California
The October 9th deadline for Governor Brown to sign or veto new bills has expired with the Governor signing into law a number of employment-related bills, all of which take effect on January 1, 2012, unless otherwise noted:
Governor Signs Bill Limiting Credit Checks in Employment Decisions (AB 22)
Federal and California law, through the Fair Credit Report Act and the state Consumer Credit Reporting Agencies Act respectively, authorize employers to obtain and use consumer credit reports for employment purposes provided certain statutory procedures are followed. This new bill limits an employer's ability to obtain such reports by prohibiting employers, other than certain financial institutions, from obtaining consumer credit reports for employment purposes unless the person for whom the report is sought works in a statutorily-enumerated position.
Specifically, the person for whom the report is sought must be: (1) a position in the state Department of Justice; (2) a managerial position, as defined; (3) that of a sworn peace officer or other law enforcement position; (4) a position for which the information contained in the report is required by law to be disclosed or obtained; (5) a position that involves regular access to specified personal information for any purpose other than the routine solicitation and processing of credit card applications in a retail establishment; (6) a position in which the person is or would be a named signatory on the employer's bank or credit card account, or authorized to transfer money or enter into financial contracts on the employer's behalf; (7) a position that involves access to confidential or proprietary information (as specified); or (8) a position that involves regular access to $10,000 or more of cash, as specified. This new law defines "managerial position" as an employee covered by the executive exemption set forth in Industrial Welfare Commission Wage Order 4, subparagraph 1 of paragraph A of Section 1.
This bill also requires that the written notice informing the person for whom the report is sought to also inform the person of the specific reason for obtaining the report (i.e., which of the statutorily-enumerated positions the person falls within that authorize obtaining such a report).
New Law Prohibits Mandatory Use of E-Verify (AB 1236)
The federal E-Verify Program presently enables participating employers to voluntarily use this program to verify that hired employees are authorized to work in the United States. Several states have emulated Arizona's law, which was upheld in the United States Supreme Court decision in Chamber of Commerce v. Whiting, requiring employers to use E-Verify. In contrast, this new California law prohibits the sState of California, or a city, county, city and county or other special district from requiring an employer other than one of these government entities to use the federal E-Verify system, except when required by federal law or as a condition of receiving federal funds.
Governor Signs Wage Theft Prevention Act of 2011 (AB 469)
Known as the Wage Theft Prevention Act of 2011, this law amends a number of Labor Code provisions to impose various new penalties for employer violations of wage laws, and creates new notice and document retention requirements for employers. For instance, it amends Labor Code section 1174 to increase from two to three years the amount of time employers are required to maintain payroll records. Newly amended section 1174 further specifies that employers may not prohibit employees from maintaining a personal record of their hours worked or piece-rate units earned.
It also requires employers to provide written notice to employees upon hire 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 reflected in the wage statements required under Labor Code section 226. This provision does not apply to public sector employees exempt from overtime, or to employees covered by collective bargaining agreements containing certain information specified in the Labor Code.
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 specifies that employers who violate the minimum wage statutes may be liable for restitution of wages to the employee, in addition to the pre-existing criminal and civil penalties. It also makes it a misdemeanor if an employer willfully violates specified wage statutes or orders, or willfully fails to pay a final court judgment or final order of the Labor Commission for wages due.
It also extends the period from one year to three years for the DLSE to commence a collection action of a statutory penalty or fee. It also increases the period from six months to two years for a convicted employer to maintain a bond, and requires the employer to immediately provide an accounting of assets (for collection purposes) or face severe civil penalties. It would authorize employees to recover attorney's fees and costs incurred to enforce a cost judgment for unpaid wages.
New Law Targets Willful Misclassification of Employees as Independent Contractors (SB 459)
This new law prohibits the "willful misclassification" of an employee as an independent contractor. It also prohibits employers from charging individuals who have been willfully misclassified any fee or making any deductions from compensation for any purpose, including for goods, materials or space rental, that the employer could not have lawfully made if the individual had not been misclassified (i.e., expenses employers could not charge to an employee). This new law defines "willful misclassification" as "avoiding employee status for an individual by voluntarily and knowingly misclassifying that individual as an independent contractor."
