California

Governor Vetoes Bill That Would Have Eliminated Overtime and Meal Period Exemption for Agricultural Employees (SB 1121)

Despite fairly heavy political pressure, Governor Schwarzenegger vetoed a bill that would have eliminated the exemption from meal and overtime requirements for agricultural employees. Currently, agricultural employees are exempt from the Labor Code’s meal period requirement and entitled to overtime if they work more than 10 hours in a day or 60 hours in a week. This bill would have entitled agricultural employees to overtime after 8 hours in a day and more than 40 hours in a week, and entitled them to meal periods under the Labor Code. The Governor’s veto message cited concerns about California’s economy and making the state less competitive compared to other states with no such overtime requirements for agricultural employees, and about not subjecting more employees to California’s “confusing and burdensome rest and meal period requirements.”

Federal

Unemployment Insurance Benefits Extended Again, But No Further Extension for COBRA Premium Subsidy (H.R. 4213)

As expected, President Obama has signed into law a bill extending federal unemployment insurance benefits through November 2010. This now-effective bill also applies retroactively to reinstate the unemployment insurance benefits program that expired in May 2010. It remains to be seen whether there will be further extensions after November 2010 given the closeness of the vote (60-40 in the Senate) and concerns about the deficit and the economy.

Previous extensions of the unemployment insurance benefits had been coupled with extensions of the 65% COBRA premium subsidy for eligible employees (as defined). Neither this extension nor the short-term extension in June extended the COBRA subsidy premium eligibility period which expired on May 31, 2010. It appears unlikely the COBRA premium subsidy will be extended again, and the Department of Labor has issued a press release confirming that absent further extensions, employees terminated after May 31, 2010 are not eligible for the COBRA premium subsidy. The DOL press release further reconfirms individuals who qualified on or before May 31, 2010 may continue to receive the subsidized premiums for up to 15 months as long as they are not eligible for another group health plan or Medicare. The DOL press release is available atwww.dol.gov/ebsa/newsroom/2010/ebsa070610.html.

Recently-Enacted Financial Reform Bill Contains New Whistleblower Protections (H.R. 4713)

President Obama has signed into law the financial reform bill (H.R. 4713), which contains broad new regulations for the United States financial markets to prevent another economic crisis. This bill also has several employment-related provisions, including new whistleblower protections, whistleblower incentives, private rights of action and limitations on arbitration agreements for claims arising under to the Sarbanes-Oxley Act (SOX). Several of these employment-related provisions are briefly outlined below.

For instance, this bill creates a “Securities Whistleblower Incentive” program whereby whistleblowers who provide “original information” (as defined) to the Securities and Exchange Commission (SEC) resulting in sanctions of greater than $1 million may recover a bounty between 10 and 30 percent of the SEC’s recovery. The specific bounty award will be determined by various specified factors, including the significance of the information, the whistleblower’s assistance, and the SEC’s interest in these types of violations, etc.

The bill also precludes retaliation or discrimination against employees who participate in this program and creates a private right of action for employees who have suffered retaliation because of disclosures to the SEC under this incentive program, who assisted in the investigation relating to information disclosed to the SEC, or made disclosures required or protected under SOX, the Securities Exchange Act and other rules or laws subject to the SEC’s jurisdiction. Such claims may be filed in federal court and potential remedies include reinstatement, double back pay with interest and attorneys’ fees.

The bill also creates similar whistleblower protections and incentives for commodity brokers to be administered by the Commodity Futures Trading Commission.

It also creates a new private right of action for financial services industry employees who are retaliated against for disclosing information about fraud relating to consumer financial products or services. The definitions used for the financial services employee protections are quite broad, and the employee need only demonstrate protected activity was a “contributing factor” to the challenged action, at which point the employer must present clear and convincing evidence it would have made the same decision regardless of the protected activity.

The bill does not change the remedy provisions of SOX, but does make several procedural changes to its provisions. Most importantly perhaps, it invalidates any pre-dispute arbitration agreement relating to SOX claims, and it clarifies that SOX claimants have a right to a jury trial. It also increases from 90 to 180 days the deadline to file a SOX-related complaint with the Department of Labor. It also clarifies SOX’ whistleblower protections apply to employees of subsidiaries of publicly-traded companies where the subsidiary’s financial information is included in the publicly-traded parent’s financial statements.

The bill also amends the False Claims Act (31 U.S.C. § 3730 et seq. [FCA]) in several respects, including by expanding the definition of protected conduct and specifying that FCA claims have a three-year statute of limitation (rather than the most analogous state law limitations period).

