Did the California Legislature Kill Arbitration?

Could be.  Certainly, arbitration services should be concerned that their services may not command the interest they once did.

Governor Brown just signed AB 802. This law applies to new arbitrations administered after 1/1/2015.

I'm going to call this law the "Slow Death to Arbitration Act."  Catchy? The plaintiff trial lawyers legislators who came up with this one are evil geniuses. If your company conducts arbitration, you are going to want to read this one.

One of the benefits of arbitration is that it's private. Not anymore. The major arbitration services, such as JAMS, AAA, etc. must publish at least quarterly a report and post it on its website.  The information will list the good and the bad, will give anyone who looks a free directory of plaintiff attorneys who have sued your companies, and more.  How about the number of mediations you've been involved in?

I'm highlighting in bold what employers should be most concerned about.

(1) Whether arbitration was demanded pursuant to a pre-dispute arbitration clause and, if so, whether the pre-dispute arbitration clause designated the administering private arbitration company.

(2) The name of the nonconsumer party, if the non consumer party is a corporation or other business entity, and whether the nonconsumer party was the initiating party or the responding party,

if known.

(3) The nature of the dispute involved as one of the following: goods; credit; other banking or finance; insurance; health care; construction; real estate; telecommunications, including software and Internet usage; debt collection; personal injury; employment; or other. If the dispute involved employment, the amount of the employee’s annual wage divided into the following ranges: less than one hundred thousand dollars ($100,000), one hundred thousand dollars ($100,000) to two hundred fifty thousand dollars ($250,000), inclusive, and over two hundred fifty thousand dollars ($250,000). If the employee chooses not to provide wage information, it may be noted.

(4) Whether the consumer or nonconsumer party was the prevailing party. As used in this section, “prevailing party” includes the party with a net monetary recovery or an award of injunctive relief.

(5) The total number of occasions, if any, the non consumer party has previously been a party in an arbitration administered by the private arbitration company.

(6) The total number of occasions, if any, the non consumer party has previously been a party in a mediation administered by the private arbitration company.

(7) Whether the consumer party was represented by an attorney and, if so, the name of the attorney and the full name of the law firm that employs the attorney, if any.

(8) The date the private arbitration company received the demand for arbitration, the date the arbitrator was appointed, and the date of disposition by the arbitrator or private arbitration company.

(9) The type of disposition of the dispute, if known, identified as one of the following: withdrawal, abandonment, settlement, award after hearing, award without hearing, default, or dismissal without hearing. If a case was administered in a hearing, indicate whether the hearing was conducted in person, by telephone or video conference, or by documents only.

(10) The amount of the claim, whether equitable relief was requested or awarded, the amount of any monetary award, the amount of any attorney’s fees awarded, and any other relief granted, if any.

(11) The name of the arbitrator, his or her total fee for the case, the percentage of the arbitrator’s fee allocated to each party, whether a waiver of any fees was granted, and, if so, the amount of the waiver.

So, now, the enforceability of an arbitration agreement will be one issue. Whether you want the results of all your arbitrations posted online, with all the above information included, is something else.  Employers will have to consider whether to use private arbitration services, and whether this information revealed to the public makes arbitration an attractive alternative.

Good luck in 2015. 

Court of Appeal: Federal OSHA preempts Unfair Competition Claims ( B&P Section 17200)

California's unfair competition law, Business and Professions Code section 17200, is quite broad.  Plaintiffs can bring claims for injunctive relief and restitution for just about anything they can prove is unlawful, unfair, or fraudulent.

California’s “UCL defines ‘unfair competition’ as ‘any unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising.’ [Citation.] By proscribing ‘any unlawful’ business act or practice (ibid.), the UCL ‘“ borrows”‘ rules set out in other laws and makes violations of those rules independently actionable.”

The District Attorney of a jurisdiction also may use another section of the UCL, section 17204, to collect statutory penalties; private litigants cannot.  Such penalties are in addition to whatever other remedies are available.

Per the Court of Appeal in Solus Industrial Innovations LLC v. Superior Court, here's what happened:

Solus makes plastics at an Orange County manufacturing facility. In 2007, Solus installed an electric water heater intended for residential use at the facility. In March 2009, that water heater exploded, killing two workers instantly in what district attorney refers to as an “untimely and horrific death.”

As a result, Cal-OSHA investigated and fined Solus.  Because there was a death, Cal OSHA also referred the case to the district attorney, who prosecuted company officials.  But the DA also brought a civil action for penalties under the UCL. 

The company argued that federal OSHA preempts the UCL claim.  Federal OSHA preempts all workplace safety laws.  However, the Secretary of Labor may approve a state plan to substitute for the federal enforcement scheme, under certain conditions.

The problem for the DA is that the Secretary of Labor did not consider or approve private enforcement under the UCL by a DA.  Rather, it approved the Cal OSHA enforcement scheme.  Therefore, the Court of Appeal held that the DA could not maintain a civil claim for penalties under the UCL based on a workplace safety violation subject to Cal OSHA's jurisdiction.

Here's the money quote:

In light of our determination that state regulation of workplace safety standards is explicitly preempted by federal law under the OSH Act, and that consequently California is entitled to exercise its regulatory power only in accordance with the terms of its federally approved workplace safety plan, we conclude the district attorney cannot presently rely on the UCL to provide an additional means of penalizing an employer for its violation of workplace safety standards.

So, the Secretary of Labor would have to approve a modification to the California OSH law.  I imagine that could occur if California acts to make the change and submits it to our current administration. But we'll have to wait and see.

The opinion in Solus Industrial Innovations LLC v. Superior Court is here.

More New California Employment Laws... Anti-Bullying Training and Unpaid Intern Harassment

The Governor has signed or is about to sign two more employment laws:

AB 1443 by Assemblymember Nancy Skinner (D-Berkeley) – This new bill amends the Fair Employment and Housing Act to prohibit harassment against unpaid interns (in case they would not quality as "employees.").

The other new law requires a longer discussion.  AB 2053 by Assemblymember Lorena Gonzalez (D-San Diego) expands California's anti-harassment training law, AB 1825.  Employers must include as part of AB 1825 training information about "abusive conduct."   So, the Fair Employment and Housing Act is where AB 1825 sits.  And AB 1825 training originally was targeted at harassment that is illegal under FEHA, although it also must include training about discrimination and retaliation too.

 

Under the new law, though, employers must include information about conduct that is not covered by the Fair Employment and Housing Act.  That is because that law covers conduct that is motivated by sex, race, and other protected categories.  Here's the definition:  

For purposes of this section, “abusive conduct” means conduct of an employer or employee in the workplace, with malice, that a reasonable person would find hostile, offensive, and unrelated to an employer’s legitimate business interests. Abusive conduct may include repeated infliction of verbal abuse, such as the use of derogatory remarks, insults, and epithets, verbal or physical conduct that a reasonable person would find threatening, intimidating, or humiliating, or the gratuitous sabotage or
undermining of a person’s work performance. A single act shall not constitute abusive conduct, unless especially severe and egregious.

So, no requirement of race, sex, or national origin-based hatred or bias. 

Most of the definition of abusive conduct prohibits treatment that is out of bounds, and which would be probative of a harassment claim if related to a protected status.  Training cannot hurt.  And as of now, as stated, "abusive conduct" is not prohibited by law.  

But the definition includes "derogatory remarks," that a "reasonable person" would find "humiliating."   For example, " Bob, you did a terrible job on that project.  Derogatory? Sure.  Humiliating?" Could be, right?   Perhaps the law requires repeated conduct, because it says "a single act" is not abusive conduct.  But even that proviso has a wiggle for single acts that are "especially severe and egregious."  Employers and managers will have to rely on "malice" to differentiate between harsh criticism and "abusive conduct."  Malice, though, is not defined in this statute, though it means "hatred or ill will" in other contexts.

We'll see how this shakes out. I'm sure that adding "abusive conduct" to FEHA is only one or two legislative sessions away.  Illegal harassment is not protected by the First Amendment, says the California Supreme Court. Is there a first amendment issue here?  We'll have to see that as well.   Stay tuned.  

This new law kicks in January 1, 2015.  I'm off to modify our training programs now.

Court of Appeal: Lying on Timesheets re Break Time is Misconduct: No Unemployment for You

The Court of Appeal in Irving v. California Unemployment Insurance Appeals Board reversed a trial court ruling awarding an ex-employee unemployment benefits.

The Unemployment Ins. Appeals Board had ruled against the employee.

The administrative law judge found plaintiff exceeded the break times permitted by the district and made false entries on the time records. Plaintiff’s conduct constitutes dishonesty within the meaning of California Code of Regulations, title 22, section 1256-34, subdivision (a) which states in part, ‘“Dishonesty’ includes such acts and statements as lying, theft, making false entries on records, and other actions showing a lack of truthfulness and integrity. . . .” Here, plaintiff on four occasions took excessive breaks. And then he, by his own admission and the documentary evidence, failed to correctly state on his written timesheets how long the excessive breaks lasted. Based upon the foregoing, plaintiff committed misconduct within the meaning of section 1256.