This new law also authorizes the Labor and Workforce Development Agency (LWDA) or a court to award civil penalties ranging from $5,000 to $15,000 per violation, in addition to any other legally-authorized penalties or fines. The LWDA or court "shall" also order the employer to display prominently for one year on its website or in an area generally accessible to all employees or the public, a notice containing specifically-enumerated information about the violation (e.g., that a violation has occurred, that the employer has changed its business practice, how employees may contact the LWDA, and that the notice is being posted pursuant to a state order). It also authorizes the LWDA or a court to issue civil penalties ranging from $10,000 to $25,000 per violation, in addition to other available remedies, if they determine the person or employer has engaged or is engaging in a "pattern and practice" of these violations. In instances where the employer is a licensed contractor pursuant to the Contractors' State License Law, the LWDA or court may transmit a certified copy of its order to the Contractors' State License Board.
This bill also imposes joint and several liabilities upon persons who knowingly advise an employer to misclassify an employee as an employer if the worker is not found to be an independent contractor. In an example perhaps of professional courtesy, this individual liability does not extend to licensed attorneys providing legal advice in the course of practicing law.
New Law Requires 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 new law amends section 226 and requires 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.
Governor Signs 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 filed in court 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 eliminates 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.
New Law Includes Gender Identity and Expression Protections in the FEHA (AB 887)
Presently, various California laws, including the FEHA, prohibit discrimination or harassment against individuals because of "sex," which is defined to include gender, and through their incorporation of Penal Code section 422.56, gender identity and behavior. This new law makes technical changes to these provisions, including the FEHA, to specifically identify "gender, gender identify and gender expression" as characteristics protected under the FEHA. In effect, these changes preclude the current need to cross-reference various statutes to determine the meaning of "gender" which is now included directly in the particular statute. Under this new law, "gender expression" is defined as "a person's gender-related appearance and behavior whether or not stereotypically associated with the person's assigned sex at birth."
While California law presently requires employers to allow an employee to appear or dress consistently with the employee's gender identity, this new law also requires employers to allow an employee to appear or dress consistently with the employee's gender expression. Lastly, this law includes "gender," "gender identity" and "gender expression" to the list of characteristics that will not disqualify an employee under the personal relationship or personal connection exception to Workers' Compensation coverage if attacked by a third-party solely because of this characteristic.
Governor Signs Bill Prohibiting Genetic Discrimination in Employment (SB 559)
The Governor has signed a new law prohibiting discrimination based on "genetic information." Effective January 1, 2012, this bill amends the Unruh Civil Rights Act (Civil Code § 51 et seq.) and the 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." This bill overlaps considerably with the federal Genetic Information Non-Discrimination Act of 2008 (GINA) but it remains to be seen if it adopts all of its definitions or if some differences emerge.
Governor Signs Bill Requiring Employers to Maintain Insurance Coverage during Pregnancy-Related Leaves (SB 299)
Government Code section 12945 currently prohibits employers from refusing employees disabled by pregnancy, childbirth or a related medical condition from taking up to four months of job-protected leave from work. This new law amends section 12945 and prohibits employers from refusing to maintain and pay for coverage under a group health plan for an employee who takes such qualifying leaves. Employers will be required to maintain coverage for the duration of the leave, but not to exceed four months in a twelve-month period, at the level and under the conditions that coverage would have been provided if the employee had remained in continuous employment for the duration of the leave. Employers will not be precluded from maintaining and paying for coverage under a group health plan beyond four months.
Employers may recover from the employee the premiums paid during this period if the employee fails to return to work after the leave expires and this failure is not because the employee has taken a CFRA leave or because of the continuation or onset of health condition that prompted the initial leave.