AGENCY

Federal

DHS Issues Final Rule Concerning I-9 Electronic Storage and Completion Date

The Department of Homeland Security has issued a final rule amending its regulations which clarify several issues relating to the I-9 Form employers must complete to verify new hire eligibility to work. For instance, the final rule expressly clarifies that employers must complete the I-9 Form within three “business” days of the date employment begins, rather than simply “three days” as suggested in the interim rule.

The final rule expressly permits employers to complete, sign, scan and store the Form I-9 electronically (including existing I-9 forms) so long as certain performance standards set forth in the final rule for the electronic filing system are met. Accordingly, employers may store their I-9 forms in either paper, electronic or a combination of electronic and paper format. They may also change their electronic storage systems provided their systems meet the regulation’s performance requirements. Employers also need not retain audit trails of each time a Form I-9 is electronically viewed, but must maintain the audit trail for when the I-9 form is created, completed, updated, altered or corrected.

This final rule takes effect August 23, 2010. The full text of this final rule is available at 75 Fed. Reg. 42575 or at http://edocket.access.gpo.gov/2010/pdf/2010-17806.pdf.

DOL Issues Fact Sheet for Nursing Mothers Under New Breastfeeding Law

As discussed in earlier newsletters, the Patient Protection and Affordable Care Act (aka, the Health Care Reform bill) amended the Fair Labor Standards Act to require employers to provide reasonable break time for employees to express breast milk for nursing children. (California Labor Code section 1030 et seq.already provided a state law counterpart to this new federal requirement). The Department of Labor (DOL) has recently issued Fact Sheet No. 73 to provide guidance concerning this new law, including discussing the timing and location for such breaks, who the breaks apply to and whether it must be paid, and identifies several federal resources for additional information. Fact Sheet No. 73 can be obtained at www.dol.gov/whd/regs/compliance/whdfs73.pdf.

DOL Announces Pay Equity and Workplace Flexibility Initiatives

The DOL also recently announced several initiatives focusing on achieving gender pay equity and encouraging work-life balance. Regarding pay equity, the DOL announced it will ensure strategic enforcement of pay discrimination cases, including by hiring nearly 200 additional enforcement staff, and that it will soon publish additional resources, including a Proposed Rulemaking on pay equity issues, and Equal Pay Checklists and Audit forms for employers to use.

The DOL’s initiative, coupled with President Obama’s similar comments in July, may suggest an administrative priority to attempt passage of the Paycheck Fairness Act (H.R. 12/S. 182), which has been stalled since being introduced last year. 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.

The DOL’s second recently-announced initiative is intended to address work/life balance by providing increased workplace flexibility. Amongst other things, the DOL intends to conduct a FMLA-related survey in 2011 to obtain insight into how families use leave. The DOL’s press release announcing these initiatives is available at www.dol.gov/opa/media/press/wb/wb20101013.htm.

JUDICIAL

California

“Association”-Based Harassment Limited to Conduct Directed to Employee Because of Relationship with Employee in Protected Group

A Caucasian police officer sued for FEHA racial harassment based solely on several derogatory comments about African-Americans made by another Caucasian police officer (e.g., posting a picture of “Buckwheat” on a computer, suggesting African-American employees were “lazy,” and suggesting Martin Luther King’s birthday should not be a holiday). The employer argued the Caucasian employee lacked standing to sue for FEHA racial harassment because he was not an African-American employee and thus, not a target. The court ruled in the employer’s favor, albeit on slightly different grounds, and provided some clarification concerning an employee’s ability to sue for harassment even though not part of the “protected group” affected.

The California court of appeal reiterated that an employee who is not within the protected class may satisfy the “protected class” requirement based on his association with or advocacy on behalf of protected employees. As such, the Caucasian employee could potentially sue for race harassment by other Caucasian employees directed at him because of his association with African-American employees. In this case, however, the Caucasian employee failed to establish that he was targeted for harassment because of his “association” with African-American employees as opposed to simply being a witness to distasteful comments by Caucasian employees. The appellate court noted that in evaluating hostile work environment “association” claims, the only relevant conduct is that directed to employees because of their associations and only if the employees were aware of the conduct targeted at them; however, an employee may not simply rely on the mere utterance of offensive comments being made in the workplace.

The court also concluded these three comments about African-Americans were not sufficiently severe or pervasive to create a hostile work environment for this plaintiff’s racial or ethnic group. Lastly, the court dismissed the employee’s FEHA retaliation claim, concluding sufficient evidence existed, including eleven negative performance evaluations and a performance improvement plan demonstrating plaintiff had substandard performance which considerably predated his observance of these inappropriate comments. (Thompson v. City of Monrovia (2010) ___ Cal.App.4th ___, 2010 Cal.App.LEXIS 1142.)

