2004 LABOR AND EMPLOYMENT LEGAL UPDATE

2004LABOR AND EMPLOYMENTLEGAL UPDATE Presented by:Jeffrey A. DinkinSheppard, Mullin, Richter & Hampton LLP

NEW LAWS FOR 2004

WAGE AND HOUR LEGISLATIONWAGE AND HOUR LEGISLATION

SB 796: Labor Code Private Attorney General Act of 2004

a/k/a The Bounty Hunter Bill

SB 796: The Bounty Hunter Bill

Effective January 1, 2004Provides a private right of action

For any provision of the Labor Code that provides for a civil penalty to be assessed and collected by the Labor Commissioner

Penalties may now, as an alternative, be recovered through a civil action brought by an aggrieved employee

On behalf of him/herself and other current or former employees


Adds a penalty to all Labor Code sections that do not already have a penalty provisionPenalty varies by number of employees at

the time of the alleged violation: if no employees - $500one or more employees:

$100 per employee per pay period for the initial violation

$200 per employee per pay period for subsequent violations


Successful plaintiff may recover reasonable attorneys’ fees and costs

Where the penalty goes: If no employees– 50% to General Fund and

50% to the Labor and Workforce Development Agency

One or more employees – 50% to General Fund, 25% to Labor and Workforce Development Agency, 25% to the aggrieved employee(s)


So what does this mean?Lawsuits for technical or trivial violations of

the Labor CodeLC Section 431 (failing to file an application with

the DLSE)LC Section 432.5 (forcing employee to sign a

document with a condition that is prohibited by law, e.g., a non-compete provision)

LC Section 1198.5 (inspection of personnel file)


So what does this mean?Motivation for employees and attorneys to

bring lawsuits for Labor Code violationsEmployees get 25% of the penalties awardedTheir attorneys get their attorneys fees awarded

Collective actions that may not need to satisfy the typical requirements for a class action

More costly lawsuits for California employers


So what should employers do?Review handbooks and policies for Labor

Code complianceReview practices for complianceEducate and train supervisorsDon’t delay in correcting problems

Bill may be challenged as form of impermissible tax legislation

AB 223: New Rule for DLSE Appeals


Effective January 1, 2004Overturns 2002 California Supreme

Court decision (Smith v. Rae-Venter Law Group)

Labor Code Section 98.2Either party may appeal a Labor

Commissioner decision If the party seeking appeal is unsuccessful,

must pay other side’s costs and attorneys’ fees


Old Rule - Appealing party is only “successful” if court’s ruling on appeal is more favorable to the appealing partyExample:

Employer appeals award of $500 to employeeCourt awards $300 to employeeEmployer is “successful” and does not pay

employee’s fees and costs


New Rule - Employee who appeals is “successful” if the court awards an amount greater than zeroExamples:

Employee appeals $100 award to employee Employee recovers $105 - employee is successful

and will be awarded fees and costs Employee recovers $10 - employee is successful and

will be awarded fees and costs Employee recovers ZERO - employee is unsuccessful

and will not be awarded fees and costs


New Rule - Employer that appeals is “successful” only if court award is zeroExamples:

Employer appeals $100 award to employee: Employee gets $105 on appeal - employer is unsuccessful

and must pay employee’s fees and costs Employee gets $10 on appeal - employer is unsuccessful

and must pay employee’s fees and costs Employee gets ZERO on appeal - employer is successful

and is not required to pay employee’s fees and costs


So what does this mean?Employers should carefully consider

whether to appeal a DLSE awardEmployers should strongly defend all claims

at the DLSE hearing stageDo not wait for appeal to make your best

arguments!

AB 276: Increased Labor Code Penalties


Effective January 1, 2004Amends various Labor Code Sections to

provide for increased penaltiesLC Section 210 – penalties for violation of

Sections 204, 204b, 204.1, 204.2, 205, 205.5, 1197.5 (payment of wages requirements)

old penalty - $50/$100new penalty - $100/$200


LC Section 225.5 – penalties for violation of Sections 212, 216, 221, 222, 223 (failure to properly pay wages)

old penalty - $50/$100new penalty - $100/$200

LC Section 1197.1 – failing to pay minimum wage

old penalty – $50 per employee per pay periodnew penalty – $100 per employee per pay

periodsubsequent violations – remains $250 per

employee per pay period


Amends Labor Code Section 226 (itemized wage statements furnished to employees) Itemized statements must not only be provided,

but now must also be “accurate” Does not change penalties:

$50 per employee per pay period for initial violations

$100 per employee per pay period for subsequent violations

aggregate maximum penalty of $4,000$750 penalty for failure to provide requested

records


So what does this mean?Employers must continue to be vigilant in

complying with California’s wage and hour provisions

Wage statements must satisfy all nine requirements in Labor Code Section 226

SB 179: Liability for Companies Entering Into Service Contracts


Applies to companies or individuals who enter into labor contracts for construction, farm labor, garment, janitorial or security guard services

Liability and civil penalties if knew or should have known that contract does not provide funds sufficient to allow the labor contractor to comply with all applicable laws or regulations governing the labor or services to be provided under the contract.


