLRA), thus interjecting considerable uncertainty regarding class action waivers.

In D.R. Horton, an employee attempted to initiate a class arbitration under the Fair Labor Standards Act (FLSA) alleging he and similarly situated superintendents had been misclassified as exempt and denied overtime. The employer argued the arbitration agreement the employee had signed as a condition of employment expressly precluded class or collective actions, so the employee filed an unfair labor practice charge with the NLRB alleging the agreement's prohibition on class or collective actions violated the NLRA. In a case of first impression for the NLRB, the Board concluded the class action waiver violated the NLRA.

The Board first concluded that employees who join together to bring employment-related claims on a class-wide or collective basis in court or before an arbitrator are engaging in "concerted activity" under NLRA Section 7. From this, the Board concluded the arbitration agreement's provision expressly precluding employees from joining together, whether in civil court or in arbitration, to litigate work-related conditions essentially prohibited "concerted activity" and thus, violated substantive rights under Section 7 of the NLRA. Interestingly, and perhaps setting up a further split in authority that may prompt further review, the Board specifically declined to follow two federal court decisions that held class action waivers do not violate the NLRA.

The Board next concluded that its holding did not violate the FAA because it was simply applying general labor law principles and invalidating an overbroad restriction on "concerted activity," and was not unfairly singling out arbitration agreements. The Board noted that the FAA specifically authorizes courts not to uphold unenforceable arbitration provisions and observed class action waivers violate the NLRA rendering the arbitration agreement void as against public policy. The Board next distinguished the Supreme Court's AT&T decision noting that it involved consumer, not employment agreements, and more specifically the Court had not analyzed whether its ruling also applied in the NLRA context.

However, the Board also attempted to suggest is ruling was narrow and limited. For instance, it suggested it only applied to employees covered by Section 7, but it bears noting that Section 7 is not limited to union employees. The Board next suggested it was not mandating class arbitration in the employment context, but was simply prohibiting advance class action waivers, and it noted it was not challenging an employer's ability to require arbitration on an individual basis of future employment disputes. In this regard, the Board noted employers could mandate individual arbitration agreements, provided they did not include class action waivers that might preclude concerted activity and violate the NLRA. (D.R. Horton, Inc. and Michael Cuda (2012) 357 NLRB No. 184.)

(NOTE: The NLRB's decision further underscores the current legal uncertainty regarding the enforceability of class action waivers in arbitration agreements in the employment context. This decision arguably creates a conflict between the NLRB and the FAA (and with federal court decisions, including AT&T). There also remains the as-of-yet unresolved issue of whether how California courts will apply AT&T in the employment context, and the recent California appellate court decision suggesting AT&T does not extend to PAGA-related collective actions adds still more uncertainty. Until these legal issues are resolved, employers considering implementing or enforcing arbitration programs containing class action waivers should contact their legal counsel.)

DOL Issues Proposed Rulemaking to Incorporate Statutory Amendments to the FMLA

In recent years, the Family Medical Leave Act (FMLA) has been statutorily amended to expand its military leave provisions and to incorporate a special eligibility provision for airline flight crew employees. The Department of Labor has recently issued a Notice of Proposed Rulemaking (NPRM) to implement and interpret these recent statutory amendments and to make some additional regulatory changes to the FMLA. The full-text of the Proposed Rule is available at www.dol.gov/whd/fmla/NPRM/FMLA_NPRM_2012.pdf, and these proposed changes are briefly summarized below.

In 2008, the FMLA was amended to include two types of military family leave protections. First, under the military caregiver leave provisions, eligible employees who are the spouse, son, daughter, parent or next of kin of a service member with a serious injury or illness incurred in the line of duty to take up to twenty-six workweeks of FMLA leave during a single 12-month period to care for their injured family member. Second, under the "exigency leave" provisions, eligible employees whose spouse, child or parent is called up for active duty in the National Guard or Reserves to take up to twelve workweeks of FMLA leave related to "qualifying exigencies" related to this call-up. In 2010, FMLA was amended by the National Defense Authorization Act to extend "qualifying exigency" leave include employees whose family members serve in the Regular Armed Services, not just the National Guard or Reserves.

The DOL's new NPRM makes several changes to the FMLA's military leave-related regulations as follows:

• it updates the regulations to include the 2010 amendment extending "qualifying exigency" to eligible family members of members of the Regular Armed Services;
• it includes a new statutory requirement to "qualifying exigency" leave that the employee's family member be deployed to a foreign country (this requirement would apply to National Guard, Reserves and Regular Armed Service Members);
• it extends military caregiver leave to include care for covered veterans with a serious injury or illness, and outlines a three-part definition of "serious injury or illness" of a veteran; and
• it extends military caregiver leave to cover serious injuries or illnesses that result from the aggravation during military service of a preexisting condition for both current service members and veterans.