If you read the opinion, you will see that the employee made a variety of excuses why he falsified time records to show that he took compliant breaks, while in reality he had taken overly long ones.  If you sift through it, you'll see the trial court's and employee's argument was that he had a "good faith" misunderstanding about whether he was doing something wrong.

The court of appeal rejected these arguments and the trial court's conclusions, relying on the EDD's regulations:

There is no basis for a finding that a reasonable person would have thought plaintiff’s conduct was not dishonest under the circumstances. As noted, one sentence in California Code of Regulations, title 22, section 1256-34, subdivision (b) mirrors the good faith misunderstanding language in section 1256, “Dishonesty does not exist if the employee’s act or statements arise from a good-faith misunderstanding between the employer and employee where a reasonable person would not have interpreted the acts or statements as dishonest under the circumstances.”

This rule, with its multiple uses of negatives, incorporates the following elements. For purposes of finding misconduct based upon dishonest actions, dishonesty does not exist under specified circumstances set forth in California Code of Regulations, title 22, section 1256-34, subdivision (b). For purposes of California Code of Regulations, title 22, section 1256-34, subdivision (b), the necessary circumstances must involve a dispute between the employer and the employee concerning whether conduct is dishonest. However, the dispute must arise from a good-faith misunderstanding between the employer and the employee. The good-faith misunderstanding is viewed from a reasonable person’s perspective; not from the employee or employer’s standpoint. Once the good faith dispute concerning whether the conduct is dishonest is viewed in that context, there are generally two possible outcomes. The first potential outcome is that if a reasonable person would not have interpreted the employee’s conduct as dishonest, then there has been no dishonesty. Under this first potential outcome, the employee is entitled to recover unemployment compensation benefits. By contrast, the second possible outcome arises if a reasonable person would have interpreted the employee’s conduct as dishonest. If a reasonable person concludes the employee’s conduct is dishonest, then there has been dishonesty for purposes of denying recovery of unemployment insurance benefits. Here, a reasonable person would not have interpreted plaintiff’s actions in taking four excessively long breaks and repeatedly falsifying his time records as honest. There is no evidence that a good-faith misunderstanding existed or could exist concerning plaintiff’s admitted taking of excessive breaks on four occasions and falsifying his time records.

But the court noted that this was a public employer, and that its conclusion might not apply automatically in a private sector setting.  Editorial comment: $%^&*

It bears emphasis that unlike other disputes that arise in the workplace, making false entries in a public document can be, depending on the circumstances, a crime. (Gov. Code, §§ 6200-6201; Pen. Code, § 115, subd. (a); see People v. Garfield (1985) 40 Cal.3d 192, 196.)

The court also rejected the "everybody does it" gambit:

The fact that other employees took excessive breaks is legally irrelevant. California Code of Regulations, title 22, section 1256-34, subdivision (b) addresses the situation when other employees engage in dishonest acts. When an employee engages in dishonest acts or statements and is thereby discharge, it is not an excuse that other employees engaged in an equally culpable act. (Ibid.) This rule applies even though the employer has no specific rule forbidding dishonesty. (Ibid.) 

The case is Irving v. California Unemployment Insurance Appeals Board and the opinion is here.

9th Circuit Upholds Statistical Sampling to Determine Liability in Off the Clock Overtime Class Action

Allstate re-classified its adjusters to be non-exempt some years back.  Rather than require employees to keep their work time on time sheets or use a time clock, the employees were paid a standard eight hours per day / 40 hours per week.  However,

the manager of each local office has the power to file a timekeeping “exception” or “deviation” from the default expectation of 8 hours per day and 40 hours per week. This adjustment takes place when a claims adjuster’s request for overtime or early leave is approved. Managers do not adjust time cards based on either their own observations of work habits or on the technological records contained in computer and telephone systems. Each local office has a nonnegotiable compensation budget, which creates a functional limit on the amount of overtime a manager may approve.

Auto-punching, overtime pay only upon request, and a budget restricting overtime... What could go wrong?  

Right.  Jiminez, an adjuster, filed a class action. He claimed Allstate had an "unofficial policy" of discouraging employees from reporting overtime.  As a result, he and the class  members worked "off-the-clock" overtime for which they were not compensated.

Of note, the panel approved a district court's formulation of the elements of an off the clock work claim as follows:

Under California law, there are three elements of an off-the-clock claim of the type raised by the class here: “[A] plaintiff may establish liability for an off-the-clock claim by proving that (1) he performed work for which he did not receive compensation; (2) that defendants knew or should have known that plaintiff did so; but that (3) the defendants stood idly by.” Adoma v. Univ. of Phoenix, Inc., 270 F.R.D. 543, 548 (E.D. Cal. 2010) (internal quotation marks omitted).

Unfortunately, the court did not also cite Jong v. Kaiser Found. Hospital, a California decision (prior post here).

Anyway, the Court of Appeals here agreed with the district court that the class action should be certified.  The district court found these common questions predominated over individual ones:

(i) whether class members generally worked  overtime without receiving compensation as a result of Defendant’s unofficial policy of discouraging reporting of such overtime, Defendant’s failure to reduce class members’ workload after the reclassification, and Defendant’s policy of treating their pay as salaries for which overtime was an “exception”; (ii) whether Defendant knew or should have known that class members did so; and (iii) whether Defendant stood idly by without compensating class members for such overtime.

The Court of Appeals decided that these common questions would resolve the "common issue" of whether Allstate could be liable for off-the-clock work.  You may ask how a class can prove that its employees worked under the "unofficial" policy or the "official" policy requiring payment for all overtime?  

With statistics, that's how.  The Ninth Circuit panel held that the statistical models proposed by the plaintiff, and approved by the district court, could be used to prove liability:

the district court carefully analyzed the specific statistical methods proposed by plaintiffs. It struck some of the expert testimony offered by plaintiffs as insufficiently empirically supported and took pains to ensure that the statistical analysis it did accept conformed to the legal questions to which the analysis was being applied. Unlike the putative class in Comcast, 133 S.Ct. at 1434, which relied on
statistical analysis that was not closely tied to the relevant legal questions, or in Duran, 325 P.3d at 940, which used a sample of 20 names drawn from a hat without evidence showing that the number of names chosen or the method of selection would produce a result that could be “fairly extrapolated to the entire class,” the district court has accepted a form of statistical analysis that is capable of leading to a fair determination of Allstate’s liability, and preserved the rights of Allstate to present its damages defenses on an individual basis.

Allstate argued that the "unofficial policy" did not exist and that it had strong policies against off-the-clock work. But the court held that this argument was properly made at trial rather than certification:

Allstate argues that its formal policies which call for employees to be  paid for all overtime worked are lawful, and that the alleged informal “policy-to-violate-the-policy” does not exist. This argument is appropriately made at trial or at the summary judgment stage, as it goes to the merits of the plaintiffs’ claim. See In re Whirlpool Corp. Front-Loading Washer Products Liab. Litig. , 722 F.3d 838, 857 (6th Cir. 2013) (noting that if a defendant has a strong argument against classwide liability, it “should welcome class certification” as that allows it the opportunity to resolve claims of all class members at once). Whether any of these common questions are ultimately resolved in favor of either side is immaterial at this class certification stage, where we determine whether any answer that the questions could produce will drive resolution of the class’ claims.

So, take-aways: 

- "auto-clocking" is not a good practice if you want to avoid off-the-clock class actions.  

-  courts are continuing to certify now, ask about liability later.  

- statistical sampling can be used to determine liability without violating due process, at least for now. The U.S. Supreme Court has yet to rule on this issue.

This case is Jimenez v. Allstate Ins. Corporation and the opinion is here.

Court of Appeal: Employer's Fitness for Duty Examination Was Justified to Evaluate Workplace Threat

Professor John Kao engaged in a series of confrontations with other academics at University of San Francisco over time.  His co-workers became afraid of him.   He angrily responded to innocuous questions, and became enraged at colleagues over seemingly benign interactions.

So, the University began investigating.  It retained some specialists in workplace violence and threat assessment.  The experts recommended that Professor Kao be examined by a professional, who would render a "fitness for duty" opinion.  The University explained to Kao that he had to submit to the fitness for duty, or be placed on a leave of absence and excluded from the premises.  The University explained in detail the requirements of the FFD exam, including strict limitations on the expert evaluator's dissemination of information about Kao's condition.

Kao's lawyer got involved, and objected to the FFD.  As a result, the University placed Kao on a leave.   There were further meetings and exchanges with Kao's counsel, the faculty's union representative, and the University, to no avail.  The University then agreed to arbitration - under which the University would be bound, but Kao would not (!).  But Kao objected and would not agree to any ADR and would not submit to the exam.  Kao's attorney wanted to have a "clear the air meeting," at which Kao would assure the University he meant no harm.   The University ultimately terminated Kao's employment, about a year after all the problems started.

