Federal Regulatory and Agency Update

Equal Employment Opportunity Commission (EEOC) Issues New Enforcement Guidance on Pregnancy Discrimination

On July 14, 2014, the EEOC issued Enforcement Guidance on Pregnancy Discrimination and Related Issues, along with a question and answer document about the guidance.  This is the first comprehensive update of the Commission's guidance on the subject of discrimination against pregnant workers since the 1983 publication of a Compliance Manual chapter on the subject.  This guidance supersedes that document and incorporates significant developments in the law during the past 30 years.

In general, the five-part guidance explains Title VII's prohibition against pregnancy discrimination, describes individuals to whom the Pregnancy Discrimination Act (PDA) applies, discusses the expanded definition of "disability" under the Americans with Disabilities Act (ADA) and how it applies to pregnancy-related impairments, and sets forth examples of best practices and reasonable accommodations.

Specifically, the guidance discusses: the fact that the PDA covers not only current pregnancy, but discrimination based on past pregnancy and a woman's potential to become pregnant; lactation as a covered pregnancy-related medical condition; the circumstances under which employers may have to provide light duty for pregnant workers; issues related to leave for pregnancy and for medical conditions related to pregnancy; the PDA's prohibition against requiring pregnant workers who are able to do their jobs to take leave; the requirement that parental leave be provided to similarly situated men and women on the same terms; and when employers may have to provide reasonable accommodations for workers with pregnancy-related impairments under the ADA and the types of accommodations that may be necessary.

President Obama Signs Executive Order Banning Federal Contractor LGBT Discrimination

Under an executive order that President Obama signed on July 21, 2014, federal contractors are now prohibited from discriminating against workers and job applicants based on sexual orientation and gender identity.  The executive order does not include a carve-out for religious-affiliated entities.  The executive order is effective immediately, and the DOL is directed to prepare implementing regulations within 90 days.

California Case Law Update

Court Okays Employer’s Practice of Requiring Exempt Employees to Use Annual Leave Hours When Absent from Work for Portions of a Day

An employee, who held a salaried position that qualified her as an exempt employee for the purposes of overtime pay, filed a putative class action against her employer alleging various Labor Code violations.  Specifically, the employee challenged her employer’s policy of subjecting exempt employees to annual leave deductions for partial-day absences of less than four hours.  The trial court concluded that California law does not prohibit employer’s policy of requiring exempt employees to use annual leave for partial-day absences of any length.  The employee appealed and the court of appeal affirmed.

Acknowledging it is well established under both California and federal law that when an exempt employee is absent from work for a partial day, an employer is prohibited from deducting monetary pay, the court framed the instant dispute as whether, under California law, an employer may set a policy requiring that exempt employees use their vacation or leave time – rather than monetary pay – when they are absent from work for partial days.  Noting that under federal law, there is no prohibition on an employer’s practice of deducting from an employee’s vacation or leave time for partial-day absences because leave time is not salary, the court stated that the only case law addressing the issue under California law concluded that California law requires the same result as federal law.

The court explained that while vacation pay is a type of wages or deferred compensation for services performed that vests throughout the course of employment, and that California law generally prohibits an employer from requiring the forfeiture of vacation time, an employer that requires employees to use vested annual leave for partial-day absences is not requiring a forfeiture of vested annual leave as that term is used in California law.  That is, here, employer did not take away or reclaim vested annual leave when an employee was absent for a partial day; rather, employer merely required that the employee use the annual leave under the terms and conditions that the employer had created, which employer is permitted to do.  Additionally, because it was undisputed that the employer continued to pay an employee’s full salary during a partial-day absence and the employee fully continued to accrue annual leave during a partial-day absence, the employer was not engaging in any form of impermissible wage shifting or substitution.  The court also concluded that there was no reason to distinguish between partial-day absences of different lengths.  Thus, the court held that regardless of whether the absence is at least four hours or a shorter duration, a requirement that exempt employees use annual leave time for a partial-day absence does not violate California law.