Disabled Employee Required to Express Interest in Possible Accommodation Before Employer Has Duty to Engage in Interactive Process

California’s FEHA obligates employers to engage in the interactive process to determine effective reasonable accommodations for disabled employees, and failure to do so may give rise to liability under Government Code section 12940(n). Frequently litigated issues concern who has the initial duty to trigger this interactive process, what information must be communicated to satisfy this obligation, and who is responsible if the process is unsuccessful. The California court of appeal recently reaffirmed that an employee bears the initial obligation to trigger this process, and that the employer is not required to initiate discussions until the employee at least expresses an interest in potential accommodation.

The appellate court noted that under section 12940(n), an employer’s obligation to interact regarding possible reasonable accommodations arises “in response to a request for reasonable accommodation by an employee or applicant with a known physical or mental disability or known medical condition.” Thus, the statutory language specifically requires the employee to initiate the process, and while the employee need not use any “magic words” and while the employer’s obligation arises once it becomes aware of the need to consider accommodation, the employee must express some form of desire to continue working and the need for possible accommodation. In this case, however, the employee neither indicated any intent to return to work, nor disputed the employer’s determination she could not work. Instead, she remained off work for 18 months following a serious injury, never disputed the employer’s determination she could not return to work, and she had accepted rehabilitation and retraining benefits, all of which suggested she did not intend to return. (Milan v. City of Holtville (2010) ___ Cal.App.4th ___, 2010 Cal.App.LEXIS 1178.) 

Appellate Court Clarifies Employer’s Duty to Itemize “Total Hours Worked” in Wage Statement

Labor Code section 226 requires employers provide itemized wage statements to employees, and specifies nine items that must be included in the wage statements, including the “total hours worked.” Section 226 further provides that employees “suffering injury as a result of a knowing and intentional failure” by an employer to provide this information may recover actual damages or statutorily-enumerated penalties ($50 for initial pay period violation plus $100 for each subsequent pay period violation, up to $4,000) plus attorneys’ fees and costs.

In this case, a former employee filed a class action alleging the employer’s wage statements violated Labor Code Section 226 because the statements separately listed the number of regular and overtime hours worked by the employee, but did not total the amounts and list the total hours worked during the pay period. The employee conceded the statements reflected the correct number of hours worked in each column, and that she could have determined the sum of all hours worked by adding the two columns, but nonetheless argued section 226 required the employer’s wage statement to have another column adding her overtime and regular hours together. The California court of appeal rejected this hyper-technical interpretation, noting these wage statements correctly identified the “total hours worked” by the employee, even though the total overtime and total regular hours worked were listed separately. The court noted section 226 is designed to provide employees with adequate records and to help them determine if they have been properly compensated, and these statements satisfied those public policy goals. (Morgan v. United Retail Incorporate (2010) __ Call. App. ___, 2010 Cal. App. LEXIS 1194.)

(NOTE: the Division of Labor Standards Enforcement has posted on its website an exemplar wage statement for section 226 purposes, and its exemplar separately listed the total regular hours and overtime hours but does not include an additional line totaling these two amounts. This exemplar wage statement is available at www.dir.ca.gov/dlse/FAQ_Paydays.htm.

California Appellate Court Invalidates Two Laws that Essentially Forced Private Property Owners to Permit Picketing in Labor Disputes

In a labor dispute, a union maintained a peaceful picketing campaign urging a boycott at the entrance of the non-union store despite the store’s request it not picket on its private property. The trial court denied the store’s request for injunctive relief to stop the picketing, citing two California laws (the Moscone Act [C.C.P. §527.3] and Labor Code section 1138.1) which strictly limit the court’s ability to enjoin speech during labor disputes. Simply summarized, the Moscone Act expressly declares conduct relating to labor disputes, including peaceful picketing legal, and precludes judges from issuing restraining orders, while Labor Code section 1138.1 imposes many requirements to obtain injunctive relief against labor dispute activities that do not apply to enjoin other types of speech.

In a potentially significant ruling, the California court of appeal held that both the Moscone Act and Labor Code section 1138.1 violate the First and Fourteenth Amendments of the United States Constitution. The appellate court first concluded the store’s entrance area was private property, rather than a public forum (such as the common areas in the larger shopping center) and it remained private property even if the store allowed other groups to use this same area for speech purposes. The court reiterated that while there are Constitutional limits on the ability to restrict speech in public forums, private property owners can limit the speech allowed on its property.