Kao sued for disability discrimination and defamation, among other things. A jury rejected Kao's claims and he appealed.

Kao argued at trial that the FFD was a medical examination.  Under the Fair Employment and Housing Act, a medical examination of an employee is permissible if "job-related and consistent with business necessity."  And Kao argued that the FFD could not be job-related or necessary without the University's first engaging in the "interactive process" that is part of the "reasonable accommodation" process.

The Court of Appeal rejected that argument. First, the court noted that the FFD is not an accommodation, and the interactive process relates to the accommodation process.   Second, the court noted that Kao was required to initiate the interactive process, not the University:

Unless a disability is obvious, it is the employee’s burden to initiate the interactive process. (Gelfo v. Lockheed Martin Corp (2006) 140 Cal.App.4th 34, 62, fn. 22; 2 Wilcox, Cal. Employment Law (2013) § 41.51[3][b], p. 41-278.) Kao cannot plausibly claim it should have been obvious to USF that he was disabled because he never admitted any disability in the workplace. When a disability is not obvious, the employee must submit “reasonable medical documentation confirm[ing] [its] existence.” (Cal. Code Regs., tit. 2, § 11069, subd. (d)(2).) Kao did nothing of the sort. He provided no information to USF after learning of the university’s concerns other than documents at the October 2008 meeting with Philpott, which were aimed at showing that those concerns were illusory.

The court concluded that no interactive process was necessary.  For those of you wondering what "job-related and consistent with business necessity means," the court quoted from the jury instruction:

The jury was instructed in accordance with Government Code section 12940, subdivision (f): “ ‘John Kao claims that the university wrongfully required a medical and psychological examination (fitness-for-duty or FFD). [¶] . . . The University of San Francisco asserts that the medical or psychological examination (fitness-for-duty or FFD) request was lawful because it was necessary to the university’s business. To succeed, the university must prove both of the following: 1, that the purpose of the FFD was to operate its business safely and efficiently; and 2, that the FFD would substantially accomplish this business purpose. [¶] . . . If the university proves that the FFD is necessary to the university’s business, then the FFD is lawful unless John Kao proves both of the following: 1, that there was an alternative to the FFD that would have accomplished the university’s business purpose equally well; and 2, that the alternative would have had less adverse impact on John Kao.’ ”

The Court also rejected Kao's claim that the University fired him for not releasing his medical records in violation of California's Confidentiality of Medical Information Act.  The Court approved of the instruction to the jury that the University avoided liability if the jury found that the University fired Kao for refusing a lawful fitness for duty exam.

The Court upheld the trial court's granting of "non-suit" on Kao's defamation claim.  The claim was based on HR's sharing of a letter detailing Kao's conduct in connection with the FFD examination request.  The Court agreed that the "common interest" privilege applied and there was not evidence of the "malice" required to defeat the privilege.

Finally, the Court ruled that the University was entitled to put on evidence of available employment to Kao, even outside the context of a tenured University professor job.  That is important to the argument regarding mitigation of damages.   The Court of Appeal said it was up to the jury to decide if the comparable replacement employment was sufficiently similar.

This case is Kao v. University of San Francisco and the opinion is here.

Court of Appeal (Finally) Holds Workers' Compensation Act Preempts Intentional Infliction Claims

Yau was a service manager at a car dealer, claims he was fired for reporting to management that his bosses were defrauding Ford Motor Company by submitting false warranty claims.  For the most part, Yau complained about the nature of his discharge, which included deputy sheriffs lurking as he packed up his belongings.

The trial court dismissed the case.  The court of appeal reversed.  The appellate court decided Yau had adequately alleged a claim for wrongful termination in violation of public policy based on his allegations of warranty fraud.  But that's not really the interesting part of the case.

The interesting part is that the court of appeal decided that no cause of action for intentional infliction of emotional distress is available separate from the wrongful termination claim. The court finally addressed a 2008 California Supreme Court decision that I have been pushing up hill for years.  Here's how the appellate court saw it:

Physical and emotional injuries sustained in the course of employment are pre-empted by the workers’ compensation scheme and generally will not support an independent cause of action. (Cole v. Fair Oaks Fire Protection Dist. (1987) 43 Cal.3d 148, 160 (Cole).) Emotional injuries caused by workplace discipline, including termination, fall within this rule. (Ibid.; see also Shoemaker v. Myers (1990) 52 Cal.3d 1, 7.)  * * *

Yau relies on a series of cases that have found exceptions to this general rule of preemption when the intentional infliction of emotional distress claim is based on conduct that violates a fundamental public policy. (See e.g., Cabesuela v. Browning-Ferris Industries of California, Inc. (1998) 68 Cal.App.4th 101, Leibert v. Transworld Systems, Inc. (1995) 32 Cal.App.4th 1693; Phillips v. Gemini Moving Specialists (1998) 63 Cal.App.4th 563.) Those cases were decided before our Supreme Court’s decision in Miklosy v. Regents of University of California (2008) 44 Cal.4th 876 (Miklosy), which held the exception to workers’ compensation preemption for employer “conduct that ‘contravenes fundamental public policy’ is aimed at permitting a Tameny action [for wrongful discharge in violation of public policy] to proceed despite the workers’ compensation exclusive remedy rule.” (Id. at pp. 902-903.) This exception does not, however, allow a “distinct cause of action, not dependent upon the violation of an express statute or violation of fundamental public policy.” (Id. at p. 902.) Miklosy held that even “‘severe emotional distress’” arising from “‘outrageous conduct’” that occurred “at the worksite, in the normal course of the employer-employee relationship” is the type of injury that falls within the exclusive province of workers’ compensation. (Ibid.) “‘An employer’s intentional misconduct in connection with actions that are a normal part of the employment relationship . . . resulting in emotional injury is considered to be encompassed within the compensation bargain, even if the misconduct could be characterized as “manifestly unfair, outrageous, harassment, or intended to cause emotional disturbance.”’ [Citation.]” (Vasquez, supra, 222 Cal.App.4th at p. 833.)

This case is Yau v. Santa Margarita Ford, Inc. and the opinion is here. 

California Enacts Paid Sick Leave

The Governor signed AB 1522, which confers upon most California employees paid sick leave.  The law is somewhat similar to San Francisco's paid sick leave ordinance.

Here is the text of the new law. 

The law adds sections 245-249 to the Labor Code.

Here are key provisions, although we'll have a more detailed article soon:


Coverage 

1.  The effective date is 7/1/15.  So employers will have time to develop their policies.

2.  All employers, of any size, are covered.  Public sector too.

3.  Employees with collective bargaining agreements providing paid sick leave (and other issues), and who make more than 30% more than minimum wage, are not covered.

4.  Employees in the construction industry may not receive any paid sick leave if there is a collective bargaining agreement that expressly waives the new law, provided other requirements in the law are met.

5. Flight crew members covered by the federal Railway Labor Act who receive compensatory time off under certain circumstances are not covered.

6.  Providers of in-home supportive services under certain sections of the Welfare and Institutions Code are not covered.  However, it looks like other home care employees will be.

7.  Employees who work 30 days or more in California are covered.

8.  "Exempt" employees, such as managers, lawyers, etc. are covered.

Sick Leave Terms

1. Sick leave can be used to take care of the employee, as well as family members. Family members include parents, children, foster and step-children, grandparents, siblings, domestic partners, and others.

2.  "Pay" is at the employee's base rate.

3.   The right to use paid sick leave begins at 90 days of employment.

4.  Sick leave accrues from the first day of employment.

5.  The employee earns an hour of sick pay for each 30 hours worked.

6.   The employer can limit paid sick leave to 3 days or 24 hours per 12 month period (rolling, calendar, or anniversary year).

7.  Accrued sick leave carries over to the next year. But the employer can cap accrual at 48 hours or 6 days.

8.  The employer can set a minimum increment of 2 hours of sick pay usage.  However, the employee can use how much he or she wishes.  The employer cannot mandate that the employee use more than the employee wants to use.

9.  PTO  and existing sick plans may be sufficient if they satisfy the minimums in the law.  That is, there is no need to provide additional sick pay above what the employer offers already (assuming the employer's policy is at least as generous).

10. Anyone reinstated < 12 months from termination has accrued, unused sick leave restored.

11.  No payout on termination.

12. The law does not repeal "Kin Care."  So, employers with more generous plans will have to allow employees to use 1/2 of the annual sick leave entitlement for Kin Care under that statute (assuming the employer's plan provides for more than 6 days of paid sick leave per year).

Notice

1.  The employee only has to give notice if foreseeable or, if not foreseeable, as soon as practicable. That's a change to employer policies that will have to be implemented.

2.  Employee notice can be written or verbal.

3. The employer must include the accrued balance of sick pay on the wage statement per Lab. Code section 226.  Or, the employer can provide a separate document at each pay day. However, the section 226 penalties do not apply.  Rather the special penalties in this statute apply.