The NPRM also incorporates the special eligibility provisions for airline flight crew members set forth in the Airline Flight Crew Technical Corrections Act (AFCTCA). Under the AFCTCA, airline flight crew employees will meet the hours of service eligibility requirement if they have worked or been paid for not less than 60 percent of the applicable total monthly guarantee and have worked or been paid for not less than 504 hours during the 12 months prior to their leave. The NPRM implements the AFCTCA's special minimum hours of service eligibility requirements for airline flight crew employees.

The DOL will accept written comments on the proposed NPRM for sixty days, and it has also issued a Fact Sheet available at www.dol.gov/whd/fmla/NPRM/whdfsFMLA_NPRM.htm and a set of Frequently Asked Questions available at www.dol.gov/whd/fmla/finalrule/NonMilitaryFAQs.pdf.

IRS Issues Interim Guidance on W-2 Reporting of Employee Health Care Coverage

The Patient Protection and Affordable Care Act provides that employers are required to report the cost of employer-provided health care coverage on the Form W-2 issued to employees. In January 2012, the Internal Revenue Service (IRS) issued Notice 2012-9 (which amends and restates Notice 2011-28 issued in March 2011) to provide interim guidance on informational reporting to employees through the W-2 of the cost of their group health insurance coverage. The full-text of Notice 2012-9 is available at www.irs.gov/pub/irs-drop/n-12-09.pdf.

JUDICIAL

California

Appellate Court Refuses to Enforce One-Sided Arbitration Agreement that Failed to Sufficiently Explain Arbitration Process

Although the stated policy in California is in favor of arbitration, the practical reality is plaintiff's attorneys almost always oppose the agreements, and some courts appear to be looking for reasons not to enforce the agreements. In this wage and hour case, the appellate court refused to enforce the arbitration agreement on the grounds it was procedurally and substantively unconscionable. The court found it procedurally unconscionable because it was set forth solely in one paragraph in the initial application, and did not provide any information regarding the arbitration process. Specifically, the agreement did not inform the employee they were waiving a jury trial, and it did not explain the arbitration process but simply referenced the American Arbitration Association Rules which were not attached or provided. The agreement was also substantively unconscionable because it lacked mutuality and required only the employee, but not the employer, to arbitrate future disputes. (Wisdom v. Accentcare, Inc. (2012) 202 Cal.App.4th 591.)

Nonexclusive Insurance Agents Can Be Independent Contractors Where Agent Controls Manner and Means of Selling Product

An insurance agent for a national insurance company filed suit seeking damages for unreimbursed business expenses arising from the company's alleged misclassification of her as an independent contractor. The Court of Appeal applied the common law test of employment in determining whether she was a "employee" and thus entitled to reimbursement under Labor Code section 2802.

Applying the ten factor "right to control" test articulated in the seminal case of S. G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal.3d 341, the court found that the company did not have a significant right to control the means and manner by which the agent sold its products. Specifically, the court found that the agent determined whom she would solicit applications for, the time, manner and place in which she would solicit and the amount of time she spent soliciting for the company's products. The court also noted the agent had a nonexclusive contract with the company and that she solicited for other companies at the same time. Although the company did have a minimum performance threshold required to maintain the contract, the court noted that the company did not evaluate her performance and did not monitor or supervise her work, although the company did provide managers if an agent wanted assistance. Finally, the court noted that the only mandatory training provided by the company was to comply with state law (the company did offer voluntary training for new agents on "best practices"). Thus, the court held that the agent, not the company, had the requisite control.

The court also concluded that the additional factors of the common law test weighed in favor of finding an independent contractor relationship. The court explained that the since the agent needed a license from the Department of Insurance, she was engaged in a distinct occupation. The agent also supplied her own tools and had to pay the company a fee for the use of telephone and office space. Finally, although the company paid her every two weeks, since the payment was primarily in the form of commissions the court found that the compensation was not guaranteed but instead based on her efforts and results. In light of all of this evidence, the court found that the agent was properly treated as an independent contractor and therefore not entitled to reimbursement of expenses by the company. (Arnold v. Mutual of Omaha Ins. Co. (2012) 202 Cal. App. 4th 580.)

(Note: Determining whether an independent contractor is properly classified is an individualized factual analysis, and there are various different tests courts or government agencies will apply depending on the particular context. The "common law" test employed by courts in assessing an individual's challenge to their classification consists of ten different factors, none of which are exclusively determinative. As such, while this case provides guidance, employers should consult with legal counsel to confirm that the individual qualifies as an independent contractor as the consequences of misclassification can be costly.)

Court Finds Recruiters Exempt From Overtime Requirements Where They Are Primarily Engaged in Sales and Paid Commissions Derived From Profits

Section 3(D) of Wage Orders 4 and 7 provides an exemption from overtime for "commissioned sales employees," but note, this section does not provide an exemption from the other requirements of the wage order, including, for example meal and rest periods. Commissioned sales employees qualify for this exemption from overtime if (1) more than half of their compensation is in the form of commissions, and (2) their regular rate of pay exceeds one and one half times the minimum wage. Courts have consistently limited this exemption to employees in sales positions.