The appellate court then invalidated the Moscone Act and Labor Code section 1138.1 on constitutional grounds because they favored speech related to a labor dispute over speech related to other issues. Put most simply, these laws favored particular speech based upon its content, meaning labor-related protests would enjoy greater rights than other types of speech on private property. (Ralphs Grocery Company v. United Food and Commercial Workers Union Local 8 (2010) __ Cal. App. ___, 2010 Cal. App. LEXIS 1171.)

NOTE: the outcome of this case, which is likely to be appealed, may have been different if the picketers had been in the “public forum” portion of this shopping center rather than on this store’s “private property.”

Court Upholds Employer’s Discretion in Hiring Decisions Between Reasonably Similar Candidates

In a FEHA age discrimination case, the court granted summary judgment in the employer’s favor because the non-selected applicant failed to demonstrate he had vastly superior qualifications. The California court of appeal agreed that while the plaintiff was arguably stronger in some respects, the ultimately hired candidate also had superior qualifications in other respects, and the employer did not act improperly in considering subjective factors such as how the applicants fared during the interviews. The court noted the employer had violated Government Code section 12946 by not retaining the relevant applications for two-years, but absent other evidence suggesting a discriminatory motive (i.e., the plaintiff had vastly superior qualifications or the employer proffered inconsistent or shifting rationales), there was no basis to second guess the employer’s hiring decision. (Reeves v. MV Transportation, Inc.(2010) __ Cal. App. ___, 2010 Cal. App. LEXIS 1116.)

Employer Entitled to Reduce Salary of At-Will Employee, but Erred in Not Immediately Providing Wages Owed Upon Termination Without Condition

An employee sued his employer claiming the employer fraudulently induced him to move from India to California, and improperly reduced his monthly salary. The California court of appeal concluded that since the employee was employed on an at-will basis and could be terminated at any time, the employer could reduce his salary and the employee’s continued performance thereafter reflected acceptance of this new salary. However, the employer had violated Labor Code section 202 by refusing to provide the employee’s final wages after he resigned unless he signed a release. The court reiterated that final wages must be paid without exception or condition, and where a dispute exists as to some portion owed, the employer must timely pay the portion that is undisputedly owed or incur waiting time penalties under Labor Code section 203. The court also dismissed the intentional infliction of emotional distress claim on workers compensation exclusivity grounds since based on conduct (i.e., workplace criticisms) inherent in the employment relationship (Singh v. Southland Stone, U.S.A., Inc. (2010) 186 Cal. App.4th 338.)

Employee Permitted to Sue Subsequent Employer Who Terminated Her to Honor Her Former Employer’s Non-Competition Agreement

An employee sued her employer for wrongful termination after it terminated her because of the employee’s non-competition agreement with her former employer even though it suspected the non-competition provision was unenforceable. Citing California’s well-established hostility to non-competition agreement absent very narrow statutory exceptions, the California court of appeal concluded the employee could sue her subsequent employer for wrongful termination because it honored the non-competition provision to maintain “respect” and “understanding” with its colleagues in the same industry, including plaintiff’s former employer. The appellate court analogized this understanding in honoring another employer’s non-competition provision to being an unenforceable “no-hire” agreement and concluded the subsequent employer had aided and abetted the former employer in indirectly accomplishing what it could not accomplish directly if it had attempted to enforce its own non-competition provision.

(Silguero v. Creteguard, Inc. (2010) ___ Cal.App.4th ___, 2010 Cal.App.LEXIS ___.)

Showing of Actual Malice Required to Recover for Union’s Alleged Misrepresentations

The union was in a labor dispute with a company that laundered the linens for plaintiff hospitals. In order to attempt to induce the hospitals to stop using the services of the laundry company, the union sent postcards to potential patients of the hospitals alleging that the hospital linens were unsanitary. Hospitals sued the union alleging defamation, libel, and intentional interference with prospective economic relations. A jury awarded the hospitals $17 million in damages. The court of appeal reversed the award finding that the trial court improperly instructed the jury that the union could be found liable if it failed to use reasonable care to determine the truth or falsity of the statements made on the post card. In order to prevail, the hospitals had to prove that the union acted with actual malice, and knew or should have known that the statements made on the postcard were false. (Sutter Health v. Unite Here (2010) __ Cal. App. ___, 2010 Cal. App. LEXIS 1200.)