4.  Section 2810.5 (Wage Theft notice law) is amended to now include a notice re paid sick leave.

5.  New poster.  $100 penalty for violating the poster requirement.


Enforcement

1. No private right of action.  This law is enforced by the DLSE or the attorney general.  However, there appears to be a provision that will allow for a "private attorney general" action for "equitable, injunctive, or restitutionary relief, and reasonable attorney’s fees and costs."  That is, no penalties under PAGA.  It is unclear how this will work, given the rest of the statute provides only for enforcement by the DLSE or attorney general.

2. It remains to be seen whether a cause of action for wrongful termination in violation of public policy will lie for those who claim wrongful termination due to taking sick leave.

3.  There is a "safe harbor" from penalties applicable to "isolated" and "inadvertent" record keeping or notice errors.

4.  The labor commissioner can award unlawfully withheld sick pay, reinstatement, and back pay at an administrative hearing.

5.  There are a variety of $50 penalties per day per employee available, which apply for different violations.  It's unclear how they work together. But the  maximum aggregate penalty per violation is $4,000.00 to each person whose rights were violated. That penalty may include triple the sick pay that was withheld.  The labor commissioner can award pre-judgment interest too.

6.   There is a "rebuttable presumption" of retaliation if an employer takes negative action against an employee who files a complaint with the labor commissioner, participates in an investigation about paid sick leave, or opposes an employer practice related to paid sick leave.

7.  The law says that the labor commissioner can conduct hearings, but the law does not specify that the hearings take place under the normal wage hearing statute.   So, if the labor commissioner rules against you on a sick leave / discharge claim, you have to go to superior court on a writ of mandate, maybe?  No appeal de novo and bond filed in superior court?  We'll see I guess.

8.  The labor commissioner can file suit if the employer does not comply with the labor commissioner's rulings.

*  *  *

Well that's a good start.   The nice news is that these modest minimum paid sick leave requirements are easily amended in future years.  So, don't get used to the 3-day minimum, k?

Before July 2015, ensure you revise your sick leave policies, payroll checks, and Wage Theft forms!

We will have more information as it becomes available and so will the DLSE. Good luck.

DGV

California Supreme Court: Franchisor MAY Be Liable for Franchisee's Employee's Sexual Harassment Claim*

*But not in this case.

Taylor Patterson, an employee at a Domino's franchise in southern California, sued her employer (called "Sui Juris LLC") and her former manager for sexual harassment.  She also sued Domino's Pizza,  LLC, the franchisor.  

The trial court granted Domino's' summary judgment motion, finding Domino's was not the plaintiff's employer, or that the franchisee was not Domino's' "agent."  The court of appeal, though, reversed.  

On review, the California Supreme Court agreed with the trial court, and dismissed the case against Domino's, the franchisor.  

The opinion goes into a long discussion of franchisor history and law, which I'm sparing you. Here is the money quote:

franchisees are owner-operators who hold a personal and financial stake in the business. A major incentive is the franchisee‘s right to hire the people who work for him, and to oversee their performance each day. A franchisor enters this arena, and becomes potentially liable for actions of the franchisee‘s employees, only if it has retained or assumed a general right of control over factors such as hiring, direction, supervision, discipline, discharge, and relevant day-to-day aspects of the workplace behavior of the franchisee‘s employees. Any other guiding principle would disrupt the franchise relationship.

The Fair Employment and Housing Act holds "employers" liable for workplace discrimination, harassment, and retaliation.  The franchisor, although exercising control over branding and the products and services offered, did not impose control over the day to day employment relationship.  

The Supreme Court went on to explain what the nature of an "employer" is in the context of FEHA:

There are few California cases defining an employer under the FEHA provisions invoked here. But, it appears, traditional common law principles of agency and respondeat superior supply the proper analytical framework under FEHA, as they do for franchising generally. Courts in FEHA cases have emphasized "the control exercised by the employer over the employee‘s performance of employment duties." (Bradley v. Department of Corrections & Rehabilitation (2008) 158 Cal.App.4th 1612, 1626, citing Vernon, supra, 116 Cal.App.4th 114, 124-125; accord, McCoy v. Pacific Maritime Assn. (2013) 216 Cal.App.4th 283, 301-302.) This standard requires "a comprehensive and immediate level of 'day-to-day‘ authority" over matters such as hiring, firing, direction, supervision, and discipline of the employee. (Vernon, supra, 116 Cal.App.4th at pp. 127-128.)

As discussed above, Domino‘s lacked the general control of an employer or principal over relevant day-to-day aspects of the employment and workplace behavior of Sui Juris‘s employees. Application of the FEHA test for determining an employment relationship produces no different result in this franchising case than the one we have already reached. Plaintiff is mistaken to the extent she implies that the contrary is true.

So, this case should guide franchisors, as well as affiliated companies. 

Turning to the case at bar, the Supreme Court examined a number of facts to determine Domino's did not exercise the requisite control.  These included

- the language of the franchise agreement.  Critically, the agreement provided Domino's had no say in day-to-day employment issues involving the franchisee's employees. 

- the franchisee in practice exclusively controlled hiring, firing, and other employment decisions. He did not involve Domino's in any such decisions.

- the franchisor did provide certain training to employees on methods and the like.  But the franchisee had exclusive control over sexual harassment training and "how employees treat each other" in the workplace.

- Domino's had no complaint procedure for franchisee employees to report harassment; only the franchisee had such procedures in place.

It should be noted this decision was 4-3.  Justice Baxter penned the majority opinion. He's retiring. I'm going to miss him.  CJ Cantil-Sakauye and Justices Chin and Corrigan joined the majority.

Justice Werdegar, joined by Justice Liu and Justice Chaney (sitting by designation from the court of appeal), would have held that the franchisor should be held liable.  However, even the dissenters agreed

That a franchisor is not automatically the employer of its franchisee‘s employees, irrespective of the details of the parties‘ relationship, necessarily follows. So, too, does it follow that a franchisor may under the circumstances of the parties‘ relationship in fact be an employer. The outcome depends on the factual inquiry.

Therefore, all seven justices agreed on the basic principle. The dissenters believed there was enough to hold Domino's LLC liable.  So, there is no bright line rule re franchisor liability.  There will be litigation to decide in each case whether a franchisor exercises the requisite control to qualify as an "employer."  Franchisors and franchisees will have to ensure their agreements are consistent with their intent in this area.  And franchisors seeking to avoid responsibility for employment law claims will have to cede control over day-to-day employment issues.

This case is Patterson v. Domino's LLC and the opinion is here.

CA Governor Signs Two Wage-Hour Bills

Governor Jerry Brown signed a couple of wage-hour laws, which will take effect 1/1/15.  Neither is earth-shattering, but affected employers take note:

AB 2074, text here, clarifies California law regarding the statute of limitations for "liquidated damages," available for unpaid minimum wage claims.  The statute amends Labor Code section 1194.2 (here) to say that the statute of limitations for liquidated damages will be the same as the statute of limitations applicable to the underlying wage claim.  I'm not sure, but it may be that employers argued the statute of limitations is only 1 year because liquidated damages are a form of penalty.

AB 2743, text here, expands the availability of "waiting time penalties."  Per Labor Code section 203 (here), employers face a penalty of up to 30 days' pay when they do not pay employees correctly and timely at termination of employment.  Section 201.9 of the Labor Code allowed employers in the "live theatrical or concert" industry to pay final wages in accordance with a collective bargaining agreement. AB 2743 expands the availability of waiting time penalties to situations when the employer does not pay on time under that CBA.  So, employers not in the "live theatrical or concert" business:  Nothing to see here.

9th Circuit: Cop with ADHD Has No "Disability" Under the ADA

Here's a remainder from the Ninth Circuit that not every impairment is a "disability."   And without a "disability" within the meaning of the ADA, there is no obligation to accommodate and there is no relief available for termination of employment based on a claim of disability discrimination.

A 9th Circuit panel held, 2-1, that a police officer with ADHD did not have a legally sufficient  "disability" to justify a claim under the ADA.  That is because, the court found, his "impairment" did not "substantially limit" the major life activities of working or interacting with others.

The employee, Weaving, was diagnosed with ADHD at six years old.  At 12, he stopped taking medication, but had difficulty getting along with others during his teen and adult years.

So, Weaving becomes a police officer in Beaverton, Oregon.  He passed all the exams, physical and mental. He did not disclose his ADHD diagnosis or prior medications, believing he was no longer afflicted.  He stayed in Beaverton for about 10 years, and received much negative feedback about his personality conflicts.

He joined the Hillsboro, Oregon, police force in 2006.  He disclosed his previous ADHD diagnosis and noted some of the personality conflicts that had plagued him.  Hillsboro offered him provisional employment, subject to a medical evaluation.  Weaving passed that evaluation, as well as another one when he applied for promotion to sergeant.  His superiors noted he sometimes was perceived as arrogant or intimidating, but that he did his job well.