(Rhea v. General Atomics (2014) 227 Cal. App. 4th 1560.)

Employee’s “Good Faith” Error in Failing to Follow Employer’s Instructions is an Insufficient Basis to Deny Unemployment Insurance Benefits

An employee working as a vehicle operator received a two-day suspension (without pay) after it was determined he harassed a passenger.  The employee was a union member and the relevant collective bargaining agreement (CBA) mandated employees sign a notice of receipt when a disciplinary notice was presented to them.  However, the employee refused the employer’s repeated orders to sign his disciplinary notice regarding his suspension because he disputed the notice’s factual allegations and mistakenly thought he was entitled to consult with his union representative before signing the notice.  As a result, the employee’s subsequent claim for unemployment benefits was denied based on a finding that “misconduct” by the employee resulted in his termination.

On appeal, the California Supreme Court concluded that the employee’s refusal to sign the disciplinary notice was not misconduct because there was no evidence the employee acted with “willful or wanton disregard of [his] employer’s interest” or “negligence of such a degree or recurrence… to show an intentional and substantial disregard of the employer’s interest or of the employee’s duties and obligations to the employer” as required under the Unemployment Insurance Code.  Although the employee did not sign the disciplinary notice based on his mistaken belief that he was entitled to union representation at the time it was issued, the Court concluded, at most, the employee made a good faith error in judgment and that, on its own, it did not disqualify him from unemployment benefits.

(Paratransit, Inc. v. Unemployment Ins. Appeals Bd. (2014) 59 Cal. 4th 551.)

Employer Not Responsible for Off the Clock Work Employee Concealed From Employer

An Employer was entitled to summary judgment where an employee’s only evidence that the employer knew or should have known that the employee was working off the clock was deposition testimony from previous misclassification lawsuit where several employees testified their duties could not be completed in 40 hours per week.  The court rejected the evidence as irrelevant.  The mere fact that some employees may have been working in excess of 40 hours per week before re-classification, was not competent evidence that this employee worked off the clock after his job had been reclassified as non-exempt, or that the employer knew or should have known that this employee was working off the clock.  The employee testified at his deposition that he knew of the employer’s written policy that all employees in his job classification were to be clocked in while working, that he was always paid for all the time he recorded, that he was always paid for overtime that he worked (whether he sought approval before working the overtime or not), that he was never told by any manager or supervisor that he should work off the clock, and employee signed an attestation form indicating he would not work off the clock.   The court of appeal rejected employee’s argument that the employer should have known that employee was working off the clock, when employee admitted he knew he shouldn’t be working off the clock, and essentially admitted that he had taken steps to prevent the employer from knowing he had worked off the clock.

The employee also submitted alarm code records and time records that showed that he had deactivated the employer’s alarm before his shift started, and re-activated the alarm long after his time records indicated he had stopped working.  The court was not persuaded by this evidence either because employee failed to demonstrate that the employer should have known about these inconsistencies, i.e. that the employer would have any reason to investigate whether the time employee recorded on his timesheets reflected his true hours worked.  The court distinguished between whether an employer “should” know about off the clock work and whether an employer “could” know, after a deep enough investigation, that an employee was working off the clock.  The court concluded that the legal standard is whether the employer “should” know about off the clock work, and therefore an employee is obligated to demonstrate not that there is some possible world in which the employer could have discovered the off the clock work, but rather whether the employer reasonably should have known about it, but instead turned a blind eye.

(Jong v. Kaiser Foundation Health Plan, Inc. (2014) 226 Cal. App. 4th 391.)

Federal Aviation Administration Authorization Act (FAAAA) Does Not Preempt California Unfair Competition Claims

In 2008, the State of California sued the alleged employer under California’s Unfair Competition Law (UCL) for misclassifying its drivers as independent contractors (and therefore illegally lowering the cost of doing business).  The employer argued that it was not subject to California’s wage and hour laws, because these laws impacted the “price, route, or service” of the motor carrier in the transportation of good, and was therefore preempted under the FAAAA.