Employer Entitled to Attorney’s Fees for Successful Defense of Rest Period Claim

In this case, the California court of appeal reconciled several potentially applicable attorneys’ fees provisions and concluded that while employers may not recover attorneys’ fees in actions for minimum wage and overtime violations, they can recover in defending against rest period claims. California Labor Code section 218.5 allows a prevailing party (either employee or employer) to recover attorneys’ fees in actions for wages, fringe benefits, or contributions to health, welfare and pension funds, but Labor Code section 1194 authorizes only employees to recover attorney’s fees for minimum wage and overtime claims. The appellate court examined the legislative history behind these provisions and concluded Labor Code section 1194 was not intended to apply to the rest period claim because it did not seek payment of minimum wages, but sought wages over and above the regular pay. As such, the claim for rest period wages was governed by section 218.5 and the prevailing employer could recover that portion of its attorneys’ fees attributable to that particular claim. (Kirby v. Immoos Fire Protection, Inc. (2010) __ Cal. App. ___, 2010 Cal. App. LEXIS 1223.)

Individual Objectors Fail to Undo Class Action Settlements in Two Cases

In the first case, a class member objected to the settlement as unfair for the following alleged reasons: (1) the court failed to fully consider the strength of the class case; (2) the settlement undervalued the waiting time penalties to which the class was entitled; (3) the settlement allocated $0 to settlement of the Labor Code Private Attorneys General Act of 2004 (PAGA) claim; and (4) the settlement was funded, in part, by merchandise vouchers. The trial court and the California court of appeal rejected these arguments.

The appellate court held the waiting time penalties were subject to discount based on the “good faith dispute” over whether the wages were owed. In reaching this conclusion, the court looked to a consent decree entered in a 1997 commission case against the employer. The court opined the employer could reasonably have concluded from this earlier settlement that its commission policy was lawful. The court also concluded the settlement could be funded by merchandise vouchers notwithstanding Labor Code section 212’s prohibition on employers paying wages in “scrip, coupons, or other things that are redeemable other than for money” because the wages were not “due” if there was a good faith dispute as to whether they were owed, and therefore, that the employees could release their claims for any consideration, including vouchers or coupons. (Nordstrom Commission Cases (2010) __ Cal.App.4th , 2010 Cal.App.LEXIS 1067.)

In the second case, a class member objected the parties had not met their obligations to conduct discovery before settling the matter, and the incentive payments to the individual class representatives (approximately $5,000 each) were excessive. In this case, the objector’s main focus was on the fact that the parties had failed to provide the court with information necessary to accurately evaluate the case or assess the classes’ maximum possible recovery. The California appellate court rejected these arguments holding courts are not required to have an explicit statement of the maximum recoverable amount, only an understanding of the amount in controversy. The court referred to an earlier litigation against the same employer pursued by the same plaintiff’s firm, that had led to discovery the court could rely on in this case as well. (Munoz v. BCI Coca-Cola Bottling Co. (2010) 186 Cal.App.4th 399.)

Federal

Employer’s Policy of Hiring Only Female Supervisors Not a “Bona Fide Occupational Qualification”

In a Title VII sex discrimination suit, the ninth circuit rejected the employer’s argument that its facially discriminatory policy of employing only females for a particular supervisory position was simply a “de minimis” violation or justified on the grounds of being a bona fide occupational qualification (“BFOQ”). The court first rejected the argument this discriminatory restriction had only a de minimis impact on the three plaintiffs because they could have applied for other future positions or because the employer had hired male applicants for similar positions in other locations. The court reiterated that Title VII disparate treatment claims utilize an individualized analysis and that a Title VII violation occurs when an individual suffers discrimination in a particular adverse employment decision even if others in the same protected class are not similarly disadvantaged.

The court also reiterated that the BFOQ defense is an extremely narrow exception to the general rule prohibiting discrimination and applies only when the essence of the business operation would be undermined by hiring individuals of both sexes, and requires specific evidence showing a high correlation between sex and the essential job functions. The court concluded an employer cannot satisfy the very narrow BFOQ exception based on gender stereotyped characterization of the sexes; in this case, that female supervisors better understood female inmate needs or that male supervisors were more likely to sexually abuse female employees. (Breiner v. Nevada Department of Corrections (9th Cir. 2010) __ F.3d ___, 2010 U.S.App.LEXIS 13933.)

Contractual Provision Stating Delivery Drivers are Independent Contractors Not Determinative

In another setback for employers in the “independent contractor” misclassification context, the ninth circuit refused to apply a national employer’s contractual provisions that Texas law rather than California would apply, and that the persons providing services were independent contractors. The circuit court first declined to enforce the Texas choice-of-law provision in the employer-imposed “Independent Contractor Services Agreement,” holding these California-based delivery driver’s wage and hour rights derived from the California Labor Code, not the parties’ agreement. The court also reiterated that the parties’ contractual characterization of their arrangement (i.e., that the drivers were independent contractors) was not controlling, and resolved the individual’s status by applying numerous factors, no single one of which was dispositive. The court noted that the provision of services for an employer creates a presumpti