After a couple of incidents of conflict with his co-workers/ subordinates, the city placed Weaving on administrative leave. (Paid, natch.).  While on leave, Weaving came to the conclusion that ADHD might be the source of some of his troubles (!).  A doctor agreed that his ADHD might cause him to interact roughly with co-workers, but that he could still be an "excellent" officer.  So, weaving told the City that he should be reinstated with "all reasonable accommodations," so that he might obtain treatment and improve his communications.

But, while on administrative leave, the city conducted an investigation. The consensus was that Weaving was, in effect, a terror.  Two doctors evaluated him as medically fit for duty, too.  So, the city decided to discharge Weaving.

A jury found the city violated the ADA by firing Weaving and awarded him money damages. but not reinstatement.  The city appealed.

The court of appeals first considered whether Weaving was "substantially limited" in the major life activity of working.  The ADA Amendments Act relaxed the "substantially limited" standard. Even so, the court held there was no evidence of substantial limitation:

The record does not contain substantial evidence showing that Weaving was limited in his ability to work compared to “most people in the general population.” See 29 C.F.R. § 1630.2(j)(1)(ii). On the contrary, there is evidence showing that Weaving was in many respects a skilled police officer. ****
Weaving's supervisors recognized his knowledge and technical competence and selected him for high-level assignments. In 2007, before receiving any treatment for adult ADHD, he was promoted to sergeant. In 2009, a psychologist and a physician/psychiatrist both deemed Weaving fit for duty as a
police officer.
 * * * *
Given the absence of evidence that Weaving’s ADHD affected his ability to work, and in light of the strong evidence of Weaving’s technical competence as a police officer, a jury could not reasonably have concluded that Weaving’s ADHD substantially limited his ability to work.

Weaving also claimed substantial limitation in the major life activity of interacting with others. The Ninth Circuit recognizes that as a major life activity.  But, reviewing its own and other courts' decisions, the court said that merely failing to "get along" is not the same as interacting:

Weaving’s interpersonal problems do not amount to a substantial impairment of his ability to interact with others within the meaning of the ADA. Weaving’s ADHD may well have limited his ability to get along with others. But that is not the same as a substantial limitation on the ability to interact with others. See McAlindin, 192 F.3d at 1235; see also Jacques v. DiMarzio, Inc., 386 F.3d 192, 203 (2d Cir. 2004) (distinguishing “‘getting along with others’ (a normative or evaluative concept) and ‘interacting with others’ (which is essentially mechanical)”).
* * *
Weaving was able to engage in normal social interactions. His interpersonal problems existed almost exclusively in his interactions with his peers and subordinates. He had little, if any, difficulty comporting himself appropriately with his supervisors. A case like Weaving’s is what we described in McAlindin as not giving rise to a disability claim.

The court then further explained its ruling, removing the possibility that mere "jerks" can claim they have disabilities.

One who is able to communicate with others, though his communications may at times be offensive, “inappropriate, ineffective, or unsuccessful,” is not substantially limited in his ability to interact with others within the meaning of the ADA. Jacques, 386 F.3d at 203. To hold otherwise would be to expose to potential ADA liability employers who take adverse employment actions against ill-tempered employees who create a hostile workplace environment for their colleagues.

Right.  On the other hand, those who have a severe inability to relate to others (such as those who cannot relate to anyone, rather than co-workers) may still claim a disability under the court's previous decisions.  I would also point out that the court does not close the door on all persons claiming a disability based on ADHD.  The name of the condition does not matter. It's all about  how the condition's impairment "substantially limits" one or more major life activities.  So, it's possible that another person's ADHD could result in more profound limitations.  Remember too that the effects of medication are irrelevant under California and federal law.

In dissent, Judge Callahan assiduously argued that the majority substituted its judgment for the jury and was unfaithful to the circuit's precedent.  She claimed the majority cherry-picked evidence, rather than simply looked for substantial evidence to support the jury's conclusion.

The opinion in Weaving v. City of Hillsboro is here. 

California Court of Appeal: Employers Must Reimburse Employees for Cell Phone Use - Even if Plan is Unlimited

The Court of Appeal made an unprecedented ruling regarding the employer's obligation to reimburse employees for business use of personal items; here, a cell phone.

The threshold question in this case is this: Does an employer always have to reimburse an employee for the reasonable expense of the mandatory use of a personal cell phone, or is the reimbursement obligation limited to the situation in which the employee incurred an extra expense that he or she would not have otherwise incurred absent the job? The answer is that reimbursement is always required. Otherwise, the employer would receive a windfall because it would be passing its operating expenses onto the employee. Thus, to be in compliance with section 2802, the employer must pay some reasonable percentage of the employee’s cell phone bill. Because of the differences in cell phone plans and worked-related scenarios, the calculation of reimbursement must be left to the trial court and parties in each particular case.

***
To show liability under section 2802, an employee need only show that he or she was required to use a personal cell phone to make work-related calls, and he or she was not reimbursed. Damages, of course, raise issues that are more complicated. 

You can look for case law or other authority explaining how this rule is derived, but you won't find any. This Court created the rule that additional incremental expense is not required. 

It's old news that employers must reimburse employees for business use of a personal automobile.  Although the employee owns the car, there are incremental costs associated with operating the vehicle on a business trip: the tires, the oil, fuel, wear and tear.  It's not really the same thing when an employee already owns a cell phone with an unlimited data plan.  The phone exists. The phone bill is the same regardless of whether the employee uses it for business or personal calls.  

Now, don't get me wrong.  I see where the employer has an obligation to reimburse under different circumstances.  For example, if the use of a cell phone is integral to the job, sure.  For example in this case, it is possible that the job itself required being outside an office and available by phone.  If an employee increases his or her plan minutes because of work-related calls, naturally the employer should have to pay.  If an employee has to buy a phone or phone plan because of work, absolutely.  But if an employee already has an unlimited plan, how is he or she out money - requiring reimbursement - if he or she simply uses her phone that she already had? 

The court of appeal has an answer: it's irrelevant. Reimbursement is due.  The court was careful to say that use of the personal phone must be "mandatory."  So, occasional voluntary use may not create a reimbursement obligation.  Using your cell phone to call your voice mail when outside the office?  Could be? 

This case also could have a significant affect on the BYOD (bring your own device) plans that are popular nowadays. Employers and employees should establish in advance whether the employer requires employees to use a personal device as part of the job, and then decide how much the employer will pay for its use.   The court gave no guidance on this point other than "a reasonable percentage" of the cost of the monthly plan.

Of additional interest, does this case create new expense reimbursement obligations when the employee uses personal items for work, but does not incur an additional expense?  what about if an employer requires an employee to wear a suit or tie to work?  Must the employer pay a reasonable percentage of the cost?  Briefcase?  We shall see.

This case is Cochran v. Schwan's Home Service and the opinion is here. 

Court of Appeal: Two New Arbitration Decisions Highlight Importance of Drafting Agreements Correctly

Here are two new decisions that illustrate why arbitration agreements have to be drafted properly to be enforced.

The Court of Appeal's decision in Rebolledo v. Tilly's, Inc. (opinion here)  is important for employers who issue revisions to policies and employment agreements.  Basically, Tilly's issued several versions of an arbitration agreement and did not adequately manage how the revisions' affected prior ones.  A 2001 version of the arbitration agreement excluded wage-hour claims within the jurisdiction of the Labor Commissioner.   A 2005 arbitration provision did not contain the exclusion. However, the 2001 agreement said that it required three signatures of company executives to modify it.  The 2005 provision did not include those signatures.

Upholding the trial court, the Court of Appeal held that the later arbitration agreement did not supersede the earlier one, and the earlier one did not cover Rebolledo's claims:

We agree with the trial court’s interpretation of the agreement holding arbitration would fall within the broad category of “employment policies” requiring the signature of three executives for any modification. And because the 2005 Agreement contains a material modification of the types of claims that must be arbitrated, it required the signature of three executives to be enforceable.

The employer in Galen v. Redfin Corporation (opinion here) won enforcement of its arbitration agreement, but the plaintiff challenged the arbitration agreement as limited to disputes concerning the interpretation of the arbitration agreement itself.

Paragraph 26 of the Agreement initially states: “In the event that any disputes arise regarding the interpretation or enforcement of this Agreement, such disputes shall be resolved as follows . . . .” (Italics added.) The paragraph goes on to discuss the use of good faith negotiations followed by mediation, if necessary. In the event mediation fails or is refused, the Agreement provides that all disputes “arising out of or related to this Agreement which have not been settled by mediation shall be resolved by binding arbitration within the State of Washington.” (Italics added.) 

The court ultimately determined that this language included claims concerning whether the plaintiff was an independent contractor agreement, but primarily because the arbitration provision was contained within the plaintiff's independent contractor agreement.  The plaintiff would have had a stronger argument if the arbitration agreement was "stand-alone."  So, it's important to draft the scope of the arbitration clause carefully.  A broader provision might read, for example, "any dispute regarding the [employment] [independent contractor] relationship, and the termination of that relationship or any other matter contained within this agreement."