New Law Prohibits CFRA-Related Interference (AB 592)
California's Family Rights Act (CFRA) and Pregnancy Disability Leave (PDL) prohibit employers from refusing to grant leave to an eligible employee for certain statutorily enumerated reasons (e.g., to care for a family member with a serious health condition under CFRA, to take leave on account of pregnancy under PDL, etc.). This new law amends CFRA and the PDL to make it an unlawful employment practice for an employer to interfere with, or restrain the exercise or attempted exercise of any right provided to an employee under these provisions.
This bill essentially codifies in the CFRA and the PDL the Family Medical Leave Act's (FMLA) prohibition on employer "interference" with FMLA leave rights. [See e.g., 29 U.S.C. § 2615(a)(1) ("it is unlawful for any employer to interfere with, restrain, or deny the exercise of or the attempt to exercise" substantive rights guaranteed by the FMLA.)] Many had assumed the CFRA and the PDL already incorporated these "interference" prohibitions but an unpublished federal court decision had injected some uncertainty on this issue.
New Law Prohibits Health Insurance Coverage Discrimination Based on Types of Domestic Partnership (SB 757)
California law presently requires health care service plans and health insurance policies to provide group coverage to the registered domestic partner of the employee or insured equal to the coverage provided to the spouse of those persons. This new law amends these provisions to specify that a plan or policy may not discriminate in coverage between spouses or domestic partners of a different sex and spouses or partners of the same sex.
Governor Signs Bill Requiring All Employers Provide Written Commission Contracts, but Deleting Treble Damages Provision (AB 1396)
Labor Code section 2751 previously required 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. In turn, Labor Code section 2752 imposed treble damages upon out-of-state employers who violated Labor Code section 2751.
This newly-enacted bill amends Labor Code section 2751 and requires 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, however, also repeals Labor Code section 2752 and its treble damages provision.
As under the prior version of Labor Code section 2751, employers are required to give a signed copy of the contract to every employee who is a party to it, and to obtain a signed receipt for the contract from each employee. As amended, this provision also states that when the contract expires and the parties continue to work under the expired contract's terms, the contract terms are presumed to remain in full force and effect until the contract is superseded or either party terminates the employment.
New Law Affects Certification of Agricultural Labor Representatives Because of Employer Misconduct (SB 126)
California law precludes employers from engaging in unfair labor practices in the election of agricultural employees of labor representatives, and authorizes the Agricultural Labor Relations Board (ALRB) to refuse to certify an election if it determines employer misconduct affected the election results. This new law provides that if the ALRB refuses to certify an election because of employer misconduct and concludes the employer's misconduct likely precludes a fair and free new election, it may certify the labor union as the agricultural employee's exclusive bargaining representative. This new law also specifies that in such instances, the labor representatives may file a declaration of failure to reach a collective bargaining agreement, thus triggering mandatory mediation, within 60 days after the ALRB has certified the labor organization because of employer misconduct precluding a free and fair election.
New Law Regarding Apprentice Programs (SB 56)
Presently, the Division of Apprenticeship Standards within the Department of Industrial Relations is required to randomly audit all apprenticeship programs during each five-year period to ensure compliance with specified requirements, including industry-specific training criteria. This new law eliminates the requirement of random audits during five-year increments, and instead directs the division to conduct audits of apprenticeship programs generally. It also creates requirements for applications for building and construction trades programs for approval of a new or expanded apprenticeship program.
Vetoed Bills
The Governor also vetoed a number of employment-related bills, some of which had also been vetoed by his predecessor, including the following:
Federal
President Obama's Jobs Plan Targets Unemployment Discrimination
Amongst the proposed tax credits and unemployment benefits reform, President Obama's recently-proposed "Jobs Bill" includes several employment-related provisions, including one targeting so-called "unemployment discrimination." This provision would make it unlawful for employers with more than 15 employees to discriminate against job applicants based upon their current employment status (i.e., the fact they are unemployed). Another currently pending bill (H.R. 2501 [the Fair Employment Opportunity Act of 2011]) would similarly preclude employers from discriminating based on "unemployed" status and preclude employers from publishing job advertisements suggesting unemployment status may disqualify an applicant from further consideration.