The California Supreme Court decided that employee classification and the imposition of California’s labor laws do not relate to the prices, routes, or services.  Holding that wage and hour provisions, unemployment insurance tax, and workers compensation laws “apply to all employers” the Court found these laws “only remotely affect prices, routes, or services of motor carriers.”  As a result, the State can proceed with its action against the employer allegedly misclassifying its drivers as independent contractors and for other alleged violations of California’s labor and unemployment insurance laws.  However, the Court determined that whether the defendants are actually misclassified must be decided by the trial court.

(PAC Anchor Transportation, Inc. (2014) 59 Cal.4th 772.)

California Supreme Court Holds Employers Cannot Reassign Commissions Paid in One Pay Period to Other Pay Periods to Satisfy Minimum Earnings Requirements

A commissioned salesperson sued for various wage and hour violations, including failure to pay overtime and the applicable minimum wage.  The employer paid her hourly wages bi-weekly and commission wages every other pay period.  The employee often worked more than 45 hours per week and alleged she was not paid the proper minimum wage and/or overtime.  The employer argued the employee was exempt from overtime pay under the “commissioned employee” exemption, which required that an employee’s “earnings exceed one and one-half (1 ½) times the minimum wage.”  (Cal. Code Regs., tit. 8, § 11040, subd. 3(D).)  The employer also claimed it satisfied the minimum earnings and minimum wage requirements by allocating commissions from the periods in which they were paid to the pay periods in which she earned them.

The employer removed the case to federal court and successfully moved for summary judgment.  The employee appealed.  Finding no clear controlling authority on the issue of whether the employer could allocate commissions from a different pay period to satisfy the minimum earnings prong, the ninth circuit asked the California Supreme Court for guidance and the Court answered “no.”  The court held that employers satisfy the minimum earnings requirement of the commission exemption only in those pay periods in which the employer actually pays the required minimum wage.  Thus, employers “may not attribute wages paid in one pay period to a prior pay period to cure a shortfall.”  The court noted that this interpretation is consistent with the purpose of the minimum earnings requirement as it requires employers to actually pay the minimum amount in each pay period to mitigate the burden imposed by exempting employees from receiving overtime.

(Peabody v. Time Warner Cable, Inc. (2014) 59 Cal. 4th 662.)

Court Finds Independent Contractor Misclassification Claims Arbitrable

A Contract Field Agent (“CFA”) engaged in residential real estate brokerage services, filed a putative class action alleging the employer improperly classified him and other CFAs as independent contractors when they were actually employees under California law.  The employer filed a motion to compel arbitration pursuant to an arbitration provision in the contractual agreement (Agreement), which the employee signed.  The trial court denied employer’s motion to compel, finding that the arbitration clause did not apply to the employee’s claims, and, further, that the Agreement was unconscionable.  The employer appealed and the court of appeal reversed.

Noting California’s strong public policy in favor of arbitration and looking to the language of the arbitration clause at issue, the appellate court determined that the employee’s causes of action fell within the scope of the arbitration provision.  Here, the gravamen of the employee’s complaint was that the employer misclassified him as an independent contractor, and the Agreement was the instrument that not only classified the employee as such, but also governed the employee’s relationship with the employer (e.g., the services he was to provide and the method by which those services would be compensated).  Accordingly, the court held that the employee’s claims regarding his contractual employment status necessarily arose out of the Agreement.

The court of appeal also determined that the arbitration provision was not unconscionable.  Highlighting that the employee was a real estate professional, familiar with contracts, and had full opportunity to review the relatively short Agreement, the court held that the factors relied on by the trial court were not sufficient to establish procedural unconscionability.  As for substantive unconscionability, the court found that the attorneys’ fee and cost provision was mutual and not one-sided.  Additionally, although the forum-selection clause may cause employee inconvenience and additional expense, the clause was not unreasonable.  Thus, the arbitration provision was not unconscionable, and the trial court erred in concluding the provision was unenforceable.

(Galen v. Redfin Corp. (2014) 227 Cal. App. 4th 1525.)