The court's opinion in Galen is also notable because it held that a mutual attorney's fees provision and a forum selection clause did not render the agreement unconscionable.  The attorney's fees discussion did not address the other decisions that hold such agreements are unconscionable unless they explain that employers cannot recover fees under some statutory claims.  The forum selection clause discussion ostensibly authorizes employers to require arbitration outside of California if there is a logical relationship between the forum and the contract.   So, interesting decision, but one that may be at odds with others already on the books.

Pot Pourri of Recent Cases I missed

There have been so many recent employment law decisions that I can't long-form blog them all.  So, here's a quick roundup of three recent, significant rulings -

Don't miss Serri v. Santa Clara University opinion here.  This case is a defense lawyer's summary judgment go-to. Of note, the court handled a number of claims that are rarely seen (such as defamation by self-compelled publication, intentional interference, and the Labor Code's equal pay law. Here are some of the highlights:

- Upholds denial of extension to file opposition to motion for summary judgment.

- Affirms summary judgment against discrimination, retaliation and wrongful termination claims.  Good analysis of the employee's burden of establishing "pretextual" reason for termination.

- Upholds summary judgment on a national origin harassment claim because the alleged comments were not severe or pervasive.

- Agrees that the trial court properly adjudicated the plaintiff's claim under the state Equal Pay Act (Labor Code section 1197.5). The court held the plaintiff did not establish the proper "comparators" to establish she was paid less than someone performing substantially equal work.

- Rare bird:  Upholds summary judgment against the plaintiff's claim of breach of employment contract. The court held that the university had "good cause" to fire Serri as a matter of law.

- Affirmed summary judgment on the plaintiff's defamation claim, including "compelled self-defamation."  The court held that all statements were true or privileged.

- Affirmed summary judgment on an intentional interference with prospective economic advantage claim.

*****

Ruiz v. Affinity Logistics, opinion here is the Ninth Circuit's second pass on an independent contractor v. employee analysis for delivery drivers. The court reversed the district court and held that  the delivery drivers were mis-classified:  "Affinity retained absolute control over drivers’ rates, payment, routes, schedules, trucks, equipment, appearance, decision to hire helpers, choice of helpers, and the right to deal with customers."  Thus, the court held, the most important factor under the Borello analysis—right to control—indicates overwhelmingly that the drivers were Affinity’s employees."  Close case, right? 

*****

Anderson v. City and County of San Francisco, opinion here, is another unusual case, testing out a "bona fide occupational qualification" defense under Title VII of the Civil Rights Act of 1964.  San Francisco's jail implemented a policy of prohibiting male guards from supervising female inmates.  The Sheriff articulated four reasons: "(1) to protect the safety of female inmates from sexual misconduct perpetrated by male deputies, (2) to maintain the security of the jail in the face of female inmates’ ability to manipulate male deputies and of the deputies’ fear of false allegations of sexual misconduct by the inmates, (3) to protect the privacy of female inmates, and (4) to promote the successful
rehabilitation of female inmates."  Guards sued, alleging they were denied promotional opportunities, overtime, and other harms because of the restriction.  Reversing the district court, the Ninth Circuit held that the plaintiff was entitled to a jury trial on whether the policy violated Title VII.  The Court explained that a BFOQ is narrow and requires the defendant employer to prove specific issues as an affirmative defense. Because the city failed to do that, the city was not entitled to judgment as a matter of law.  The "common sense" assumption that females should be supervised by females to avoid sexual contact, invasions of privacy, etc. are not enough.

 

Court of Appeal: OK to Deduct from Exempt Employees' PTO/Vacation for Partial Day Absences of Any Length

Basic wage-hour principle: With some exceptions, an employee classified as "exempt" under the federal Fair Labor Standards Act is entitled to a full salary for any week in which she / he performs any work.  There are some exceptions allowing for salary deductions. For example, an employer can deduct from an exempt employee's salary for full-day absences for personal pursuits, or full day absences for illness if the employer has a bona fide paid sick leave plan.

The corollary of the above:  It generally is illegal to deduct from "exempt" employees' salaries for missing partial days of work, except in very limited circumstances such as partial day, federal FMLA leave.   The consequences could be invalidation of the exemption.  That statement is true under both federal law (FLSA) and California law.

When employees have vacation or PTO balances, can employers lawfully deduct from them when exempt workers are absent for partial days, and leave the salary intact?  Well, it's a definite yes under federal law. Federal law does not consider vacation / PTO to be "vested," and does not care if employers deduct from those balances for any reason.

Under California law, it's a little trickier.  That is because vacation / PTO are "vested" balances. The argument against allowing deductions is that the exempt employee can work variable hours and is entitled to the full salary. Deducting from PTO is an end-around, which reduces a vested balance of wages otherwise owed, for an absence that the employee is entitled to take without affecting his or her pay.  That's the plaintiffs' bar's argument, but it's not correct.

In 2005, the Court of Appeal decided in Conley v. Pacific Gas & Electric Co. (2005) 131 Cal.App.4th 260, that California law follows federal law in this area.  However, the PG&E policy provided that exempt employees' partial day absences were subject to a deduction from PTO, only if the absence was longer than 4 hours.  After Conley, the state Division of Labor Standards Enforcement, grudgingly, decided that Conley only authorized deductions from exempt employees' PTO when the absence was more than 4 hours.

Although Conley says nothing about a 4 hour minimum absence, employment lawyers were hesitant to advise employers to go farther than the Conley holding because of the DLSE opinion.  And for good reason....

Enter Lori Rhea, who sued her employer, General Atomics.  General Atomics had a policy allowing deductions from PTO in any amount of time that exempt employees were absent from their jobs for partial days.  Rhea challenged this policy, arguing that Conley was wrongly decided, and that Conley only allowed deductions when her time away from work exceeded 4 hours.  The trial court disagreed, granting General's motion for summary judgment.

The Court of Appeal affirmed:

We do not agree with Rhea's contention that by requiring employees to use vested Annual Leave for partial-day absences, General Atomics is requiring a forfeiture of vested Annual Leave as that term is used in California law. In Suastez and Boothby the vacation time was forfeited because the employer took away the employee's vested vacation time. Suastez and Boothby establish that if an employer provides vacation benefits, the employer "is not free to reclaim it after it has been earned." (Henry v. Amrol, Inc. (1990) 222 Cal.App.3d Supp. 1, 5, italics added.) Here, General Atomics does not take away or reclaim vested Annual Leave when an employee is absent for a partial day; it merely requires that the employee use the Annual Leave under the terms and conditions that it has created. "The law permits an employer to offer new employees no vacation time" (Owen v. Macy's, Inc. (2009) 175 Cal.App.4th 462, 464; see Henry, at p. 6), and it correspondingly also affords an employer the right to control the terms under which vacation time may be exercised by employees. (Suastez, supra, 31 Cal.3d at p. 778, fn. 7 [noting "an employer's right to control the scheduling of its employees' vacations"].) General Atomics has set rules for the exercise of Annual Leave, which it is permitted to do. It has not taken away Annual Leave that has already vested.

The court also rejected the plaintiff's premise that partial day deductions was an impermissible "substitution" of vacation wages for salary that was legally required to be paid:

Put another way, Rhea argues that General Atomics is impermissibly "substituting" the employee's Annual Leave hours for the employee's salary earned during the partial-day absence. * * * * 

[W]e conclude that Rhea's argument fails because she has not established that General Atomics fails to pay all of the wages that it is obligated to pay during an employee's partial-day absence. It is undisputed that General Atomics continues to pay an employee's full salary during a partial-day absence and that the employee fully continues to accrue Annual Leave during a partial-day absence.13 Thus, there is no shortfall in wages or compensation during a partial-day absence that General Atomics "makes up" by requiring an employee to use Annual Leave for that period. This is simply not a situation like in Armenta where employees worked for a period without receiving compensation. Here, General Atomics' employees continue to receive their full compensation even when they are absent for a partial day.

Finally, the Court held that the "four hour" minimum absence is not required under California law:

we find no basis in California law for concluding that an employer is prohibited from requiring exempt employees to use their vacation or leave time when they are absent from work for a partial day. Rhea has not identified any reason for us to distinguish between partial-day absences of different lengths. Instead, she simply points out that the employer's policy in Conley only covered absences of at least four hours. We conclude 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.

So, it is legal to debit an exempt employee's PTO balance for absences of any length.  However, employers must consider the employee relations aspects of doing so.  If an employee works six 12-hour days, are you going to nick that employee's PTO balance for working only 4 hours on the seventh day in the week?

Also, as the court of appeal noticed, General Atomic did not deduct negative PTO balances from final pay upon termination of employment.  You don't do that either, right?  Cuz that would be bad.

The case is Rhea v. General Atomics and the opinion is here.

California Supreme Court Narrows the Inside Sales Exemption in California

The California Supreme Court unanimously decided the following:  "an employer may not attribute commission wages paid in one pay period to other pay periods in order to satisfy California‟s compensation requirements."