Rebuttable presumption that no violation of law where the contract meets 10 requirements.

These 10 requirements must be contained in a single written documents and are:1. Name, address and telephone number of

contracting parties;


2. Description of services to be provided and statement of when services to be commenced and completed;

3. Contractor’s employer identification number;

4. Contractor’s workers’ compensation insurance policy number and carrier’s name address and telephone number;


5. Vehicle identification number of any vehicle owned and used by contractor in connection with contract services and information about vehicle liability insurance policy;

6. Address of any real property used to house workers in connection with contract;

7. Total number of workers to be employed under contract, total amount of all wages to be paid, and dates when wages are to be paid;


8. Amount of commission or other payment made to contractor;

9. Total number of persons to be utilized under contract as independent contractors and list of their license numbers; and

10. Signatures of contracting parties and date contract signed.


So what does this mean?Ensure that future labor contracts for

construction, farm labor, garment, janitorial, or security guard services contain the 10 essential provisions for the rebuttable presumption

New Rates Effective 2004

IRS Mileage Reimbursement Rate37.5¢ per mile (up from 36¢)

Minimum Pay for Exempt Computer Software Employees$44.63 per hour (up from $43.58)

Minimum Pay for Exempt Licensed Physicians$ 57.56 per hour (up from $56.21)

SB 420: Medical Marijuana and the Workplace

Employers are not required to accommodate the medical use of marijuana at the workplace or during work hours

Health insurers are not required to provide reimbursement for the medical use of marijuana

NEW LAWS FOR 2004

INSURANCE LEGISLATION

SB 2: Health Insurance Act of 2003


Mandated health insurance coverage paid for by employers.

Will affect about 860,000 employees and dependents of companies with 50 or more employeesAbout 18% of 4.5 million uninsured

CaliforniansCost estimate $1.3 billion (CMA) to $11.3

billion (Employment Policies Institute)


Effective dates:January 1, 2006 for employers with 200 or

more employeesJanuary 1, 2007 for employers with 50 to

199 employeesJanuary 1, 2007 for employers with 20 to 49

employees (goes into effect only if tax credit in place)


“Pay or Play” SystemRequirements for large employers

(200+)Pay fee to EDD to provide health coverage

for each employee and qualified dependentQualified dependents include spouses,

dependent children and domestic partnerOr provide appropriate healthcare coverage

for employees and qualified dependents


Requirements for medium-sized employers (50-199; 20-49 if tax credits)Pay fee to EDD to provide health coverage

for each employee Or provide appropriate healthcare coverage

for employeesExemption for small employees with less

than 20 employees


Eligibility requirementsCoverage must be provided or fee paid if

employee workedMinimum of 3 months; andAt least 100 hours per month

Average of 23 hours per week


Employee Costs Employees can be required to pay up to 20% of

premium costs Exception where employees make less than 200%

of Federal Poverty Level Can only be required to contribute up to 5% of wages

Exception where coverage provided for employee and dependents and employer pays more than 80% of employee coverage costs

Can require employee to pay more than 20% of coverage costs


Actual implementation of SB 2 not certainReferendum sponsored by Chamber of

CommerceState litigation based on unlawfully imposed

tax without required 2/3rd vote in legislatureFederal litigation based on ERISA

preemptionLegislative action

AB 226: Life Insurance Policies for Non-Exempt Employees

AB 226: No Employer-Owned Policies for Non-Exempt Employees

Effective January 1, 2004 Employers can no longer purchase life

insurance designating the employer as the beneficiary for current or former non-exempt California employees

Existing policies will remain in effect only if no premium payments need be made after January 1, 2004, and then only remain in effect until January 1, 2010 Notice required to affected non-exempt employees

AB 226: No Employer-Owned Policies for Non-Exempt Employees

So what does this mean?Determine status of existing insurance

policies covering non-exempt employeesConfirm exempt status of employees

covered by employer-owned life insurance policies

NEW LAWS FOR 2004

TIME OFF

LEGISLATION

SB 1661: Paid Family Leave

SB1661: Paid Family Leave

New program – Paid Family Leave (PFL) a component of State Disability Insurance (SDI)

Provides up to 6 weeks of State payments for individuals unable to work due to: need to care for sick or injured child, spouse,

parent, domestic partner, or need to care for new child (birth, adoption, foster

care placement) includes birth of domestic partner’s child


January 1, 2004Law goes into effectEmployees start contributing

.08% on first $68,829 of wages In addition to 1.1% SDI employee contribution

New notice must be given to employees hired after January 1, 2004.