AGENCY
State
DFEH's New Procedural Rules Effective October 7, 2011
The Department of Fair Employment and Housing (DFEH) is the state agency charged with enforcing California's FEHA, including by filing, investigating and conciliating charges alleging unlawful employment practices. Although the DFEH had previously issued procedures of general application, it had not previously developed express regulations. Beginning in 2010, the DFEH began developing a set of procedural regulations to govern its practices and procedures with respect to the filing, investigation and conciliation of unlawful practice complaints. Amongst other things, these regulations explain the intake and investigation process, the DFEH's new priority system for handling charges, the "dual filing" system with the EEOC, and the procedure for amending complaints. These regulations took effect October 7, 2011, and are available at www.dfeh.ca.gov.
Federal
NLRB Issues New Union Rights Poster, but Delays Posting Deadline
As discussed in the September newsletter, the National Labor Relations Board has issued a Final Rule requiring all employers subject to the National Labor Relations Act (NLRA) to display a poster notifying employees of their rights under the NLRA. A downloadable copy of this poster, which must be 11×17 inches, is available at www.nlrb.gov/poster. Employers with further questions about the fairly-detailed posting and translation requirements can also accesswww.nlrb.gov/faq/poster.
The NLRB had originally required all subject employers to post this poster by November 14, 2011. However, citing a desire to provide further education to covered employers and employees, the NLRB has recently announced this deadline has been extended until January 31, 2012.
IRS Issues Guidance on Tax Treatment of Employer-Provided Cell Phones
The Internal Revenue Service (IRS) has recently issued Notice 2011-72 to provide guidance concerning the federal tax treatment of employer-provided cell-phones. (www.irs.gov/pub/irs-drop/n-11-72.pdf) This notice relates to a provision in the Small Business Jobs Act of 2010, that had removed cell phones from the definition of listed property, a category that normally requires additional recordkeeping by taxpayers.
The just-issued Notice states that when an employer provides an employee with a cell phone primarily for non-compensatory business reasons, both the business and personal use of the cell phone is generally non-taxable to the employee. The IRS will also not require recordkeeping of business use in order to receive this tax-free treatment. An employer will be considered to have provided an employee with a cell phone primarily for "non-compensatory business purposes" if there are substantial reasons relating to the employer's business (e.g., employer need to contact employee, employee need to be in contact with clients outside of business hours, etc.), other than providing compensation to the employee, for issuing the employee a cell phone. Similarly, if the phone has been provided for such non-compensatory business reasons, then the employee's personal use of the cell phone will also be treated as a working condition fringe benefit, the value of which is also excludable from the employee's taxable income. However, a cell phone provided for non-compensatory business reasons (e.g., promoting morale, recruiting an applicant, providing additional compensation) will still be considered a taxable benefit.
The IRS has also issued a memorandum to its Field Examination Operations directing them to utilize a similar approach when assessing the fairly-common scenario where employers provide cash allowances or reimbursements to employees for work-related use of personally-owned cell phones. Under this approach, employers that require employees, primarily for non-compensatory business reasons, to use their personal cell phones for business purposes, may treat reimbursements of the employees' expenses for reasonable cell-phone coverage as non-taxable. As under the Notice, this non-taxability rule would not apply for reimbursements of unusual expenses or coverage made as a substitute for a portion of an employee's wages. The IRS' memorandum, which contains additional examples, is available at www.irs.gov/pub/foia/ig/sbse/sbse-04-0911-083.pdf.
IRS Announces Voluntary Worker Classification Settlement Program, and Partnership with DOL on Misclassification Issues
The IRS has also launched a new program to permit federal taxpayers (i.e., employers) to voluntarily reclassify workers as employees for federal employment tax purposes, thus enabling them to obtain relief similar to that available under the current Classification Settlement Program (CSP). Very simply summarized, under the new Voluntary Classification Settlement Program (VCSP), employers with independent contractor classification problems will be able to get into compliance by voluntarily reclassifying these individuals as employees for future tax periods and by paying a portion of the employment tax liability for the past non-employee treatment.