This decision will affect employers and employees trying to qualify for the inside sales exemption for sure, which was the issue before the court.  Will it affect other areas of wage-hour law?  What other areas?  Gee, you ask a lot of questions.   Read on.

Here are the relevant facts per the Court:

From July 2008 to May 15, 2009, Susan Peabody was a Time Warner account executive selling advertising on the company's cable television channels. Every other week, Time Warner paid $769.23 in hourly wages, the equivalent of $9.61 per hour, assuming a 40-hour workweek. About every other pay period, Time Warner paid commission wages under its account executive compensation plan.

Peabody claimed she worked more than 40 hours per week.  In some weeks, she worked 48 hours.  In those weeks, she would earn less than minimum wage per hour if there was no commission payment that week.

Hold the phone - Time Warner claimed Peabody was an exempt, inside sales person.  To qualify under the inside sales exemption, she must, among other things, satisfy two compensation criteria.  The one that matters here is "'that an employee's 'earnings exceed one and one-half (1 1/2) times the minimum wage” (ibid.), i.e., $12 per hour. '"

Peabody of course did not earn $12.00 per hour in base pay.  As shown above, she earned less than $10.00 per hour. So, for the exemption to apply, commissions would have to make up the difference.

Time Warner paid its commissions about once a month.  And therein lies the issue the Court decided.  Could Time Warner allocate the monthly commission payments over the course of the month in which they were paid?   Could Time Warner allocate the commissions across the time period during which the commissions were "earned"?

No, no, and.....no, said the California Supreme Court, unanimously.  Yes that was three "nos."

It was clear in this case that Peabody did not receive 1.5 times minimum wage for the hours worked on many of her paychecks.  Time Warner argued that the commissions it paid Peabody "counted" towards the period during which the commissions were "earned."  So, if the commission check was paid on March 23 for commissions earned in February, then the minimum wage calculation had to take into consideration those commission wages.

Agreeing with Peabody, the Court rejected that argument.  The Court held that commissions may be earned over time. It may be that a sale occurs in January, but is not earned until payment is received in April.  That's fine with respect to wage-hour law governing commissions.

But if the commission check is paid in April because the commissions are finally earned, then those commissions are counted towards minimum wage only during the (bi-weekly or semi monthly) pay period  for which the pay check is paid.

Whether the minimum earnings prong is satisfied depends on the amount of wages actually paid in a pay period. An employer may not attribute wages paid in one pay period to a prior pay period to cure a shortfall.

The Court then explained why it was making satisfying the exemption difficult:

Making employers actually pay the required minimum amount of wages in each pay period mitigates the burden imposed by exempting employees from receiving overtime. This purpose would be defeated if an employer could simply pay the minimum wage for all work performed, including excess labor, and then reassign commission wages paid weeks or months later in order to satisfy the exemption‟s minimum earnings prong. 

Finally, the court refused to rely on Fair Labor Standards Act cases interpreting the federal inside sales exemption, aka "7(i)."  Under federal law, the employer may pay commissions at greater intervals than per pay period and still comply with the exemption.

So, bottom line re inside sales exemption in California:

- to satisfy the exemption, the employee must receive in each pay check at least 1.5 times the minimum wage, for the hours worked during the applicable workweeks covered by that pay check. That means $13.50 per hour worked, starting July 1 of this year.  An employer who pays commissions less frequently than semi-monthly or bi-weekly must pay a sufficient hourly rate to ensure the 1.5 times minimum wage threshold is met.

-  This requirement will increase the non-commission earnings, by increasing the hourly pay required to maintain the exemption. That will have two consequences. First, payroll expense will increase absent a reduction in the commission rate.  Second, the inside sales exemption depends on a second criterion:  the employee must make more than 50% of wages from commission.  Paying a higher hourly rate will make it harder for employers to meet that 50% threshold.

Moving on... on the bright side the Court unanimously endorsed the view that commissions are earned when conditions are met, even if there is a delay between when a sale occurs and when commissions are earned:

an employment agreement may require receipt of a client's payment before any commissions on sold advertising are earned. If a client routinely pays its bills on the 15th of each month, commissions will be earned and owed once a month. Yet this does not create a monthly pay period in contravention of section 204(a). To summarize, section 204 establishes semimonthly pay periods, but there is no obligation to pay unearned commission wages in any pay period. Commissions are owed only when they have been earned, even if it is on a monthly, quarterly, or less frequent basis.

(emphasis is mine).

Finally, some thoughts:

-   If commissions are only counted towards minimum wage in the pay period during which they are actually received, will that holding also affect the "regular rate of pay" calculation in California?  Overtime pay is based on the "regular rate of pay."  The "regular rate of pay" can include hourly wages and commissions.  The calculation of the "regular rate" may include allocating periodic payments like bonuses or commissions over the periods during which they are earned. So, if  commissions are only counted towards wages earned in the pay period in which payment is made, then should those commissions be counted for overtime earnings purposes only during that same pay period?

If this Peabody rule applies outside the inside sales exemption context, then during the pay period when the commission check is received, there will be a high regular rate of pay, and during non-payment weeks, the regular rate of pay will be low.   That could drastically affect employees' overtime pay calculations.  What about quarterly bonuses?  If Peabody is extended to overtime calculations, will "retroactive" overtime still be due for pay periods during which the bonuses were not paid?

My guess is that the courts will continue to allocate periodic payments over longer periods of time for overtime purposes.  For one thing the allocation of commissions or bonuses over more than one pay period for overtime purposes is settled federal law, and California appears to have followed that rule.

-  I still want to know if the inside sales exemption is valid in California under Wage Order 4, which applies to businesses that do not involve a "retail concept."  Under federal law, there is no inside sales exemption outside of retail, e.g., you can't have an  exempt, inside salesperson at a hospital.   Under state law, there appears to be a broader exemption because non-retail employees can qualify for the state exemptoin. If federal law requires overtime, but a state law exemption applies, isn't that an issue?  Can you be exempt under state law, but non-exempt under federal law?  (I also ask a lot of questions.)

The case is Peabody v. Time Warner Cable and the opinion is here.

Be careful out there!

Greg

9th Circuit: California Meal / Rest Period Laws Apply to Trucking Companies; Not Preempted by Federal Law

Trucking companies subject to the Federal Aviation Administration Authorization Act have litigated a number of cases concerning whether federal law preempts California wage-hour requirements concerning meal and rest periods.  The FAAAA provides: “States may not enact or enforce a law . . . related to a price, route, or service of any motor carrier . . . with respect to the transportation of property.” 49 U.S.C. § 14501(c)(1).

So, are meal / rest period laws "related to" a price, route or service? The district courts had split on the issue.  The Ninth Circuit finally weighed in with its first opinion on the matter.  The three-judge panel said:

Although we have in the past confronted close cases that have required us to struggle with the “related to” test, and refine our principles of FAAAA preemption, we do not think that this is one of them. In light of the FAAAA preemption principles outlined above, California’s meal and rest break laws plainly are not the sorts of laws “related to” prices, routes, or services that Congress intended to preempt. They do not set prices, mandate or prohibit certain routes, or tell motor carriers what services they may or may not provide, either directly or indirectly. They are “broad law[s] applying to hundreds of different industries” with no other “forbidden connection with prices[, routes,] and services.”

The court rejected all of the employer's arguments as to how meal / rest period laws adversely affect pricing, routes and service.  The court particularly emphasized that the California meal/ rest period  laws do not apply to motor carriers exclusively, but to nearly all employers in the state. 

So, truckers involved in the transportation of property covered by the FAAAA, the 9th Circuit has spoken regarding meal and rest periods.  The employer may seek "en banc" review or petition the U.S. Supreme Court for review.  Stay tuned.  

This case is Dilts v. Penske Logistics, Inc. and the opinion is here. 

U.S. Supreme Court Ends Term With 3 L/E Law Decisions

The U.S. Supreme Court's Term ended last week.  The Court issued three labor/employment-related opinions.  You probably heard about "Hobby Lobby," which the lay media butchered and sensationalized.  You may have heard about Harris v. Quinn, which the lay media half-ignored, and half butchered and sensationalized. And, unless you are a labor / employment law or benefits wonk, you may have missed Fifth Third Bancorp. v. Dudenhoeffer.   Here are summaries of these three opinions.  Each applies to specific employers in specific ways.

Fifth Third Bancorp v. Dudenhoeffer (opinion here) is an ERISA case.  (Those of you operating machinery or driving please skip to the next decision).  Fifth Third's retirement plan permitted employees to invest in a variety of vehicles, including Fifth Third's stock via an Employee Stock Ownership Plan (ESOP).  When the company's stock declined (74%) after the great recession killed Fifth Third's mortgage portfolio, employees sued Fifth Third and some of its officers, claiming that as administrators of the retirement plan, they owed the investors a fiduciary duty to be prudent, and should have taken actions to mitigate losses.  They did not, and bought and held the stock as normal.

The lower courts decided that the administrator was entitled to a "presumption" that their decisions were prudent. The Supreme Court unanimously disagreed, holding that the administrators of an ESOP had the same duty as fiduciaries as anyone else.