Form DE 2511 (“Paid Family Leave”)go to: www.edd.ca.gov/direp/difla.htm

SB 1661: Paid Family Leave

July 1, 2004 Individuals can begin receiving PFL benefitsNotice must also be provided to each

employee who leaves work to care for a seriously ill family member or to bond with a new child


Limits on benefitsNo PFL if receiving other benefits from

State (unemployment, disability, etc.)No PFL if another family member is able

and willing to provide care7 day waiting periodEmployers can require employees to use 2

weeks accrued vacation


Benefit right, not a leave of absence rightPFL provides benefits where an individual is

unable to work because of a need to care for family member

PFL does not require employers to grant leaves of absence

Employee’s right to a leave of absence will depend on state and federal leave laws (FMLA. CFRA, PDL, etc.) or an employer’s policies


So what does this mean? Print out copies of the Notice and start providing to

new employees as of January 1, 2004, and employees leaving work for family reasons as of July 1, 2004

Revise handbook to address PFL issues Vacation, sick leave coordination, overlap with

FMLA/CFRA, notice, return to work

Make sure your payroll is ready to start making tax deductions as of January 1, 2004

SB 478: Time Off to Attend Judicial Proceedings


Effective January 1, 2004 Applies to employees who are victims,

or related to victims, of certain feloniesAllows time off work to attend judicial

proceedings related to the crime regardless of whether employee’s attendance is required


Covered crimes include violent or serious felonies (Penal Code §§667.5, 1192.7), or felony involving theft or embezzlement

To qualify crime victim must be employee or employee’s spouse, child, stepchild, brother, stepbrother, sister, stepsister, mother, stepmother, father, stepfather or registered domestic partner


Where feasible, employee must give employer prior notice of need to attend judicial proceeding

If prior notice not given, employer cannot take action against employee for unscheduled absence if employee provides appropriate documentation within reasonable time after absence

Leave is unpaid unless employee elects to use accrued sick leave, vacation, or compensatory time off


So what does this mean?Review and revise leave of absence policies

to comply with lawEnsure policy provides appropriate notice

requirements

NEW LAWS FOR 2004

DISCRIMINATION

LEGISLATION

AB 76: Liability for Sexual Harassment by Non-Employees

AB 76: Employer Liability for Sexual Harassment by Non-Employees

Effective January 1, 2004Imposes liability on employers for sexual

harassment committed by customers, clients, or other non-employees If employer knows or should have known of

the incident andFails to take immediate and appropriate

corrective action


Extent of employer’s control and any other legal responsibility the employer may have over the conduct of the non-employee will be considered in determining liability

No guidance about what constitutes sexual harassment by non-employees and/or what constitutes appropriate corrective action


So what does this mean? Ensure that clear anti-harassment policy is in place Include prohibition of harassment in appropriate

contractual relationships Ensure that policy includes prohibition of sexual

harassment by non-employees Ensure that policy has clear complaint procedure Ensure that supervisors are aware of expanded

duties to respond to employee complaints of harassment by nonemployees

AB 196: Gender Identity


Effective January 1, 2004 Definition of “sex” under FEHA expanded to

include person’s gender Acts to prohibit discrimination or harassment

based on gender identity and perceptions of an individual’s gender Regardless of whether the perceived gender

characteristics are different from those traditionally associated with the individual’s sex at birth


Does not affect employer’s ability to require employees to comply with reasonable workplace appearance, grooming and dress standardsBut cannot be precluded by other provisions

of state or federal lawEmployers must allow employees to appear

and dress consistently with their gender identity


So what does this mean?Review and revise discrimination and

harassment policies to comply with lawReview and revise any appearance,

grooming and dress standardsEducate supervisors and employees about

requirements of law

SB 777: New Whistleblower Rules


Existing law prohibits employers from adopting or enforcing any rule, regulation or policy that prevents employees from disclosing information to government agency where employee has reasonable cause to believe the information disclosed constitutes violation of state or federal law, or retaliating against employee who makes a disclosure