To be eligible, an employer must (a) have consistently treated the workers in the past as nonemployees; (b) have filed all required Forms 1099 for the workers for the past three years; (c) not currently be under audit by the IRS; and (d) not currently be under audit by the Department of Labor or a state agency concerning the classification of these workers. Employers must also apply for the program by filing a Form 8952, and enter into a closing agreement with the IRS. Additional details about this program are available in the IRS' announcement (www.irs.gov/newsroom/article/0,,id=246203,00.html) or in the IRS' Announcement 2011-64 (www.irs.gov/pub/irs-drop/a-11-64.pdf)
The IRS has also announced that it is partnering with the Department of Labor (DOL) to target the misclassification of employees as independent contractors. This partnership between federal agencies, and between these federal agencies and a handful of states (which does not yet include California), is intended to facilitate information sharing and law enforcement coordination. The IRS/DOL press release is available at www.dol.gov/opa/media/press/whd/WHD20111373.htm. This partnership and the new VCSP program likely signal a new federal emphasis on classification issues.
JUDICIAL
California
California Supreme Court Schedules Oral Argument in Brinker
After many delays, the California Supreme Court has scheduled oral argument for November 8, 2011 at 9:00 a.m. in San Francisco in the Brinker case. (Brinker Restaurant v. Superior Court (ex rel Hohnbaum), S166350.) This case should provide much needed clarity on meal and rest period issues including whether an employer must "provide" the opportunity to take a meal period, or "ensure" the meal period is actually taken. Employers can look for a major ruling in early 2012.
Federal
Company's Deviation from Normal Disciplinary Procedures Sufficient Evidence of Pretext for Age Discrimination Plaintiff to Survive Summary Judgment
A 59-year old former employee sued for FEHA age discrimination, citing the fact her employer allegedly treated younger similarly situated employees more favorably and that the employer had deviated from its normal disciplinary policies before terminating her. The district court granted summary judgment in the employer's favor finding it had terminated plaintiff for multiple policy violations, but the ninth circuit reversed citing, in part, the various evidentiary burdens in an employee's favor at the summary judgment stage.
The appellate court first observed the plaintiff had presented substantial and specific of pretext by showing her employer (1) treated younger, similarly situated employees more favorably by issuing performance improvement plans (PIPs) prior to termination and (2) had deviated from the company's normal disciplinary procedure by terminating her without first issuing a PIP. The court rejected the employer's argument that only employees reporting to the same immediate supervisor and those committing the exact same policy violation should qualify as similarly situated to the plaintiff. Instead, the court determined that plaintiff had raised a factual question as to whether other employees holding the same job as plaintiff were similarly situated, because (1) company officials oversaw discipline on a national level, (2) the other employees had violated similar company policies and procedures that served the same purpose as those violated by plaintiff, and (3) the policy violations at issue were of comparable seriousness.
The court also rejected the employer's suggestion that there could be no inference of age discrimination since two of the "comparators" were 42 and 40 years old and, thus, also protected by the FEHA. The court noted the FEHA protects against age discrimination, not simply discrimination against employees because they are 40 or older, and, thus, the proper inquiry is whether the plaintiff was treated less favorably than a "significantly younger" similarly situated employee, regardless of whether that employee is in the protected class. (Earl v. Nielsen Media Research, Inc. (9th Cir. 2011) ___ F.3d ___, 2011 U.S. App. LEXIS 19616.)
Applying Dukes, the Ninth Circuit Directs Lower Courts to Rigorously Examine the Merits of Class-Wide Discrimination Claims at Class Certification Stage
In its first employment class action decision of the post-Dukes v. Walmart era, the ninth circuit reviewed the standards for class certification in a gender discrimination lawsuit. In this action, the district court certified a nationwide class consisting of current and former female Costco employees who had been denied promotion to general manager or assistant general manager to seek injunctive relief, compensatory damages, and back pay in 2007.
The ninth circuit vacated the class certification order with regard to the distri
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