In this case, a class of "senior consulting services managers" who worked as employment recruiters brought a class action seeking damages for unpaid overtime wages and related penalties due to the company's classification of them as exempt commissioned employees. The employees argued that they did not qualify for the exemption because they did sell anything and because the majority of their commissions were related to the profit realized by the company in placing a candidate as opposed to the actual price of the service.

With regards to whether the recruiters were engaged in the requisite sales duties, the Court of Appeal found that the essence of the recruiter's job was to offer an employee's services to a client in exchange for a payment of money, which in the court's opinion, fit squarely within the ordinary definition of the word "sell." The court further explained that even though the recruiters engaged in other activities that were not "selling," i.e. searching candidates, reviewing resumes, etc., these activities were essential prerequisites necessary to accomplishing the sale and therefore, the court concluded, the recruiters were principally engaged in selling a product or a service.

The court also rejected the recruiters' argument that their commissions were not sufficiently related to the price of the services they sold because their compensation was based on the amount billed to the client less overhead and expenses, i.e. profit realized by the company. The recruiters argued that to qualify as a commission their compensation had to be a percentage of the price of the service and that the formula used by the company was not related to the price of the service since it took into account cost related factors. The court disagreed and found that although commission can be a percentage of a price, it can also be a percentage of adjusted gross profit. The court also noted that in negotiating contracts the recruiters had the ability to impact the revenue and costs to the company, thus giving them incentive to increase their earnings, which is what a commission is intended to do. (Muldrow v. Surrex Solutions Corporation (2012), ___ Cal.App.4th ___, 2012 Cal. App. LEXIS 39)

Appellate Court Recognizes Employer's Ability to Discipline Employees for False Harassment Claims

This case presents a unique set of circumstances with a complicated procedural history. In this case, an employee, a police officer, filed a sexual harassment complaint against his supervisor alleging that he made sexual advances at him, stalked him and exercised his power in a harassing manner. The complaint was subsequently investigated by the Department of Internal Affairs which concluded that the officer's allegations were unfounded. After the investigation, the supervisor filed a complaint against the officer. The Department of Internal Affairs conducted another investigation and decided to charge the complaining officer with providing false statements during an official investigation. After a hearing on the matter, the officer was terminated. The officer sued claiming retaliation in violation of the Fair Employment and Housing Act for filing a complaint of sexual harassment. The jury returned a verdict for the officer and the City appealed.

On appeal, the court posed the unusual legal question as "whether an employee may be disciplined if his or her employer concludes that the employee has fabricated a claim of sexual harassment, or whether such a complaint is insulated from discipline, even where, as here, the employee determines it was fabricated." Finding no other cases on point, the court adopted the rule and reasoning from other jurisdictions that "in appropriate circumstances, an employer may discipline or terminate an employee for making false charges, even where the subject matter of those charges is an allegation of harassment." However, the court cautioned that the employer must have a good faith belief that the employee engaged in misconduct, i.e. made a false claim of harassment.

(Note: While a favorable result for this employer, employers need to be careful in disciplining employees who engage in protected legal activities (i.e., lodge a FEHA harassment complaint) since FEHA's retaliation provision protects employees who make good faith complaints that ultimately cannot be corroborated. In this regard, this decision recognized only a narrow exception allowing employers to discipline employees for knowingly false claims.)

(Richard Joaquin v. City of Los Angeles (2012), ___ Cal.App.2d ___, 2012 Cal. App. LEXIS 35)

Federal

United States Supreme Court Recognizes "Ministerial Exception" to Bar ADA Claim Against Church

A teacher alleged the Hosanna-Tabor Evangelical Lutheran Church and School (the Church) violated the Americans with Disabilities Act for terminating her because of her narcolepsy. The Church argued that these claims were barred by the Establishment and Free Exercise Clauses of the First Amendment (also known as the "ministerial exception") which precludes government interference with the relationship between a religious institution and its members. In short, the Church argued these provisions created a "ministerial exemption" precluding suit under the ADA and other federal discrimination statutes.

A unanimous Supreme Court agreed, and formally recognized the "ministerial exception " identified by lower courts, and held it bars suits brought by ministers against their churches for employment discrimination. The Court observed that requiring a church to accept or retain an unwanted minister, or punishing it for failing to do so, would intrude upon the Church's internal governance and deprive the Church of the ability to decide who would personify the Church's teachings. The Court observed this exception might not apply to all employees of a religious organization, but also held this exception was not limited to the head of a religious congregation. It also specifically declined to adopt a "rigid formula" for deciding when an employee qualified for this exception. However, it concluded this plaintiff, a fourth grade teacher at the Church's school, was a minister within the meaning of the ministerial exception because she was formally commissioned as a minister, identified herself as a minister, she had a significant degree of religious training, and her job duties involved conveying the Church's message and carrying out its mission. (Hosanna-Tabor Evangelical Lutheran Church And School v. EEOC (2012) ___ U.S. ____, 2012 U.S. LEXIS 578)