New protections effective January 1, 2004

Whistleblower protections extended to employees who refuse to participate in an illegal activity or activity that may result in violations of state or federal law

Also prohibits retaliation against employees for having exercised their whistleblower rights in any former job


New penalty for violationsEmployer who is corporation or LLC is liable

for civil penalty up to $10,000 for each violation

In addition to any other penalties


New burden of proof for employersUnder existing law, employee must

demonstrate violation by preponderance of the evidence

Now, employer must show by clear and convincing evidence that alleged retaliatory action would have occurred for legitimate, independent reasons even if the employee had not engaged in whistleblower activities


Whistleblower hotline establishedTo be maintained by office of the State

Attorney General to receive calls from persons who have information about possible violations of state or federal laws, or violations of fiduciary responsibility by a corporation or LLC to its shareholders, investors or employees

Call received to be referred to appropriate government authority for review and possible investigation


Whistleblower law posting requiredEmployers must post list of employees’

rights and responsibilities under the whistleblower laws, including the telephone number of the whistleblower hotline


So what does this mean?Review and revise policies to ensure

compliance with whistleblower lawsEducate supervisors about legal standards

and how to handle situationsPost information on whistleblower laws and

whistleblower hotline number

AB 1536: Service of Discrimination Complaints

AB 1536: Service of Discrimination Complaints

Current law requires DEFH to serve copy of any complaint alleging an unlawful practice under FEHA on employer within 45 days of date complaint filed

New law provides that when complaining party is represented by private counsel, the counsel, not DFEH, must serve complaint on employer within 60 days of date complaint filed

NEW LAWS FOR 2004

DOMESTIC PARTNER CHANGES

AB 205: Domestic Partner Rights and Responsibilities Act

Effective January 1, 2005Requires that legally required rights

afforded to married persons under statutes such as family care and medical leave laws, statutes governing insurance coverage, spousal pension rights and death benefits, be extended to those in registered domestic partnerships

AB 17: Domestic Partner Rules for State Contractors

Effective for contracts executed or amended on or after January 1, 2007

Prohibits state agencies from entering into contracts for acquisition of goods or services with contractor who discriminates in the provision of benefits between employees with spouses and employees with domestic partners

Applies to contracts of $100,000 or more Requires that state contracts contain

statement of compliance with rules

HR 2622: FAIR AND ACCURATE CREDIT TRANSACTIONS ACT OF 2003

REQUIRED DISCLOSURES OF WORKPLACE INVESTIGATIONS

HR: 2622: Fair and Accurate Credit Transactions Act of 2003

To address concerns raised by 1998 FTC opinion letter interpreting the Fair Credit Reporting Act (“FCRA”)

Under FACT, employers need not comply with the FCRA disclosure requirements when hiring a third party to conduct certain workplace investigations

HR 2622: Fair and Accurate Credit Transactions Act of 2003

Under FACT, employers need not comply with the FCRA disclosure requirements when hiring a third party to conduct certain workplace investigations: Investigations of suspected misconduct related to employment Investigations relating to compliance with applicable laws, the

rules of self-regulatory organizations (such as the SEC), or the employer’s preexisting written policies

These disclosure exclusions apply only when report or communication of investigation results is not provided to any person except employer or employer’s agent; governmental officer, agency or department; a self-regulatory organization; or as otherwise required by law


Disclosure requirement if employer takes adverse action taken an employee based in whole or in part on the investigation report or communicationMust provide summary of the report or

communication to the affected employeeSummary need not disclose the sources of

the information contained in the report or communication


What does this mean?Ensure compliance with employer

obligations under FACT when engaging a third party to conduct a workplace investigation

OTHER LEGISLATION

Other Legislation

Among the other employment-related legislation passed are laws pertaining to specific industries, including AB 394: Nurse staffing ratios established for acute

care hospitals AB 330: Meal period exemptions for bakery

employees AB 1688: Wage-hour regulations created for car

washes AB 1497: Amendments to state plant closing law

enacted for landfill operators

Other Legislation

AB 385: New wage statement rules for state agencies

AB 1758: New overtime standards for Department of Corrections

SB 259: State military leave provisions amended to authorize school districts and community college districts to supplement pay for employees on leave