You might say, "duh," but an ESOP exists to buy and hold the stock of the company.  ERISA does not require administrators to diversify ESOP holdings as it requires administrators to diversify traditional retirement plan holdings.

Thus, an ESOP fiduciary is not obliged under §1104(a)(1)(C) to “diversif[y] the investments of the plan so as to minimize the risk of large losses” or under§1104(a)(1)(B) to act “with the care, skill, prudence, and diligence” of a “prudent man” insofar as that duty “requires diversification."

The Court then rejected the lower courts' "presumption of prudence" that it conferred on ESOP administrators.

In our view, the law does not create a special presumption favoring ESOP fiduciaries. Rather, the same standard of prudence applies to all ERISA fiduciaries, including ESOP fiduciaries, except that an ESOP fiduciary is under no duty to diversify the ESOP’s holdings. This conclusion follows from the pertinent provisions of ERISA,

The fiduciaries argued that if they are not provided protection from lawsuits, then decreases in stock price will lead to meritless lawsuits against ESOP administrators. The Court recognized the concern, and provided guidance to lower courts on how to weed out "sour grapes" lawsuits that do not allege actual breaches of fiduciary duties.  As with many Supreme Court decisions, the Court left it to the lower courts to sort out how future claims will be addressed.

So, this case removes some protection from administrators of ESOPs.  Employers should have their ESOPs reviewed to ensure the administrators act consistently with ERISA's "prudent" person standard. 

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Harris v. Quinn (opinion here)  is a case about the First Amendment and those public sector employees who perform in-home, personal attendant work.  These are workers paid by the state, funded by federal Medicaid, who provide in-home care to the elderly and others who would require nursing home care.  However, unlike most public sector employees, the laws creating these positions provide that the true "employer" is not the state, but rather the "customer" who receives the care.   So, these personal care attendants are a special type of public sector worker.   The Harris case concerns the Illinois program and workers.

Unions have organized many of these employees.  State law authorized the unions to bargain with the state over personal attendants' terms and conditions of employment.  Those who choose not to join the union still are covered by the collective bargaining agreements the union negotiates. They are required to pay a reduced fee (called "fair share") to pay for the unions' collective bargaining activities. The employees do not pay additional "dues," which go towards other union activities, such as lobbying and political contributions.

Several Illinois personal attendants sued the state, claiming the state law authorizing union representation and the "fair share" fee violate the First Amendment, because they require employees to pay a union they do not support.   If the union workers were true "public sector" employees, the Supreme Court already upheld "fair share" agreements against a First Amendment claim in Abood v. Detroit Bd. of Ed. 431 U. S. 209 (1977).

The Supreme Court held, 5-4, that Abood did not apply to personal attendants, who were in fact "employed" by the private sector "customer," but paid by the state.  The Court's majority analyzed and criticized Abood as based on flawed reasoning and a misinterpretation of precedent. But the majority did not overrule it as it applies to "full-fledged," public sector employees. The personal attendants, employed by private sector "customers" were not "full fledged."

Without Abood's protection, the Illinois law therefore violated the First Amendment.  Here is the money quote:

we refuse to extend Abood in the manner that Illinois seeks. If we accepted Illinois’ argument, we would approve an unprecedented violation of the bedrock principle that, except perhaps in the rarest of circumstances, no person in this country may be compelled to subsidize speech by a third party that he or she does not wish to support. The First Amendment prohibits the collection of an agency fee from personal assistants in the Rehabilitation Program who do not want to join or support the union.

The dissent, penned by Justice Kagan, essentially argued that Abood controlled the case.  The dissent rejected the majority's distinction between personal attendants and other state-paid employees.  The dissent also noted that the majority criticized, but did not overrule Abood.

Thus, unless or until Abood is overruled in a future case, it remains good law.  This decision applies only to personal care attendants working under state laws that treat them as employees of private customers.  Those employees need not join unions or pay agency fees if they do not wish to do so.  It remains to be seen if the state laws will be modified to fit the employees within Abood, or if this decision applies equally to personal attendants in states other than Illinois.  Breathe.

*  *  *  *

Finally, Burwell v. Hobby Lobby Stores, Inc.  (opinion here) involves the interplay between the Affordable Care Act (ACA aka Obamacare)  and the Religious Freedom Restoration Act (RFRA).  As explained by the Court:

RFRA prohibits the “Government [from] substantially burden[ing] a person’s exercise of religion even if the burden results from a rule of general applicability” unless the Government “demonstrates that application of the burden to the person—(1) is in furtherance of a compelling governmental interest; and (2) is the least restrictive means of furthering that compelling governmental interest.”

Congress passed RFRA in response to an earlier Supreme Court decision that upheld a law against a claim that it violated religious beliefs. The Court noted "[b]y enacting RFRA, Congress went far beyond what this Court has held is constitutionally required." RFRA provides broad protection to religious practices, but allows the government to demonstrate the necessity of a law that burdens religious beliefs under the standard above.

The ACA requires employer health plans to provide “preventive care and screenings” for women without “any cost sharing requirements.”  The Department of Health and Human Services issued regulations, implementing that statutory provision. The regulations require the health plans to include 20 contraceptive methods approved by the FDA.  The 20 include 4 methods that "may have the effect of preventing an already fertilized egg from developing any further by inhibiting its attachment to the uterus."

The regulations expressly exempt religious organizations, such as churches,  from that contraception mandate.  HHS also excluded non-profits with religious objections.  But this case involves whether a for-profit, "closely held" corporation (Hobby Lobby and others) can claim that providing the 4 contraception methods described above impinge on its religious convictions, violating the RFRA.

The majority, 5-4, over vigorous dissents, held that the "contraception mandate" violated the RFRA.  The Court decided that, as a closely held corporation, Hobby Lobby and the other employers involved were "persons" covered by RFRA.

The Court then decided that the mandate burdens the religious beliefs of the persons who own these close corporations.  The Court noted that the employer's options were (1) ignore their religious beliefs to provide the mandated coverage (2) pay humongous penalties for non-compliance with the ACA.

The Court assumed that the mandate served a "compelling interest."  But the Court decided that the regulations were not the "least restrictive means of furthering" the government's interest in providing preventive care.   The Court noted that the ACA itself contained alternatives that would provide the contraception desired, but without requiring the employers to pay for them in a way that burdened their religious beliefs.

This is a politically charged decision engendering much controversy and loud arguments about important social and political issues.  My job is to explain what the opinion says, and how it affects employers.  So here goes:

1.  The decision applies only to "closely held" corporations: "a federal regulation’s restriction on the activities of a for-profit closely held corporation must comply with RFRA."  The term "closely held" corporation will be contained in state and federal corporate law.  In this case, the companies were owned and operated by one family.  Publicly traded corporations, private corporations owned by unrelated shareholders who have no day-to-day responsibilities to operate the business, etc. are not covered by this decision.

2.   The ruling applies only to those closely held corporations that operate under sincerely held religious beliefs that conflict with a law that burdens those beliefs.  Closely held corporations that do not operate under religious tenets will not be covered. Still, this is a broad standard. But the Court majority pointed out that federal courts must ferret out insincere religious beliefs in a variety of contexts.  Larger corporations, with diverse shareholders, likely will not be able to establish a common religious  belief, or that its belief governs the operation of the business.

3.   As the majority points out, the law and regulations already provide full access to contraceptives for religious entities and non-profits, even though the contraceptive mandate does not apply.  So, the administration and/or Congress can still ensure women who want the 4 contraceptives at issue, and who work for closely held corporations with religious objections to them, can obtain them free of charge.

The employees of these religious nonprofit corporations still have access to insurance coverage without cost sharing for all FDA-approved contraceptives; and according to HHS, this system imposes no net economic burden on the insurance companies that are required to provide or secure the coverage. **** 

Although HHS has made this system available to religious nonprofits that have religious objections to the contraceptive mandate, HHS has provided no reason why the same system cannot be made available when the owners of for-profit corporations have similar religious objections. 

4.   The Hobby Lobby opinion therefore does not apply to most employers or most workers.  Smaller businesses are grandfathered in old plans, do not offer health insurance, and are exempt from ACA's penalties.  Even if the ACA fully applies to a business, some businesses offer no coverage and pay the penalties, allowing employees to buy individual coverage via the health exchanges.  It remains to be seen whether the HHS will modify its regulations, or if the insurance companies will change coverage options to provide contraception coverage to affected workers as it does to employees of religious organizations and non-profits.

There are several dissents, with the lead dissent penned by Justice Ginsburg.   Two dissenters (Justice Ginsburg and Sotomayor) would not confer RFRA protections to for-profit corporations. Justices Kagan and Breyer would not reach that issue. Justice Ginsburg also argued that the contraception mandate did not burden the employers' owners' religious beliefs because it was up to employees whether or not to use the contraceptives involved.  Finally, Justice Ginsburg warned of a flood of claims for religious exemption.