Updated OSHA posters released

Other Legislation

Local minimum wage ordinance for covered employees in the City and County of San Francisco Effective February 2, 2004 Minimum wage of $8.50 per hour for work

performed within San Francisco Workers’ compensation reform

More information than we have time for But significant additional reforms are needed Continue to let your state representatives know the

urgency of this problem

SIGNIFICANT COURT DECISIONS

SEXUAL HARASSMENTBONUS SYSTEMSNON-SOLICITATION AGREEMENTSDUTIES IN INTERACTIVE PROCESS

Avoidable Consequences Defense to Sexual Harassment Claims

State Department of Health Services v. Superior Court

(McGinnis)


Federal Law recognizes defense in Title VII cases where employee suffered no tangible adverse employment action and employer demonstrates: (1) exercised reasonable care to prevent and promptly correct sexually harassing behavior; and (2) plaintiff unreasonably failed to take advantage of preventive or corrective opportunity.

California Courts previously split on whether this defense would apply to claims under the FEHA.


November 24, 2003 California Supreme Court decision recognized that employers may assert a defense of “avoidable consequences”

Employers are still strictly liable for sexual harassment (liable whether or not it knew about the harassment) but can reduce damages by showing the following: (1) employer took reasonable steps to prevent and correct

workplace harassment; (2) employee unreasonably failed to use the preventive and

corrective measures provided by employer; and (3) reasonable use of the employer’s procedures would have

prevented at least some of the harm suffered.


So, what does this mean?Employers should have a policy and

procedure for dealing with harassment, and strongly encourage reporting of harassment.

All employees should be advised of and sign off on acknowledgement of policy and procedure.

Employers should enforce their policies so that they can show that reporting would have prevented harm.

Potential Problems with Profitability Based Bonus Systems

Ralphs Grocery Co. v. Superior Court (Swanson)


November 2003 case involved profitability bonus calculations which included costs of workers’ compensation claims and cash shortages in determining the store’s profitability

California Appellate Court ruled this was improper because: Labor Code §3751(a) prohibits reductions in employee wages

due to the cost of workers’ compensation claims; and IWC Orders prohibit deductions from wages for cash

shortage, breakage or loss except in certain circumstances. Court did not care that this was a bonus calculation

rather than a direct pay reduction, reasoning that if the employee suffered the burden of the loss, it must be considered a deduction from, or reduction of, wages.


So what does this mean?Employers should not include costs of

workers’ compensation claims in determination of profitability for purposes of bonuses to any employee.

Employers should not include losses due to cash shortages, or loss or breakage of equipment or inventory in determination of profitability for purposes of bonuses to non-exempt employees.

Agreements Not to Solicit Customers After Employment

Thompson v. Impaxx, Inc.


Common language in employment contracts prohibits an employee from soliciting customers or potential customers of the employer for 1 year after termination of employment

Employee was terminated for refusing to sign an agreement with such a provision

California Appellate Court said this was a wrongful termination in violation of public policy


California law says any contract by which anyone is restrained from engaging in a lawful profession, trade or business is to that extent void

Previous case (D’Sa v. Playhut) held that it was wrongful termination to discharge an employee for refusing to sign an unenforceable covenant not to compete

Employer argued that this was not a true covenant not to compete, but merely a restrictive covenant


Court said non-solicitation covenants are only enforceable to the extent they are necessary to protect trade secrets

Where employer cannot show that the information which the covenant is meant to protect, usually customer information, rises to the level of trade secret, the covenant will not be enforceable

In order for customer information to be protectable as trade secret, the information must derive independent economic value from not being generally known and be the subject of efforts to maintain its secrecy


So what does this mean? If employers want to require employees to

sign agreements not to solicit customers, they must ensure that covenant is no more broad than necessary to protect trade secret information

and they must treat customer information as trade secret

Employee Duty to Cooperate During Interactive Process

Allen v. Pacific Bell


FEHA requires that employers initiate interactive process to discuss possible accommodation of disability

In a November 2003 case, the employee simply insisted that the employer accommodate him by eliminating certain job duties from his previous job as a service technician, but failed to provide medical evidence that he was able to perform the remaining essential functions of that job

Employer had a process for obtaining alternative jobs, employee failed to cooperate, including by failing to show up for a keyboard test required for a desk job


Court found that the employer was justified in not returning the employee to his previous job and in not offering any other job because the employee had failed to cooperate in the interactive process


So, what does this mean?Employers should have a procedure for the

interactive process and document that options are made available to and discussed with disabled employees

If the employee fails to cooperate, the employer may be justified in not accommodating the employee

2004LABOR AND EMPLOYMENTLEGAL UPDATE

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2004 LABOR AND EMPLOYMENT LEGAL UPDATE